Our success to date has resulted in part from the significant contributions of our executive officers. Our executive officers are expected to continue to make important contributions to our success. As of September 30, 2017, certain of our officers are under employment contracts. However, we do not maintain "key person" life insurance on any of our executive officers. Loss for any reason of the services of our key personnel could materially affect our operations.

~~We may not be fully covered by the insurance we procure and our business could be adversely impacted if we were not able to renew all of our insurance plans.~~

Although we carry multiple lines of liability insurance (including coverage for medical malpractice and workers' compensation), they may not be sufficient to cover the total cost of any judgments, settlements or costs relating to any present or future claims, suits or complaints. If we are unable to secure renewal of our insurance contracts or the renewal of such contracts with favorable rates and with competitive benefits, our business could be adversely affected. In addition, sufficient insurance may not be available to us in the future on satisfactory terms or at all. Our placement of employees increases our potential liability for negligence and professional malpractice and such liabilities may not become immediately apparent. Any increase in our costs of insurance will impact our profitability to the extent that we cannot offset these increases into our costs of services. If the insurance we carry is not sufficient to cover any judgments, settlements or costs relating to any present or future claims, suits or complaints, our business, financial condition, results of operations and liquidity could be materially adversely affected.

~~Our financial condition may be affected by increases in employee healthcare claims and insurance premiums, unemployment taxes and workers' compensation claims and insurance rates.~~

Our current workers' compensation and medical plans are partially self-funded insurance programs. The Company currently pays base premiums plus actual losses incurred, not to exceed certain individual and aggregate stop-loss limits. In addition, health insurance premiums, state unemployment taxes and workers' compensation rates for the Company are in large part determined by our claims experience. These categories of expenditure comprise a significant portion of our direct costs. If we experience a large increase in claim activity, our direct expenditures, health insurance premiums, unemployment taxes or workers' compensation rates may increase. Although we employ internal and external risk management procedures in an attempt to manage our claims incidence and estimate claims expenses and structure our benefit contracts to provide as much cost stability as reasonably possible given the self-funded nature of our plans, we may not be able to prevent increases in claim activity, accurately estimate our claims expenses or pass the cost of such increases on to our clients. Since our ability to incorporate such increases into our fees to our clients is constrained by contractual arrangements with our clients, a delay could occur before such increases could be reflected in our fees, which may reduce our profit margin. As a result, such increases could have a material adverse effect on our financial condition, results of operations and liquidity.

If we are unable to attract qualified personnel, our business may be negatively affected.

We rely heavily on our ability to attract and retain qualified professionals and other personnel who possess the skills, experience and licenses necessary in order to provide our solutions for our assignments. Our business is materially dependent upon the continued availability of such qualified personnel. Our inability to secure qualified personnel would have a material adverse effect on our business. The cost of attracting qualified personnel and providing them with attractive benefits packages may be higher than we anticipate and, as a result, if we are unable to pass these costs on to our clients, our profitability could

decline. Moreover, if we are unable to attract and retain qualified personnel, the quality of our services may decline and, as a result, we could lose clients.

~~We are exposed to increased costs and risks associated with complying with increasing and new regulation of corporate governance and disclosure standards.~~

Since the effectiveness for us of the Sarbanes-Oxley Act of 2002, we spend an increasing amount of management's time and resources (both internal and external) to comply with changing laws, regulations and standards relating to corporate governance and public disclosures. This compliance requires management's annual review and evaluation of our internal control systems. This process has caused us to engage outside advisory services and has resulted in additional accounting and legal expenses. We may encounter problems or delays in completing these reviews and evaluation and the implementation of improvements. If we are not able to timely comply with the requirements set forth in the Sarbanes-Oxley Act of 2002, we might be subject to sanctions or investigation by regulatory authorities. Any such action could materially adversely affect our business and our stock price.

~~We are highly dependent on the proper functioning of our information systems.~~

We are highly dependent on the proper functioning of our information systems in operating our business. Critical information systems used in daily operations match employee resources and client assignments and track regulatory credentialing. They also perform payroll, billing and accounts receivable functions. While we have multiple back up plans for these types of contingencies, our information systems are vulnerable to fire, storm, flood, power loss, telecommunication outages, physical or software break-ins and similar events. If our information systems become inoperable, or are otherwise unavailable, these functions would have to be accomplished manually, which in turn could impact our financial viability, due to the increased cost associated with performing these functions manually.

~~Our systems and networks may be subject to cybersecurity breaches.~~

Many of our operations rely heavily upon technology systems and networks to receive, input, maintain and communicate participant and client data pertaining to the programs we manage. If our systems or networks were compromised by a security breach, we could be adversely affected by losing confidential or protected information of program participants and clients, and we could suffer reputational damage and a loss of confidence from prospective and existing clients. Similarly, if our internal networks were compromised, we could be adversely affected by the loss of proprietary, trade secret or confidential technical and financial data. The loss, theft or improper disclosure of that information could subject the Company to sanctions under the relevant laws, lawsuits from affected individuals, negative press articles and a loss of confidence from our government clients, all of which could adversely affect our existing business, future opportunities and financial condition.

~~We may have difficulty identifying and executing acquisitions on favorable terms and therefore may grow at slower than anticipated rates.~~

One of our potential paths to key growth is to selectively pursue acquisitions. Through acquisitions, we may be able to expand our base of federal government customers, increase the range of solutions we offer to our customers and deepen our penetration of existing markets and customers. We may not identify and execute suitable acquisitions. To the extent that management is involved in identifying acquisition opportunities or integrating new acquisitions into our business, our management may be diverted from operating our core business. Without acquisitions, we may not grow as rapidly otherwise, which could cause our actual results to differ materially and adversely from those anticipated.

~~We may encounter other risks in regard to making acquisitions, including:~~

~~increased competition for acquisitions may increase the costs of our acquisitions;~~

non-discovery or non-disclosure of material liabilities during the due diligence process, including omissions by prior owners of any acquired businesses or their employees in complying with applicable laws or regulations, or their inability to fulfill their contractual obligations to the federal government or other customers; and

~~acquisition financing may not be available on reasonable terms or at all.~~

~~Any of these risks could cause our actual results to differ materially and adversely from those anticipated.~~

~~We may have difficulty integrating the operations of companies we acquire, which could cause actual results to differ materially and adversely from those anticipated.~~

The success of our acquisition strategy will depend upon our ability to successfully integrate any businesses we may acquire in the future. The integration of these businesses into our operations may result in unforeseen operating difficulties, absorb significant management attention and require significant financial resources that would otherwise be available for the ongoing development of our business. These integration difficulties include the integration of personnel with disparate business backgrounds, the transition to new information systems, coordination of geographically dispersed organizations, loss of key employees of acquired companies, and reconciliation of different corporate cultures. For these or other reasons, we may be unable to retain key customers of acquired companies. Moreover, any acquired business may not generate the revenue or net income we expected or produce the efficiencies or cost-savings we anticipated. Any of these outcomes could cause our actual results to differ materially and adversely from those anticipated.

If our subcontractors do not perform their contractual obligations, our performance as a prime contractor and our ability to obtain future business could be materially and adversely impacted and our actual results could differ materially and adversely from those anticipated.

Our performance of government contracts may involve the issuance of subcontracts to other companies upon which we rely to perform all or a portion of the work we are obligated to deliver to our customers. Unsatisfactory performance by one or more of our subcontractors to deliver on a timely basis the agreed-upon supplies, perform the agreed-upon services, or appropriately manage their vendors may materially and adversely impact our ability to perform our obligations as a prime contractor. A subcontractor’s performance deficiency could result in the government terminating our contract for default. A default termination could expose us to liability for excess costs of reprocurement by the government and have a material adverse effect on our ability to compete for future contracts and task orders. Depending upon the level of problem experienced, such problems with subcontractors could cause our actual results to differ materially and adversely from those anticipated.

Changes to U.S. tax laws may adversely affect our financial condition or results of operations and create the risk that we may need to adjust our accounting for these changes.

The accounting treatment of these tax law changes is complex, and some of the changes may affect both current and future periods. Consistent with guidance from the SEC, our consolidated financial statements reflect our estimates of the tax effects of the current tax laws and regulation.

Risks Relating to Our Information Technology Systems and Intellectual Property

We are highly dependent on the proper functioning of our information systems.

We are highly dependent on the proper functioning of our information systems in operating our business. Critical information systems used in daily operations match employee resources and client assignments and track regulatory credentialing. They also perform payroll, billing and accounts receivable functions. While we have multiple back up plans for these types of contingencies, our information systems are vulnerable to fire, storm, flood, power loss, telecommunication outages, physical break-ins, cyber-attack, ransomware, and similar events. If our information systems become inoperable, or are otherwise unavailable, these functions would have to be accomplished manually, which in turn could impact our financial viability, due to the increased cost associated with performing these functions manually.

Our systems and networks may be subject to cybersecurity breaches.

Many of our operations rely heavily upon technology systems and networks to receive, input, maintain and communicate participant and client data pertaining to the programs we manage. Any systems failures, whether caused by us, a third-party service provider, or unauthorized intruders and hackers, or due to situations such as computer viruses, natural disasters, or power shortages, could cause loss of data or interruptions or delays in our business or that of our customers. If our systems or networks were compromised by a security breach, we could be adversely affected by losing confidential or protected information of program participants and clients, and we could suffer reputational damage and a loss of confidence from prospective and existing clients. Similarly, if our internal networks were compromised, we could be adversely affected by the loss of proprietary, trade secret or confidential technical and financial data. The loss, theft or improper disclosure of that information could subject the Company to sanctions under the relevant laws, lawsuits from affected individuals, negative press articles and a loss of confidence from our government clients, all of which could adversely affect our existing business, future opportunities and financial condition. Further, our property and cyber insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our actual results could differ materially and adversely from those anticipated. In addition, in order to provide services to our customers, we often depend upon or use customer systems that are supported by the customer or third parties. Any security breach or system failure in such systems could result in an interruption of our customer’s operations which could cause us to experience significant delays under a contract, and a material adverse effect on our results of operations.

Additionally, a number of projects require us to receive, maintain and transmit protected health information or other types of confidential personal information. That information may be regulated by the Health Insurance Portability and Accountability Act (HIPAA), the Health Information Technology for Economic and Clinical Health Act of 2009, Internal Revenue Service regulations and other laws. The loss, theft or improper disclosure of that information could subject us to sanctions under these laws, breach of contract claims, lawsuits from affected individuals, negative press articles and a loss of confidence from our government clients, all of which could adversely affect our existing business, future opportunities and financial condition.

Failure to adequately protect, maintain, or enforce our rights in our intellectual property may adversely limit our competitive position.

We rely upon a combination of nondisclosure agreements and other contractual arrangements, as well as copyright, trademark, and trade secret laws to protect our proprietary information. We also enter into proprietary information and intellectual property agreements with employees, which require them to disclose any inventions created during employment, to convey such rights to inventions to us, and to restrict any disclosure of proprietary information. Trade secrets are generally difficult to protect. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of our confidential information and/or the infringement of our trademarks and copyrights. Further, we may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights. Failure to adequately protect, maintain, or enforce our intellectual property rights may adversely limit our competitive position.

We may face from time to time, allegations that we or a supplier or customer have violated the intellectual property rights of third parties. If, with respect to any claim against us for violation of third-party intellectual property rights, we are unable to prevail in the litigation or retain or obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices on a timely or cost-efficient basis, our business and competitive position may be adversely affected.

Any infringement, misappropriation or related claims, whether or not meritorious, are time consuming, divert technical and management personnel, and are costly to resolve. As a result of any such dispute, we may have to develop non-infringing intellectual property, pay damages, enter into royalty or licensing agreements, cease utilizing certain products or services, or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us.

Risks Relating to Acquisitions

We may have difficulty identifying and executing acquisitions on favorable terms and therefore may grow at slower than anticipated rates.

One of our potential paths to growth is to selectively pursue acquisitions. Through acquisitions, we may be able to expand our base of customers, increase the range of solutions we offer to our customers and deepen our penetration of existing markets and customers. We may not identify and execute suitable acquisitions. To the extent that management is involved in identifying acquisition opportunities or integrating new acquisitions into our business, our management may be diverted from operating our core business. Without acquisitions, we may not grow as rapidly otherwise, which could cause our actual results to differ materially and adversely from those anticipated.

We may encounter other risks in regard to making acquisitions, including:

•increased competition for acquisitions may increase the costs of our acquisitions;

•non-discovery or non-disclosure of material liabilities during the due diligence process, including omissions by prior owners of any acquired businesses or their employees in complying with applicable laws or regulations, or their inability to fulfill their contractual obligations to the federal government or other customers; and

•acquisition financing may not be available on reasonable terms or at all.

Any of these risks could cause our actual results to differ materially and adversely from those anticipated.

We may have difficulty integrating the operations of companies we acquire, which could cause actual results to differ materially and adversely from those anticipated.

The success of a potential future acquisition strategy depends upon our ability to successfully integrate the businesses. We may have difficulty integrating a business that we may acquire in the future. The integration of a business into our operations may result in unforeseen operating difficulties, absorb significant management attention and require significant financial resources that would otherwise be available for the ongoing development of our business. These integration difficulties include the integration of personnel with disparate business backgrounds, the transition to new information systems, coordination of geographically dispersed organizations, loss of key employees of acquired companies, and reconciliation of different corporate cultures. For these or other reasons, we may be unable to retain key customers of acquired companies. Moreover, any acquired business may not generate the revenue or net income we expected or produce the efficiencies or cost-savings we anticipated. Any of these outcomes could cause our actual results to differ materially and adversely from those anticipated.

We have a substantial amount of goodwill on our balance sheet. Future write-offs of goodwill may have the effect of decreasing our earnings or increasing our losses.

We have obtained growth through acquisitions of other companies and businesses. Under existing accounting standards, we are required to periodically review goodwill for possible impairment. In the event that we are required to write down the value of any assets under these pronouncements, it may materially and adversely affect our earnings. See the more detailed discussion appearing as part of our Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 herein.

Risks Relating to Our Outstanding Indebtedness

We have incurred debt in connection with ~~an acquisition~~acquisitions and we must make the scheduled principal and interest payments on the facility and maintain compliance with other debt covenants.

On ~~May 2, 2016,~~September 30, 2020, we entered into ~~a loan~~an amended and restated credit agreement with ~~Fifth Third~~First National Bank ~~under which the bank agreed to provide (i) a $25.0 million senior secured term loan~~of Pennsylvania and certain other lenders (the ~~“Term Loan”) with a five year maturity date and (ii) a two (2) year revolving loan facility in an aggregate amount of up to $10 million (the “Revolving Loan Facility”~~“Credit Agreement”). ~~Specifics of the loan agreement are discussed in Note 5 to this report.~~

The ~~loan agreement~~Credit Agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain ~~transactions. Among other matters, we must comply with~~transactions, including limitations on: granting liens; incurring other indebtedness; ~~maintenance of~~disposing assets; making investments in other ~~entities~~entities; and ~~extensions of credit;~~completing other mergers and ~~consolidations; and changes in nature of business.~~consolidations. Also, the ~~loan agreement~~Credit Agreement requires us to comply with certain financial covenants including a minimum fixed charge coverage ratio and a ~~Funded Indebtedness to Adjusted EBITDA~~maximum total leverage ratio. In addition, ~~to monthly payments of~~ the ~~outstanding indebtedness, the loan agreement~~Credit Agreement also requires prepayments of a percentage of excess cash ~~flow, as defined in the loan agreement.~~flow. Accordingly, a portion of our cash flow from operations ~~will be~~was dedicated to the repayment of our indebtedness and we expect future cash flow to be used to reduce our indebtedness.

The loan agreement provides for customary events of default, ~~following which the bank may, at its option, terminate the commitments under the loan agreement, stop making additional credit available, declare amounts outstanding,~~ including, ~~principal and accrued interest and fees, payable immediately, and enforce any and all rights and interests of the lenders. The defined events of default include,~~ among other things, a payment default, covenant default or defaults on other indebtedness or judgments in excess of a stipulated amount, change of control events, suspension or disbarment from contracting with the federal government and the material inaccuracy of our representations and warranties. If we are unable to make the scheduled principal and interest payments on the ~~loan agreement~~Credit Agreement or maintain compliance with other debt covenants, we may be in default under the loan agreement, which if not waived, could cause our debt to become immediately due and payable and enable the lenders to enforce their rights under the Credit Agreement. Such an event would likely have a material adverse effect on our business, financial condition and results of operations.

~~We have~~In addition, a ~~substantial amount~~transition away from the London Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the applicable interest rate may affect the cost of ~~goodwill~~servicing our debt under the Credit Agreement. The indebtedness outstanding under the Credit Agreement initially incurs interest based on ~~our balance sheet. Future write-offs~~LIBOR. In March 2021, the Financial Conduct Authority of ~~goodwill may have~~ the ~~effect of decreasing our earnings or increasing our losses.~~

We have previously obtained growth through acquisitions of other companies and businesses. Under existing accounting standards, we are required to periodically review goodwill assets for possible impairment. In the event that we are required to write down the value of any assets under these pronouncements, it may materially and adversely affect our earnings. See the more detailed discussion appearing as part of our Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 herein.

~~We have a significant amount of net operating loss carry forwards which we may not~~United Kingdom has announced that LIBOR will no longer be ~~able to utilize in certain circumstances.~~

~~At September 30, 2017, we had net operating losses, or NOLs, of approximately $31.5 million~~provided for the one-week and ~~$1.8 million for~~two-month U.S. ~~and state tax return purposes, respectively. Our U.S. NOLs begin to expire in~~dollar settings after December 31, 2021 and ~~continue to expire through 2033. Based upon~~that publication of the U.S. dollar settings for the overnight, one-month, three-month, six-month and 12-month LIBOR rates will cease after June 30, 2023. Although our ~~current estimate~~Credit Agreement provides for an alternative base rate, the consequences of ~~future taxable earnings, we expect to fully utilize these NOLs; however future taxable income may vary significantly from our current estimate.~~

~~We may~~the phase out of LIBOR cannot be ~~significantly impacted by proposed tax legislation.~~

~~Subsequent~~entirely predicted at this time. For example, if any alternative base rate or means of calculating interest with respect to our ~~fiscal year end, both branches~~outstanding indebtedness leads to an increase in the interest rates charged, it could result in an increase in the cost of ~~Congress passed major federal tax reform legislation. While the exact terms of the legislation will not be finalized until the reconciliation process is completed, the resulting bill may~~such indebtedness or otherwise have a material adverse impact toon our business. The tax effects resulting from any changes in tax laws or tax rates are not permitted to be recognized until the period that includes the enactment date, which will occur when a bill is signed into law,business, financial condition and subjected to the full legislative process. The Company is closely monitoring the proposed legislation and is prepared to quantify and recognize any potential impact in the period in which the legislation is enacted.results of operations.

Risks Relating Toto Our Corporate Structure and Capital Stock

Our stock price may be volatile and your investment in our common stock may suffer a decline in value.

The price of our common stock could be subject to fluctuations and may decline in the future due to risks defined herein, or ~~general~~due to factors beyond our control, including changes in market conditions such as increased interest rates, a recession, or a change in Federal spending priorities. Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock.

Since we have not paid dividends on our common stock, you cannot expect dividend income from an investment in our common stock.

We have not paid any dividends on our common stock since our inception and do not contemplate or anticipate paying any dividends on our common stock in the foreseeable future. Current lenders do and future potential lenders may prohibit us from paying dividends without ~~its~~ prior consent. Therefore, holders of our common stock may not receive any dividends on their investment in us. Earnings, if any, may be retained and used to finance the development and expansion of our business.

