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 $1.3 million related to a certain customer contract and an impairment of $3.6 million related to the Delta contract at December 31, 2015 and September 30, 2015 respectively, were $2.7 million and $3.9 million at December 31, 2015 and September 30, 2015, 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 $46,000 for the three months ended December 31, 2015. Cumulative catch-up adjustments resulting from changes in estimates reduced operating income by $366,000 for the three months ended December 31, 2014.

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,
	2015		2015

Raw materials	$	3,626,433	$	3,346,778
Work-in-process	635,826		745,311
Finished goods	261,651		505,227

	$	4,523,910	$	4,597,316

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	December 31,		September 30,
	2015		2015

Prepaid insurance	$	127,902	$	290,543
Income tax refund receivable	440,729		386,869
Other	359,713		544,305

	$	928,344	$	1,221,717

Property and equipment

Property and equipment, net consists of the following:

	December 31,			September 30,
	2015			2015

Land	$	1,021,245		$	1,021,245
Computer equipment	2,261,643			2,270,799
Corporate airplane	3,194,571			3,128,504
Furniture and office equipment	1,052,284			1,056,486
Manufacturing facility	5,733,313			5,733,313
Equipment	5,165,190			5,165,190

	18,428,246			18,375,537
Less: accumulated depreciation and amortization	(11,380,619		)	(11,280,207		)

	$	7,047,627		$	7,095,330

Depreciation and amortization related to property and equipment was approximately $114,000 and $135,000 for the three months ended December 31, 2015 and 2014, 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,
	2015		2015
Intangible assets, net of accumulated amortization of $517,037 at December 31, 2015 and September 30, 2015	$	83,200	$	83,200
Other non-current assets	85,748		85,748

	$	168,948	$	168,948

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, 2015 and 2014.

Total amortization expense was approximately $0 and $5,000 for the three months ended December 31, 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:

	December 31,		September 30,
	2015		2015

Warranty	$	987,947	$	878,901
Salary, benefits and payroll taxes	369,540		537,451
Professional fees	681,321		353,012
Other, including losses on contracts	868,198		799,167

	$	2,907,006	$	2,568,531

Other accrued expense at December 31, 2015 and September 30, 2015 includes $0.5 million and $0.6 million of EDC program costs, respectively.

Warranty cost and accrual information for the three months ended December 31, 2015 is highlighted below:

	Three Months Ending
	December 31, 2015

Warranty accrual, beginning of period	$	878,901
Accrued expense	222,362
Warranty cost	(113,316		)

Warranty accrual, end of period	$	987,947