Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - EROOMSYSTEM TECHNOLOGIES INCFinancial_Report.xls
EX-31.1 - EROOMSYSTEM TECHNOLOGIES INCex31-1.htm
EX-21.01 - EROOMSYSTEM TECHNOLOGIES INCex21-01.htm
EX-32.1 - EROOMSYSTEM TECHNOLOGIES INCex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
Form 10-K
 

 
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2011
 
 
OR
 
o
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  o     No  x
 
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  x
 
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  x     No  o
 
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  o      
 
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. x
 
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 o
Accelerated filer o
  
  
  
  
  
  
Non-accelerated filer   o (Do not check if a smaller reporting company)
Smaller reporting company x
  
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).   Yes  o     No  x
 
State 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, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently computed second fiscal quarter.
 
$4,796,573 based upon $0.20 per share which was the last price at which the common equity purchased by non-affiliates was last sold, since there is no public bid or ask price. There was a public bid and ask price of $0.20 and $0.20, respectively, for an average price of $0.20 on June 30, 2011.
 
The number of shares of the issuer’s common stock issued and outstanding as of March 21, 2012 was 23,982,865 shares.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.
 
 
TABLE OF CONTENTS
 
PART I
 
1
ITEM 1.    BUSINESS
1
ITEM 2.    PROPERTIES
6
ITEM 3.    LEGAL PROCEEDINGS
6
ITEM 4.    MINE SAFETY DISCLOSURES  6
PART II
 
7
ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
7
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
9
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
14
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
29
ITEM 9A. CONTROLS AND PROCEDURES
29
ITEM 9B.  OTHER INFORMATION
29
PART III
 
30
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
30
ITEM 11.  EXECUTIVE COMPENSATION
32
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
33
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
34
ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES
34
PART IV
 
36
ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
36

 
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. (formerly RoomSystems), eFridge, LLC, eOneCapital, Inc. and eLiftLLC, LLC.

eRoomSystem Services is our service and maintenance subsidiary that installs all of our products, provides electronic software upgrades to our customers, provides customer service and maintenance for our products and trains hotel personnel on the use and maintenance of our products.
   
eFridge, LLC was formed as a new subsidiary in June 2009. eFridge purchased the KoolTech minibars and baskets from CPC and operates them in the Hotels in which they were installed.

eOneCapital, Inc. was formed as a new subsidiary in 2010. eOneCapital invests in tax liens from municipalities in New Jersey.
 
eLiftLLC was formed as a new subsidiary in November 2008. eLift provided online parts procurement  for the material handling industry. eLift is no longer doing business and is presently in the process of being liquidated.
 

Overview
  
eRoomSystem Technologies has developed and introduced to the lodging industry an intelligent, in-room computerized platform and communications network, or the eRoomSystem. The eRoomSystem is a computerized platform and processor-based system that is installed within our eRoomServ refreshment centers and is designed to collect and control data. The eRoomSystem also supports our: (i) eRoomSafe, an electronic in-room safe, (ii) eRoomTray, an in-room ambient tray that can sell a wide variety of products at room temperature, and, (iii) eRoomEnergy, an in-room digital thermostat that is designed to control virtually any fan coil unit or packaged-terminal air conditioner found in hotel rooms. In addition to the eRoomSystem, in the fiscal year 2009, we purchased Kooltech refreshment centers that were installed in various hotels.

Our eRoomSystem and related products deliver in-room solutions that reduce operating costs, enhance hotel guest satisfaction and provide higher operating profits to our customers. The solutions offered by our eRoomSystem and related products have allowed us to establish relationships with many premier hotel chains. In addition to providing our customers with valuable in-room solutions, our revenue-sharing program has allowed us to partner with our customers. Through our revenue-sharing program, we have been able to install our products at little upfront cost to hotels, and share in the recurring revenues generated from the sale of goods and services related to our products.

On July 24, 2008, we provided a secured loan of $500,000 to BlackBird Corporation, a Florida corporation (“BlackBird”), an unrelated entity. The funding of the loan took place on completion of a transaction by BlackBird to acquire an unrelated company, USA Datanet Corporation. The acquisition took place on July 24, 2008. The loan is evidenced by a 10% senior secured convertible promissory note, made by BlackBird (the “Secured Note”). The Secured Note matured on June 30, 2009 and the interest rate increased to 18% annually as of January 1, 2009, with interest payable quarterly on the last business day of each quarter. An extension to the note was provided through June 30, 2011 at an interest rate of 18%. Blackbird is presently in default of its obligations under the note due to non-payment. In light of BlackBird’s inability to make payments as due, the Company agreed to lower the interest rate on the Secured Note to 10%. BlackBird is current with their interest payments as of March 21, 2012.

On June 17, 2009, the Company purchased the assets of Kooltech SPE, LLC, which included minibars, baskets and stock from Cardinal Pointe Capital, LLC (“CPC”) through its newly formed, wholly owned, subsidiary, eFridge, LLC (“eFridge”). The purchase price was an amount equal to 30% of eFridge’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) and an amount equal to 30% of cash flow generated from the sale of new equipment.  Payment of the purchase price was to be made by eFridge to CPC on a monthly basis within twenty days after the end of each month, based on the eFridge’s EBITDA for the month then ended. On June 29, 2011, the Company reached a final settlement of any and all obligations under the agreement and terminated the agreement.

We have deployed over 10,000 eRoomServ refreshment centers, and over 6,000 eRoomSafes at many hotel properties. In addition we operate KoolTech refreshment centers purchased from CPC.

During the year ended December 31, 2010, the Company’s revenue shifted from being primarily revenue sharing arrangements to products sales. The Company added customers through the purchase of KoolTech’s refreshment centers through which the Company provides a turnkey solution to hotels. The Company sells refreshments in the refreshment centers to hotel guests pursuant to a number of one year contracts with the hotels, all of which have expired or will expire in the next few months.
 
Summary of Our Diversification Initiatives

We are continuously performing due diligence on third party companies 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 not reached a definitive agreement with any such third party companies.

Our Products and Services

eRoomSystem

Since our inception, it has been our objective to provide innovative in-room amenities to the lodging industry. Our technologies provide an intelligent, in-room computerized platform and communications network that comprises the eRoomSystem. At the core of the eRoomSystem is our proprietary hardware and software that operate as a multi-tasking imbedded operating system. Our hardware and software can operate multiple devices and provide an interactive environment that allows the hotel guest to input and receive information.
 
 
Installed as part of our eRoomServ refreshment center, the eRoomSystem provides the communication link between the hotel guest, our products, our file server located at the hotel (the eRoomSystem file server), the hotel's property management system, and the file server located at our headquarters (the eRoomSystem master file server). Our software is remotely upgradeable from our facilities, which reduces the need for costly on-site visits. We can also remotely adjust pricing, change messages on the liquid crystal display, lock and unlock our units and change the input touchpad layout. From our facility, we can also determine whether our products are active and working properly and, in the event a participating hotel fails to pay outstanding invoices or otherwise violates the terms of its agreement with us, control the use of our products by remotely locking the units.

The eRoomSystem consists of a microprocessor, memory, input/output ports, communications transceiver, liquid crystal display, touchpad, power supply and our proprietary software. The proprietary architecture of our circuit boards has been designed to minimize the need for hardware upgrades. The eRoomSystem includes an embedded system processor that handles simple instructions and routes all billing functions and processor-intensive instructions to the eRoomSystem file server.
 
eRoomServ Refreshment Centers

Our eRoomServ refreshment centers consist of the eRoomSystem, a small refrigeration unit, electronic controls, LCD display and vending racks. Our newest models utilize an upright multi-vending rack. The upright multi-vending rack offers greater flexibility for the snack and beverage products offered by hotels, and is viewed more favorably by our hotel clients than our prior side-vend rack design.
 
The upright multi-vending rack displays up to 30 different beverages and/or snacks and provides an environment similar to that of a convenience store beverage cooler. Upon removal of a product, the gravity-based design uses the weight of the remaining products to cause the products to roll or slide forward. In addition to the upright multi-vending rack in the refreshment center, the eRoomTray allows hotel properties to separately vend a variety of products at room temperature within the eRoomSystem environment, including snacks, wine, disposable cameras, film, souvenirs, maps and other sundries.

