UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 Form 10-K
 
 (Mark
      One)x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2008ORo
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from  to
  Commission
file number: 000-31037
 
 eRoomSystem
Technologies, Inc.
 (Name
of small business issuer in its charter)
  Nevada
                    87-0540713(State
      or other jurisdiction ofincorporation
      or organization)
                    (I.R.S.
      Employer Identification No.)1072 Madison Ave., Lakewood,
    NJ
                    08701(Address
      and telephone number of principal executive offices)
                    (Zip
      Code)Issuer’s telephone number:
      (732) 730-0116
  
 Securities
registered pursuant to Section 12(b) of the Act:
 Title
      of each class
                                      Name
      of each exchange on which registered    Common
      Stock, par value $0.0001 per shareTitle
      of each classTitle
      of each
class
   Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in
Rule 405 of the Securities Act.  Yes     No x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes   No x
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x      No
o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  x
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):
 Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer   o (Do not check if
      a smaller reporting company)
              Smaller
      reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Act).   Yes o      No x
  State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently computed second fiscal
quarter. $5,531,078 based upon $0.23 per share which was the last price at which
the common equity purchased by non-affiliates was last sold, since there is no
public bid or ask price.
  The
number of shares of the issuer’s common stock issued and outstanding as of
February 4, 2009 was 23,757,865 shares.
  DOCUMENTS
INCORPORATED BY REFERENCE
  None.
  i
 Table of Contents
 TABLEOF CONTENTS
 PAGEPART
      I.Item
      1.
                                                                                            Description of Business
                                                                                            1Item
      1A.
                                                                                            Risk Factors
                                                                                            6Item
      1B.
                                                                                            Unresolved Staff Comments
                                                                                            10Item
      2.
                                                                                            Description of Property
                                                                                            10Item
      3.
                                                                                            Legal Proceedings
                                                                                            10Item
      4.
                                                                                            Submission of Matters to a Vote of Security
      Holders
                                                                                            10PART
      II.Item
      5.
                                                                                            Market for Common Equity and Related Stockholder
      Matters
                                                                                            10Item
      6.
                                                                                            Selected Financial Data
                                                                                            12Item
      7.
                                                                                            Management’s Discussion and Analysis or Plan of
      Operation
                                                                                            12Item
      8.
                                                                                            Financial Statements
                                                                                            17Item
      9.
                                                                                            Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
                                                                                            32Item
      9A(T).
                                                                                            Controls and Procedures
                                                                                            32Item
      9B.
                                                                                            Other Information
                                                                                            32PART
      III.Item
      10.
                                                                                            Directors, Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(a) of the Exchange Act
                                                                                            33Item
      11.
                                                                                            Executive Compensation
                                                                                            35Item
      12.
                                                                                            Security Ownership of Certain Beneficial Owners and
      Management
                                                                                            36Item
      13.
                                                                                            Certain Relationships and Related Transactions, and Director
      Independence
                                                                                            38Item
      14.
                                                                                            Principal Accountant Fees and Services
                                                                                            39Item
      15.
                                                                                            Exhibits and Financial Statement Schedules
                                                                                            40SIGNATURES
                                                                                            43


ii
 Table of Contents




PART
I





ITEM 1.DESCRIPTION OF
BUSINESS





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





Forward-Looking
Statements





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





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





Currently,
we have deployed over 10,000 eRoomServ refreshment centers, and over 6,000
eRoomSafes installed at over 30 hotel properties. Of this amount, approximately
1,600 refreshment centers and 1,000 eRoomSafes are installed pursuant to revenue
sharing or fixed-payment agreements. At the present time, we do not intend to
install new products at hotels, but will continue to maintain our existing
product placements on revenue sharing contracts through the end of such
contracts. We anticipate that future placements of eRoomServ refreshment centers
and eRoom Safes in new hotels, if any, will be limited to the continued
deployment of such products at hotels following the maturity of their respective
revenue sharing agreements.





Summary
of Our Diversification Initiatives





In
addition to our core competencies noted above, in May 2005 we commenced our
diversification plan by investing in Identica Holdings Corporation, or Identica,
a company that has since filed a registration statement with the Securities and
Exchange Commission, and which is a distributor and integrator of
next-generation biometric security solutions, including the TechSphere hand
vascular pattern biometric technology. Specifically, we invested $10,000 in
Identica by purchasing 1,666,667 shares of common stock, or $0.006 per share.
Our $10,000 investment in Identica represented 10% of Identica's then issued and
outstanding capital stock on a fully-diluted basis. In addition, we provided a
loan to Identica in the amount of $150,000. 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
1,000,000 shares of common stock of Identica, exercisable at $0.15 per share at
any time through May 20, 2010.




1
 Table of Contents




On
September 7, 2005, Identica purchased certain assets of our wholly owned
subsidiary, eRoomSystem Services, Inc., a Nevada corporation, or eRoomServices,
pursuant to an Asset Purchase Agreement, or the Purchase Agreement.
Specifically, the assets sold consisted of furniture and computer equipment held
by eRoomServices, as well as a perpetual license to our web technologies package
utilized by our personnel in the maintenance of automated refreshment centers,
electronic safes and energy management products, or the equipment, installed at
hotels. The Purchase Agreement provided that Identica pay us $60,000 for the
assets, which amount was evidenced by a one-year note bearing interest at the
rate of 8% per annum, compounded monthly. Under the terms of the note, Identica
would make 7 principal and interest payments in the amount of $9,098 per month,
commencing on the six-month anniversary of the note. The note was fully paid in
May 2007.





In
addition, on September 7, 2005, the Company and Identica entered into a
Professional Services and Support Agreement whereby Identica employed the
technical personnel of eRoomServices. In conjunction therewith, eRoomServices
continued to be responsible, for a period of 6 months from the date of the
agreement, for all expenses less $7,000 per month related to such technical
personnel. Commencing on the six-month anniversary of the agreement, Identica
became solely responsible for all fixed and variable expenses associated with
the technical personnel and the Salt Lake City facility, including the lease of
the existing premises. However, we have retained the rights to part of the
offices located at the facility. The terms of the Services Agreement provide
that Identica shall, at all times, ensure that the Company receives first
priority with respect to the ongoing maintenance of the Company’s equipment by
the technical personnel. eRoomServices will continue to exist as a wholly owned
subsidiary of the Company and all existing contracts by and between
eRoomServices and its hotel clients shall remain outstanding.





In March
2006, we invested the sum of $50,000 in a private placement of Aprecia, LLC, or
Aprecia, prior to its registration statement which became effective in January,
2007, a provider of applied artificial intelligence solutions for gaming and
homeland security applications. In consideration for our investment, we received
2,083,333 shares of common stock of Aprecia, which at the time of issuance
constituted 12% of Aprecia's issued and outstanding common stock. Upon
evaluation of the Company’s investments in the third quarter of 2007, the
Company determined that the investment in Aprecia was impaired based on their
most recent filing which shows them as a company with no revenue and negative
stockholders equity. Therefore, the Company has recorded an unrealized loss in
the amount of $50,000 as accumulated balance of comprehensive net loss in the
year ended December 31, 2007.





We are
continuously performing due diligence on third party companies for the purpose
of making additional investments in privately-held or publicly traded emerging
growth stage companies. In the future, we may acquire an existing operating
company if the opportunity arises. At this time, we have not reached a
definitive agreement with any such third party companies.





Our Products and
Services





eRoomSystem





Since our
inception, it has been our objective to provide innovative in-room amenities to
the lodging industry. Our technologies provide an intelligent, in-room
computerized platform and communications network that comprises the eRoomSystem.
At the core of the eRoomSystem is our proprietary hardware and software that
operate as a multi-tasking imbedded operating system. Our hardware and software
can operate multiple devices and provide an interactive environment that allows
the hotel guest to input and receive information.




Installed
as part of our eRoomServ refreshment center, the eRoomSystem provides the
communication link between the hotel guest, our products, our file server
located at the hotel (the eRoomSystem file server), the hotel's property
management system, and the file server located at our headquarters (the
eRoomSystem master file server). Our software is remotely upgradeable from our
Salt Lake City facility, which reduces the need for costly on-site visits. We
can also remotely adjust pricing, change messages on the liquid crystal display,
lock and unlock our units and change the input touchpad layout. From our
facility, we can also determine whether our products are active and working
properly and, in the event a participating hotel fails to pay outstanding
invoices or otherwise violates the terms of its agreement with us, control the
use of our products by remotely locking the units.





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





2
 Table of Contents




eRoomServ Refreshment
Centers





Our
eRoomServ refreshment centers consist of the eRoomSystem, a small refrigeration
unit, electronic controls, LCD display and vending racks. Our newest models
utilize an upright multi-vending rack. The upright multi-vending rack offers
greater flexibility for the snack and beverage products offered by hotels, and
is viewed more favorably by our hotel clients than our prior side-vend rack
design.




The
upright multi-vending rack displays up to 30 different beverages and/or snacks
and provides an environment similar to that of a convenience store beverage
cooler. Upon removal of a product, the gravity-based design uses the weight of
the remaining products to cause the products to roll or slide forward. In
addition to the upright multi-vending rack in the refreshment center, the
eRoomTray allows hotel properties to separately vend a variety of products at
room temperature within the eRoomSystem environment, including snacks, wine,
disposable cameras, film, souvenirs, maps and other sundries.





Our
eRoomServ refreshment center and eRoomTray communicate through the eRoomSystem,
which uses the hotel property's existing telephone lines, network cabling or
cable television lines. Our eRoomServ refreshment centers and eRoomTray operate
as follows:




·
            A
      hotel guest selects a beverage or snack from our eRoomServ refreshment
      center or eRoomTray;





·
            The
      purchase is either immediately confirmed on the liquid crystal display and
      acknowledged with an audible beep or subject to a countdown of a
      predetermined (by the hotel) number of seconds prior to purchase
      confirmation;





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





·
            The
      eRoomSystem file server communicates on a real-time basis with the hotel's
      property management system and periodically with our eRoomSystem master
      file server located at our Salt Lake City facility;
  and





·
            The
      hotel's property management system posts the purchase to the hotel guest's
      room account.





The sales
data from the eRoomSystem is transmitted to the eRoomSystem file server from
which hotel employees can access real-time sales reports, inventory levels for
restocking purposes and demographic data. As for the maintenance of our
refreshment centers, the repair or replacement of any component of our
refreshment center is relatively simple and is typically provided at no
additional charge to the property pursuant to the terms of our service and
maintenance agreement.





eRoomSafe




Our
eRoomSafes are electronic in-room safes offered in conjunction with our
eRoomSystem. The eRoomSafes have storage space large enough for laptop
computers, video cameras and briefcases and include an encrypted electronic
combination that can be changed by the hotel guest. The eRoomSafes utilize the
eRoomSystem to interface with the eRoomSystem file server that communicates with
the hotel's property management system.




