Engineering Development Contracts

The Company may enter into contracts to perform specified design and EDC services related to its products. The Company recognizes revenue from these arrangements as EDC sales,revenue, following the guidance included in ASC Topic 605-35, and considers the nature of these contracts (including term, size of contract, and level of effort) when determining the appropriate accounting treatment for a particular contract. CertainFor contracts that are long-term in nature, the Company believes that the use of these contracts are accounted for under the percentage-of-completion method of accounting when

is appropriate as the Company determines thathas the ability to make reasonably dependable estimates of the extent of progress towardtowards completion, is reasonablecontract revenues, and reliably estimable, andcontract costs. In certain circumstances, the contract is long-term in nature. The Company uses the completed contract method for all other contracts because these contracts are short-term in nature and meet the criteria set forth in ASC Topic 605-35.contracts. Sales and profit margins under the percentage-of-completion method are recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract under the cost-to-cost method (for development effort).method.

The percentage-of-completion method of accounting requires the Company to estimate the profit margin for each individual contract, and to apply that profit margin on a uniform basis as sales are recorded under the contract. The estimation of profit marginmargins requires the Company to make projections of the total sales to be generated and the total costs that will be incurred under eacha contract. The projections require the Company to make numerous assumptions and estimates relating to items such as the complexity of design and related development costs, performance of subcontractors, availability and cost of materials, engineering productivity and cost, overhead, and capital costs. Contracts sometimes include purchase options for additional quantities and customer change orders for additional or revised product functionality. Sales and costs related to profitable purchase options are included in the Company’s estimates only when the options are exercised, while sales and costs related to unprofitable purchase options are included in the Company’s estimates when exercise is determined to be probable. Sales related to change orders are included in profit estimates only if they can be estimated reliably estimated and collectability is reasonably assured. Purchase options and change orders are accounted for either as an integral part of the original contract or separately, depending upon the nature and value of the item. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable.

The Company reviews estimates of profit margins for contracts on a quarterly basis. 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 either revisions in revenuesales and cost estimates or to the exercise of contract options may result in profit margins being recognized unevenly over a contract asbecause such changes are accounted for on a cumulative basis in the period in which 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 operationsoperation in the period in which the revised estimate is made. Cumulative catch-up adjustments (loss contracts) resulting from changes in estimates are disclosed in the notes to the consolidated financial statements of the Company.

Customer Service Revenue

The Company enters into sales arrangements with customers for the repair or upgrade of its various products that are not under warranty. The Company’s customer service revenue and cost of sales for the three and nine months ended June 30, 20162017 and 2015,2016 respectively are as follows:

Income Taxes

Income taxes are recorded in accordance with FASB ASC Topic 740, “Income“Income Taxes” (“ASC Topic 740”), which utilizes a balance sheet approach to provide for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets, liabilities, and expected benefits of utilizing net operating losses (“NOL”) and tax credit carry-forwards. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled, and are reflected in the consolidated financial statements in the period of enactment. At the end of each interim and year-end reporting period, the Company prepares an estimate of the annual effective income tax rate and applies that annual effective income tax rate to ordinary year-to-date pre-tax income or loss for the interim period. Specific tax items discrete to a particular quarter are recorded in income tax expense for that quarter. The estimated annual effective tax rate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods.

Deferred tax assets are reduced by a valuation allowancesallowance if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified, and significant management judgment is required in determining any valuation allowancesallowance recorded against net deferred tax

assets. The Company evaluates deferred income taxes on a quarterly basis to determine if a valuation allowances areallowance is required by considering available evidence. Deferred tax assets are recognized when expected future taxable income is sufficient to allow the

related tax benefits to reduce taxes that would otherwise be payable. The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and credit carry-forwards,carryforwards, taxable income in carry-back years, and tax planning strategies.

Instrategies which are both prudent and feasible. The Company’s current balance of the period ended June 30, 2015, adeferred tax valuation allowance wasis recorded on aagainst the majority of the Company’s federal and state deferred tax assets, net of liabilities, due to uncertainty with respect to the Company’s ability to generate sufficient future taxable income to realize such deferred tax assets. The remaining amount of the Company’s recognized deferred tax assets were related to tax planning strategies and the ability to carry-back federal tax losses to claim a tax refund.

