Note 4 – Inventories

Inventories consist of the following:

	March 31, 2014		June 30, 2013

Raw materials and sub-assemblies	$	18,460,000	$	15,268,000
Work-in-process		3,055,000		2,495,000
		21,515,000		17,763,000
Less – Reserve for inventory valuation		(1,077,000)		(626,000)
	$	20,438,000	$	17,137,000

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 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 of. During the nine month period ended March 31, 2014, the inventory valuation reserve was increased by $451,000 and no items were scrapped or disposed.