Our eRoomServ refreshment center and eRoomTray communicate through the eRoomSystem, which uses the hotel property's existing telephone lines, network cabling or cable television lines. Our eRoomServ refreshment centers and eRoomTray operate as follows:
 
 
§
A hotel guest selects a beverage or snack from our eRoomServ refreshment center or eRoomTray;
 
 
§
The purchase is either immediately confirmed on the liquid crystal display and acknowledged with an audible beep or subject to a countdown of a predetermined (by the hotel) number of seconds prior to purchase confirmation;

 
§
Upon confirmation, the transaction information, such as product type, price and time of purchase, is simultaneously transferred to the eRoomSystem file server;

 
§
The eRoomSystem file server communicates on a real-time basis with the hotel's property management system and periodically with our eRoomSystem master file server; and
 
 
§
The hotel's property management system posts the purchase to the hotel guest's room account.
 
The sales data from the eRoomSystem is transmitted to the eRoomSystem file server from which hotel employees can access real-time sales reports, inventory levels for restocking purposes and demographic data. As for the maintenance of our refreshment centers, the repair or replacement of any component of our refreshment center is relatively simple and is typically provided at no additional charge to the property pursuant to the terms of our service and maintenance agreement.

eRoomSafe
 
Our eRoomSafes are electronic in-room safes offered in conjunction with our eRoomSystem. The eRoomSafes have storage space large enough for laptop computers, video cameras and briefcases and include an encrypted electronic combination that can be changed by the hotel guest. The eRoomSafes utilize the eRoomSystem to interface with the eRoomSystem file server that communicates with the hotel's property management system.
 
 
The following diagram represents the structure and communications network of our eRoomSystem, the eRoomSystem file server, the hotel property management system, and the eRoomSystem master file server:
 
 
Our eRoomTray is an ambient tray for dry goods. The eRoomTray has a terraced design and can hold three, to more than twenty, different products. The eRoomTray utilizes cross-sensing technology that provides significant flexibility in product selection for hotels. The eRoomTray uses the visible countdown timer located on the liquid crystal display of the eRoomServ Refreshment Center. This solution allows the hotel to sell music CD's souvenirs, disposable cameras, maps, snacks and other profitable items. The eRoomTray is unique in that it can generally be located anywhere in a guestroom.
 
eRoomEnergy Management
 
We have an agreement with INNCOM International, Inc., a leader in hotel guest-room control systems, through which INNCOM private-labels its e4 Smart Digital Thermostat for us as eRoomEnergy and provides assistance in the installation and maintenance of the units. The e4 Smart Digital Thermostat is designed to control virtually any fan coil unit or packaged terminal air conditioner found in hotel rooms and comes standard with an illuminated digital display, a Fahrenheit/Celsius button, one-touch temperature selection, an off/auto button, fan and display buttons. In addition to these user-friendly features, the e4 Smart Digital Thermostat includes five relays, an optional on-board infrared transceiver, a passive infrared occupancy sensor, and is expandable to include functions such as humidity control, outside temperature display, refreshment center access reporting, occupancy reporting to housekeeping and automatic lighting control.
 
eRoomData Management
 
One of the byproducts of our technology is the information we have collected since our first product installation. To date, we have collected several million room-nights of data. The eRoomSystem file server collects information regarding the usage of our eRoomServ refreshment centers on a real-time basis. We use this information to help our customers increase their operational efficiencies. The information we obtain is unique because we are able to categorize the information according to specific consumer buying patterns and demographics.
 
The information we collect is currently offered to our customers as part of our service and maintenance agreement, including specific information about their guests' buying patterns and non-confidential information about other hotels in similar geographic regions. To this end, our hotel clients benefit in various ways from the information we provide. The hotels are responsible for restocking the goods sold from our refreshment centers and the real-time sales data generated by our refreshment centers helps the hotel maximize personnel efficiencies. The 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, particularly with non-automated units. Finally, the ability to track product sales performance allows the hotel to stock the refreshment centers with more popular items, which generally leads to increased sales of product from the refreshment centers. Our system can provide reports on daily restocking requirements, daily, monthly and annual product sales statistics, overnight audits, inventory control and a variety of customized reports.
 
            Research and Development

At the core of our products and services is our proprietary software and hardware that make up our eRoomSystem. In 2011, we have stepped up our research and development projects for the purpose of creating new products. Our new products incorporate cutting edge wireless technology utilizing micro-controllers that can detect information about products placed on our proprietary sensors. A cloud based system allows interaction with the data collected by the micro-controllers and sensors from any web enabled browser. There is no assurance that the products we are working on will be successfully completed or deployed.
 

Sales and Marketing
 
We have deployed more than 10,000 refreshment centers, and over 6,000 eRoomSafes at many hotel properties located in the Unites States as well as other countries. We have renewed our sales and marketing efforts with respect to new product placements for the refreshment centers. There is no assurance that we will be successful in selling or placing additional units.

Manufacturing

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

The market for in-room amenities in the lodging industry is quite competitive, and the competition has further intensified in recent years. Management is focusing on servicing our existing client base. If we decide to redeploy products following the maturity of certain outstanding revenue sharing agreements, we will be subject to significant competition in doing so from our historical competitors, including Bartech, MiniBar America and Dometic, among others.

Customers

During the year ended December 31, 2011, revenues from two customers accounted for 60% of our total revenues. Our revenues for the year ended December 31, 2011 have decreased as our largest hotel customer is undergoing renovations and is no longer using our minibars or services. During the year ended December 31, 2010, revenues from 3 customers accounted for 65% of our total revenues.

Intellectual Property

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

We have registered RoomSystems, RoomSafe, eRoomEnergy, eRoomData, eRoomSystem, and eRoomServ with the United States Patent and Trademark Office. In addition, we have pending applications for the following trademarks and service marks: eRoomSafe; eRoomManagement; and eRoomSystem Technologies. We have also registered our logo.

We have registered US Patent No. 6,456,067 for Inductive Product Sensor for a Refreshment Center which is current until June 5, 2020.

Our proprietary software consists of three modules and provides the operating system for our eRoomSystem. The first module is an operating system that permits messages to be scrolled on the flat panel display of our eRoomSystem and allows hotel guests to interface with our products. The second module is a Windows(R) based program that provides a communication link between our eRoomSystem, our products, our eRoomSystem hotel file server and the hotel's property management system. The third module is a Windows(R) based program that collects data from our eRoomSystem hotel file server and produces a wide-variety of management and operational reports. Our existing hotel clients utilize our version 4.1 software that provides users with a friendly, easy-to-learn graphical environment which generally expands the report generating capabilities of the property.

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 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 qualifying 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 three full-time employees and eight part-time employees in addition to four consultants. None of our employees are subject to a collective bargaining agreement.
  
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, NJ 08701 for $1,466 per month under a sixteen month lease (with an option to renew for one additional year).

            In addition, we currently lease storage space on a month-to-month basis in Salt Lake City, Utah, as well as Lakewood, Howell, and Jackson townships in NJ. We maintain inventory and replacement parts at these facilities.

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 Over-The-Counter Bulletin Board under the same symbol. As of March 21, 2012, there were 23,907,865 shares of common stock outstanding and no shares of any class of preferred 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 Over The Counter Bulletin Board (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, 2010 through December 31, 2011:
 
Calendar Quarter Ended
 
Low
   
High
 
March 31, 2010
  $ 0.17     $ 0.23  
June 30, 2010
  $ 0.11     $ 0.20  
September 30, 2010
  $ 0.14     $ 0.22  
December 31, 2010
  $ 0.11     $ 0.22  
March 31, 2011
  $ 0.10     $ 0.17  
June 30, 2011
  $ 0.13     $ 0.20  
September 30, 2011
  $ 0.13     $ 0.22  
December 31, 2011
  $ 0.12     $ 0.18  
 
The last reported price of our common stock on the Over-The-Counter Bulletin Board on March 21, 2012 was $0.14 per share.

Holders

As of March 21, 2012, there were approximately 360 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

On May 10, 2011, the Company issued 25,000 shares of common stock valued to each of Lawrence Wein and James Savas, directors of our company, and Herbert Hardt a consultant, for services rendered to us. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.
 

On June 4, 2010, the Company issued 25,000 shares of common stock valued to each of Lawrence Wein, James Savas, and Herbert Hardt, then directors of our company, for services rendered to us. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

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

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

None

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information about the common stock available for issuance under compensatory plans and arrangements as of December 31, 2011.
 
Equity Compensation Plan Information
 
               
 
 
Plan Category  
Number of securities to be issued upon exercise
of outstanding options, warrants and rights
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
Number of securities Under
Equity Compensation Plans available for future issuance remaining
 
   
(a)
   
(b)
   
(c)
 
                   
Equity compensation plan
approved by security holders
    1,844,446     $ 0.33       1,155,554  
                         
Equity compensation plans not
approved by security holders
    -     $ -       -  

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 March 21, 2012, we had options to purchase 1,869,446 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 prospectus, 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. Future filings with the Securities and Exchange Commission, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may contain forward-looking statements, because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

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.
 