For the nine months ended June 30, 2016, the valuation allowance was reduced due to the current year profitability of the Company which represents an additional source of taxable income to realize certainits federal and state deferred tax assets. However, the Company will continue to maintain a valuation allowance until the Company generates a sufficient level of profitability to warrant a conclusion that it is no longer more likely than not that the entirety of these net federal and state deferred tax assets will not be realized in future periods. The Company will also continue to assess all available evidence during future periods to evaluate any changes to the realization thereof.of its deferred tax assets.

The accounting for uncertainty in income taxes requires a more likely than not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the (i) benefit recognized and measured for financial statement purposes and (ii) the tax position taken or expected to be taken on the Company’s tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company has elected to record any interest or penalties associated with uncertain tax positions as income tax expense.

The Company files a consolidated United States federal income tax return. The Company prepares and files tax returns based on the interpretation of tax laws and regulations, and records estimates based on these judgments and interpretations. In the normal course of business, the tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities, and the Company records a liability when it is probable that there will be an assessment. The Company adjusts the estimates periodically as thea result of ongoing examinations by and settlements with the various taxing authorities, and changes in tax laws, regulations and precedent. The consolidated tax provision of any given year includes adjustments to prior years’ income tax accruals that are considered appropriate, and any related estimated interest. Management believes that it has made adequate accruals have been made for income taxes. Differences between estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial position, but could possibly be material to its consolidated results of operations or cash flow of any one period.

Engineering Development

The Company invests a large percentage of its sales inon engineering development, both research and development (“R&D”) and EDC. At June 30, 2016,2017, approximately 38%34% of the Company’s employees were engineers engaged in various engineering development projects. Total engineering development expense is comprised of both designinternally funded R&D and EDCproduct development and design charges related to specific customer contracts and R&D.  EDCcontracts. Engineering development expense consists primarily of payroll-related expenses of employees engaged in EDC projects, engineering related product materials and equipment, and subcontracting costs. R&D charges incurred for product design, product enhancements, and future product development are expensed as incurred. EDCProduct development and design charges related to specific customer arrangementscontracts are charged to cost of sales-EDC based on the method of contract accounting (either percentage-of-completion or completed-contract)completed contract) applicable to such contracts.

Treasury Stock

Treasury stock is recorded at acquisition cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings. When treasury shares are retired and returned to authorized but unissued status, the carrying value in excess of par is allocated to additional paid-in capital and retained earnings on a pro rata basis.

Comprehensive Income

Pursuant to FASB ASC Topic 220, “Comprehensive Income” (“ASC Topic 220”), the Company is required to classify items of other comprehensive income by their nature in the balance sheet and to display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of its condensed consolidated balance sheets. For the three and nine months ended June 30, 20162017 and 2015,2016, respectively, comprehensive income consisted of net income only. Thereonly, and there were no items of other comprehensive income or accumulated other comprehensive income balances in the equity accounts for any of the periods presented.

Share-Based Compensation

The Company accounts for share-based compensation under FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees”

(“ (“ASC Topic 505-50”), and FASB ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), which require the Company to measure the cost of employee or non-employee director services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option pricing model. ThatThe Company recognizes such cost is recognized over the period during which an employee or non-employee director is required to provide service in exchange for the award.

Warranty

The Company offers warranties on some products of various lengths;lengths, however the standard warranty is twenty-four months. At the time of shipment, the Company establishes a reserve for estimated costs of warranties based on its best estimate of the amounts necessary to settle future and existing claims using historical data on products sold as of the balance sheet date. The length of the warranty period, the product’s failure rates, and the customer’s usage affect warranty cost. If actual warranty costs are higher thandiffer from the Company’s estimated amounts, future results of operations could be affected adversely. Warranty cost is recorded as cost of sales, and the reserve balance is recorded as an accrued expense. AlthoughWhile the Company maintains product quality programs and processes, its warranty obligations areobligation is affected by product failure rates and the related corrective costs. If actual product failure rates and/or corrective costs differ from the estimates, the Company revises the estimated warranty liability accordingly.

