Note 5 - Inventories

9 Months Ended

Sep. 30, 2012

NOTE 5: INVENTORIES

Inventories consist of:

	September 30, 2012			December 31, 2011

Raw materials	$	1,903,211		$	1,986,880
Work-in-process		302,220			507,943
Finished goods		1,012,250			37,250
Totals		3,217,681			2,532,073
Less: Reserve for obsolescence		(300,000	)		(300,000	)
	$	2,917,681		$	2,232,073

During the nine months ended September 30, 2011, the Company recorded certain inventory write-downs of $560,000.

At December 31, 2011, the Company held $975,000 of equipment returned from a terminated contract recorded as Idle Inventories, which it had not been granted permission to use or sell as a result of pending litigation, as a separate line item on the balance sheet. The Company may now sell or otherwise dispose of the goods then referred to as Idle Inventories and as of September 30, 2012, this inventory is included in Finished goods.

- Definition

The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.

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