We may issue preferred stock with rights senior to our common stock, which may adversely impact the voting and other rights of the holders of our common stock.

Our certificate of incorporation authorizes the issuance of "blank check" preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors up to an aggregate of 5,000,000 shares of preferred stock. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights, which would adversely affect the voting power or other rights of the holders of our common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our Company, which could have the effect of discouraging bids for our Company and thereby prevent stockholders from receiving the maximum value for their shares. Although we have no present intention to issue any shares of our preferred stock, in order to discourage or delay a change of control of our Company, we may do so in the future. In addition, we may determine to issue preferred stock in connection with capital raising efforts and the terms of the stock so issued could have special voting rights or rights related to the composition of our Board.

The exercise of our outstanding common stock options and warrants may depress our stock price and dilute your ownership of the ~~company.~~Company.

~~As of September 30, 2017,~~To the ~~following~~extent that options and warrants are exercised or the restricted stock units vest, dilution to our shareholders will occur. We cannot foresee the impact of any potential sales of our common shares on the market, but it is possible that if a significant percentage of such available shares were ~~outstanding:~~

~~Executive and employee options~~attempted to ~~purchase 1.99 million~~be sold within a short period of time, the market for our shares ofwould be adversely affected. It is also unclear whether or not the market for our common stock ~~1.33 million~~could absorb a large number of attempted sales in a short period of time. Moreover, the terms upon which ~~are vested and immediately exercisable. The weighted average~~we will be able to obtain additional equity capital may be adversely affected, since the holders of these securities can be expected to exercise ~~price of~~them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the ~~outstanding stock options is $3.83 per share.~~

~~Warrants issued to Wynnefield Capital to purchase 53,619 shares of common stock with an~~ exercise ~~price of $3.73 per share.~~

terms provided by those securities. To the extent that these securities are exercised, dilution to our shareholders will occur. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of these securities can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the exercise terms provided by those securities.

Anti-takeover provisions in our Articles of Incorporation make a change in control of our Company more difficult.

The provisions of our Articles of Incorporation and the New Jersey Business Corporation Act, together or separately, could discourage potential acquisition proposals, delay or prevent a change in control and limit the price that certain investors might be willing to pay in the future for our common stock. Among other things, these provisions:

•require certain supermajority votes; and

•establish certain advance notice procedures for nomination of candidates for election as directors and for shareholders' proposals to be considered at shareholders' meetings.

In addition, the New Jersey Business Corporation Act contains provisions that, under certain conditions, prohibit business combinations with 10% shareholders and any New Jersey corporation for a period of five years from the time of acquisition of shares by the 10% shareholder. The New Jersey Business Corporation Act also contains provisions that restrict certain business combinations and other transactions between a New Jersey corporation and 10% shareholders.

Our executive officers, directors and significant stockholders will be able to influence matters requiring stockholder ~~approval~~approval.

As of September 30, ~~2017,~~2021, our executive officers, directors and largest shareholder (Wynnefield Capital, Inc. and its affiliates) own approximately ~~47%~~44% of our outstanding common stock. Within this amount, Wynnefield Capital, Inc. and its affiliates own approximately ~~37%~~31% of our outstanding common stock. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of ~~our company,~~the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale or merger of our company and may negatively affect the market price of our common stock. These transactions might include proxy contests, tender offers, mergers or other purchases of common stock that could give our stockholders the opportunity to realize a premium over the then-prevailing market price for shares of our common stock.

In addition, persons associated with Wynnefield Capital, Inc. currently serve on our Board of Directors. As a result of this share ownership and relationships on our Board of Directors, our largest stockholder will be able to influence all affairs and actions of our company, including matters requiring stockholder approval such as the election of directors and approval of significant corporate transactions. The interests of our principal stockholders may differ from the interests of the other stockholders.

General Business Risks

We may experience fluctuations in our revenues and operating results from period to period.

Our revenue and operating results may fluctuate significantly and unpredictably in the future. We have expended, and will continue to expend, substantial resources to enhance our health services offerings and expansion into the Federal health market. We may incur growth expenses before new business revenue is realized, thus showing lower profitability in a particular period or consecutive periods. Other factors which may cause our cash flows and results of operations to vary from quarter to quarter include: the terms and progress of contracts; expenses related to certain contracts which may be incurred in periods prior to revenue being recognized; the commencement, completion or termination of contracts during any particular quarter; the timing and terms of award contracts; and government budgetary delays or shortfalls. We may be unable to achieve desired levels of revenue growth due to circumstances that are beyond our control, as already expressed regarding competition, government budgets, and the procurement process in general. In particular, if the federal government does not adopt, or delays adoption of, a budget for each fiscal year beginning on October 1, or fails to pass a continuing resolution, federal agencies may be forced to suspend our contracts and delay the award of new and follow-on contracts and orders due to a lack of funding. Also, some aspects of this work can be seasonal with regard to resources and funding and it is difficult to predict the timing of when those resources will be expended. Although we continue to manage our operating costs and expenses, there is no guarantee that we will significantly increase future revenue and profit in any particular future period. Revenue levels achieved from our customers, the mix of solutions that we offer and our performance on future contracts will affect our financial results. Further, changes in the volume of activity and the number of contracts commenced, completed or terminated during any quarter may cause significant variations in our cash flows and results of operations. Therefore, period-to-period comparisons of our operating results may not be a good indication of our future performance.

Our profits and revenues could suffer if we are involved in legal proceedings, investigations, and disputes.

We are exposed to legal proceedings, investigations and disputes. In addition, in the ordinary course of our business we may become involved in legal disputes regarding personal injury or employee disputes. While we provide for these types of incidents through commercial third-party insurance carriers, we often defray these types of cost through higher deductibles. Any unfavorable legal ruling against us could result in substantial monetary damages by losing our deductible portion of carried insurance. We maintain insurance coverage as part of our overall legal and risk management strategy to lower our potential liabilities. If we sustain liabilities that exceed our insurance coverage or for which we are not insured, it could have a material adverse impact on our results of operations, cash flows and financial condition, including our profits, revenues and liquidity.

We are dependent upon certain of our management personnel and do not maintain "key personnel" life insurance on our executive officers.

Our success to date has resulted in part from the significant contributions of our executive officers. Our executive officers are expected to continue to make important contributions to our success. As of September 30, 2021, certain of our officers are under employment contracts. However, we do not maintain "key personnel" life insurance on any of our executive officers. Loss for any reason of the services of our key personnel could materially affect our operations.

We may not be fully covered by the insurance we procure and our business could be adversely impacted if we were not able to renew all of our insurance plans.

Although we carry multiple lines of liability insurance (including coverage for medical malpractice and workers' compensation), they may not be sufficient to cover the total cost of any judgments, settlements or costs relating to any present or future claims, suits or complaints. If we are unable to secure renewal of our insurance contracts or the renewal of such contracts with favorable rates and with competitive benefits, our business could be adversely affected. In addition, sufficient insurance may not be available to us in the future on satisfactory terms or at all. Further, the fact that the majority of our employees are located at customer locations increases our potential liability for negligence and professional malpractice and such liabilities may not become immediately apparent. Any increase in our costs of insurance will impact our profitability to the extent that we cannot offset these increases into our costs of services. If the insurance we carry is not sufficient to cover any judgments, settlements or costs relating to any present or future claims, suits or complaints, our business, financial condition, results of operations and liquidity could be materially adversely affected.

Our financial condition may be affected by increases in employee healthcare claims and insurance premiums, and workers' compensation claims and insurance rates.

Our current workers' compensation and medical plans are partially self-funded insurance programs. The Company currently pays base premiums plus actual losses incurred, not to exceed certain individual and aggregate stop-loss limits. In addition, health insurance premiums, and workers' compensation rates for the Company are in large part determined by our claims experience. These categories of expenditure comprise a significant portion of our direct costs. If we experience a large increase in claim activity, our direct expenditures, health insurance premiums, unemployment taxes or workers' compensation rates may increase. Although we employ internal and external risk management procedures in an attempt to manage our claims incidence and estimate claims expenses and structure our benefit contracts to provide as much cost stability as reasonably possible given the self-funded nature of our plans, we may not be able to prevent increases in claim activity, accurately estimate our claims expenses or pass the cost of such increases on to our clients. Since our ability to incorporate such increases into our fees to our clients is constrained by contractual arrangements with our clients, a delay could occur before such increases could be reflected in our fees, which may reduce our profit margin. As a result, such increases could have a material adverse effect on our financial condition, results of operations and liquidity.

We may be subject to fines, penalties and other sanctions if we do not comply with laws governing our business.

Our business lines operate within a variety of complex regulatory schemes, including but not limited to the FAR, Federal Cost Accounting Standards, the Truth in Negotiations Act, as well as the regulations governing accounting standards. If a government audit finds improper or illegal activities by us or we otherwise determine that these activities have occurred, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or disqualification from doing business with the government. Any adverse determination could adversely impact our ability to bid in response to RFPs in one or more jurisdictions. Further, as a government contractor subject to the types of regulatory schemes described above, we are subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities to which private

sector companies are not, the result of which could have a material adverse effect on our operating results, cash flows and financial condition.

We are exposed to increased costs and risks associated with complying with increasing and new regulation of corporate governance and disclosure standards.

Since the implementation of the Sarbanes-Oxley Act of 2002, we spend a significant amount of management's time and resources (both internal and external) to comply with changing laws, regulations and standards relating to corporate governance and public disclosures. This compliance requires management's annual review and evaluation of our internal control systems. This process has caused us to engage outside advisory services and has resulted in additional accounting and legal expenses. We may encounter problems or delays in completing these reviews and evaluation and the implementation of improvements. If we are not able to timely comply with the requirements set forth in the Sarbanes-Oxley Act of 2002, we might be subject to sanctions or investigation by regulatory authorities. Any such action could materially adversely affect our business and our stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments.

ITEM 2. PROPERTIES

~~Operations~~We do not own any real estate or other properties. As of September 30, 2021, we operate five locations in the United States and ~~Facilities~~

~~DLH's~~one location in Kampala, Uganda; occupying a total of approximately 118 thousand square feet. The Company's corporate headquarters ~~are~~is located at 3565 Piedmont Road NE, Building 3 Suite 700, Atlanta, Georgia ~~30305. The Company maintains~~30305, we presently maintain a National Capital Region office in Silver Spring, Maryland. All of our offices are in reasonably modern and well-maintained buildings and we believe that our facilities are adequate for present operations and the foreseeable future. Our leases expire between 2022 and 2031.

InFor the fiscal year ended September 30, ~~2017, DLH's~~2021, the Company's total lease expense ~~for operations~~ was approximately ~~$1.1~~$3.5 million. See Note 6. Leases in the Consolidated Financial Statements contained in the Annual Report on Form 10-K for additional information regarding our lease commitments.

~~The following is summary information on DLH's facilities as of September 30, 2017:~~

($ in thousands)
Location Approximate Square Feet Approximate Annual Lease Expense Expiration Date

Corporate Headquarters
3565 Piedmont Road, NE, Building 3, Suite 700 12,275
$306 4/30/2024
Atlanta, GA 30305

National Capital Region Office
8737 Colesville Road, Suite 1100 22,400
$623 4/30/2020
Silver Spring, MD 20910

ITEM 3. LEGAL PROCEEDINGS

As a commercial enterprise and employer, the Company is subject to various claims and legal actions in the ordinary course of business. These matters can include professional liability, employment-relations issues, workers’ compensation, tax, payroll and employee-related matters, other commercial disputes arising in the course of its business, and inquiries and investigations by governmental agencies regarding our employment practices or other matters. The Company is not aware of any pending or threatened litigation that it believes is reasonably likely to have a material adverse effect on its results of operations, financial position or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Principal Market

Our common stock is currently traded on The Nasdaq Capital Market under the symbol "DLHC."

~~Market Information~~

~~The ranges of high and low sales prices for the Company's common stock for the periods indicated below are:~~

~~Common Stock~~

FISCAL YEAR 2017 LOW HIGH
1st Quarter $ 4.47
$ 7.38
2nd Quarter $ 4.61
$ 6.72
3rd Quarter $ 4.10
$ 6.36
4th Quarter $ 5.33
$ 6.49

FISCAL YEAR 2016 LOW HIGH
1st Quarter $ 1.89
$ 4.47
2nd Quarter $ 2.50
$ 4.38
3rd Quarter $ 3.51
$ 5.32
4th Quarter $ 4.32
$ 5.72

The above quotations reported by Nasdaq, represent prices between dealers and do not include retail mark-ups, markdowns or commissions. Such quotations do not necessarily represent actual transactions. On September 29, 2017, the Company's common stock had a closing price of $6.48 per share.

Dividends

The Company has not declared or paid any cash dividends on its common stock since inception and has no present intention of paying any cash dividends on its common stock in the foreseeable future.

Approximate Number of Equity Security Holders

As of September 30, ~~2017,~~2021, there were ~~11,767,369~~12,714,269 shares of common stock outstanding held of record by approximately ~~146~~93 persons. The number of stockholders of record is not representative of the number of beneficial stockholders due to the fact that many shares are held by depositories, brokers, or nominees. As of September 30, ~~2017,~~2021, the Company estimates that there are approximately ~~1,423~~1,300 beneficial owners of its common stock.

Sales of Unregistered Securities

During the period covered by this report, the Company did not issue any securities that were not registered under the Securities Act of 1933, as amended, except as has been reported in previous filings with the SEC or as set forth elsewhere herein.

Registrant Repurchases of Securities

In August 2021, in connection with exercise of employee stock options, a holder of options surrendered to the company a total of 6,314 shares of our common stock already held by him in partial consideration of the payment of the exercise price of such options. Such event is reflected on the table below.


					($ in thousands)
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Programs	Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program
July 2021	—	$	—	—	$	—
August 2021	6,314	10.75		—	—
September 2021	—	—		—	—
Total	6,314	10.75		—	$	—

Securities Authorized for Issuance under Equity Compensation Plans

~~DLH~~The Company presently utilizes one shareholder-approved equity compensation plan under which it makes equity compensation awards available to officers, directors, employees and consultants. The table set forth below discloses outstanding and available awards under our equity compensation plans as of September 30, ~~2017.~~2021. All grants of equity securities made to executive officers and directors are presently made under the 2016 Omnibus Equity Incentive Plan (the “2016 Plan”). Prior to the adoption of the 2016 Plan, awards of equity securities were made under the 2006 Long Term Incentive Plan.

Equity Compensation Plan Information
Plan Category
(a)
Number of Securities
to be issued
upon exercise of
outstanding options,
warrants and rights

(b)
Weighted Average
exercise price of
outstanding options,
warrants and rights
(or fair value at
date of grant)

(c)
Number of securities
remaining available for
future issuances under
equity compensation
plans (excluding securities
reflected in column (a))
Equity Compensation Plans Approved by Security Holders:

Employee stock options 1,993,500
$ 3.83
506,250

~~Registrant Repurchases of Securities~~

On September 18, 2013, the Company announced that our Board of Directors authorized a stock repurchase program (the Program) under which we could repurchase up to $350 thousand of shares of our common stock through open market transactions in compliance with Securities and Exchange Commission Rule 10b-18, privately negotiated transactions, or other means. This repurchase program does not have an expiration date.

During fiscal fourth quarter ended September 30, 2017, the Company did not repurchase any shares of its common stock pursuant to the program. As of September 30, 2017 there is a total of $77 thousand remaining for repurchases under the program.

~~The following table provides certain information with respect to the status of our stock repurchase program as of fourth quarter ended September 30, 2017:~~

Equity Compensation Plan Information

Plan Category

(a)
Number of Securities
to be issued
upon exercise of
outstanding options,
warrants and rights

(b)
Weighted Average
exercise price of
outstanding options,
warrants and rights
(or fair value at
date of grant)

(c)
Number of securities
remaining available for
future issuances under
equity compensation
plans (excluding securities
reflected in column (a))

Equity Compensation Plans Approved by Security Holders:

Employee stock options

2,373,500

7.77

1,730,850

($ in thousands)
Period Total Number
of Shares
Purchased Average Price
Paid Per Share Total Number of
Shares Purchased As Part of Publicly
Announced Programs Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program
July 2017 —
$ —
—
$ 77

August 2017 —
$ —
—
$ 77

September 2017 —
$ —
—
$ 77

Fourth Quarter Total —
$ —
—
$ 77

ITEM 6. SELECTED FINANCIAL DATA

We are a "smaller reporting company" as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking and Cautionary Statements

You should read the following discussion in conjunction with the ~~Condensed~~ Consolidated Financial Statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K for the year ended September 30, ~~2017.~~2021. This discussion contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements contained in this Management’s Discussion and Analysis are forward-looking statements that involve risks and uncertainties. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry and business. Our actual results could differ materially from the results contemplated by these forward-looking statements.

Business Overview:

~~DLH is~~We are a provider of technology-enabled business process outsourcing and program management solutions, and public health research and analytics; primarily focused to improve and better deploy large-scale federal health and human service initiatives. ~~DLH derives 100%~~We derive 99% of ~~its~~our revenue from agencies of the Federal government, providing services to several agencies including the Department of Veteran Affairs ("VA"), Department of Health and Human Services ("HHS"), and the Department of Defense ("DoD").

~~Publicly traded with more than 1,400 employees working in over~~In recent years we have successfully completed acquisitions to increase future organic growth, diversify our customer base, and to expand into adjacent markets. On June 7, 2019 we acquired Social & Scientific Systems, Inc. ("S3") and on September 30, ~~locations throughout the United States, DLH was recently recognized by GovWin IQ as a top service provider in the Health Services Spending category.~~2020, we acquired Irving Burton Associates, LLC ("IBA").

Our business offerings are ~~now focused on~~aligned to three ~~primary sources of revenue~~market focus areas within the ~~Federal~~federal health services market ~~space, as follows:~~space.

~~Department of~~ •Defense and ~~veteran health services,~~Veteran Health Solutions;

•Human Services and Solutions;

•Public Health and Life Sciences.

Major Customers

Our largest customer is the VA, which comprised approximately ~~62%~~$110.1 million and $100.2 million of revenue for the years ended September 30, 2021 and 2020, respectively. Our second largest customer, HHS, comprised approximately $91.5 million and $95.0 million of revenue for the years ended September 30, 2021 and 2020, respectively. We remain dependent upon the continuation of our ~~current business base;~~

~~Human services~~relationships with the VA and ~~solutions, approximately 34%~~HHS as a significant portion of our ~~current business base; and~~revenue is concentrated in a small number of contracts with these customers. As described in greater detail above in "Item 1 - Business - Major Contracts", our contracts with the VA are currently subject to renewal solicitations.

~~Public health and life sciences, approximately 4% of our current business base.~~

Forward Looking Business Trends:

~~DLH's~~Our mission is to ~~become the most~~expand our position as a trusted provider of technology-enabled healthcare and public health services, medical logistics, and readiness enhancement services to active duty personnel, ~~securing the freedom of our nation,~~ veterans, and civilian populations and communities. Our primary focus within the defense agency markets include military service ~~members~~members' and veterans' requirements for telehealth services, behavioral healthcare, medication therapy management, ~~health IT commodities,~~ process management, clinical systems support, and healthcare delivery. Our primary focus within the civilian agency markets ~~include~~includes healthcare and social programs delivery and readiness. These include compliance monitoring on large scale programs, technology-enabled program management, consulting, and digital communications solutions ensuring that

education, health, and social standards are being achieved within underserved and ~~at risk~~at-risk populations. We believe these business development priorities will position ~~DLH~~the Company to expand within top national priority programs and funded areas.