Self-Insurance Reserves

BeginningSince January 1, 2014, the Company began self-insuringhas self-insured a significant portion of its employee medical insurance. The Company maintains a stop-loss insurance policy that limits its losses both on a per employee basis and an aggregate basis. Liabilities associated with the risks that are retained by the Company are estimated based upon actuarial assumptions includingsuch as historical claimclaims experience, demographic factors and demographic factors.other actuarial assumptions. The Company has estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at June 30, 2017 and September 30, 2016. However, the actual value of such claims could be significantly affected if future occurrences and claims differ from these assumptions. At June 30, 20162017 and September 30, 2015,2016, the estimated liability for medical claims incurred but not reported was $53,000$50,000 and $80,000,$52,600 respectively. The Company has recorded the excess of funded premiums over estimated claims incurred but not reported in the amounts of $272,000$268,000 and $119,000$253,000 as a current asset in the accompanying condensed consolidated balance sheets as of June 30, 20162017 and September 30, 2015,2016, respectively.

Concentrations

Major Customers and Products

For the three months ended June 30, 2016,2017, two customers, Kanematsu Aerospace (“Kanematsu”) and Sierra Nevada Corporation (“Sierra Nevada”), accounted for 30% and 15% of net sales, respectively. During the nine months ended June 30, 2017, three customers, Sierra Nevada, DHL Aviation Services (“DHL”) and Kanematsu accounted for 20%, 13% and 11% of net sales, respectively.

For the three months ended June 30, 2016, two customers, Sierra Nevada and iAccess Technologies, Inc. (“iAccess”), accounted for 45% and 12% of net sales, respectively. During the nine months ended June 30, 2016, three customers, Jet2.com Limited (“Jet2”), Sierra Nevada and DHL Aviation Services (“DHL”) accounted for 16%, 15% and 14% of net sales, respectively.

For the three months ended June 30, 2015, three customers, Eclipse Aerospace, Inc. (“Eclipse”), American Airlines, Inc. (“American”) and Pilatus Aircraft Limited (“Pilatus”), accounted for 23%, 20% and 11% of net sales, respectively.  During the nine months ended June 30, 2015, three customers, Pilatus, Eclipse and the DoD accounted for 23%, 18% and 11% of net sales, respectively.

Major Suppliers

The Company buys several components from sole source suppliers. Although there are a limited number of manufacturers of particular components, the Company believes other suppliers could provide similar components on comparable terms.

For the three and nine months ended June 30, 2016,2017, the Company had one supplierzero and two suppliers respectively that waswere individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three and nine months ended June 30, 2015,2016, the Company had, five and two suppliers respectivelyin each case, one supplier that werewas individually responsible for greater than 10% of the Company’s total inventory related purchases.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances and accounts receivable. The Company invests its excess cash where preservation of principal is the primary consideration. Cash balances are maintained with two major banks. Balances on deposit with certain money market accounts and operating accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) limits. The Company’s customer base consists principally of companies within the aviation industry. The Company requests advance payments and/or letters of credit from customers that it considers to be credit risks.

As of June 30, 2016, theThe Company had allowances for doubtful accounts for unbilled receivables in the amount of $3.6 million related to the Delta contract (see “Note 6, Contingencies” for a description of the Delta contract). Asas of September 30, 2015, the Company had allowances for doubtful accounts for unbilled receivables of $1.3 million related to a certain customer contract and $3.6 million

related to the Delta contract. In January 2016 the Company negotiated changes to its agreement with a customer whereby $1.3 million of unbilled receivables previously charged to bad debt expense in the quarter ended September 30, 2015 were cancelled. (See Unbilled Receivables below under Note 2. Supplemental Balance Sheet Disclosures).

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”)FASB issued ASU 2016-09, “Compensation - Stock Compensation - Improvements to EmployeeEmployer Share-Based Payment Accounting” (“ASU 2016-09”),Account, which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement andsimplifies the tax effectstreatment of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognizestock “shortfalls” and “windfalls.” Previous guidance required excess tax benefits regardless(“windfalls”) to be recorded in equity. Tax deficiencies (“shortfalls”) were recorded in equity to the extent of whetherprevious windfalls then to the benefit reduces taxes payable inincome statement. The new guidance simplifies this treatment by having all “windfalls” and “shortfalls” recorded through the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASUstatement. The updated standard is effective for fiscal yearsthe Company beginning after December 15, 2016, includingwith early adoption permitted as of the beginning of any interim periods within thator annual reporting period. Early adoption is permitted. The Company is assessing the impact the adoption of ASU 2016-09 will have on its financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”) (Topic 842). The new standard establishes aUnder this guidance, an entity is required to recognize right-of-use (“ROU”) model that requires a lessee to record an ROU assetassets and a lease liabilityliabilities on theits balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is requiredand disclose key information about leasing arrangements. This guidance offers specific accounting guidance for lessees, for capital and operating leases existing at, or entered into after, the beginninglessors, including with respect to sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the earliest comparative period presented in the financial statements with certain practical expedients available. The new standardto assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for fiscal yearsannual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Earlythat reporting period, and requires a modified retrospective adoption, iswith early adoption permitted. The Company is assessingcurrently evaluating the impact theimpacts of adoption of ASU 2016-02 will have on its financial statements.this guidance.

