NOTE 2. INVENTORY

Inventory is comprised of the following:

	September 30, 2016		December 31, 2015
Raw material	$	949,293	$	968,254
Work in progress		153,075		117,661
Finished goods		445,415		324,879
	$	1,547,783	$	1,410,794

During the year, the Company entered into a distribution agreement with Drilling Tools International (“DTI”), under which DTI has a requirement to purchase our Drill-N-Ream tool for their rental tool business and achieve market share requirements in order to maintain exclusive marketing rights for the Drill-N-Ream. This agreement began the change of direction of our business from renting tools to selling tools. Due to this change in our business model, we have moved our tools from property, plant and equipment (PP&E) into inventory. As a result, inventory increased $218,965.