UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eRoomSystem Technologies, Inc.
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(Exact name of registrant as specified in charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
87-0540713
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(I.R.S. Employer Identification Number)
1072 Madison Ave., Lakewood, NJ 08701, (732) 730-0116
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
David A. Gestetner, Chief Executive Officer, 1072 Madison Ave.,
Lakewood, NJ 08701 (732) 730-0116
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of proposed sale to public: As soon as practicable after the
effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registrations statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
Calculation of Registration Fee
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Proposed maximum Proposed maximum Amount of
Title of each class of securities Amount to be offering price per aggregate offering registration
to be registered registered unit(1) price(1) fee
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Common stock, $.001 par value 16,774,830 shares $0.42 $6,535,776 $770
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(1) Calculated pursuant to Rule 457 under the Securities Act of 1933.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment that specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until this registration statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine. The information in this prospectus is not complete
and may be changed without notice. The Selling Stockholders may not sell these
securities until the registration statement relating to these securities has
been declared effective by the Securities and Exchange Commission. This
prospectus is neither an offer to buy nor a solicitation of an offer to buy
these securities in any jurisdiction where the offer or sale is unlawful.
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 2005
PROSPECTUS
16,144,157 Shares of Common Stock on behalf of Selling Stockholders
505,898 Shares of Common Stock on behalf of Option Holders
124,775 Shares of Common Stock on behalf of Warrant Holders
[ eROOMSYSTEM LOGO ]
This prospectus relates to the registration of an aggregate of
16,774,830 shares of common stock of eRoomSystem Technologies, Inc., consisting
of 16,144,157 shares of common stock on behalf of selling stockholders, 505,898
shares of common stock on behalf of option holders, and 124,775 shares of common
stock on behalf of warrant holders. Selling stockholders, option holders upon
exercise of their options, and warrant holders upon exercise of their warrants,
may from time to time offer to sell their respective shares of common stock.
We are not selling any shares of common stock on behalf of selling
stockholders, option holders or warrant holders. Further, we will not receive
any cash or other proceeds in connection with the sale of shares by selling
stockholders. If all of the options held by option holders, and warrants held by
warrant holders, are exercised through the payment of cash, we will receive
proceeds of $198,834 from such option and warrant exercises.
For a detailed discussion of selling stockholders, option holders and
warrant holders, see the section entitled "Selling Stockholders, Option Holders
and Warrant Holders" beginning on page 12.
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The common stock of eRoomSystem Technologies, Inc. is quoted on the
Over the Counter Bulletin Board under the symbol "ERMS". As of September 16,
2005, the last reported sale price of the common stock of eRoomSystem
Technologies was $0.42.
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These securities are speculative. Investing in our common stock
involves a high degree of risk. See "Risk Factors" beginning on page 6.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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September 16, 2005
[INSIDE FRONT COVER]
[This page will be blank in the final prospectus]
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. You should read the entire prospectus carefully, including
"Risk Factors" and our financial statements before making an investment
decision.
Our Business
eRoomSystem Technologies, Inc. is a Nevada corporation incorporated on
August 31, 1999. 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. Future products
and services may include information management services, additional in-room
energy management capabilities, credit card/smart card capabilities for direct
billing and remote engineering and maintenance services.
Our 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. Following the establishment of our core business, we also intend
to market this information to suppliers of goods sold in our eRoomServ
refreshment centers and to other users desiring information on the buying
patterns of hotel guests for goods and services.
Currently, we have 11,396 eRoomServ refreshment centers, 6,905
eRoomSafes and 501 eRoomEnergy Management products installed and active at a
total of 34 hotel properties. Of this amount, 6,630 refreshment centers and
4,140 eRoomSafes are installed pursuant to revenue sharing or fixed-payment
agreements.
In addition to our core competencies noted above, on May 20, 2005 we
invested $10,000 in Identica Corporation, an Ontario, Canada based entity, or
Identica, by purchasing 1,666,667 shares of common stock, or $0.006 per share.
Identica Corporation, or Identica is a distributor and integrator of
next-generation biometric security solutions, including the TechSphere hand
vascular pattern biometric technology. This technology, unlike other biometric
products, offers superior performance by eliminating degradation typically found
with other solutions as a result of dryness, scars and contamination of the
hand. Identica's products and services have been designed to eliminate the
threat of security breaches by protecting companies against unauthorized access
and fraudulent activities. The identity security solutions offered by Identica
have been developed by leading biometric security vendors and are exclusively
distributed by Identica in North America. Our $10,000 investment in Identica
represents 10% of Identica's outstanding capital stock on a fully-diluted basis.
In addition, we have loaned Identica $150,000 in cash. The loan is secured by a
security interest in all the assets of Identica and is evidenced by a promissory
note. In consideration for making the loan, we were issued a warrant to purchase
one million (1,000,000) shares of common stock of Identica, exercisable at $0.15
per share at any time through May 20, 2010. We may make additional investments
in privately-held and publicly traded emerging growth stage companies in the
future.
-4-
For additional information with respect to eRoomSystem Technologies,
our business and our products, please review the information provided in the
reports and other documents that we file with the Securities and Exchange
Commission, or the Commission, as described under "Where You Can Find More
Information" on page ___ of this prospectus.
The Offering
Common stock offered by selling stockholders: 16,144,157 shares
Common stock offered by option holders: 505,898 shares
Common stock offered by warrant holders: 124,775 shares
Common stock to be outstanding after the offering: 25,146,467 shares
Use of proceeds: eRoomSystem Technologies will not receive any of the
proceeds from the sale of common stock by selling
stockholders, but will receive the aggregate exercise
price of all options exercised by option holders and
warrants exercised by warrant holders.
Over The Counter Bulletin Board symbol: "ERMS"
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This prospectus relates to the registration of an aggregate of
16,144,157 shares of common stock of eRoomSystem Technologies, Inc. that are
held by the selling stockholders, 505,898 shares of common stock underlying
options, and 124,775 shares of common stock underlying warrants, as identified
in this prospectus. Selling stockholders consist of persons or entities that
purchased shares of our common stock pursuant to a private placement consummated
during the first quarter of 2002, parties that converted secured convertible
promissory notes on September 1, 2005 and parties that exercised warrants on
September 7, 2005. Option holders and warrant holders consist of board members,
employees, key consultants, and financiers to the Company. For a detailed
discussion of selling stockholders, option holders and warrant holders, please
see "Selling Stockholders, Option Holders and Warrant Holders" beginning on page
12.
The number of shares of common stock to be outstanding after the
offering is based on the number of shares outstanding as of the close of
business on September 16, 2005, and also includes a total of 630,673 shares of
common stock underlying the options held by option holders and the warrants held
by warrant holders.
Selling stockholders may from time to time offer to sell their
respective shares of common stock. Option holders and warrant holders may from
time to time exercise their options and warrants, respectively, and sell the
underlying shares of common stock. All of the shares to be offered by selling
stockholders, and option holders and warrant holders upon exercise, must include
the delivery of a copy of this prospectus to persons who buy such shares.
Selling stockholders, as well as option holders and warrant holders upon
exercise, will probably sell the shares at prevailing market prices through
broker-dealers, although they are not required to do so. Selling stockholders
will retain all of the proceeds of their sales, except for commissions they may
pay to broker-dealers. Option holders and warrant holders will receive, upon
exercise, the gross proceeds of the sale of the shares underlying the options
and warrants, respectively, less commission they pay to broker-dealers as well
as the exercise price on such options and warrants, which will be paid to the
Company. If all of the options and warrants referred to herein are exercised
with cash, the Company will receive $198,834 from such exercises.
