Table Of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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 Form 10-K

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(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2015
	OR
☐	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                            to

 

Commission file number: 000-31037

 

eRoomSystem Technologies, Inc.

(Exact name of   registrant as specified in its charter)

 

Nevada	87-0540713
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
150 Airport Road, Suite 1200, Lakewood, NJ	08701
(Address of principal executive offices)	(Zip Code)

 

Registrant’s telephone number, including area code: (732) 730-0116

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class	Name of each exchange on which registered

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, par value $0.0001 per share

(Title of each Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.  Yes  ☐     No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ☐ No  ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ☒    No  ☐

  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.   

 

	Large accelerated filer ☐	Accelerated filer ☐
	Non-accelerated filer   ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).  Yes  ☐    No  ☒

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter was $1,075,218.

 

As of March 28, 2016 there were 24,217,865 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

TABLE OF CONTENTS

 

PART I		1
ITEM 1.    BUSINESS		1
ITEM 2.    PROPERTIES		4
ITEM 3.    LEGAL PROCEEDINGS		4
ITEM 4.    MINE SAFETY DISCLOSURES		4
PART II		5
ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		5
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		6
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		10
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		23
ITEM 9A. CONTROLS AND PROCEDURES		23
ITEM 9B.  OTHER INFORMATION		24
PART III		25
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		25
ITEM 11.  EXECUTIVE COMPENSATION		26
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		27
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		28
ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES		28
PART IV		30
ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES		30

 

 

PART I

 

ITEM 1.      BUSINESS

 

As used in this Annual Report on Form 10-K (this “Report”), references to the “Company,” the “Registrant,” “we,” “our” or “us” refer to eRoomSystem Technologies, Inc., and includes our subsidiaries, unless the context otherwise indicates.

 

Forward-Looking Statements

 

This Report contains forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “continue” or the negative of these similar terms. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information.

 

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash, which are explained below under “Liquidity and Capital Resources”. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable laws.

 

Historical Summary

 

We were originally incorporated under the laws of the State of North Carolina on March 17, 1993 as InnSyst! Corporation. On September 28, 1993, the operations of InnSyst! were transferred to RoomSystems, Inc., a Virginia corporation, incorporated on August 12, 1993, or RoomSystems Virginia. On April 29, 1996, the operations of RoomSystems Virginia were transferred to RoomSystems, Inc., a Nevada corporation, or RoomSystems. Through an agreement and plan of reorganization approved by a majority of our stockholders dated December 31, 1999, RoomSystems became the wholly owned subsidiary of RoomSystems International Corporation. Pursuant to this agreement and plan of reorganization, all shares of RoomSystems common stock, including all shares of common stock underlying outstanding options and warrants, Series A convertible preferred stock and Series B convertible preferred stock were exchanged for the identical number and in the same form of securities of RoomSystems International Corporation. On February 1, 2000, we changed our name from RoomSystems International Corporation to RoomSystems Technologies, Inc. Subsequently, on March 29, 2000, with the approval of our stockholders, we changed our name to eRoomSystem Technologies, Inc. Thereafter, we changed the name of RoomSystems, Inc. to eRoomSystem Services, Inc.

  

We have four wholly owned subsidiaries, eRoomSystem Services, Inc. (“eRoomSystem Services”) (formerly RoomSystems), eFridge, LLC (“eFridge”), eOneCapital, Inc (“eOneCapital”) and eOne Group, LLC (“eOne Group”). eRoomSystem Services provides customer service and maintenance for refreshment centers owned by hotels and instructs hotel personnel on the use and maintenance of our products. eFridge provides a turnkey solution to various hotels. eFridge manages the process of providing product and restockers to the hotels.  eFridge registered Hotel Service Group with the state of New Jersey as an alternate name for sales and marketing purposes. eOneCapital and eOne Group provide asset based loans and other investments.

 

Overview

  

In January 2014, the Company introduced to the lodging industry an amenity management platform, or the AMENITIES MANAGER™. The platform’s core is proprietary software that provides a cloud-based system to assist a hotel in enhancing its image and theme through distinctive products and managing its amenities with optimized efficiency.

 

The AMENITIES MANAGER™ deliver solutions in order to reduce operating costs, enhance hotel guest satisfaction and provide higher operating profits to our customers. The solutions offered by our AMENITIES MANAGER™ and related products have allowed us to establish relationships with many premier hotel chains. In addition to providing our customers with valuable amenity management solutions that pay for itself, our revenue-sharing program has allowed us to partner with our customers and provide our solutions at little or no up-front cost. Our customers share in revenues generated from the sale of goods and services related to our platform. As an alternative solution, we offer a turnkey arrangement which provides both products and restockers to hotels.

 

 

We continue to deploy our Amenities Manager™ at all hotels that we service. Additionally, to date, we have deployed over 12,000 refreshment centers at many hotel properties.

 

The solutions offered by our eRoomSystem and related products have allowed us to install our products and services in several premier hotel chains, including Marriott International, Hilton Hotels, Carlson Hospitality Worldwide, as well as in other boutique hotels in the United States and internationally.

 

Summary of Our Diversification Initiatives

 

We are continuously performing due diligence for the purpose of making investments in privately-held or publicly traded emerging growth stage companies. In the future, we may acquire an existing operating company if the opportunity arises. At this time, we have no agreements with any such companies.

 

If the Company is presented with an opportunity to lend funds, it sometimes does so. To date, the Company loaned $1,740,000 in amounts ranging from $150,000 to $450,000 to various parties for no longer than a one year term.

