NOTE 3 – INVENTORIES

Inventories at February 28, 2013 and February 29, 2012 consisted of the following:

	2013			2012
Raw materials	$	1,888,831		$	1,812,523
Finished goods		1,836,960			2,354,543
		3,725,791			4,167,066
Reserve for potential product obsolescence		(1,253,300	)		(1,460,683	)
Discount on long term inventory		(88,350	)		(102,383	)
		2,384,141			2,604,000
Non-current portion		(1,384,141	)		(1,604,000	)
Current portion	$	1,000,000		$	1,000,000

Inventories consist primarily of components and completed units for the Company's AuraGen® product.

Early in our AuraGen® program, we determined it was most cost-effective to outsource production of components and subassemblies to volume-oriented manufacturers, rather than produce these parts in house. As a result of this decision, and based on then anticipated sales, we purchased, prior to fiscal 2001, a substantial inventory of components at volume prices, most of which was then assembled into finished AuraGen® units. Since sales did not meet such expectations, we have been selling product from this inventory for several years. Management has analyzed its inventories based on its current business plan, current potential orders for future delivery, and pending proposals with prospective customers and has determined we do not expect to realize all of its inventories within the next year. The net inventories as of February 28, 2013 and 2012, which are not expected to be realized within a 12-month period have been reclassified as long term.

We assessed the net realize-ability of these assets, and the potential obsolescence of inventory. In accordance with this assessment, management has recorded a reserve of $1,253,300 and $1,460,683 at February 28, 2013 and February 29, 2012, respectively. Management has also recorded a discount on long term inventory of $88,350 and $102,383 at February 28, 2013 and February 29, 2012, respectively.