Unless otherwise noted, all information contained in this prospectus
assumes that:
-5-
o All of the shares of common stock held by selling stockholders will
be sold in this offering.
o All of the options held by option holders and warrants held by
warrant holders will be immediately exercised with cash and all of
the resulting shares of common stock will be sold in this offering.
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information contained in this
prospectus, including our financial statements and the related notes, before you
purchase any shares of our common stock. The following risks, if any should
occur, could materially harm our business, financial condition or future results
of operations. If that occurs, the trading price of our common stock could
decline, and you could lose all or part of your investment.
Risks Related to eRoomSystem Technologies
Although we realized net income in fiscal 2004, as well as the six
months ended June 30, 2005, we have a history of significant operating losses
and may experience operating losses in the future, and maintaining profitability
is not assured
We have a history of significant operating losses and may realize
operating losses in the future. For the year ended December 31, 2004, we
realized net income of $900,072, as compared to a net loss of $1,721,835 for the
year ended December 31, 2003. In 2004, however, $612,764 of our net income
related to a one-time gain on forgiveness of liabilities and debt. We do not
anticipate that we will realize this type of gain in the future, if at all. For
the years ended December 31, 2004 and 2003, our operations have provided
$730,322 and $186,718 of cash, respectively. As of December 31, 2004 and 2003,
we had accumulated deficits of $31,807,433 and 32,707,505, respectively.
If our revenues decline or fail to increase at a measurable rate, or if
our future spending exceeds our expectations or cannot be adjusted to reflect
slower revenue growth, our business will be severely harmed. We cannot assure
you that revenues will grow in the future or that we will continue to generate
sufficient revenues to sustain profitability on an ongoing basis.
Although we have recently made an investment in a privately held
corporation, and may make additional investments in emerging growth companies in
the future, there can be no assurance that the existing investment, or future
investments, will be profitable, if at all.
In April 2005, we invested the sum of $10,000 in Identica for 1,666,667
shares of common stock. In addition, we loaned Identica $150,000, evidenced by a
promissory note secured by all of the assets of Identica. We also received a
warrant to purchase One Million (1,000,000) shares of common stock of Identica,
exercisable at $0.15 per share at any time through May 20, 2010.
The Identica investment is our first investment in a third party
entity. There can be no assurance that we will realize a return on our
investment, and it is possible that we could lose our entire investment. In the
event existing or future investments result in a loss, our business condition
and financial results will be materially impacted.
-6-
Our existing revenue sharing and maintenance contracts with hotel
properties will decrease as such contracts expire, and we can expect,
accordingly, that our revenue will decrease in future financial periods as a
result
We currently 6,630 refreshment centers and 4,140 eRoomSafes installed
pursuant to revenue sharing or fixed-payment agreements. The average remaining
term on the foregoing contracts is approximately three years. Accordingly, as
these contracts expire, unless we enter into continuing lease agreements with
the applicable hotel properties, our revenue will decrease. As our revenue
decreases, our overall financial condition will be impacted unless we replace
such revenues with other revenue sources. There can be no assurance that we will
be successful in doing so. To the extent we are not, our financial condition and
results of operations will be negatively affected.
Given that we have not had any recent placements of new refreshment
centers, electronic safes or energy management systems for installation in hotel
properties, it is of critical importance that we derive new revenue streams from
alternative sources
As our most recent placement of automated refreshment centers occurred
in the third quarter of 2002, it is imperative that we realize revenues from new
sources, particularly given that most of our current contracts have fixed-terms
and will ultimately terminate. The recent investment in Identica, along with
possibly making similar investments in other emerging growth companies in the
future, may not be sufficient to offset decreasing revenue and maintain
profitability. If any of the foregoing should occur, our business condition and
results of operations will be materially impacted.
We have effected several reductions-in-force in the past several years
to reduce fixed overhead expenses, effectively eliminating more than forty
positions, and given the current composition of employees the loss of additional
key personnel would seriously impact our operations
We are dependent upon the abilities and efforts of certain personnel,
particularly David A. Gestetner. Our future success will depend in part upon our
ability to attract and retain qualified personnel to fill key field operations,
sales and management positions. We currently do not carry key man life insurance
on any of our key personnel, and we have no intention of doing so in the near
future. There can be no assurance that we will be able to locate and retain
replacement personnel in the event of the loss of any such key individuals.
In addition, we are currently utilizing Identica Corporation to provide
technical support for our customers. Our future success will depend in part on
their ability to provide this support. There can be no assurance that we will be
able to locate and retain a replacement technical support team in the event
Identica should be unable to fulfill their obligations.
Although we have entered into confidentiality and non-compete
agreements with our employees and consultants, if we are unable to protect our
proprietary information, such as the software and the hardware for our
eRoomSystem technology and the information collected, against unauthorized use
by others, our competitive position could be harmed
We believe our proprietary information, including the software and the
hardware for our eRoomSystem technology and the information collected is
important to our competitive position and is a significant aspect of the
products and services we provide. If we are unable to protect our proprietary
information against unauthorized use by others, our competitive position could
be harmed. We enter into confidentiality and/or non-compete agreements with our
employees and consultants, and control access to and distribution of our
documentation and other proprietary information. Despite these precautions, we
cannot assure you that these strategies will be adequate to prevent
misappropriation of our proprietary information. We could be required to expend
significant amounts to defend our rights to proprietary information.
-7-
Risks Related to Our Industry
We rely on the economic health of the lodging industry to generate
sales and revenues, and any condition that may adversely impact the casino
industry will adversely impact us
Nearly all of our revenue is generated by our products installed at
hotels. The economic health of the lodging industry, and, therefore, our
revenues, are affected by a number of factors beyond our control, including:
o general economic conditions;
o levels of disposable income of the hotel patrons;
o acts of terrorism and anti-terrorism efforts;
o increased transportation costs resulting in decreased travel by
patrons and decreased hotel occupancy and RevPar;
o changes or proposed changes in tax laws;
o legal and regulatory issues affecting the development, operation
and licensing of hotels; and
o competitive conditions in the lodging industry, including the
effect of such conditions on the pricing of products and supplies
to hotels;
These factors may impact the demand for our products and could
materially affect revenues that we realize from our revenue sharing contracts.
Risks Related to Our Common Stock
We may require additional financing in the future which, if it occurs,
will require the sale of debt or equity securities to provide our operations
with the necessary working capital, and which invariably will have the effect of
diluting the relative ownership of our existing stockholders
We may require additional financing in the future to fund our
operations. Such financing could be in the form of common stock, preferred stock
or convertible debt. The issuance of additional equity or convertible debt
securities will have the effect of reducing the percentage ownership of our
current stockholders. In addition, such equity or convertible debt securities
may have additional rights, preferences or privileges to those of our common
stock, such as registration rights. If the foregoing should occur, we cannot
assure our stockholders that the additional funds will be available on favorable
terms, if at all.
Our executive officers and members of our board of directors
beneficially own approximately 40.4% of the outstanding shares of our common
stock and could limit the ability of our other stockholders to influence the
outcome of director elections and other transactions submitted to a vote of
stockholders
Our executive officers and members of our board of directors
beneficially own 10,147,060 shares of common stock, or approximately 40.4% of
the outstanding shares of our common stock. These stockholders may have the
power to influence all matters requiring approval by our stockholders, including
the election of directors and approval of mergers and other significant
corporate transactions.
-8-
Our stock price may fall as a result of the 16,774,830 shares of common
stock that are being registered in the offering as well as due to all other
outstanding shares being registered or available for resale under Rule 144
Of the 25,146,467 shares of common stock outstanding as of the close of
business on September16, 2005, inclusive of the shares of common stock
underlying the options and warrants referred to herein, 321,875 shares have been
registered pursuant to a prior selling stockholder registration statement,
1,800,000 shares were sold pursuant to our initial public offering, and a total
of 16,774,830 shares of common stock are being registered in the offering. The
foregoing represents 18,896,705 shares, representing 75.1% of our outstanding
shares of common stock, and will be immediately available for resale upon the
registration statement being declared effective.
