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 June 30, 2015 and September 30, 2014, respectively, were $4.9 million and $7.4 million at June 30, 2015 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 decreased operating income by $125,000 for the three months ended June 30, 2015 and increased operating income by $595,000 for the nine months ended June 30, 2015. Cumulative catch-up adjustments resulting from changes in estimates reduced operating income by $559,000 and $1,172,000 for the three and nine months ended June 30, 2014, 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:

	June 30,		September 30,
	2015		2014

Raw materials	$	3,439,836	$	4,389,334
Work-in-process	499,014		905,529
Finished goods	199,855		175,923

	$	4,138,705	$	5,470,786

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	June 30,		September 30,
	2015		2014

Prepaid insurance	$	78,435	$	398,090
Other	748,991		352,018

	$	827,426	$	750,108

Property and equipment

Property and equipment, net consists of the following:

	June 30,			September 30,
	2015			2014

Land	$	1,021,245		$	1,021,245
Computer equipment	2,293,144			2,292,548
Corporate airplane	3,128,504			3,128,504
Furniture and office equipment	1,062,789			1,063,254
Manufacturing facility	5,733,312			5,728,437
Equipment	5,166,880			5,047,737

	18,405,874			18,281,725
Less: accumulated depreciation and amortization	(11,180,241		)	(10,814,062		)

	$	7,225,633		$	7,467,663

Depreciation and amortization related to property and equipment was approximately $138,000 and $140,000 for the three months ended June 30, 2015 and 2014, respectively. The corporate airplane is utilized primarily in support of product development and has been depreciated to its estimated salvage value.

Depreciation and amortization related to property and equipment was approximately $413,000 and $414,000 for the nine months ended June 30, 2015 and 2014, respectively.

Other assets

Other assets consist of the following:

	June 30,		September 30,
	2015		2014
Intangible assets, net of accumulated amortization of $517,037 and $499,837 at June 30, 2015 and September 30, 2014	$	83,200	$	100,400
Other non-current assets	85,749		10,448

	$	168,949	$	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 nine months ended June 30, 2015 and 2014.

Total amortization expense was approximately $5,000 and $0 for the three months ended June 30, 2015 and 2014, respectively. Total amortization expense was approximately $17,000 and $0 for the nine months ended June 30, 2015 and 2014, 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:

	June 30,		September 30,
	2015		2014

Warranty	$	823,759	$	777,599
Salary, benefits and payroll taxes	367,799		787,277
Professional fees	263,618		431,612
Income taxes payable	—		185,151
Other, including losses on contracts	843,814		1,895,651

	$	2,298,990	$	4,077,290

Other accrued expense at June 30, 2015 and September 30, 2014 includes $0.5 and $1.5 million of EDC program costs, respectively.

Warranty cost and accrual information for the three and nine months ended June 30, 2015 is highlighted below:

	Three Months Ending			Nine Months Ending
	June 30, 2015			June 30, 2015

Warranty accrual, beginning of period	$	826,136		$	777,599
Accrued expense	38,073			170,517
Warranty cost	(40,450		)	(124,357		)

Warranty accrual, end of period	$	823,759		$	823,759