The
following diagram represents the structure and communications network of our
eRoomSystem, the eRoomSystem file server, the hotel property management system,
and the eRoomSystem master file server:









Our
eRoomTray is an ambient tray for dry goods. The eRoomTray has a terraced design
and can hold three, to more than twenty, different products. The eRoomTray
utilizes cross-sensing technology that provides significant flexibility in
product selection for hotels. The eRoomTray uses the visible countdown timer
located on the liquid crystal display of the eRoomServ Refreshment Center. This
solution allows the hotel to sell music CD's souvenirs, disposable cameras,
maps, snacks and other profitable items. The eRoomTray is unique in that it can
generally be located anywhere in a guestroom.




3
 Table of Contents




eRoomEnergy
Management




In 2001,
we announced our agreement with INNCOM International, Inc., a leader in hotel
guest-room control systems, through which INNCOM private-labels its e4 Smart
Digital Thermostat for us as eRoomEnergy and provides assistance in the
installation and maintenance of the units. The e4 Smart Digital Thermostat is
designed to control virtually any fan coil unit or packaged terminal air
conditioner found in hotel rooms and comes standard with an illuminated digital
display, a Fahrenheit/Celsius button, one-touch temperature selection, an
off/auto button, fan and display buttons. In addition to these user-friendly
features, the e4 Smart Digital Thermostat includes five relays, an optional
on-board infrared transceiver, a passive infrared occupancy sensor, and is
expandable to include functions such as humidity control, outside temperature
display, refreshment center access reporting, occupancy reporting to
housekeeping and automatic lighting control.




eRoomData
Management




One of
the byproducts of our technology is the information we have collected since our
first product installation. To date, we have collected several million
room-nights of data. The eRoomSystem file server collects information regarding
the usage of our eRoomServ refreshment centers on a real-time basis. We use this
information to help our customers increase their operational efficiencies. The
information we obtain is unique because we are able to categorize the
information according to specific consumer buying patterns and
demographics.




The
information we collect is currently offered to our customers as part of our
service and maintenance agreement, including specific information about their
guests' buying patterns and non-confidential information about other hotels in
similar geographic regions. To this end, our hotel clients benefit in various
ways from the information we provide. The hotels are responsible for restocking
the goods sold from our refreshment centers and the real-time sales data
generated by our refreshment centers helps the hotel maximize personnel
efficiencies. The transfer of sales data to the hotel prevents guest pilferage
and minimizes disputes over refreshment center usage, both of which are
prevalent in the lodging industry, particularly with non-automated units.
Finally, the ability to track product sales performance allows the hotel to
stock the refreshment centers with more popular items, which generally leads to
increased sales of product from the refreshment centers. Our system can provide
reports on daily restocking requirements, daily, monthly and annual product
sales statistics, overnight audits, inventory control and a variety of
customized reports.





Research and
Development





At the
core of our products and services is our proprietary software and hardware that
make up our eRoomSystem. In 2008, we have initiated some research and
development projects for the purpose of creating a new product line. There is no
assurance that the products we are working on will be successfully completed or
deployed.





Sales and
Marketing




Currently,
we have deployed more than 10,000 eRoomServ refreshment centers, and over 6,000
eRoomSafes installed at over 30 hotel properties. Of this amount, approximately
1,600 refreshment centers and 1,000 eRoomSafes are installed pursuant to revenue
sharing or fixed-payment agreements. Our sales and marketing efforts have been
eliminated with respect to new product placements for the refreshment
centers. We have commenced sales and marketing for other products. However,
there is no assurance that these efforts will be successful.





Manufacturing





We do not
anticipate the placement of new refreshment centers in the future and,
accordingly, the manufacture of our products has become immaterial. We will
continue to service our existing products placed pursuant to existing revenue
sharing and maintenance agreements.




Competition





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




4
 Table of Contents




Intellectual
Property





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





We have
registered RoomSystems, RoomSafe, eRoomEnergy, eRoomData, eRoomSystem, and
eRoomServ with the United States Patent and Trademark Office. In addition, we
have pending applications for the following trademarks and service marks:
eRoomSafe; eRoomManagement; and eRoomSystem Technologies. We have also
registered our logo and have one pending patent application titled "Personalized
Smart Room", Application No. 10/126,468.





Our
proprietary software consists of three modules and provides the operating system
for our eRoomSystem. The first module is an operating system that permits
messages to be scrolled on the flat panel display of our eRoomSystem and allows
hotel guests to interface with our products. The second module is a Windows(R)
based program that provides a communication link between our eRoomSystem, our
products, our eRoomSystem hotel file server and the hotel's property management
system. The third module is a Windows(R) based program that collects data from
our eRoomSystem hotel file server and produces a wide-variety of management and
operational reports. Three years ago, we introduced our eRoomSystem version 4
software and thereafter our newest version 4.1 software. All, but one, of our
existing hotel clients are utilizing our version 4.1 software that provides
users with a friendly, easy-to-learn graphical environment which generally
expands the report generating capabilities of the property.





We do not
know if our future patent applications will be issued with the full scope of
claims we seek, if at all, or whether any patents we receive will be challenged
or invalidated. Our means of protecting our proprietary rights in the United
States, and abroad, may not be adequate and competitors may independently
develop similar technology. We cannot be certain that our services do not
infringe on patents or other intellectual property rights that may relate to our
services. Like other technology-based businesses, we face the risk that we will
be unable to protect our intellectual property and other proprietary rights, and
the risk that we will be found to have infringed on the proprietary rights of
others. Further, as previously mentioned, it is our intention to focus solely on
servicing our existing hotel clients.





Historical
Summary




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





We have
three wholly owned subsidiaries, eRoomSystem Services, Inc. (formerly
RoomSystems), eRoomSystem SPE, Inc. and eLiftLLC, LLC. RSi BRE, Inc., or RSi
BRE, a former wholly-owned subsidiary, was liquidated into eRoomSystem
Technologies, Inc. in 2004.




eRoomSystem
Services is our service and maintenance subsidiary that installs all of our
products, provides electronic software upgrades to our customers, provides
customer service and maintenance for our products and trains hotel personnel on
the use and maintenance of our products. Pursuant to a series of agreements
entered into with Identica in 2005, we sold furniture and computer equipment, as
well as a perpetual license to our web technologies package utilized by our
personnel in the maintenance of automated refreshment centers, electronic safes
and energy management products installed at hotels. In addition, the technical
personnel, formerly employed by us for the purpose of servicing our existing
products installed at hotels, have been hired by Identica. We continue to use
these individuals for our entire product servicing needs pursuant to the
Professional Services Agreement between us and Identica detailed
above.




5
 Table of Contents




RSi BRE
was formed as part of the Equipment Transfer Agreement we entered into in
September 1998 with RSG Investments, LLC, or RSG, a privately held company.
Previously, RSi BRE held title to 1,717 eRoomServ refreshment centers and 1,304
eRoomSafes. On February 29, 2004, we entered into a Settlement Agreement and
Mutual Release Agreement with RSG whereby we paid the sum of $152,823 as a full
and final cancellation of the Equipment Transfer Agreement and subsequent
Settlement Agreement dated September 1999. As a result, the Company immediately
commenced recognizing all revenue generated from the four revenue sharing lease
agreements relating to the 1,717 eRoomServ refreshment centers and 1,304
eRoomSafes. In 2004, RSi BRE was liquidated.




eRoomSystem
SPE was formed as part of our long-term financing arrangement with AMRESCO
Leasing Corporation, which was terminated in August 2002. eRoomSystem SPE owns
all of the equipment previously funded by AMRESCO under our revenue-sharing
program, consisting of nine properties comprising 2,775 eRoomServ refreshment
centers and 2,622 eRoomSafes. AMRESCO had taken a senior security interest in
all of the assets of eRoomSystem SPE. We control eRoomSystem SPE and its
financial results are consolidated with those of eRoomSystem Technologies and
eRoomSystem Services. On July 14, 2006, the Company repaid the full amount due
and owing under the financing arrangement.




eLiftLLC was formed as a new subsidiary
in November 2008. eLift provides online parts procurement  for the
material handling industry.





Government
Regulation




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




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




Employees




We
currently employ three full-time employees and have one consultant. In addition,
pursuant to the Professional Services Agreement with Identica, we utilize their
technical support team in the service and maintenance of our existing installed
products. None of our employees are subject to a collective bargaining
agreement.





ITEM 1A. RISK
FACTORS





An
investment in our common stock involves a high degree of risk. You should
carefully consider the following factors and other information in this annual
report before deciding to invest in our company. If any of the following risks
actually occur, our business, financial condition, results of operations and
prospects for growth would likely suffer. As a result, you could lose all or
part of your investment.





Risks
Related to eRoomSystem Technologies





As
management for the Company has decided to forego further placements of new
products at hotels and our existing revenue sharing agreements have fixed terms,
we will continue to experience declining revenues in future periods upon the
conclusion of such existing revenue sharing agreements.





The
revenue sharing agreements that we have entered into with our hotel customers
have a seven-year term. As of December 31, 2008, the average remaining life of
these agreements is 0.5 years. In 2009, all of our existing revenue sharing
agreements will conclude, unless hotels elect to continue under the terms of the
existing agreement, for which there are no assurances. As the revenue sharing
agreements conclude, and hotels elect to not extend the term thereof, we will
continue to experience an incremental decrease in revenue sharing revenue as
well as maintenance revenue. We do, however, own the equipment and upon the
conclusion of such agreements may decide to re-deploy such equipment at a new
hotel, either on a revenue sharing basis or sale basis.




6
 Table of Contents




While
we have realized net income for fiscal years 2008 and 2007, we have a history of
significant operating losses and may experience operating losses in the future,
particularly given the fixed term of our revenue sharing agreements which
comprise nearly all of our revenues.





For the
year ended December 31, 2008, we realized net income of $72,231, as compared to
net income of $402,221 for the fiscal year ended December 31, 2007. In addition,
our operations provided net cash of $240,326 for the year ended December 31,
2008, as compared to $765,270 for the year ended December 31, 2007. Our net
income and net cash provided by operating activities have gone down dramatically
in 2008. We have a history of significant operating losses and may realize
operating losses in the future, specifically upon the conclusion of a measurable
percentage of our existing revenue sharing agreements. While we are actively
embarking upon our diversification strategy of investing in third party emerging
growth companies and, potentially, acquiring an operating company if the
opportunity arises, we have not realized any revenues to date from such
activities. Further, there is no assurance that our investments in third party
companies to date will result in us realizing meaningful revenues, if at all, or
that we will be successful in acquiring an operating company. To the extent that
we do not replace revenue sharing revenue as it decreases, our financial
condition and results of operations will continue to be materially adversely
affected.