In addition to the foregoing shares, 6,249,762 shares of common stock,
or 24.9% of our outstanding shares of common stock, are available for resale in
accordance with Rule 144(k) under the Securities Act. These shares, along with
the shares of common stock sold in our initial public offering, the shares
registered in the prior selling stockholder offering, and the shares of common
stock being registered hereunder represent 100% of our outstanding shares of
common stock.
As of September 16, 2005, exclusive of the shares being registered
herein, we had options and warrants outstanding to purchase 2,881,948 shares of
common stock at a weighted average exercise price of $0.28 per share, all of
which are immediately exercisable.
The sale of a substantial number of shares of our common stock within a
short period of time could cause our stock price to fall. In addition, the sale
of these shares could impair our abilities to raise capital through the sale of
additional common stock in the future should we need to do so.
-9-
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Some of the information in this prospectus contains forward-looking
statements within the meaning of the federal securities laws. These statements
include, among others, the following:
o the implementation of our investment strategy of investing in
emerging growth companies with solid growth prospects; and
o our projected capital expenditures.
These statements may be found under "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Determination of Offering Price," "Dividend
Policy," "Selling Stockholders, Option Holders and Warrant Holders," "Plan of
Distribution" and "Business." Forward-looking statements typically are
identified by use of terms such as "may," "will," "would," "expect,"
"anticipate," "estimate" and similar words, although some forward-looking
statements are expressed differently. You should be aware that our actual
results could differ materially from those contained in forward-looking
statements due to a number of factors, including:
o our ability to maintain our revenue sharing and maintenance
program;
o our ability to continuously modify and update our software;
o our success of the emerging growth companies that we invest in; and
o general economic and business conditions in our markets and
industry.
You should also consider carefully the statements under "Risk Factors"
and other sections of this prospectus, which address additional factors that
could cause our actual results to differ from those set forth in the
forward-looking statements.
-10-
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of our
common stock by selling stockholders. Assuming all options and warrants referred
to herein are exercised with cash, we will receive $198,834 from such exercises.
There is no assurance that any of the options or warrants will be exercised or,
if exercised, exercised through the payment of cash. To the extent that options
and warrants are exercised through the payment of cash, the proceeds received
will be used for general working capital purposes.
Although we have agreed to bear the expenses of the registration of the
shares of common stock registered pursuant to this registration statement, we
will not be responsible for any commissions and discounts of agents or
broker-dealers and transfer taxes, if any, incurred by selling stockholders,
option holders or warrant holders.
DETERMINATION OF OFFERING PRICE
Prior to August 3, 2000, there was no public market for our common
stock. In conjunction with our initial public offering, our common stock was
accepted for listing on the Nasdaq SmallCap Market under the trading symbol
"ERMS". In 2003, our common stock was delisted from the Nasdaq SmallCap Market
due to failing to satisfy the minimum bid requirements. Our common stock is
currently quoted on the Over the Counter Bulletin Board. The following table
sets forth the high and low bid information of our common stock, as reported on
the Over the Counter Bulletin Board during the periods indicated:
Calendar Quarter Ended Low High
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September 30, 2003 $0.1100 $0.2100
December 31, 2003 $0.1100 $0.3300
March 31, 2004 $0.1500 $0.2300
June 30, 2004 $0.1500 $0.4000
September 30, 2004 $0.3100 $0.4400
December 31, 2004 $0.2300 $0.3900
March 31, 2005 $0.2200 $0.3500
June 30, 2005 $0.1900 $0.4800
July 1, 2005 through September 16, 2005 $0.3000 $0.4400
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The last reported sale price of our common stock on the Over The
Counter Bulletin Board as of September 16, 2005 was $0.42 per share. We are not
aware of any public market for our options or warrants.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
Our board presently, and for the foreseeable future, intends to retain all of
our earnings, if any, for the development of our business. 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, our general financial condition and
any other factors that our board considers important. Investors should not
purchase our common stock with the expectation of receiving cash dividends.
-11-
SELLING STOCKHOLDERS, OPTION HOLDERS AND WARRANT HOLDERS
Selling stockholders consist of persons or entities that (i) purchased
shares of our common stock pursuant to a private placement consummated during
the first quarter of 2002, (ii) converted secured convertible promissory notes
into shares of common stock on September 1, 2005, (iii) exercised warrants to
purchase shares of common stock on September 7, 2005, (iv) exercised options to
purchase common stock, and (v) were issued shares of common stock for services
rendered. Selling stockholders hold 16,144,157 shares of common stock being
registered herein. Option holders consist of members of our board of directors,
employees, key consultants and other third parties who hold options to purchase
an aggregate of 505,898 shares of common stock. Warrant holders consist of
persons or entities that have either provided financing to the Company or
consulting services. Warrant holders hold warrants to purchase an aggregate of
124,775 shares of common stock.
The table below sets forth, in the following order, the name of each
selling stockholder, option holder and warrant holder. For each of the foregoing
parties, the table provides the aggregate number of shares of common stock
beneficially owned by each person as of the close of business on September 16,
2005, the aggregate number of shares of common stock that each selling
stockholder, option holder and warrant holder may offer and sell pursuant to
this prospectus, the aggregate number of shares of common stock beneficially
owned after the offering and the percentage ownership of the outstanding shares
of our common stock for each selling stockholder, option holder and warrant
holder after the offering. Percentage ownership of less than 0.02% is indicated
with an asterisk (*).
The information with respect to beneficial ownership of common stock
held by each person or entity in the table below is based upon record ownership
data provided by our transfer agent, American Stock Transfer & Trust Company,
information as supplied or confirmed by selling stockholders, option holders and
warrant holders, or based upon our actual knowledge.