Recent significant contract award activity

As previously announced, we were recently awarded two short-term task orders under a FEMA contract to provide support for states seeking temporary medical staffing support and COVID-19 related community testing, vaccination and therapy. The ceiling value of these awards is approximately $107 million over base periods of three months, which will be largely earned in DLH's first quarter of fiscal year 2022. Further, our customer has exercised the first of three one month contract options on the medical staffing task order, which has additional value of approximately $35 million. This option is expected to be earned in DLH's second quarter of fiscal year 2022. Additional options may be exercised, and would be expected to impact the second quarter financial performance. We expect that our operating margin on these FEMA task orders will be approximately 5% of revenue. The FEMA contracts provide for advance payments for the substantial staffing resources that are required to be deployed; therefore, we do not expect these contracts to consume operating cash flow.

Federal budget outlook for fiscal ~~2018:~~year 2022:

The ~~President~~President’s budget proposal for fiscal year 2022 outlines many initiatives that include focusing on rebuilding and investing in our country’s physical infrastructure; expanding access to early childhood education; improving the affordability of child care and healthcare; and enacting broad tax reform. The budget also details additional proposals to expand economic opportunity, tackle the ~~United States' broad agenda calls~~climate crisis, ensure strong national defense, and invest in public health infrastructure. Specifically, the investment in public health infrastructure involves improving the nation’s readiness for ~~increased military~~future public health crises, expanding access to healthcare, and ~~in certain cases, domestic spending, with reduced spending on foreign programs. Most relevant~~defeating diseases and epidemics such as, but not limited to, ~~DLH’s targeted markets,~~ the ~~President advocates~~opioid and HIV/AIDs epidemics. We continue to carefully follow federal budget, legislative and contracting trends and activities and evolve our strategies to take these into consideration.

While Congress has not completed the ~~lifting of sequestration caps in~~final appropriation bills for the ~~defense sector; increasing infrastructure spending in~~government’s 2022 fiscal year, the ~~United States;~~Company continues to believe that its key programs benefit from bipartisan support and ~~tightening controls on immigration.~~

President Trump's plan to end the defense sequester and rebuild our military, without increasing the national debt, faces similar hurdles as those experienced during the Obama administration. Democratic leaders have thus far refused to increase money for military programs unless the increases are included for other non-defense programs. Barring a spending caps fix in the next few months, Congress will need to start planning fiscal 2018 with the assumption that those funding limits will stay in place.

A final FY2018 budget was not passed into law prior to October 1, 2017. Consequently, a continuing resolution (CR), H.R. was passed into law on September 8, 2017 and subsequently extended through December 22, 2017. The CR essentially continues funding at FY17 levels but will not allow for contracts for new services to be initiated. To continue operating after the CR December 22, 2017 expiration date, Congress will need to pass, and the President will need to sign, a new CR or more comprehensive budget bill. The Company does not ~~believe these measures will have~~expect a material impact on ~~our~~its current business base ~~for fiscal year 2018, however, any~~from budget negotiations. If the appropriations bills are not timely enacted, government agencies operate under a continuing resolution ("CR"), which may negatively impact our business due to delays in ~~addressing funding may delay~~new program starts, delays in contract award decisions, and other factors. On December 2, 2021, Congress passed and, on December 3, 2021, the ~~timing~~President signed, a CR providing funds to the federal government through February 18, 2022. When a CR expires, unless appropriations bills have been passed by Congress and signed by the President, or a new CR is passed and signed into law, the government must cease operations, or shutdown, except in certain emergency situations or when the law authorizes continued activity. We continuously review our operations in an attempt to identify programs potentially at risk from CRs so that we can consider appropriate contingency plans.

Our customer's missions have received broad support from the legislative and executive branches of ~~awards for new business.~~the federal government. As such, we do not anticipate or expect any significant changes to our operations.

Department of Veterans Affairs ~~(VA)~~("VA") health spending trends:

~~DLH~~The Company continues to see critical need for expanded health care solutions within our sector of the Federal health market, largely focused on the needs of veterans and their families. Serving ~~nearly~~over nine million veterans each year, the VA operates the nation's largest integrated health care system, with more than 1,700 hospitals, clinics, community living centers, readjustment counseling centers, and other facilities.

~~On July 27, 2017, the House~~The VA is requesting a total of ~~Representatives approved the Department of Defense Appropriations Act~~$269.9 billion for ~~the 2018~~ fiscal ~~year. The bill~~year 2022, a 10% increase above fiscal year 2021 enacted levels. It includes $117.2 billion in discretionary funding, ~~for the VA of $182.3 billion,~~ an increase of ~~$5.3~~$9.7 billion, ~~or 3% above~~and $152.7 billion in mandatory funding, an increase of $14.9 billion from fiscal year 2021. The VA research program is expected to allocate increased funding to advance the 2017 budgeted amounts. The fiscal 2018 VA funding includes Medical Care appropriations of approximately $69.0 billion, which is $5.7 billion (9.0%) above the 2017 budgeted level. The Senate Appropriations Committee approved a similar bill in July 2017. The Trump administration has expressed strong support for veterans and membersDepartment’s understanding of the ~~armed forces,~~impact of traumatic brain injury and wetoxic exposure(s) on long-term health outcomes, coronavirus related research and impacts, and precision oncology. The budget also includes $2.6 billion (from all funding sources) for the total telehealth program. The VA is continuing to expand this program because of its ability to leverage VA providers and to provide better services to veterans. We believe ~~there is a reasonable expectation that fiscal year 2018 funding will be consistent~~our capabilities and service delivery models are aligned with ~~the House bill.~~our customers growth initiatives.

Department of Health and Human Services ~~(HHS)~~("HHS") spending ~~trends~~:trends:

HHS is the principal federal department charged with protecting the health of all Americans and providing essential human services. ~~DLH~~The Company has existing contracts with multiple agencies under HHS, and we are actively pursuing growth opportunities within this vital agency.

~~HHS spending priorities are being evaluated by the Trump administration with particular focus on the Affordable Care Act programs which are outside of our market space.~~

~~On July 19, 2017 the House Appropriations Committee approved a draft funding bill~~The fiscal year 2022 budget request proposes $131.8 billion in discretionary budget authority for Labor, Health and Human Services and Education. The bill cuts funding to lower-priority programs, while targeting investments in medical research, and biodefense. The draft FY2018 funding bill proposedHHS, an increase of ~~$22~~$25 billion from the fiscal year 2021 appropriated amount, and $1.5 trillion in mandatory funding. The budget includes $52 billion for the National Institutes of Health ("NIH"), an agency of HHS, an increase of $9 billion above fiscal year 2021 enacted, reflecting the Administration’s commitment to increasing investments in transformative biomedical research to advance the health of the nation and promote innovation. The budget requests $37 million for Telehealth which is $3 million above fiscal year 2021 enacted, to promote health services and distance learning with telehealth technologies. The budget also invests in programs that improve the health and well-being of young children and their families. This includes $11.9 billion for the Office of Head ~~Start program.~~ Start. We believe our capabilities and past performance are well aligned with the service sought under this budget increase.

Department of Defense ("DoD") health spending trends:

The ~~Senate Appropriations Committee proposed~~Military Health System ("MHS") is one of the largest health care systems and a ~~similar bill, with Head Start~~preeminent military medical enterprise, serving over 9 million beneficiaries. As a part of the DoD, the Defense Health Agency manages a global health care network of military and civilian medical professionals, more than 400 military hospitals and clinics around the world, and supports the delivery of health services to MHS beneficiaries. The funding ~~held even~~and personnel to support the MHS’s mission is referred to as the Unified Medical Budget ("UMB"). The fiscal ~~2017. While~~year 2022 UMB request for the ~~new Administration’s budget priorities for HHS are evolving, Head Start has historically received strong bipartisan support.~~

~~Large defense companies divesting from Federal services market:~~

~~Large government contractors have been divesting~~Defense Health Program is $35.6 billion, an increase of $1.5 billion from the Federal services market to increase their focus on advanced military products, which typically generate higher margins than services. This trend may open up increased opportunities for smaller Federal service providers such as DLH.fiscal year 2021 appropriated amount.

Industry consolidation among federal government contractors:

There has been active consolidation and a strong increase in ~~M&A~~merger and acquisition activity among federal government contractors over the

past few years that is we expect to continue, ~~into fiscal year 2018 and beyond,~~ fueled by public companies leveraging strong

balance ~~sheets to pursue strategic acquisitions that supplement organic growth and create shareholder value.~~sheets. Companies often

look to acquisitions that augment core capabilities, contracts, customers, market differentiators, stability, cost synergies, and

higher margin and revenue streams. ~~We plan continued focus on our core capabilities, as we look at potential future strategic~~

~~acquisitions to grow our business and enhance shareholder value.~~

Potential ~~small business team opportunities:~~impact of federal contractual set-aside laws and regulations:

The Federal government has an overall goal of 23% of prime contracts flowing tothrough small businesses. As previously reported, various agencies within the federal government have policies that support small business ~~contractors, primarily through~~goals, including the ~~use~~adoption of ~~set-asides~~the “Rule of Two” by the VA, which provides that the agency shall award contracts by restricting competition for the contract to service-disabled or other veteran owned businesses. To restrict competition pursuant to this rule, the contracting officer must reasonably expect that at least two of these businesses, which are capable of delivering the services, will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States. When two qualifying small businesses cannot be identified, the VA may proceed to award contracts following a full and open bid process.

The Company believes that its past performance in ~~Federal agency RFPs (requests~~this market and track record of success provide a competitive advantage. However, the effect of set-aside provisions may limit our ability to compete for ~~proposal). As a part of our growth plan, DLH~~prime contractor positions on programs that we recompete or that we have targeted for growth. In these cases, the Company may elect to join a team with an eligible contractor as prime in support of such small businesses for specific pursuits that align with our core markets and corporate growth strategy.

~~Pending federal tax legislation:~~COVID-19 impact

~~Subsequent~~We are exposed to and impacted by macroeconomic factors and U.S. government policies. Current general economic conditions are highly volatile due to the COVID-19 pandemic, resulting in both market size contractions due to economic slowdowns and government restrictions on movement.We have seen continued demand for the services we provide under our current contract portfolio as the services we provide are largely deemed essential. While the pandemic has had minor offsetting impacts during fiscal 2021 due to social distancing and travel restrictions, we do not expect material adverse impacts from COVID-19 in the next fiscal year.

While we have been awarded contracts related to responding to the pandemic, such as awards to provide emergency medical services and community testing, vaccination and therapy services, the pandemic may cause reduced demand for certain services we provide, particularly if it results in a recessionary economic environment or the spending priorities of the U.S. government shift in ways adverse to our ~~fiscal year end, both branches~~business focus. Our ability to continue to operate without any significant negative impacts will in part depend on our continued ability to protect our employees. We have endeavored to follow recommended actions of ~~Congress passed major~~government and health authorities to protect our employees and were able to broadly maintain our operations. Additionally, we are complying with industry specific government directions that affect government contractors. As such, we have mandated that all employees receive an approved COVID-19 vaccination or apply for and receive an approved vaccine exception. Further, we have partnered with our clients to adopt particular measures to protect our employees at distribution centers, and we expect to execute on a remainder of our contracts through remote and teleworking arrangements. We intend to continue to work with government authorities and implement our employee safety measures to ensure that we are able to continue our operations during the pandemic. However, uncertainty resulting from the pandemic could result in an unforeseen disruption to our operations (for example a closure of a key distribution facility) that may not be fully mitigated. To date we have experienced continuity in the majority of our work for our government clients. While there has been postponements of events and challenges around some project work requiring travel, overall, our government clients have continued to require our services. We are unable to predict whether, and to what extent, this trend will continue. It would be reasonable to expect some deterioration of certain client activities due to COVID-19. The longer the duration of the pandemic, the more likely it is that it could have an adverse effect on our business, financial position, results of operations and/or cash flows. However, we also believe that we are likely to see additional demand from federal ~~tax reform legislation. A key feature~~agencies such as the FEMA, CDC and the NIH for our services.

Due to our ability to continue to perform under our contracts and our cash flow generation, we do not presently expect material liquidity constraints related to COVID-19. We are presently in compliance with all covenants in our term loan and have access to a revolving line of credit to meet any short-term cash needs that cannot be funded by operations. Further, we have not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic. For additional information on risk factors that could impact our results, please refer to “Risk Factors” in Part I, Item 1A of this legislation is a reduction of the corporate tax rate to 20%. While the exact terms of the legislation, including the effective date of the rate reduction, are subject to the reconciliation process, the resulting bill may have a material impact to our business. We estimate that the deferred tax asset of $9.6 million on our balance sheet as of September 30, 2017 would be reduced by $3 to $4 million to reflect the rate reduction, should the bill pass as currently proposed. We would continue to derive the cash flow benefit of tax net operating losses offsetting future taxable income, though at a lower rate. The tax provision on future earnings would be similarly reduced to reflect the new corporate tax rate.Form 10-K.

Results of Operations for Fiscal Year ~~2017~~2021 as Compared to Fiscal Year ~~2016~~2020

The following table summarizes, for the ~~periods~~years indicated, consolidated statements of operations data expressed in dollars in thousands except for per share amounts, and as a percentage of revenue:


	Year Ended								Change in
Consolidated Statement of Operations:	September 30, 2021				September 30, 2020				$		% of Rev
Revenue	$	246,094	100.0	%	$	209,185	100.0	%	$	36,909	—	%
Cost of operations
Contract costs	194,614		79.1	%	163,596		78.2	%	31,018		0.9	%
General and administrative costs	25,054		10.2	%	24,195		11.6	%	859		(1.4)	%
Corporate development costs	1,088		0.4	%	930		0.5	%	158		(0.1)	%
Depreciation and amortization	8,115		3.3	%	7,003		3.3	%	1,112		—	%
Total operating costs	228,871		93.0	%	195,724		93.6	%	33,147		(0.6)	%
Income from operations	17,223		7.0	%	13,461		6.4	%	3,762		0.6	%
Interest expense, net	3,784		1.6	%	3,441		1.6	%	343		—	%
Income before income taxes	13,439		5.4	%	10,020		4.8	%	3,419		0.6	%
Income tax expense	3,294		1.3	%	2,906		1.4	%	388		(0.1)	%
Net income	$	10,145	4.1	%	$	7,114	3.4	%	$	3,031	0.7	%
Net income per share - basic	$	0.81			$	0.58			$	0.23
Net income per share - diluted	$	0.75			$	0.54			$	0.20

Year Ended Change in
Consolidated Statement of Operations:
September 30, 2017 September 30, 2016 $ % of Rev
Revenue
$ 115,662
100.0 % $ 85,602
100.0 % $ 30,060
— %
Direct expenses
89,812
77.7 % 67,776
79.2 % 22,036
(1.5 )%
Gross margin
25,850
22.3 % 17,826
20.8 % 8,024
1.5 %
General and administrative expenses
17,466
15.1 % 12,518
14.6 % 4,948
0.5 %
Depreciation and amortization
1,754
1.5 % 1,244
1.5 % 510
— %
Income from operations
6,630
5.7 % 4,064
4.7 % 2,566
1.0 %
Interest expense
(1,228 ) (1.1 )% (823 ) (1.0 )% (405 ) (0.1 )%
Acquisition cost —
— % (795 ) (0.9 )% 795
0.9 %
Other income (expense), net
(1,228 ) (1.1 )% (1,618 ) (1.9 )% 390
0.8 %
Income before income taxes
5,402
4.6 % 2,446
2.9 % 2,956
1.7 %
Income tax expense (benefit), net 2,114
1.8 % (938 ) (1.1 )% 3,052
2.9 %
Net income $ 3,288
2.8 % $ 3,384
4.0 % $ (96 ) (1.2 )%

Net income per share-basic $ 0.29
$ 0.34
$ (0.05 )
Net income per share-diluted $ 0.27
$ 0.30
$ (0.03 )

Revenue

~~Revenues~~

~~Fiscal~~For the year ~~2017~~ended September 30, 2021 revenue was ~~$115.7~~$246.1 million, an increase of ~~$30.1~~$36.9 million or ~~35.1%~~17.6% over the prior year period. The increase is partially due ~~principally~~ to the inclusion of Irving Burton Associates, LLC. ("IBA"), acquired in September 2020, for the full year ~~impact~~in fiscal year 2021. IBA contributed $30.2 of ~~the acquisition completed in May 2016, which contributed $24.7 million and $5.4 million from continued~~revenue for fiscal year 2021. The remaining net growth was due to contract expansion on existing ~~contract vehicles resulting from program~~contracts and new contracts awarded during the fiscal year.

Cost of Operations

Contract costs primarily include the costs associated with providing services to our customers. These costs are generally comprised of direct labor and associated fringe benefit costs, subcontract cost, other direct costs, and the related management and ~~customer satisfaction with our services.~~

~~Direct Expenses~~

~~Direct expenses generally comprise direct labor (including benefits), taxes and insurance, workers compensation expense, subcontract cost, and other direct~~infrastructure costs. ~~Direct expenses for~~For the year ended September 30, ~~2017 were $89.8~~2021, contract costs increased by approximately $31.0 million anconsistent with the growth in revenues. The increase ~~of $22.0~~in contract costs was due to the IBA acquisition, growth on existing contracts, and new contracts awarded during the fiscal year.

General and administrative costs are for those employees not directly providing services to our customers, including but not limited to executive management, bid and proposal, accounting, and human resources. These costs increased as compared to the prior fiscal year by $0.9 million ~~or 32.5% over prior year due principally~~ to ~~increased professional service costs attributed to increased revenue.~~approximately $25.1 million primarily from the growth in revenues. As a ~~percentage~~percent of revenue, ~~direct expenses~~general and administrative costs decreased as we were ~~77.7%,~~able to increase operating leverage due to the acquisition and integration of IBA into the corporate structure.

Corporate development costs are incremental due diligence costs, such as legal and accounting fees. Fiscal year 2021 costs were due to a ~~favorable reduction of (1.5)% with~~transaction that was evaluated but was not executed. Costs incurred in fiscal year 2020 were due to the ~~improvement largely attributable to effective program management and cost efficiencies on existing contracts.~~IBA acquisition.

~~Gross Margin~~

~~Gross margin for~~For the year ended September 30, ~~2017 was~~2021, depreciation and amortization costs were approximately ~~$25.9~~$1.5 million ~~an increase of~~and $6.6 million, respectively, as compared to approximately ~~$8.0~~$2.2 million ~~or 45.0% over~~and $4.8 million for the prior fiscal year, on higher revenue and improved performance on contracts. As a percentage of revenue, our gross margin rate of 22.3% increased by 150 basis points, or 1.5%, over the prior year. Favorable gross margin results are due principally to expanded contribution from more differentiated contracts, and effective assignment of staff to deliver strong contract performance. We continue to focus on internal productivity measures to control costs and improve our gross margin.