Recent
downturn in the economy may seriously affect our revenue sharing revenue and our
ability to finance ourselves.




The
recent downturn in the U.S. and Global economies may seriously impact our
revenue from the revenue sharing contracts we have with Hotels. The lodging
industry has seen a significant decline and our revenues have likewise been
impacted. In addition, due to the tightening credit markets, it is very
difficult to obtain financing and this may affect our ability to finance
ourselves.




Although
we commenced our diversification strategy in 2005 by making investments in third
party companies, there is no assurance that we will realize a return on such
investments.





The
securities issued to us from our investments in Identica Holdings Corporation
and Aprecia, LLC are not marketable. Although Identica has registered with SEC
its stock has not started trading yet. Aprecia's stock has also not started
trading yet and is currently listed on the pink sheets. It is not known when, or
if, these securities will be readily marketable, if at all. Furthermore, even if
such securities become readily marketable, there is no assurance that we will
receive a return on our investment sufficient to offset the anticipated decline
in our revenues relating to existing revenue sharing agreements which will
expire. Thus, in the event we do not realize a material return on our
investments in Identica and Aprecia, our future operating results will likely be
materially adversely affected.





While
we are exploring the possibility of acquiring an operating company to augment
our historical business and recent investments in third party emerging growth
companies, given our cash position, among other things, there is no assurance
that we will be successful in consummating a transaction on favorable terms, if
at all.





We have
undertaken a significant amount of due diligence on several operating companies
regarding a potential acquisition. To date, we have not been successful in
reaching a definitive agreement with such companies. While we intend to continue
our search for a suitable operating company, there is no assurance that we will
be successful given our relatively limited cash on hand, lack of liquidity in
our common stock, and our common stock not being listed on a national securities
exchange, among other factors. Nevertheless, we intend to continue to explore
potential acquisitions, along with additional investments in third party
emerging growth companies. We view the acquisition of an operating company on
favorable terms as a most important objective for 2009. Should we not achieve
this objective in 2009, our financial condition and results of operation will
likely be adversely affected as existing revenue sharing agreements
conclude.





Based
on the numerous reductions-in-force we have affected in the past several years
to reduce fixed overhead expenses along with outsourcing our ongoing maintenance
and service operation 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, specifically
David A. Gestetner, our sole executive officer. Our future success will depend
in large part upon Mr. Gestetner. We currently do not carry key man life
insurance on Mr. Gestetner, and we have no present intention of doing so in the
near future. There can be no assurance that we will be able to locate and retain
a suitable replacement for Mr. Gestetner in the event Mr. Gestetner is no longer
employed by us.




7
 Table of Contents




Risks
Related to Our Industry





We
rely on the economic health of the lodging industry to generate revenues from
our existing revenue sharing agreements, and any condition that may adversely
impact the lodging industry will adversely impact the revenues we receive from
revenue sharing agreements.




Nearly
all of our revenue is generated from our existing revenue sharing agreements and
maintenance agreements associated therewith. The economic health of the lodging
industry, and, therefore, our revenues, are affected by a number of factors
beyond our control, including:




·
            general
      economic conditions;





·
            levels
      of disposable income of the hotel
patrons;





·
            acts
      of terrorism and anti-terrorism
efforts;





·
            increased
      transportation costs resulting in decreased travel by patrons and
      decreased hotel occupancy and
RevPar;





·
            changes
      or proposed changes in tax laws;





·
            legal
      and regulatory issues affecting the development, operation and licensing
      of hotels; and





·
            competitive
      conditions in the lodging industry, including the effect of such
      conditions on the pricing of the merchandise sold in our products
      installed at hotels.





The
foregoing factors may impact our hotel clients and their guests as relates to
the consumption of merchandise sold in our products installed on a revenue
sharing basis.





Terrorist
attacks or acts of war may seriously harm our business.





Terrorist
attacks or acts of war may cause damage or disruption to our Company, our
employees, our facility and our customers, which could significantly impact our
revenues, costs and expenses, and financial condition. The terrorist attacks
that took place in the United States on September 11, 2001 were unprecedented
events that have created many economic and political uncertainties, especially
to the lodging industry, some of which have materially adversely affected our
business, results of operations, and financial condition and may do so again in
the future. In particular, the lodging industry was materially affected by the
downturn in the tourism industry as a result of the September 11 attacks. While
it has since recovered, we experienced a fairly significant decrease in
utilization of our revenue sharing products for a significant period following
September 11, 2001 particularly in the New York metro area given the lower
occupancy rates and the significant number of installations we have in this
region. The potential for future terrorist attacks, the national and
international responses to terrorist attacks, and other acts of war or hostility
have created many economic and political uncertainties, which could materially
adversely affect our business, results of operations, and financial condition in
ways that we currently cannot predict.





The
strength and profitability of our business depends on the overall demand for our
existing installed products at hotels. Lodging industry revenues are sensitive
to general economic conditions and generally rise or fall more rapidly in
relation to the condition of the overall economy. Although we cannot accurately
estimate the economic impact of a future terrorist attack at this time, the
lodging industry was negatively affected by the reduction in air travel and
tourism.




8
 Table of Contents




We
have experienced loss of market share due to the intense competition from
companies with longer operating histories, greater resources and more
established brand names that market in-room amenities to the lodging industry,
the conclusion of some of our revenue sharing agreements, and the lack of new
product sales in the last four fiscal years.





The
market for in-room amenities in the lodging industry is very competitive, and we
expect competition to intensify in the future. The foregoing served as a primary
reason for implementation of our diversification strategy. Our competitors vary
in size and in the scope and breadth of the products and services they offer and
include Bartech Systems International, Dometic Corporation and MiniBar Systems,
among others. Each of our competitors have longer operating histories, larger
customer bases, greater brand recognition, and substantially greater capital,
research and development, manufacturing, marketing, service, support, technical
and other resources than we currently do. While we do not intend to manufacture
and install new products in the lodging industry, the foregoing factors directly
impact our ability to the continued deployment of such products at hotels
following the maturity of their respective revenue sharing
agreements.





Risks
Related to Our Common Stock





Our
diversification strategy, particularly a potential acquisition of an operating
company, will likely require us to obtain additional financing in the form of
the sale of debt or equity securities, the result of which would have a dilutive
effect on the relative ownership of our existing stockholders.





Based
upon our existing cash and cash equivalents on hand, which was $2,135,814 as of
December 31, 2008, we will likely require additional capital to successfully
implement our diversification strategy. Funding may take 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. There are no assurances that
funding will be available to us on favorable terms, if at all.





Our
executive officers and members of our board of directors beneficially own 41.2%
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
9,981,740 shares of common stock, or approximately 41.2% 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.





Our
stock price may fall as a result of the 23,757,865 shares of common stock, or
100% of our outstanding common stock, that is currently eligible for
resale.





Sales of
a substantial number of shares of common stock in the public market could cause
the market price for our common stock to decline. Of the 23,757,865 shares of
common stock outstanding as of February 4, 2009, as per the transfer agent,
18,999,614 shares representing 80% of our outstanding shares of common stock are
immediately available for resale.





In
addition to the foregoing shares, up to 4,758,251 shares of common stock, or 20%
of our outstanding shares of common stock, are available for resale in
accordance with Rule 144 or 144(k) under the Securities Act. These shares
represent 23,757,865 shares, or 100% of our outstanding shares of common
stock.





As of
December 31, 2008, we had options and warrants outstanding to purchase 2,190,846
shares of common stock at a weighted average exercise price of $0.32 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.




9
 Table of Contents




ITEM 1B. UNRESOLVED STAFF
COMMENTS





None





ITEM 2.DESCRIPTION OF
PROPERTY




Our
headquarters and principal executive offices, comprising approximately 1,100
square feet, are located at 1072 Madison Ave., Lakewood, NJ 08701. We pay $1,300
per month. This lease expires March 10, 2009.





In
addition, we currently utilize office and warehouse space in Salt Lake City,
Utah pursuant to our Professional Services Agreement with Identica. We maintain
all inventory and replacement parts at this facility. There is no separate fee
charged for these facilities.





ITEM 3.LEGAL PROCEEDINGS





We are,
from time to time, parties to various legal proceedings arising out of our
business. Notwithstanding, there are no pending legal proceedings to which the
Company is a party or in which any director, officer or affiliate of the
Company, any owner of record or beneficially of more than 5% of any class of
voting securities of the Company, or security holder is a party adverse to the
Company or has a material interest adverse to the Company. The Company’s
property is not the subject of any pending legal proceedings.





ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS





During
the period ending December 31, 2008, there has not been any matter which was
submitted to a vote of the Company’s shareholders through the solicitation of
proxies or otherwise.





PART
II





ITEM 5.MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS





Our
authorized capital stock consists of 50,000,000 shares of common stock, $0.001
par value; 5,000,000 shares of preferred stock, $0.001 par value including;
500,000 shares of Series A convertible preferred stock, $0.001 par value;
2,500,000 shares of Series B convertible preferred stock, $0.001 par value;
2,000,000 shares of Series C convertible preferred stock, $0.001 par value; and
2,777,778 shares of Series D convertible preferred stock, $0.001 par value. Our
current authorized capital was effected through an amendment and restatement of
our articles of incorporation on March 29, 2000, and the filing of a Certificate
of Rights, Preferences and Privileges relating to the Series D convertible
preferred stock in November 2002. There are no shares of preferred stock issued
and outstanding.





Market
Information





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 April 2003, our
common stock was delisted from the NASDAQ SmallCap market. Our common stock is
currently quoted on the Over-The-Counter Bulletin Board under the same symbol.
As of February 4, 2009, there were 23,757,865 shares of common stock outstanding
and no shares of any class of preferred stock outstanding.




10
 Table of Contents




High
And Low Sale Prices Of Our Common Stock





The
following table sets forth the high and low bid information of our common stock,
as quoted on the Over The Counter Bulletin Board (which quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions) for each quarter during the period January 1,
2007 through December 31, 2008:




Calendar
      Quarter Ended
                          
                          Low
                          
                          
                          HighMarch
      31, 2007
                          
                          $
                          0.12
                          
                          
                          $
                          0.18June
      30, 2007
                          
                          $
                          0.10
                          
                          
                          $
                          0.17September
      30, 2007
                          
                          $
                          0.10
                          
                          
                          $
                          0.25December
      31, 2007
                          
                          $
                          0.15
                          
                          
                          $
                          0.21March
      31, 2008
                          
                          $
                          0.17
                          
                          
                          $
                          0.22June
      30, 2008
                          
                          $
                          0.18
                          
                          
                          $
                          0.26September
      30, 2008
                          
                          $
                          0.19
                          
                          
                          $
                          0.25December
      31, 2008
                          
                          $
                          0.10
                          
                          
                          $
                          0.20March
      31, 2009 (through February 4, 2009)
                          
                          $
                          0.14
                          
                          
                          $
                          0.19




The last
reported price of our common stock on the Over-The-Counter Bulletin Board on
February 4, 2009 was $0.18 per share. We are not aware of any public market for
our options or warrants.