NAME OF SELLING NUMBER OF NUMBER OF NUMBER OF PERCENTAGE OF
STOCKHOLDER, OPTION SHARES SHARES SHARES OUTSTANDING
HOLDER AND BENEFICIALLY OFFERED AFTER THE SHARES AFTER
WARRANT HOLDERS HELD HEREBY OFFERING THE OFFERING
- ------------------------------------------- ------------ ---------- --------- -------------
Selling Stockholders
AK Holdings, LLC 300,000 300,000 0 *
Ash Capital, LLC 4,333,595 3,250,166 1,083,429 4.31%
Maurice Brenig 575,494 575,494 0 *
Cameron Capital Ltd. 96,154 96,154 0 *
Andrew Finkelstein 28,847 28,847 0 *
S. Leslie Flegel 287,513 96,154 191,359 0.76%
Hannah Sarah Frenkel 575,494 575,494 0 *
Evelyn Gestetner 589,530 589,530 0 *
Gestetner Group LLC 5,157,644 5,153,644 4,000 0.02%
Herbert Hardt 575,821 126,154 449,667 1.79%
Anthony Heller 150,000 150,000 0 *
David Heller 575,494 575,494 0 *
Helmsbridge Holdings Limited 421,093 421,093 0 *
Rose Kaminer 575,494 575,494 0 *
Maxine B. Lobel 48,077 48,077 0 *
Peter S. Lynch 769,231 769,231 0 *
John O'Donnell, Jr. 19,231 19,231 0 *
Liba Pappenheim 575,494 575,494 0 *
John J. Prehn 284,977 192,308 92,669 0.37%
Providence Management, LLC 34,192 19,231 14,961 0.06%
Adele Schwartz 575,494 575,494 0 *
-12-
NAME OF SELLING NUMBER OF NUMBER OF NUMBER OF PERCENTAGE OF
STOCKHOLDER, OPTION SHARES SHARES SHARES OUTSTANDING
HOLDER AND BENEFICIALLY OFFERED AFTER THE SHARES AFTER
WARRANT HOLDERS HELD HEREBY OFFERING THE OFFERING
- ------------------------------------------- ------------ ---------- --------- -------------
Selling Stockholders (continued)
Myles Seideman 48,077 48,077 0 *
SKM Investments, LLC 238,785 96,154 142,631 0.57%
Jay Smith 10,000 10,000 0 *
Jeff State 48,077 48,077 0 *
Tamrio, Inc. 48,077 48,077 0 *
Lawrence K. Wein 80,000 30,000 50,000 0.20%
Leah Weinstein 575,494 575,494 0 *
Frieda Wolman 575,494 575,494 0 *
- ------------------------------------------- ------------ ---------- --------- -------------
Subtotal of Selling Stockholders
(As a group) 18,172,873 16,144,157 2,028,716 8.07%
- ------------------------------------------- ------------ ---------- --------- -------------
Name of Option Holder
Mark Ames 3,334 3,334 0 *
Nate Begay 19,875 10,000 9,875 0.04%
Donna Best 3,334 3,334 0 *
Fred Brecke 3,334 3,334 0 *
Dan Bird 35,000 30,000 5,000 0.02%
Ryan Brooks 15,000 10,000 5,000 0.02%
Teri Bunker 6,667 6,667 0 *
Jerico Donovan 20,226 20,000 226 *
Kathy Garland 3,334 3,334 0 *
Hall Communications, Inc. 200,000 200,000 0 *
John Kendall 29,750 15,000 14,750 0.06%
Marshall Mitchell 10,000 10,000 0 *
Monness, Crespi, Hardt & Co. 100,000 100,000 0 *
Steve Parkinson 3,334 3,334 0 *
Joy Ramsey 25,000 15,000 10,000 0.04%
Michael Staheli 5,000 5,000 0 *
Douglas Seastrand 130,000 30,000 100,000 0.40%
Lawrence S. Schroeder 78,857 894 77,963 0.31%
Tom Thomas 10,000 10,000 0 *
Ron Ward 10,000 10,000 0 *
Jack Warren 6,667 6,667 0 *
April Weeda 10,000 10,000 0 *
- ------------------------------------------- ------------ ---------- --------- -------------
Subtotal of Option Holders 728,712 505,898 222,814 0.89%
- ------------------------------------------- ------------ ---------- --------- -------------
Name of Warrant Holder
Ash Capital, LLC 4,333,595 53,775 4,279,820 17.02%
Herbert Hardt 575,821 25,000 550,821 2.19%
Paul Schreiber 6,000 6,000 0 *
SSM Distributors 40,000 40,000 0 *
------------ ---------- --------- -------------
Subtotal of Warrant Holders 4,955,416 124,775 4,830,641 19.21%
- ------------------------------------------- ------------ ---------- --------- -------------
TOTAL 18,847,585 16,774,830 7,082,171 8.68%
- ------------------------------------------- ------------ ---------- --------- -------------
-13-
COMMON STOCK ISSUED TO SELLING STOCKHOLDERS
The shares of common stock being registered in this offering on behalf
of selling stockholders were issued in conjunction with (i) the exercise of an
option to purchase 300,000 shares of our common stock on December 31, 2001 by AK
Holdings, LLC, (ii) our private placement of common stock that closed on March
8, 2002, (iii) extraordinary services provided by Herbert A. Hardt and Lawrence
K. Wein, each of which serve on our board of directors, (iv) the conversion of
secured promissory notes by the Gestetner Group, LLC, Ash Capital, LLC and ten
other parties, on September 1, 2005, (v) the exercise of warrants to purchase
shares of common stock effected by the Gestetner Group, LLC, and ten other
parties, on September 7, 2005.
On December 31, 2001, we issued an option to purchase 300,000 shares of
common stock, or the AK Holdings Warrant, to AK Holdings, LLC, or AK Holdings,
for consulting services rendered. AK Holdings is an affiliate of Ash Capital,
LLC, which is wholly owned by Alan C. Ashton, a former member of our board of
directors, and is managed by Providence Management, LLC, or Providence, an
entity that is managed by James C. Savas, a current member of our board of
directors. The AK Holdings Warrant was exercised on December 31, 2001 pursuant
to a fully recourse promissory note, or the AK Holdings Note, which matures on
December 31, 2005 and bears interest at the rate of 5% per annum. The AK
Holdings Warrant included registration rights on the shares of underlying common
stock. The issuance of the AK Holdings Warrant was made in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.
On March 8, 2002, we closed a private placement which resulted in the
issuance of 2,723,139 shares of common stock at a price of $0.52 per share, for
gross proceeds of $1,416,032. The private placement was priced as of the closing
price of our common stock, as then quoted on the Nasdaq SmallCap Market, on
February 20, 2002. Of the 2,723,139 shares issued in the private placement,
Herbert A. Hardt, a current member of our board of directors, purchased 96,154
shares of common stock. In addition, S. Leslie Flegel and John J. Prehn, each of
whom previously served on our board of directors, purchased 96,154 shares and
192,308 shares, respectively. Further, Ash Capital, LLC, or Ash Capital, an
entity affiliated with Dr. Alan C. Ashton, a former member of our board of
directors, and Providence Management, LLC, an entity affiliated with James C.
Savas, a current member of our board of directors, purchased 384,616 and 19,231
shares, respectively. As part of the terms and conditions of the private
placement, we agreed to register all of the shares of common stock purchased by
the investors therein. Of the 2,723,139 shares sold in the private placement,
2,180,388 shares are being registered herein. The remaining shares were
previously sold pursuant to the exemption from securities registration provided
by Rule 144(k) provided by the Securities Act of 1933, as amended, or the
Securities Act. The issuance of the securities in the private placement was made
in reliance upon the exemption from securities registration provided by Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
We did not engage any underwriters with respect to the private placement of our
common stock.
On March 29. 2004, we issued 30,000 shares of common stock to each of
Herbert A. Hardt and Lawrence K. Wein for extraordinary services performed as
members of our board of directors. In connection with the foregoing issuances of
common stock, we agreed to register the shares issued to Messrs. Hardt and Wein.
The issuance of the securities to Messrs. Hardt and Wein was made in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act.
On September 1, 2005, Gestetner Group, LLC, Ash Capital, LLC, or Ash
Capital, and ten other parties, converted their secured convertible promissory
notes, in the original principal amount of $597,500, plus accrued interest of
$120,743, into 8,633,769 shares of common stock. The notes in the cumulative
amount of $250,000 to Gestetner Capital, LLC and ten other parties, were
originally issued on October 1, 2003 and were converted at $0.05 per share. .
The Ash Capital Note, which relates to loans of $322,500 and $25,000 made to us
from November 8, 2002 through February 28, 2003 and on August 22, 2003,
respectively, was converted at $0.15 per share. As part of the loans made by
Gestetner Group, LLC, Ash Capital and ten other parties, we provided
registration rights on the shares of common stock issued upon conversion. The
issuance of the notes was made in reliance upon the exemption from securities
registration provided by Section 4(2) of the Securities Act.
-14-
On September 7, 2005, Gestetner Group, LLC and ten other parties
exercised warrants to purchase a total of 5,000,000 shares of common stock. The
exercise price on the warrants was $0.05 per share. The issuance of the warrants
were made in conjunction with the issuance of the notes to Gestetner Group, LLC
and ten other parties on October 1, 2003, and included registration rights on
the shares of common stock underlying them. The issuance of the warrants was
made in reliance upon the exemption from securities registration provided by
Section 4(2) of the Securities Act.