 

Our Products and Services

 

Amenities Manager™

 

Since our inception, it has been our objective to provide innovative in-room amenities solutions to the lodging industry. Our new amenity management platform brings together the hotel’s amenities on a cloud-based server. Our proprietary software, AMENITIES MANAGER™ operates as a multi-tasking data collection and retrieval system. Our software provides an interactive environment that allows the input and retrieval of information in the form of user-friendly, customized reports and:

 

• Is a friendly, easy-to-learn interactive, graphical environment;

• Helps the hotel maximize personnel efficiencies with regard to amenity delivery and restocking;

• Tracks inventory daily to ensure rooms are fully stocked and contain no expired items;

• Provides real-time, user-friendly reports that track on a daily basis restocking requirements, daily, monthly and annual product sales statistics, overnight audits, inventory control and a variety of customized reports; and

• Allows for special amenity requests.

 

Turnkey Amenities Manager™

 

We also offer a turnkey arrangement which provides and manages both amenity products and attendants to hotels in conjunction with the AMENITIES MANAGER™ at no cost to the hotel. The hotels share in the recurring revenues generated.

 

Amenities Optimizer

 

One of the byproducts of our technology is the information we have collected since our first product installation. To date, we have collected millions of room-nights of data. The eRoomSystem file server collects information regarding the usage of hotel refreshment centers on a real-time basis. We use this information to help our customers increase their operational efficiencies. The information we obtain enables us to categorize the information according to specific consumer buying patterns and demographics and provides insight into what products and brands have the highest sell through rate and margins.

 

The information we collect is currently offered to our customers as part of our Amenities Manager™ software. Our hotel clients benefit in various ways from the information we provide. The hotels that are responsible for restocking the goods sold from our refreshment centers can utilize the real-time sales data generated by the Amenities Manager™ to help the hotel maximize personnel efficiencies with regard to amenity delivery and restocking. The timely transfer of sales data to the hotel prevents guest pilferage and minimizes disputes over refreshment center usage, both of which are prevalent in the lodging industry. Finally, the ability to track product sales performance, including specific information about their guests' buying patterns and non-confidential information about other hotels in similar geographic regions, allows the hotel to stock the refreshment centers with more popular items, which may lead to increased sales of product from the refreshment centers.

 

Research and Development

 

At the core of our products and services is our proprietary software and hardware. In 2015, we continued to step up our research and development projects for the purpose of creating new products and software. We are also continuing to work on the AMENITIES MANAGER™, a cloud based hotel amenity management platform. There is no assurance that the products we are working on will be successfully completed or deployed. We spent $49,049 and $43,896 on research and development activities in 2015 and 2014, respectively, none of which expenses were borne directly by customers.

 

 

Sales and Marketing

 

We have deployed over 12,000 refreshment centers at many hotel properties. We have renewed our sales and marketing efforts with respect to our new amenity platform for hotels. There is no assurance that we will be successful. We spent $23,689 and $11,908 on sales and marketing efforts in 2015 and 2014, respectively.

 

Manufacturing

 

We do not currently manufacture our products and do not anticipate doing so in the future. We utilize outside manufacturing companies as necessary.

 

Competition

 

The market for in-room amenities platforms in the lodging industry is quite competitive, and the competition has further intensified in recent years. Management is focused on expanding our existing client base. Our renewal of sales and marketing will be subject to significant competition from competitors. Competitors include Amenity Services, a company that provides economical and custom products for hotel guest rooms. We provide a full service turnkey solution for hotel minibars in addition to the economical and custom products for the hotel guest rooms.

 

Customers

 

During the year ended December 31, 2015, revenues from two customers accounted for 61.7% of our total revenues. During the year ended December 31, 2014, revenues from two customers accounted for 62.4% of our total revenues.

 

Intellectual Property

 

We rely upon a combination of trademark and copyright law, trade secret protection and confidentiality with our employees, customers and business partners to protect our proprietary rights in our products, services, know-how and information.

 

We have the following trademarks and service marks: Amenities Manager™ and eRoomSystem Technologies™. We have also registered our logo.

 

Our proprietary software consists of two modules and provides the backbone of the Amenities Manager™. The first module is the web-based, locally hosted or cloud software that is the core of the Amenities Manager™. It collects data inputted by hotel and office staff and produces a wide-variety of management and operational reports. Our existing hotel clients utilize our version 2.6 software that provides users with a friendly, easy-to-learn graphic environment which generally expands the report generating capabilities of the property. The second module is a Windows(R) based program that provides a communication link between our Amenities Manager™ software, and the hotel's property management system.

 

We currently do not have any patents for our software and have no current intentions to file for patent protection. We do not know if future patent applications, if any, will be issued with the full scope of claims we seek, if at all, or whether any patents we receive will be challenged or invalidated. Our means of protecting our proprietary rights in the United States, and abroad, may not be adequate and competitors may independently develop similar technology. We cannot be certain that our services do not infringe on patents or other intellectual property rights that may relate to our services. Like other technology-based businesses, we face the risk that we will be unable to protect our intellectual property and other proprietary rights, and the risk that we will be found to have infringed on the proprietary rights of others.

 

            Government Regulation

 

We are subject to laws and regulations which are directly applicable to businesses generally, as well as to laws and regulations directly applicable to the lodging industry and minibars in particular. These laws and regulations relate to the qualification required to do business in the various states and in foreign nations in which we currently have, or propose to have, our products.

