American Scientific Resources (ASFX)

[dannol48]

In reply to post by Christy

The company's stated objectives for potential use (forward guidance) in requiring $1M at the beginning of 2011 for VeraTemp marketing and the $2M for new product development for distinct and separate needs are correct in meeting full disclosure in 10-K (IMO). The company in each subsequent interim report has repeated the forward guidance with updates in meeting full disclosure (IMO). However, the company also stated the priorities and objectives that are disregarded by the poster in current and prior posts for those distinct and separate needs, the actual use of cash (on record), and the possible sources for meeting cash needs. The poster also confuses current objective and future need as suggestion of problem and repeated accusations of fraud that have no substance for claim (IMO). Suggestions by the poster and other board members that cash requirements can only be met by debt is incorrect, i.e. a company can incur debt with or without equity conversion rights, use direct equity sale to the market (S-3 filing) or intermediaries (S-1 filing) as examples, or operate with cashflow from gross profits to sustain cash requirements. Obviously, those sources can change from quarter to quarter, but can shift more and more to free cash from rising gross profits over time. Debt agreements can also be retired by repayment or restructured with an improving financial condition, including cross-over to beneficial holding of shares or warrants.

(IMO) The company is focused on the immediate need to bring the VeraTemp to expanding markets and venues and the stated "large purchase orders" objective to rapidly increase gross profit, and thereby, increase cashflow to meet objectives (as stated). That opinion is sustained, as an achievable goal (IMO), by the record quarter of topline and restoration of higher gross profit in Q3. In FACT, the quarter had a record revenue of $439,644, 20% higher than any prior quarter in the company's history (on public record at SEC Edgar and OTC Markets websites). The company operates with very large retail chains, including Walmart, Costco, Target, Best Buy, and CVS, and a major GPO contract with Amerinet. That base can certainly meet the objective of "large purchase orders" fulfillment in either current or forward quarters. The company has recently expanded to new markets and venues including a Japan distributor and one of the largest retail drugstore chains in Canada, Shoppers Drug Mart. Those announcements are on the record, even if the iBox and sticky posts do not reflect those major announcements and achievements by the company in the past several months.

The following is rebuttal to each statement by the poster with a ----- to separate rebuttal from statement, and ****** to move to next topic:

**********

“While ASFX is progressing, having record sales with decreasing margins of over 50%,”

Gross profit for the three months ended September 30, 2011, was $106,085, up from a gross profit of just $3,530 for the same period in 2010. Gross profit as a percentage of net revenue for the three months ended September 30, 2011, was 24% compared to 48% for the same three month period last year excluding the 2010 inventory adjustment in the amount of $122,744. (Sept 2011 10Q, page 37, 2nd para)

And

Gross profit for the nine months ended September 30, 2011, was $194,264, up from $76,675 for the same period in 2010. However, adjusting for the approximately $84,000 of thermometer sales reversed and returned for re-packaging, gross profit would have improved further. Gross profit as a percentage of net revenue for the nine months ended September 30, 2010, was 25%, compared to 45% for the same nine month period a year ago excluding the inventory adjustment. (Sept 2011 10Q, page 39, 4th para)

---------- Rebuttal

Please note the exaggeration of "over 50%" against the statement of 48%/45% for three and nine months comparison. The gross profit for 2010 was $107,467 against revenue of $862,369 or gross margin of 12%. The gross profit for 2009 was $307,198 against revenue of $734,495 or 42% gross margin. The gross profit for 2008 was $391,447 against revenue of $910,577 or 43% gross margin. While the gross margin for any individual quarter may fluctuate, a look at full year is generally a better method to look at historic gross margin. None of the prior three years achieved "margins of over 50%".

