Attached files
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| EXCEL - IDEA: XBRL DOCUMENT - EROOMSYSTEM TECHNOLOGIES INC | Financial_Report.xls |
| EX-31.1 - EROOMSYSTEM TECHNOLOGIES INC | ex31-1.htm |
| EX-32.1 - EROOMSYSTEM TECHNOLOGIES INC | ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
¨ TRANSITION REPORT UNDER 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.
(Name of small business issuer in its charter)
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Nevada
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87-0540713
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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150 Airport Road, Suite 1200, Lakewood, NJ
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08701
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(Address and telephone number of principal executive offices)
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(Zip Code)
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Issuer’s telephone number: (732) 730-0116
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Indicate by check mark whether the registrant (1) 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 ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the issuer’s common stock issued and outstanding as of May 9, 2013 was 24,057,865 shares.
EROOMSYSTEM TECHNOLOGIES, INC.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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1
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Item 1.
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1
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Item 2.
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7
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Item 3.
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10
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Item 4.
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10
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PART II - OTHER INFORMATION
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Item 1.
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11
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Item 1A.
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11
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Item 2.
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11
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Item 3.
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11
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Item 4.
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11
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Item 5.
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11
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Item 6.
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11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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March 31,
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December 31,
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2013
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2012
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$ | 1,906,953 | $ | 1,962,572 | ||||
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Investment in real property tax liens
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26,267 | 26,267 | ||||||
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Accounts receivable, net of allowance for doubtful accounts of $7,265 at
March 31, 2013 and $12,353 at December 31, 2012
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41,170 | 66,600 | ||||||
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Inventory
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174,336 | 157,921 | ||||||
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Prepaid expenses
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19,669 | 22,641 | ||||||
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Total Current Assets
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2,168,395 | 2,236,001 | ||||||
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PROPERTY AND EQUIPMENT
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Property and equipment, net of accumulated depreciation of $25,510
at March 31, 2013 and $20,331 at December 31, 2012
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64,410 | 67,568 | ||||||
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NOTE RECEIVABLE
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437,260 | 449,863 | ||||||
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DEPOSITS
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3,183 | 3,183 | ||||||
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Total Assets
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$ | 2,673,248 | $ | 2,756,615 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
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Accounts payable
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$ | 26,622 | $ | 18,682 | ||||
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Accrued liabilities
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41,151 | 77,411 | ||||||
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Customer deposits
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4,313 | 4,313 | ||||||
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Total Current Liabilities
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72,086 | 100,406 | ||||||
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Total Liabilities
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72,086 | 100,406 | ||||||
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STOCKHOLDERS' EQUITY
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Preferred stock, $0.001 par value; 5,000,000 shares authorized; none outstanding
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- | - | ||||||
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Common stock, $0.001 par value; 50,000,000 shares authorized; shares outstanding
24,057,865 at March 31, 2013 and 24,057,865 at December 31, 2012
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24,058 | 24,058 | ||||||
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Additional paid-in capital
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34,184,508 | 34,184,508 | ||||||
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Accumulated deficit
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(31,607,404 | ) | (31,552,357 | ) | ||||
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Total Stockholders' Equity
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2,601,162 | 2,656,209 | ||||||
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Total Liabilities and Stockholders' Equity
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$ | 2,673,248 | $ | 2,756,615 | ||||
See accompanying notes to condensed consolidated financial statements
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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For the Three Months Ended
March 31,
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2013
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2012
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| REVENUE AND INVESTMENT INCOME | ||||||||
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Product sales
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$ | 112,317 | $ | 124,091 | ||||
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Maintenance fees
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26,082 | 36,512 | ||||||
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Interest income
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2,229 | 3,593 | ||||||
| Total Revenue | 140,628 | 164,196 | ||||||
| COST OF REVENUE | ||||||||
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Product sales
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69,485 | 78,145 | ||||||
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Maintenance
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1,208 | 7,171 | ||||||
| Total Cost of Revenue | 70,693 | 85,316 | ||||||
