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INVENTORIES

9 Months Ended

Sep. 30, 2012

4. INVENTORIES

Inventories consisted of the following at:

	September 30, 2012			December 31, 2011

Raw materials	$	396,849		$	468,053
Finished goods		180,449			100,566
Offsite demo equipment		126,406			183,256
Less inventory reserve		(179,893	)		(22,000	)

	$	523,811		$	729,875

Offsite demo equipment represents the cost of products physically located at customer locations, during an orientation period for which the Company retains title. As such, no depreciation expense has been recorded on these units. Excess, obsolete or expired inventory are adjusted to net realizable value, through inventory reserve, based primarily on how long the inventory has been held as well as the Company's estimate of forecasted net sales of the product. The Inventory reserve at September 30, 2012 includes amounts necessary to adjust the Company's inventory and offsite demo equipment to net realizable value following the Company's release of newly redesigned products during the three months ended September 30, 2012.

- 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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