 Overview

Our core business is the development and installation of an intelligent, in-room computer platform and communications network, or the eRoomSystem, for the lodging industry. The eRoomSystem is a computerized platform and processor-based system designed to collect and control data. The eRoomSystem supports our fully automated and interactive eRoomServ refreshment centers, eRoomSafes, eRoomEnergy products, and the eRoomTray. In 2005, we commenced our diversification strategy of investing in third party emerging growth companies. We may make investments in promising emerging growth companies, and potentially acquire an operating company if the opportunity arises.

Some of our existing products interface with the hotel's property management system through our eRoomSystem communications network. The hotel's property management system posts usage of our products directly to the hotel guest's room account. 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, Helmsley and Carlson Hospitality Worldwide, in the United States and internationally.

One of the byproducts of our technology is the information we have collected since our first product installation. To date, we have collected several million room-nights of data. Through our eRoomSystem, we are able to collect information regarding the usage of our products on a real-time basis. We use this information to help our customers increase their operating efficiencies.

Description of Revenues

Historically, we have received most of our revenues from the sale or placement under a revenue-sharing program of our products in hotels. More recently we have purchased minibars and baskets already placed in hotels and setup a turnkey solution at these hotels. In these hotels we receive most of the revenues for the product sold in the minibars and baskets. We provide 3-5% of revenues to the 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 maintenance and support services relating to our existing installed products.

Our dependence on the lodging industry, including its guests, makes us extremely vulnerable to downturns in the lodging industry caused by the general economic environment. Such a downturn 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. Time spent by individuals on travel and leisure is often discretionary for consumers and may be particularly 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 such as employment, wages and salaries, business conditions, interest rates, and availability of credit and taxation.
 
  
Our revenue-sharing program provided us with a seven-year revenue stream under each revenue-sharing agreement. Because many of our customers in the lodging industry traditionally have limited capacity to finance the purchase of our products, we designed our revenue-sharing program accordingly. Through our revenue-sharing plan, we installed our products at little or no upfront cost to our customers and share in the recurring revenues generated from sales of goods and services related to our products. We retain the ownership of the eRoomServ refreshment centers and eRoomSafes throughout the term of the revenue-sharing agreements and the right to re-deploy any systems returned to us upon the expiration or early termination of the revenue-sharing agreements. We have failed to place any products, either on a revenue sharing or sale basis in the prior seven years. However, we have added some hotels through the purchase of KoolTech’s minibars in which we provide a turnkey solution to those hotels. We intend to continue to service and maintain our existing installed product base for the remaining life of the contracts relating thereto.

Our revenues for the year ended December 31, 2011 have decreased as our largest hotel customer is undergoing renovations and is no longer using our minibars or services.

In 2005 we commenced our 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 not reached a definitive agreement to make further 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.

No new products were installed during the years ended December 31, 2011 and 2010. However, we have replaced a large number of the KoolTech minibars with a newer model.

Revenue Recognition

Equipment sales revenue from our products is recognized upon completion of installation and acceptance by the customer. Sales revenue for product in the minibars that we sell under a turnkey solution is recognized upon completion of the sale.

We have entered into installation, maintenance and license agreements with most of our existing hotel customers. Installation, maintenance and license revenues are recognized as the services are performed, or pro rata over the service period. We defer all revenue paid in advance relating to future services and products not yet installed and accepted by our customers.

Our installation, maintenance and license agreements stipulate that we collect a maintenance fee per eRoomServ refreshment center per day, payable on a monthly basis. Our objective is to generate gross profit margins of approximately 50% from our maintenance-related revenues. We base this expectation on our historical cost of maintenance of approximately $0.04 per unit per day and, pursuant to our maintenance agreements, our projected receipt of generally not less than $0.08 per unit per day. However, there can be no assurances that we will meet this objective.

Description of Expenses

Cost of product sales consists primarily of cost of goods and labor as well as remaining basis on sale of old refreshment centers. We capitalize the production, shipping, installation and sales commissions related to the eRoomServ refreshment centers, eRoomSafes, eRoomTrays and eRoomEnergy management products placed under revenue-sharing agreements. 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, human resources, information systems and legal personnel.

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 2011 and 2010.
 
 
In accordance with Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards, or SFAS, No. 86, "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.
 
Comparison of Years Ended December 31, 2011 and 2010
  
Revenues
  
Product Sales — Our revenue from product sales was $569,166 in 2011, as compared to $873,606 in 2010, representing a decrease of $304,440, or 34.8%. The decrease in revenue from product sales in 2011 was due to our largest hotel customer undergoing renovations in 2011 and is therefore no longer using our minibars or services.

Maintenance Fee Revenue — Our maintenance fee revenue was $163,701 in 2011 and $195,346 for 2010, representing a decrease of $31,645, or 16.2%. The decrease in maintenance fee revenue was due to hotels’ whose maintenance agreements ended.

During the year ended December 31, 2011, revenues from two customers accounted for 60% of our total revenues.

Interest — Our income from interest was $68,550 in 2011, compared to $116,767 in 2010, representing a decrease of $48,217, or 41.3%. The decrease related to the restructuring of the Blackbird Note.

Cost of Revenue
  
Cost of Product Sales Revenue — Our cost of product sales revenue was $287,924 for 2011 as compared to $513,345 for 2010, representing a decrease of $225,421, or 43.9%. The decrease was primarily due to the decreased product sales revenue from the turnkey solution that we provided to hotels in 2011. The gross margin percentage on revenue from product sales revenue was 49.4% in 2011 as compared to 41.2% in 2010.

Cost of Maintenance Revenue — Our cost of maintenance revenue was $19,236 for 2011 as compared to $31,889 for 2010, representing a decrease of $12,653, or 39.7%. The decrease in the cost of maintenance revenue was due to decreased maintenance revenue. The gross margin percentage on maintenance revenues was 88.2% in 2011 as compared to 83.7% in 2010.

The changes and percent changes with respect to our revenues and our cost of revenue for the years ended December 31, 2011 and 2010 are as follows: 
 
   
For the Years Ended
             
   
December 31,
          Percent  
   
2011
   
2010
   
Change
   
Change
 
REVENUE
                       
Product sales
  $ 569,166     $ 873,606     $ (304,440 )     -34.8 %
Maintenance fees
    163,701       195,346       (31,645 )     -16.2 %
Interest income
    68,550       116,767       (48,217 )     -41.3 %
Loss on other than temporary decline in marketable securities
    -       (50,000 )     50,000       100.0 %
Total Revenue   
    801,417       1,135,719       (334,302 )     -29.4 %
                                 
                                 
COST OF REVENUE
                               
Product sales
    287,924       513,345       (225,421 )     -43.9 %
Maintenance fees
    19,236       31,889       (12,653 )     -39.7 %
Total Cost of Revenue   
  $ 307,160     $ 545,234     $ (238,074 )     -43.7 %
 
 
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, 2011 and 2010, 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 $486,557 for 2011 and $494,374 for 2010, representing a decrease of $7,817, or 1.6%. Selling, general and administrative expenses represented 59.8% of our total revenues in 2011 and 43.5% of our total revenues in 2010. The decrease in our selling, general and administrative expenses was immaterial.

Research and Development Expenses — Research and development expenses were $96,740 for 2011 and $77,766 for 2010, representing an increase of $18,974, or 24.4%. The increase in research and development expenses was due to increased development on the new product lines initiated in 2010. Research and development expenses represented 11.9% of our total revenue in 2011 and 6.8% of our total revenue in 2010.

Net Income (Loss) Attributable to Common Stockholders

We realized a net loss attributable to common stockholders of $89,040 in 2011, as compared to a net income of $18,345 in 2010. The $107,385 decrease in net income was primarily due to a significant decrease in product sales revenue in 2011 from loss of our largest customer in 2011 due to renovations.
 
Liquidity and Capital Resources

At December 31, 2011, we had $2,191,396 of cash and working capital of $2,340,660, as compared to $2,145,709 of cash and working capital of $2,971,373 at December 31, 2010. In addition, our stockholders' equity was $2,976,678 at December 31, 2011 as compared to $3,096,018 at December 31, 2010, a decrease of $119,340. The increase in cash reflects in part the redemption of investments in real property tax liens in 2011 among other items. The decrease in working capital reflects the decrease in current assets, primarily the reclassification of the note receivable from BlackBird. The decrease in stockholders’ equity primarily reflects the net loss in 2011 as well as the other comprehensive loss picked up in 2011.