OPTIONS ISSUED TO OPTION HOLDERS
The shares of common stock being registered in this offering on behalf
of option holders were originally granted on December 31, 2001 in the form of
stock options in reliance upon the exemption from securities registration
provided by Section 4(2) of the Securities Act. With the exception of the option
issued to Hall Communications, Inc., the options were issued as compensation for
services rendered by members of our board of directors, employees and
consultants. All of the options have an exercise price of $0.26 per share, the
closing price of our common stock on December 31, 2001. The options were issued
to the following persons in the following amounts:
o Option to purchase 100,000 shares of common stock to Monness,
Crespi, Hardt & Co. exercisable through December 31, 2011. Herbert
A. Hardt, a member of our board of directors, serves as a principal
and significant owner of Monness Crespi, Hardt & Co. The option was
issued for services pursuant to a consulting agreement.
o Option to purchase 200,000 shares of common stock to Hall
Communications, Inc. pursuant to the terms of a settlement
agreement. The option expires on December 31, 2005.
o Options to purchase an aggregate of 205,898 shares of common stock
to nineteen of our then existing employees. The options are
exercisable through December 11, 2011.
WARRANTS ISSUED TO WARRANT HOLDERS
The shares of common stock being registered in this offering on behalf
of warrant holders were made in reliance upon the exemption from securities
registration provided by Section 4(2) of the Securities Act. Each of the
warrants noted below included registration rights. The warrants were issued to
the following persons in the following amounts:
o Warrant to purchase 40,000 shares of common stock to SSM
Distributors. The warrant was issued on March 11, 2004 in
consideration for an outstanding obligation. The warrant is
exercisable at $0.25 and expires on March 11, 2007.
o Warrant to purchase 6,000 shares of common stock in favor of Paul
Schreiber for consulting services. The warrant was issued on
November 15, 2004 at an exercise price of $0.26 per share. The
warrant expires on November 15, 2007.
o Warrant to purchase 25,000 shares of common stock issued to Herbert
A. Hardt, a member of our board of directors. The warrant was issued
on August 9, 2005 in consideration for extraordinary services
provided by Mr. Hardt. The warrant is exercisable at $0.35 and
expires on August 9, 2010.
-15-
o Warrant to purchase 53,775 shares of common stock was issued to Ash
Capital, LLC, an entity wholly owned by Dr. Alan C. Ashton, a former
member of our board of directors, and managed by Providence
Management, LLC, an entity co-managed by James C. Savas, a current
member of our board of directors. The warrant, which was formally
issued on September 1, 2005, exercisable at $0.13 per share through
October 1, 2008, relates to Ash Capital's agreement on October 1,
2003 to extend the maturity date of its secured convertible
promissory note in the original principal amount of $347,500 which
was mature on such date. The warrant issuance was based on a
formula, the quotient of which was not ascertainable until September
1, 2005.
Except as otherwise, indicated, all securities are owned directly by
each selling stockholder, option holder and warrant holder. The total numbers
set forth in the table above have been adjusted to account for the inclusion of
the shares beneficially owned by Ash Capital, LLC, Gestetner Group, LLC, Herbert
A. Hardt and Lawrence K. Wein. In addition, the beneficial ownership is
calculated based on 25,146,467 shares of our common stock outstanding after the
offering. Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Unless otherwise indicated, each person or entity named in the table
has sole voting power and investment power, or shares voting and investment
power with his or her spouse, with respect to all shares of capital stock listed
as owned by such person. Shares issuable upon the exercise of options that are
currently exercisable, or become exercisable within sixty days of September 16,
2005, are considered outstanding for the purpose of calculating the percentage
of outstanding shares of our common stock held by the individual, but not for
the purpose of calculating the percentage of outstanding shares of our common
stock held by another individual. The information with respect to beneficial
ownership of common stock held by each person is based upon record ownership
data provided by our transfer agent, information as supplied or confirmed by
selling stockholders or based upon our actual knowledge.
Because each selling stockholder may offer all or a portion of the
shares of common stock offered by this prospectus at any time, and from time to
time after the date hereof, no estimate can be made of the number of shares that
each selling stockholder may retain upon completion of this offering. However,
upon the assumption that all of the shares offered by this prospectus are sold
after completion of this offering, selling stockholders, option holders and
warrant holders who will beneficially own more than one percent of the shares of
common stock outstanding are Ash Capital, LLC and Hebert A. Hardt.
-16-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH SELLING STOCKHOLDERS,
OPTION HOLDERS AND WARRANT HOLDERS
The following describes our relationships and related transactions with
certain selling stockholders, option holders and warrant holders, including our
executive officer, our existing and former outside directors and certain
consultants.
TRANSACTIONS INVOLVING GESTETNER GROUP, LLC
On October 1, 2003, the Company issued secured convertible promissory
notes, or the Notes, in the original principal amount of $250,000, collectively,
to Gestetner Group, LLC, a New Jersey limited liability company, and ten other
parties. David A. Gestetner, our Chief Executive Officer, President and Chairman
of the Board, serves as the manager of the Gestetner Group, LLC.
The terms of the Notes provide, among other things, (i) for interest to
accrue at the rate of 8% per annum, (ii) a maturity date of the earlier of (a)
October 1, 2008, (b) the date of approval of the board of directors regarding a
merger between us and any third party or the sale of all or substantially all of
our assets, or (c) the date of the closing of any financing (other than
commercial credit facilities), the gross proceeds of which are at least
$1,000,000, (iii) the right of the noteholders, at any time, to convert all
outstanding principal and accrued and unpaid interest into shares of common
stock of the Company at the rate of $0.05 per share, and (iv) registration
rights with respect to all shares issued upon conversion of the Notes. In
addition, the noteholders have been issued, collectively, warrants to purchase
5,000,000 shares of common stock of the Company, exercisable at $0.05 per share
at any time through October 1, 2008, or the Warrants. The Warrants included
registration rights with respect to the underlying shares of common stock.
In connection with the foregoing, the Gestetner Group, LLC provided
$50,000 of the $250,000 in loans. The $50,000 loan is evidenced by a convertible
secured promissory note on the terms set forth above. In addition, Gestetner
Group, LLC was issued a warrant to purchase 4,000,000 shares of common stock, of
the total 5,000,000 Warrants, on the terms set forth above.
On September 1, 2005, the Gestetner Group, LLC converted its $50,000
convertible secured promissory note, along with $7,682 in accrued interest, into
1,153,644 shares of common stock. The 1,153,644 shares of common stock are being
registered in the offering. In addition, each of the Noteholders converted their
respective secured convertible promissory notes, in the collective original
principal amount of $200,000, along with collective accrued interest of $30,729,
into a total of 4,614,575 shares. The 4,614,575 shares of common stock are being
registered in the offering.
On September 7, 2005, Gestetner Group, LLC exercised its warrant to
purchase 4,000,000 shares of common stock. The exercise price was $0.05 per
share and the Company received $200,000 from the exercise by the Gestetner
Group, LLC. In addition, on the same date, another ten holders of warrants
exercised their respective warrants to purchase a total of 1,000,000 shares of
common stock at $0.05 per share. The Company received $50,000 from such parties,
collectively. All 5,000,000 shares of common stock issued upon the exercise of
the warrants are being registered in the offering.
TRANSACTIONS INVOLVING MEMBERS OF OUR BOARD OF DIRECTORS
On June 13, 2002, Herbert A. Hardt and James C. Savas joined our board
as non-employee directors. On October 1, 2003, David A. Gestetner was named our
Chief Executive Officer, President and Chairman. On the same date, Lawrence K.
Wein joined our board as a non-employee director.