Holders





As of
February 4, 2009, there were approximately 375 stockholders of record holding
our outstanding common stock.





Dividends





We have never declared or paid any cash
dividends on our common stock. Our Board of Directors presently, and for the
foreseeable future, intends to retain all of our earnings, if any, for the
purchase of securities in private or publicly traded emerging growth companies,
or possibly, the acquisition of an operating company if the opportunity arises.
The declaration and payment of cash dividends in the future will be at the
discretion of our Board and will depend upon a number of factors, including,
among others, our future earnings, operations, funding requirements,
restrictions under our credit facility, our general financial condition and any
other factors that our board considers important. Investors should not purchase
our common stock with the expectation of receiving cash dividends.





Recent
Sales of Unregistered Securities; Use of Proceeds





There
were no recent sales of unregistered securities in fiscal years ended December
31, 2008





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





290,300
shares of our common stock were purchased in the fiscal year ended December 31,
2008 pursuant to the share buyback authorized by the Board of Directors on
August 29, 2007.





Period
                                                            
                                                            a)
      Total Number of Shares (or Units) Purchased
                                                            
                                                            
                                                            (b)
      Average Price Paid per Share (or Unit)
                                                            
                                                            
                                                            c)
      Total Number of Shares (or Units) Purchased as Part of Publicly Announced
      Plans or Programs
                                                            
                                                            
                                                            (d)
      Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May
      Yet Be Purchased Under the Plans or ProgramsOct-08
                                                            
                                                            
                                                            30,000
                                                            
                                                            
                                                            $
                                                            0.1443
                                                            
                                                            
                                                            
                                                            30,000
                                                            
                                                            
                                                            
                                                            4,970,000Nov-08
                                                            
                                                            
                                                            10,300
                                                            
                                                            
                                                            $
                                                            0.1576
                                                            
                                                            
                                                            
                                                            10,300
                                                            
                                                            
                                                            
                                                            4,959,700Dec-08
                                                            
                                                            
                                                            250,000
                                                            
                                                            
                                                            $
                                                            0.1300
                                                            
                                                            
                                                            
                                                            250,000
                                                            
                                                            
                                                            
                                                            4,709,700




11
 Table of Contents




ITEM 6.SELECTED FINANCIAL
DATA





A smaller
reporting company is not required to provide the information required by this
Item.





ITEM 7.    
MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION





Certain
statements contained in this prospectus, including statements regarding the
anticipated development and expansion of our business, our intent, belief or
current expectations, primarily with respect to the future operating performance
of the Company and the services we expect to offer and other statements
contained herein regarding matters that are not historical facts, are
“forward-looking” statements. Future filings with the Securities and Exchange
Commission, future press releases and future oral or written statements made by
us or with our approval, which are not statements of historical fact, may
contain forward-looking statements, because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements.





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





Overview





Our core
business was the development and installation of an intelligent, in-room
computer platform and communications network, or the eRoomSystem, for the
lodging industry. The eRoomSystem is a computerized platform and processor-based
system designed to collect and control data. The eRoomSystem supports our fully
automated and interactive eRoomServ refreshment centers, eRoomSafes, eRoomEnergy
products, and the eRoomTray. In 2005, we commenced our diversification strategy
of investing in third party emerging growth companies. To this end, we have made
investments totaling $60,000, consisting of $10,000 in Identica Holdings
Corporation and $50,000 in Aprecia, LLC. The investment in Aprecia has been
written off as an unrealized loss. 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 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 promising emerging growth companies, and
potentially acquire an operating company if the opportunity arises.





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.





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. We expect that these revenues
will account for a substantial majority of our revenues for the foreseeable
future. In addition, we may receive revenues in the future upon the sale of
securities received in consideration for investments made in third party
companies in 2005 and 2006; however, the return on such investments is not
assured. We may also receive revenues through the parts procurement online
website we setup in December 2008 for the material handling
industry.





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 revenue sharing agreement. Time spent by individuals on
travel and leisure is often discretionary for consumers and may be particularly
affected by adverse trends in the general economy. The success of our operations
depends, in part, upon discretionary consumer spending and economic conditions
affecting disposable consumer income such as employment, wages and salaries,
business conditions, interest rates, availability of credit and
taxation.




12
 Table of Contents




Our
revenue-sharing program provides us with a seven-year revenue stream under each
revenue-sharing agreement. Because many of our customers in the lodging industry
traditionally have limited capacity to finance the purchase of our products, we
designed our revenue-sharing program accordingly. Through our revenue-sharing
plan, we have installed our products at little or no upfront cost to our
customers and share in the recurring revenues generated from sales of goods and
services related to our products. We retain the ownership of the eRoomServ
refreshment centers and eRoomSafes throughout the term of the revenue-sharing
agreements and the right to re-deploy any systems returned to us upon the
expiration or early termination of the revenue-sharing agreements. We have
failed to place any products, either on a revenue sharing or sale basis in the
prior three years, and we have no present intention of placing new products in
the future. We do, however, intend to continue to service and maintain our
existing installed product base for the remaining life of the contracts relating
thereto.





Our
revenues over the past few years have been fairly stable as we have focused on
service and maintenance of our existing installed products and have not
installed new products at hotels. Over time, our revenues relating to our
installed products will decline as existing revenue sharing agreements conclude.
Given the foregoing, in 2005 we commenced our diversification strategy to invest
in emerging growth companies. To date we have invested in Identica Holdings
Corporation, a company which has recently filed a registration statement with
the Securities and Exchange Commission, and which is a distributor and
integrator of next-generation biometric security solutions, including the
TechSphere hand vascular pattern biometric technology. We continue to explore
opportunities and perform due diligence on third parties with respect to
additional 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. Over time, we may realize
revenues from the sale of securities purchased from Identica and other third
party companies in the future, if applicable. The timing and return on such
investments, however, cannot be assured. We may also receive revenues through
the parts procurement online portal we setup in December 2008 for the material
handling industry.





We
anticipate that we will receive more than 50% of the recurring revenues from the
sale of goods and services generated by our currently installed eRoomServ
refreshment centers, eRoomSafes and eRoomTray solutions under revenue-sharing
agreements. Our customers receive the remainder of the recurring
revenues.





No new
products were installed during the years ended December 31, 2008 and
2007





Revenue
Recognition





Sales
revenue from our products is recognized upon completion of installation and
acceptance by the customer. We do not, however, expect to generate meaningful
sales revenue as such revenues are limited to the sales of replacement equipment
and parts to hotel clients who previously purchased our products. Sales revenue
from the placement of our eRoomServ refreshment centers and eRoomSafes under our
revenue-sharing program are accounted for similar to an operating lease, with
the revenues recognized as earned over the term of the agreement. In some
instances, our revenue-sharing agreements provide for a guaranteed minimum daily
payment by the hotel. We negotiated our portion of the revenues generated under
our revenue-sharing program based upon the cost of the equipment installed and
the estimated daily sales per unit for the specific customer.





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





Our
installation, maintenance and license agreements stipulate that we collect a
maintenance fee per eRoomServ refreshment center per day, payable on a monthly
basis. Our objective is to generate gross profit margins of approximately 50%
from our maintenance-related revenues. We base this expectation on our
historical cost of maintenance of approximately $0.04 per unit per day and,
pursuant to our maintenance agreements, our projected receipt of generally not
less than $0.08 per unit per day.





Description
of Expenses





Cost of
product sales consists primarily of production, shipping and installation costs.
Cost of revenue-sharing arrangements consists primarily of depreciation of
capitalized costs for the products placed in service. 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.




13
 Table of Contents




Research
and development expenses consist of payroll and related costs for hardware and
software engineers, quality assurance specialists, management personnel, and the
costs of materials used by our consultants in the maintenance of our existing
installed products. As we have initiated development of new product lines there
was some research and development expenses in fiscal year 2008.





In
accordance with Financial Accounting Standards Board, or FASB, Statement of
Financial Accounting Standards, or SFAS, No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," development costs
incurred in the research and development of new software products to be sold,
leased or otherwise marketed are expensed as incurred until technological
feasibility in the form of a working model has been established. 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 consolidated statements of operations.





Results
of Operations





The
following table sets forth selected statement of operations data as a percentage
of total revenues for the years indicated:




Fiscal
      Years ended December 31,2008
                                            
                                            
                                            2007Statement
      of Operations Data:Revenue:Revenue-sharing
      arrangements
                                            
                                            
                                            60.9
                                            %
                                            
                                            
                                            67.5
                                            %Maintenance
      fees
                                            
                                            
                                            24.4
                                            
                                            
                                            
                                            21.7Product
      sales
                                            
                                            
                                            14.7
                                            
                                            
                                            
                                            10.8Total
      revenue
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0Cost
      of revenue:Revenue-sharing
      arrangements
                                            
                                            
                                            26.4
                                            %
                                            
                                            
                                            32.6
                                            %Loss
      on impairment of refreshment centers
                                            
                                            
                                            7.1
                                            
                                            
                                            
                                            -Maintenance
                                            
                                            
                                            8.7
                                            
                                            
                                            
                                            5.0Product
      sales
                                            
                                            
                                            3.5
                                            
                                            
                                            
                                            2.4Total
      cost of revenue
                                            
                                            
                                            45.7
                                            
                                            
                                            
                                            40.0Gross
      margin
                                            
                                            
                                            54.3
                                            
                                            
                                            
                                            60.0Operating
      expenses:Selling,
      general and administrative expense
                                            
                                            
                                            51.4
                                            %
                                            
                                            
                                            35.2
                                            %Research
      and development expense
                                            
                                            
                                            8.9
                                            
                                            
                                            
                                            0.7Interest
      and other income
                                            
                                            
                                            (13.9
                                            )
                                            
                                            
                                            (9.4
                                            )Net
      operating expenses
                                            
                                            
                                            46.4
                                            
                                            
                                            
                                            26.5Income
      from operations
                                            
                                            
                                            7.9
                                            %
                                            
                                            
                                            33.5
                                            %Other
      income (expense):Gain
      on forgiveness of liabilities and debt
                                            
                                            
                                            -
                                            
                                            
                                            
                                            0.7
                                            %Net
      income (loss)
                                            
                                            
                                            7.9
                                            %
                                            
                                            
                                            34.2
                                            %




Comparison
of Years Ended December 31, 2008 and 2007





Revenues





Revenue
Sharing Arrangements -- Our revenue from revenue-sharing arrangements was
$555,571 in 2008 as compared to $792,281 for 2007, representing a decrease of
$236,710, or 29.9%. The decrease in revenue from revenue-sharing arrangements
was due to the completion of a number of revenue-sharing agreements as well as a
downturn in the lodging industry in 2008. During the years ended December 31,
2008 and 2007, we did not place additional products on a revenue sharing basis.
During the year ended December 31, 2008, revenues from one customer accounted
for 18.5% of our total revenues.