Our accumulated deficit increased to $31,218,740 at December 31, 2011 as compared to $31,129,700 at December 31, 2010. The increase in accumulated deficit is a direct result of our net loss of $89,040 in the year ended December 31, 2011.

Net cash provided by operating activities for the year ended December 31, 2011 was $26,909, as compared to $28,597 during the year ended December 31, 2010.

Net cash provided by investing activities for the year ended December 31, 2011 was $18,778, as compared to net cash used during the year ended December 31, 2010 of $185,508. The change resulted primarily from the purchase of property and equipment and real property tax liens in 2010.
 
            Net cash used in financing activities for the years ended December 31, 2011 and 2010 was $0. During the year ended December 31, 2011, revenues from two customers accounted for 60% of our total revenues.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board ("FASB") issued a new accounting standard on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The standard is effective for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company does not expect the adoption of this accounting guidance to have a material impact on its consolidated financial statements and related disclosures.
 

In June 2011, the FASB issued new guidance on the presentation of comprehensive income. The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income from that of current accounting guidance. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. Upon adoption, the Company will present its consolidated financial statements under this new guidance. The Company does not expect the adoption of this accounting guidance to have a material impact on its consolidated financial statements and related disclosures.

In December 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance related to balance sheet offsetting. The new guidance requires disclosures about assets and liabilities that are offset or have the potential to be offset. These disclosures are intended to address differences in the asset and liability offsetting requirements under U.S. GAAP and International Financial Reporting Standards. This new guidance will be effective for us for interim and annual reporting periods beginning January 1, 2013, with retrospective application required. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.
  
Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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.
 
 
13

 
 
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


 
 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
To the Board of Directors and the Stockholders
eRoomSystem Technologies, Inc.

We have audited the accompanying consolidated balance sheets of eRoomSystem Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits 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 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 audit 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 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of eRoomSystem Technologies, Inc. and subsidiaries as of December 31, 2011 and 2010, 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.  
 
 
HANSEN, BARNETT & MAXWELL, P.C.
March 23, 2012
Salt Lake City, Utah
 
   
 
 
 


 
 
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
 
   
2011
   
2010
 
ASSETS
 
CURRENT ASSETS
           
Cash and cash equivalents
  $ 2,191,396     $ 2,145,709  
Investment in equity securities available for sale
    1,700       42,500  
Investment in real property tax liens
    29,027       60,299  
Accounts receivable, net of allowance for doubtful accounts of  $10,260 at
   December 31, 2011 and $18,240 at December 31, 2010
    58,143       103,802  
Inventory
    170,423       147,069  
Advance to supplier
    -       48,678  
Note Receivable
    -       522,685  
Prepaid expenses
    7,855       5,043  
Total Current Assets
    2,458,544       3,075,785  
PROPERTY AND EQUIPMENT
               
Property and equipment, net of accumulated depreciation of
$47,267 at December 31, 2011 and $23,975 at December 31, 2010
    132,835       120,707  
INTANGIBLE ASSETS, net of accumulated amortization of $5,064
      at December 31, 2011 and $3,376  at December 31, 2010
    -       1,688  
NOTE RECEIVABLE
    500,000       -  
DEPOSITS
    3,183       2,250  
Total Assets
  $ 3,094,562     $ 3,200,430  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES
               
Accounts payable
  $ 15,502     $ 21,399  
Accrued liabilities
    100,378       81,009  
Customer deposits
    2,004       2,004  
Total Current Liabilities
    117,884       104,412  
Total Liabilities
    117,884       104,412  
STOCKHOLDERS' EQUITY
               
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none outstanding
    -       -  
Common stock, $0.001 par value; 50,000,000 shares authorized; shares 23,982,865
 at December 31, 2011 and 23,907,865 at December 31, 2010
    23,983       23,908  
Additional paid-in capital
    34,169,735       34,159,310  
Accumulated deficit
    (31,218,740 )     (31,129,700 )
Accumulated other comprehensive gain (loss)
    1,700       42,500  
Total Stockholders' Equity
    2,976,678       3,096,018  
                 
Total Liabilities and Stockholders' Equity
  $ 3,094,562     $ 3,200,430  
 
See accompanying notes to consolidated financial statements
 
 
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 
   
For the years ended December 31,
 
   
2011
   
2010
 
             
REVENUE AND INVESTMENT INCOME (LOSSES)
           
Product sales   $ 569,166     $ 873,606  
Maintenance fees     163,701       195,346  
Interest income     68,550       116,767  
Loss on other than temporary decline in marketable securities     -       (50,000 )
Total Revenue and Investment  Income (Losses)     801,417       1,135,719  
                 
COST OF REVENUE
               
Product sales     287,924       513,345  
Maintenance     19,236       31,889  
Total Cost of Revenue     307,160       545,234  
                 
OPERATING EXPENSES
               
Selling, general and administrative expense, including
   non-cash compensation of $10,500 and $14,958, respectively
    486,557       494,374  
Research and development expense     96,740       77,766  
Net Operating Expenses     583,297       572,140  
                 
Net Income (Loss)
    (89,040 )     18,345  
OTHER COMPREHENSIVE INCOME (LOSS)
               
Unrealized gain (loss) on investment
    (40,800 )     42,500  
Reclassification adjustment for losses included in operations
    -       50,000  
Other Comprehensive Income (Loss)
   
(40,800
   
92,500
 
Comprehensive Income (Loss)
  $ (129,840 )   $ 110,845  
                 
Basic Earnings (Loss) Per Common Share
  $ 0.00     $ 0.00  
Diluted Earnings (Loss) Per Common Share
  $ 0.00     $ 0.00  
 
See accompanying notes to consolidated financial statements
 

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
   
Shares
   
Amount
 
   
2011
   
2010
   
2011
   
2010
 
COMMON STOCK
                       
Balance at Beginning of Year
    23,907,865       24,123,165     $ 23,908     $ 24,123  
Cancellation of shares in treasury
    -       (290,300 )     -       (290 )
Issuance to directors for services
    75,000       75,000       75       75  
Balance at End of Year
    23,982,865       23,907,865       23,983       23,908  
ADDITIONAL PAID-IN-CAPITAL
                               
Balance at Beginning of Year
                    34,159,310       34,079,467  
Issuance to directors for services
                    10,425       11,175  
Cancellation of shares in treasury
                    -       (38,161 )
Issuance of options and warrants to employees
                    -       3,706  
Reclass of options and warrants
                    -       103,123  
Balance at End of Year
                    34,169,735       34,159,310  
ACCUMULATED DEFICIT
                               
Balance at Beginning of Year
                    (31,129,700 )     (31,148,045 )
Net income (loss)
                    (89,040 )     18,345  
Balance at End of Year
                    (31,218,740 )     (31,129,700 )
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
                               
Balance at Beginning of Year
                    42,500       (50,000 )
Other comprehensive income (loss)
                    (40,800 )     92,500  
Balance at End of Year
                    1,700       42,500  
Total Stockholders' Equity at End of Year
                  $ 2,976,678     $ 3,096,018  
 
See accompanying notes to consolidated financial statements
 
 
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
For the Years Ended
December 31,
 
   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES            
Net income (loss)
  $ (89,040 )   $ 18,345  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                
Depreciation and amortization     24,979       13,691  
Loss from other than temporary decline in marketable securities     -       50,000  
Non-cash compensation expense     10,500       14,958  
Changes in operating assets and liabilities:
               
Accounts receivable     45,659       2,024  
Accrued interest receivable     22,685       -  
Inventory     (47,212 )     (71,158 )
Advance to supplier     48,678       4,333  
Prepaid expenses     (2,812 )     13,673  
Accounts payable     (5,897 )     (3,638 )
Accrued liabilities     19,369       (13,631 )
Net Cash Provided By Operating Activities     26,909       28,597  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of property and equipment
    (11,561 )     (127,909 )
Purchase of investments in real property tax liens
    (4,249 )     (123,653 )
Proceeds from collections of real property tax liens
    35,521       63,354  
Change in long term deposits and restricted funds
    (933 )     2,700  
Net Cash Provided by (Used In) Investing Activities
    18,778       (185,508 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES     -       -  
                 
Net Increase (Decrease) in Cash     45,687       (156,911 )
                 
Cash and cash equivalents at Beginning of Period     2,145,709       2,302,620  
                 
Cash and cash equivalents at End of Period   $ 2,191,396     $ 2,145,709  
 
See accompanying notes to consolidated financial statements
 
  
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization, Nature of Operations and Principles of Consolidation - eRoomSystem Technologies, Inc. is a Nevada corporation.  eRoomSystem Technologies, Inc. and its subsidiaries, collectively referred to as the "Company," provide a complete line of fully-automated eRoomServ refreshment centers and eRoomSafes in hotels. The eRoomServ refreshment centers and eRoomSafes use proprietary software that integrates with a data collection computer in each hotel. The Company also invests in real property tax liens from various municipalities in New Jersey, as further described in Note 2.

