2. Supplemental Balance 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 progress payments and an impairment of $3.6 million related to the Delta contract were $1.6 million at December 31, 2016 and September 30, 2016.

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 $154,000 for the three months ended December 31, 2016. Cumulative catch-up adjustments resulting from changes in estimates decreased operating income by $46,000 for the three months ended December 31, 2015.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market, net of write-downs for excess and obsolete inventory, and consist of the following:

	December 31,		September 30,
	2016		2016

Raw materials	$	3,173,982	$	2,966,891
Work-in-process	688,537		500,869
Finished goods	335,913		178,068

	$	4,198,432	$	3,645,828

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	December 31,		September 30,
	2016		2016

Prepaid insurance	$	498,139	$	386,212
Income tax refund receivable	479,726		106,932
Other	244,730		354,063

	$	1,222,595	$	847,207

Property and equipment

Property and equipment, net consists of the following:

	December 31,			September 30,
	2016			2016

Land	$	1,021,245		$	1,021,245
Computer equipment	2,224,772			2,208,398
Corporate airplane	3,194,571			3,194,571
Furniture and office equipment	1,052,284			1,052,284
Manufacturing facility	5,733,313			5,733,313
Equipment	5,466,915			5,435,949

	18,693,100			18,645,760
Less: accumulated depreciation and amortization	(11,791,534		)	(11,683,198		)

	$	6,901,566		$	6,962,562

Depreciation and amortization related to property and equipment was approximately $108,000 and $114,000 for the three months ended December 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.

Other assets

Other assets consist of the following:

	December 31,		September 30,
	2016		2016
Intangible assets, net of accumulated amortization of $529,037 at December 31, 2016 and September 30, 2016	$	71,200	$	71,200
Other non-current assets	85,748		85,748

	$	156,948	$	156,948

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, 2016 and 2015.

There was no amortization expense for the three months ended December 31, 2016 and 2015. 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,
	2016		2016

Warranty	$	1,025,442	$	1,009,368
Salary, benefits and payroll taxes	375,418		267,323
Professional fees	408,528		308,905
Other, including losses on contracts	436,766		304,312

	$	2,246,154	$	1,889,908

Other accrued expense at December 31, 2016 and September 30, 2016 includes $0.0 million and $0.1 million of EDC program costs, respectively.

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

	Three Months Ending
	December 31, 2016

Warranty accrual, beginning of period	$	1,009,368
Accrued expense	66,970
Warranty cost	(50,896		)

Warranty accrual, end of period	$	1,025,442