-17-
Upon joining our board of directors, Mr. Hardt was issued an option to
purchase 5,000 shares of common stock, exercisable at $1.02 per share for a
period of ten years, pursuant to our 2000 Stock Option and Incentive Plan, or
the Plan. On July 29, 2002, Mr. Hardt was issued an option to purchase 25,000
shares of common stock, exercisable at $0.37 per share for a period of ten
years, pursuant to the Plan. On March 29, 2004, we issued Mr. Hardt 30,000
shares of common stock for extraordinary services provided in the capacity of a
director. The 30,000 shares issued to Mr. Hardt are being registered in the
offering. On November 15, 2004, following our annual stockholders meeting, we
issued Mr. Hardt an option to purchase 25,000 shares of common stock,
exercisable at $0.26 per share for a period of ten years, pursuant to the Plan.
On August 9, 2005, we issued Mr. Hardt a warrant to purchase 25,000 shares of
common stock, exercisable at $0.35 per share for a period of five years, for
extraordinary services provided in the capacity of a director. The warrant
issued to Mr. Hardt included registration rights, and the shares underlying the
warrant are being registered in the offering.
Upon joining our board of directors, James C. Savas was issued an
option to purchase 5,000 shares of common stock, exercisable at $1.02 per share
for a period of ten years, pursuant to the Plan. On July 29, 2002, Mr. Savas was
issued an option to purchase 25,000 shares of common stock, exercisable at $0.37
per share for a period of ten years, pursuant to the Plan. On February 27, 2003,
we issued Mr. Savas the sum of 15,821 shares of common stock in consideration
for outstanding board of director meeting fees. On November 15, 2004, following
our annual stockholders meeting, we issued Mr. Savas an option to purchase
25,000 shares of common stock, exercisable at $0.26 per share for a period of
ten years, pursuant to the Plan.
Upon joining our board of directors, Mr. Wein was issued option to
purchase 25,000 shares of common stock, exercisable at $0.19 per share for a
period of ten years, pursuant to the Plan. On March 29, 2004, we issued Mr. Wein
30,000 shares of common stock for extraordinary services provided in the
capacity of a director. The 30,000 shares issued to Mr. Wein are being
registered in the offering. On November 15, 2004, following our annual
stockholders meeting, we issued Mr. Wein an option to purchase 25,000 shares of
common stock, exercisable at $0.26 per share for a period of ten years, pursuant
to the Plan.
TRANSACTIONS INVOLVING FORMER MEMBERS OF OUR BOARD OF DIRECTORS
Previously, Dr. Alan C. Ashton, S. Leslie Flegel, John J. Prehn and
Lawrence S. Schroeder served as non-employee directors. As non-employee
directors, they each received an attendance fee of $500 per board or committee
meeting attended. In addition, they each received stock options to purchase
25,000 shares of our common stock at each annual meeting of stockholders
conducted after 2001 for serving in such capacity. In addition, Dr. Alan C.
Ashton, through his wholly-owned entity, Ash Capital, LLC, purchased $200,000 of
common stock in the 2003 Private Placement, and was issued 384,616 shares
relating thereto. The 384,616 shares issued to Ash Capital, LLC are being
registered in the offering. Messrs. Flegel and Prehn purchased $50,000 and
$100,000 of common stock in our 2003 Private Placement, respectively. Messrs.
Flegel and Prehn were issued 96,154 and 192,308 shares of our common stock,
respectively, in conjunction with their investment and are being registered in
the offering. Mr. Flegel resigned from our board of directors on December 30,
2002. Mr. Schroeder resigned from our board of directors on February 12, 2003.
Dr. Alan C. Ashton completed his term as a member of our board of directors on
July 29, 2003. Mr. Prehn resigned from our board of directors on July 31, 2003.
-18-
TRANSACTIONS INVOLVING ASH CAPITAL, LLC
On August 17, 1999, we entered into an agreement of understanding with
Ash Capital, LLC, or Ash Capital, in connection with the purchase by Ash Capital
of 333,334 shares of our Series B convertible preferred stock at a price of
$3.00 per share. In addition, this agreement provided Ash Capital with
representation on our board and options to purchase 70,313 shares of our common
stock at $4.80 per share and 56,250 shares of our common stock at $8.80 per
share. The agreement of understanding was later amended by an agreement which
increased the amount of our shares of Series B convertible preferred stock to be
purchased as follows: Ash Capital - 333,334 shares; C&W/RSI Partners - 133,334
shares; SKM Investments, LLC - 133,334 shares; and Thunder Mountain Properties
LC - 83,334 shares. In addition, the shares of Series B convertible preferred
stock purchased by these investors possessed the same rights as other shares of
our Series B convertible preferred stock. Upon the consummation of our initial
public offering on August 9, 2000, Dr. Alan C. Ashton became a member of our
board and all shares of our Series B convertible preferred stock were converted
into shares of common stock upon the closing of our initial public offering.
In addition to the agreement of understanding, we entered into a
stockholders' agreement and proxy dated August 17, 1999 with Ash Capital in
which rights were granted to Ash Capital. As a result, Ash Capital possessed the
right to vote a nominee onto our board, the right of first refusal with respect
to the proposed sale of shares of our capital stock by our executive officers
and their respective affiliates and the right to participate in the proposed
sale of shares of our capital stock in an amount equal to one quarter of the
number of shares proposed to be sold. In the event that there is a transfer by
our executive officers and their respective affiliates that violated this
agreement, Ash Capital possessed the right to sell to our executive officers and
their respective affiliates the number of shares of capital stock Ash Capital
would have been able to sell pursuant to its participation rights. In addition,
with the exception of transfers for estate planning purposes, our executive
officers and their respective affiliates agreed to transfer no more than 10,000
shares of our capital stock per year. Although the agreement was to terminate
upon the earlier of the tenth anniversary of the agreement or upon the
consummation of a firmly underwritten public offering with gross proceeds of at
least $12 million, in August 2000, Ash Capital provided a waiver of the $12
million requirement and permitted the termination of the agreement upon the
consummation of our initial public offering that generated gross proceeds of
$11.7 million.
On February 15, 2000, we received a $500,000 loan from Ash Capital.
This loan was evidenced by a promissory note bearing simple interest at the rate
of 10% per annum, payable on August 15, 2000 and secured by our assets. Ash
Capital was issued a warrant to purchase 18,750 shares of our common stock
exercisable at $4.80 per share through August 9, 2002. The primary purpose of
this loan was to fund approximately 900 refreshment centers to be installed in
several hotel properties in the United States. In August 2000, the promissory
note was satisfied and paid in full.
On September 1, 2005, Ash Capital converted its secured convertible
promissory note in the original principal amount of $347,500, plus accrued
interest of $82,332, into 2,865,550 shares of common stock. The note, which
relates to loans of $322,500 and $25,000 made to us from November 8, 2002
through February 28, 2003 and on August 22, 2003, respectively, was converted at
$0.15 per share. As part of the $347,500 in loans made to us by Ash Capital, we
provided Ash Capital with registration rights on the shares of common stock
issued upon conversion of the note. The issuance of the note was made in
reliance upon the exemption from securities registration provided by Section
4(2) of the Securities Act.
On October 1, 2003, Ash Capital agreed to extend the maturity date on
its outstanding $347,500 convertible secured promissory note. As consideration
for doing so, we agreed to issue Ash Capital a warrant to purchase shares of
common stock at an exercise price of $0.13 per share and expiring on October 1,
2008. The warrant included registration rights with respect to the underlying
shares of common stock. The warrant issuance was based on a formula, the
quotient of which was not ascertainable until September 1, 2005. On September 1,
2005, a warrant to purchase 53,775 shares of common stock at $0.13 per share was
issued in favor of Ash Capital. The shares of common stock underlying the
warrant are being registered in the offering.