The accompanying consolidated financial statements include the accounts of eRoomSystem Technologies, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents - Cash and cash equivalents include highly liquid debt investments with original maturities of three months or less readily convertible to known amounts of cash. At December 31, 2011 and 2010, the Company held cash in excess of federally insured limits of $742,572 and $724,402, respectively.

Investments in Equity Securities Available for Sale – Equity securities available for sale include securities that can be sold at any time based upon needs or market conditions. Available for sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected in stockholders’ equity as accumulated other comprehensive income.

Accounts Receivable - Accounts receivable are stated at the historical carrying amount, net of write-offs and allowances. The Company has established an overall allowance based upon historical experience of 15% of the outstanding balance in addition to any specific customer collection issues identified by the Company. Uncollectible accounts receivable are written off when a settlement is reached or when the Company has determined that the balance will not be collected.

Inventory - The Company maintains an inventory of product that is sold in the refreshment centers in a number of hotels. The inventory is purchased as finished goods and is valued using the first in, first out method.

Note Receivable - The note receivable is stated at the historical carrying amount and was evaluated for impairment. When projections indicate that the carrying value of the note is not recoverable, the carrying value will be reduced by the estimated excess of the carrying value over the projected discounted cash flows. No impairment was deemed necessary during 2011 or 2010. The carrying amount of the note receivable approximates its fair value because of its short-term maturity. However, the note has been reclassified as long term for the year ended December 31, 2011 (see Note 3).

Property and Equipment - Property and equipment consist primarily of eRoomServ refreshment centers and eRoomSafes and are stated at cost, less accumulated depreciation. Major additions and improvements are capitalized, while repairs and maintenance costs are expensed when incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:
 
eRoomServ refreshment centers in service
5 - 7 years
Computer and office equipment
3 - 7 years
Vehicles and other
7 years
 

Depreciation expense was $24,979 and $13,691 for the years ended December 31, 2011 and 2010, respectively. On retirement, trade-in or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations.

Capitalized Software Costs - 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. Internally generated software development costs were $31,750 for the year ended December 31, 2011 and were $29,000 for the year ended December 31, 2010. The Company has charged its software development costs to research and development expense in the accompanying consolidated statements of operations.

Impairment of Long-Lived Assets - The carrying values of the Company's long-lived assets, including note receivable, were reviewed for impairment. When projections indicate that the carrying value of the long-lived asset is not recoverable, the carrying value of the long-lived asset is reduced by the estimated excess of the carrying value over the projected discounted cash flows. No impairment was deemed necessary at December 31, 2011.
 
Revenue Recognition - The Company generates revenues either from the sale, lease or revenue-share arrangement for eRoomServ refreshment centers, and eRoomSafes as well as from the sale of products in refreshment centers. Under the revenue-sharing agreements, the Company receives a non-guaranteed portion of the sales generated by the units. The Company also generates revenues from maintenance services.

Revenue from the sale of eRoomServ refreshment centers and eRoomSafes is recognized upon completion of installation and acceptance by the customer. Revenue from the sale of refreshments from the refreshment centers is recognized upon removal of the item from the minibar by the guest. The revenue-sharing agreements are accounted for as operating leases with revenue being recognized as earned over the lease period. Maintenance revenue is recognized as the services are performed or pro rata over the service period.

With respect to the sale of refreshment centers, the maintenance services are not integral to the functionality of the eRoomServ refreshment centers and are at the option of the customer. Maintenance services are mandatory for eRoomServ refreshment centers placed under revenue-sharing agreements and are incorporated into those agreements. In connection with the revenue-sharing agreements, a portion of the revenues received by the Company are classified as maintenance fee revenue based upon vendor-specific objective evidence of fair value. The Company defers customer's deposits paid in advance relating to future services and products not yet installed and accepted by the customer.

During the year ended December 31, 2010, the Company’s revenue shifted from being primarily revenue sharing arrangements to one of product sales. The Company has added some customers through the purchase of KoolTech’s refreshment centers (see Note 4) through which the Company provides a turnkey solution to those hotels. The Company provides drinks as well as other refreshments in the refreshment centers and the sale of these products to the hotel guests using the auspices of the hotel is accounted for as product sales. The Company has a number of one year contracts with the hotels in this regards, all of which have expired or will expire in the next few months.

Given the Company’s change in focus toward investing in third party emerging growth companies as well as loaning money to these companies, interest income for all periods presented was reclassified to revenue during the year ended December 31, 2010.

Stock-Based Compensation - The Company has one stock-based employee compensation plan, which is described more fully in Note 9. The Company utilizes the fair value recognition provisions of FASB ASC 718, Stock Compensation. Accordingly, the Company records expense, if applicable, for (i) the unvested portion of grants issued during 2011 and 2010 and (ii) new grant issuances, both of which will be expensed over the requisite service (i.e., vesting) periods.

Income Taxes - The Company recognizes an asset or liability for the deferred tax consequences of all temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. These deferred tax assets or liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided, as necessary.

Net Earnings (Loss) per Common Share - Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted earnings (loss) per common share is computed by dividing net income (loss), adjusted to add back interest associated with convertible debt, by the weighted-average number of common shares and dilutive potential common share equivalents outstanding. When dilutive, the incremental potential common shares issuable upon exercise of stock options are determined by the treasury stock method.
 

The following table is a reconciliation of the numerators and denominators used in the calculation of basic and diluted weighted-average common shares outstanding for the years ending December 31, 2011 and 2010:

   
For The Years Ended December 31,
 
   
2011
   
2010
 
Basic net income (loss)
  $ (89,040 )   $ 18,345  
Diluted net income (loss)
  $ (89,040 )   $ 18,345  
Basic weighted-average common shares outstanding
    23,956,153       23,876,016  
Effect of dilutive securities
               
Stock options and warrants
    -       28,582  
Diluted weighted-average common shares outstanding
    23,956,153       23,904,598  
Basic earnings (loss) per share
  $ 0.00     $ 0.00  
Diluted earnings (loss) per share
  $ 0.00     $ 0.00  

As of December 31, 2011 and 2010, there were potential common stock equivalents from options and warrants of 1,844,446 and 2,128,344, respectively that were not included in the computation of diluted earnings per common share because their effect would have been anti-dilutive.

Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued a new accounting standard on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The standard is effective for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company does not expect the adoption of this accounting guidance to have a material impact on its consolidated financial statements and related disclosures.

In June 2011, the FASB issued new guidance on the presentation of comprehensive income. The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income from that of current accounting guidance. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. Upon adoption, the Company will present its consolidated financial statements under this new guidance. The Company does not expect the adoption of this accounting guidance to have a material impact on its consolidated financial statements and related disclosures.

In December 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance related to balance sheet offsetting. The new guidance requires disclosures about assets and liabilities that are offset or have the potential to be offset. These disclosures are intended to address differences in the asset and liability offsetting requirements under U.S. GAAP and International Financial Reporting Standards. This new guidance will be effective for us for interim and annual reporting periods beginning January 1, 2013, with retrospective application required. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.

NOTE 2  INVESTMENTS

Investment in Equity Securities Available for SaleAs discussed further in Note 4, the Company was issued 50,000 shares of stock in Blackbird Corporation in July 2008. On June 7, 2010, Blackbird entered into a share exchange with RPID later renamed Spot Mobile International Ltd (“Spot Mobile”). The 50,000 shares of common stock of Blackbird were exchanged for 1,700,000 restricted shares of common stock of Spot Mobile. The Spot Mobile shares were reverse split in October 2010 to 56,667 shares. The Company recorded an $42,500 unrealized gain on the investment in Spot Mobile at December 31, 2010. The Company recorded a $40,800 unrealized loss on the investment in Spot Mobile during the year ended December 31, 2011, which is included in other comprehensive loss.
 

During the year ended December 31, 2007, the Company reduced the carrying value of its investment in Aprecia, Inc. to zero through a $50,000 charge to other comprehensive loss. During the year ended December 31, 2010, the Company determined that Aprecia, Inc. was no longer an operating company, that the decline in value of this investment was other than temporary and recognized the $50,000 loss in operations.

