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YOUR FILE NO. 000-22025 | ||
August 11, 2005
|
OUR FILE NO. 332396-139747 | |
By Edgar |
Re: | Aastrom Biosciences, Inc. Form 10-K for the fiscal year ended June 30, 2004 File No. 000-2205 |
| The adjustments to the carrying value summarized in the attached financial data relate to excess ARS inventories for which the estimated probability of sale declined over time. The adjustments to the carrying value or the ARS inventories did not relate to a diminution of value of the inventories due to obsolescence. |
| The Companys method of estimating the net realizable value of its ARS inventories was not applied to any of the Companys other inventories, because the characteristics of that inventory and the Companys market experience with those products provided management with the ability to more precisely determine any necessary lower of cost or market conditions. |
Year Ended | Year Ended | Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | Year Ended | Quarter Ended | Quarter Ended | Quarter Ended | |||||||||||||||||||||||||||||||
Jun-02 | Jun-03 | Sep-03 | Dec-03 | Mar-04 | Jun-04 | Jun-04 | Sep-04 | Dec-04 | Mar-05 | |||||||||||||||||||||||||||||||
ARS inventories at estimated net realizable value at beginning of period |
$ | 1,444,000 | $ | 1,073,266 | $ | 250,015 | $ | | $ | | $ | | $ | 250,015 | $ | | $ | | $ | | ||||||||||||||||||||
ARS inventories under evaluation at potential customer sites |
| 86,314 | 162,203 | 162,203 | 162,203 | 162,203 | 162,203 | 162,203 | 162,203 | 162,203 | ||||||||||||||||||||||||||||||
Net realizable value adjustment related to excess ARS |
(202,000 | ) | (748,296 | ) | (250,015 | ) (3) | | | | (250,015 | ) (3) | | | | ||||||||||||||||||||||||||
Adjustment reflecting final resolution of evaluation units |
| | | | | | | | | (162,203 | ) (4) | |||||||||||||||||||||||||||||
Reported ARS Inventories at end of period |
1,242,000 | 411,284 | 162,204 | 162,203 | 162,203 | 162,203 | 162,203 | 162,203 | 162,203 | | ||||||||||||||||||||||||||||||
Other
Inventories (1) |
155,297 | 394,373 | 382,672 | 466,166 | 515,877 | 226,602 | 226,602 | 470,604 | 197,944 | 225,794 | ||||||||||||||||||||||||||||||
Total Reported Inventories at end of period |
$ | 1,397,297 | $ | 805,657 | $ | 544,876 | $ | 628,369 | $ | 678,080 | $ | 388,805 | $ | 388,806 | $ | 632,807 | $ | 360,147 | $ | 225,794 | ||||||||||||||||||||
Approximate equivalent ARS available for sale (2) |
16 | 18 | 18 | 18 | 18 | 18 | 18 | 18 | 18 | 16 | ||||||||||||||||||||||||||||||
(1) | Other inventories consist principally of cell cassette and base medium inventories which are sold to the Companys existing ARS customers and clinical sites for production of cells. In the quarter ended September 30, 2004 other inventories also include $111,495 of equipment which was purchased during the quarter. As disclosed in the Companys 10-Q for the quarter ended December 31, 2004, management now expects that this equipment will be used to establish a Company-owned cell production site and, accordingly it is reported as property and equipment in the Companys balance sheet at March 31, 2005. | |
(2) | Reflects equivalent units of ARS available for sale assuming a standard ARS configuration. Because ARS inventories consist of purchased finished components that are used to configure ARS only when they are ordered, and a customer order may include a non-standard configuration, these amounts can only be estimated. For example, the standard configuration of an ARS includes four incubators, but a customer could elect to order an ARS with more than four incubators. | |
(3) | The Company notes that actual charge recorded in the period was $253,000, reflecting a difference of $2,985. | |
(4) | The net carrying value of ARS inventories reflected herein consisted of three systems under evaluation by potential customers, all of which the Company believed carried a high probability of being purchased by the respective potential customers. During the third quarter of fiscal year 2005 (ended March 31, 2005), one of these systems was sold and the other two were returned, one of which was re-deployed to a clinical site. The remaining carrying value of the returned systems was written down to zero. This activity resulted in a $72,000 charge to cost of sales and a $90,000 charge to research and development expenses. |