NOTE 9. MAJOR CUSTOMERS

Information with respect to two customers, both accounting for sales in excess of 10% of our total sales in each of the three and nine-month periods ended March 31, 2012 and 2011, is as follows:


	As of and for the three months ended March 31,
	2012										2011
	Sales		Percent of Total			Accounts Receivable		Percent of Total			Sales		Percent of Total			Accounts Receivable		Percent of Total
Customer 1	$	1,811,000		40	%	$	630,000		28	%	$	3,378,000		49	%	$	1,291,000		41	%
Customer 2	$	1,467,000		32	%	$	531,000		24	%	$	1,812,000		26	%	$	488,000		16	%


	As of and for the nine months ended March 31,
	2012										2011
	Sales		Percent of Total			Accounts Receivable		Percent of Total			Sales		Percent of Total			Accounts Receivable		Percent of Total
Customer 1	$	6,106,000		45	%	$	630,000		28	%	$	8,849,000		51	%	$	1,291,000		41	%
Customer 2	$	4,008,000		29	%	$	531,000		24	%	$	3,067,000		18	%	$	488,000		16	%

In December 2009, our largest customer informed us that it was in the process of developing, and planned to eventually manufacture, its own surgical devices which are functionally comparable to the products we currently provide to the customer. We have been the exclusive manufacturer of these products since they were developed. We currently provide this Customer with two products ("Product A" and "Product B") and repair services for such products. Sales for each of these categories for the three and nine months ended March 31, 2012 and 2011 were as follows:


	Three months ended March 31, 2012		Nine months ended March 31, 2012		% of total			Three months ended March 31, 2011		Nine months ended March 31, 2011		% of total
Product A	$	470,000	$	1,420,000		23	%	$	793,000	$	3,241,000		37	%
Product B		744,000		3,276,000		54	%		2,231,000		4,613,000		52	%
Repairs and components		597,000		1,410,000		23	%		354,000		995,000		11	%

Total	$	1,811,000	$	6,106,000		100	%	$	3,378,000	$	8,849,000		100	%

As of March 31, 2012 the Customer had orders of (i) $313,000 for Product A and (ii) $325,000 for non-warranty repairs, all of which was scheduled for delivery during the quarter ending June 30, 2012 and all of which the Customer has indicated it plans to purchase. However, the Customer has indicated that it does not plan to place further orders with us for these products.

The Customer has indicated that its plan is contingent on several factors, including the registration of the Customer's product in a foreign jurisdiction and the successful completion of its field testing for the product that will replace Product B.

In addition, the Customer indicated that it plans to limit repair requests from us to those Products A and B that are covered by our product warranty, likely reducing, possibly to zero, future repair revenue for out-of-warranty products.

Resulting from the foregoing, revenue attributable to the Customer could decline to zero or a negligible amount by the end of fiscal year 2012.

However, the Customer is not obligated either to abide by the timetables it has communicated to us or to update us as to the status of its current plan. Accordingly, we are unable to know or predict the status of the Customer's plan or initiatives on an ongoing basis. The Customer could accelerate, delay or terminate its transition to its own products at any time and without notice to us, which could have a material impact on our revenues. The identity of the Customer is protected by a confidentiality agreement.

We are continuing the implementation of steps to identify and capture additional revenue opportunities. There can be no assurance, however, as to either the timing or success of achieving this objective, and it is our intent to reduce operating costs, as we consider appropriate, to partially mitigate the impact of the revenue reduction. In the event that the Customer's future purchases are reduced beyond the realization of such opportunities or cost reductions, we are likely to experience a material and adverse impact on our business.