 

Apart from laws and regulations applicable to us, some of our existing and potential customers are subject to additional laws or regulations, such as laws and regulations related to liquor and gaming, which may have an adverse effect on our operations. Due to the licensing requirements relating to the sale of alcohol in each state, the failure of any of our revenue-sharing partners to obtain or maintain its liquor license would result in the loss of revenue for our revenue-sharing partner and us. In addition, due to the heightened hotel-casino regulatory environment and our ongoing revenue-sharing agreements with hotel-casinos, our operations may be subject to review by a hotel-casino's compliance committee to verify that its involvement with us would not jeopardize its gaming license. The regulatory compliance committee of a hotel-casino has broad discretion in determining whether or not to approve a transaction with a third party, which review typically includes the character, fitness and reputation of the third party and its officers, directors and principals. If our history or operations present problems for a hotel-casino, we would either have to expend resources to address or eliminate the concerns or forego the business.

 

 

Employees

 

We currently employ fifteen employees, eight of which are full-time, in addition to four consultants.

 

ITEM 2.      PROPERTIES.

 

We lease our headquarters and principal executive offices, comprising approximately 1,600 square feet, located at 150 Airport Road, Suite 1200, Lakewood, New Jersey 08701 for $1,750 per month. We have exercised our option to renew the lease for an additional half year starting March 28, 2016 at $1,875 per month.

 

            In addition, we currently lease approximately 80 square feet of storage space on a month-to-month basis for $65 per month in Salt Lake City, Utah. We also utilize a warehouse and distribution company with 51,500 square feet in Lakewood Township, NJ for which we pay $7 per pallet per month. We maintain inventory and replacement parts at these facilities.

 

We believe that our current office and warehouse will be adequate for the foreseeable future.

 

ITEM 3.      LEGAL PROCEEDINGS.

  

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

 

ITEM 4.      MINE SAFETY DISCLOSURES

 

Not applicable

 

 

PART II

  

ITEM 5.      MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

  

Market Information

 

Prior to August 3, 2000, there was no public market for our common stock. In conjunction with our initial public offering, in August of 2000, our common stock was accepted for listing on the NASDAQ SmallCap Market under the trading symbol "ERMS". In April 2003, our common stock was delisted from the NASDAQ SmallCap market. Our common stock is currently quoted on the OTC Pink under the same symbol. As of March 28, 2016, there were 24,217,865 shares of common stock outstanding.

 

High And Low Sale Prices Of Our Common Stock

 

The following table sets forth the high and low bid information of our common stock, as quoted on the OTC (which quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions) for each quarter during the period January 1, 2014 through December 31, 2015:

 

 

Calendar Quarter Ended		Low				High
March 31, 2014		$	0.05			$	0.10
June 30, 2014		$	0.05			$	0.13
September 30, 2014		$	0.05			$	0.08
December 31, 2014		$	0.05			$	0.10
March 31, 2015		$	0.07			$	0.09
June 30, 2015		$	0.06			$	0.09
September 30, 2015		$	0.07			$	0.09
December 31, 2015		$	0.05			$	0.09

 

The last reported price of our common stock on the OTC on March 28, 2016 was $0.075 per share.

 

Holders

 

As of March 28, 2016, there were over 350 stockholders of record of our common stock.

 

Dividends

 

We have never declared or paid any cash dividends on our common stock. The declaration and payment of cash dividends in the future will be at the discretion of our Board and will depend upon a number of factors, including, among others, our future earnings, operations, funding requirements, restrictions under our credit facility, our general financial condition and any other factors that our board considers important.

 

Recent Sales of Unregistered Securities; Use of Proceeds

 

There were no sales of unregistered equity securities that were not previously reported.

 

Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers

 

Issuer Purchases of Equity Securities

 

As reflected by the Forms 4 filed by David Gestetner, our President and Chief Executive Officer, during the fiscal year ended December 31, 2015, the following reflects the shares purchased by Mr. Gestetner in open market transactions. These were not done pursuant to any plan or program.

 

Period		Total Number of Shares				Average price paid per share
December 2015			71,153			$	0.0575
May 2015			115,000			$	0.06875

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Equity Compensation Plan Information

 

The following table sets forth information about our equity compensation plans as of December 31, 2015.

 

Plan Category		Number of securities to  of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities available for future issuance
		(a)				(b)				(c)
Equity compensation plan approved by security holders			300,000			$	0.08				2,700,000
Equity compensation plans not approved by security holders			-			$	-				-
Total			300,000			$	0.08				2,700,000

 

Equity Compensation Plans Approved by Security Holders

 

The 2000 Stock Option and Incentive Plan, or the 2000 Plan, was adopted by our board on February 3, 2000 and approved by our stockholders on March 29, 2000. The 2000 Plan was amended by our stockholders on each of May 7, 2001, July 29, 2002 and November 15, 2004 to increase the number of shares of common stock reserved for issuance under the 2000 Plan from 2,000,000 shares to 2,360,000 shares, from 2,360,000 to 2,700,000, and from 2,700,000 to 3,000,000 shares, respectively. The 2000 Plan provides us with the vehicle to grant to employees, officers, directors and consultants stock options and bonuses in the form of stock and options including "incentive stock options" within the meaning of Section 422 of the United States Internal Revenue Code of 1986 and non-qualified stock options. As of December 31, 2015, there were options to purchase 300,000 shares of our common stock outstanding under the 2000 Plan. The compensation committee has authority to determine the persons to whom awards will be granted, the nature of the awards, the number of shares to be covered by each grant, the terms of the grant and with respect to options, whether the options granted are intended to be incentive stock options, the duration and rate of exercise of each option, the option price per share, the manner of exercise and the time, manner and form of payment upon exercise of an option.

 

Equity Compensation Plans Not Approved by Security Holders

 

All outstanding options and warrants under equity compensation plans not approved by security holders have expired.

 

ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.