Maintenance
Fee Revenue -- Our maintenance fee revenue was $222,816 for 2008 and $254,428
for 2007, representing a decrease of $31,612, or 12.4%. The decrease in
maintenance fee revenue was due to a decreased number of products under
revenue-sharing and maintenance contracts.





Product
Sales -- Our revenue from product sales was $134,368 in 2008, as compared to
$127,441 in 2007, representing an increase of $6,927, or 5.4%. The increase in
revenue from product sales in 2008 was a result of the sales to hotels of their
equipment upon completion of their revenue-sharing agreement.




14
 Table of Contents




Cost
of Revenue





Cost of
Revenue-Sharing Revenue -- Our cost of revenue-sharing revenue was $240,871 for
2008 and $382,820 for 2007, representing a decrease of $141,949, or 37.1%. The
decrease in the cost of revenue-sharing revenue resulted from a decrease in
depreciation expense due to the sale of equipment to customers upon completion
of their revenue-sharing contract. The gross margin percentage on
revenue-sharing revenue was 56.6% in 2008 as compared to 51.7% in
2007.





Loss on
Impairment of Refreshment Centers -- During 2008, the Company assessed the
carrying value of certain refreshment centers that had been used by a Hotel and
taken out of service and recorded a loss due to impairment of $64,835.





Cost of
Maintenance Revenue -- Our cost of maintenance revenue was $79,493 for 2008 as
compared to $58,349 for 2007, representing an increase of $21,144, or 36.2%. The
increase in the cost of maintenance revenue was primarily due to the increasing
age of the equipment. The gross margin percentage on maintenance revenues was
64.3% in 2008 as compared to 77.1% in 2007.





Cost of
Product Sales Revenue -- Our cost of product sales revenue was $31,858 for 2008
as compared to $28,431 for 2007, representing an increase of $3,427, or 12.1%.
The increase was due to a lower remaining basis of the equipment sold in 2008
over those sold in 2007. The gross margin percentage on revenue from product
sales revenue was 76.3% in 2008 as compared to 77.7% in 2007.





The
changes and percent changes with respect to our revenues and our cost of revenue
for the years ended December 31, 2008 and 2007 are as follows:




For
      the Years EndedDecember
      31,2008
                                    
                                    
                                    2007
                                    
                                    
                                    Change
                                    
                                    
                                    Percent
                                      ChangeREVENUERevenue-sharing
      arrangements
                                    
                                    $
                                    555,571
                                    
                                    
                                    $
                                    792,281
                                    
                                    
                                    $
                                    (236,710
                                    )
                                    
                                    
                                    -29.9
                                    %Maintenance
      fees
                                    
                                    
                                    222,816
                                    
                                    
                                    
                                    254,428
                                    
                                    
                                    
                                    (31,612
                                    )
                                    
                                    
                                    -12.4
                                    %Product
      sales
                                    
                                    
                                    134,368
                                    
                                    
                                    
                                    127,441
                                    
                                    
                                    
                                    6,927
                                    
                                    
                                    
                                    5.4
                                    %Total
      Revenue
                                    
                                    
                                    912,755
                                    
                                    
                                    
                                    1,174,150
                                    
                                    
                                    
                                    (261,395
                                    )
                                    
                                    
                                    -22.3
                                    %COST
      OF REVENUERevenue-sharing
      arrangements
                                    
                                    
                                    240,871
                                    
                                    
                                    
                                    382,820
                                    
                                    
                                    
                                    (141,949
                                    )
                                    
                                    
                                    -37.1
                                    %Loss
      on impairment of refreshment centers
                                    
                                    
                                    64,835
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    64,835
                                    
                                    
                                    
                                    100.0
                                    %Maintenance
                                    
                                    
                                    79,493
                                    
                                    
                                    
                                    58,349
                                    
                                    
                                    
                                    21,144
                                    
                                    
                                    
                                    36.2
                                    %Product
      sales
                                    
                                    
                                    31,858
                                    
                                    
                                    
                                    28,431
                                    
                                    
                                    
                                    3,427
                                    
                                    
                                    
                                    12.1
                                    %Total Cost of
      Revenue
                                    
                                    $
                                    417,057
                                    
                                    
                                    $
                                    469,600
                                    
                                    
                                    $
                                    (52,543
                                    )
                                    
                                    
                                    11.2
                                    %GROSS
      MARGIN PERCENTAGERevenue-sharing
      arrangements
                                    
                                    
                                    56.6
                                    %
                                    
                                    
                                    51.7
                                    %Maintenance
                                    
                                    
                                    64.3
                                    %
                                    
                                    
                                    77.1
                                    %Product
      sales
                                    
                                    
                                    76.3
                                    %
                                    
                                    
                                    77.7
                                    %Total Gross Margin
      Percentage
                                    
                                    
                                    54.3
                                    %
                                    
                                    
                                    60.0
                                    %




Although
the preceding table summarizes the net changes and percent changes with respect
to our revenues and our cost of revenue for the years ended December 31, 2008
and 2007, the trends contained therein are limited to a two-year comparison and
should not be viewed as a definitive indication of our future
results.




15
 Table of Contents




Operating
Expenses





Selling,
General and Administrative -- Selling, general and administrative expenses were
$468,700 for 2008 and $412,919 for 2007, representing an increase of $55,781, or
13.5%. Selling, general and administrative expenses represented 51.4% of our
total revenues in 2008 and 35.2% of our total revenues in 2007. The increase in
our selling, general and administrative expenses reflects primarily the
write-off of an uncollectible account among other items.





Research
and Development Expenses -- Research and development expenses were $81,673 for
2008 and $8,678 for 2007, representing an increase of $72,995, or 841.2%. The
increase in research and development expenses was due to development initiated
on new product lines. Research and development expenses represented 8.9% of our
total revenue in 2008 and 0.7% of our total revenue in 2007.





Interest
and other income in the amount of $126,906 was realized in 2008 as compared to
$110,768 in 2007. Income from operations for 2008 was $72,231, as compared to
$393,721 in 2007. The Company also realized a gain on forgiveness of liabilities
and debt of $8,500 in 2007.





Net
Income Attributable to Common Stockholders





We
realized net income attributable to common stockholders of $72,231 in 2008, as
compared to $402,221 in 2007. The $329,990 decrease in net income was primarily
due to the decrease in gross margin due to the decreasing refreshment centers
installed as well as the write-off of an uncollectible account and increase in
research in development.





Liquidity
and Capital Resources





At
December 31, 2008, we had $2,135,814 of cash and working capital of $2,774,255,
as compared to $355,970 of cash and working capital of $2,416,398 at December
31, 2007. In addition, our stockholders' equity was $3,081,719 at December 31,
2008 as compared to $3,029,941 at December 31, 2007, an increase of $51,778. The
increase in cash reflects primarily the sale of investments in marketable
securities. The increase in working capital and stockholders' equity reflects
the continued decrease in cash used in our operations.





The
deteriorating credit quality of assets linked to the sub-prime mortgage market,
caused by a decline in general mortgage credit standards, led to a lack of
liquidity and downgrades to certain mortgage backed securities and other
securities in the financial marketplace. This, in turn, contributed to a
broad-based liquidity shortfall in the financial system. The subsequent increase
in risk aversion has contributed to a decline in credit availability in the
financial and capital markets. A continuation of these credit and liquidity
issues was liable to result in reduced liquidity and impairment write-downs on
some of our asset holdings. The Company’s holdings included $1,575,000 of
auction rate preferred securities as of April 29, 2008 that were affected by and
were at most risk for possible future reduced liquidity and impairment
write-downs. However, the Company successfully sold off all of these securities
in 2008 at par.





Our
accumulated deficit decreased to $31,010,396 at December 31, 2008 as compared to
$31,082,627 at December 31, 2007. The decrease in accumulated deficit is a
direct result of our net income of $72,231 in the year ended December 31,
2008.





Net cash
provided by operating activities for the year ended December 31, 2008 was
$240,326, as compared to $765,270 of net cash provided by operating activities
during the year ended December 31, 2007. The $524,944 decrease in net cash
provided by operating activities resulted primarily from the decrease in net
income in 2008.





Net cash
provided by investing activities for the year ended December 31, 2008 was
$1,577,971, as compared to net cash used during the year ended December 31, 2007
of $489,938. The change resulted primarily from the sale of marketable
securities in 2008.




Net cash
used in financing activities for the year ended December 31, 2008 was $38,453,
as compared to $0 during the year ended December 31, 2007. The cash used in
financing activities resulted from the buyback of Company common
stock.




On
October 1, 2003, the Company issued AMRESCO a warrant to purchase 400,000 shares
of common stock, exercisable at $0.10 per share through October 1, 2008. If at
anytime until October 1, 2008, the warrant had an intrinsic value greater than
$300,000 based upon the then current trading price of the Company's common
stock, then AMRESCO would have had the right to "put" the warrant back to the
Company in exchange for $200,000 payable in 12 equal consecutive monthly
installments with the first payment to be made on the last day of the month in
which the "put" occurs. However, this did not occur prior to October 1, 2008 and
accordingly; the Company is not liable in this respect. The warrant for 400,000
shares of common stock expired on October 1, 2008.





Off
Balance Sheet Arrangements





We have
no off-balance sheet arrangements.





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





Qualitative
and Quantitative Disclosures about Market Risk





A smaller
reporting company, as defined by Rule 229.10(f)(1), is
not required to provide the information required by this Item.





16
 Table of Contents








ITEM 8. FINANCIALSTATEMENTS.




eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Report of Independent Certified Public
      Accountants
            20Consolidated Balance Sheets
            21Consolidated Statements of Operations
            22Consolidated Statements of Stockholders'
    Equity
            23Consolidated Statements of Cash Flows
            24Notes to Consolidated Financial
    Statements
            25








17
 Index







REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM




HANSEN,BARNETT& MAXWELL,
      P.C.
              A
      Professional Corporation
              CERTIFIED
      PUBLIC ACCOUNTANTS
              AND
              BUSINESS
      CONSULTANTS
              5
      Triad Center, Suite 750
              Salt
      Lake City, UT 84180-1128
              Phone:
      (801) 532-2200
              Fax:
      (801) 532-7944
              www.hbmcpas.com
            
            Registered
      with the Public Company
              Accounting
      Oversight Board




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the
Directors and the Stockholders


eRoomSystem
Technologies, Inc.