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GROSS MARGIN
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69,935 | 78,880 | ||||||
| OPERATING EXPENSES | ||||||||
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Selling, general and administrative expense, including non-cash compensation
of $0 and $1,987, respectively |
86,906 | 113,872 | ||||||
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Research and development expense
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38,076 | 30,347 | ||||||
| Net Operating Expenses | 124,982 | 144,219 | ||||||
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Net Loss
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(55,047 | ) | (65,339 | ) | ||||
| Unrealized gain on investment in equity securities available for sale | - | 567 | ||||||
| Comprehensive Loss | $ | (55,047 | ) | $ | (64,772 | ) | ||
| Basic Loss Per Common Share | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Diluted Loss Per Common Share | $ | (0.00 | ) | $ | (0.00 | ) | ||
See accompanying notes to condensed consolidated financial statements
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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For the Three Months Ended
March 31,
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2013
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2012
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$ | (55,047 | ) | $ | (65,339 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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5,179 | 6,277 | ||||||
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Non-cash compensation expense
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- | 1,987 | ||||||
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Changes in operating assets and liabilities:
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Accounts receivable
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25,430 | (3,350 | ) | |||||
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Inventory
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(17,065 | ) | 6,686 | |||||
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Prepaid expenses
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2,972 | (19,606 | ) | |||||
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Accounts payable
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7,940 | 8,360 | ||||||
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Accrued liabilities
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(36,260 | ) | (40,544 | ) | ||||
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Net Cash Used In Operating Activities
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(66,851 | ) | (105,529 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES
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Purchase of property and equipment
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(1,371 | ) | (3,986 | ) | ||||
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Proceeds from collections of real property tax liens
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- | 2,150 | ||||||
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Proceeds from collection of note receivable
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12,603 | 12,603 | ||||||
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Net Cash Provided by Investing Activities
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11,232 | 10,767 | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES
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- | - | ||||||
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Net Decrease in Cash
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(55,619 | ) | (94,762 | ) | ||||
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Cash and cash equivalents at Beginning of Period
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1,962,572 | 2,191,396 | ||||||
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Cash and cash equivalents at End of Period
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$ | 1,906,953 | $ | 2,096,634 | ||||
See accompanying notes to condensed consolidated financial statements
eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Condensed Financial Statements - The accompanying unaudited condensed consolidated financial statements include the accounts of eRoomSystem Technologies, Inc. and its wholly-owned subsidiaries (the "Company"). Intercompany accounts and transactions have been eliminated in consolidation. These financial statements are condensed and, therefore, do not include all disclosures normally required by generally accepted accounting principles. These statements should be read in conjunction with the Company's annual financial statements for the fiscal year ended December 31, 2012 included in the Company's Annual Report on Form 10-K. In particular, the Company's organization, nature of operations and significant accounting principles were presented in Note 1 to the consolidated financial statements in that annual report. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.
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.
Investment in Real Property Tax Liens – The investments 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. The Company has evaluated the collectability of the tax liens and believes the investments are realizable over time as the first position liens are secured by the related real property and the estimated fair value of the real property is in excess of the carrying value of the tax liens and the estimated cost to foreclose and sell the real property. Therefore the Company has not provided an allowance for loan losses against the carrying value of the tax liens at March 31, 2013.
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. In addition, the Company maintains an inventory of minibars to be placed in Hotels The inventory is purchased as finished goods and is valued using the first in, first out method.
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 three months ended March 31, 2013 and 2012:
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For the three months ended
March 31,
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2013
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2012
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Net loss
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$ | (55,047 | ) | $ | (65,339 | ) | ||
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Basic weighted-average common shares outstanding
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24,057,865 | 23,982,865 | ||||||
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Effect of dilutive securities
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Stock options and warrants
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- | - | ||||||
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Diluted weighted-average common shares outstanding
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24,057,865 | 23,982,865 | ||||||
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Basic loss per share
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$ | (0.00 | ) | $ | (0.00 | ) | ||
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Diluted loss per share
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$ | (0.00 | ) | $ | (0.00 | ) | ||
During the three months ended March 31, 2013 and 2012, there were 492,500 and 1,868,751 respectively of potential common stock equivalents from options and warrants that were not included in the computation of diluted loss per share because their effect would have been anti-dilutive.
NOTE 2 - INVESTMENTS
Investment in Real Property Tax Liens –During the three months ended March 31, 2013, the Company did not purchase real property tax liens and did not collect any 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. The carrying value of the note receivable was $437,260 at March 31, 2013.
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 three months ended March 31, 2013 or 2012.
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 March 31, 2013 and 2012 was approximately $414,000 and $414,000, respectively.
