3. Inventory

Inventories are stated at the lower of cost or market. Cost is determined using the weighted average cost of raw materials, which approximates the first-in, first-out (“FIFO”) method, and includes allocations of manufacturing labor and overhead. Provisions are made to reduce potentially excess, obsolete or slow-moving inventories to their net realizable value. The reserve for excess and obsolete inventory decreased to $0.7 million at June 30, 2013, compared to $2.3 million at December 31, 2012. This decrease is attributable primarily to the disposal of the majority of the X3 CEW inventory that had been previously reserved. The increase in finished goods inventory at June 30, 2013 as compared to December 31, 2012 relates primarily to CEW units completed in anticipation of future sales. Inventories as of June 30, 2013 and December 31, 2012, consisted of the following:


	June 30,			December 31,
	2013			2012
Raw materials	$	8,988,668		$	9,689,172
Work-in-process		168,103			131,492
Finished goods		4,725,827			3,492,167
Reserve for excess and obsolete inventory		(682,162	)		(2,319,622	)

Total inventory	$	13,200,436		$	10,993,209