-19-
TRANSACTIONS INVOLVING AK HOLDINGS, LLC
On December 31, 2001, we issued AK Holdings, LLC, an entity wholly
owned by Dr. Alan C. Ashton, a former member of our board of directors, an
option to purchase 300,000 shares of common stock at an exercise price of $0.26
per share for strategic consulting services. This option was exercised on
December 31, 2001 pursuant to a full recourse promissory note in the original
principal amount of $78,000. Interest is accruing on the outstanding note at the
rate of 5% per annum. The 300,000 shares are included for registration in the
table above.
TRANSACTIONS INVOLVING PROVIDENCE MANAGEMENT, LLC
Providence Management, LLC has served as the manager of Ash Capital,
LLC since its inception in April 1999. James C. Savas, a member of our board of
directors, serves as the co-manager of Providence Management and owns fifty
percent of Providence Management. Providence Management handles all of the
business affairs of Ash Capital in return for a quarterly management fee of up
to $37,500. In addition, once Ash Capital recoups its original principal
investment in a venture, along with a ten percent annual return, Mr. Savas is
entitled to receive up to 10% of any remaining amount realized by Ash Capital.
We have entered into two consulting agreements with Providence
Management, one agreement on August 24, 1999 for marketing and business
development services in exchange for $51,875 and a warrant to purchase 14,961
shares of our common stock, exercisable at $4.80 per share, and another
agreement on October 31, 2000 for strategic tax planning and marketing services
in exchange for $60,000. Mr. Savas continues to be compensated by Providence
Management in exchange for assisting on Ash Capital matters. Mr. Savas is
entitled to 50% of the warrants issued by us pursuant to the consulting
agreements with Providence Management.
Providence Management invested $10,000 in our 2003 Private Placement in
consideration for 19,231 shares of common stock. The 19,231 shares are being
registered in the offering.
TRANSACTIONS INVOLVING MONNESS, CRESPI, HARDT & CO., INC.
Monness, Crespi, Hardt & Co., Inc. participated in the syndicate for
our initial public offering and has provided consulting services to us. Herbert
A. Hardt is a principal of Monness, Crespi, Hardt & Co., Inc. In conjunction
with our initial public offering, we paid commissions of $210,000 to Monness,
Crespi, Hardt & Co., Inc. and issued an option to purchase 90,000 shares of
common stock, exercisable at $7.80 per share and expired on August 2, 2005.
Subsequently, through a consulting agreement, we issued options to purchase
100,000 shares of our common stock to Monness, Crespi, Hardt & Co., Inc. on
December 31, 2001. The option is exercisable at $0.26 per share and expires on
December 31, 2011 and includes registration rights on the underlying shares
which are being registered in the offering.
-20-
PLAN OF DISTRIBUTION
We are registering the shares of common stock offered for sale by this
prospectus on behalf of selling stockholders, option holders and warrant
holders. As used in this section, "selling stockholders", "option holders" and
"warrant holders" include donees, pledgees, distributees, transferees or other
successors-in-interest, including, without limitation, their respective
affiliates and limited or general partners, all of which are referred to
collectively as transferees. Selling stockholders, option holders and warrant
holders will act independently of us in making decisions with respect to the
timing, manner and size of each sale.
We will pay all costs, expenses and fees in connection with the
registration of the shares. Selling stockholders, option holders and warrant
holders will pay all brokerage commissions, underwriting discounts, commissions,
transfer taxes and other similar selling expenses, if any, associated with the
sale of the shares of common stock by them. Shares of common stock may be sold
by selling stockholders, option holders or warrant holders, from time to time,
in one or more types of transactions (which may include block transactions) on
the Over The Counter Bulletin Board or on any other market on which our common
stock may, from time to time, be trading, in privately-negotiated transactions,
through put or call options transactions relating to the shares, through short
sales of such shares, or a combination of such methods of sale, at market prices
prevailing at the time of sale, fixed prices, varying prices determined at the
time of sale or at negotiated prices.
Selling stockholders, option holders and warrant holders will have the
sole discretion not to accept any purchase offer or make any sale of shares if
they deem the purchase price to be unsatisfactory at any particular time. Such
transactions may, or may not, involve brokers or dealers. To the best of our
knowledge, none of the selling stockholders, option holders or warrant holders
have entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinating broker acting in connection with the
proposed sale of shares of common stock offered by this prospectus; however,
selling stockholders, option holders or warrant holders may enter into
agreements, understandings or arrangements with an underwriter or broker-dealer
regarding the sale of their shares in the future.
Selling stockholders, option holders and warrant holders may effect
such transactions by selling shares of common stock directly to purchasers or to
or through broker-dealers, which may act as agents or principals, or other
agents. Such broker-dealers or other agents may receive compensation in the form
of discounts, concessions, or commissions from selling stockholders, option
holders and warrant holders and/or the purchasers of shares of common stock for
whom such broker-dealers or other agents may act as agents or to whom they sell
as principal, or both (which compensation as to a particular broker-dealer or
other agent might be in excess of customary commissions). Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder, option holder or a
warrant holder will attempt to sell shares of common stock in block transactions
to market makers or other purchasers at a price per share which may be below the
then market price. There can be no assurance that all or any part of the shares
offered hereby will be sold by selling stockholders, option holders and warrant
holders.
Selling stockholders, option holders and warrant holders may enter into
hedging transactions with broker-dealers or other financial institutions with
respect to the shares. In connection with these transactions, broker-dealers or
other financial institutions may engage in short sales of the shares in the
course of hedging the positions they assume with selling stockholders, option
holders or warrant holders. Selling stockholders, option holders and warrant
holders may also sell the shares short and redeliver the shares to close out the
short positions. Selling stockholders, option holders and warrant holders may
also enter into option or other transactions with broker-dealers or other
financial institutions which require delivery of the shares to the broker-dealer
or other financial institutions. Selling stockholders, option holders and
warrant holders may also loan or pledge the shares to a financial institution or
a broker-dealer and the financial institution or the broker-dealer may sell the
shares loaned, or upon a default, the financial institution or the broker-dealer
may effect sales of the pledged shares. Selling stockholders, option holders and
warrant holders, and any brokers, dealers or agents that participate in
connection with the sale of shares of common stock, might be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by such brokers, dealers or agents and any profit on the resale of the
shares sold by them, while acting as principals, might be deemed to be
underwriting discounts or commissions under the Securities Act.
-21-
We have agreed to indemnify selling stockholders against certain
liabilities arising under the Securities Act with respect to any untrue
statement, alleged untrue statement, omission or alleged omission of any
material fact contained in, or required to be contained in, the registration
statement for their shares or this prospectus. Selling stockholders, option
holders and warrant holders may agree to indemnify any agent, dealer,
broker-dealer or underwriter that participates in transactions involving sales
of the shares of common stock offered pursuant to this prospectus against
certain liabilities, including liabilities arising under the Securities Act.
Because selling stockholders, option holders and warrant holders may be deemed
to be "underwriters" within the meaning of the Securities Act, selling
stockholders, option holders and warrant holders will be subject to the
prospectus delivery requirements of the Securities Act and the rules promulgated
thereunder and they may be subject to certain statutory liabilities under the
Securities Act, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, as
amended, or the Exchange Act. In addition, selling stockholders, option holders
and warrant holders and any other person participating in the offering will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M under the Exchange Act, which may
limit the timing of purchases and sales. These restrictions may affect the
marketability of the common stock and the ability of any person to engage in
market-making activities with respect to the common stock. Any shares of common
stock covered by this prospectus that may qualify for sale pursuant to Rule 144
under the Securities Act may be sold under Rule 144 rather than under the terms
of this prospectus. In addition, subject to applicable state and foreign laws,
selling stockholders, option holders or warrant holders may sell their common
stock outside the United States pursuant to Rules 903 and 904 of Regulation S
under the Securities Act.
