DLH HOLDINGS CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22 (form 10-K)

--------------------------------------------------------------------------------

Forward Looking and Cautionary Statements

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, 2022. 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:

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
Veterans Affairs, Department of Health and Human Services, Department of
Defense, and Department of Homeland Security. The following table summarizes the
revenues by customer for the years ended September 30, 2022 and 2021,
respectively (in thousands):

                                                                         2022                                 2021
                                                              Revenue    Percent of total          Revenue     Percent of total
                                                                              revenue                              revenue
Department of Homeland Security                             $ 126,576              32.0  %       $   2,485                1.0  %
Department of Veterans Affairs                                126,106              31.9  %         110,078               44.7  %
Department of Health and Human Services                       102,201              25.9  %          91,543               37.2  %
Department of Defense                                          33,612               8.5  %          30,930               12.6  %
Customers with less than 10% share of
total revenue                                                   6,678               1.7  %          11,058                4.5  %
Total revenue                                               $ 395,173             100.0  %       $ 246,094              100.0  %

See “Item 1A – Risk Factors – A significant portion of our revenue is
concentrated in a small number of contracts and we could be seriously
harmed if we were unable to continue providing services under, or
unsuccessful in our recompete efforts on, these contracts.” for a
discussion of concentration risk within our VA and HHS portfolio of
contracts

The Company is a full-service provider of technology-enabled health and human
services, providing solutions to three market focus areas: Defense and Veteran
Health Solutions, Human Solutions and Services, and Public Health and Life
Sciences. We deliver domain-specific expertise, industry best-practices and
innovations to customers across these markets leveraging seven core
competencies: secure data analytics, clinical trials and laboratory services,
case management, performance evaluation, system modernization, operational
logistics and readiness, and strategic digital communications. The Company
manages its operations from its principal executive offices in Atlanta, Georgia,
and we have a complementary headquarters office in Silver Spring, Maryland. We
employ over 2,400 skilled employees working in more than 30 locations throughout
the United States and one location overseas.

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").

The following table summarizes revenues by our markets for the years ended
September 30, 2022 and 2021, respectively (in thousands):

                                       23

--------------------------------------------------------------------------------

                                                                       2022                                 2021
                                                            Revenue    Percent of total          Revenue     Percent of total
                                                                            revenue                              revenue
Human Services and Solutions                              $ 165,970              42.0  %       $  37,260               15.1  %
Defense and Veteran Health Solutions                        159,719              40.4  %         141,435               57.0  %
Public Health and Life Sciences                              69,484              17.6  %          67,399               27.9  %
Total revenue                                             $ 395,173             100.0  %       $ 246,094              100.0  %

Forward Looking 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.

COVID-19 impact

We are exposed to and impacted by macroeconomic factors and U.S. government
policies. Current general economic conditions continue to be impacted by the
COVID-19 pandemic, which resulted in both market size contractions due to
economic slowdowns and government restrictions on movement during the height of
the pandemic. While the rollout of vaccines has positively correlated to an
improvement in macroeconomic indicators, the lifting of various public health
constraints, and a reduction of many restrictions on economic activity, there
continues to be significant uncertainty as to the effects of the pandemic on the
economy, which may impact our results of operations or cash flows in future
periods. We have seen continued demand for the services we provide under our
current contract portfolio as the services we provide are largely deemed
essential. Although we have also been successful in winning new contracts tied
to the need to support public health initiatives in response to the pandemic, as
the public health situation improves, there may be fewer such opportunities in
the future.

General uncertainty related to the pandemic, the long-term efficacy of vaccines
and the spread of new variants, may nonetheless 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 have been able to
broadly maintain our operations. Further, we have partnered with our clients to
adopt particular measures to protect our employees at distribution centers, and
we have been and expect to continue to execute on the remainder of our contracts
through remote and teleworking arrangements. We continue to monitor the evolving
situation related to the COVID-19 pandemic and intend to continue to work with
government authorities and other stakeholders to assess further potential
implications to us, continue with employee safety measures to ensure that we are
able to continue our operations during the pandemic, and take other actions
where appropriate to mitigate other adverse consequences. 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 have 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 restriction of certain client activities due to
COVID-19.

