(5) INVENTORIES

Inventories consisted of the following (in thousands):

	March 31,				December 31,
	2013		2012		2012
	(unaudited)
Purchased macadamia kernels	$	530	$	276	$	721
Finished Goods	479		—		285
Internally produced kernel	259		—		—
Work-in-process (nut-in-shell)	233		—		—
Packaging supplies and ingredients	94		—		98
Farming supplies	299		319		247
	$	1,894	$	595	$	1,351

All inventories are stated at the lower of cost or market. Work in process inventory is wet-in-shell nuts recorded at production cost. The cost to produce the related nut and the kernel processing costs are reclassified on an average cost basis to kernel inventory. Management regularly evaluates its inventory for any impairment and has determined that an inventory valuation allowance is not required at this time. Macadamia kernel, packaging, ingredients and nut-in-shell inventories will be used to generate branded sales later in 2013. Farming supplies will be used in the owned orchard and contract farming segments to generate nut sales and contract farming revenue.