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)
	September 30,	December 31,
	2012	2011
Inventory work-in-process, January 1	$897	$ 787
Production	680	302
Spoilage	(778)	(192)
Inventory work-in-process, end of period	$799	$ 897

The Technology Transfer process with Althea Technologies, Inc. ("Althea") of San Diego, CA, for Alferon N Injection® 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. As of September 30, 2012, all but one of our lots of Alferon® Work-In-Process Inventory have completed the fill, finish and packaging process with the final lot converted on October 12, 2012. Of the three lots that had completed the fill, finish and packaging process, the first lot was deemed not suitable for commercial sale due to an issue that occurred in the process and therefore the value was reserved by the Company along with any validation samples and product shrinkage from this final production stage. Upon analysis and revision of the fill and finish process, the second and third lots were completed with the previous issue in the manufacturing step corrected.

While at September 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 it is confirmed by the FDA that the product can be commercially sold as is.