MANAGEMENT REPORT OF DLH HOLDINGS CORP. AND ANALYSIS OF THE FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

Forward-looking statements and cautions

You should read the following discussion in conjunction with the 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, 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.

Company overview:

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. We derive 99% of 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").

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, 2020, we acquired Irving Burton Associates, LLC ("IBA").

Our commercial offerings are aligned with three areas of market interest within the Federal Health Services market space.

•Defense and Veteran Health Solutions;
•Human Services and Solutions;
•Public Health and Life Sciences.

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Major Customers
Our largest customer is the VA, which comprised approximately $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
relationships with the VA and HHS as a significant portion of our 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.

Prospective business trends:

Our mission is to 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, veterans, and civilian
populations and communities. Our primary focus within the defense agency markets
include military service members' and veterans' requirements for telehealth
services, behavioral healthcare, medication therapy management, process
management, clinical systems support, and healthcare delivery. Our primary focus
within the civilian agency markets 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 populations. We believe these
business development priorities will position 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 Year 2022:

The 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 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 future public health crises,
expanding access to healthcare, and defeating diseases and epidemics such as,
but not limited to, the 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 final appropriation bills for the
government's 2022 fiscal year, the Company continues to believe that its key
programs benefit from bipartisan support and does not expect a material impact
on its current business base 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 new
program starts, delays in contract award decisions, and other factors. On
December 2, 2021, Congress passed and, on December 3, 2021, the 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 the federal government. As such, we do not anticipate or
expect any significant changes to our operations.

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Department of Veterans Affairs (“VA”) Trends in health spending:

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 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.

The VA is requesting a total of $269.9 billion for fiscal year 2022, a 10%
increase above fiscal year 2021 enacted levels. It includes $117.2 billion in
discretionary funding, an increase of $9.7 billion, 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
Department's understanding of the impact of traumatic brain injury and toxic
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 our capabilities and service
delivery models are aligned with our customers growth initiatives.

Ministry of Health and Social Services (“HHS”) Spending Trends:

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

The fiscal year 2022 budget request proposes $131.8 billion in discretionary
budget authority for HHS, an increase of $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. We believe our capabilities and past
performance are well aligned with the service sought under this budget increase.

Department of Defense Health expenditure trends (“DoD”):

The Military Health System ("MHS") is one of the largest health care systems and
a 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 and personnel to support the MHS's
mission is referred to as the Unified Medical Budget ("UMB"). The fiscal year
2022 UMB request for the Defense Health Program is $35.6 billion, an increase of
$1.5 billion from the fiscal year 2021 appropriated amount.

Industry Consolidation Among Federal Government Contractors:

There has been active consolidation and a sharp increase in M&A activity among federal government entrepreneurs over the past few years that we expect to continue, fueled by public companies benefiting from strong balance sheets. Companies often look to acquisitions that increase core capabilities, contracts, customers, market differentiators, stability, cost synergies and higher margins and revenue streams.

Potential impact of federal laws and regulations on contractual set-aside:

The Federal government has an overall goal of 23% of prime contracts flowing
through small businesses. As previously reported, various agencies within the
federal government have policies that support small business goals, including
the adoption of 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.

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The Company believes that its past performance in 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 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.

Impact of COVID-19

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 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
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 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 Form 10-K.

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Operating results for the 2021 financial year compared to the 2020 financial year

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

                                                                                                    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



Revenue

For the year ended September 30, 2021 revenue was $246.1 million, an increase of
$36.9 million or 17.6% over the prior year period. The increase is partially due
to the inclusion of Irving Burton Associates, LLC. ("IBA"), acquired in
September 2020, for the full year in fiscal year 2021. IBA contributed $30.2 of
revenue for fiscal year 2021. The remaining net growth was due to contract
expansion on existing 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 infrastructure costs. For the year ended September 30,
2021, contract costs increased by approximately $31.0 million consistent with
the growth in revenues. The increase 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 to approximately $25.1 million
primarily from the growth in revenues. As a percent of revenue, general and
administrative costs decreased as we were 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 transaction that was
evaluated but was not executed. Costs incurred in fiscal year 2020 were due to
the IBA acquisition.

For the year ended September 30, 2021, depreciation and amortization costs were approximately $ 1.5 million and $ 6.6 million, respectively, compared to about $ 2.2 million and $ 4.8 million for the previous year, an overall increase of $ 1.1 million. The increase is mainly due to the amortization of finite life intangible assets acquired from IBA.

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Interest expense, net

Interest expense, net, includes items such as, interest expense and amortization
of deferred financing costs on debt obligations. For the year ended
September 30, 2021, interest expense, net, was $3.8 million compared to interest
expense, net of $3.4 million in the prior year, an increase of approximately
$0.3 million over the prior year period. The increase in interest expense was
due to the $33.0 million increase to the senior term loan used to finance the
acquisition of IBA.

Income Tax Expense

Income tax expense for fiscal year ended September 30, 2021 was $3.3 million, an
increase of approximately $0.4 million from the prior fiscal year. The effective
tax rate was 24.5% and 29% for the fiscal years ending September 30, 2021 and
2020 respectively.

