NOTE 6.

INVENTORY

As of September 30, 2012, our inventory was comprised of Altrazeal® finished goods, manufacturing costs incurred in the production of Altrazeal® and Aphthasol®, and raw materials. Inventories are stated at the lower of cost (first in, first out method) or market. We regularly review inventories on hand and write down the carrying value of our inventories for excess and potentially obsolete inventories based on historical usage and estimated future usage. In assessing the ultimate realization of our inventories, we are required to make judgments as to future demand requirements. As actual future demand or market conditions may vary from those projected by us, adjustment to inventories may be required. For the three months ended September 30, 2012, we wrote off approximately $79,000 in out-of-date and obsolete finished goods.

The components of inventory, at the different stages of production, consisted of the following at September 30, 2012 and December 31, 2011:

Inventory	September 30, 2012		December 31, 2011
Finished goods	$	323,529	$	398,634
Work-in-progress		290,642		367,779
Raw materials		33,070		33,070
Total	$	647,241	$	799,483