Added Sources: 2010 10-K and 2009 Financial Report (OTC Markets)

http://www.sec.gov/Archives/edgar/data/1114605/000114420411021901/0001144204-11-021901-index.htm
http://www.otcmarkets.com/financialReportViewer?symbol=ASFX&id=33739

Also, the gross profit for 2010 Q3 was only $3,530 against $106,085 for 2011 Q3 comparison, i.e. while the margin is lower at start for the new VeraTemp product, the actual impact of the lower margin produced more, real cash for the company due to the record higher revenue. Gross margin at introduction with low quantity orders to manufacturer is not a barrier to higher margin against higher sales volume and any appropriate discount from the manufacturer. That early margin also ignores the potential higher gross margin of the Plus model of the product with increasing sales (per prior posted discussion on gross margin). There is also the stated impact of return and repackaging due to the Q1 wholesaler recall, that potentially affects the early gross margin (per statement as "improved further"). Since there is no discreet and separable amount on that impact, I've left it as an unknown in my own discussion of gross margin, i.e. discuss it as worst case to avoid over-estimating baseline.

Does this not work in the "I'd sell a Thousand for 24% over a Hundred for 48% return any day." analogy folks? While older products may have had good margin and some fair to good quarters (to be fair and objective), they just didn't get sustained, quarterly sales; and that's the real issue. Good margin with bad or lumpy sales equals unsuccessful venture (IMO). Moving to a major, new, consumer/clinical product of their own with those targets is (IMO) the right move toward positive cashflow and a good step toward profitability. While management can be criticized for the failure of a prior product, it isn't a given that a new product will fail or fall short of expectation. I believe the old product(s) had their respective problems or limitations. Stated inventory adjustments to topline in 2008, 2009, and 2010 are possible indications of manufacturer defects/warranty problems (IMO) and a real drag on prior gross profit and sales. It was one more prior reason I avoided serious interest and only kept watch. In this case, the VeraTemp has shown better (early) potential to generate sustained revenue than any prior product by ASFX (IMO).

**********

and slightly improving cash flow, it’s CLEARLY not enough to address our need to raise $3,000,000

As of the date of this Quarterly Report on Form 10-Q, we currently have sufficient cash to sustain our operations for a period of approximately one month. Management estimates that it will need $3,000,000 over the next twelve months to fund all of the Company’s current product development and marketing projects, including $1,000,000 to fund marketing programs for the VeraTemp thermometer. (June 2011 10Q, page 41, para 3)

and

As of the date of this Quarterly Report on Form 10-Q, we currently have sufficient cash to sustain our operations for a period of approximately one month. Management estimates that it will need $3,000,000 over the next twelve months to fund all of the Company’s current product development and marketing projects, including $1,000,000 to fund marketing programs for the VeraTemp thermometers. The Company expects to procure large purchase orders for its thermometer during 2011 from customers. (Sept 2011 10Q, page 42, 2nd para)

still only ONE MONTH's worth of cash

---------- Rebuttal

The statement "over the next twelve months" is reflected in the 10-K for 2010 and each of the interim reports for 2011, as forward guidance of 12 months, i.e. it is guidance against both real and possible need, and may or may not reflect actual use or efforts to raise cash on an immediate basis (IMO). Their discussion of VeraTemp marketing projects for $1M versus the $2M for product development is an obvious differentiation of need, i.e. you may need to market the VeraTemp, but can postpone or minimize the development of new product until cashflow can assist funding of new venture. The fact they repeat the guidance Q over Q with adjustments to language, and aren't moving on the full need is at least a good indication of intent. Further, the objective appears to be focused on the VeraTemp in market expansion and "large purchase orders" for the moment. The net cash used in operating activities for the nine months ending in September 30, 2011, is $1,015,288 (from Q3 10-Q Cash Flows), or well within the stated boundaries for the period. Obviously, the statement of $3M for 12 month guidance in 10-K for 2011 and nine months burn of $1M is evidence of possible versus actual use, and push-forward on some items. (IMO) They are pushing-forward cash use in anticipation of "large purchase orders" to (at least) minimize incurring new debt.

