Inventories

6 Months Ended

Dec. 31, 2011

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 4 – Inventories

Inventories consist of the following:

	December 31, 2011			June 30, 2011
Raw materials and sub-assemblies	$	15,675,000		$	14,688,000
Work-in-process		2,234,000			1,454,000
		17,909,000			16,142,000
Less – Reserve for inventory valuation		(838,000	)		(768,000	)
	$	17,071,000		$	15,374,000

A significant source of the Company’s revenue arises from the sale of replacement parts required by customers who have previously purchased products.  As a result, the Company maintains a large quantity of parts on hand that may not be sold or used in final assemblies for an extended period of time.  In order to recognize that certain inventory may become obsolete or that the Company may have supplies in excess of reasonably supportable sales forecasts, an inventory valuation reserve has been established.  The inventory valuation reserve is a significant estimate made by management based on experience and the exercise of professional judgment.  Actual results may differ from this estimate, and the difference could be material.

Management establishes the inventory valuation reserve by reviewing the inventory for items that should be reserved in full based on a lack of usage for a specified period of time and for which future demand is not forecasted and establishes an additional reserve for slow moving inventory based on varying percentages of the cost of the items.  The reserve for inventory valuation at December 31, 2011 and June 30, 2011 was $838,000 and $768,000, respectively.  At December 31, 2011 and June 30, 2011, approximately $981,000 and $978,000, respectively, of the raw materials and sub-assemblies inventory were considered slow moving and subject to a reserve provision equal to all or a portion of the cost, less an estimate for scrap value.  In certain instances, this inventory has been unsold for more than five years from the date of manufacture or purchase, and in other instances the Company has more than a five-year supply of inventory on hand based on recent sales volume. Management believes that this inventory is properly valued and appropriately reserved.  Even if management’s estimate was incorrect, that would not result in a cash outlay since the cash required to manufacture or purchase the older inventory was expended in prior years.

The inventory valuation reserve is adjusted at the close of each accounting period, as necessary, based on management’s estimate of the valuation reserve required.  This estimate is calculated on a consistent basis as determined by the Company’s inventory valuation policy.  Increases to the inventory valuation reserve result in a charge to cost of sales, and decreases to the reserve result in a credit to cost of sales.  The inventory valuation reserve is also decreased when items are scrapped or disposed.  During the six month period ended December 31, 2011, the inventory valuation reserve was increased by $70,000 and no items were scrapped or disposed.