~~General and Administrative Expenses~~

General and administrative (“G&A”) expenses primarily relate to functions such as operations overhead, corporate management, legal, finance, accounting, contracts administration, human resources, management information systems, and business development. Fiscal year 2017 G&A expenses were approximately $17.5 million, an aggregate increase of ~~$4.9 million or~~

~~39.5% over the prior year period. As a percent of revenue, G&A expenses were 15.1%, an increase of approximately 0.5% over prior year period.~~$1.1 million. The increase ~~in expenses reflects the impact of the 2016 acquisition as well as investment in business development and management resources to grow the Company's business.~~

~~Depreciation and Amortization~~

This category comprises non-cash expenditures related to depreciation on fixed assets and the amortization of acquired definite-lived intangible assets. As a professional services organization, DLH has not required significant expenditures on capital equipment and other fixed assets. For the twelve months ended September 30, 2017, depreciation and amortization were approximately $1.7 million,was principally due ~~principally~~ to the amortization of the acquired definite-lived intangible ~~assets.~~assets of IBA.

~~Income from Operations~~

Income from operations for the year ended September 30, 2017 was approximately $6.6 million, an increase of approximately $2.6 million over the prior fiscal year. The improvement is due principally to gross margin growth of $8.0 million, partially offset by expense growth of $4.9 million as described above.

~~Other Income (Expense),~~Interest Expense, net

~~Other income (expense),~~Interest expense, net, ~~typically~~ includes items such as, interest expense and amortization of deferred financing costs on debt ~~obligations, and other one-time or non-operational items that may contribute to other income or other expense depending upon the transaction.~~obligations. For the year ended September 30, ~~2017, other~~2021, interest expense, net, was ~~approximately $(1.2)~~$3.8 million compared to ~~other~~interest expense, net of ~~$(1.6)~~$3.4 million in the prior year, ~~a favorable expense decrease~~an increase of ~~$0.4~~approximately $0.3 million over the prior year period. ~~Current year other~~The increase in interest expense ~~primarily includes interest and deferred financing expenses. Prior year other expense, net, primarily includes non-operational~~was due to the $33.0 million increase to the senior term loan used to finance the acquisition ~~expense, interest and deferred financing expenses.~~of IBA.

Income ~~before Income Taxes~~Tax Expense

Income ~~before taxes~~tax expense for fiscal year ended September 30, ~~2017~~2021 was ~~approximately $5.4~~$3.3 million, ~~compared to $2.4 million for the prior year;~~ an increase of approximately ~~$3.0 million.~~$0.4 million from the prior fiscal year. The effective tax rate was 24.5% and 29% for the fiscal ~~year 2017 increase is due principally to the increased gross margin, offset in part by increased G&A expenses.~~

~~Income Tax Expense (Benefit)~~

~~Income tax expense of $2.1 million for fiscal year ended~~years ending September 30, 2017 compares to a benefit of $0.9 million in the prior year period. Prior year period included a $1.8 million deferred tax benefit related to the release of a portion of our valuation allowance, recorded to reflect the amount of our deferred tax asset that we expect to realize in future years.2021 and 2020 respectively.

~~Net Income~~

Net income for the year ended September 30, 2017 was approximately $3.3 million or $0.29 and $0.27 per basic and diluted share, respectively, compared to approximately $3.4 million for the prior year period, or $0.34 and $0.30 per basic and diluted share. While income before taxes increased by $3.0 million year over year, this increase was offset by an increase in income taxes year over year.

Non-GAAP Financial Measures for Fiscal ~~2017~~2021 and ~~2016~~2020

On a non-GAAP basis, Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) adjusted for other non-cash charges (“Adjusted EBITDA” for year ended September 30, 2017 was approximately $9.0 million, an increase of approximately $3.3 million, or 56.7%, over the prior fiscal year. This increase was due principally to improved gross margin of approximately $8.0 million, partially offset by expense growth of $4.9 million as previously described.

~~We use Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) adjusted for other items (“Adjusted EBITDA”)~~The Company uses EBITDA as a supplemental non-GAAP measures of our performance. ~~We define Adjusted~~The Company defines EBITDA as net ~~income/(loss) adjusted to exclude~~income excluding (i) interest ~~and other expenses, including acquisition expenses, net,~~expense, (ii) provision for or benefit from income taxes, if any, and (iii) depreciation ~~amortization,~~ and ~~loss on disposition~~amortization.

On a non-GAAP basis, Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) for the year ended September 30, 2021 was approximately $25.3 million, an increase of ~~fixed assets~~approximately $4.9 million, or 23.8%, over the prior fiscal year. This increase was principally due to the contribution of IBA and ~~(iv) G&A expenses — equity grants.~~effective management of general and administrative expenses.

We ~~exclude~~incurred $1.1 million of corporate development costs for the ~~following items in deriving Adjusted EBITDA:~~

~~Acquisition expenses are excluded~~year ended September 30, 2021, and $0.9 million in the ~~prior~~fiscal year ~~period.~~ended September 30, 2020. We ~~believe that~~are excluding corporate development costs from this measure because they were incurred as a result of specific events, do not reflect the costs of our operations, and can affect the period-over-period assessment of operating results. We are reporting this non-GAAP metric to demonstrate the impact of these ~~expenses allow for improved comparability of results from period to period.~~events.

~~Equity compensation is excluded because it is non-cash in nature. We believe that excluding this expense allows for improved comparability of results from period to period.~~

~~Non-GAAP~~These non-GAAP measures of our performance are ~~presented here and~~ used by management to conduct and evaluate its business during its regular review of operating results for the periods presented. Management and ~~the Company’s~~our Board utilize these non-GAAP measures to ~~help~~ make decisions about the use of ~~the Company’s~~our resources, analyze performance between periods, develop internal projections and measure ~~management~~management's performance. We believe that these non-GAAP measures ~~can be~~are useful to investors in evaluating ~~the Company’s~~our ongoing operating and financial results and understanding how such results compare with ~~the Company’s~~our historical performance. By providing this non-GAAP ~~measures~~measure as a supplement to GAAP information, we believe ~~we are enhancing investors’~~this enhances investors understanding of our business and ~~our~~ results of ~~operations.~~operations.

Reconciliation of GAAP net income to ~~adjusted~~ EBITDA, a non-GAAP ~~measure:~~measure (in thousands):



	Year Ended
	September 30,
	2021		2020		Change
Net income	$	10,145	$	7,114	$	3,031
(i) Interest expense, net:	3,784		3,441		343


(ii) Provision for taxes	3,294		2,906		388
(iii) Depreciation and amortization	8,115		7,003		1,112

EBITDA	$	25,338	$	20,464	$	4,874

Twelve Months Ended
September 30,
2017 2016 Change
Net income $ 3,288
$ 3,384
$ (96 )
(i) Interest and other (income) expense (net):
(i)(a) Interest and other expense 1,228
823
405
(i)(b) Acquisition expenses —
795
(795 )
(ii) Provision for taxes 2,114
(938 ) 3,052
(iii) Depreciation, amortization, and loss on fixed assets 1,754
1,244
510
(iv) G&A expenses - equity grants 662
466
196
Adjusted EBITDA $ 9,046
$ 5,774
$ 3,272

Reconciliation of GAAP net income to net income adjusted for the effect of the corporate development costs, a non-GAAP measure (in thousands except for per share amounts):



	Year Ended
	September 30,
	2021		2020		Change
Net income	$	10,145	$	7,114	$	3,031
Corporate development costs	1,088		930		158
Tax effect of excluding corporate development costs	(267)		(270)		3
Net income adjusted for corporate development costs	$	10,966	$	7,774	$	3,192

Net income per diluted share	$	0.75	$	0.54	$	0.21
Impact of corporate development costs, net	0.06		0.05		0.01
Net income per diluted share adjusted for corporate development costs	$	0.81	$	0.59	$	0.22

Liquidity and ~~capital management~~Capital Management

For the ~~twelve months~~year ended September 30, ~~2017,~~2021, the Company generated operating income of ~~$6.6~~approximately $17.2 million and net income of approximately ~~$3.3~~$10.1 million. Cash flows from operations totaled approximately ~~$6.5~~$45.7 million and ~~$6.0~~$19.5 million for the years ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively. ~~Increase~~The increase in cash ~~flow~~ from operations was principally due ~~principally~~ to ~~increased income from operations.~~improved collections on key contracts and an advance payment to fund deployment of emergency medical resources under the FEMA contract awarded in late September.

We used ~~$1.3~~less than $0.1 million and ~~$32.7~~$32.8 million of cash in investing activities during fiscal ~~2017~~years 2021 and ~~fiscal 2016,~~2020, respectively. ~~Payments~~The cash utilized was predominantly due to capital expenditures in fiscal ~~2016 primarily relate to~~year 2021 and the IBA acquisition of Danya International. Generally, we have relatively low capital expenditure requirements for our business, and expect these expenditures in the coming years to remain consistent with the levels reported in fiscal ~~2017, except as discussed above under "Forward Looking Business Trends, Industry consolidation among government contractors".~~year 2020.

Cash used in and provided by financing activities during the fiscal ~~year~~years ended September 30, ~~2017~~2021 and 2020 was ~~$3.7~~approximately $22.9 million ~~while cash provided by financing activities was $24.6 during the~~and $12.9 million, respectively. The activity in each fiscal year ~~ended~~was primarily the sourcing of capital to fund the IBA acquisition and early repayment of principal on our senior term loan. We entered into a $95 million credit facility on June 7, 2019 which included a $70.0 million term loan. We amended and restated the credit facility on September 30, ~~2016.~~2020 in connection with our acquisition of IBA. During the year ended September 30, ~~2017,~~2021, we had ~~net~~ repayments of ~~$3.75~~approximately $23.3 million under our credit ~~facility, compared~~facility. We expect to ~~total borrowing~~continue to use operating cash flow to pay outstanding debt.

A summary of ~~$23.4 million~~the change in ~~fiscal 2016 2017. The change was primarily related to proceeds we received to finance our acquisition of Danya International during the fiscal year ended September 30, 2016.~~

~~Sources of~~ cash and cash equivalents is presented below (in thousands):


	Year Ended
	September 30,
	2021		2020
Net cash provided by operating activities	$	45,665	$	19,451
Net cash used in investing activities	(44)		(32,830)
Net cash (used in) provided by financing activities	(22,927)		12,946
Net change in cash and cash equivalents	$	22,694	$	(433)

Sources of Cash and Cash Equivalents

As of September 30, ~~2017, the Company's~~2021, our immediate sources of liquidity include cash and cash equivalents of approximately $24.1 million, accounts receivable, and access to ~~its~~our secured revolving line of credit ~~facility with Fifth Third Bank.~~facility. This credit facility provides us with access of up to ~~$10.0~~$25.0 million, subject to certain conditions including eligible accounts receivable. As of September 30, 2021, we had unused borrowing capacity of $25.0 million. The Company's present operating liabilities are largely predictable and consist of vendor and payroll related obligations. ~~Our~~We believe that our current investment and financing obligations are adequately covered by cash generated from profitable ~~operations.~~

~~Management's assessment of cash~~operations and ~~cash equivalents at September 30, 2017~~

~~Management believes that: (a) cash and cash equivalents of approximately $4.9 million as of September 30, 2017; (b) the amount available under its line of credit~~ that ~~was in effect at September 30, 2017 (which is limited to the amount of eligible assets); and (c)~~ planned operating cash flow should be sufficient to support ~~the Company's~~our operations for twelve months from the date of issuance of these consolidated financial statements.

Loan Facility

A summary of our loan facilities and subordinated debt financing ~~for the period ended~~as of September 30, ~~2017~~2021 is as follows:

($ in Millions)

As of September 30, 2021

Lender

Arrangement

Loan Balance

Interest *

Maturity Date

First National Bank of Pennsylvania

Secured term loan (a)

46.8

LIBOR* + 3.5%

09/30/25

First National Bank of Pennsylvania

Secured revolving line of credit (b)

—

LIBOR* + 3.5%

09/30/25

($ in Millions)
As of September 30, 2017
Lender Arrangement Loan Balance Interest * Maturity Date
Fifth Third Bank Secured term loan $25 million ceiling (a) $ 19.7
LIBOR + 3.0% 05/01/21
Fifth Third Bank Secured revolving line of credit $10 million ceiling (b) $ —
LIBOR + 3.0% 05/01/18

* ~~Interest~~LIBOR rate as of September 30, ~~2017~~2021 was ~~1.24%~~0.08%. As of September 30, 2020, our LIBOR rate is subject to a minimum floor of 0.5%. The floor affects interest payments for periods after September 30, 2020.

(a) Represents the principal amounts payable on our ~~Term Loan with Fifth Third Bank.~~secured term loan. The ~~$25.0~~$70.0 million secured term loan ~~from Fifth Third Bank was funded at closing and~~ is secured by liens on substantially all of the assets of the Company. The principal of the ~~Term Loan~~term loan is payable in ~~fifty-nine consecutive monthly~~quarterly installments ~~of $312,500 beginning on June 1, 2016~~ with the remaining balance due on ~~May 1, 2021.~~September 30, 2025.

The ~~Term Loan agreement~~Credit Agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain transactions. Among other matters, we must comply with limitations on: granting liens; incurring other indebtedness; maintenance of assets; investments in other entities and extensions of credit; mergers and consolidations; and changes in nature of business. The loan agreement also requires us to comply with certain quarterly financial covenants including:

(i) a minimum fixed charge coverage ratio of at least ~~1.35~~1.25 to ~~1.0 commencing with the quarter ending June 30, 2016,~~1.00, and ~~for all subsequent periods, and~~

(ii) a Funded Indebtedness to Adjusted EBITDA ratio not exceeding the ratio of ~~3.25~~3.75:1.0 to 2.75:1.0 ~~for the period through September 30, 2017 to 2.5 to 1.0 for the period ending September 30, 2018~~ through maturity. Adjusted EBITDA ratio is calculated by dividing the Company's total interest-bearing debt by net income adjusted to exclude (i) interest and other expenses, ~~including acquisition expenses, net,~~ (ii) provision for or benefit from income taxes, if any, (iii) depreciation and amortization, and (iv) ~~G&A~~non-recurring charges, losses or expenses to include transaction and non-cash equity expense. The term loan has an interest rate spread range from 2.5% to 4.5% depending on the funded indebtedness to adjusted EBITDA ratio. We are in compliance with all loan covenants and restrictions.

We are required to pay quarterly amortization payments commencing in December 2020 through September 2025. The annual amount of principal amortization is based on a percentage of the loan balance at September 30, 2020. The annual amortization amounts are $7.0 million for fiscal years 2021 and 2022 and $8.75 million each for fiscal years 2023 - ~~equity grants.~~2025. The quarterly payments are in equal installments. During the year ended September 30, 2021, the Company made voluntary prepayments of $16.3 million, bringing the total amount paid on the secured term loan to $23.3 million. As of September 30, 2021, we have satisfied mandatory principal amortization until December 31, 2023.

In addition to ~~monthly~~quarterly payments of the outstanding indebtedness, the loan agreement also requires ~~prepayments~~annual payments of a percentage of excess cash flow, as defined in the loan agreement. ~~Accordingly,~~The loan agreement states that an excess cash flow recapture payment must be made equal to (a) 75% of the excess cash flow for the immediately preceding fiscal year in which indebtedness to consolidated EBITDA ratio is greater than or equal to 2.50:1.0; (b) 50% of the excess cash flow for the immediately preceding fiscal year in which the funded indebtedness to consolidated EBITDA Ratio is less than 2.50:1.0 but greater than or equal to 1.5:1.0; or (c) 0% of the excess cash flow for the immediately preceding fiscal year in which the funded indebtedness to consolidated EBITDA Ratio is less than 1.5:1.0. In addition, the Company must make additional mandatory prepayment of amounts outstanding based on proceeds received from asset sales and sales of certain equity securities or other indebtedness. Due to the voluntary prepayment of term debt, there was no excess cash flow payment required. For additional information regarding the schedule of future payment obligations, please refer to Note 11 Commitments and Contingencies.

On September 30, 2019, we executed a ~~portion~~floating-to-fixed interest rate swap, maturing in 2024, with First National Bank ("FNB") as counter party. The notional amount in the floating-to-fixed interest rate swap is $22.8 million at the end of fiscal year 2021 and $28.8 million at the end of fiscal year 2020. The remaining outstanding balance of our ~~cash flow from operations will be dedicated~~term loan is subject to interest rate fluctuations and the ~~repayment~~minimum LIBOR floor of ~~our indebtedness. DLH is fully compliant with all covenants under~~50 bps. On the ~~Loan Agreement with Fifth Third Bank.~~notional amount, the Company pays a fixed rate of 1.61%, plus applicable credit spread. As a result, for the year ended September 30, 2021, interest expense increased by approximately $0.4 million.

(b) The secured revolving line of credit ~~from Fifth Third Bank~~ has a ceiling of up to ~~$10.0~~$25.0 million. Borrowing on the line of credit is secured by liens on substantially all of the assets of the Company. The Company accessed funds from the revolving credit facility during the year, but has no outstanding balance at September 30, 2021.

The Company's total borrowing availability, based on eligible accounts receivables at September 30, ~~2017,~~2021, was ~~$9.9~~$25.0 million. ~~This capacity was comprised~~As part of ~~$0.6~~the revolving credit facility, the lenders agreed to a sublimit of $5 million ~~in a stand-by letter~~for letters of credit ~~and unused borrowing capacity~~for the account of ~~$9.3 million.~~the Company, subject to applicable procedures.

The revolving line of credit has a maturity date of September 30, 2025 and is subject to loan covenants as described ~~above in the Term Loan, and DLH~~above. The Company is fully compliant with those covenants.

Contractual Obligations as of September 30, ~~2017~~2021


															Payments Due By Period
				Payments Due By Period											Next 12		2-3		4-5		More than 5
Contractual obligations				Next 12		2-3		4-5		More than 5
(Amounts in thousands)	Ref	Total		Months		Years		Years		Years		(Amounts in thousands)	Total		Months		Years		Years		Years
Debt Obligations		$	19,688	$	3,750	$	7,500	$	8,438	$	—	Debt Obligations	$	46,750	$	—	$	8,250	$	38,500	$	—
Facility leases		3,693		929		1,567		652		545
Equipment operating leases		77		38		39		—		—
Facility Operating Leases												Facility Operating Leases	27,701		3,418		6,507		6,285		11,491

Equipment Operating Leases												Equipment Operating Leases	218		83		135		—		—
Total Obligations		$	23,458	$	4,717	$	9,106	$	9,090	$	545	Total Obligations	$	74,669	$	3,501	$	14,892	$	44,785	$	11,491

Certain costs incurred in the implementation of our Enterprise Resource Planning (ERP) system, including implementation labor, are capitalized as computer software costs. Costs incurred outside of the implementation stage are expensed as incurred. No amortization expense is recorded until the software is placed in service, after which the costs will be amortized on a straight-line basis over the estimated useful life of the software.

~~Intangible assets are estimated at a fair value and amortized on a straight-line basis over their assessed useful lives. The assessed useful lives of the assets are 10 years.~~

Income Taxes

~~DLH~~The Company accounts for income taxes in accordance with the liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the consolidated balance sheet when it is determined that it is more likely than not that the asset will be realized. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. The Company has ~~adequate~~fully utilized its net operating loss ~~carryforwards to offset against any taxable income in the current period. The Company recorded no valuation allowance as of September 30, 2017 and September 30, 2016, respectively.~~carryforwards.

Stock-based Equity Compensation

The Company uses the fair value-based method for stock-based equity compensation. Options issued are designated as either an incentive stock or a non-statutory stock option. No option may be granted with a term of more than 10 years from the date of grant. Option awards may depend on achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued common shares. All awards to employees and non-employees are recorded at fair value on the date of the grant and expensed over the period of vesting. The Company uses a Monte Carlo binomial and Black Scholes option pricing ~~model~~models to estimate the fair value of each stock option at the date of grant. Any consideration paid by the option holders to purchase shares is credited to capital stock.