 

Certain statements contained in this Annual Report, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of the Company and the services we expect to offer and other statements contained herein regarding matters that are not historical facts, are “forward-looking” statements. Because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. The following management discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, the audited financial statements and related notes elsewhere in this Annual Report.

 

All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

 

Plan of Operation

 

In January 2014, the Company introduced to the lodging industry an amenity management platform, or the AMENITIES MANAGER™. The platform’s core is proprietary software that provides a locally hosted or cloud-based system that assists the hotel in enhancing its image and theme through distinctive and unique products and managing its amenities with optimized efficiency.

 

The solutions offered by our eRoomSystem and related products have allowed us to install our products and services in several premier hotel chains, including Marriott International, Hilton Hotels, Carlson Hospitality Worldwide, as well as in other boutique hotels in the United States and internationally.

 

 

Description of Revenues

 

We derive revenues primarily from the sale of products in hotel in-room refreshment centers. In these hotels, we receive most of the revenues for the product sold in the minibars and baskets. We provide a percentage of revenues over a predetermined threshold to some of the hotels. We expect that these revenues will account for a substantial majority of our revenues for the foreseeable future. We also generate revenues from licensing our proprietary software and software support.

 

Our dependence on the lodging industry makes us extremely vulnerable to downturns caused by the general economic environment. Such downturns could result in fewer purchases by hotel guests of goods and services from our products installed in hotels, and accordingly lower revenues where our products are placed pursuant to a turnkey or revenue sharing agreement. Travel and leisure is often discretionary for consumers and may be affected by adverse trends in the general economy. The success of our operations depends, in part, upon discretionary consumer spending and economic conditions affecting disposable consumer income.

  

We have a diversification strategy to invest in emerging growth companies. We continue to explore opportunities and perform due diligence on third parties with respect to potential investments. At this time, we have no agreements to make such investments. In addition, we may acquire an operating company in the future if the opportunity arises. The timing and return on such investments, however, cannot be assured.

 

Revenue Recognition

 

We generate revenues from the sale of products in refreshment centers, from maintenance services and the lease of equipment. Revenue from the sale of refreshments from the refreshment centers is recognized upon removal of the item from the refreshment center by the hotel guest. Maintenance revenue is recognized as the services are performed. Lease revenue is recognized over the term of the lease.

 

Description of Expenses

 

Cost of product sales consists primarily of cost of goods and labor. Cost of maintenance fee revenues primarily consists of expenses related to customer support and maintenance.

 

Selling, general and administrative expenses primarily consist of general and administrative expenses including professional fees, salaries and related costs for accounting, administration, finance, legal, human resources, and information systems.

 

Research and development expenses consist of payroll and related costs for hardware and software engineers, quality assurance specialists, management personnel, and the costs of materials used by our consultants in the maintenance of our existing installed products. As we have initiated development of new product lines there were some research and development expenses in the fiscal years 2015 and 2014.

 

In accordance with FASB Accounting Standards Codification (ASC) 985, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, development costs incurred in the research and development of new software products to be sold, leased or otherwise marketed are expensed as incurred until technological feasibility in the form of a working model has been established. We have charged our software development costs to research and development expense in our consolidated statements of operations.

 

Results of Operations

 

Comparison of Years Ended December 31, 2015 and 2014

  

Revenues

  

Revenue from product sales and other services was $903,690 in 2015, as compared to $794,461 for the year ended December 31, 2014, representing an increase of $109,229, or 14%. The increase in revenue for the year ended December 31, 2015 reflected continuous effort to improve our product sales at each hotel as well an additional hotel in 2015.

 

During the year ended December 31, 2015, revenues from two customers accounted for 61.7% of our total revenues.

 

Cost of Revenue

  

Our cost of product sales and service revenue was $521,392 for the year ended December 31, 2015 as compared to $401,907 for the year ended December 31, 2014, representing an increase of $119,485, or 30%. The increase was due to increased sales and an increase in cost of labor and cost of goods. The gross margin percentage on revenue from product sales revenue was 42% in 2015 as compared to 49% in 2014.

 

 

The changes and percent changes with respect to our revenues and our cost of revenue for the years ended December 31, 2015 and 2014 are as follows: 

 

 

		For the years ended December 31,
		2015				2014				Change				Percent Change
REVENUE		$	903,690			$	794,461			$	109,229				14	%
COST OF REVENUE		$	521,392			$	401,907			$	119,485				30	%

 

 

Although the preceding table summarizes the net changes and percent changes with respect to our revenues and our cost of revenue for the years ended December 31, 2015 and 2014, the trends contained therein are limited to a two-year comparison and should not be viewed as a definitive indication of our future results.

 

Operating Expenses

 

Selling, General and Administrative — Selling, general and administrative expenses were $421,783 for the year ended December 31, 2015 and $436,021 for the year ended December 31, 2014, representing a decrease of $14,238, or 3%. Selling, general and administrative expenses represented 47% of our total revenues in 2015 and 55% of our total revenues in 2014.

 

Research and Development Expenses — Research and development expenses were $49,049 for the year ended December 31, 2015 and $43,896 for the year ended December 31, 2014, representing an increase of $5,153, or 12%. The increase in research and development expenses was due to increased development on new product lines. Research and development expenses represented 5% of our total revenue in 2015 and 6% of our total revenue in 2014.

 

Investment Income

 

Investment Income — Our income from investments was $139,838 for the year ended December 31, 2015, compared to $200,381 for the year ended December 31, 2014, representing a decrease of $60,543, or 30%. The decrease related primarily to the repayment of an outstanding promissory note in 2014 evidencing a loan originally made in 2011 to Blackbird Corporation and recapture of the interest income on such note (the “Blackbird Note”).