Due to our ability to continue to perform on our contract portfolio and generate
cash flow, we do not presently expect nor have experienced liquidity constraints
related to COVID-19. We are presently in compliance with all covenants in our
secured term loan and have access to a secured revolving line of credit to meet
any short-term cash needs that cannot be funded by operations. As such,
mandatory demands on our cash flow remain low. 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.

                                       24

--------------------------------------------------------------------------------

Federal budget outlook for fiscal year 2023:

The President's budget proposal for fiscal year ("FY") 2023 outlines many
initiatives that include investments to rebuild our country's physical
infrastructure, strengthen supply chains, combat inflation, expand economic
opportunity, respond to the changing climate, sustain and strengthen national
defense, and bolster America's public health infrastructure. Specifically, the
investment in public health infrastructure involves improving the nation's
readiness for future pandemics and other biological threats, expanding access to
vaccines and healthcare, and defeating diseases and epidemics such as, but not
limited to, the opioid and HIV/AIDs epidemics. The budget's initiatives are
further reflected in the budget requests for the Department of Health and Human
Services, Department of Veterans Affairs, and Department of Defense.

While Congress has not completed the final appropriation bills for the
government's 2023 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
September 30, 2022, the President signed a CR providing funds to the federal
government through December 16, 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.

Department of Veterans Affairs

The VA is requesting a total of $301.4 billion for FY 2023, an increase of $30.7
billion above the FY 2022 request. It includes $139.1 billion in discretionary
funding, an increase of $21.9 billion, and $161.3 billion in mandatory funding,
an increase of $8.6 billion from FY 2022 enacted. 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 2023 budget request for the VA's research enterprise is $916
million, an increase of $34 million from the 2022 budget, excluding mandatory
funding. In addition, the 2023 budget estimates $4.8 billion will be spent on
telehealth treatment in 2023, an increase of $622 million from the 2022 current
estimate. The VA is continuing to expand this program because of its ability to
leverage VA providers and provide better services to veterans.

Department of Health and Human Services

The FY 2023 budget request proposes $127.3 billion in discretionary budget
authority for HHS and $1.7 trillion in mandatory funding for the department. The
budget proposes $63 billion in discretionary and mandatory resources for NIH, an
increase of $16 billion above FY 2022 enacted, to address the opioid crisis and
ending HIV crises, make new investments in pandemic preparedness and nutrition
research, and drive biomedical innovations. The budget also requests $45 million
for telehealth, which is $9 million above FY 2022 enacted, to promote health
services with telehealth technologies. The budget also provides for investment
in programs that improve the health and well-being of young children and their
families. This includes $12.2 billion for the Office of Head Start, principally
to expand eligibility for participation in the program.

Department of Defense

The Military Health System ("MHS") is one of the largest health care systems,
serving over 9 million beneficiaries. As a part of the DoD, the Defense Health
Agency ("DHA") manages a global health care network of military and civilian
medical professionals, military hospitals and clinics around the world, and
supports the delivery of integrated health services to MHS beneficiaries. The
funding and personnel to support MHS's mission is referred to as the Unified
Medical Budget ("UMB"). The FY 2023 UMB request for the Defense Health Program
("DHP") is $36.9 billion, a decrease of $0.4 billion from FY 2022 enacted. It is
anticipated that COVID-19 costs will decrease in FY 2023, driving a reduction in
the budget request for DHP In Direct Care and Private Sector Care.

                                       25

--------------------------------------------------------------------------------

Industry consolidation among federal government contractors:

There has been active consolidation and a strong increase in merger and
acquisition activity among federal government contractors over the past few
years that we expect to continue, fueled by public companies leveraging strong
balance sheets. Companies often look to acquisitions that augment core
capabilities, contracts, customers, market differentiators, stability, cost
synergies, and higher margin and revenue streams.

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

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.

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 for
specific pursuits that align with our core markets and corporate growth
strategy.