Investments in equity securities as of December 31, 2011 are summarized below:

Equity Securities
 
Cost Basis
   
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
Spot Mobile
  $ -     $ 1,700     $ -     $ 1,700  
 
Investments in equity securities as of December 31, 2010 are summarized below:

Equity Securities
 
Cost Basis
   
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
Spot Mobile
 
$
-
   
$
42,500
   
$
-
   
$
42,500
 

At December 31, 2011, accumulated other comprehensive income consisted solely of the unrealized holding gain from the investment in Spot Mobile.

Investment in Real Property Tax Liens – During the year ended December 31, 2011, the Company purchased $4,249 in real property tax liens from various municipalities in New Jersey. During the year ended December 31, 2011, the Company collected $35,521 in tax lien settlements. The New Jersey municipal tax liens are receivable from the real property owners and are secured by a first priority lien on the related real property. Upon foreclosure, the Company would obtain ownership of the real property. The tax lien receivables accrue interest up to 18% per annum, accrue penalties at 2% to 6% per annum and are also increased by the amount of any collection expenses incurred. The investment in the real property tax liens are accounted for as an investment in troubled debts and are carried at cost. Collection of interest, penalties and expense reimbursements is not certain and is recognized upon being realized.

NOTE 3 – NOTE RECEIVABLE

On July 24, 2008, the Company loaned $500,000 to BlackBird Corporation (“BlackBird”) under the terms of a 10% senior secured convertible promissory note (the “Secured Note”). The Secured Note bore interest at 10% per annum, payable quarterly, and was due June 30, 2009. In addition, BlackBird issued 50,000 shares of its common stock to the Company. On the date of issuance, the fair value of BlackBird’s common stock was not determinable and the shares were valued at zero. BlackBird further agreed in July 2008, notwithstanding the terms of the note, if the loan was not repaid by January 1, 2009, interest on the note would accrue at 18% per annum starting January 1, 2009. The Secured Note was not paid by January 1, 2009 and it continued to accrue interest at 18% per annum. On April 1, 2011, the Company agreed to extend the due date of the Secured Note to June 30, 2011.

BlackBird did not pay its interest payment for the second quarter of 2011 in a timely fashion. On November 3, 2011, the Company entered into a forbearance agreement with BlackBird to reduce the interest rate on the Secured Note to 10% retroactive to April 1, 2011 and to not foreclose on BlackBird’s assets if BlackBird remains in compliance with the terms of the agreement. As part of this agreement, BlackBird agreed to pay all outstanding interest due on the loan through September 30, 2011 by November 11, 2011. BlackBird also agreed to make monthly interest payments within 10 days after the end of each month. The outstanding accrued interest of $25,069 as of September 30, 2011 was paid in full on November 10, 2011.
 
The concession granted to BlackBird on November 3, 2011 constituted a troubled debt restructuring under current accounting guidance. As a result, the note was classified as a long-term asset. Interest income under the terms of the Secured Note is no longer being recognized until the carrying value has been recovered, and payments received are recognized as a reduction of the carrying value of the note. After the receipt of the $25,069 payment in November 2011, the carrying value of the note receivable was $500,000 at December 31, 2011.
 
The note receivable was evaluated for impairment and the Company determined that it is likely that estimated future payments from BlackBird or the cash flows from BlackBird’s operations and the value of the underlying collateral is sufficient that upon foreclosure the Company would be able to realize the carrying value of the note. If BlackBird fails to comply with the terms of the agreement dated November 3, 2011, the Company plans on foreclosing on the underlying collateral to collect on the note. Therefore no impairment was recognized during the years ended December 31, 2011 or 2010.

The note receivable is assessed for impairment on a quarterly basis. If projections were to indicate that the carrying value of the promissory note was not recoverable, the carrying value would be reduced by the estimated excess of the carrying value over the projected discounted cash flows. The evaluations are based on the estimated projected discounted cash flows from BlackBird and from the liquidation value of the underlying collateral.
 

Management has estimated that the fair value of the note receivable at December 31, 2011 and 2010 was approximately $215,000 and $522,000, respectively.

NOTE 4 – PURCHASE OF ASSETS

On June 17, 2009, the Company purchased the assets of Kooltech SPE from Cardinal Pointe Capital (“CPC”), which assets consisted of automated minibars installed in six hotels, automated baskets and product inventory. The Company formed a subsidiary, eFridge, LLC (“eFridge”) for the purpose of this purchase. The purchase price was an amount equal to 30% of eFridge’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) and 30% of eFridge’s cash flow related to any related new equipment purchased.  Payment of the purchase price was payable by eFridge to CPC on a monthly basis within twenty days after the end of each month. In addition, the Company agreed that in the event eFridge or any other subsidiary of the Company purchases any new Kooltech equipment from the manufacturers thereof or brokers the sale of new Kooltech equipment or equipment materially similar to Kooltech’s to third parties, the Company would pay to CPC an amount equal to $30 per mini-bar and $15 per automated basket so purchased or brokered. The Company paid CPC, under the agreement, $5,613 for any liability incurred through March 31, 2011.

On June 29, 2011, the Company reached a final settlement of any and all obligations under the original agreement with payment of $20,000 to CPC. Payment of which was accounted for as an expense in June, 2011.

During the year ended December 31, 2010, the Company purchased vending machines for placement in a hotel in the amount of $68,351. These machines are being depreciated over a 7 year period.

NOTE 5 – FAIR VALUE MEASUREMENTS
 
Generally accepted accounting principles define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, a hierarchy has been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.

Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The Company uses fair value to measure certain assets and liabilities on a recurring basis when fair value is the primary measure for accounting.  Fair value is also used on a nonrecurring basis to measure certain assets when applying lower of cost or market accounting or when adjusting carrying values.  Fair value is also used when evaluating impairment on certain assets, including goodwill, intangibles, and long-lived assets.

Following is a description of the valuation methodologies used for assets measured at fair value.  There have been no changes in the methodologies used at December 31, 2011.

Investment in Equity Securities Available for Sale – The investment in equity securities available for sale is based on quoted prices in active markets for identical assets.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
 

The following tables set forth by level, within the fair value hierarchy, the estimated fair values of the Company’s financial assets measured on a recurring basis as of December 31, 2011:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Investment in Equity Securities
                       
Available for Sale
  $ 1,700     $ -     $ -     $ 1,700  
                                 
Total Assets Measured at Fair Value
  $ 1,700     $ -     $ -     $ 1,700  

NOTE 6  COMMITMENTS AND CONTINGENCIES

Employment and Consulting Agreements - On January 1, 2007, the Company entered into a new employment agreement with its chief executive officer and president for a two year term with automatic two year extensions unless terminated at least thirty days earlier in writing. The agreement provides for an annual salary of $150,000. The agreement requires that the chief executive officer not compete with the Company during the term of employment and for three years subsequent to termination. The agreement has been automatically extended as of January 1, 2011 for an additional two years.

Operating Leases as Lessor - The Company accounts for its revenue-sharing agreements as operating leases. Agreements with all customers provide for an allocation of revenues to the Company with no minimum monthly payment. Accordingly, the Company is unable to estimate future amounts to be received under these agreements. As of December 31, 2011, the Company had no revenue-sharing agreement for which the customer is contractually obligated to pay minimum monthly payments.

Operating Leases as Lessee - In November 2011, the Company rented a different office in Lakewood, NJ. The Company entered into a 16 month lease agreement that ends in February 2013 with option to renew for one year. The lease provides for monthly rent payments of $1,466. Future lease payments through February 2013 are $20,524. The Company is renting warehouse space in Salt Lake City, Utah, Lakewood, NJ, Jackson, NJ and Howell, NJ on a month to month basis. The leases provide for monthly rent payments totaling approximately $1,300.

Rent expense for the years ended December 31, 2011 and 2010 was $34,237 and $45,593, respectively.

NOTE 7  INCOME TAXES

The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. The Company is no longer subject to U.S. federal or state and local examinations by tax authorities for years before 2008. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses. During the years ended December 31, 2011 and 2010, the Company did not incur any tax related interest and penalties.

