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 $1.0 million at June 30, 2018 and $1.5 million at September 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. There were no cumulative catch-up adjustments resulting from changes in estimates for the three and nine months ended June 30, 2018. 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.

Inventories

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

	June 30,		September 30,
	2018		2017

Raw materials	$	3,223,960	$	2,920,209
Work-in-process	965,039		794,756
Finished goods	496,653		464,689

	$	4,685,652	$	4,179,654

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	June 30,		September 30,
	2018		2017

Prepaid insurance	$	254,333	$	402,300
Income tax refund receivable	268,890		260,509
Other	351,152		429,255

	$	874,375	$	1,092,064

Property and equipment

Property and equipment, net consists of the following:

	June 30,			September 30,
	2018			2017

Land	$	1,021,245		$	1,021,245
Computer equipment	2,315,949			2,247,866
Corporate airplanes	5,601,039			3,194,571
Furniture and office equipment	1,051,637			1,051,637
Manufacturing facility	5,733,313			5,733,313
Equipment	5,568,422			5,507,774

	21,291,605			18,756,406
Less: accumulated depreciation and amortization	(12,400,962		)	(12,087,395		)

	$	8,890,643		$	6,669,011

Depreciation and amortization related to property and equipment was approximately $105,000 and $111,000 for the three months ended June 30, 2018 and 2017, respectively. The corporate airplanes are utilized primarily in support of product development. The Pilatus PC-12 airplane, one of the Company’s two corporate airplanes, has been depreciated to its estimated salvage value.

Depreciation and amortization related to property and equipment was approximately $314,000 and $330,000 for the nine months ended June 30, 2018 and 2017, respectively.

Other assets

Other assets consist of the following:

	June 30,		September 30,
	2018		2017
Intangible assets, net of accumulated amortization of $531,637 at June 30, 2018 and September 30, 2017, respectively	$	68,600	$	68,600
Other non-current assets	115,426		118,715

	$	184,026	$	187,315

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, 2018 and 2017.

Amortization expense was approximately $0 and $200 for the three months ended June 30, 2018 and 2017, respectively.

Amortization expense was approximately $0 and $2,600 for the nine months ended June 30, 2018 and 2017, 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,
	2018		2017

Warranty	$	893,914	$	1,013,461
Salary, benefits and payroll taxes	387,783		258,688
Professional fees	145,677		219,331
Reduction in workforce / Severance	259,348		—
Other	213,052		268,557

	$	1,899,774	$	1,760,037

During the period ended June 30, 2018, the Company incurred $259,348 in severance and other costs associated with a reduction in workforce.

Warranty cost and accrual information for the three and nine months ended June 30, 2018 is highlighted below:

	Three Months Ending			Nine Months Ending
	June 30, 2018			June 30, 2018

Warranty accrual, beginning of period	$	930,458		$	1,013,461
Accrued expense	1,368			9,070
Warranty cost	(37,912		)	(128,617		)

Warranty accrual, end of period	$	893,914		$	893,914