NOTE 4 - STOCKHOLDERS’ EQUITY
During the three months ended March 31, 2012, the Company granted options to purchase 25,000 shares of common stock to an employee for services rendered. These options, which vested immediately, have an exercise price of $0.10 per share and are exercisable through February 22, 2017. These options were valued at approximately $0.08 per share, or $1,987, using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 1.41%, dividend yield of 0.0%, volatility of 111% and expected life of 5 years. No options to purchase shares of common stock were issued in 2013.
During the three months ended March 31, 2012, 695 options to purchase shares of common stock expired.
Compensation expense relating to stock options of $1,987 was recognized during the three months ended March 31, 2012.
There was no unrecognized compensation related to stock options at March 31, 2013.
A summary of stock option and warrant activity for the three months ended March 31, 2013 is as follows:
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Options and Warrants
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Exercise Price Range
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Weighted - Average Exercise Price
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Balance, December 31, 2012
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492,500 | $ | 0.10 | - | $ | 0.26 | $ | 0.21 | |||||||||
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Granted
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- | ||||||||||||||||
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Expired
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- | ||||||||||||||||
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Balance, March 31, 2013
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492,500 | 0.10 | - | 0.26 | 0.21 | ||||||||||||
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Weighted-average fair value of options granted during the three months ended
March 31, 2012
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$ | - | |||||||||||||||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
As used in this Form 10-Q, references to the "Company," "we," “our” or "us" refer to eRoomSystem Technologies, Inc. and subsidiaries, unless the context otherwise indicates.
This Management’s Discussion and Analysis or Plan of Operations (“MD&A”) section of our Quarterly Report on Form 10-Q discusses our results of operations, liquidity and financial condition, and certain factors that may affect our future results. You should read this MD&A in conjunction with our consolidated financial statements and accompanying notes included in this Quarterly Report.
Forward-Looking Statements
This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.
Certain information included herein contains statements that may be considered forward-looking statements, such as statements relating to our anticipated revenues, and operating results, future performance and operations, plans for future expansion, capital spending, sources of liquidity and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include, but are not limited to, those relating to our liquidity requirements, the continued growth of the lodging industry, the success of our product-development, marketing and sales activities, vigorous competition in the lodging industry, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions, the inherent uncertainty and costs of prolonged arbitration or litigation, and changes in federal or state tax laws or the administration of such laws.
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.
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. An alternative solution we offer is a turnkey arrangement. This arrangement not only provides refreshment centers at no upfront cost to our customers but also provides products and restockers.
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 May 14, 2012.
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 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.
Results of Operations
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% of revenues to some of the hotels. We expect that these revenues will account for a substantial majority of our revenues for the foreseeable future. We also generate revenues from 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 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.
We have a diversification strategy to invest in emerging growth companies. We continue to explore opportunities and perform due diligence on third parties with respect to potential investments. At this time, we have 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.
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 objective 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. There can be no assurance that such costs will not increase and that our objective will be met.
Description of Expenses
Cost of product sales consists primarily of cost of goods and labor as well as remaining basis on the 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 well as research and development for new products. Research and development expenses in the three months ended March 31, 2013 and 2012 were $38,076 and $30,347, respectively.
In accordance with generally accepted accounting principles 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 capitalizable software development costs have not been material to date. We have charged our software development costs to research and development expense in our condensed consolidated statements of operations.
Comparison of Three Months Ended March 31, 2013 and 2012
Revenues
Product Sales — Revenue from product sales was $112,317 for the three months ended March 31, 2013, compared to $124,091 for the three months ended March 31, 2012, representing a decrease of $11,774, or 9.5%. The decrease in product sales revenues related to fluctuations of product sales from the minibars.
Maintenance Fees— Maintenance fees were $26,082 for the three months ended March 31, 2013, compared to $36,512 for the three months ended March 31, 2012, representing a decrease of $10,430, or 28.6%. The decrease in maintenance fee revenue related to the termination of hotels’ under maintenance service contracts.
Interest — Our income from interest was $2,229 for the three months ended March 31, 2013, compared to $3,593 for the three months ended March 31, 2012, representing a decrease of $1,364, or 38%. The decrease in interest income related to fluctuations in rates.
Cost of Revenue
Cost of Product Sales Revenue — Our cost of product sales revenue for the three months ended March 31, 2013 was $69,485, compared to $78,145 for the three months ended March 31, 2012, a decrease of $8,660, or 11.1%. The decrease in cost of product sales revenue relates to the decrease in product sales since March 31, 2012.