Results of Operations

Fiscal Year Ended September 30, 2022 as Compared to Fiscal Year Ended September
30, 2021

The following table summarizes, for the years indicated, consolidated statements
of operations data expressed (in thousands except for per share amounts, and as
percentages of revenue):

                                                                               Year Ended September 30,
                                                                       2022                                    2021                       Change
Revenue                                                $    395,173                100.0  %       $ 246,094             100.0  %       $ 149,079
Cost of operations
Contract costs                                              322,886                 81.7  %         194,614              79.1  %         128,272
General and administrative costs                             30,730                  7.8  %          25,054              10.2  %           5,676
Corporate development costs                                     614                  0.2  %           1,088               0.4  %            (474)
Depreciation and amortization                                 7,665                  1.9  %           8,115               3.3  %            (450)
Total operating costs                                       361,895                 91.6  %         228,871              93.0  %         133,024
Income from operations                                       33,278                  8.4  %          17,223               7.0  %          16,055
Interest expense                                              2,215                  0.6  %           3,784               1.6  %          (1,569)
Income before provision for income taxes                     31,063                  7.8  %          13,439               5.4  %          17,624
Provision for income taxes                                    7,775                  2.0  %           3,294               1.3  %           4,481
Net income                                             $     23,288                  5.8  %       $  10,145               4.1  %       $  13,143
Net income per share - basic                           $       1.82                               $    0.81                            $    1.01
Net income per share - diluted                         $       1.64                               $    0.75                            $    0.89



Revenue

For the year ended September 30, 2022 revenue was $395.2 million, an increase of
$149.1 million or 60.6% over the prior year period. The increase in revenue is
due primarily to the two task orders awarded under a FEMA contract to support
Alaska with its response to COVID-19. The revenue contribution from those task
orders was $125.8 million. The remainder of our revenue growth of approximately
$25 million was from our remaining contract portfolio was primarily due to
additional contracts awarded in late fiscal 2021 and increased volume on
existing contracts.
                                       26

--------------------------------------------------------------------------------

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,
2022, contract costs increased by approximately $128.3 million principally due
to the direct costs associated with the two task orders awarded under a FEMA
contract to support Alaska with its response to COVID-19.

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 $5.7 million to approximately $30.7 million
primarily due to increased investment in the human capital and business
development functions, increased regulatory compliance costs, primarily
increased external accounting fees, and increased stock compensation expense
from employees option grants awarded in the current fiscal year..

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.

For the year ended September 30, 2022, depreciation and amortization costs were
approximately $1.1 million and $6.6 million, respectively, as compared to
approximately $1.5 million and $6.6 million for the prior fiscal year, an
aggregate decrease of $0.5 million.

Interest Expense

Interest expense includes items such as, interest expense and amortization of
deferred financing costs on debt obligations. For the year ended September 30,
2022, interest expense was $2.2 million compared to interest expense, net of
$3.8 million in the prior year, a decrease of approximately $1.6 million over
the prior year period. The decrease in interest expense was primarily due to the
decreased balance on our secured term loan.

Provision for Income Taxes

Provision for Income taxes for the fiscal year ended September 30, 2022 was $7.8
million, an increase of approximately $4.5 million from the prior fiscal year.
The effective tax rate was 24.8% and 24.5% for the fiscal years ending
September 30, 2022 and 2021 respectively.

Non-GAAP Financial Measures for Fiscal 2022 and 2021

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, 2022 was approximately
$40.9 million, an increase of approximately $15.6 million, or 61.6%, over the
prior fiscal year. The increase from the prior fiscal year was principally due
to the two task orders awarded under a FEMA contract to support Alaska with its
response to COVID-19. Those contracts contributed a significant percentage of
the growth we experienced for the year-to-date period, reflecting stronger
margins than initially anticipated. The increased margins were achieved by
effectively staffing the projects with internal resources, rather than
subcontractors, where appropriate.

The Company is presenting additional non-GAAP measures to describe the impact
from two short-term FEMA task orders on its financial performance for the year
ended September 30, 2022. The measures presented are revenue, operating income,
net income, diluted earnings per share, and EBITDA for our enterprise contract
portfolio less the respective performance on the FEMA task orders. These
resulting measures present the contract portfolio's financial performance
compared to results delivered in the prior year period. Definitions of these
additional non-GAAP measures are set forth in the footnotes to the
reconciliation table below.