In November 2015, the FASB issued guidance regardingASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. CurrentTaxes, which simplifies balance sheet presentation of deferred income taxes. Previous guidance requiresrequired an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. However,position; however, the new guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidanceupdated standard is effective for the Company beginning October 1, 2017. Early2017, with early adoption is permitted.permitted as of the beginning of any interim or annual reporting period. The Company is currently assessing the impactearly adopted this standard retrospectively and reclassified its current deferred tax balances to noncurrent deferred tax for all periods presented. The adoption of this guidance did not have a material impact on itsthe Company’s consolidated financial statements disclosure.statements.

In July 2015, the FASB issued guidance regarding Simplifying the Measurement of Inventory. This guidance requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures). The guidance will not apply to inventories that are measured by using either the last-in, first-out (“LIFO”) method or the retail inventory method (“RIM”). The guidance is effective for the Company beginning October 1, 2017. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)” (“ASU 2014-15”) (ASU 2014-15). The objective of ASU 2014-15 is to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and provide related disclosures. Currently, GAAP does not provide guidance to evaluate whether there is substantial doubt regarding an organization’s ability to continue as a going concern. This ASU 2014-15 provides guidance to an organization’s management, with principles and definitions to reduce diversity in the timing and content of financial statement disclosures commonly provided by organizations. ASU 2014-15 is effective for periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not believe that ASG 2014-15 will have a material effect on the accompanying financial statements.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation (ASC Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This ASU further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.  The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015.  Early adoption is permitted. The Company does not believe that ASG 2014-12 will have a material effect on the accompanying financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (ASC(ASC Topic 606)” (“ASU 2014-09”). ASU 2014-09 will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard wasstandards are scheduled to be effective for reporting periods beginning after December 15, 2017. Additionally, during 2016,

and early adoption is not permitted. However, on July 9, 2015, the FASB decided to delay the effective dateissued ASU Nos. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net)”, ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, all of the new revenue standard by one year, but reporting entities may choose to adopt the standard as of the original effective date.which should be adopted concurrent with ASU 2014-09. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring retrospective application of the new standard with the cumulative effect of applying the new standard as of the date of initial application recognized and disclosure of results under old standards. The FASB has recently issued an Exposure DraftBased on the nature of a proposedthe Company’s business, the adoption of ASU that would delay by one yearNo. 2014-09, or any of the effective datesubsequent related ASU’s, is not expected to impact financial reporting with respect to the majority of this standard.its revenue streams. The Company is currently in the process of evaluating current accounting policies to identify potential differences for each of its revenue streams, and there is the impactspotential for some changes to revenue recognition practices for multiple-element arrangements. In addition, the Company is currently determining the transition method and disclosure requirements, and plans on finishing its analysis by the end of adoption and the implementation approach to be used.fiscal 2017.

As new accounting pronouncements are issued, the Companywe will adopt those that are applicable under the circumstances.applicable.

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, have not been billed to customers.  terms. Unbilled receivables, net of progress payments were $1.6 million at June 30, 2017 and an impairmentSeptember 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 atcontract. 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, 2016 were $1.6 million.  Unbilled receivables, net2017. The reversal of progress paymentsthe reserve is reflected in the selling, general and an impairmentadministrative expenses in the Condensed Consolidated Statements of $1.3 million related to a certain customer and an impairmentOperations in the nine month period ended June 30, 2017. The remainder of $3.6 million relatedthe amount paid to the Delta contract, at SeptemberCompany, approximately $4.1 million is reflected in other income for the nine month period ended June 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.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.  Cumulative catch-up adjustments resulting from changes in estimates decreased operating income by $125,000 for the three months ended June 30, 2015 and increased operating income by $595,000 for the nine months ended June 30, 2015.

