NOTE 2. INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined principally on the average cost method. Inventories at September 30, 2011 and December 31, 2010 were as follows (in thousands):

	September 30, 2011			December 31, 2010

Raw materials	$	4,472		$	4,586
Work in process		2,316			2,315
Finished goods		1,419			1,218
Gross inventories		8,207			8,119
Less: reserve for obsolescence		(549	)		(514	)

Net inventories	$	7,658		$	7,605