To comply with the securities laws of certain jurisdictions, the shares
of common stock offered by this prospectus may need to be offered or sold only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the shares of common stock may not be offered or sold unless they
have been registered or qualified for sale or an exemption is available and
complied with. If a selling stockholder, option holder or warrant holder
notifies us that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker, dealer or underwriter, we will file a supplement to this
prospectus, if required, pursuant to Rule 424(b) under the Securities Act. In
addition, to the extent required, we will amend or supplement this prospectus to
disclose other material arrangements regarding the plan of distribution.
LEGAL MATTERS
Gregory L. Hrncir, Esq. will pass upon the validity of the shares of
common stock being registered under this prospectus for us.
EXPERTS
The financial statements in this prospectus incorporated by reference
from our Annual Report on Form 10-KSB for the year ended December 31, 2004 have
been audited by Hansen, Barnett & Maxwell, an independent registered public
accounting firm, as stated in their report dated March 2, 2005, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
-22-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information
we file with it. This permits us to disclose important information to you by
referencing these filed documents. We incorporate by reference in this
prospectus the following documents that have been filed with the Commission:
o Our Annual Report on Form 10-KSB for the fiscal year ended December
31, 2004, filed with the Commission on March 24, 2005;
o Our Quarterly Report on Form 10-QSB for the quarterly period ended
March 31, 2005, filed with the Commission on May 20, 2005;
o Our Current Report on Form 8-K, dated as of May 23, 2005 and filed
with the Commission on May 25, 2005;
o Our Quarterly Report on Form 10-QSB for the quarterly period ended
June 30, 2005, filed with the Commission on August 15, 2005;
o Our Current Report on Form 8-K, dated as of August 15, 2005 and
filed with the Commission on August 16, 2005;
o Our Current Report on Form 8-K, dated as of September 1, 2005 and
filed with the Commission on September 6, 2005;
o Our Current Report on Form 8-K, dated as of September 7, 2005 and
filed with the Commission on September 9, 2005;
o Our Current Report on Form 8-K, dated as of September 7, 2005 and
filed with the Commission on September 13, 2005; and
o The description of our common stock found under the heading
"Description of Registrant's Securities to be Registered" in our
Registration Statement on Form 8-A (File No. 000-31037), filed with
the Commission on July 14, 2000.
We incorporate by reference all documents filed pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and before the termination of this offering.
-23-
We will provide promptly without charge to you, upon written request, a
copy of any document incorporated by reference in this prospectus, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents. Requests should be directed as follows:
eRoomSystem Technologies, Inc.
1072 Madison Ave.
Lakewood, NJ 08701
Telephone: (732) 730-0116
Attention: David A. Gestetner
You should request any such information at least five days in advance
of the date on which you expect to make your decision with respect to this
offer.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, special reports and other information with
the Commission. These filings are available to the public from commercial
document retrieval services and at the Commission's web site at
http://www.sec.gov. You may also read and copy any document we file at the
Commission's public reference rooms at the Commission's Public Reference Rooms
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and in New
York, New York and Chicago, Illinois. You may obtain information on the
operation of the Public Reference Room by calling 1-800-SEC-0330.
-24-
[INSIDE BACK COVER]
This page will be blank in the final prospectus.
==================================================== =================================================
No dealer, salesperson or other person is
authorized to give any information or to represent
anything not contained in this prospectus. You
must not rely on any unauthorized information or
representations. This prospectus is an offer to
sell only the shares offered hereby, but only
under circumstances and in jurisdictions where it
is lawful to do so. The information contained in 16,144,157 Shares of Common Stock on Behalf of
this prospectus is current only as of its date. Selling Stockholders
_______________
505,898 Shares of Common Stock on Behalf of
Option Holders
124,775 Shares of Common Stock on Behalf of
Warrant Holders
Table of Contents
Page
PROSPECTUS SUMMARY...............................4
RISK FACTORS.....................................6
SPECIAL NOTE REGARDING FORWARD-LOOKING
INFORMATION..................................10
USE OF PROCEEDS.................................11
DETERMINATION OF OFFERING PRICE.................11 [ eROOMSYSTEM LOGO ]
DIVIDEND POLICY.................................11
SELLING STOCKHOLDERS, OPTION HOLDERS AND
WARRANT HOLDERS..............................12
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS WITH SELLING STOCKHOLDERS,
OPTION HOLDERS AND WARRANT HOLDERS...........17
PLAN OF DISTRIBUTION............................21
LEGAL MATTERS...................................22
EXPERTS.........................................22
_______________
For as long as any of the shares covered by
this registration statement remain unsold, all
dealers effecting transactions in these
securities, whether or not participating in this
offering, may be required to deliver a
prospectus. This is in addition to a dealer's
obligation to deliver a prospectus when acting as
an underwriter and with respect to an unsold September 16, 2005
allotment or subscription.
==================================================== =================================================
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Registrant in connection with
the common stock being registered. All amounts are estimates except the SEC
registration fee.
SEC Registration Fee $ 770
Transfer Agent's Fees* 2,500
Blue Sky Fees and Expenses* 5,000
Accounting Fees and Expenses * 2,500
Legal Fees and Expenses * 10,000
Printing Fees* 10,000
Miscellaneous* 2,000
------------------
Total $ 32,770
==================
We will pay substantially all costs and expenses associated with the
registration of the shares of common stock covered by this registration
statement. Selling stockholders are responsible for all underwriting discounts,
commissions, transfer taxes and other expenses associated with the sale of
common stock by them.
Item 15. Indemnification of Directors and Officers
Sections 78.7502 and 78.751 of the Nevada Revised Statutes provides for
the indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Article XII of our amended and restated articles of
incorporation (Exhibit 3.01 hereto) provides for indemnification of our
directors, officers, employees and other agents to the extent and under the
circumstances permitted by Sections 78.7502 and 78.751 of the Nevada Revised
Statutes.
Even though indemnification for liabilities arising under the
Securities Act may be provided to certain directors and officers pursuant to the
foregoing provisions, we have been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
Item 16. Exhibits
See exhibits listed on the Exhibit Index following the signature page
of this registration statement that is incorporated herein by reference.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act.
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(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement for the most
recent post-effective amendment thereof, which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
do not apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission pursuant to Section
13 or 15(d) of the Exchange Act that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered, and the offering of
the securities at that time shall be deemed to be the initial bona fide
offering.
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the end
of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, as amended, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Ocean, State of New Jersey, on September 16, 2005.
eROOMSYSTEM TECHNOLOGIES, INC.
By:
----------------------------------------
David A. Gestetner
Its: President, Chief Executive Officer
and Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David A. Gestetner, as true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign the
registration statement filed herewith and any or all amendments to said
registration statement (including post-effective amendments and registration
statements filed pursuant to Rule 462 and otherwise), and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Commission granting unto said attorney-in-fact and agent the full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the foregoing, as to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ David A. Gestetner President, Chief Executive Officer and Chairman September 16, 2005
- --------------------------------- (Principal Executive Officer and Principal Financial
David A. Gestetner and Accounting Officer)
/s/ Herbert A. Hardt Director September 16, 2005
- ---------------------------------
Herbert A. Hardt
/s/ James C. Savas Director September 16, 2005
- ---------------------------------
James C. Savas
/s/ Lawrence K. Wein Director September 16, 2005
- ---------------------------------
Lawrence K. Wein
II-3
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT NAME PAGE
- ------- ------------- ----
5.01 Opinion of Gregory L. Hrncir, Esq.,
regarding legality. II-5
23.01 Consent of Gregory L. Hrncir, Esq.
(included in Exhibit 5.01 hereto). --
23.02 Consent of Hansen, Barnett & Maxwell II-7
24.01 Power of Attorney (included as part
of the signature pages hereof). --
- --------------------------------------------------------------------------------
II-4