2. Supplemental Balance Sheet Disclosures

Unbilled Receivables

Unbilled receivables represent primarily 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 customer payments, were $11.3 million and $6.5 million at June 30, 2014 and September 30, 2013, respectively.

The percentage-of-completion method of accounting for EDC sales requires estimates of profit margins for contracts be reviewed by the Company on a quarterly basis. If the initial estimates of sales 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 because of revisions in sales 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 $559,000 and $1,172,000, respectively, for the three and nine months ended June 30, 2014. Cumulative catch-up adjustments resulting from changes in estimates reduced operating income by $161,000 and $364,000, respectively, for the three and nine months ended June 30, 2013.

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,
	2014		2013
Raw materials	$	4,609,075	$	3,126,592
Work-in-process	1,111,548		857,602
Finished goods	152,264		393,319
	$	5,872,887	$	4,377,513

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	June 30,		September 30,
	2014		2013

Prepaid insurance	$	394,398	$	350,913
Other	324,632		291,297
	$	719,030	$	642,210

Property and equipment

Property and equipment, net consists of the following:

	June 30,			September 30,
	2014			2013

Land	$	1,021,245		$	1,021,245
Computer equipment	2,254,829			2,173,266
Corporate airplane	3,128,504			3,128,504
Furniture and office equipment	1,063,254			1,062,296
Manufacturing facility	5,719,805			5,631,001
Equipment	5,024,272			4,678,678
	18,211,909			17,694,990
Less: Accumulated depreciation and amortization	(10,681,419		)	(10,374,495		)
	$	7,530,490		$	7,320,495

Depreciation and amortization related to property and equipment was approximately $140,000 and $113,000 for the three months ended June 30, 2014 and 2013, 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 $414,000 and $330,000 for the nine months ended June 30, 2014 and 2013, respectively.

Other assets

Other assets consist of the following:

	June 30,		September 30,
	2014		2013
Intangible assets, net of accumulated amortization of $495,037 at June 30, 2014 and September 30, 2013	$	105,200	$	105,200
Other non-current assets	$	10,447	116,333
	$	115,647	$	221,533

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, 2014 and 2013.

Total amortization expense was approximately $0 and $7,000 for the three months ended June 30, 2014 and 2013, respectively. Total amortization expense for the nine months ended June 30, 2014 and 2013 was $0 and $36,000, 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,
	2014		2013

Warranty	$	846,060	$	701,456
Salary, benefits and payroll taxes	517,381		679,325
Professional fees	339,592		393,570
Income taxes payable	146,760		337,993
EDC program costs	1,295,155		560,428
Litigation claims	—		656,865
Other	274,198		343,272
	$	3,419,146	$	3,672,909

Other accrued expenses consist primarily of accruals for inventory-in-transit, royalties and operating expenses as of June 30, 2014 and for payments to sub-contractors and consultants for services completed as of September 30, 2013.

Warranty cost and accrual information for the three and nine months ended June 30, 2014 is highlighted below:

	Three Months Ending			Nine Months Ending
	June 30, 2014			June 30, 2014

Warranty accrual, beginning of period	$	743,482		$	701,456
Accrued expense for the three and nine months ended June 30, 2014	150,915			307,908
Warranty cost for the three and nine months ended June 30, 2014	(48,337		)	(163,304		)
Warranty accrual, end of period	$	846,060		$	846,060