The Company has paid no federal income taxes. The following is a schedule of state income taxes paid in 2011 and 2010:

For the years ended December 31,
 
2011
   
2010
 
New York
  $ 1,381     $ 629  
Total income tax paid
  $ 1,381     $ 629  
 
 
The significant components of the Company's deferred income tax assets as of December 31, 2011 and 2010 are as follows:
 
For the years ending December 31,
 
2011
   
2010
 
Deferred Income Tax Assets:
           
Net operating loss carryforwards
  $ 7,626,169     $ 7,615,512  
Reserves and accrued liabilities
    19,471       18,741  
Other assets
    4,257       7,025  
Total Deferred Income Tax Assets
  $ 7,649,897     $ 7,641,278  
Valuation allowance
    (7,649,897 )     (7,641,278 )
Deferred Income Tax Liability - Depreciation and
         
Amortization
    -       -  
Net Deferred Income Tax Asset
  $ -     $ -  
 
The amount of, and ultimate realization of, the deferred income tax assets are dependent, in part, upon the tax laws in effect, the Company's future earnings, and other future events, the effects of which cannot be determined. The Company has established a valuation allowance against its deferred income tax assets. Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of these deferred income tax assets to warrant the valuation allowance.

No income tax provision or benefit was recognized from operations or from other comprehensive income (loss) during the years ended December 31, 2011 or 2010.

The following is a reconciliation of the provision for income taxes from operations computed using the federal statutory rate to the provision for income taxes:

For the years ending December 31,
 
2011
   
2010
 
Tax at statutory rate (34%)
  $ (30,274 )   $ 6,237  
Other non-deductible expenses and adjustments
    22,804       (3,553 )
Change in valuation allowance
    8,619       (2,922 )
State tax, net of federal tax benefit
    (1,149 )     238  
Provision for Income Taxes
  $ -     $ -  

The following summarizes the tax net operating loss carryforwards and their respective expiration dates as of December 31, 2011:
 
Years ending December 31,
     
2011
  $ 1,139,922  
2017
    1,082,373  
2018
    3,642,857  
2019
    3,032,912  
2020
    5,087,650  
2021
    2,704,379  
2022
    3,601,005  
2023
    1,169,588  
2029
    54,850  
2031
    94,463  
Total net operating loss carryforwards
  $ 21,609,999  
 

NOTE 8 – STOCKHOLDERS' EQUITY

During the year ended December 31, 2011, the Company issued 75,000 shares of common stock valued at $10,500 ($0.14 per share based on market value on the date issued) to its Board of Directors for services rendered. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended.

During the year ended December 31, 2010, the Company constructively retired 290,300 shares of common stock from treasury stock to common stock and additional paid-in-capital. The Company had repurchased the shares in previous periods under its repurchase program.

During the year ended December 31, 2010, the Company issued 75,000 shares of common stock valued at $11,250 ($0.15 per share based on market value on the date issued) to its Board of Directors for services rendered. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended.

During the year ended December 31, 2011 no repurchases of shares were made.

NOTE 9 – STOCK OPTIONS AND WARRANTS

Employee Grants - During 2000, the stockholders of the Company approved adoption of the 2000 Stock Option Plan (the "2000 Plan"). During 2002, the stockholders of the Company approved an amendment to the 2000 Plan to increase the authorized number of shares of common stock reserved for issuance upon the exercise of stock options under the 2000 Plan from 2,360,000 shares to 2,700,000. During November 2004, the stockholders of the Company approved a second amendment to the 2000 Plan to increase the authorized number of shares of common stock reserved for issuance upon the exercise of stock options under the 2000 Plan from 2,700,000 shares to 3,000,000 shares.

The 2000 Plan, as amended, provides for both the direct award of shares and the grant of options to purchase shares. The Company's compensation committee administers the plan and has discretion in determining the employees, directors, independent contractors and advisors who receive awards, the type of awards (stock, incentive stock options or non-qualified stock options) granted, the term, vesting and exercise prices. The exercise price for the options may be paid in cash or in shares of the Company's common stock that have been outstanding for more than six months, which shares are valued at their fair value on the exercise date. In the event of a change in control (as defined in the Plan), all restrictions on awards issued under the 2000 Plan will lapse and unexercised options will become fully vested.

During the year ended December 31, 2010, the Company granted options to purchase 25,000 shares of common stock to employees and a consultant for extraordinary services rendered. These options, which vested immediately, have an exercise price ranging from $0.16 to $0.22 per share and are exercisable through November 22, 2015. These options were valued at $3,707 using the Black-Scholes option pricing model with the following assumptions: risk free interest rate ranging from 1.2% to 2.65%, dividend yield of 0.0%, volatility ranging from 113% through 115% and expected life of 5 years. The pricing model utilized the full life of the options as the Company generally has a low turnover rate of its employees.

Compensation expense relating to stock options of $0 and $3,706 was recognized during the years ended December 31, 2011 and 2010, respectively. There was no unrecognized compensation related to stock options at December 31, 2011.

During the year ended December 31, 2011 and 2010, options to purchase 403,898 and 25,000 shares of common stock expired, respectively. During the years ended December 31, 2011 and 2010 0 and 15,000 options, respectively, were forfeited.

Based on guidance issued by the Financial Accounting Standards Board, options and warrants outstanding were reclassified to additional paid-in-capital on January 1, 2010.
 

A summary of stock option and warrant activity for the years ended December 31, 2011 and 2010 is as follows:

   
Options and Warrants
   
Exercise Price Range
   
Weighted - Average
Exercise Price
 
Balance, December 31, 2009
    2,263,344     $ 0.10       -     $ 1.55     $ 0.32  
Granted
    25,000       0.16       -       0.22       0.18  
Forfeited
    (15,000 )     0.18       -       0.20       0.19  
Expired
    (25,000 )     0.35       -       0.35       0.35  
Balance, December 31, 2010
    2,248,344       0.10       -       1.55       0.32  
Expired
    (403,898 )     0.13       -       0.33       0.25  
Balance,  December 31, 2011
    1,844,446       0.10       -       1.55       0.33  
Exercisable, December 31, 2011
    1,844,446     $ 0.10       -     $ 1.55     $ 0.33  
Weighted-average fair value of options granted during the year ended
         
December 31, 2010
                                  $ 0.18  
Weighted-average fair value of options granted during the year ended
         
December 31, 2011
                                  $ -  
 
A summary of the options and warrants outstanding and exercisable as of December 31, 2011 follows:

     
Outstanding
   
Exercisable
 
Range of
Exercise Prices
   
Number Outstanding
 
Weighted - Average Remaining
Contractual Life
 
Weighted - Average Exercise Price
   
Aggregate
Intrinsic Value
 
Number
 Exercisable
   
Weighted - Average Exercise Price
   
Aggregate
Intrinsic Value
 
$ 0.10 - 0.37       1,830,803  
1 year
  $ 0.33     $ -       1,830,803     $ 0.33     $ -  
  0.90 - 1.55       13,643  
.5 year
    0.94       -       13,643       0.94       -  
$ 0.10 - 1.55       1,844,446  
1 year
  $ 0.33     $ -       1,844,446     $ 0.33     $ -  

NOTE 10 – CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

The Company's historical revenues and receivables have been derived primarily from the lodging industry. The Company offers credit terms on the sale of its eRoomServ refreshment centers and in connection with its revenue-sharing contracts. The Company performs ongoing credit evaluations of its customers' financial condition and does not require collateral from its customers. The Company maintains an allowance for uncollectible accounts receivable based upon a percentage of accounts receivable at year end.

At December 31, 2011, the Company had accounts receivable from two customers accounting for 58% of total accounts receivable.

During the year ended December 31, 2011, revenues from two customers accounted for 60% of total revenues.
 
During the year ended December 31, 2010, revenues from three customers accounted for 65% of total revenues.

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

The Company has had no disagreements with its certified public 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 (Exchange Act), as of December 31, 2011. Based on this evaluation, our principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were 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

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, 2011 based on the framework in Internal Control—Integrated Framework    issued by the Committee of Sponsoring Organizations of the Treadway Commission. The evaluation included reviewing and testing the controls and procedures in place as per the Company’s Internal Control Document. Based upon that evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2011.

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, at this time management has decided that considering the abilities of the employees now 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 clearly 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

There are no further disclosures.
 

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
  39  
President, Chief Executive Officer, Secretary and
         
Chairman of the Board
James C. Savas
  51  
Director
         
Lawrence K. Wein
  69  
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, 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 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. For more than seven years, Mr. Savas has been a member of Savas Greene & Company, LLC, an accounting and business consulting firm located in Salt Lake City, Utah. From 1988 to 1995, Mr. Savas was a tax accountant for Price Waterhouse. Since April 1999, Mr. Savas has also served as co-manager of Providence Management, LLC, which is manager of Ash Capital, LLC, an investment company controlled by Dr. Alan C. Ashton, a former director and one of the largest stockholders of the Company. Mr. Savas also serves on the boards of Bullfrog Spas International and Vortex Products, 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 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 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 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.
 