New Accounting Pronouncements

A discussion of recently issued accounting pronouncements is described in Note 3 in of the ~~Notes~~accompanying notes to our Consolidated Financial Statements contained elsewhere in this Annual Report, and we incorporate such discussion by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~DLH does~~Except as described in this Item 7A, the Company has not ~~undertake~~engaged in trading practices in securities or other financial instruments and therefore does not have any material exposure to interest rate risk, foreign currency exchange rate risk, commodity price risk or other similar risks, which might otherwise result from such practices. ~~DLH~~The Company has limited foreign operations and therefore is not materially subject to fluctuations in foreign exchange rates, commodity prices or other market rates or prices from market sensitive instruments. ~~DLH believes it does not have~~On September 30 2019, we executed a ~~material~~floating-to-fixed interest rate ~~risk~~swap with ~~respect to~~FNB as counter party. The notional amount in the floating-to-fixed interest rate swap is $22.8 million at the end of fiscal year 2021. The remaining outstanding balance of our ~~prior workers’ compensation programs, for which funds were deposited into trust for possible future payments of claims. DLH does not believe the level of exposure~~term loan is subject to interest rate ~~fluctuations on its debt instruments is material given~~fluctuations. The Company has determined that a 1.0% increase to the ~~amount of~~LIBOR rate would incrementally impact our ~~debt is subject to LIBOR plus 3.0% applied~~interest expense by ~~the Lender.~~approximately $0.2 million per year. As of September 30, ~~2017~~2021, the ~~Lender's~~ interest rate was ~~4.24%~~3.58%.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

See attached Consolidated Financial Statements beginning on page F-1 attached to this Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our CEO and President and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, ~~has~~have concluded that, based on the evaluation of these controls and procedures, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our CEO and President and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management, including our CEO and President and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Our management, however, believes our disclosure controls and procedures are in fact effective to provide reasonable assurance that the objectives of the control system are met.

Management’s Report on Internal Control over Financial Reporting

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the ~~company;~~Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, ~~2017.~~2021. In making this evaluation, management used the 2013 framework on Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the COSO framework, ~~on Internal Control-Integrated Framework,~~ our management has concluded that our internal control over financial reporting was effective as of September 30, ~~2017.~~2021.

This annual report does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Controls over Financial Reporting

There have been no changes in ~~the Company’s~~our internal control over financial reporting (as defined in ~~Rule~~Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during the fourth ~~fiscal~~ quarter of our ~~Company’s~~ fiscal year ended September 30, ~~2017,~~2021, that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

~~On November 9, 2017, an aggregate of 93,125~~As previously reported, certain entities affiliated with Wynnefield Capital, Inc., the Company’s largest stockholder, owned warrants to purchase 53,619 shares of ~~Common Stock~~common stock exercisable at a price of $3.73 until November 2021. In October 2021, the holders of the ~~Company were granted to the non-employee members~~warrants exercised such warrants in full for 53,619 shares of common stock. The shares of common stock issued upon exercise of the ~~Company’s Board~~warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of ~~Directors, in accordance with~~ the ~~Company’s compensation policy for non-employee directors.~~Securities Act of 1933, as amended.

PART III

The Information required by Items 10, 11, 12, 13 and 14 of Part III of Form 10-K has been omitted in reliance on General Instruction G(3) and is incorporated herein by reference to our proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as set forth below:

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this ~~item~~Item with respect to our executive officers, is provided under the caption entitled "Executive Officers of the Company" in Part I of this Annual Report on Form 10-K and is incorporated by reference herein. The information required by this item with respect to our directors, board committees, and corporate governance matters will be set forth in our definitive Proxy Statement under the captions "Executive Officers," "Election of Directors," ~~"Section 16(a) Beneficial Ownership Reporting Compliance"~~ and "Corporate Governance" of the Proxy Statement, to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference to our Proxy Statement.

We have adopted a written code of business conduct and ethics, which applies to our principal executive officer, principal financial or accounting officer or person serving similar functions and all of our other employees and members of our board of directors. We did not waive any provisions of the code of business ethics during the year ended September 30, ~~2017.~~2021. Our code of business conduct and ethics is posted in the investor relations - corporate governance section of our website at www.dlhcorp.com. If we amend, or grant a waiver under, our code of business ethics that applies to our principal executive officer, principal financial or accounting officer, or persons performing similar functions, we intend to post information about such amendment or waiver on our website.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item will be set forth in our definitive Proxy Statement, to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference to our Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item will be set forth in our definitive Proxy Statement under the caption "Independent Registered Public Accounting Firm", to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference to our Proxy Statement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


~~(a)~~	~~(1) Financial Statements~~

(a)(1) Financial Statements

The financial statements and schedules of ~~DLH~~the Company are included in Part II, Item 8 of this report beginning on page F-1.


~~(a)~~	~~(2) Financial Statement Schedule~~

(a)(2) Financial Statement Schedule

All schedules have been omitted since the required information is not applicable or because the information required is included in the Consolidated Financial Statements or the notes thereto.


~~(a)~~	~~(3) Exhibits~~

(a)(3) Exhibits

The exhibits designated with an asterisk (*) are filed herewith. All other exhibits have been previously filed with the Commission and, pursuant to 17 C.F.R. Secs. 20l.24 and 240.12b-32, are incorporated by reference to the document referenced in brackets following the descriptions of such exhibits. The exhibits designated with a number sign (#) indicate a management contract or compensation plan or arrangement.

~~F-6~~

F-8

DLH HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2017~~2021

1. Basis of Presentation

The accompanying ~~unaudited~~ consolidated financial statements include the accounts of DLH Holdings Corp. and its subsidiaries (together with its subsidiaries, "DLH" or the "Company" and also referred to as "we," "us," and "our"), all of which are ~~wholly owned.~~wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and with the instructions to Form 10-K, Regulation S-X, and Regulation S-K.

2. Business Overview

~~DLH~~The Company is a full-service provider of ~~professional healthcare~~technology-enabled health and ~~social~~human services, providing solutions to ~~government agencies including the Department of Veteran Affairs ("VA"), Department of~~3 market focus areas: Defense and Veterans' Health Solutions, Human Solutions and Services, and Public Health and ~~Human Services ("HHS"), Department of Defense ("DoD"),~~Life Sciences. We deliver domain-specific expertise, industry best-practices and ~~other government agencies. DLH Holdings Corp. (together with its subsidiaries, "DLH" or the "Company"~~innovations to customers across these markets leveraging 7 core competencies: secure data analytics, clinical trials and ~~also referred to as "we," "us"~~laboratory services, case management, performance evaluation, system modernization, operational logistics and ~~"our")~~readiness, and strategic digital communications. The Company manages its operations from its principal executive offices ~~at 3565 Piedmont Road NE, Building 3 Suite 700,~~in Atlanta, Georgia, ~~30305.~~and we have a complementary headquarters office in Silver Spring, Maryland. We employ over ~~1,400~~2,300 skilled employees working in more than 30 locations throughout the United ~~States.~~States and 1 location overseas.

~~Presently,~~At present, the Company derives ~~100%~~99% of its revenue from agencies of the Federal government, primarily as a prime contractor but also as a subcontractor to other Federal prime contractors. A major customer is defined as a customer from whom the Company derives at least 10% of its revenues. Our 3 largest customers are the Department of Veteran Affairs ("VA"), the Department of Health and Human Services ("HHS"), and the Department of Defense ("DoD").

~~Our largest~~The following table summarizes the revenues by customer ~~continues to be the VA, which comprised approximately 62% and 72% of revenue~~ for the ~~twelve months~~years ended September 30, ~~2017~~2021 and 2016, respectively. Additionally, HHS represents a major customer, comprising 34% and 13% of revenue for the twelve months ended September 30, 2017 and 2016, respectively. Substantially all accounts receivable, including unbilled accounts receivable, are from agencies of the U.S. Government as of September 30, 2017 and 2016. We believe that the credit risk associated with our receivables is limited due to the creditworthiness of these customers. See Note 4, Supporting Financial Information-Accounts Receivable.2020, respectively:

As of September 30, 2017, awards from VA and HHS have anticipated periods of performance ranging from approximately one to up to three years. These agreements are subject to the Federal Acquisition Regulations. While there can be no assurance as to the actual amount of services that the Company will ultimately provide to VA and HHS under its current contracts, we believe that our strong working relationships and our effective service delivery support ongoing performance for the contract term. The Company's results of operations, cash flows and financial condition would be materially adversely affected in the event that we were unable to continue our relationship with VA or HHS.


	Year Ended
	September 30,
	2021				2020
(Amounts in thousands)	Revenue		Percent of total revenue		Revenue		Percent of total revenue
Department of Veterans Affairs	$	110,078	45	%	$	100,204	48	%
Department of Health and Human Services	91,543		37	%	95,026		45	%
Department of Defense	30,930		13	%	1,303		1	%
Customers with less than 10% share of total revenue	13,543		5	%	12,652		6	%
Total revenue	$	246,094	100	%	$	209,185	100	%

3. New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued amended guidance for revenue recognition. Subsequently, the FASB issued an amendment to defer for one year the effective date of the new guidance on revenue recognition, as well as issued additional clarifying amendments. The new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved disclosure to help the users of the financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new guidance supersedes most current revenue recognition guidance, including industry-specific guidance, and is effective for annual periods (including interim periods therein) beginning after December 15, 2017. The guidance allows either a full retrospective or modified retrospective transition method. The Company is evaluating the effects of this guidance.

In June ~~2014, the FASB issued guidance related to accounting for share-based payments for certain performance stock awards. In March~~ 2016, the FASB issued ~~updated guidance intended~~ASU 2016-13, Financial Instruments - Credit Losses, which requires companies to ~~simplify various aspects related to how share-based payments are accounted~~record an allowance for expected credit losses over the contractual term of certain financial assets, including short-term trade receivables and ~~presented~~contract assets. Additionally, it expands disclosure requirements for credit quality of financial assets. ASU 2016-13 became effective for the Company in the first quarter of fiscal year 2021. The adoption of this standard did not have a material impact on our operating results, financial ~~statements. The amendments in this update affect all entities that issue share-based payment awards to their employees.~~position, or cash flows. For ~~public business entities, the amendments in this update are effective for annual~~further detail of our outstanding receivables see Note 7.

~~F-7~~

~~periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted this guidance and concluded that it will not significantly affect the Company.~~

In ~~September 2015,~~March 2020, the FASB issued ~~guidance~~ASU 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for the application of U.S. GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") and other references rates expected to be discontinued due to reference rate reform. ASU 2020-04 became effective on March 12, 2020 for all entities meeting certain criteria. The Company may elect to apply the amendments using a prospective approach through December 31, 2022. The Company is currently assessing the impact of

F-9

electing this standard on its consolidated financial statements and related disclosures and does not expect the impact to be material.

In April 2020, the FASB issued a Staff Q&A, Topic 842 and 840: Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic in order to provide clarity regarding ~~business combinations for which~~ the accounting ~~is incomplete by~~treatment for lease concessions provided as a result of COVID-19. Under existing lease guidance, changes to certain lease terms not specified in the ~~end~~original lease agreement require modification accounting treatment. To provide relief, the FASB Staff Q&A permits alternatives to modification accounting under Topic 842. For concessions related to the effects of the ~~reporting period~~COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or our obligations as the lessee, we are not required to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the lease agreement and can elect to apply or not apply the lease modification guidance in Topic 842. In fiscal year 2021, we elected to account for lease concessions received for 1 of our operating leases as a resolution of a contingency, whereby we remeasured our lease liability and recorded the adjustment against the right-of-use asset, without reassessing lease classification or modifying the original discount rate. As a result of this election, our lease liability and right-of-use-asset decreased by less than $0.1 million.

In August 2020, the FASB issued ASU 2020-06, which ~~the combination occurs, and during~~amends the measurement ~~period have~~and disclosure of convertible instruments, contracts in an ~~adjustment to provisional amounts recognized. To simplify the accounting for adjustments made to provisional amounts recognized in~~entity's own equity, and EPS guidance. The guidance can be adopted using a ~~business combination, the amendments in this update eliminate the requirement to retrospectively account for those adjustments.~~modified retrospective method or a fully retrospective method. The amendments ~~in this update~~ are effective for fiscal years beginning after December 15, ~~2015, including interim periods within~~2021 for public entities, excluding those that are smaller reporting companies. For all other entities the amendments are effective for fiscal ~~years.~~years beginning after December 15, 2023. The ~~amendments should be applied prospectively~~Company does not expect the update to ~~adjustments to provisional amounts that occur after the effective date of this update, with earlier application permitted for~~have a material impact on its consolidated financial statements ~~that have not been issued. Refer to Note 4 for the impact of the adoption of this guidance.~~and related disclosures.

In February 2016, the FASB issued new accounting guidance related to leases. This update, effective for the Company beginning October 1, 2019, will replace existing guidance in GAAP and will require lessees to recognize lease assets and lease liabilities on the balance sheet for all leases and disclose key information about leasing arrangements. When implemented, lessees and lessors will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. As shown in Note 10, the Company currently has approximately $3.7 million of lease obligations that would be evaluated as the implementation of this guidance becomes effective.

In January 2017, the FASB issued new accounting guidance related to goodwill. This update provides simplified testing for goodwill impairment which allows a comparison of the fair value of the reporting unit to its carrying amount, removing the prior requirement of determining fair value of all individual assets and liabilities of the reporting unit. This update is effective for the Company as of its fiscal year beginning October 1, 2020, with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company adopted this guidance for its annual goodwill impairment tests performed for the fiscal year ended September 30, 2017.

In July 2017, the FASB issued new accounting guidance related to certain equity-linked financial instruments with down round features, such as warrants. The guidance provides for a scope exception from derivative accounting if the instruments qualify for equity classification. Should the instruments qualify for equity classification, they would no longer be considered liabilities subject to fair value measurement at each reporting period. This update is effective for the Company as of its fiscal year beginning October 1, 2019, with early adoption permitted. The Company is evaluating this guidance.

4. ~~Supporting Financial Information~~

~~Accounts receivable~~

(in thousands)
September 30, September 30,
Ref 2017 2016
Billed receivables $ 11,862
$ 5,265

Unbilled receivables 49
1,372

Total accounts receivable 11,911
6,637

Less: Allowance for doubtful accounts (a) —
—

Accounts receivable, net $ 11,911
$ 6,637

Ref (a): Accounts receivable are non-interest bearing, unsecured and 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, 2017 and September 30, 2016. Our allowance for doubtful accounts is assessed based on Company policy of specific identification for aged items. The Company generally does not have delinquent receivables due to the nature of its business.

~~Other current assets~~

~~F-8~~

(in thousands)
September 30, September 30,
Ref 2017 2016
Prepaid insurance and benefits $ 240
$ 168

Other receivables and prepaid expenses 358
374

Other current assets $ 598
$ 542

~~Equipment and improvements, net~~

(in thousands)
September 30, September 30,
Ref 2017 2016
Furniture and equipment $ 331
$ 638

Computer equipment 715
202

Computer software (a) 1,108
309

Leasehold improvements 66
38

Total fixed assets 2,220
1,187

Less accumulated depreciation and amortization (829 ) (543 )
Equipment and improvements, net (b) $ 1,391
$ 644

Ref (a): The Company is in the process of configuring a new Enterprise Resource Planning (ERP) system. Capitalized costs include $741 thousand of software licenses and implementation labor related to application development. Since the asset has not been placed in service, no depreciation related to the asset has been recognized. Prior to the asset being placed in service a useful life will be determined.

Ref (b): 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 7 years) and the shorter of the initial lease term or estimated useful life for leasehold improvements. Maintenance and repair costs are expensed as incurred. Depreciation of equipment was $287 thousand and $188 thousand for the years ended September 30, 2017 and September 30, 2016 respectively.

~~Goodwill and Intangibles~~

(in thousands)

Ref Goodwill Customer Relationships Non Compete Trade Name Total
Gross Balance as of September 30, 2016 $ 34,745
$ 7,247
$ 1,370
$ —
43,362
Measurement period adjustment (8,756 ) 9,379
(890 ) 517
250
Adjusted Gross Balance at September 30, 2017 $ 25,989
$ 16,626
$ 480
$ 517
43,612

(in thousands)
Ref. Goodwill Customer Relationships (a) Non Compete Agreement (a) Trade Name (a) Total
Accumulated amortization at September 30, 2016 $ —
$ (993 ) $ (65 ) $ —
$ (1,058 )
Prior period amortization adjustment —
300
45
(21 ) 324
Current period amortization —
(1,662 ) (48 ) (52 ) (1,762 )
Total accumulated amortization —
(2,355 ) (68 ) (73 ) (2,496 )
Net balance at September 30, 2017 $ 25,989
$ 14,271
$ 412
$ 444
$ 41,116

~~F-9~~

The financial statements at September 30, 2016 reflected a preliminary estimate of purchase accounting, its allocation to acquired intangibles and resulting amortization. As of December 31, 2016 the Company completed its valuation of the May 2016 transaction and finalized the adjustments to the estimated values recognized at September 30, 2016. Therefore the Company recognized a net increase to the fair value of intangibles in the amount of $9.0 million with a corresponding decrease to goodwill. Additionally, the change to the estimated amounts resulted in a decrease in amortization of $0.3 million in the current period.

Ref (a): Intangible assets subject to amortization. The intangibles are amortized on a straight-line basis over their estimated useful lives of 10 years. Total amount of amortization expense for the year ended September 30, 2017 was $1.4 million.

Estimated amortization expense for future years: (in thousands)
Year 1 $ 1,762
Year 2 1,762
Year 3 1,762
Year 4 1,762
Year 5 1,762
Thereafter 6,317
$ 15,127

~~Accounts payable, accrued expenses and other current liabilities~~

(in thousands)
September 30, September 30,
2017 2016
Accounts payable $ 5,205
$ 4,324
Accrued benefits 1,831
1,197
Accrued bonus and incentive compensation 1,544
508
Accrued workers compensation insurance 1,598
981
Other accrued expenses 717
126
Accounts payable, accrued expenses, and other current liabilities $ 10,895
$ 7,136

~~Debt obligations~~

(in thousands)
September 30, September 30,
Ref 2017 2016
Bank term loan (a) $ 19,688
$ 23,438
Less unamortized debt issuance costs (961 ) (1,222 )
Net bank debt obligation 18,727
22,216
Less current portion of bank debt obligations (3,601 ) (3,560 )
Long term portion of bank debt obligation $ 15,126
$ 18,656

Ref (a): Maturity of the bank debt obligation as follows, in thousands:
Year 1 $ 3,750

Year 2 3,750

Year 3 3,750

Year 4 8,438

Total bank debt obligation $ 19,688

~~F-10~~

~~Interest expense~~

(in thousands)
Twelve Months Ended
September 30,
Ref 2017 2016
Interest expense (a) $ (883 ) $ (454 )
Amortization of deferred financing costs as interest expense (b) (268 ) (289 )
Change in fair value of derivative financial instruments (102 ) (27 )
Other income (expense), net 25
(53 )
Interest expense, net $ (1,228 ) $ (823 )

~~Ref (a): Interest expense on borrowing~~

~~Ref (b): Amortizations of expenses related to securing financing~~

~~F-11~~

~~5. Cash and Credit Facilities~~

~~A summary of our loan facilities and subordinated debt financing for the period ended September 30, 2017 is as follows:~~

($ in Millions)
As of September 30, 2017
Lender Arrangement Loan Balance Interest Maturity Date
Fifth Third Bank
Secured term loan $25 million ceiling (a)
$ 19.7

LIBOR* + 3.0%
05/01/21
Fifth Third Bank
Secured revolving line of credit $10 million ceiling (b)
$ —

LIBOR* + 3.0%
05/01/18

* LIBOR rate as of September 30, 2017 was 1.24%

(a) Represents the principal amounts payable on our Term Loan with Fifth Third Bank. The $25.0 million term loan from Fifth Third Bank is secured by liens on substantially all of the assets of the Company. The principal of the Term Loan is payable in fifty-nine consecutive monthly installments of $312,500 with the remaining balance due on May 1, 2021.