 

Net Income Attributable to Common Stockholders

 

We realized a net income attributable to common stockholders of $51,304 for the year ended December 31, 2015, as compared to $113,018 for the year ended December 31, 2014. The $61,714 difference was primarily due to a decrease in investment income.

 

Liquidity and Capital Resources

 

At December 31, 2015, we had $1,247,739 of cash, as compared to $1,453,971 of cash at December 31, 2014. At December 31, 2015, we had working capital of $2,504,497, as compared to working capital of $2,402,932 at December 31, 2014. In addition, our stockholders' equity was $2,550,383 at December 31, 2015 as compared to $2,491,840 at December 31, 2014, an increase of $58,543. The decrease in cash reflects in large part the increase in notes receivable in 2015. The increase in working capital reflects the increase in current assets. The increase in stockholders’ equity primarily reflects the net income in 2015.

 

Our accumulated deficit decreased to $31,686,698 at December 31, 2015 as compared to $31,738,002 at December 31, 2014. The decrease in accumulated deficit is a direct result of our net income of $51,304 in the year ended December 31, 2015.

 

Net cash provided by operating activities for the year ended December 31, 2015 was $3,088, as compared to $22,255 used during the year ended December 31, 2014.

 

Net cash used by investing activities for the year ended December 31, 2015 was $209,320, as compared to net cash provided during the year ended December 31, 2014 of $99,404. The change resulted primarily from proceeds from notes receivable, non-performing in 2014.

 

           Net cash used in financing activities for the years ended December 31, 2015 and 2014 was $0.

 

 

We currently believe that our cash on hand will provide sufficient capital resources and liquidity to fund our expected operating expenditures for the next twelve months.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Upon the effective date, the ASU replaces almost all existing revenue recognition guidance, including industry specific guidance, in United States Generally Accepted Accounting Principles. This standard is effective for fiscal years and interim reporting periods beginning after December 15, 2016. The Company is currently assessing the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures upon implementation in the first quarter of fiscal year 2018.

 

Off Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

 

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of John Scrudato CPA Independent Registered Public Accounting Firm	11
Consolidated Balance Sheets	12
Consolidated Statements of Operations and Comprehensive Income	13
Consolidated Statements of Stockholders' Equity	14
Consolidated Statements of Cash Flows	15
Notes to Consolidated Financial Statements	16

 

 

Scrudato & Co., PA

CERTIFIED PUBLIC ACCOUNTING FIRM

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of

eRoomSystem Technologies, Inc.

 

 

We have audited the accompanying balance sheet of eRoomSystem Technologies, Inc. as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

 

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of eRoomSystem Technologies, Inc. at December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

 

/s/ John Scrudato CPA

 

 

Califon, New Jersey
March 25, 2016

 

7 Valley View Drive Califon, New Jersey 07830  

---

 Registered Public Company Accounting Oversight Board Firm

 

  

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

See accompanying notes to consolidated financial statements

 

 

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

  

 

See accompanying notes to consolidated financial statements

 

 

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

 

 

See accompanying notes to consolidated financial statements

 

 

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

 

See accompanying notes to consolidated financial statements

 

 

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

The Company has had no disagreements with its independent accountants with respect to accounting practices or procedures or financial disclosure.

 

ITEM 9A.   CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2015. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, because of the material weaknesses in our internal control over financial reporting due to lack of segregation of duties and errors in financial statement presentation and disclosure discussed below, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that the Company’s disclosure and controls are designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Notwithstanding the material weaknesses discussed below, our principal executive officer and principal financial officer have concluded that the consolidated financial statements included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

 

Management's Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements and that receipts and expenditures of company assets are made in accordance with management authorization; and (iii) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

 

Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2015 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on management’s assessment, including consideration of the control deficiency discussed below, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2015 due to the fact that there was a material weakness in its internal control over financial reporting. Specifically, through the investigation discussed above, management identified a lack of segregation of duties.

  

Lack of Segregation of Duties

 

Management is aware that there is a lack of segregation of duties at the Company due to the small number of employees dealing with general administrative and financial matters. However, management has decided that at this time considering the abilities of the employees involved and the control procedures in place, the risks associated with such lack of segregation are low and the potential benefits of adding employees to segregate duties do not justify the substantial expenses associated with such increases. Management will periodically reevaluate this situation.

 

 

Attestation Report of the Registered Public Accounting Firm

 

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act that permits the Company to provide only management's report in this annual report.

 

Changes in Internal Controls

 

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

ITEM 9B.   OTHER INFORMATION

 

None.  

 

 

PART III

 

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following information is furnished with respect to our directors and executive officer. There are no family relationships between or among any of our directors or executive officer. Each director of the Company serves for a term of one year or until such director’s successor is duly elected and is qualified.  Each officer serves, at the pleasure of the board of directors, for a term of one year and until such officer’s successor is duly elected and is qualified.

 

Directors and Executive Officers

 

 

Name			Age		Position
David A. Gestetner			43		President, Chief Executive Officer, Secretary and Chairman of the Board
James C. Savas			55		Director
Lawrence K. Wein			73		Director

 

Set forth below is a description of the background of each of our executive officers and directors:

 

David A. Gestetner has served as President, Chief Executive Officer, Chief Financial Officer, Secretary and Chairman of the Board since October 1, 2003. Throughout his career, Mr. Gestetner has been involved in various applications of technology, both as an operator as well as a financier, including founding and operating a telecommunications business abroad. Mr. Gestetner has received awards for his innovations and advance applications of technology, including the Howard Golden Award for an intuitive scientific invention consisting of a system that enables emergency call routing in telephone systems. Mr. Gestetner possesses a Master's degree from The Aron Kotler Higher Institute of Learning in New Jersey. Mr. Gestetner has significant experience with technology companies.  We believe his background and skill set in various facets of the technology industries make Mr. Gestetner well-suited to serve as a member of our board of directors.