Non-GAAP financial measures for fiscal years 2021 and 2020

The Company uses EBITDA as a supplemental non-GAAP measures of our performance.
The Company defines EBITDA as net income excluding (i) interest expense,
(ii) provision for or benefit from income taxes, if any, and (iii) depreciation
and 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 approximately $4.9 million, or 23.8%, over the
prior fiscal year. This increase was principally due to the contribution of IBA
and effective management of general and administrative expenses.

We incurred $1.1 million of corporate development costs for the year ended
September 30, 2021, and $0.9 million in the fiscal year ended September 30,
2020. We 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 events.

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

Reconciliation of GAAP net income to EBITDA, a non-GAAP 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



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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

For the year ended September 30, 2021, the Company generated operating income of
approximately $17.2 million and net income of approximately $10.1 million. Cash
flows from operations totaled approximately $45.7 million and $19.5 million for
the years ended September 30, 2021 and 2020, respectively. The increase in cash
from operations was principally due to 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 less than $ 0.1 million and $ 32.8 million of cash in investing activities in fiscal years 2021 and 2020, respectively. The cash used is mainly due to capital expenditure during fiscal year 2021 and the acquisition of IBA during fiscal year 2020.

Cash used in and provided by financing activities during the fiscal years
ended September 30, 2021 and 2020 was approximately $22.9 million and $12.9
million, respectively. The activity in each fiscal year 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, 2020 in connection with our acquisition of IBA.
During the year ended September 30, 2021, we had repayments of approximately
$23.3 million under our credit facility. We expect to continue to use operating
cash flow to pay outstanding debt.

A summary of the change in 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, 2021, our immediate sources of liquidity include cash and
cash equivalents of approximately $24.1 million, accounts receivable, and access
to our secured revolving line of credit facility. This credit facility provides
us with access of up to $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. We
believe that our current investment and financing obligations are adequately
covered by cash generated from profitable operations and that planned operating
cash flow should be sufficient to support our operations for twelve months from
the date of issuance of these consolidated financial statements.

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Loan facility

A summary of our loan facilities and subordinated debt financing 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               Secured term loan (a)                   $       46.8              LIBOR* + 3.5%                09/30/25
Pennsylvania
First National Bank of               Secured revolving line of credit        $          -              LIBOR* + 3.5%                09/30/25
Pennsylvania                         (b)



*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 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 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,
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 term loan is subject to interest rate
fluctuations and the minimum LIBOR floor of 50 bps. On the 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.
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(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.


Contractual obligations from September 30, 2021

                                                              Payments Due By Period
                                               Next 12        2-3           4-5         More than 5
(Amounts in thousands)            Total        Months        Years         Years           Years
Debt Obligations                $ 46,750      $     -      $  8,250      $ 38,500      $          -
Facility Operating Leases         27,701        3,418         6,507         6,285            11,491

Equipment Operating Leases           218           83           135             -                 -
Total Obligations               $ 74,669      $ 3,501      $ 14,892      $ 44,785      $     11,491


Off-balance sheet provisions

The Company did not have any material off-balance sheet arrangements at
September 30, 2021 or subsequent to, or upon filing of our consolidated financial statements in our annual report as defined under SECOND rules.

Effects of inflation

Inflation and changing prices have not had a material impact on the Company's
net revenues, results of operations, and cash flows as inflation has generally
been limited. However, we are subject to current inflation pressures which may
increase the cost of labor, subcontractors and other direct costs. The Company
has been able to modify its prices and cost structure to respond to inflation
and changing prices as needed and expects to be able to do so in future periods.

Critical accounting conventions and estimates

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 lease liabilities, valuation allowances established against deferred
tax assets, and measurement of loss development on workers' compensation claims.
In addition, the Company estimates overhead charges and allocates such charges
throughout the year. Actual results could differ from those estimates. In
particular, a material reduction in the fair value of goodwill would have a
material adverse effect on the Company's financial position and results of
operations. For a detailed discussion on the application of these and other
accounting policies, you should review the discussion under the caption

Significant accounting policies in Note 4 of the Notes to our Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K.

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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.

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.

Refer to Note 5 of the Notes to our Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K for a discussion of accounting for the Company’s revenue in accordance with ASC-606.

Long-term assets

Our long-lived assets include equipment and improvements, right-of-use assets,
intangible assets, and goodwill. The Company continues to review its 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.

Costs incurred to place the asset in service are capitalized and costs incurred
after implementation are expensed. Amortization expense is recorded when the
software is placed in service on a straight-line basis over the estimated useful
life of the software.

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, less incentives
received. Our right-of-use assets include long-term leases for facilities and
equipment and are amortized over their respective lease terms.

Intangible assets are initially recognized at fair value and amortized on a straight-line basis over their estimated useful life. The estimated useful life of the assets is 10 years.

Goodwill

The Company continues to review its goodwill 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. At September 30, 2021, we performed a goodwill impairment
evaluation. 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, 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
did not 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.

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Income taxes

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
fully utilized its net operating loss carryforwards.

Compensation in shares

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 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 statements

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

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