The Term Loan agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain transactions. Among other matters, we must comply with limitations on: granting liens; incurring other indebtedness; maintenance of assets; investments in other entities and extensions of credit; mergers and consolidations; and changes in nature of business. The loan agreement also requires us to comply with certain financial covenants including:

~~(i) a minimum fixed charge coverage ratio of at least 1.35 to 1.0 commencing with the quarter ending June 30, 2016, and for all subsequent periods, and~~

(ii) a Funded Indebtedness to Adjusted EBITDA ratio not exceeding the ratio of 2.99 to 1.0 at closing and thereafter a ratio ranging from 3.25 to 1.0 for the period through September 30, 2017 to 2.5 to 1.0 for the period ending September 30, 2018 through maturity. Adjusted EBITDA ratio is calculated by dividing the Company's total interest-bearing debt by net income adjusted to exclude (i) interest and other expenses, including acquisition expenses, net, (ii) provision for or benefit from income taxes, if any, (iii) depreciation and amortization, and (iv) G&A expenses - equity grants.

In addition to monthly payments of the outstanding indebtedness, the loan agreement also requires prepayments of a percentage of excess cash flow, as defined in the loan agreement. Accordingly, a portion of our cash flow from operations will be dedicated to the repayment of our indebtedness. DLH is fully compliant with all covenants under the Loan Agreement with Fifth Third Bank.

(b) The secured revolving line of credit from Fifth Third Bank has a ceiling of up to $10.0 million. Borrowing on the line of credit is secured by liens on substantially all of the assets of the Company.

The Company's total remaining borrowing availability, based on eligible accounts receivables at September 30, 2017, was $9.9 million. This capacity was comprised of $0.6 million in a stand-by letter of credit and unused borrowing capacity of $9.3 million.

~~The revolving line of credit is subject to loan covenants as described above in the Term Loan, and DLH is fully compliant with those covenants.~~

6. Significant Accounting Policies

~~F-12~~

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation of goodwill and intangible assets, interest rate swaps, stock-based compensation, right-of-use assets and liabilities, valuation allowances established against accounts receivable and deferred tax assets, and measurement of loss development on ~~workers’~~workers' compensation ~~claims, and fair value of derivatives.~~claims. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current and expected future outcomes, third-party evaluations, and various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. We revise material accounting estimates if changes occur, such as more experience is acquired, additional information is obtained, or there is new information on which an estimate was or can be based. Actual results could differ from those estimates. In particular, a material reduction in the fair value of goodwill ~~could~~would have a material adverse effect on the Company’s financial position and results of operations. We account for the effect of a change in accounting estimate during the period in which the change occurs.

~~Revenue Recognition~~

DLH’s revenue is derived from professional and other specialized service offerings to US Government agencies through a variety of contracts, some of which are fixed-price in nature and/or sourced through Federal Supply Schedules administered by the General Services Administration (“GSA”) at fixed unit rates or hourly arrangements. Revenue on time and materials contracts is recognized based on hours performed times the applicable hourly rate, plus materials and other direct costs incurred on the contract. Revenue on fixed fee for service contracts is recognized over the period of performance of the contract. Revenue on cost reimbursable contracts is recognized equal to allowable costs incurred, plus a ratable portion of the applicable fee.

We generally operate as a prime contractor, but have also entered into contracts as a subcontractor. Our company's current business base is 95% prime contracts and 5% subcontracts. DLH recognizes and records revenue on government contracts when: (a) persuasive evidence of an arrangement exists; (b) the services have been delivered to the customer; (c) the sales price is fixed or determinable and free of contingencies or significant uncertainties; and (d) collectibility is reasonably assured.

~~Business Combinations~~

In accordance with Accounting Standards Codifications 805, "Business Combinations" ("ASC 805") the Company records acquisitions under the purchase method of accounting, under which the acquisition purchase price is allocated to the assets acquired and the liabilities assumed based upon the respective fair values. The Company utilizes some estimates and in some instances, may retain the services of an independent third-party valuation firm to assist in determining the fair values of assets acquired, liabilities, assumed, and contingent considerations granted. Such estimates and valuation require the Company to make significant assumptions. These assumptions may include projections of future events and operating performance.

Fair Value of Financial Instruments

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, ~~unbilled revenues,~~contract assets, accrued expenses, ~~accrued earn outs payable,~~ and accounts payable approximate fair value due to the short-term nature of these instruments. The fair values of the Company's debt instruments approximate fair value because the underlying interest rates approximate market rates that the Company could obtain for similar instruments at the balance sheet dates.

~~Goodwill~~Long-lived Assets

Our long-lived assets include equipment and ~~other~~improvements, intangible assets,

~~We have used the acquisition method of accounting for the May 2016 transaction, whereby the~~ right-of-use assets, ~~acquired~~ and ~~liabilities assumed are recognized based upon their estimated fair values at the acquisition date.~~goodwill. The ~~financial statements at September 30, 2016 reflected a preliminary estimate of purchase accounting, its allocation to acquired intangibles and resulting amortization. As of December 31, 2016 the~~ Company completed its valuation and finalized the adjustments to the estimated values recognized at September 30, 2016. Therefore the Company recognized a net increase to the fair value of intangibles in the amount of $9.0 million with a corresponding decrease to goodwill. Additionally, the change to the estimated amounts resulted in a decrease in amortization of $0.3 million in the current period.

~~F-13~~

~~DLH~~ continues to review its ~~goodwill and other intangible~~long-lived assets for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value.

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 7 years) and the shorter of the initial lease term or estimated useful life for leasehold improvements. Intangible assets (other than goodwill) are originally recorded at fair value and are amortized on a straight-line basis over their estimated useful lives of 10 years. Maintenance and repair costs are expensed as incurred.

F-10

Right-of-use assets are measured at the present value of future minimum lease payments, including all probable renewals, plus lease payments made to the lessor before or at lease commencement and indirect costs paid, less incentives received. Our right-of-use assets include long-term leases for facilities and equipment and are amortized over their respective lease terms.

Goodwill

At September 30, ~~2017~~2021, we performed a goodwill impairment evaluation on the year-end carrying value of approximately ~~million $26~~$65.6 million. We performed a qualitative assessment of factors to determine whether it was necessary to perform the goodwill impairment test. Based on the results of the work performed, the Company has concluded that no impairment loss was warranted at September 30, ~~2017. For the twelve months ended September 30, 2017, the Company determined that~~2021, as no change in business conditions occurred which would have a material adverse effect on the valuation of goodwill. Our assessment incorporated effects of the COVID-19 pandemic, which is not expected to have a meaningful impact on our financial results. Notwithstanding this evaluation, factors including non-renewal of a major contract or other substantial changes in business conditions could have a material adverse effect on the valuation of goodwill in future periods and the resulting charge could be material to future periods’ results of operations. Similarly, there were no impairments during the prior year ended September 30, 2020.

~~Long Lived Assets~~

~~Intangible assets are estimated at a fair value and amortized on a straight-line basis over their assessed useful lives. The assessed useful lives of the assets are 10 years.~~

Income Taxes

deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. We had no uncertain tax positions at either September 30, ~~2017~~2021 and ~~2016.~~2020. We report interest and penalties as a component of income tax expense. InFor the ~~fiscal quarters~~years ended September 30, ~~2017~~2021 and ~~2016,~~2020, we recognized no interest and no penalties related to income taxes.

Stock-based Equity Compensation

The Company uses the fair value-based method for stock-based equity compensation. Options issued are designated as either an incentive stock or a non-statutory stock option. No option may be granted with a term of more than 10 years from the date of grant. Option awards may depend on achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued common shares. All awards to employees and non-employees are recorded at fair value on the date of the grant and expensed over the period of vesting. The Company uses a binomial and Black Scholes option pricing model to estimate the fair value of each stock option at the date of grant. Any consideration paid by the option holders to purchase shares is credited to capital stock.

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits held with financial institutions may exceed the $250,000 limit.

Earnings per Share

~~F-14~~

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common stock outstanding and restricted stock grants that vested or are likely to vest during the period. Diluted earnings per share is calculated by dividing income available to common shareholders by the weighted average number of basic common shares outstanding, adjusted to reflect potentially dilutive securities. Diluted earnings per share is calculated using the treasury stock method.

Treasury Stock

The Company periodically purchases its own common stock that is traded on public markets as part of announced stock repurchase programs. The repurchased common stock is classified as treasury stock on the consolidated balance sheets and held

F-11

at cost. As of September 30, 2021, the Company did not hold any treasury stock.

Preferred Stock

Interest Rate Swap

The Company uses derivative financial instruments to manage interest rate risk associated with its variable debt. The Company's objective in using these interest rate derivatives is to manage its exposure to interest rate movements and reduce volatility of interest expense. The gains and losses due to changes in the fair value of the interest rate swap agreements completely offset changes in the fair value of the hedged portion of the underlying debt. Offsetting changes in fair value of both the interest rate swaps and the hedged portion of the underlying debt are recognized in interest expense in the Consolidated Statements of Operations. The Company does not hold or issue any derivative instrument for trading or speculative purposes.

Risks & Uncertainties

Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded

that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position and the

results of its operations, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

5. Revenue Recognition

We recognize revenue over time when there is a continuous transfer of control to our customer. For our U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the U.S. government to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. When control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. For services contracts, we satisfy our performance obligations as services are rendered. We use cost-based input and time-based output methods to measure progress.

Contract costs include labor, material and allocable indirect expenses. For time-and-material contracts, we bill the customer per labor hour and per material, and revenue is recognized in the amount invoiced since the amount corresponds directly to the value of our performance to date. We consider control to transfer when we have a present right to payment. Essentially, all of our contracts satisfy their performance obligations over time. Contracts are often modified to account for changes in contract specifications and requirements. Contract modifications impact performance obligations when the modification either creates new or changes the existing enforceable rights and obligations. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue and profit cumulatively. Furthermore, a significant change in one or more estimates could affect the profitability of our contracts. We recognize adjustments in estimated profit on contracts in the period identified.

For time-and-materials contracts, revenue is recognized to the extent of billable rates times hours delivered plus materials and other reimbursable costs incurred. Revenue for cost-reimbursable contracts is recorded as reimbursable costs are incurred, including an estimated share of the applicable contractual fees earned. For firm-fixed-price contracts, the consideration received for our performance is set at a predetermined price. Revenue for our firm-fixed-price contracts is recognized over time using a straight-line measure of progress or using the percentage-of-completion method whereby progress toward completion is based on a comparison of actual costs incurred to total estimated costs to be incurred over the contract term. Contract costs are expensed as incurred. Estimated losses are recognized when identified.

Contract assets - Amounts are invoiced as work progresses in accordance with agreed-upon contractual terms. In part, revenue recognition occurs before we have the right to bill, resulting in contract assets. These contract assets are reported within receivables, net on our consolidated balance sheets and are invoiced in accordance with payment terms defined in each contract. Period end balances will vary from period to period due to agreed-upon contractual terms.

Contract liabilities - Amounts are a result of billings in excess of costs incurred.

F-12

The following table summarizes the contract balances recognized within the Company's consolidated balance sheets (in thousands):



		September 30,		September 30,
	Ref	2021		2020

Contract assets		$	7,307	$	7,943
Contract liabilities	(a)	$	22,473	$	200

Ref (a): The increase in contract liabilities is primarily due to contract start up funding provided under a contract awarded at the end of the fiscal year.

Disaggregation of revenue from contracts with customers

We disaggregate our revenue from contracts with customers by customer, contract type, as well as whether the Company acts as prime contractor or subcontractor. We believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following series of tables present our revenue disaggregated by these categories:

Revenue by customer (in thousands):



	Year Ended
	September 30,
	2021		2020
Department of Veterans Affairs	$	110,078	$	100,204
Department of Health and Human Services	91,543		95,026
Department of Defense	30,930		1,303
Other	13,543		12,652
Total Revenue	$	246,094	$	209,185

Revenue by contract type (in thousands):



	Year Ended
	September 30,
	2021		2020
Time and Materials	$	185,656	$	147,509
Cost Reimbursable	48,101		58,091
Firm Fixed Price	12,337		3,585
Total Revenue	$	246,094	$	209,185

Revenue by whether the Company acts as a prime contractor or a subcontractor (in thousands):



	Year Ended
	September 30,
	2021		2020
Prime Contractor	$	215,241	$	193,448
Subcontractor	30,853		15,737
Total Revenue	$	246,094	$	209,185

F-13

6. Leases

We have leases for facilities and office equipment. Our lease liabilities are recognized as thepresent value of the future minimum lease paymentsover the lease term. Our right-of-use assets are recognized as the present value of the future minimum lease payments over the lease term less unamortized lease incentives and the balance remaining in deferred rent liability under ASC 840. Our lease payments consist of fixed and in-substance fixed amounts attributable to the use of the underlying asset over the lease term. Variable lease payments that do not depend on an index rate or are not in-substance fixed payments are excluded in the measurement of right-of-use assets and lease liabilities and are expensed in the period incurred. The incremental borrowing rate on our credit facility is used in determining the present value of future minimum lease payments. Some of our lease agreements include options to extend the lease term or terminate the lease. These options are accounted for in our right-of-use assets and lease liabilities when it is reasonably certain that the Company will extend the lease term or terminate the lease. The Company does not have any finance leases. As of September 30, 2021, operating leases for facilities and equipment have remaining lease terms of 1.2 to 9.5 years.

The following table summarizes lease balances on our consolidated balance sheet at September 30, 2021 and 2020 (in thousands):


	September 30,		September 30,
	2021		2020
Operating lease right-of-use assets	$	19,919	$	22,427

Operating lease liabilities, current	$	2,261	$	2,045
Operating lease liabilities, long-term	19,374		21,620
Total operating lease liabilities	$	21,635	$	23,665

The Company subleases a portion of 1 of its leased facilities. The sublease is classified as an operating lease with respect to the underlying asset. The sublease term is 5 years and ends June 2025. The sublease includes 2 additional 1 year term extension options.

For the years ended September 30, 2021 and 2020, total lease costs for our operating leases are as follows (in thousands):



	Year Ended
	September 30,
	2021		2020
Operating	$	3,653	$	4,236
Short-term	103		155
Variable	81		63
Sublease income	(302)		(271)
Total lease costs	$	3,535	$	4,183

At September 30, 2021, the weighted-average remaining lease term and weighted-average discount rate are 8.3 years and 6.0%, respectively. The calculation of the weighted-average discount rate was determined based on borrowing terms from our senior credit facility.

Other information related to our leases is as follows (in thousands):



	Year Ended
	September 30,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities	$	3,306	$	3,586
New lease liabilities, net of new right-of-use-assets	$	—	$	229
Lease liabilities arising from obtaining right-of-use-assets	$	—	$	7,822

F-14

The Company's future minimum lease payments as of September 30, 2021 are as follows:


For the Fiscal Year Ending September 30,	(in thousands)
2022	$	3,501
2023	3,391
2024	3,251
2025	3,092
2026	3,193
Thereafter	11,491
Total future minimum lease payments	27,919
Less: imputed interest	(6,284)
Present value of future minimum lease payments	21,635
Less: current portion of operating lease liabilities	(2,261)
Long-term operating lease liabilities	$	19,374

7. Supporting Financial Information

Accounts receivable


		(in thousands)
		September 30,		September 30,
	Ref	2021		2020
Billed receivables		$	26,140	$	24,598
Contract assets		7,307		7,943
Total accounts receivable		33,447		32,541
Less: Allowance for doubtful accounts	(a)	—		—
Accounts receivable, net		$	33,447	$	32,541

Ref (a): Accounts receivable are non-interest bearing, unsecured and carried at net realizable value. We evaluate our receivables on a quarterly basis and determine whether an allowance is appropriate based on specific collection issues. No allowance for doubtful accounts was deemed necessary at either September 30, 2021 or September 30, 2020.

Other current assets


	(in thousands)
	September 30,		September 30,
	2021		2020
Prepaid insurance and benefits	$	655	$	665
Other receivables	995		1,363
Prepaid expenses	2,615		1,471
Other current assets	$	4,265	$	3,499

F-15

Equipment and improvements, net


		(in thousands)
		September 30,		September 30,
	Ref	2021		2020
Furniture and equipment		$	958	$	958
Computer equipment		1,262		1,171
Computer software		4,353		4,341
Leasehold improvements		1,595		1,595
Total equipment and improvements		8,168		8,065
Less accumulated depreciation and amortization		(6,256)		(4,726)
Equipment and improvements, net	(a)	$	1,912	$	3,339

Ref (a): Depreciation and amortization was $1.5 million and $2.2 million for the years ended September 30, 2021 and 2020, respectively.

Intangible assets, net


		(in thousands)
		September 30,		September 30,
	Ref	2021		2020
Intangible assets
Customer contracts and related customer relationships		$	62,281	$	45,600
Covenants-not-to-compete		522		480
Trade name		3,051		2,109
Acquired intangibles - IBA acquisition		—		16,223
Total intangible assets		65,854		64,412
Less accumulated amortization
Customer contracts and related customer relationships		(17,378)		(11,150)
Covenants-not-to-compete		(264)		(212)
Trade name		(743)		(438)

Total accumulated amortization		(18,385)		(11,800)
Intangible assets, net	(a)	$	47,469	$	52,612

Ref (a): Total amount of amortization expense for the years ended September 30, 2021 and 2020 was $6.6 million and $4.8 million, respectively.


Estimated amortization expense for future years:	(in thousands)

Fiscal 2022	$	6,585
Fiscal 2023	6,585
Fiscal 2024	6,585
Fiscal 2025	6,585
Fiscal 2026	5,851
Thereafter	15,278
Total amortization expense	$	47,469

F-16

Goodwill

The changes in the carrying amount of goodwill for the years ended September 30, 2021 and 2020 are as follows:


		(in thousands)
	Ref	Total


Balance at September 30, 2019		$	52,758
Preliminary increase from IBA acquisition		14,386
Balance at September 30, 2020		67,144
Total adjustments from IBA acquisition	(a)	(1,501)
Balance at September 30, 2021		$	65,643

Ref (a): The adjustments were determined based on third party valuations.

Accounts payable, accrued expenses, and other current liabilities


	(in thousands)
	September 30,		September 30,
	2021		2020
Accounts payable	$	16,684	$	14,645
Accrued benefits	2,916		2,833
Accrued bonus and incentive compensation	2,381		2,340
Accrued workers' compensation insurance	7,014		5,529
Other accrued expenses	3,722		3,231
Accounts payable, accrued expenses, and other current liabilities	$	32,717	$	28,578

Debt obligations


	(in thousands)
	September 30,		September 30,
	2021		2020

Bank term loan	$	46,750	$	70,000

Less: unamortized deferred financing costs	(2,114)		(2,729)
Net bank debt obligations	44,636		67,271
Less: current portion of bank debt obligations, net of deferred financing costs	—		(6,727)
Long-term portion of bank debt obligations, net of deferred financing costs	$	44,636	$	60,544

Interest expense


		(in thousands)
		Year Ended
		September 30,
	Ref	2021		2020
Interest expense	(a)	$	(2,992)	$	(2,841)
Amortization of deferred financing costs	(b)	(792)		(721)

Other income (expense), net	(c)	—		121

Interest expense, net		$	(3,784)	$	(3,441)

Ref (a): Interest expense on borrowing

Ref (b): Amortization of expenses related to term loan and revolving line of credit.

