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 related to the Delta contract at March 31, 2016 were $1.7 million. Unbilled receivables, net of progress payments and an impairment of $1.3 million related to a certain customer and an impairment of $3.6 million related to the Delta contract at September 30, 2015 were $3.9 million. The Company negotiated changes to its agreement with a customer in January 2016 whereby the $1.3 million of unbilled receivables previously charged to bad debt expense in the quarter ended September 30, 2015 were cancelled.

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 operating income by $398,000 for the three months ended March 31, 2016 and increased operating income by $352,000 for the six months ended March 31, 2016. These increases to operating income are primarily related to reversals of loss accruals due to the cancellation of certain product deliverables as negotiated with a certain customer in January, 2016. Cumulative catch-up adjustments resulting from changes in estimates increased operating income by $354,000 and $720,000 for the three and six months ended March 31, 2015, 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:

	March 31,		September 30,
	2016		2015

Raw materials	$	3,231,876	$	3,346,778
Work-in-process	610,246		745,311
Finished goods	229,225		505,227

	$	4,071,347	$	4,597,316

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	March 31,		September 30,
	2016		2015

Prepaid insurance	$	431,238	$	290,543
Income tax refund receivable	415,940		386,869
Other	581,862		544,305

	$	1,429,040	$	1,221,717

Property and equipment

Property and equipment, net consists of the following:

	March 31,			September 30,
	2016			2015

Land	$	1,021,245		$	1,021,245
Computer equipment	2,265,689			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	5,170,627			5,165,190

	18,437,729			18,375,537
Less: accumulated depreciation and amortization	(11,494,315		)	(11,280,207		)

	$	6,943,414		$	7,095,330

Depreciation related to property and equipment was approximately $113,000 and $140,000 for the three months ended March 31, 2016 and 2015, respectively. The corporate airplane is utilized primarily in support of product development and has been depreciated to its estimated salvage value.

Depreciation related to property and equipment was approximately $227,000 and $275,000 for the six months ended March 31, 2016 and 2015, respectively.

Other assets

Other assets consist of the following:

	March 31,		September 30,
	2016		2015
Intangible assets, net of accumulated amortization of $521,837 and $517,037 at March 31, 2016 and September 30, 2015	$	78,400	$	83,200
Other non-current assets	85,748		85,748

	$	164,148	$	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 six months ended March 31, 2016 and 2015.

Total amortization expense was approximately $4,800 and $8,000 for the three months ended March 31, 2016 and 2015, respectively. Total amortization expense was approximately $4,800 and $12,000 for the six months ended March 31, 2016 and 2015, respectively.

Accrued expenses

Accrued expenses consist of the following:

	March 31,		September 30,
	2016		2015

Warranty	$	996,660	$	878,901
Salary, benefits and payroll taxes	546,722		537,451
Professional fees	707,604		353,012
Other, including losses on contracts	331,288		799,167

	$	2,582,274	$	2,568,531

Other accrued expense at March 31, 2016 and September 30, 2015 includes $0 and $0.6 million of EDC program costs, respectively.

Warranty cost and accrual information for the three and six months ended March 31, 2016 is highlighted below:

	Three Months Ending			Six Months Ending
	March 31, 2016			March 31, 2016

Warranty accrual, beginning of period	$	987,947		$	878,901
Accrued expense	49,948			272,310
Warranty cost	(41,235		)	(154,551		)

Warranty accrual, end of period	$	996,660		$	996,660