Cost of Maintenance Revenue — Our cost of maintenance revenue was $1,208 for the three months ended March 31, 2013, compared to $7,171 for the three months ended March 31, 2012, representing a decrease of $5,963, or 83.2%. The decrease in our cost of maintenance fee revenue related to the decrease in hotels under maintenance contracts.
The changes and percent changes with respect to our revenues and our cost of revenue for the three months ended March 31, 2013 and 2012 are summarized as follows:
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For the Three Months
Ended March 31, |
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2013
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2012
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Change
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Percent
Change
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REVENUE
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Product sales
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$ | 112,317 | $ | 124,091 | $ | (11,774 | ) | -9.5 | % | |||||||
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Maintenance fees
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26,082 | 36,512 | (10,430 | ) | -28.6 | % | ||||||||||
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Interest income
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2,229 | 3,593 | (1,364 | ) | -38.0 | % | ||||||||||
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Total Revenue
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140,628 | 164,196 | (23,568 | ) | -14.4 | % | ||||||||||
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COST OF REVENUE
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Product sales
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69,485 | 78,145 | (8,660 | ) | -11.1 | % | ||||||||||
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Maintenance
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1,208 | 7,171 | (5,963 | ) | -83.2 | % | ||||||||||
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Total Cost of Revenue
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$ | 70,693 | $ | 85,316 | $ | (14,623 | ) | -17.1 | % | |||||||
Although the preceding table summarizes the net changes and percent changes with respect to our revenues and our cost of revenue for the three months ended March 31, 2013 and 2012, the trends contained therein are limited and should not be viewed as a definitive indication of our future results.
Operating Expenses
Selling, General and Administrative — Selling, general and administrative expenses, including non-cash compensation expense, were $86,906 for the three months ended March 31, 2013, compared to $113,872 for the three months ended March 31, 2012, representing a decrease of $26,966, or 23.7%. The difference reflects our ongoing commitment to further reduce fixed overhead expenses.
Research and Development—Research and development expenses were $38,076 for the three months ended March 31, 2013, compared to $30,347 for the three months ended March 31, 2012 representing an increase of $7,729 or 25.5%. The increase was due to a step-up in research and development during the three months ended March 31, 2013.
Net Loss Attributable to Common Stockholders
We realized a net loss of $55,047 for the three months ended March 31, 2013, compared to $65,339 during the three months ended March 31, 2012. The $10,292 decrease in net loss during the three months ended March 31, 2013 related primarily to the decrease in selling, general and administrative costs during the three months ended March 31, 2013.
Liquidity and Capital Resources
At March 31, 2013, our principal sources of liquidity consisted of $1,906,953 of cash and working capital of $2,096,309, as compared to $1,962,572 of cash and working capital of $2,135,595 at December 31, 2012. In addition, our stockholders' equity was $2,601,162 at March 31, 2013, compared to stockholders' equity of $2,656,209 at December 31, 2012, a decrease of $55,047. The decrease in cash primarily reflects the net loss during the three months ended March 31, 2013.
Our accumulated deficit increased from $31,552,357 at December 31, 2012 to $31,607,404 at March 31, 2013. The $55,047 increase in accumulated deficit resulted directly from the net loss realized for the three months ended March 31, 2013.
Cash flow used in operations for the three months ended March 31, 2013 was $66,851 as compared to $105,529 provided in the same period ended March 31, 2012.
Investing activities for the three months ended March 31, 2013 provided net cash of $11,232, compared to $10,767 of net cash provided during the three months ended March 31, 2012.
There were no financing activities in the three months ended March 31, 2013 and 2012.
Contractual Cash Obligations and Commercial Commitments
There were no significant contractual cash obligations or commercial commitments either on or off balance sheet as of March 31, 2013.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer has reviewed the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. 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 1A. Risk Factors
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
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Exhibit No.
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Description
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31.1
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32.1
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101.INS*
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XBRL Instance Document
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101.SCH*
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XBRL Taxonomy Extension Schema Document
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document
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101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
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* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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eRoomSystem Technologies, Inc.
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(Registrant)
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Date: May 9, 2013
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By:
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/s/ David A. Gestetner
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Name:
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David A. Gestetner
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Title:
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President, Chief Executive Officer, Secretary,
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and Chairman of the Board
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(Principal Executive, Financial, and Accounting Officer)
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