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Corporate Update Q1 2011
Corporate Update Q1 2011
American Scientific Resources, Inc. (“ASR”) closed its first 2011 fiscal quarter with revenues of $101,247, which is 42% less than the $175,623 of revenues reported the same quarter last year. The lower revenues were due in large part to the repercussions of the packaging recall. The recall is complete and ASR does not expect, as of the date of this corporate update, any further material service interruptions. As a result of the recall, ASR has significant inventory of VeraTemp thermometers in-stock, which will, among other things, fulfill the potential orders of new retailers that were obtained by ASR during the period of the recall. ASR also believes that its international distribution will grow based on recent purchase orders and international approvals.
Recall Background, Issues and Challenges
In late 2010, ASR received a complaint from an Italian non-contact thermometer manufacturer that alleged that there could be confusion in the marketplace due to the similarities of images, colors, and phrases in ASR’s packaging of its thermometers as compared to such manufacturer’s packaging of its product. and that such similarities constituted violation of “trade dress.” While ASR disagreed that it violated any trade dress issues, it did not want to be confused for the Italian product, which it believed had a poor reputation in the U.S. market. Therefore, ASR complied with the preliminary ruling and completely redesigned the packaging for its VeraTemp thermometer by changing the colors, prominently displaying the name VeraTemp and adding new artwork.
As a result of the recall and all the factors described below, management believes that ASR lost at least seven weeks of production and sales. One such factor is that in addition to the changes in packaging, ASR needed to redesign the website and reprint the instructions, insert card, and quick start guide, and have them delivered to ASR’s facility for repackaging. Further, during the recall, all thermometers remaining in distributors’ or retailers’ possession were recalled or destroyed in place. Product that was recalled and shipped back to ASR was repackaged with the new design and prepared for shipment. However, before ASR could ship out its products with the new packaging, retailers had to issue new purchase orders, which caused further delays, caused confusion among ASR’s retailers and strained ASR’s sales personnel, who had to spend time on damage control on existing accounts rather than developing new accounts.
Management believes that the recall and packaging issues have been resolved and that the impact on the customer base has stabilized. To date, ASR has lost only one distributor customer that purchased approximately 100 thermometers since September 2010. Because ASR values all of its customers, it will try to regain the distributor as a customer.
New Customers and Growth
While dealing with the practical matters of the recall, ASR was able to expand the number of U.S. retail outlets that will carry the Kidz-Med VeraTemp non-contact thermometers, complete CE marks and Health Canada certification for export, set up new distribution channels abroad, and ship to international customers. For example, ASR was able to establish a relationship with Ahold, an international retailing group, to purchase Kidz-Med VeraTemp non-contact thermometers. Ahold has already ordered Kidz-Med VeraTemp for its Giant Carlisle-based stores, and ASR hopes that Ahold’s other stores, Stop & Shop and Giant-Landover, will make similar orders in the fall.
In addition, the American Pharmacy Cooperative, Inc. (“APCI”) has placed an opening order for Kidz-Med VeraTemp non-contact thermometers to meet the needs of its 130 independent pharmacies located in Alabama, Florida, Georgia, Kentucky, Ohio, and Tennessee. ASR is also participating in several APCI promotional events that target independent and regional pharmacies.
ASR has also targeted growth in the online retail market. Kidz-Med VeraTemp non-contact thermometers, which are already being sold on Amazon.com and Daipers.com, has expanded its online presence by becoming available on the online sites of Walmart, Costco, Target, and Drugstore.com. ASR is currently working on making the Kidz-Med VeraTemp non-contact thermometers available on the online sites of Walgreens.com, Toyrus.com and Samsclub.com.
International Growth
In the first four months of 2011, ASR received full CE approval and Health Canada and ISO certificates allowing it to export to, among other countries, Canada.
ASR received a 5,000 unit purchase order from its United Kingdom distributor Syner-Med and expects to ship this order during the second quarter.
ASR has completed registration and translation for the bi-lingual packaging design for Kidz-Med VeraTemp non-contact thermometers that are being shipped to Canada. ASR’s Canadian retail distributor, Associated National Brokerage, Inc. (“ANB Canada”), has contractually committed to buy a minimum of 20,000 units over the next 12 months and has orally indicated to ASR that it plans to place the Kidz-Med VeraTemp non-contact thermometers in pharmacies throughout Canada by fall 2011. ASR has already received commitments from customers in Canada and is working on a private label brand for a major Canadian pharmacy chain.
Furthermore, ASR is in the process of translating instruction manuals, registering the product and/or designing the packaging for customers in the United Kingdom, Ireland, and Israel. In April 2011, ASR shipped to France its first pallet of Kidz-Med VeraTemp non-contact thermometers packaged in English with instructions in French, Dutch and German.
Early in the second quarter of 2010, ASR shipped its first major Latin American order containing Spanish language packaging to Chile, where ASR’s distributor has placed the Kidz-Med VeraTemp non-contact thermometers in three large pharmacy chains that have over 1,100 stores throughout Chile. ASR hopes that this relationship will provide a cornerstone for its Latin America growth strategy, and has identified distributors and interested retailers in Peru, Bolivia, Ecuador, Colombia, and Brazil.
ASR is continuing to work with identified distributors on local registration, packaging and distributor negotiations in Belgium, Sweden, Switzerland, Turkey, Hungary, Poland and Australia.
As of the date of this corporate update, ASR has made payment and placed additional factory orders for more thermometers. At this time, ASR has eight thousand thermometers being shipped via air freight and ten thousand in production. ASR has placed two additional orders of ten thousand units each and placed deposits for the commencement of production, which will begin production shortly.
Upcoming
ASR plans to attend the ECRM International Health and Beauty show in early June to meet with current customers and to try to identify potential international customers.
ASR plans to attend in late June the National Association of Chain Drug Stores (“NACDS”) Marketplace 2011 in Boston, which is attended by drugstore retailers
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