The cash on hand didn't include the Accounts Receivable of $158,024 on September 30. Are they cash tight, Yes. Are they in trouble, No, not in my opinion. They have no recent Form D or 8-K filings that suggest new debt issued in Q4. The last 8-K was for a note in late Q3 filed in early Q4 for $150K. The recently issued S-1 is not in effect. The S-1 is for an 8-K issued in February to raise up to $10M and the S-1 shows registration of 5,890,000 shares at 92% of the average of the lowest closing price price over five consecutive trading days, which if you do the math is .... an interesting PPS target.

Folks, I see nothing to give indication this is other than required full disclosure of potential need and purposes for cash, including the "if we had big purchase orders, we could do more and burn more cash" type of think. The entire cash burn for all of 2010 was under $900K, so keep to reality in your thinking and how they are attempting to make the 2011 turn-around with the new product work. If they were burning cash and not achieving good sales results with the VeraTemp, I would certainly be less incline to have interest.

**********

and stop our massive losses of over $15 – $20 MILLION since Sept 2009.

Straight from the financial statements for “accumulated losses” from Sept 30, 2009 to Sept 2011, plus expected losses from the Oct 2011 to Dec 2011 audited numbers. You have to use an adding machine, but it’s all there, clear as day.

---------- Rebuttal

The first thing that's apparent is the change from prior prediction of $6M loss for Q3 and $12M loss for YTD in Q3 results in the loss calculation by "adding machine" by the poster to achieve a correct total for the period. The $15M bottom number is indeed close with the actual loss for that eight-quarter period of $15,457,491 from my quick totaling by digital abacus (patent pending). However, the poster made the prediction of $6M loss for Q3, and was adamant they were correct. Now, the poster is providing admission of the truth in the missed target by accepting the total to date accumulated loss number as correct. If the $6M loss predicted for Q3 was added to the actual $15,457,491 base loss number minus actual loss of $784,908 to unwind inclusion of actual for Q3, the range is outside of the new predition; unless profit is expected. However, "expected losses" is stated by the poster. Well, I'm confused WHY there is no admission of prior error, but that's entirely up to the poster to provide. Here are those "Expect 2011 YTD losses too exceed 12 Millon" and "I predicted it. And I'm not backing down." posts for review by investors.

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=68755827
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=69250208

The poster's revised guidance (with acceptance of correct Q3 numbers) appears to fall within a $457K profit to $4.543M loss for Q4. Sure can't argue with someone that suggests profit is possible; although a round-down for range is understandable too. Anything is certainly possible in a large purchase orders potential situation with new product and so many possible retail and clinical buyers.

Well Christy, maybe it's time to trade the adding machine for a device with a little more accuracy to assist with build-up on those guidance predictions for forward quarters. Perhaps a more detailed explanation of the very-wide range projected with specific focus on just Q4 would help clarify your prediction with some real build-up to assist with understanding for investors. If it's just a spaghetti toss to see if it sticks, as acceptible, it doesn't with me. NOT with your public record of posts as history.

**********

In fact, we are NOT EVEN CLOSE. We have issued our common stock at an alarming rate, over the past 81 days with no end in sight. This dilution is a 10% increase, PER WEEK, since Aug 29th.”

As of November 18, 2011, there were 30,088,761 shares of the registrant’s common stock issued and outstanding.
(Sept 2011 10Q, opening page, last para)

As of August 29, 2011, there were 15,780,009 shares of the registrant’s common stock issued and outstanding.
(June 2011 10Q, opening page, last para)

---------- Rebuttal

Per prior discussion post, I can not predict when or even if debtholders will or won't convert, or if conversion is held as beneficial or resold into the market. However, it stands to reason that debtholders like to make money. They are interested in opportunity or wouldn't be debtholders. A turn-around story that's (as yet) incomplete is something to watch in how debt is resolved and whether short-run dilution for a brief period is sustained or just a blip on the path to some stable target range on the road to cashflow positive. Some new debt for recapitalization post the reverse-split was not unexpected (IMO) by experienced investors, and possible conversion is part of that equation to reduce risk in recent market conditions. I'm sure the debtholders are watching and even possibily have assisted the turn-around with debt service postponements, minor restructures, and money as needed.