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.

AuditorsCommittees of the Board of Directors

Hansen, Barnett & Maxwell, P.C., or HBM, an independent registered public accounting firm, is our auditor.

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 Mr. Savas. The chairman of the audit committee is Mr. Savas. The audit committee met one time during the fiscal year ended December 31, 2011. 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.

The audit committee is comprised of a director who is not our salaried employee 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. The compensation committee met once during the fiscal year ended December 31, 2011. 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, 2011 all applicable filing requirements were complied with by our executive officers and directors.

Code of Ethics

Our Board of Directors has not yet adopted a written Code of Business Conduct and Ethics.
  
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 and our executive officers whose total annual salary exceeded $100,000 during the fiscal years ended December 31, 2011 and 2010. In accordance with the rules of the Commission, the compensation described in this table does not include perquisites and other personal benefits received by the executive officers named in the table below which does not exceed the lesser of $10,000 or 10% of the total salary and bonus reported for the executive officers.
 
SUMMARY COMPENSATION TABLE
 
Name
 
Year
 
Salary
   
Bonus
   
Stock
   
Option
   
Non-Equity
   
Nonqualified
   
All Other
   
Total ($)
 
and
 
(b)
 
($)
   
($)
   
Awards
   
Awards
   
Incentive
   
Deferred
   
Compensation
   
(j)
 
principal
     
(c)
   
(d)
   
($)
   
($)
   
Plan
   
Compensation
   
($)
       
position
                 
(e)
   
(f)
   
Compensation
   
Earnings
   
(i)
       
(a)
                             
($)
   
($)
             
                               
(g)
   
(h)
             
David A. Gestetner,
 
2011
  $ 150,000     $ 35,000     $ -     $ -     $ -     $ -     $ -     $ 185,000  
President, Chief Executive
 
2010
  $ 150,000     $ 35,000     $ -     $ -     $ -     $ -     $ -     $ 185,000  
Officer, Secretary and Chairman
                                                                   

On January 1, 2007, the Company entered into a two-year employment agreement with David A. Gestetner to serve as President and Chief Executive Officer. 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 term life insurance and a $400 monthly car allowance. In addition, if Mr. Gestetner is terminated by the Company without cause, he is entitled to severance in the amount of one year of base salary and the continuation for one year of health, dental and car allowance benefits.

Outstanding Equity Awards at Fiscal-Year End

There were no equity awards outstanding granted to or held by our chief executive officer during the fiscal year ended December 31, 2011.
 

 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, 2011:
 
DIRECTOR COMPENSATION
 
 
Name
 
Fees
   
Stock
         
Option
   
Non-Equity
   
Change in
   
All
   
Total
 
(a)
 
Earned or
   
Awards
         
Awards
   
Incentive
   
Pension
   
Other
   
($)
 
   
Paid in
   
($)
         
($)
   
Plan
   
Value and
   
Compensation
   
(h)
 
   
Cash
   
(c)
         
(d)
   
Compensation
   
Nonqualified
   
($)
       
   
($)
                     
($)
   
Deferred
   
(g)
       
   
(b)
                     
(e)
   
Compensation
             
                                 
Earnings
             
                                 
($)
             
                                 
(f)
             
David Gestetner
    -       -          2     -       -       -       -       -  
James C. Savas
    -       3,500          1     -       -       -       -       3,500  
Lawrence K. Wein
    -       3,500          1     -       -       -       -       3,500  
 
 
(1)
Reflects the issuance of 25,000 shares of restricted common stock issued to each of Messrs.’ Wein and Savas on May 10, 2011 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 unregistered 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 21, 2012, 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 23,982,865 shares of common stock outstanding as of March 21, 2012.
 

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
    3,830,762   4     15.9 %
David A. Gestetner
    5,162,644   1     21.5 %
James C. Savas
    4,118,275   2     17.0 %
Lawrence K. Wein
    205,000   3     0.9 %
Executive Officers and Directors, as a group (3 individuals)
    9,485,919         39.1 %

(1) Reflects the direct ownership of 4,000 shares of common stock. In addition, also includes the beneficial ownership of 4,953,644 shares of common stock held by Gestetner Group, LLC, a New Jersey limited liability company of which Mr. Gestetner is the sole member, 5,000 shares of common stock held by his spouse and 200,000 shares of common stock held by a private operating foundation as to which Mr. Gestetner as an officer has voting rights.

(2) Reflects the direct ownership of 173,321 shares of common stock and options to purchase 80,000 shares of common stock, the beneficial ownership of 19,231 shares of common stock and an option to purchase 14,961 shares of common stock held by Providence Management, LLC, an entity for which Mr. Savas is co-manager and 50% owner, and the beneficial ownership of the following securities held by Ash Capital, LLC, or Ash Capital, an entity which Providence Management, LLC serves as the manager and holds a 20% profits interest, (a) 3,685,449 shares of common stock held by Ash Capital, (b) an option to purchase 145,313 shares of common stock. Mr. Savas disclaims any beneficial ownership of the shares of common stock and options to purchase shares of common stock beneficially owned as a result of his affiliation with Ash Capital, except to the extent of his pecuniary interest in such securities.

(3) Reflects the direct ownership of 180,000 shares of common stock and options to purchase 25,000 shares of common stock.

(4) Reflects the direct ownership of 3,685,449 shares of common stock and an option to purchase 145,313 shares of common stock. Ash Capital is controlled by Alan C. Ashton, a former member of our board of directors, audit and compensation committees.

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

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(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(15). The member of our audit committee is Mr. Savas. Mr. Savas is not independent as defined in NASDAQ Rule 4350(d)(2) 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.

The information required by this item is as follows:

Hansen, Barnett & Maxwell, P.C., or HBM, has served as our independent registered public accounting firm since 2000, and specifically for the fiscal years ended December 31, 2011 and 2010. HBM was selected by our board of directors as our independent registered public accounting firm for the fiscal year ended December 31, 2011, and by our board of directors and a majority of our common stockholders for the fiscal year ended December 31, 2004.
 

Our board is responsible for pre-approving all audit and permissible non-audit services provided by HBM. Our board of directors has concluded that the non-audit services provided by HBM are compatible with maintaining auditor independence. In 2011, no fees were paid to HBM pursuant to the "de minimus" exception to the pre-approval policy permitted under the Exchange Act.

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, 2011 and 2010, the fees for services provided by HBM were as follows:

   
2011
   
2010
 
Audit fees  (1)
  $ 31,600     $ 29,600  
Audit-related fees (2)
    -          
Tax fees (3)
    -       -  
All other fees
    -       -  
    $ 31,600     $ 29,600  
 
(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
   
1.01
 
Form of Underwriting Agreement relating to the registrant's initial public offering that closed on August 9, 2000
Incorporated by reference to Pre-effective Amendment No. 2 of Form SB-2 filed on July 14, 2000
         
2.01
 
Agreement and Plan of Reorganization by and between RoomSystems International Corporation and RoomSystems, Inc. dated December 31, 1999
Incorporated by reference to Form SB-2 filed on April 14, 2000
         
2.02
 
Transfer Pricing Agreement by and between RoomSystems International Corporation and RoomSystems, Inc. dated December 31, 1999
Incorporated by reference to Form SB-2 filed on April 14, 2000
         
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
         
3.03
 
Amended and Restated Certificate of Designation, Preferences, Rights and Limitation of Series A convertible preferred stock
Incorporated by reference to Form SB-2 filed on June 9, 2000
         
3.04
 
Amended and Restated Certificate of Designation, Preferences, Rights and Limitation of Series B convertible preferred stock
Incorporated by reference to Form SB-2 filed on April 14, 2000
         
3.05
 
Certificate of Designation, Preferences, Rights and Limitation of Series C convertible preferred stock
Incorporated by reference to Form SB-2 filed on April 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 January 1, 2007
Incorporated by reference to Form 10-KSB filed on March 29, 2007
         
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
         
21.01
   
Filed herewith
         
31.1
 
Filed herewith
         
32.1
 
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
 

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,
Chief Financial Officer Secretary
and Chairman of the Board
(Principal Executive, Financial and Accounting Officer)
     
 
Date:
March 26, 2012

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 26, 2012
David A. Gestetner
 
Secretary and Chairman of the Board
(Principal Executive, Financial and
Accounting Officer)
   
         
/s/ James C. Savas
 
Director
 
March 26, 2012
James C. Savas
       
         
/s/ Lawrence K. Wein
 
Director
 
March 26, 2012
Lawrence K. Wein