Note 4: Inventories

The Company uses the lower of first-in, first-out ("FIFO") cost or market method of accounting for inventory.


Inventories consist of the following:	(in thousands)
	June 30,	December 31,
	2012	2011
Inventory work-in-process, January 1	$ 897	$ 787
Production	254	302
Spoilage	(44)	(192)
Inventory work-in-process, end of period	$1,107	$ 897

The Alferon® Work-In-Process Inventory has expiration dates of September 30, 2012 through March 10, 2013. The Technology Transfer process with Althea Technologies, Inc. ("Althea") of San Diego, CA, was completed in May 2012 and included the evaluation of manufacturing and technology transfer feasibility, equipment and/or equipment modification requirements, engineering runs, process definition along with development and approval of the Master Batch Record. At the completion of each inventory lot in the fill, finish and packaging process, it is projected that Alferon N Injection® will then have an expected shelf life of 42 months.

We are currently working on the Process Validation of two of the three Alferon® Work-In-Process lots with the resulting data to be submitted to the FDA. Only if and when the finished product lots obtain approval from the FDA will we be able to commercially sell Alferon N Injection® in the United States. If we receive a lot release approval from the FDA as to quality and consistency of these materials, and approval for Althea to perform the fill and finish process, we estimate that commercial sales of Alferon N Injection® could commence in the later part of 2012 or early 2013.

We are unable to provide any assurances that the FDA will approve the finish product lots produced by Althea. In the absence of FDA approvals for commercial sale of product manufactured from existing Work-In-Process inventory, commercial sales of Alferon® in the United States will not resume until new batches of Alferon® Active Pharmaceutical Ingredient ("API") can be produced and formulated in order that finished product can be filled, finished, packaged and released by the FDA for commercial sale. While at June 30, 2012 and December 31, 2011 the Work-In-Process Inventory had no manufacturing steps to be undertaken at the Company's New Brunswick, NJ facility, it will not be classified as Finished Goods until the fill and finish process is completed to create a product that can be commercially sold.