Note 5. Detail of Certain Asset Accounts

Cash and Cash Equivalents - The Company considers all highly liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents.

Compensating Cash Balance - The Company’s credit facility with The PrivateBank and Trust Company has a minimum compensating balance requirement of $500,000. This amount has been separately disclosed on the accompanying balance sheets as restricted cash, and has been classified as a current asset to match the classification of the related credit facility.

Inventories - Inventories, which include material, labor and manufacturing overhead, are stated at the lower of cost (on a first in, first out method) or market. Inventories consist of the following at July 1, 2011 and March 31, 2011:

	July 1, 2011		March 31, 2011
Raw material	$	3,470,000	$	3,204,000
Work-in-process		1,235,000		1,214,000
Finished products		357,000		357,000
Inventories, net	$	5,062,000	$	4,775,000

Slow moving and obsolete inventories are reviewed throughout the year to assess whether a cost adjustment is required. Our review of slow moving and obsolete inventory begins with a listing of all inventory items which have not moved regularly within the past 12 months. In addition, any residual inventory, which is customer specific and remaining on hand at the time of contract completion, is included in the list. The complete list of slow moving and obsolete inventory is then reviewed by the production, engineering and/or purchasing departments to identify items that can be utilized in the near future. These items are then excluded from the analysis and the remaining amount of slow-moving and obsolete inventory is then further assessed and a write down is recorded when warranted. Additionally, non-cancelable open purchase orders for parts we are obligated to purchase where demand has been reduced may also be written down. Impairments for open purchase orders where the market price is lower than the purchase order price are also recorded. The impairments established for excess, slow moving, and obsolete inventory create a new cost basis for those items. The cost basis of these parts is not subsequently increased if the circumstances which led to the impairment change in the future. If a product that had previously been impaired is subsequently sold, the amount of reduced cost basis is reflected as cost of goods sold.

Intangible Assets - Intangible assets that have definite lives consist of the following (in thousands):

	Weighted Average Lives in Years	July 1, 2011
	Weighted Average Lives in Years	Amortization Method		Carrying Value		Accumulated Amortization		Intangibles Net
Customer list	15	Straight Line	$	475	$	363	$	112
Trademarks	15	Cash Flow		2,270		836		1,434
Technology	10	Cash Flow		10,950		8,171		2,779
Patents pending				619		--		619
Patents	10	Straight Line		684		193		491
Total Intangibles			$	14,998	$	9,563	$	5,435

	Weighted Average Lives in Years	March 31, 2011
	Weighted Average Lives in Years	Amortization Method		Carrying Value		Accumulated Amortization		Intangibles Net
Customer list	15	Straight Line	$	475	$	360	$	115
Trademarks	15	Cash Flow		2,270		798		1,472
Technology	10	Cash Flow		10,950		7,886		3,064
Patents pending				619		--		619
Patents	10	Straight Line		620		177		443
Total Intangibles			$	14,934	$	9,221	$	5,713

Amortization expense for the three-month periods ended July 1, 2011 and July 2, 2010 was approximately $342,000 and $406,000, respectively. The current patents held by the Company have remaining useful lives ranging from 1 year to 17 years.

The cash flow method of amortization is based upon management’s estimate of how the intangible asset contributes to our cash flows and best represents the pattern of how the economic benefits of the intangible asset will be consumed or used up. Such amortization is initially derived from the estimated undiscounted cash flows that were used in determining the original fair value of the intangible asset at the acquisition date and is monitored for significant changes in subsequent periods.

Assuming no impairment to the intangible value, future amortization expense for intangible assets and patents are as follows (in thousands):

Intangible Assets and Patents
Remainder of 2012	$	1,026
2013		1,151
2014		964
2015		620
2016		400
2017 & after		655
Total	$	4,816

a)	Patent pending costs of $619,000 are not included in the future amortization chart above. These costs will be amortized beginning the month the patents are granted.