PRODUCT SOFTWARE DEVELOPMENT EXPENDITURES

The Company follows the guidance of ASC 985-20 “Costs of Software to be Sold, Leased, or Marketed” when capitalizing software development costs associated with software embedded in or to be incorporated into its products. The cost of purchased software technology is capitalized and stated at the lower of unamortized cost or expected net realizable value. Software is subject to rapid technological obsolescence and future revenue estimates supporting the capitalized software cost can be negatively affected based upon competitive products, services and pricing. Such adverse developments could reduce the estimated net realizable value of our product software development costs and could result in impairment or a shorter estimated life. Such events would require us to take a charge in the period in which the event occurs or to increase the amortization expense in future periods and would have a negative effect on our results of operations. At a minimum, we review for impairment on a quarterly basis. The Company launched a new product offering utilizing this software in the fourth quarter of fiscal year 2012 and began amortizing the related capitalized software costs.

In the quarter ended December 31, 2013, management determined that the existing product software technology will be superseded. As such, the product software development expenditures was fully impaired in the quarter ended December 31, 2013. The remaining asset value of $2,308,752 was charged to the Statement of Operations line item titled "Impairment of capitalized software, inventory and related items." The following table reflects capitalized software amortization and impairment related expense for the three and six months ended December 31, 2013 and 2012.



	Three Months Ended				Six Months Ended
	December 31				December 31
	2013		2012		2013		2012
Product software development expenditures charged to:
Cost of goods sold	$	—	$	397,926	$	364,539	$	762,466
Impairment of capitalized software, inventory and related items	2,308,752		—		2,308,752		—
Total software expense	$	2,308,752	$	397,926	$	2,673,291	$	762,466

Accumulated amortization and impairment as of December 31, 2013 totaled $4,374,477. Accumulated amortization as of June 30, 2013 totaled $1,701,185.

Software development costs expended to supersede the product software technology will be expensed as incurred and charged to research and development.