Note 7.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable value). We value at lower of cost or market the slow moving and obsolete inventories based upon current and expected future product sales and the expected impact of product transitions or modifications. Inventories consist of the following:

	September 30, 2016		December 31, 2015

Raw materials	$	3,998,000	$	2,385,000
Work-in-process		779,000		793,000
Finished goods		1,445,000		1,407,000

	$	6,222,000	$	4,585,000

Inventories acquired in a business combination are recorded at their estimated fair value less profit for sales efforts and expensed in cost of sales as that inventory is sold. As of March 31, 2015, the purchase accounting adjustment of $240,000 related to VSCI inventory was recorded in cost of goods sold over approximately the first four months of the transition period ended December 31, 2015.