 

James C. Savas has served as director since June 13, 2002. Mr. Savas is a managing member of Savas Greene White & Company LLC, an accounting and business consulting firm located in Salt Lake City, Utah.  Since April 1999, Mr. Savas has also served as a co-manager of Providence Management, LLC, which is the manager of ASH Capital LLC, a private equity company.  Mr. Savas also serves on the boards of Bullfrog Spas International LC and Express Locations, LLC, both privately held companies.  Mr. Savas received his Bachelor of Science in Accounting from the University of Utah. Mr. Savas has significant experience with accounting and finance.  We believe his background and skill set in accounting and business make Mr. Savas well-suited to serve as a member of our board of directors.

 

Lawrence K. Wein has served as director since October 2003. Mr. Wein is also a director at the Olstein Funds, which is a reporting company. Mr. Wein held several key positions at AT&T for over 30 years. Mr. Wein is presently retired from his positions. Mr. Wein received his Master's in Business Administration from Harvard Business School, and his Bachelor of Science in Engineering from Columbia University. Mr. Wein has significant business experience.  We believe his prior industry background and skill set make Mr. Wein well-suited to serve as a member of our board of directors.

 

None of our directors or officers is a director in any other reporting companies.  None of our directors or officers has been affiliated with any company that has filed for bankruptcy within the last ten years.  We are not aware of any proceedings to which any of our officers or directors, or any associate of any such officer or director, is a party adverse to us or any of our or has a material interest adverse to us or any of our subsidiaries.

 

Each director of the Company serves for a term of one year or until the successor is elected at the Company's annual shareholders' meeting and is qualified, subject to removal by the Company's shareholders.  Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.

 

Involvement in Certain Legal Proceedings

 

There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations.

  

Committees of the Board of Directors

 

Our board has authorized two standing committees, an audit committee and a compensation committee.

 

 

Audit Committee. The audit committee, which was formed on August 18, 2000, is currently comprised of one director, Mr. Savas. The audit committee has the responsibility to:

 

●

recommend the firm that will serve as our independent public accountants;

 

●

review the scope and results of the audit and services provided by the independent public accountants;

 

●

meet with our financial staff to review accounting procedures and policies and internal controls; and

 

●

perform the other responsibilities set forth in its written charter.

 

Although not “independent”, Mr. Savas is not an employee of the Company and, in the opinion of our board, is free from any relationship that would interfere with the exercise of independent judgment as a committee member. Our Board of Directors has determined that Mr. Savas is an "audit committee financial expert" within the applicable definition of the Securities and Exchange Commission.

 

Compensation Committee

 

The compensation committee, which was formed on August 18, 2000, is currently comprised of Mr. Wein. In general, the compensation committee's authority and oversight extends to total compensation, including base salaries, bonuses, stock options, and other forms of compensation.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our reporting directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership of common stock and other equity securities of eRoomSystem Technologies with the Securities and Exchange Commission, or the Commission. Officers, directors and stockholders holding more than 10% of the class of stock are required to furnish us with copies of all Section 16(a) forms they file with the Commission.

 

To our knowledge, based solely on review of the copies of such reports furnished to us and written representations, we believe that during the fiscal year ended December 31, 2015 all applicable filing requirements were complied with by our executive officers and directors.

 

Code of Ethics

 

Because of our relatively small size we do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers

  

ITEM 11.    EXECUTIVE COMPENSATION.

 

Summary Compensation Table

 

The following table sets forth summary information concerning the total remuneration paid or accrued by us, to or on behalf of our chief executive officer during the fiscal years ended December 31, 2015 and 2014 (“named executive officer”). No other executive officer earned in excess of $100,000 during the fiscal year ended December 31, 2015.

 

SUMMARY COMPENSATION TABLE
Name and principal position (a)		Year (b)		Salary ($)  (c)				Bonus ($) (d)				Stock Awards  ($) (e)				Option Awards ($) (f)				Non-Equity Incentive Plan Compensation ($)				Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($) (i)				Total ($) (j)
David A. Gestetner,		2015		$	150,000			$	40,000			$	-			$	-			$	-			$	-			$	-			$	190,000
President, Chief Executive Officer, Secretary and Chairman		2014		$	150,000			$	40,000			$	-			$	-			$	-			$	-			$	-			$	190,000

 

 

On March 27, 2014, the Company entered into a two-year employment agreement with David A. Gestetner to serve as President and Chief Executive Officer for an initial two-year term. The term of such agreement will automatically be extended for successive two-year terms unless terminated at least 30 days prior to the end of the then current term.  Under the agreement, Mr. Gestetner is entitled to an annual base salary of $150,000, a performance-based bonus at the end of the fiscal year at the discretion of the compensation committee, health, dental and life insurance and a monthly car allowance. The agreement also provides that if sales double, profits triple or the market capital triples from the fiscal 2015 year, Mr. Gestetner shall be entitled to a 5-year warrants for 10% of the then outstanding shares of the Company at an exercise price of $0.05 (the market price at December 31, 2015). In addition, if Mr. Gestetner is terminated by the Company without cause, he is entitled to severance in the amount of two years of his base salary and the continuation of health, dental and car allowance benefits for such two-year period.