We have
audited the accompanying consolidated balance sheets of eRoomSystem
Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and
2007, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of eRoomSystem Technologies,
Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
















HANSEN,
BARNETT & MAXWELL, P.C.





Salt Lake
City, Utah


March 10,
2009






18
 Index




eROOMSYSTEM TECHNOLOGIES, INC. AND
SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSDecember
      31,2008
                              
                              
                              2007ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                              
                              $
                              2,135,814
                              
                              
                              $
                              355,970Marketable
      securities available for sale
                              
                              
                              -
                              
                              
                              
                              1,998,002Accounts
      receivable, net of allowance for doubtful accounts of  $22,040
      and $32,399at
      December 31, 2008 and 2007, respectively
                              
                              
                              124,897
                              
                              
                              
                              182,416Notes
      receivable
                              
                              
                              512,603
                              
                              
                              
                              -Prepaid
      expenses
                              
                              
                              114,512
                              
                              
                              
                              10,831Total Current
      Assets
                              
                              
                              2,887,826
                              
                              
                              
                              2,547,219REFRESHMENT CENTERS IN
      SERVICE, net of accumulated depreciation of$1,015,582
      and $2,406,453 at December 31, 2008 and 2007, respectively
                              
                              
                              98,389
                              
                              
                              
                              434,609PROPERTY
      AND EQUIPMENTComputer
      and office equipment, net of accumulated depreciation of$9,214
      and $6,657, at December 31, 2008 and 2007, respectively
                              
                              
                              9,591
                              
                              
                              
                              3,261INVESTMENT IN MARKETABLE
      SECURITIES
                              
                              
                              14,075
                              
                              
                              
                              14,075NOTE RECEIVABLE
                              
                              
                              183,159
                              
                              
                              
                              159,166DEPOSITS
                              
                              
                              2,250
                              
                              
                              
                              2,432Total
    Assets
                              
                              $
                              3,195,290
                              
                              
                              $
                              3,160,762LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                              
                              $
                              51,687
                              
                              
                              $
                              49,070Accrued
      liabilities
                              
                              
                              52,534
                              
                              
                              
                              71,289Customer
      deposits
                              
                              
                              2,004
                              
                              
                              
                              -Deferred
      maintenance revenue
                              
                              
                              7,346
                              
                              
                              
                              10,462Total Current Liabilities
                              
                              
                              113,571
                              
                              
                              
                              130,821Total Liabilities
                              
                              
                              113,571
                              
                              
                              
                              130,821COMMITMENTS
      AND CONTINGENCIES
                              
                              
                              -
                              
                              
                              
                              -STOCKHOLDERS'
      EQUITYPreferred
      stock, $0.001 par value; 5,000,000 shares authorized; none outstanding
                              
                              
                              -
                              
                              
                              
                              -Common
      stock, $0.001 par value; 50,000,000 shares
      authorized;   shares 24,048,165and
      23,973,165 shares outstanding at December 31, 2008 and 2007, respectively
                              
                              
                              24,048
                              
                              
                              
                              23,973Additional
      paid-in capital
                              
                              
                              34,042,247
                              
                              
                              
                              33,792,010Treasury
      stock at cost 290,300 and zero at December 31, 2008 and 2007
      respectively
                              
                              
                              (38,453
                              )
                              
                              
                              -Warrants
      and options outstanding
                              
                              
                              114,273
                              
                              
                              
                              346,585Accumulated
      deficit
                              
                              
                              (31,010,396
                              )
                              
                              
                              (31,082,627
                              )Accumulated
      other comprehensive loss
                              
                              
                              (50,000
                              )
                              
                              
                              (50,000
                              )Total Stockholders'
      Equity
                              
                              
                              3,081,719
                              
                              
                              
                              3,029,941Total Liabilities and
      Stockholders' Equity
                              
                              $
                              3,195,290
                              
                              
                              $
                              3,160,762See
      accompanying notes to consolidated financial statements






19
 Index






eROOMSYSTEM TECHNOLOGIES, INC. AND
    SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMEFor
      the years ended December 31,2008
                              
                              
                              2007REVENUERevenue-sharing
      arrangements
                              
                              $
                              555,571
                              
                              
                              $
                              792,281Maintenance
      fees
                              
                              
                              222,816
                              
                              
                              
                              254,428Product
      sales
                              
                              
                              134,368
                              
                              
                              
                              127,441Total Revenue
                              
                              
                              912,755
                              
                              
                              
                              1,174,150COST
      OF REVENUERevenue-sharing
      arrangements
                              
                              
                              240,871
                              
                              
                              
                              382,820Loss
      on impairment of refreshment centers
                              
                              
                              64,835
                              
                              
                              
                              -Maintenance
                              
                              
                              79,493
                              
                              
                              
                              58,349Product
      sales
                              
                              
                              31,858
                              
                              
                              
                              28,431Total Cost of Revenue
                              
                              
                              417,057
                              
                              
                              
                              469,600GROSS MARGIN
                              
                              
                              495,698
                              
                              
                              
                              704,550OPERATING
      EXPENSESSelling,
      general and administrative expense, including non-cash
      compensationof
      $18,000 and $13,157, respectively
                              
                              
                              468,700
                              
                              
                              
                              412,919Research
      and development expense
                              
                              
                              81,673
                              
                              
                              
                              8,678Interest
      and other income
                              
                              
                              (126,906
                              )
                              
                              
                              (110,768
                              )Net Operating Expenses
                              
                              
                              423,467
                              
                              
                              
                              310,829Income from Operations
                              
                              
                              72,231
                              
                              
                              
                              393,721Gain
      on forgiveness of liabilities and debt
                              
                              
                              -
                              
                              
                              
                              8,500Net
      Income
                              
                              
                              72,231
                              
                              
                              
                              402,221Unrealized
      loss on investment
                              
                              
                              -
                              
                              
                              
                              (50,000
                              )Comprehensive
      Income
                              
                              $
                              72,231
                              
                              
                              $
                              352,221Basic Earnings Per Common Share
                              
                              $
                              0.00
                              
                              
                              $
                              0.02Diluted Earnings Per Common
      Share
                              
                              $
                              0.00
                              
                              
                              $
                              0.02See
      accompanying notes to consolidated financial statements






20
 Index




eROOMSYSTEM TECHNOLOGIES, INC. AND
SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2008 AND 2007Shares
                                                
                                                
                                                Amount2008
                                                
                                                
                                                2007
                                                
                                                
                                                2008
                                                
                                                
                                                2007COMMON
      STOCKBalance
      at Beginning of Year
                                                
                                                
                                                23,973,165
                                                
                                                
                                                
                                                23,898,165
                                                
                                                
                                                $
                                                23,973
                                                
                                                
                                                $
                                                23,898Issuance
      to directors for services
                                                
                                                
                                                75,000
                                                
                                                
                                                
                                                75,000
                                                
                                                
                                                
                                                75
                                                
                                                
                                                
                                                75Balance
      at End of Year
                                                
                                                
                                                24,048,165
                                                
                                                
                                                
                                                23,973,165
                                                
                                                
                                                
                                                24,048
                                                
                                                
                                                
                                                23,973TREASURY
      SHARESBalance
      at Beginning of Year
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Buyback
      of common stock
                                                
                                                
                                                (290,300
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (38,453
                                                )
                                                
                                                
                                                -Balance
      at End of Year
                                                
                                                
                                                (290,300
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (38,453
                                                )
                                                
                                                
                                                -ADDITIONAL
      PAID-IN-CAPITALBalance
      at Beginning of Year
                                                
                                                
                                                33,792,010
                                                
                                                
                                                
                                                33,751,605Issuance
      to directors for services
                                                
                                                
                                                17,925
                                                
                                                
                                                
                                                11,175Expiration
      of warrants and options
                                                
                                                
                                                232,312
                                                
                                                
                                                
                                                29,230Balance
      at End of Year
                                                
                                                
                                                34,042,247
                                                
                                                
                                                
                                                33,792,010WARRANTS
      AND OPTIONS OUTSTANDINGBalance
      at Beginning of Year
                                                
                                                
                                                346,585
                                                
                                                
                                                
                                                373,908Expiration
      of warrants and options
                                                
                                                
                                                (232,312
                                                )
                                                
                                                
                                                (29,230
                                                )Issuance
      of options and warrants related to consulting services and financing
      activities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,907Balance
      at End of Year
                                                
                                                
                                                114,273
                                                
                                                
                                                
                                                346,585ACCUMULATED
      DEFICITBalance
      at Beginning of Year
                                                
                                                
                                                (31,082,627
                                                )
                                                
                                                
                                                (31,484,848
                                                )Net
      income
                                                
                                                
                                                72,231
                                                
                                                
                                                
                                                402,221Balance
      at End of Year
                                                
                                                
                                                (31,010,396
                                                )
                                                
                                                
                                                (31,082,627
                                                )ACCUMULATED
      OTHER COMPREHENSIVE LOSSBalance
      at Beginning of Year
                                                
                                                
                                                (50,000
                                                )
                                                
                                                
                                                -Unrealized
      Loss on Marketable Securities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (50,000
                                                )Balance
      at End of Year
                                                
                                                
                                                (50,000
                                                )
                                                
                                                
                                                (50,000
                                                )Total
      Stockholders' Equity at End of Year
                                                
                                                $
                                                3,081,719
                                                
                                                
                                                $
                                                3,029,941See
      accompanying notes to consolidated financial statements






21
 Index




eROOMSYSTEM TECHNOLOGIES, INC. AND
SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the years ended
                          December
      31,2008
                        
                        
                        2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                        
                        $
                        72,231
                        
                        
                        $
                        402,221Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                        
                        
                        243,428
                        
                        
                        
                        384,742Gain
      on forgiveness of debt and liabilities
                        
                        
                        -
                        
                        
                        
                        (8,500
                        )Gain
      on sale of refreshment centers
                        
                        
                        (103,854
                        )
                        
                        
                        (63,164
                        )Loss
      on impairment of refreshment centers
                        
                        
                        64,835Interest
      income from other receivable
                        
                        
                        (28,902
                        )
                        
                        
                        (9,507
                        )Amortization
      of discount on note receivable
                        
                        
                        -
                        
                        
                        
                        (897
                        )Non-cash
      compensation expense
                        
                        
                        18,000
                        
                        
                        
                        13,157Changes
      in operating assets and liabilities:Accounts
      receivable
                        
                        
                        95,519
                        
                        
                        
                        86,434Prepaid
      expenses
                        
                        
                        (103,681
                        )
                        
                        
                        (9,034
                        )Accounts
      payable
                        
                        
                        2,617
                        
                        
                        
                        58Accrued
      liabilities
                        
                        
                        (18,755
                        )
                        
                        
                        (28,345
                        )Customer
      deposits and deferred maintenance revenue
                        