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
                                       27

--------------------------------------------------------------------------------

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.

GAAP net income to EBITDA, a non-GAAP measure for the years ended September 30,
2022 and 2021 (in thousands):

                                            2022          2021         Change
Net income                               $ 23,288      $ 10,145      $ 13,143
(i) Interest expense                        2,215         3,784        (1,569)

(ii) Provision for income taxes             7,775         3,294         

4,481

(iii) Depreciation and amortization         7,665         8,115          (450)

EBITDA                                   $ 40,943      $ 25,338      $ 15,605



GAAP revenue, operating income, net income, diluted earnings per share, and
non-GAAP EBITDA reported for the years ended September 30, 2022 and 2021 to the
same metrics for our contract portfolio less the FEMA task orders (in thousands
except for per share amounts):

                                                                        2022              2021              Change
Revenue (a)
Total enterprise                                                   $      395,173    $      246,094    $        149,079
Less: FEMA task orders to support Alaska                                  125,773             1,727             124,046
Remaining contract portfolio                                       $      269,400    $      244,367    $         25,033

Operating income (b)
Total enterprise                                                   $       33,278    $       17,223    $         16,055
Less: FEMA task orders to support Alaska                                   12,479               117              12,362
Remaining contract portfolio                                       $       20,799    $       17,106    $          3,693

Net income (c)
Total enterprise                                                   $       23,288    $       10,145    $         13,143
Less: FEMA task orders to support Alaska                                    9,235               117               9,118
Remaining contract portfolio                                       $       

14,053 $ 10,028 $ 4,025

Diluted earnings per share (d)
Total enterprise                                                   $         1.64    $         0.75    $           0.89
Less: FEMA task orders to support Alaska                                     0.65              0.01                0.64
Remaining contract portfolio                                       $         0.99    $         0.74    $           0.25

EBITDA (e)
Total enterprise                                                   $       40,943    $       25,338    $         15,605
Less: FEMA task orders to support Alaska                                   12,479               117              12,362
Remaining contract portfolio                                       $       

28,464 $ 25,221 $ 3,243

(a): Revenue for the Company's remaining contract portfolio less the FEMA task
orders represents our consolidated revenues less the revenues generated from the
FEMA task orders.

                                       28

--------------------------------------------------------------------------------

(b): Operating income attributable to the remaining contract portfolio less the
FEMA task orders represents the Company's consolidated operating income,
determined in accordance with GAAP, less the operating income derived from the
FEMA task orders. Similarly, for the year ended September 30, 2022 operating
income for the FEMA task orders is derived by subtracting from the revenue
attributable to the tasks orders of $125.8 million the following amounts
associated with such task orders: contract costs $112.1 million and general &
administrative costs of $1.2 million.

(c): Net income attributable to the remaining contract portfolio less the FEMA
task orders represents the Company's consolidated net income, determined in
accordance with GAAP, less the net income derived from the FEMA task orders. For
the year ended September 30, 2022 net income for the FEMA task orders is derived
by subtracting from the revenue attributable to the tasks orders of $125.8
million the following amounts associated with such task orders: contract costs
of $112.1 million, general & administrative costs of $1.2 million, and provision
for income taxes of $3.2 million.

(d): Diluted earnings per share (diluted EPS) for the FEMA task orders is
calculated using the net income attributable to such task orders as opposed to
GAAP net income. Diluted EPS for the remaining contract portfolio (total
contract portfolio excluding the FEMA task orders) is calculated by subtracting
the diluted EPS for the FEMA task orders from the Company's total diluted EPS.

(e): EBITDA attributable to the FEMA task orders of $12.5 million for the year
ended September 30, 2022, is arrived at through the same calculation as
operating income as there are not any depreciation and amortization costs
attributable to the FEMA task orders. EBITDA for the remaining contract
portfolio is calculated by subtracting the EBITDA attributable to the FEMA task
orders from the Company's total EBITDA.