Inventories

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

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

Property and equipment

Property and equipment, net consists of the following:

Depreciation and amortization related to property and equipment was approximately $117,000$111,000 and $138,000$117,000 for the three months ended June 30, 20162017 and 2015,2016, 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 $344,000$330,000 and $413,000$344,000 for the nine months ended June 30, 20162017 and 2015,2016, respectively.

Other assets

Other assets consist of the following:

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, 20162017 and 2015.2016.

Total amortizationAmortization expense was approximately $7,200$200 and $5,000$7,200 for the three and months ended June 30, 2017 and 2016, and 2015, respectively. Total amortization

Amortization expense was approximately $12,000$2,600 and $17,000$12,000 for the nine months ended June 30, 20162017 and 2015,2016, 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:

Other accrued expense at June 30, 20162017 and September 30, 20152016 includes $0approximately $20,000 and $0.6 million$77,000 of EDC program costs, respectively.

Warranty cost and accrual information for the three and nine months ended June 30, 20162017 is highlighted below:

3. Income Taxes

The income tax expensebenefit for the three and nine months ended June 30, 20162017 was $27,000 and $403,000, respectively,$537,000 as compared to an income tax expense of $3.3 million and $2.6 million respectively,$27,000 for the three and nine months ended June 30, 2015.2016.

The effective tax rate benefit for the three months ended June 30, 2017 was 103.7%. The effective tax rate benefit for the three months ended June 30, 2017 differs from the statutory tax rate primarily due to the change in the anticipated profitability in the current year partially offset by the reduction in the utilization of certain R&D tax credits in the period resulting in an increase in the valuation allowance of approximately $0.5 million.

The effective tax rate for the three months ended June 30, 2016 was 10.7%. The effective tax rate for the three months ended June 30, 2016 differs from the statutory rate primarily due to a reduction in the valuation allowance of approximately $150,000 included in ourthe current year estimated annual effective tax rate that is attributable to the anticipated profitability in the current year.

The effectiveincome tax rate expense for the threenine months ended June 30, 20152017 was (1,328.1%)$297,000 as compared to an income tax expense of $403,000 for the nine months ended June 30, 2016.

The effective tax rate for the nine months ended June 30, 2017 was 5.9%. The effective tax rate for the threenine months ended June 30, 20152017 differs from the statutory rate primarily becausedue to a change in the valuation allowance of approximately $1.4 million included in the current year estimated annual effective tax rate that is attributable to the anticipated profitability in the current year. The majority of this change is a result of the Company recorded a valuation allowance againstbad debt reserve reversal being deductible for tax purposes and the deferredutilization of certain R&D tax assets of $3.3 million reflecting only those deferred tax assets that could be realized.credits in the period.

The effective tax rate for the nine months ended June 30, 2016 was 20.2%.  The effective tax rate for the nine months ended June 30, 2016 differs from the statutory rate primarily due to a reduction in the valuation allowance of approximately $150,000 included in ourthe current year estimated annual effective tax rate that is attributable to the anticipated profitability in the current year.

The effective tax benefit rate for the nine months ended June 30, 2015 was (380.8%).  The effective tax rate for the nine months ended June 30, 2015 differs from the statutory rate primarily because of the $3.3 million valuation allowance recorded against the deferred tax assets in the three months ended June 30, 2015.

On December 18, 2015, the Protecting Americans from Tax Hikes (PATH) Act of 2015 was enacted. This legislation retroactively extended various temporary tax provisions which expired on December 31, 2014, including the permanent extension of the R&D Tax Credit. No income tax benefit was recorded in the period on the retroactive benefit for the period from January 1, 2015 to September 30, 2015 due to the uncertainty on the Company’s ability to generate future taxable income.

In the period ended June 30, 2015, a valuation allowance was recorded on a majority of the Company’s federal and state deferred tax assets, net of liabilities, due to the uncertainty on the Company’s ability to generate sufficient future taxable income to realize such deferred tax assets. The remaining amount of the deferred tax assets recognized were attributable to tax planning strategies and the ability to carry-back federal tax losses to claim a tax refund.

For the nine months ended June 30, 2016, the valuation allowance was reduced due to the current year profitability of the Company which represented an additional source of taxable income to realize certain federal and state deferred tax assets.  However the Company will continue to maintain a valuation allowance until the Company generates a sufficient level of profitability to warrant a conclusion that it no longer is more likely than not that these net federal and state deferred tax assets will not be realized in future periods.