                        
                        (1,112
                        )
                        
                        
                        (1,895
                        )Net Cash Provided By Operating
      Activities
                        
                        
                        240,326
                        
                        
                        
                        765,270CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of fixed assets
                        
                        
                        (8,887
                        )
                        
                        
                        -Proceeds
      from sale of refreshment centers
                        
                        
                        96,368
                        
                        
                        
                        86,726Purchase
      of notes receivable
                        
                        
                        (507,694
                        )
                        
                        
                        -Purchase
      of marketable securities available for sale
                        
                        
                        (926,998
                        )
                        
                        
                        (1,176,010
                        )Sale
      of marketable securities availabe for sale
                        
                        
                        2,925,000
                        
                        
                        
                        578,090Proceeds
      from note receivable
                        
                        
                        -
                        
                        
                        
                        17,875Change
      in long term deposits and restricted funds
                        
                        
                        182
                        
                        
                        
                        3,381Net Cash Provided by Investing
      Activities
                        
                        
                        1,577,971
                        
                        
                        
                        (489,938
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESBuyback
      of common stock
                        
                        
                        (38,453
                        )
                        
                        
                        -Net Cash Used in Financing
      Activities
                        
                        
                        (38,453
                        )
                        
                        
                        -Net Increase in Cash
                        
                        
                        1,779,844
                        
                        
                        
                        275,332Cash at Beginning of
      Period
                        
                        
                        355,970
                        
                        
                        
                        80,638Cash at End of Period
                        
                        $
                        2,135,814
                        
                        
                        $
                        355,970Supplemental
      Cash Flows InformationCash
      paid for interest
                        
                        $
                        -
                        
                        
                        $
                        -See
      accompanying notes to consolidated financial statements






22
 Index






NOTES TOCONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





Organization,
Nature of Operations and Business Condition - eRoomSystem Services, Inc. was
organized under the laws of the State of Nevada in 1993. In 1999, eRoomSystem
Services, Inc. was reorganized as a wholly-owned subsidiary of eRoomSystem
Technologies, Inc., also a Nevada corporation. During 1999 and 2000, RSi BRE,
Inc. ("RSi BRE") and eRoom System SPE, Inc. ("SPE") were formed, respectively,
as wholly-owned subsidiaries of eRoomSystem Technologies, Inc. In 2004 the
Company liquidated RSi BRE into eRoomSystem Technologies, Inc. In 2008,
eLiftLLC, LLC was formed as a wholly-owned subsidiary of eRoomSystem
Technologies, Inc. eRoomSystem Technologies, Inc. and its subsidiaries are
collectively referred to as the "Company."





The
Company has installed a complete line of fully-automated eRoomServ refreshment
centers and eRoomSafes in hotels. The eRoomServ refreshment centers and
eRoomSafes use proprietary software that integrates with a data collection
computer in each hotel.





Up until
the year ended December 31, 2004, the Company had suffered recurring losses.
During the years ended December 31, 2008 and 2007, the Company realized net
income of $72,231and $402,221, respectively. During the years ended December 31,
2008 and 2007, the Company's operations provided $240,326 and $765,270 of cash,
respectively. The Company had cash of $2,135,814 as of December 31, 2008. At
December 31, 2008, the Company had working capital of $2,774,255. Although the
Company realized a profit in 2008 as well as in 2007, the Company is
anticipating decreasing revenue as the Company's existing hotel revenue-sharing
and maintenance contracts conclude in 2009. This raises substantial doubt about
the Company's ability to continue as a going concern. Realization of continued
profitable operations is not assured. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Management would like to acquire an existing operating company to enable the
Company to grow and is continuously performing due diligence on third party
companies for this purpose. The Company has also been performing research in
order to invest in privately-held or publicly traded emerging growth stage
companies.





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




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




Cash and
Cash Equivalents include highly liquid debt investments with original maturities
of three months or less, readily convertible to known amounts of cash. The
Company had no restricted cash, as of December 31, 2008 and 2007.





The
carrying amounts reported in the accompanying consolidated financial statements
for cash, available for sale securities, accounts receivable, notes receivable
and accounts payable approximate fair values because of the immediate or
short-term maturities of these financial instruments. The Company's notes
receivable are carried at principal plus accrued interest.





Marketable
securities available for sale include securities that can be sold at any time
based upon needs or market conditions. Available for sale securities are
accounted for at fair value, with unrealized gains and losses on these
securities, net of income tax provisions, reflected in stockholders’ equity as
accumulated other comprehensive income. At December 31, 2008 and 2007, the
Company had $0 and $1,998,002 invested in auction rate preferred securities
(“ARPS”), respectively.




23
 Index


ARPS are
notes that provided for an interest rate reset through a “dutch auction” process
in periods spanning from 7 to 35 days. The underlying bonds have long-term
maturities, but because of the auction process had heretofore been viewed as
very liquid, short-term investments. The auction process resets the interest
rate on the securities to current market rates, and provided a vehicle for
investors to or sell the securities in what was historically a very liquid
environment. All of the Company’s ARPS were rated AAA/Aaa by Standard &
Poors, Moody’s or Fitch ratings services, and were collateralized.





In
February 2008, a number of ARPS auctions failed to generate enough demand to
successfully reset interest rates. In these circumstances, the securities
generally require the issuer to pay a maximum interest rate until the next
auction is held. The Company’s ARPS holdings were among those ARPS that had
failed auctions. During the latter part of 2008, these securities were all
redeemed at par.





The
Company classifies investments in ARPS as short-term investments on the
Company’s consolidated balance sheets. The Company believes that the securities
were stated at fair value as of December 31, 2007 based on the existence of
subsequent successful auctions in 2008. The Company has fully liquidated all of
its auction rate securities.




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.





Loan
Receivable - Loan Receivables are stated at the historical carrying amount and
were evaluated for impairment. When projections indicate that the carrying value
of the note is not recoverable, the carrying value is reduced by the estimated
excess of the carrying value over the projected discounted cash flows. No
impairment was deemed necessary.





eRoomServ
Refreshment Centers in Service and Property and Equipment - eRoomServ
refreshment centers (including eRoomSafes, if applicable) and property and
equipment are stated at cost, less accumulated depreciation and amortization.
Major additions and improvements are capitalized, while minor equipment as well
as repairs and maintenance costs are expensed when incurred. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets, after taking into consideration residual
values for eRoomServ refreshment centers, which lives are as
follows:




eRoomServ
      refreshment centers in service
                        7
      yearsComputer
      and office equipment
                        3 -
      7 yearsVehicles
      and other
                        7
      years




Depreciation
and amortization expense related to eRoomServ refreshment centers in service and
property and equipment was $243,428 and $384,742 for the years ended December
31, 2008 and 2007, respectively.





On
retirement or disposition of property and equipment, the cost and related
accumulated depreciation and amortization are removed from the accounts and any
resulting gain or loss is recognized in the statement of operations. In the year
ended December 31, 2008, the Company sold refreshment centers with a carrying
value of $30,513 for $134,368, recognizing a gain on sale of $103,855. In the
year ended December 31, 2007, the Company sold refreshment centers with a
carrying value of $23,562 for $94,336, recognizing a gain on sale of
$70,774.





Capitalized
Software Costs - In accordance with FASB Statement of Financial Accounting
Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed, development costs incurred in the research
and development of new software products to be sold, leased or otherwise
marketed are expensed as incurred until technological feasibility in the form of
a working model has been established. Internally generated capitalizable
software development costs have not been material for the years ended December
31, 2008 and 2007. The Company has charged its software development costs to
research and development expense in the accompanying consolidated statements of
operations.




24
 Index




Deferred
Offering and Financing Costs - The Company capitalizes direct costs associated
with the acquisition of debt financing. These costs are amortized over the life
of the related debt as additional interest expense. If the underlying debt is
repaid or extinguished prior to the scheduled maturity, the costs are removed
from the accounts and considered in the determination of the gain or loss from
extinguishment. The Company also capitalizes direct costs associated with the
acquisition of equity financing which are netted against the actual equity
proceeds.





Impairment
of Long-Lived Assets - The carrying values of the Company's long-lived assets
were reviewed for impairment. When projections indicate that the carrying value
of the long-lived asset is not recoverable, the carrying value of the long-lived
asset is reduced by the estimated excess of the carrying value over the
projected discounted cash flows. No impairment was deemed
necessary.





Revenue
Recognition - The Company generates revenues from either the sale of eRoomServ
refreshment centers and eRoomSafes or from leases of eRoomServ refreshment
centers and eRoomSafes under revenue-sharing agreements. Under the
revenue-sharing agreements, the Company receives a non-guaranteed portion of the
sales generated by the units. The Company also generates revenues from
maintenance services.





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





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





The
Company generates interest income on notes receivable. Interest income is
accrued to income based on the principal amount outstanding.





Stock-Based
Compensation.- The Company has one stock-based employee compensation plan, which
is described more fully in Note 9. The Company utilizes the fair value
recognition provisions of SFAS No. 123 (Revised 2004), Share-Based Payment,
("SFAS 123(R)") using the modified prospective transition method. Accordingly,
the Company records expense, if applicable, for (i) the unvested portion of
grants issued during 2008 and 2007 and (ii) new grant issuances, both of which
will be expensed over the requisite service (i.e., vesting)
periods.





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





Net
Earnings per Common Share - Basic earnings per common share is computed by
dividing net income by the weighted-average number of common shares outstanding.
Diluted earnings per common share is computed by dividing net income, adjusted
to add back interest associated with convertible debt, by the weighted-average
number of common shares and dilutive potential common share equivalents
outstanding. Potential common share equivalents consist of shares issuable upon
the exercise of stock options and warrants, and shares issuable upon the
conversion of debt.




25
 Index


The
following table is a reconciliation of the numerators and denominators used in
the calculation of basic and diluted weighted-average common shares outstanding
for the years ending December 31, 2008 and 2007:




2008
                                                                              
                                                                              
                                                                              2007Basic
      net income
                                                                              
                                                                              $
                                                                              72,231
                                                                              
                                                                              
                                                                              $
                                                                              402,221Diluted
      net income
                                                                              
                                                                              $
                                                                              72,231
                                                                              
                                                                              
                                                                              $
                                                                              402,221Basic
      weighted-average common shares outstanding
                                                                              
                                                                              
                                                                              23,998,357
                                                                              
                                                                              
                                                                              
                                                                              23,948,507Effect
      of dilutive securitiesStock
      options and warrants
                                                                              
                                                                              
                                                                              41,920
                                                                              
                                                                              
                                                                              
                                                                              174,953Diluted
      weighted-average common shares outstanding
                                                                              
                                                                              
                                                                              24,040,277
                                                                              
                                                                              
                                                                              
                                                                              24,123,460Basic
      earnings per share
                                                                              
                                                                              $
                                                                              0.00
                                                                              
                                                                              
                                                                              $
                                                                              0.02Diluted
      earnings per share
                                                                              
                                                                              $
                                                                              0.00
                                                                              
                                                                              
                                                                              $
                                                                              0.02




As of
December 31, 2008 and 2007, there were potential common stock equivalents from
options and warrants of 2,148,926 and 2,994,668, respectively that were not
included in the computation of diluted earnings per common share because their
effect would have been anti-dilutive.