Ref (c): Gain on lease modification due to a lease amendment

F-17

8. Credit Facilities

A summary of our loan facility as of September 30, 2021 is as follows:

($ in Millions)

As of September 30, 2021

Lender

Arrangement

Loan Balance

Interest

Maturity Date

First National Bank of Pennsylvania

Secured term loan (a)

46.8

LIBOR* + 3.5%

09/30/25

First National Bank of Pennsylvania

Secured revolving line of credit (b)

—

LIBOR* + 3.5%

09/30/25

*LIBOR rate as of September 30, 2021 was 0.08%. As of September 30, 2020, our LIBOR rate is subject to a minimum floor of 0.5%. The floor affects interest payments for periods after September 30, 2020.

(a) Represents the principal amounts payable on our secured term loan. The $70.0 million secured term loan is secured by liens on substantially all of the assets of the Company. The principal of the term loan is payable in quarterly installments with the remaining balance due on September 30, 2025.

The Credit Agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain transactions. Among other matters, we must comply with limitations on: granting liens; incurring other indebtedness; maintenance of assets; investments in other entities and extensions of credit; mergers and consolidations; and changes in nature of business. The loan agreement also requires us to comply with certain quarterly financial covenants including: (i) a minimum fixed charge coverage ratio of at least 1.25 to 1.00, and (ii) a Funded Indebtedness to Adjusted EBITDA ratio not exceeding the ratio of 3.75:1.0 to 2.75:1.0 through maturity. Adjusted EBITDA ratio is calculated by dividing the Company's total interest-bearing debt by net income adjusted to exclude (i) interest and other expenses, (ii) provision for or benefit from income taxes, if any, (iii) depreciation and amortization, and (iv) non-recurring charges, losses or expenses to include transaction and non-cash equity expense. The term loan has an interest rate spread range from 2.5% to 4.5% depending on the funded indebtedness to adjusted EBITDA ratio. We are in compliance with all loan covenants and restrictions.

We are required to pay quarterly amortization payments commencing in December 2020 through September 2025. The annual amount of principal amortization is based on a percentage of the loan balance at September 30, 2020. The annual amortization amounts are $7.0 million each for fiscal years 2021 and 2022 and $8.75 million each for fiscal years 2023 - 2025. The quarterly payments are in equal installments. During the year ended September 30, 2021, the Company made voluntary prepayments of $16.3 million, bringing the total amount paid on the secured loan term loan to $23.3 million. As of September 30, 2021, we have satisfied mandatory principal amortization until December 31, 2023.

In addition to quarterly payments of the outstanding indebtedness, the loan agreement also requires annual payments of a percentage of excess cash flow, as defined in the loan agreement. The loan agreement states that an excess cash flow recapture payment must be made equal to (a) 75% of the excess cash flow for the immediately preceding fiscal year in which indebtedness to consolidated EBITDA ratio is greater than or equal to 2.50:1.0; (b) 50% of the excess cash flow for the immediately preceding fiscal year in which the funded indebtedness to consolidated EBITDA Ratio is less than 2.50:1.0 but greater than or equal to 1.5:1.0; or (c) 0% of the excess cash flow for the immediately preceding fiscal year in which the funded indebtedness to consolidated EBITDA Ratio is less than 1.5:1.0. In addition, the Company must make additional mandatory prepayment of amounts outstanding based on proceeds received from asset sales and sales of certain equity securities or other indebtedness. Due to the voluntary prepayment of term debt, there was no excess cash flow payment required. For additional information regarding the schedule of future payment obligations, please refer to Note 11 Commitments and Contingencies.

On September 30, 2019, we executed a floating-to-fixed interest rate swap with First National Bank ("FNB") as counter party. The notional amount in the floating-to-fixed interest rate swap on September 30, 2021 is $22.8 million and matures in 2024. The notional amount was $28.8 million at the end prior fiscal year. The remaining outstanding balance of our term loan is subject to interest rate fluctuations and the minimum LIBOR floor. On the notional amount, the Company pays a base fixed rate of 1.61%, plus applicable credit spread. As a result, for the year ended September 30, 2021, interest expense increased by approximately $0.4 million.

F-18

(b) The secured revolving line of credit has a ceiling of up to $25.0 million. Borrowing on the line of credit is secured by liens on substantially all of the assets of the Company. The Company accessed funds from the revolving credit facility during the year, but has no outstanding balance at September 30, 2021.

The Company's total borrowing availability, based on eligible accounts receivables at September 30, 2021, was $25.0 million. As part of the revolving credit facility, the lenders agreed to a sublimit of $5 million for letters of credit for the account of the Company, subject to applicable procedures.

The revolving line of credit has a maturity date of September 30, 2025 and is subject to loan covenants as described above. The Company is fully compliant with those covenants.

9. Stock-based ~~compensation~~Compensation and ~~equity grants~~Equity Grants

Stock-based compensation expense

Options issued under equity incentive plans were designated as either an incentive stock or a non-statutory stock option. No option was granted with a term of more than 10 years from the date of grant. Exercisability of option awards may depend on achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued shares. As of September 30, ~~2017,~~2021, there were ~~0.5~~1.7 million shares available for ~~grant under the Company's 2016 Omnibus Equity Incentive Plan.~~grant.

Stock-based compensation expense, shown in the table below, is recorded in general and administrative expenses included in our ~~statement~~Consolidated Statements of ~~operations:~~Operations:


		(in thousands)
		Year Ended
	Ref	September 30,
		2021		2020
DLH employees	(a)	$	1,193	$	563
Non-employee directors	(b)	467		347
Total stock option expense		$	1,660	$	910

(in thousands)
Year Ended
Ref September 30,
2017 2016
DLH employees
$ 166
$ 90
Non-employee directors (a) 496
376
Total stock option expense $ 662
$ 466

Ref (a): ~~Equity~~Included in this amount are equity grants of restricted stock units to Named Executive Officers ("NEO"), which were issued in accordance with the DLH long-term incentive compensation policy ~~for~~in this fiscal year, and stock option grants to NEO and non-NEO company employees. The restricted stock units totaled 147,431 restricted stock units issued and outstanding at September 30, 2021.

Ref (b): In the first quarter of fiscal 2021, we issued 63,177 restricted stock units to the Company's non-employee ~~directors.~~ directors, all of which vested as of September 30, 2021. The shares of common stock underlying such restricted stock units were issued on September 30, 2021.

Unrecognized stock-based compensation expense


		(in thousands)
		Year Ended
		September 30,
	Ref	2021		2020
Unrecognized expense for DLH employees	(a)	$	4,468	$	2,633

(in thousands)
Period Ended
September 30,
Ref 2017 2016
Unrecognized expense for DLH employees (a) $ 299
$ 18
Unrecognized expense for non-employee directors (b) —
24
Total unrecognized expense $ 299
$ 42

Ref (a): Compensation expense for the portion of equity awards for which the requisite service has not been rendered is recognized as the requisite service is rendered. The compensation expense for that portion of awards has been based on the grant-date fair value of those awards as calculated for recognition purposes under applicable guidance. For options that vest based on the Company’s common stock achieving and maintaining defined market prices, the Company values the awards with a Monte Carlo binomial model that utilizes various probability factors and other criterion in establishing fair value of the grant. The related compensation expense is recognized over the derived

F-19

service period determined in the valuation. ~~This~~On a weighted average basis, this expense is expected to be recognized within the next ~~27 months.~~4.70 years.

Ref (b): Unrecognized stock expense related to prior years equity grants of restricted stock to non-employee directors, based on performance criteria, in accordance with DLH compensation policy for non-employee directors.

Stock option activity for the year ended September 30, ~~2017:~~2021:

The aggregate intrinsic value in the table below represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their in the money options on those dates. This amount will change based on the fair market value of the Company’s stock.


				(in years)
				Weighted
			Weighted	Average	(in thousands)
		(in thousands)	Average	Remaining	Aggregate
		Number of	Exercise	Contractual	Intrinsic
	Ref	Shares	Price	Term	Value



Options outstanding, September 30, 2020		2,129	$6.14	7.4	$	6,583
Granted	(a)	455	$10.47	—	—
Exercised		(175)	$2.48	—	—
Cancelled		(35)	$7.36	—	—
Options outstanding, September 30, 2021		2,374	$7.77	7.7	$	15,899

~~F-15~~

(in years)
Weighted
Weighted Average (in thousands)
(in thousands) Average Remaining Aggregate
Number of Exercise Contractual Intrinsic
Ref Shares Price Term Value
Options outstanding, September 30, 2015 2,324
$1.40 6.8 $ 3,649
Granted (a) 25
$2.80
Canceled (123 ) $1.40
Options outstanding, September 30, 2016 2,226
$1.40 5.8 $ 7,581
Granted (a) 400
$5.94
Exercised (632 ) $1.28
Options outstanding, September 30, 2017 1,994
$3.83 6.4 $ 8,489

Ref (a): ~~Option grants to DLH employees~~Utilizing a volatility of 50% along with assumptions of a 10-year term and the aforementioned 10-day stock

price threshold results in an indicated range of value of the ~~fiscal~~Options granted during the year ended September 30, ~~2017 were valued~~2021,

as follows using ~~a binomial model, under~~ the ~~following criteria:~~Monte Carlo method.

September 30,
2017 2016
Risk free interest rate 2.46 % 1.01 %
Contractual term 10 years
10 years
Dividend yield — % — %
Expected lives 10 years
10 years
Expected volatility 144 % 106 %
Fair value per option $0.93 - $1.47 $2.55


								Volatility
								50%
					Vesting		Expected
	Strike		Stock		Threshold		Term	Calculated
Grant Date	Price		Price		Price		(Years)	Fair Value




December 15, 2020	$	10.05	$	10.05	$	13.00	10	$	5.83
July 30, 2021	$	10.75	$	10.75	$	14.00	10	$	5.83
Notes:
Results based on 100,000 simulations

Stock options shares outstanding, vested and unvested for the ~~period ended:~~years ended September 30, 2021 and 2020 (in thousands):



		Number of Shares
		September 30,
	Ref	2021	2020
Vested and exercisable	(a)	1,662	1,213
Unvested	(b)	712	916
Options outstanding		2,374	2,129

(in thousands)
Number of Shares
September 30,
Ref 2017 2016
Vested and exercisable (a) 1,327
1,909
Unvested (b) 667
317
Options outstanding 1,994
2,226

Ref (a): Weighted average exercise price of vested and exercisable shares was ~~$1.45~~$3.91 and ~~$1.48~~$2.25 at September 30, ~~2017~~2021 and ~~2016,~~2020, respectively. Aggregate intrinsic value was ~~$6.8 million~~approximately $13.9 and ~~$6.4~~$6.1 million at September 30, ~~2017~~2021 and ~~2016,~~2020, respectively. Weighted average contractual term remaining was ~~5.0~~6.0 years and ~~6.0~~4.6 years at September 30, ~~2017~~2021 and ~~2016,~~2020, respectively.

Ref (b): Certain awards vest upon satisfaction of certain performance criteria.

~~8. Fair Value of Financial Instruments~~

In partial consideration for the subordinated debt provided by Wynnefield Capital (referred to in Note 5), we issued warrants to purchase 53,619 shares of common stock. As of September 30, 2017, the warrants are outstanding and their fair value was determined to be $306 thousand. The fair value is estimated using the binomial pricing model. The fair value is subjective and is affected by the changes in inputs to the valuation model including the fair value per share of the underlying stock, the expected term of each warrant, volatility of the Company's stock, and risk free rate based on the U.S. Treasury yield curves.

~~Key assumptions used in the valuation of the warrants at issuance include the following:~~

~~F-16~~F-20



~~Risk free interest rate~~	~~1.63~~	%
~~Contractual term~~	~~5 years~~
~~Dividend yield~~	—	%
~~Expected lives~~	~~5 years~~
~~Expected volatility~~	~~147~~	%
~~Fair value per warrant~~	~~$5.71~~

The Company recorded a change on the revaluation of the warrant liability of $102 thousand for the year ended September 30, 2017. The change is recorded and classified in other income (expense) in the accompanying consolidated financial statement of operations.

Given the provisions that may reduce the exercise price of these warrants in the event that other convertible securities or options have a lower price, these warrants are classified as a liability. The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three level hierarchy. These levels are:

~~Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.~~

~~Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Observable inputs are based on market data obtained from independent sources.~~

~~Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.~~

~~The Company has issued warrants to purchase stock as described above. The liability is classified as a Level 3 expense for all periods.~~

~~Change in Level 3 liabilities for the year ended September 30, 2017:~~

Beginning Balance Realized/Unrealized Purchases and Ending Balance Change in Unrealized (gains) losses for liabilities held at
October 1, 2016 (Gains) Losses Settlements September 30, 2017 September 30, 2017
Warrant issued to acquire common stock $ 204
$ 102
$ —
$ 306
$ 102

The Company has other financial instruments, including accounts receivable, accounts payable, loan payable, notes payable, and accrued expense. Due to the short term nature of these instruments, DLH estimates that the fair value of all financial instruments at September 30, 2017 and September 30, 2016 does not differ materially from the aggregate carrying values of these financial instruments recorded in the accompanying consolidated balance sheets.

9.10. Earnings Per Share

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding and restricted stock grants that vested or are likely to vest during the period. Diluted earnings per share is calculated by dividing income available to common shareholders by the weighted average number of basic common shares outstanding, adjusted to reflect potentially dilutive securities. Diluted earnings per share is calculated using the treasury stock method.


	(in thousands)
	Year Ended
	September 30,
	2021		2020
Numerator:
Net income	$	10,145	$	7,114
Denominator:
Denominator for basic net income per share - weighted-average outstanding shares	12,549		12,282
Effect of dilutive securities:
Stock options and restricted stock	1,048		823
Denominator for diluted net income per share - weighted-average outstanding shares	13,597		13,105
Net income per share - basic	$	0.81	$	0.58
Net income per share - diluted	$	0.75	$	0.54

~~F-17~~

(in thousands)
Year Ended
September 30,
2017 2016
Numerator:
Net income $ 3,288
$ 3,384
Denominator:
Denominator for basic net income per share - weighted-average outstanding shares 11,345
9,966
Effect of dilutive securities:
Stock options and restricted stock 1,007
1,254
Denominator for diluted net income per share - weighted-average outstanding shares 12,352
11,220

Net income per share-basic (a) $ 0.29
$ 0.34
Net income per share-diluted (a) $ 0.27
$ 0.30

Ref (a): For fiscal year ended September 30, 2016, we realized a $0.9 million tax benefit, net, related to the release of a portion of our valuation allowance to reflect the amount of our deferred tax asset that we expect to realize in future years. This resulted in an increase of net income per share basic and diluted of $0.09 and $0.08, respectively, for the prior year period.

~~10.~~11. Commitments and Contingencies

Contractual Obligations as of September 30, ~~2017:~~2021 (in thousands):


															Payments Due Per Fiscal Year
				Payments Due By Period
Contractual obligations				Next 12		2-3		4-5		More than 5
(Amounts in thousands)	Ref	Total		Months		Years		Years		Years
													Total		2022		2023		2024		2025		2026		Thereafter
Debt obligations		$	19,688	$	3,750	$	7,500	$	8,438	$	—	Debt obligations	$	46,750	$	—	$	—	$	8,250	$	38,500	$	—	$	—
Facility leases		$	3,693	$	929	$	1,567	$	652	$	545	Facility leases	27,701		3,418		3,308		3,199		3,092		3,193		11,491
Equipment operating leases		77		38		39		—		—		Equipment operating leases	218		83		83		52		—		—		—
Total Contractual Obligations		$	23,458	$	4,717	$	9,106	$	9,090	$	545
Total contractual obligations												Total contractual obligations	$	74,669	$	3,501	$	3,391	$	11,501	$	41,592	$	3,193	$	11,491



(Mark One)
ý☒						ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, ~~2017~~2021
o☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to



Title of ~~Each Class~~each class	Trading Symbol(s)	Name of ~~Each Exchange~~each exchange on ~~Which Registered~~which registered
~~COMMON STOCK, PAR VALUE $.001 PER SHARE~~Common Stock	DLHC	~~THE NASDAQ STOCK MARKET, LLC~~Nasdaq	Capital Market



				PAGE
PART I					~~PAGE~~
~~PART I~~
Item 1.	Business		3
Item 1A.		Risk Factors		78
Item 1B.		Unresolved Staff Comments		1520
Item 2.		Properties		~~Properties~~20	15
Item 3.		Legal Proceedings		1620
Item 4.		Mine Safety Disclosure		1620
PART II
Item 5.		Market For the Registrant's Common Equity, Related ~~Stockholder~~Shareholder Matters and Issuer Purchases of Equity Securities		1621
Item 6.		Selected Financial Data		1822
Item 7.		Management's Discussion and Analysis of Financial Condition and Results of Operations		1822
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		2632
Item 8.		Financial Statements and Supplemental Data		2732
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		2732
Item 9A.		Controls and Procedures		2732
Item 9B.		Other Information		2834
PART III
Item 10.		Directors, Executive Officers and Corporate Governance		2834
Item 11.		Executive Compensation		2834
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		2834
Item 13.		Certain Relationships and Related Transactions, and Director Independence		2934
Item 14.		Principal Accountant Fees and Services		2934
PART IV
Item 15.		Exhibits and Financial Statement Schedules		2935
Item 16.		Form 10-K Summary		37



~~Name~~	~~Age~~	~~Positions~~
~~Zachary C. Parker~~	60	~~President, Chief Executive Officer and Director~~
~~Kathryn M. JohnBull~~	58	~~Chief Financial Officer~~
~~Kevin Wilson~~	52	~~President, DLH Solutions, Inc.~~
~~Helene Fisher~~	53	~~President, Danya International, LLC.~~



