2. SupplementalBalance Sheet Disclosures

Unbilled Receivables

Unbilled receivables principally represent sales recorded under the percentage-of-completion method of accounting that have not been billed to customers in accordance with applicable contract terms. Unbilled receivables, net of customer payments, were $7.3 million and $6.5 million at December 31, 2013 and September 30, 2013, respectively.

The percentage-of-completion method of accounting for EDC revenue requires estimates of profit margins for contracts be reviewed by the Company on a quarterly basis. If the initial estimates of revenues and costs under a contract are accurate, the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract. Changes in these underlying estimates due to revisions in revenue and cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over the life of a contract because such changes are accounted for on a cumulative basis in the period in which the estimates are revised. Significant changes in estimates related to accounting for long-term contracts 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 reduced operating income by $183,000 and $0 for the three months ended December 31, 2013 and 2012, 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,
	2013		2013
Raw materials	$	3,624,157	$	3,126,592
Work-in-process	1,123,403		857,602
Finished goods	227,981		393,319
	$	4,975,541	$	4,377,513

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	December 31,		September 30,
	2013		2013

Prepaid insurance	$	186,743	$	350,913
Other	326,531		291,297
	$	513,274	$	642,210

Property and equipment

Property and equipment, net consists of the following balances:

	December 31,			September 30,
	2013			2013

Land	$	1,021,245		$	1,021,245
Computer equipment		2,237,025			2,173,266
Corporate airplane	3,128,504			3,128,504
Furniture and office equipment	1,054,347			1,062,296
Manufacturing facility	5,649,070			5,631,001
Equipment	4,897,120			4,678,678
Total	17,987,311			17,694,990
Less: Accumulated depreciation and amortization	(10,459,727		)	(10,374,495		)
	$	7,527,584		$	7,320,495

Depreciation and amortization related to property and equipment was approximately $129,000 and $106,000 for the three months ended December 31, 2013 and 2012, respectively. The Corporate airplane is primarily utilized 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,
	2013		2013
Intangible assets, net of accumulated amortization of $495,037 at December 31, 2013 and September 30, 2013	$	105,200	$	105,200
Other non-current assets	126,781		116,333
	$	231,981	$	221,533

Intangible assets consist of licensing and certification rights which are amortized over a defined number of units. No impairment charges were recorded for the three months ended December 31, 2013 and 2012. Total amortization expense was approximately $0 and $13,000 for the three months ended December 31, 2013 and 2012, respectively. The timing of future amortization expense is not determinable because the intangible assets are being amortized over a defined number of units.

Other non-current assets consist primarily of deposits for leased facilities and inventory deliveries not expected to be applied in the next twelve months.

Accrued expenses

Accrued expenses consist of the following:

	December 31,		September 30,
	2013		2013

Warranty	$	756,544	$	701,456
Salary, benefits and payroll taxes	459,288		679,325
Professional fees	357,633		393,570
Income taxes payable	243,633		337,993
EDC program costs	1,153,618		560,428
Litigation claims	481,060		656,865
Other	251,277		343,272
	$	3,703,053	$	3,672,909

Other accrued expenses consist primarily of accruals for payments to consultants and sub-contractors for services completed as of December 31, 2013 and September 30, 2013.

Warranty cost and accrual information for the three months ended December 31, 2013 is highlighted below:

Warranty Accrual at September 30, 2013	$	701,456
Accrued expense	116,260
Warranty cost	(61,172		)
Warranty Accrual at December 31, 2013	$	756,544