3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim reporting and basis of presentation. While the information presented in the accompanying interim condensed consolidated financial statements is unaudited, these financial statements include all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All adjustments in these interim financial statements are of a normal, recurring nature. Interim financial statements and the notes thereto do not contain all of the disclosures normally found in year-end audited financial statements, and these Notes to Interim Condensed Consolidated Financial Statements are abbreviated and contain only certain disclosures related to the nine month period ended September 30, 2011. It is suggested that these interim financial statements be read in conjunction with the Company’s year-end audited December 31, 2010, financial statements. Operating results for the nine months ended September 30, 2011, are not necessarily indicative of the results that can be expected for the year ending December 31, 2011.

Principles of consolidation. Effective January 1, 2011, the Company closed the accounts of Kidz-Med, Inc. and made the subsidiary inactive. The parent company, ASRI, will continue to develop products using the Kidz-Med brand name. The accompanying consolidated financial statements include the accounts of ASRI, and as of and for the nine months ended September 30, 2010, its wholly-owned subsidiary, Kidz-Med, Inc. All significant inter-company transactions have been eliminated.

Use of estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue recognition. The Company sells or consigns its products on a wholesale basis to retailers and medical suppliers, and on a retail basis, direct to customers usually via the internet. The Company recognizes revenues in accordance with the guidance in the U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104. Accordingly, revenue is recognized when persuasive evidence of a sales arrangement exists, when the selling price is fixed or determinable, when shipment or delivery occurs, ownership has transferred, and when collection is probable. For wholesale sales, the Company generally negotiates an agreement that covers quantities, delivery, title transfer, pricing, warranties, returns and other terms, which dictate revenue recognition. Revenue from internet sales is recognized upon shipment of the product to the customer. All sales are made at a quoted, fixed price determined prior to completion of the sale.

The Company provides a one year limited warranty on most of its retail product sales. Specific warranty and right of return arrangements are negotiated with wholesalers. Revenues in the consolidated statement of operations are shown net of any discounts and actual returns of product. In the Company’s experience, returns for malfunctioning product resulting in warranty claims generally have been insignificant, and as such, no provision for warranty claims is provided in these consolidated financial statements. Returns of merchantable product are reversed from revenue and returned to inventory for re-sale upon the Company’s receipt of the product. During the nine months ended September 30, 2011, as a result of the court ordered recall for re-packaging (see Note 11 – Commitments and Contingencies – Litigation), the Company reversed $84,208 from revenue.

The Company records shipping and handling charges billed to customers as revenue and the related expense in cost of goods sold, in accordance with its revenue recognition policy.

For the nine months ended September 30, 2011 and 2010, a majority of the Company’s revenues were generated from sales of thermometers. It is impracticable to provide additional product sales information.

During the first nine months of 2010, $128,921 of revenue from sales of a previous period whose collection was in doubt was recognized upon the collection of cash.

Inventory and Cost of Goods Sold. The Company’s inventories consist of finished goods, packaged and unpackaged product, packing supplies and spare parts. Inventories are stated at lower of cost or market using the first-in first-out method. Freight for components, labor and warehouse overhead expenses related to assembly and packaging are allocated to the cost of products. Initial packaging costs are added to the cost of the product. Excess and unused packaging and re-packaging costs are expensed. The Company has a variety of spare parts, a portion of which are deemed to have no value for accounting purposes as management has determined that it is doubtful that any amounts will be realized from the ultimate disposition of these spare parts.

Patent. On December 31, 2010, the Company recorded an impairment charge to write-down the carrying value of the Disintegrator® patent to $639,138, representing the present value of expected future cash flows over the remaining life of the patent. The Company continues to estimate that market demand for the patent will exceed the patent life expiring in May 2022, and therefore beginning January 1, 2011, started amortizing the adjusted value of the patent on a straight-line basis over the remaining patent life. Should the Company’s estimate of market demand change, the Company will adjust its patent amortization schedule accordingly. The Company records amortization expense as a component of operating, sales and administrative expenses.

Earnings (Loss) per share. Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding during the periods. Diluted net income (loss) per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. After consideration of the 200-to-1 reverse common stock split (see Note 11 – Equity), potentially dilutive common shares at September 30, 2011, aggregated 30,643,274 shares, consisting of: 4,738,840 shares issuable upon the exercise of outstanding warrants; 273,867 shares available upon conversion of the 2007 subscription agreement debentures; 149,368 shares issuable should all of the 2007 convertible debt noteholders elect to convert accrued interest to common shares; 13,380,000 shares available upon conversion of Granite’s first, second and third quarter 2010 convertible debentures and the unconverted balance of Granite’s original $174,900 note; 8,490,000 shares issuable upon conversion of the notes to Lanktree; 16,667 shares issuable to Lender 3 upon conversion; 500,000 shares issuable to Lender 4 upon conversion; 752,500 shares for which the Company is obligated to issue as of September 30, 2011 (see Note 11 – Equity – Obligation to Issue Common Shares); and up to 2,342,033 shares committed as part of obligations to employees and service providers upon reaching certain targets. The above figures exclude shares issuable under the Company’s stock option and incentive stock plans.

Fair value measurements. The FASB’s Accounting Standards Codification defines fair value as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active or inactive markets and valuations derived from models where all significant inputs are observable in active markets.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are unobservable in any market.

Given the conditions surrounding the trading of the Company’s equity securities, the Company values its derivative instruments related to embedded conversion features and warrants from the issuance of convertible debentures in accordance with the Level 3 guidelines. For the nine month period ended September 30, 2011, the following table reconciles the beginning and ending balances for financial instruments that are recognized at fair value in these condensed consolidated financial statements.

	Balance at							Balance at
	December 31,		New		Change in			September 30,
	2010		Issuances		Fair Values			2011
Level 3 -
Derivative liabilities from:
Conversion features	$	569,572	$	102,255	$	(347,314	)	$	324,513
Warrants		153,750		1,250		(137,743	)		17,257
Anti-dilution provisions triggered by issuances of common stock equivalents		269,824		854,560		(828,648	)		295,736
Derivative instruments		993,146		958,065		(1,211,450	)		637,506
Contracts to be settled with common shares in excess of share capital authorized		125,377		-		(125,377	)		-
	$	1,118,523	$	958,065	$	(1,439,082	)	$	637,506

Recent accounting pronouncements. In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, which updated the guidance in ASC Topic 820, Fair Value Measurement. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective for interim and annual periods beginning after December 15, 2011, and early application is not permitted. ASU 2011-04 is not expected to have a material impact on the Company’s financial position or results of operations.

Management does not believe that there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.