 

On February 22, 2016, the Company entered into a two-year employment agreement with David A. Gestetner to serve as President and Chief Executive Officer for an initial two-year term. The term of such agreement will automatically be extended for successive two-year terms unless terminated at least 30 days prior to the end of the then current term.  Under the agreement, Mr. Gestetner is entitled to an annual base salary of $175,000, a performance-based bonus at the end of the fiscal year at the discretion of the compensation committee, health, dental and life insurance and a monthly car allowance. In addition, if Mr. Gestetner is terminated by the Company without cause, he is entitled to severance in the amount of two years of his base salary and the continuation of health, dental and car allowance benefits for such two-year period.

 

Outstanding Equity Awards at Fiscal-Year End

 

There were no equity awards outstanding granted to or held by our named executive officer as of December 31, 2015.

 

Director Compensation

 

The following table sets forth the equity awards made to members of our board of directors during the fiscal year ended December 31, 2015:

 

DIRECTOR COMPENSATION
Name (a)		Fees Earned or Paid in Cash ($) (b)				Stock Awards ($) (c)				Option Awards ($) (d)				Non-Equity Incentive Plan Compensation ($) (e)				Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (f)				All Other Compensation ($) (g)				Total ($) (h)
David Gestetner			-				-	2			-				-				-				-				-
James C. Savas			-				2,000	1			-				-				-				-				2,000
Lawrence K. Wein			-				2,000	1			-				-				-				-				2,000

  

(1)	Reflects the issuance of 25,000 shares of restricted common stock issued to each of Mr. Wein and Savas on June 15, 2015 for serving as directors of the Company.

 

(2)	As CEO and President of the Company, David Gestetner does not receive director’s compensation.

 

As compensation for their services, our non-employee directors receive either stock options to purchase 25,000 shares of our common stock or 25,000 shares of common stock as determined by the compensation committee. Directors who are our employees do not receive compensation for their services as directors.

 

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table lists, as of March 28, 2016, the number of shares of our common stock that are beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our common stock; (ii) each executive officer and director of our company; and (iii) all executive officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.

 

 

The beneficial ownership is calculated based on 24,217,865 shares of common stock outstanding as of March 28, 2016.

 

Unless otherwise indicated, the address of each person or entity listed is c/o eRoomSystem Technologies, Inc., 150 Airport Road, Suite 1200, Lakewood, NJ 08701.

 

Name of Beneficial Owner		Amount and Nature of Beneficial Ownership				Percent of Class
Ash Capital, LLC			3,685,449	3			15.2	%
David A. Gestetner			6,448,491	1			26.6	%
James C. Savas			3,978,001	2			16.4	%
David Harkness			3,704,680	2			15.3	%
Lawrence K. Wein			280,000				1.2	%
Executive Officers and Directors, as a group (3 individuals)			10,706,492				44.2	%

 

 

(1) Includes (i) 4,953,644 shares held by Gestetner Group, LLC, a New Jersey limited liability company, of which Mr. Gestetner is the sole member, (ii) 191,153 shares held by Mr. Gestetner’s spouse and (iii) 200,000 shares held by a private operating foundation as to which Mr. Gestetner as an officer has sole voting and dispositive power.

 

(2) Includes (i) currently exercisable options to purchase 25,000 shares, (ii) 19,231 shares held by Providence Management, LLC (“Providence”) of which Mr. Savas and David Harkness are co-managers and 50% owners and share voting and dispositive power and (iii) 3,685,449 shares held by Ash Capital, LLC (“Ash”), over which Providence has voting and dispositive power.

 

(3) Messrs Savas and Harkness share voting and dispositive power over the shares held by Ash Capital, LLC.

 

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

 

Stock Issuance to Directors

 

25,000 shares of restricted common stock were issued to each of Mr. Wein and Savas on June 15, 2015 for serving as directors of the Company.

 

 

On March 27, 2016, the Company entered into a two-year employment agreement with David A. Gestetner to serve as President and Chief Executive Officer for an initial two-year term. The agreement provides that if sales double, profits triple or the market capital triples from the fiscal 2015 year, Mr. Gestetner shall be entitled to a 5-year warrants for 10% of the then outstanding shares of the Company at an exercise price of $0.05 (the market price at December 31, 2015).

 

Director Independence

 

Our director, Mr. Lawrence K. Wein, qualifies as an independent director under Rule 10A-3 of the Securities Exchange Act of 1934 and as defined in NASDAQ Rule 4200(a)(15). Mr. Savas is the beneficial owner of more than 10% of our outstanding common stock and Mr. Gestetner is an employee and executive officer of our company. Aside from his beneficial ownership of more than 10% of our outstanding common stock, Mr. Savas is independent under Rule 10A-3 of the Securities Exchange Act of 1934 and as defined in NASDAQ Rule 4200(a)(15). The member of our audit committee is Mr. Savas. Mr. Savas is not independent as defined in NASDAQ Rules because he is the beneficial owner of more than 10% of our outstanding common stock. However, in the opinion of our Board of Directors, Mr. Savas' beneficial stock ownership would not interfere with his exercise of independent judgment as an audit committee member.

 

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

Eide Bailly, LLP (“Eide Bailly”), served as our independent registered public accounting firm for the fiscal years ended December 31, 2013. On February 9, 2015, Eide Bailly resigned as the Company’s independent registered public accounting firm. Concurrent with the resignation of Eide Bailly, the Company, through and with the approval of its Audit Committee, engaged John Scrudato, CPA as its independent registered public accounting firm.

 

Our board is responsible for pre-approving all audit and permissible non-audit services provided by our auditors. Our board of directors has concluded that the non-audit services provided by Eide Bailly and John Scrudato, CPA are compatible with maintaining auditor independence.