Exhibit No.			Description
2.1			~~Equity~~Stock Purchase Agreement among the Company, ~~Danya International LLC,. DI Holdings,~~Social & Scientific Systems, Inc., and ~~the owners named therein~~Social & Scientific Systems, Inc. Employee Stock Ownership Trust (filed as Exhibit 2.1 to Current Report on Form 8-K filed ~~May 6, 2016)~~June 13, 2019).
2.2			Equity Purchase Agreement among DLH Holdings Corp., Irving Burton Associates, LLC, Project Insight Holdings, Inc., the Owners of the Seller and Anna L. Ryan as the Sellers' Representative (filed as Exhibit 2.1 to Current Report on Form 8-K filed October 6, 2020).
3.1			Amended and Restated Certificate of Incorporation (filed as Exhibit A to Definitive Proxy Statement dated May 1, 2000 as filed with the Securities and Exchange Commission).
3.2			~~Amended By-Laws of Registrant adopted as of May 15, 2001 (filed as Exhibit 3.4 to the Registration Statement on Form S-4 File No. 333-61730).~~
~~3.3~~	Amended and ~~restated~~Restated By-Laws of Registrant adopted as of August ~~29, 2001 (filed as Exhibit 3.5 to the Registrant's Form S-3 filed on December 19, 2001).~~
~~3.4~~	~~Amendment to By-Laws of Registrant adopted November 8, 2007~~27, 2020 (filed as Exhibit 3.1 to the ~~Registrant's~~ Current Report on Form 8-K filed ~~on November 13, 2007)~~August 31, 2020).
~~3.5~~3.3			Amendment to Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit B to Definitive Proxy Statement dated March 13, 2008 as filed with the Securities and Exchange Commission).
~~3.6~~3.4			Amendment to Amended and Restated Certificate of Incorporation of the Company filed June 25, 2012 (filed as Exhibit 3.1 to Current Report on Form 8-K filed on June 26, 2012).
~~3.7~~3.5			Amendment to Amended and Restated Certificate of Incorporation filed February 12, 2015 (filed as Annex A to the Company’s Proxy Statement dated December 31, 2014).
4.1			Specimen of the Common Stock Certificate *
~~4.2~~	~~Form of Term Note issued pursuant to the Loan Agreement~~ (filed as Exhibit 4.1 to ~~Current~~Annual Report on Form ~~8-K filed May 6, 2016).~~10-K for the fiscal year ended September 30,2017.)
~~4.3~~4.2		~~Form of Revolving Credit Note issued pursuant to the Loan Agreement (filed as Exhibit 4.2 to Current Report on Form 8-K filed May 6, 2016).~~



			($ in thousands)
Location		Approximate Square Feet		Approximate Annual Lease Expense	Expiration Date

Corporate Headquarters
	3565 Piedmont Road, NE, Building 3, Suite 700	12,275		$306	4/30/2024
	Atlanta, GA 30305

National Capital Region Office
	8737 Colesville Road, Suite 1100	22,400		$623	4/30/2020
	Silver Spring, MD 20910



FISCAL YEAR 2017	LOW		HIGH
1st Quarter	$	4.47	$	7.38
2nd Quarter	$	4.61	$	6.72
3rd Quarter	$	4.10	$	6.36
4th Quarter	$	5.33	$	6.49



FISCAL YEAR 2016	LOW		HIGH
1st Quarter	$	1.89	$	4.47
2nd Quarter	$	2.50	$	4.38
3rd Quarter	$	3.51	$	5.32
4th Quarter	$	4.32	$	5.72



						($ in thousands)
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Programs		Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program
July 2017	—	$	—		—		$	77
August 2017	—	$	—		—		$	77
September 2017	—	$	—		—		$	77
Fourth Quarter Total	—	$	—		—		$	77



	Twelve Months Ended
	September 30,
	2017		2016			Change
Net income	$	3,288	$	3,384		$	(96	)
(i) Interest and other (income) expense (net):
(i)(a) Interest and other expense	1,228		823			405
(i)(b) Acquisition expenses	—		795			(795		)
(ii) Provision for taxes	2,114		(938		)	3,052
(iii) Depreciation, amortization, and loss on fixed assets	1,754		1,244			510
(iv) G&A expenses - equity grants	662		466			196
Adjusted EBITDA	$	9,046	$	5,774		$	3,272



	($ in Millions)
	As of September 30, 2017
Lender	Arrangement	Loan Balance		Interest *	Maturity Date
Fifth Third Bank	Secured term loan $25 million ceiling (a)	$	19.7	LIBOR + 3.0%	05/01/21
Fifth Third Bank	Secured revolving line of credit $10 million ceiling (b)	$	—	LIBOR + 3.0%	05/01/18



~~4.4~~		Form of Warrant issued to Subordinated Lenders (filed as Exhibit 4.4 to Current Report on Form 8-K filed May 6, 2016).
4.3			*	Description of Securities (filed as Exhibit 4.3 to Annual Report on Form 10-K filed on December 7, 2020).
10.1			#	Form of Stock Option Award under 2006 Long Term Incentive Plan (filed as Exhibit 10.6 to Quarterly Report on Form 10-Q filed on February 16, 2010)..
10.2			#	Employment Agreement between the Company and Kevin Wilson (filed as Exhibit 10.1 to Current Report on Form 8-K dated October 3, 2013).
10.3			#	2006 Long Term Incentive Plan, as amended (filed as Annex A to the Company’s Proxy Statement dated January 3, 2014).
10.4				Lease Agreement dated April 27, 2015 between DLH Holdings Corp. and Piedmont Center, 1-4 LLC (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q filed on August 5, 2015)
10.5			#	Amendment to Employment Agreement with Kevin Wilson (filed as Exhibit 10.1 to Current Report on Form 8-K filed October 2, 2015).
10.6			#	2016 Omnibus Equity Incentive Plan, as amended (incorporated by reference to Appendix A to the Company’s definitive Proxy Statement dated January ~~15, 2016)~~28, 2021).
10.7			#	~~Non-Competition Agreement between the Company and Jeffrey Hoffman (filed as Exhibit 10.2 to Current Report on Form 8-K filed May 6, 2016).~~
~~10.8~~		~~Loan Agreement among Fifth Third Bank, DLH Holdings Corp., DLH Solutions, Inc. and Danya International, LLC (filed as Exhibit 10.3 to Current Report on Form 8-K filed May 6, 2016).~~
~~10.9~~		~~Form of Security Agreement entered into pursuant to the Loan Agreement (filed as Exhibit 10.4 to Current Report on Form 8-K filed May 6, 2016).~~
~~10.10~~		~~Form of Pledge Agreement entered into pursuant to the Loan Agreement (filed as Exhibit 10.5 to Current Report on Form 8-K filed May 6, 2016).~~
~~10.11~~	#	Form of Stock Option Award Agreement under the 2016 Omnibus Equity Incentive Plan (filed as Exhibit 10.8 to Quarterly Report on Form 10-Q filed May 16, 2016).


~~10.12~~10.8	#	~~Registration Rights~~Change in Control, Severance and Covenant Agreement with Helene Fisher, dated ~~September 29, 2016~~June 4, 2018 (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018, filed August 6, 2018).
10.9		Credit Agreement among DLH Holdings Corp., DLH Solutions, Inc., Danya International, LLC, Social & Scientific Systems, Inc., First National Bank of Pennsylvania, as Administrative Agent and other lenders party thereto (filed as Exhibit 10.1 to Current Report on Form 8-K filed on ~~October 4, 2016)~~June 13, 2019).
~~10.13~~10.10	#	First Amendment to Credit Agreement among DLH Holdings Corp., DLH Solutions, Inc., Danya International, LLC, Social & Scientific Systems, Inc., First National Bank of Pennsylvania, as Administrative Agent and other lenders party thereto (filed as Exhibit 10.1 to Current Report on Form 8-K filed on September 12, 2019).
10.11		Amended and Restated Credit Agreement among DLH Holdings Corp., DLH Solutions, Inc., Danya International, LLC, Social & Scientific Systems, Inc., Irving Burton Associates, LLC, First National Bank of Pennsylvania, as Administrative Agent and other lenders party thereto (filed as Exhibit 10.1 to Current Report on Form 8-K filed October 6, 2020).
10.12	#	Employment Agreement between the Company and Zachary C. Parker dated ~~September 28, 2016~~October 11, 2019 (filed as Exhibit 10.1 to Current Report on 8-K filed on October ~~4, 2016)~~17, 2019).
10.13	#	Form of Restricted Stock Unit for non-employee directors under the 2016 Omnibus Equity Incentive Plan.
10.14	#	Employment Offer Letter between the Company and Jeanine M. Christian (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020, filed August 5, 2020).
10.15	#	Employment Offer Letter between the Company and Jacqueline S. Everett (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020, filed August 5, 2020).
10.16	#	Change in Control, Severance and Covenant Agreement between the Company and Jeanine M. Christian (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020, filed August 5, 2020).
10.17	#	Change in Control, Severance and Covenant Agreement between the Company and Jacqueline S. Everett (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020, filed August 5, 2020).
10.18	#	Employment agreement between the Company and Kathryn M.M JohnBull dated ~~July 5, 2017~~September 14, 2020 (filed as Exhibit 10.1 to Current Report on Form 8-K filed on ~~July, 2017).~~September 15, 2020)
~~14.00~~10.19	#	~~Code~~Form of ~~Ethics (Exhibit 14.1~~Performance Restricted Stock Units granted December 9, 2020 granted under the 2016 Omnibus Equity Incentive Plan (filed as Exhibit 10.1 to ~~Annual~~Quarterly Report on Form ~~10-K~~10-Q for the fiscal ~~year~~quarter ended ~~September 30, 2003)~~December 31, 2020, filed February 2, 2021).
10.20	#	Employment Offer Letter between the Company and G. Maliek Ferebee
10.21	#	Change in Control, Severance and Covenant Agreement between the Company and G. Maliek Ferebee
21.00	*	Subsidiaries of Registrants.
23.10	*	Consent of WithumSmith+Brown, PC
31.10	*	Certification of Chief Executive Officer pursuant to Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
31.20	*	Certification of Chief Financial Officer pursuant to Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
32.10	*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 17 CFR 240.13a-14(b) or 17 CFR 240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101.0	*	The following financial information from the DLH Holdings Corp. Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017,~~2021, formatted in ~~XBRL (eXtensible~~iXBRL (Inline eXtensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements Ofof Changes in Shareholders' Equity and, (v) the Notes to the Consolidated Financial Statements. Filed electronically herewith.
104.0		Cover Page Interactive Data File. (formatted as Inline XBRL tags and contained in Exhibit 101)


Signature			Capacity		Date

/s/ FREDERICK G. WASSERMAN			Chairman of the Board		December 6, 2021
Frederick G. Wasserman

~~Signature~~/s/ JAMES P. ALLEN			~~Capacity~~Director		~~Date~~December 6, 2021
James P. Allen
~~/s/ FREDERICK G. WASSERMAN~~			~~Chairman of the Board~~		~~December 12, 2017~~
~~Frederick G. Wasserman~~

~~/s/ FRANCES MURPHY~~	~~Director~~	~~December 12, 2017~~
~~Frances Murphy~~

/s/ MARTIN J. DELANEY	Director			December ~~12, 2017~~6, 2021
Martin J. Delaney

/s/ ~~WILLIAM H. ALDERMAN~~ELDER GRANGER			Director		December ~~12, 2017~~6, 2021
~~William H. Alderman~~Elder Granger

/s/ FRANCES MURPHY			Director		December 6, 2021
Frances Murphy

/s/ AUSTIN J. YERKS III			Director		December ~~12, 2017~~6, 2021
Austin J. Yerks III

/s/ ~~ELDER GRANGER~~STEPHEN J. ZELKOWICZ			Director		December ~~12, 2017~~6, 2021
~~Elder Granger~~Stephen J. Zelkowicz

~~/s/ JAMES P. ALLEN~~			~~Director~~		~~December 12, 2017~~
~~James P. Allen~~

/s/ ZACHARY C. PARKER			Chief Executive Officer, President and Director		December ~~12, 2017~~6, 2021
Zachary C. Parker

/s/ KATHRYN M. JOHNBULL			Chief Financial Officer and Principal Accounting Officer		December ~~12, 2017~~6, 2021
Kathryn M. JohnBull



	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Operations for the years ended September 30, ~~2017~~2021 and ~~2016~~2020		F-3
Consolidated Balance Sheets as of September 30, ~~2017~~2021 and ~~2016~~2020		F-4
Consolidated Statements of Cash Flows for the years ended September 30, ~~2017~~2021 and ~~2016~~2020		F-5
Consolidated Statements of Changes in Shareholders' Equity for the years ended September 30, ~~2017~~2021 and ~~2016~~ 2020		F-6
Notes to Consolidated Financial Statements		F-7



	September 30, 2017			September 30, 2016				September 30, 2021		September 30, 2020
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	4,930		$	3,427		Cash and cash equivalents	$	24,051	$	1,357
Accounts receivable	11,911			6,637			Accounts receivable	33,447		32,541

Other current assets	598			542			Other current assets	4,265		3,499
Total current assets	17,439			10,606			Total current assets	61,763		37,397
Equipment and improvements, net	1,391			644			Equipment and improvements, net	1,912		3,339
Operating lease right-of-use-assets							Operating lease right-of-use-assets	19,919		22,427
Deferred taxes, net	9,639			11,415			Deferred taxes, net	—		37
Goodwill and other intangible assets, net	41,116			42,304
Goodwill							Goodwill	65,643		67,144
Intangible assets, net							Intangible assets, net	47,469		52,612
Other long-term assets	139			105			Other long-term assets	464		606
Total assets	$	69,724		$	65,074		Total assets	$	197,170	$	183,562
LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Debt obligations - current	$	3,601		$	3,560
Derivative financial instruments, at fair value	306			204
Debt obligations - current, net of deferred financing costs							Debt obligations - current, net of deferred financing costs	$	—	$	6,727

Operating lease liabilities - current							Operating lease liabilities - current	2,261		2,045
Accrued payroll	3,723			3,616			Accrued payroll	9,125		10,611
Deferred revenue							Deferred revenue	22,273		—
Accounts payable, accrued expenses, and other current liabilities	10,895			7,136			Accounts payable, accrued expenses, and other current liabilities	32,717		28,578
Total current liabilities	18,525			14,516			Total current liabilities	66,376		47,961
Total long term liabilities	15,344			18,782
Long-term liabilities:							Long-term liabilities:
Deferred taxes, net							Deferred taxes, net	1,176		—
Operating lease liabilities - long-term							Operating lease liabilities - long-term	19,374		21,620
Debt obligations - long-term, net of deferred financing costs							Debt obligations - long-term, net of deferred financing costs	44,636		60,544

Total long-term liabilities							Total long-term liabilities	65,186		82,164
Total liabilities	33,869			33,298			Total liabilities	131,562		130,125
Commitments and contingencies

Shareholders' equity:							Shareholders' equity:
Common stock, $.001 par value; authorized 40,008 shares; issued and outstanding 11,767 at September 30, 2017 and 11,148 at September 30, 2016	12			11
Common stock, $0.001 par value; authorized 40,000 shares; issued and outstanding 12,714 and 12,404 at September 30, 2021 and 2020, respectively							Common stock, $0.001 par value; authorized 40,000 shares; issued and outstanding 12,714 and 12,404 at September 30, 2021 and 2020, respectively	13		12
Additional paid-in capital	82,687			81,897			Additional paid-in capital	87,893		85,868
Accumulated deficit	(46,844		)	(50,132		)	Accumulated deficit	(22,298)		(32,443)
Total shareholders’ equity	35,855			31,776			Total shareholders’ equity	65,608		53,437
Total liabilities and shareholders' equity	$	69,724		$	65,074		Total liabilities and shareholders' equity	$	197,170	$	183,562


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount		Shares	Amount
Year Ended September 30, 2021
Balance at September 30, 2020	12,404	$	12	—	$	—	$	85,868	$	(32,443)	$	53,437

Expense related to director restricted stock units	141	—		—	—		467		—		467
Expense related to employee stock options	—	—		—	—		1,193		—		1,193
Exercise of stock options	175	1		—	—		433		—		434
Repurchase of common stock	—	—		—	—		—		—		—
Cancellation of common stock	(6)	—		—	—		(68)		—		(68)
Net income	—	—		—	—		—		10,145		10,145
Balance at September 30, 2021	12,714	$	13	—	$	—	$	87,893	$	(22,298)	$	65,608



					(in thousands)

	Ref	Goodwill			Customer Relationships		Non Compete			Trade Name		Total
Gross Balance as of September 30, 2016		$	34,745		$	7,247	$	1,370		$	—	43,362
Measurement period adjustment		(8,756		)	9,379		(890		)	517		250
Adjusted Gross Balance at September 30, 2017		$	25,989		$	16,626	$	480		$	517	43,612



				(in thousands)
	Ref.	Goodwill		Customer Relationships (a)			Non Compete Agreement (a)			Trade Name (a)			Total
Accumulated amortization at September 30, 2016		$	—	$	(993	)	$	(65	)	$	—		$	(1,058	)
Prior period amortization adjustment		—		300			45			(21		)	324
Current period amortization		—		(1,662		)	(48		)	(52		)	(1,762		)
Total accumulated amortization		—		(2,355		)	(68		)	(73		)	(2,496		)
Net balance at September 30, 2017		$	25,989	$	14,271		$	412		$	444		$	41,116



Estimated amortization expense for future years:	(in thousands)
Year 1	$	1,762
Year 2	1,762
Year 3	1,762
Year 4	1,762
Year 5	1,762
Thereafter	6,317
	$	15,127



		(in thousands)
		Period Ended
		September 30,
	Ref	2017		2016
Unrecognized expense for DLH employees	(a)	$	299	$	18
Unrecognized expense for non-employee directors	(b)	—		24
Total unrecognized expense		$	299	$	42



	Beginning Balance		Realized/Unrealized		Purchases and		Ending Balance		Change in Unrealized (gains) losses for liabilities held at
	October 1, 2016		(Gains) Losses		Settlements		September 30, 2017		September 30, 2017
Warrant issued to acquire common stock	$	204	$	102	$	—	$	306	$	102


	2017 Quarters														2021 Quarters
	First			Second			Third			Fourth				Ref	First		Second		Third		Fourth
Revenue	$	26,111		$	29,905		$	29,256		$	30,390		Revenue	(a)	$	57,852	$	61,506	$	61,555	$	65,182
Gross margin	5,811			6,401			6,385			7,253

Income from operations	889			1,839			1,753			2,149			Income from operations		3,635		4,620		4,939		4,030
Other income (expense), net	(364		)	(255		)	(269		)	(340		)
Interest expense, net													Interest expense, net		(1,080)		(1,004)		(893)		(808)
Income before income taxes	525			$	1,584		1,484			1,809			Income before income taxes		2,555		3,616		4,046		3,222
Income tax expense(benefit)	201			$	605		539			769
Income tax expense													Income tax expense		741		1,049		1,166		339
Net income	$	324		$	979		$	945		$	1,040		Net income		$	1,814	$	2,567	$	2,880	$	2,883
Earnings (loss) per share:
Earnings per share:													Earnings per share:
Basic	$	0.03		$	0.09		$	0.08		$	0.09		Basic		$	0.15	$	0.20	$	0.23	$	0.23
Diluted	$	0.03		$	0.08		$	0.08		$	0.08		Diluted		$	0.13	$	0.19	$	0.21	$	0.21


	2020 Quarters
	First		Second		Third		Fourth
Revenue	$	52,238	$	54,798	$	51,459	$	50,691

Income from operations	3,126		3,837		3,800		2,698
Interest expense, net	(941)		(906)		(813)		(781)
Income before income taxes	2,185		2,931		2,987		1,917
Income tax expense	634		855		863		554
Net income	$	1,551	$	2,076	$	2,124	$	1,363
Earnings per share:
Basic	$	0.13	$	0.17	$	0.17	$	0.11
Diluted	$	0.12	$	0.16	$	0.16	$	0.10



	2016 Quarters
	First			Second			Third (1)			Fourth
Revenue	$	16,559		$	16,934		$	24,989		$	27,120
Gross margin	2,917			3,224			5,456			6,229
Income from operations	382			689			1,668			1,325
Other expense	(575		)	(127		)	(374		)	(542		)
Income (loss) before income taxes	(193		)	562			1,294			783
Income tax expense(benefit) (2)	(77		)	225			518			(1,604		)
Net income (loss)	$	(116	)	$	337		$	776		$	2,387
Earnings (loss) per share:
Basic	$	(0.01	)	$	0.03		$	0.08		$	0.23
Diluted	$	(0.01	)	$	0.03		$	0.07		$	0.20