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 were $1.6 million at June 30, 2017 and September 30, 2016. The unbilled balance of $1.6 million at September 30, 2016 reflects a reserve of $3.6 million related to the Delta contract. On February 21, 2017 the Company entered into a settlement agreement with Delta. Under the terms of the settlement, Delta paid the Company $7.75 million resulting in the reversal of the $3.6 million reserve and the collection of the unbilled receivable in the nine month period ended June 30, 2017. The reversal of the reserve is reflected in the selling, general and administrative expenses in the Condensed Consolidated Statements of Operations in the nine month period ended June 30, 2017. The remainder of the amount paid to the Company, approximately $4.1 million is reflected in other income for the nine month period ended June 30, 2017.

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 $45,000 for the three months ended June 30, 2017 and increased operating income by $76,000 for the nine months ended June 30, 2017. Cumulative catch-up adjustments resulting from changes in estimates decreased operating income by $120,000 for the three months ended June 30, 2016 and increased operating income by $232,000 for the nine months ended June 30, 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.

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:

	June 30,		September 30,
	2017		2016

Raw materials	$	3,296,928	$	2,966,891
Work-in-process	901,076		500,869
Finished goods	335,035		178,068

	$	4,533,039	$	3,645,828

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	June 30,		September 30,
	2017		2016

Prepaid insurance	$	425,837	$	386,212
Income tax refund receivable	209,791		106,932
Other	366,994		354,063

	$	1,002,622	$	847,207

Property and equipment

Property and equipment, net consists of the following:

	June 30,			September 30,
	2017			2016

Land	$	1,021,245		$	1,021,245
Computer equipment	2,260,561			2,208,398
Corporate airplane	3,194,571			3,194,571
Furniture and office equipment	1,052,284			1,052,284
Manufacturing facility	5,733,312			5,733,313
Equipment	5,504,804			5,435,949

	18,766,777			18,645,760
Less: accumulated depreciation and amortization	(12,003,880		)	(11,683,198		)

	$	6,762,897		$	6,962,562

Depreciation and amortization related to property and equipment was approximately $111,000 and $117,000 for the three months ended June 30, 2017 and 2016, 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 $330,000 and $344,000 for the nine months ended June 30, 2017 and 2016, respectively.

Other assets

Other assets consist of the following:

	June 30,		September 30,
	2017		2016
Intangible assets, net of accumulated amortization of $531,637 and $529,037 at June 30, 2017 and September 30, 2016	$	68,600	$	71,200
Other non-current assets	131,674		85,748

	$	200,274	$	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 nine months ended June 30, 2017 and 2016.

Amortization expense was approximately $200 and $7,200 for the three and months ended June 30, 2017 and 2016, respectively.

Amortization expense was approximately $2,600 and $12,000 for the nine months ended June 30, 2017 and 2016, 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,
	2017		2016

Warranty	$	1,036,950	$	1,009,368
Salary, benefits and payroll taxes	468,612		267,323
Professional fees	272,370		308,905
Other, including losses on contracts	177,099		304,312

	$	1,955,031	$	1,889,908

Other accrued expense at June 30, 2017 and September 30, 2016 includes approximately $20,000 and $77,000 of EDC program costs, respectively.

Warranty cost and accrual information for the three and nine months ended June 30, 2017 is highlighted below:

	Three Months Ending			Nine Months Ending
	June 30, 2017			June 30, 2017

Warranty accrual, beginning of period	$	1,054,499		$	1,009,368
Accrued expense	28,168			171,737
Warranty cost	(45,717		)	(144,155		)

Warranty accrual, end of period	$	1,036,950		$	1,036,950