5.Inventory

Inventory is stated at the lower of cost or market. The cost of inventory is determined by the first-in, first-out (“FIFO”) method. The Company provides a reserve for obsolescence to recognize inventory impairment for the effects of engineering change orders, age and use of inventory that affect the value of the inventory. The reserve for obsolescence creates a new cost basis for the impaired inventory. When inventory that has previously been impaired is sold or disposed of, the related obsolescence reserve is reduced resulting in the reduced cost basis being reflected in cost of goods sold. A detailed review of the inventory is performed annually with quarterly updates for known changes that have occurred since the annual review. Inventory, net of reserves of $1,198,000 and $1,124,000 at December 31, 2013 and June 30, 2013, respectively, is comprised of the following (in thousands):



	December 31,		June 30,
Inventory	2013		2013
Component parts	$	3,358	$	2,648
Work in process		604		376
Finished goods		4,258		3,759
Total	$	8,220	$	6,783