2. Supplemental Balance Sheet Disclosures

Unbilled Receivables

Unbilled receivables principally represent sales recorded under the percentage-of-completion method of accounting that, in accordance with applicable contract terms, have not been billed to customers. Unbilled receivables, net of progress payments and an impairment of $3.6 million and $3.7 million related to the Delta contract at December 31, 2014 and September 30, 2014 respectively, were $6.8 million and $7.4 million at December 31, 2014 and September 30, 2014, respectively.

Significant changes in estimates related to accounting for long-term contracts under the percentage-of-completion method may have a material effect on the Company’s results of operations in the period in which the revised estimates are made. Cumulative catch-up adjustments resulting from changes in estimates increased and decreased operating income by $366,000 and $183,000 for the three months ended December 31, 2014 and December 31, 2013 respectively.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market, net of reserve for excess and obsolete inventory, and consist of the following:

	December 31		September 30,
	2014		2014
Raw materials	$	4,136,195	$	4,389,334
Work-in-process	906,727		905,529
Finished goods	233,227		175,923
	$	5,276,149	$	5,470,786

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	December 31		September 30,
	2014		2014

Prepaid insurance	$	562,470	$	398,090

Other	231,996		352,018
	$	794,466	$	750,108

Property and equipment

Property and equipment, net consists of the following:

	December 31,			September 30,
	2014			2014

Land	1,021,245			1,021,245
Computer equipment	2,298,073			2,292,548
Corporate airplane	3,128,504			3,128,504
Furniture and office equipment	1,063,254			1,063,254
Manufacturing facility	5,728,437			5,728,437
Equipment	5,061,569			5,047,737
	18,301,082			18,281,725
Less: accumulated depreciation and amortization	(10,933,613		)	(10,814,062		)
	$	7,367,469		$	7,467,663

Depreciation and amortization related to property and equipment was approximately $135,000 and $129,000 for the three months ended December 31, 2014 and 2013, respectively. The corporate airplane is utilized primarily in support of product development and has been depreciated to its estimated salvage value.

Other assets

Other assets consist of the following:

	December 31,		September 30,
	2014		2014
Intangible assets, net of accumulated amortization of $504,637 and $499,837 at December 31, 2014 and September 30, 2014	$	95,600	$	100,400
Other non-current assets	10,448		10,448
	$	106,048	$	110,848

Intangible assets consist of licensing and certification rights which are amortized over a defined number of units. No impairment charges were recorded in the three months ended December 31, 2014 and 2013.

Total amortization expense was approximately $5,000 and $0 for the three months ended December 31, 2014 and 2013, respectively. The timing of future amortization expense is not determinable because the intangible assets are being amortized over a defined number of units.

Accrued expenses

Accrued expenses consist of the following:

	December 31,		September 30,
	2014		2014

Warranty	$	818,005	$	777,599
Salary, benefits and payroll taxes	352,742		787,277
Professional fees	421,475		431,612
Income taxes payable	57,399		185,151
Other, including losses on contracts	1,257,474		1,895,651
	$	2,907,095	$	4,077,290

Other accrued expense at December 31, 2014 and September 30, 2014 includes $1.0 and $1.5 million of EDC program costs respectively.

Warranty cost and accrual information for the three months ended December 31, 2014 is highlighted below:

	Three Months Ending
	December 31, 2014

Warranty accrual, beginning of period	$	777,599
Accrued expense	91,387
Warranty cost	(50,981		)
Warranty accrual, end of period	$	818,005