 

 

Audit Committee's Pre-Approval Policies

 

The Audit Committee has adopted a policy that all audits, audit-related, tax and any other non-audit service to be performed by the Company's independent registered public accounting firm must be pre-approved by the Audit Committee. It is the Company's policy that all such services be pre-approved prior to commencement of the engagement. The Audit Committee is also required to pre-approve the estimated fees for such services, as well as any subsequent changes to the terms of the engagement.

 

For the fiscal years ended December 31, 2015 and 2014, the fees for services provided by our independent registered public accounting firm were as follows:

 

 

		2015				2014
Audit fees (1)		$	15,000			$	19,000
Audit-related fees (2)			-
Tax fees (3)			-				-
All other fees			-				-
		$	15,000			$	19,000

 

(1) Audit fees: Fees for the professional services rendered for the audit of our annual financial statements, review of financial statements included in our Form 10-Q filings, and services normally provided in connection with statutory and regulatory filings or engagements.

 

(2) Audit-related fees: Fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements.

 

(3) Tax fees: Fees for professional services rendered with respect to tax compliance, tax advice and tax planning. This includes preparation of tax returns, claims for refunds, payment planning and tax law interpretation.

 

 

PART IV

 

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

 

Exhibit
Number		Document Name
3.01		Amendment and Restatement of Articles of Incorporation		Incorporated by reference to Form SB-2 filed on April 14, 2000
3.02		Certificate of Correction dated May 30, 2000		Incorporated by reference to Pre-effective Amendment No. 1 of Form SB-2 filed on July 14, 2000
3.06		Amended and Restated Bylaws		Incorporated by reference to Form SB-2 filed on June 9, 2000
3.07		Second Amendment and Restatement of Articles of Incorporation		Incorporated by reference to Pre-effective Amendment No. 2 of Form SB-2 filed on July 14, 2000
3.08		Second Amended and Restated Bylaws		Incorporated by reference to Pre-effective Amendment No. 2 of Form SB-2 filed on July 14, 2000
4.01		Form of Common Stock Certificate		Incorporated by reference to Form SB-2 filed on April 14, 2000
10.01		Amended and Restated 2000 Stock Option and Incentive Plan		Incorporated by reference to Form SB-2 filed on June 9, 2000
10.13		Loan and Security Agreement by and between RoomSystem Technologies, Inc. and Ash Capital, LLC dated February 15, 2000		Incorporated by reference to Form SB-2 filed on April 14, 2000
10.13A		Exhibits to Loan and Security Agreement by and between RoomSystem Technologies, Inc. and Ash Capital, LLC dated February 15, 2000		Incorporated by reference to Form SB-2 filed on June 9, 2000
10.15		Form of Hotel Revenue-Sharing Lease Agreement		Incorporated by reference to Form SB-2 filed on June 9, 2000
10.16		Form of Noncompetition and Nondisclosure Agreement (Sales)		Incorporated by reference to Form SB-2 filed on April 14, 2000
10.17		Form of Consulting Agreement		Incorporated by reference to Form SB-2 filed on April 14, 2000
10.18		Form of Sales Representation Agreement		Incorporated by reference to Form SB-2 filed on April 14, 2000
10.22		Form of Installation, Co-Maintenance and Software Licensing and Upgrade Agreement		Incorporated by reference to Form SB-2 filed on June 9, 2000
10.3		Shareholders' Agreement and Proxy by and among Ash Capital, LLC, RoomSystems, Inc. and certain stockholders of RoomSystems, Inc. dated August 17, 1999		Incorporated by reference to Form SB-2 filed on April 14, 2000
10.38		Stock Purchase Agreement by and between eRoomSystem Technologies, Inc. and Ash Capital, LLC dated November 8, 2002		Incorporated by reference to Form 10-QSB filed on November 14, 2002
10.39		Secured Convertible Promissory Note issued in favor of Ash Capital, LLC dated November 8, 2002.		Incorporated by reference to Form 10-QSB filed on November 14, 2002

 

 

10.44		Warrant to Purchase Shares of Common Stock issued in favor of Ash Capital, LLC dated October 1, 2003		Incorporated by reference to Form 10-KSB filed on March 30, 2004
10.46		Investors Rights Agreement between eRoomSystem Technologies, Inc., Ash Capital, LLC, and certain security holders dated October 1, 2003		Incorporated by reference to Form 10-KSB filed on March 30, 2004
10.8		Employment Agreement of David Gestetner dated as of March 27, 2014		Incorporated by reference to Form 10-K filed on April 3, 2014
10.81		Purchase and Sale Agreeement by and between CardinalPointe Capital and eRoomSystem Technologies, Inc. dated June 16, 2009		Incorporated by reference to Form 8-K filed on June 17, 2009
10.82		Employment Agreement of David Gestetner dated as of March 27, 2016		Filed herewith
21		List of Subsidiaries		Filed herewith
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		Filed herewith
32.1		Certification Pursuant to 18 U.S.C. Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002		Filed herewith
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	eRoomSystem Technologies, Inc.
	By:	/s/ David A. Gestetner
	Name:	David A. Gestetner
	Title:	President, Chief Executive Officer, Secretary and Chairman of the Board (Principal Executive, Financial and Accounting Officer)
	Date:	March 28, 2016

 

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ David A. Gestetner		President, Chief Executive Officer,		March 28, 2016
David A. Gestetner		Secretary and Chairman of the Board (Principal Executive, Financial and Accounting Officer)
/s/ James C. Savas		Director		March 28, 2016
James C. Savas
/s/ Lawrence K. Wein		Director		March 28, 2016
Lawrence K. Wein

 

 

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