Liquidity and Capital Management

For the year ended September 30, 2022, the Company generated operating income of
approximately $33.3 million and net income of approximately $23.3 million. Cash
flows from operations totaled approximately $1.2 million and $45.7 million for
the years ended September 30, 2022 and 2021, respectively. The decrease in cash
from operations was principally a result of performance of the deferred contract
obligations on the FEMA task orders, for which an advance payment was received
at the end of fiscal 2021.

We used less than $0.9 million and $0.1 million of cash in investing activities
during fiscal years 2022 and 2021, respectively. The cash utilized was
predominantly due to capital expenditures in fiscal year 2022 and 2021.

Cash used in financing activities during the fiscal years ended September 30,
2022 and 2021 was approximately $24.2 million and $22.9 million, respectively.
The activity in each fiscal year was primarily early repayment of principal on
our secured term loan. During the year ended September 30, 2022 and 2021, the
Company repaid approximately $24.8 million and $23.3 million of secured term
loan principal, respectively. We expect to continue to use operating cash flow
to pay outstanding debt.

A summary of the change in cash is presented below for the years ended
September 30, 2022 and 2021 (in thousands):

                                                                2022        

2021

Net cash provided by operating activities $ 1,243 $ 45,665

          Net cash used in investing activities                   (872)     

(44)

          Net cash used in by financing activities             (24,194)     

(22,927)

          Net change in cash                                 $ (23,823)     $ 22,694



Sources of Cash

As of September 30, 2022, our immediate sources of liquidity include cash of
approximately $0.2 million, accounts receivable, and access to our secured
revolving line of credit. 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, 2022, we had unused borrowing capacity of $23.0
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.
                                       29

--------------------------------------------------------------------------------

Credit Facilities

A summary of our credit facilities as of September 30, 2022 is as follows (in
millions):

Lender                               Arrangement                          Loan Balance              Interest *                Maturity Date
First National Bank of               Secured term loan (a)               $       22.0              LIBOR* + 2.5%                09/30/25

Pennsylvania

First National Bank of               Secured revolving line of           $          -              LIBOR* + 2.5%                09/30/25
Pennsylvania                         credit (b)

*LIBOR rate as of September 30, 2022 was 2.52%. The interest rate spread ranges
from 2.5% to 4.5% depending on the funded indebtedness to adjusted EBITDA ratio.

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

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 as of September 30, 2022 is $16.2 million
and matures in 2024. The remaining outstanding balance of our secured term loan
is subject to interest rate fluctuations.

(b) The secured revolving line of credit has a ceiling of up to $25.0 million
and a maturity date of September 30, 2025. The Company accessed funds from the
secured revolving line of credit during the year, but has no outstanding balance
at September 30, 2022.

The secured term loan and secured revolving line of credit are secured by liens
on substantially all of the assets of the Company. The provisions of the secured
term loan and secured revolving line of credit, including financial covenants,
are fully described in   Note 7   to the consolidated financial statements.

Contractual Obligations as of September 30, 2022

                                                                 Payments Due By Period
                                                  Next 12        2-3           4-5        More than 5
    (Amounts in thousands)           Total        Months        Years         Years          Years
Debt obligations                   $ 22,000      $     -      $ 22,000      $     -      $          -
Facility operating leases            23,407        3,216         6,099        5,579             8,513

Equipment operating lease               135           83            52            -                 -

Total contractual obligations $ 45,542 $ 3,299 $ 28,151 $ 5,579 $ 8,513

Critical Accounting Policies 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, stock-based compensation, 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.

                                       30

--------------------------------------------------------------------------------

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 4 of the accompanying notes to our consolidated financial
statements contained elsewhere in this Annual Report on Form 10-K for discussion
relative to the Company’s revenue recognition in accordance with ASC-606.

Long-lived 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 originally recorded at fair value and amortized on a
straight-line basis over their assessed useful lives. The assessed useful lives
of the assets are 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, 2022, we performed an internal 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, 2022, 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.

                                       31

--------------------------------------------------------------------------------

Provision for 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.

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 method
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   of the accompanying notes to our consolidated financial statements contained
elsewhere in this Annual Report, and we incorporate such discussion by
reference.

© Edgar Online, source Glimpses