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Inventory

3 Months Ended

Oct. 31, 2012

5. Inventory

Inventories are stated at the lower of cost or net realizable value, and net of a valuation allowance for potential excess or obsolete material. Cost is determined using the average cost method. Depreciation related to manufacturing is systematically allocated to inventory produced, and expensed through cost of goods sold at the time inventory is sold.

Inventories consist of the following:



	October 31,		July 31,
	2012		2012
Raw materials	$	472,000	$	476,000
Finished goods		392,000		178,000
	$	864,000	$	654,000

As of October 31, 2012, we increased our inventory balance by $207,000 to reflect product held by a third party warehouse on behalf of one of our customers. The customer has authorized us to retake possession of this inventory, and as such, we have reduced our accounts receivable by $273,000 and reduced deferred revenue by $66,000.

- 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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