Recent
Accounting Pronouncements -   In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS No. 159”). SFAS No. 159 allows companies to choose
to measure certain financial instruments and certain other items at fair value.
The statement requires that unrealized gains and losses are reported in earnings
for items measured using the fair value option and establishes presentation and
disclosure requirements. SFAS No. 159 is effective July 1, 2008 for
the Company. The Company does not believe the adoption of SFAS No. 159 will
have a material effect on our consolidated financial statements.





In June
2007, the FASB issued Emerging Issue Task Force (EITF) No. 07-03
(EITF 07-03),Accounting
for Non-Refundable Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities . EITF 07-03 provides guidance
on whether non-refundable advance payments for goods that will be used or
services that will be performed in future research and development activities
should be accounted for as research and development costs or deferred and
capitalized until the goods have been delivered or the related services have
been rendered. EITF 07-03 is effective for fiscal years beginning after
December 15, 2007. The Company does not expect that the adoption of
EITF 07-03 will have a material impact on its financial position or results
of operations.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 151.” (“SFAS 160”).
SFAS 160 requires all entities to report noncontrolling (minority) interests in
subsidiaries as equity in the consolidated financial statements. Its intention
is to eliminate the diversity in practice regarding the accounting for
transactions between an entity and noncontrolling interests. This Statement is
effective for the Company as of January 1, 2009. Earlier adoption is prohibited.
The Company is currently assessing the impact, if any, of SFAS 160 on its
consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
141R”).  SFAS 141R provides guidance to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about its business
combinations and its effects.  SFAS 141R establishes principles and
requirements for how the acquirer recognizes and measures in its financial
statements the identifiable assets acquired, liabilities assumed, the goodwill
acquired and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination.  SFAS 141R is effective for acquisitions
beginning in our fiscal year beginning December 1, 2009 and earlier application
is prohibited.




In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No. 133,"
which amends and expands the disclosure requirements of SFAS 133 to require
qualitative disclosure about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. This statement will be effective for our
financial statements issued for the second quarter of fiscal year 2009. We are
evaluating the impact, if any, the adoption of SFAS No. 161 will have on
the disclosures in our consolidated financial statements.




26
 Index




In April
2008, the FASB issued FASB Staff Position SFAS 142-3, "Determination of the Useful
Life of Intangible Assets" (FSP 142-3). FSP 142-3 amends the factors that should
be considered in developing the renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS 142,
"Goodwill and Other
Intangible Assets". FSP 142-3 also requires expanded disclosure regarding the
determination of intangible asset useful lives. FSP 142-3 is effective for our
fiscal year beginning November 1, 2009. We are currently evaluating the
impact, if any, that FSP 142-3 will have on our consolidated financial
statements.




In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles". This standard is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with US GAAP for non-governmental entities. SFAS No. 162 is
effective November 15, 2008. The adoption of this statement will have no
effect on our consolidated financial statements.




In June
2008, the FASB issued Staff Position (FSP) No. EITF 03-6-1, "Determining
Whether Instruments Granted in Share- Based Payment Transactions Are
Participating Securities" ("FSP EITF 03-6-1"), which clarified that
unvested share-based payment awards that contain nonforfeitable rights to
receive dividends or dividend equivalents (whether paid or unpaid) are
participating securities, and thus, should be included in the two-class method
of computing earnings per share (EPS). This FSP is effective for our fiscal year
beginning November 1, 2009, and requires that all prior period EPS data be
adjusted retroactively. We do not expect the adoption of this standard to have
an impact on our consolidated financial statements as holders of our stock
options and performance units are not entitled to any rights as a stockholder
until the date as of which shares of stock are issued or the performance units
become vested.





NOTE
2 - INVESTMENT IN SPECIAL PURPOSE ENTITIES





During
2000, eRoom System Technologies, Inc. formed eRoom System SPE, Inc. ("SPE"), as
a wholly owned subsidiary. SPE was formed for the purposes of purchasing certain
revenue-sharing agreements and related eRoomServ refreshment centers from
eRoomSystem Technologies, Inc., obtaining the rights, through licensing, to
certain intellectual property relating to the use of the eRoomServ refreshment
centers and obtaining financing secured by pledging the revenue-sharing
agreements and refreshment centers.





NOTE
3 - INVESTMENTS





The
Company had investments of $0 and $1,998,002 in Auction Rate Preferred
Securities as of December 31, 2008 and 2007 respectively that are classified as
marketable securities available for sale.





On May
20, 2005 the Company invested $10,000 in Identica Holdings Corporation, a Nevada
corporation, by purchasing 1,666,667 shares of common stock, at $0.006 per
share. This investment represented 10% of Identica's then outstanding capital
stock on a fully-diluted basis. Identica is a privately held company that has
expressed an interest in becoming a public company in the future and has filed a
registration statement with the SEC for this purpose, which has been declared
effective. This investment is be carried at the lower of cost or market and is
periodically evaluated for impairment.





In
addition, the Company 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. On June 20, 2007, the Company extended the loan for an additional year.
The terms of the extended promissory note include interest accruing on the
unpaid principal balance in the amount of 10% per annum and a maturity date of
June 20, 2008. On June 20, 2008, the Company extended the loan for an additional
six months, on the same terms and on December 20, 2008, the Company extended the
note for an additional four months with a maturity date of April 20, 2008 on the
same terms.





In
consideration for making the loan, the Company was 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. The warrants were valued at $4,075
using the Black-Scholes pricing model with the following assumptions: risk free
interest rate 3.88%, dividend yield of 0.0%, volatility of 150% and expected
life of 5 years. The discount was amortized over the twenty-five month term as
interest income.





In
September 2005, the Company entered into an Asset Purchase Agreement with
Identica. Pursuant to the Agreement, Identica has purchased certain assets of
the Company. Specifically, the assets consist of furniture and computer
equipment held by the Company, as well as the Company's web technologies package
utilized by the Company's technical support team to which the Company retained a
perpetual license. The Agreement provided that Identica would pay the sum of
$60,000 for the assets, which amount was evidenced by a one-year note bearing
interest at the rate of 8% per annum, compounded monthly. Under the terms of the
Note, Identica would make seven principal and interest payments in the amount of
$9,098 per month, commencing on the six-month anniversary of the Note with a
maturity date of September 7, 2006. In addition, at the same time, the Company
entered into a Professional Services and Support Agreement whereby Identica will
employ the technical personnel of the Company. In conjunction therewith,
the


Company
would continue to be responsible, for a period of 6 months from the date of the
Agreement for all expenses less $7,000 dollars per month related to such
technical personnel. Thereafter, the Company would pay Identica $0.50 per Hotel
room per month to service all equipment that the Company is contractually
obligated to service. The Note was paid in full in 2007.




27
 Index




On March
7, 2006, the Company invested $50,000 in Aprecia, Inc., a Delaware corporation,
by purchasing 2,083,333 shares of common stock, at $0.024 per hare. This
investment represented 12% of Aprecia's then outstanding capital stock.
Aprecia's stock has not started trading on a public exchange, although it has
filed a registration statement covering its securities with the SEC which has
been declared effective. Upon evaluation of the Company’s investments in the
third quarter of 2007, the Company determined that the investment in Aprecia was
impaired based on their most recent filing which shows them as a company with no
revenue and negative stockholders equity. Therefore, the Company has recorded an
unrealized loss in the amount of $50,000 as accumulated other comprehensive loss
in the year ended December 31, 2007.





On July
24, 2008, the Company extended a loan in the amount $500,000 to Blackbird
Corporation. The loan is evidenced by a 10% senior secured convertible
promissory note, made by BlackBird in favor of the Company (the “Secured Note”).
The Secured Note matures on June 30, 2009 and bears interest at an annual rate
of 10%, with interest payable quarterly on the last business day of each
quarter. The interest rate increases to 18% if the note is unpaid after December
31, 2008.





NOTE
4 - NET INVESTMENT IN SALES-TYPE LEASE





During
June 2004, the Company entered into an agreement with a hotel property owner
that amended a previous revenue sharing lease agreement that had previously been
non-performing.




The lease
agreement terminated on December 31, 2008. At which time the hotel property
owner took ownership of the refreshment centers. The property made monthly
payments of $7,200. The lease agreement was classified as a sales-type capital
lease. Because the property has a history of non-performance and is still under
the supervision of a bankruptcy court, the net investment in the capital lease
had been fully allowed against.




The
Company recorded revenue-sharing and maintenance fee revenue in the amounts of
$82,385 and $86,400 for the years ended December 31, 2008 and 2007,
respectively.





There are
no further payments due.





NOTE
5 - NOTES PAYABLE AND LONG-TERM DEBT





As
December 31, 2008 and 2007, there were no notes payable or long-term
debts.





NOTE
6 - COMMITMENTS AND CONTINGENCIES





Employment
and Consulting Agreements - On January 1, 2007, the Company entered into a new
employment agreement with its chief executive officer and president for a two
year term. The agreement provides for an annual salary of $150,000. The
agreement requires that the chief executive officer not compete with the Company
during the term of employment and for three years subsequent to
termination.





Operating
Leases as Lessor - The Company accounts for its revenue-sharing agreements as
operating leases. As of December 31, 2008, the Company had no revenue-sharing
agreement for which the customer is contractually obligated to pay minimum
monthly payments. Agreements with all customers provide for an allocation of
revenues to the Company with no minimum monthly payment. Accordingly, the
Company is unable to estimate future amounts to be received under these
agreements.




Operating
Leases as Lessee - In March 2008, the Company rented a different office at its
Lakewood, NJ facility. The Company entered into a 12 month lease agreement that
will end in March 2009 with automatic one year renewals. The lease provides for
monthly rent payments of $1,300. Future lease payments in 2009 are
$3,019.35.




Rent
expense for the years ended December 31, 2008 and 2007 was $15,831 and $7,576,
respectively.




28
 Index




NOTE
7 - INCOME TAXES





The
Company has paid no federal income taxes. The following is a schedule of state
income taxes paid in 2008 and 2007:




For
      the years ended December 31,
                                        
                                        2008
                                        
                                        
                                        2007New
      Jersey
                                        
                                        $
                                        2,080
                                        
                                        
                                        $
                                        448New
      York
                                        
                                        
                                        2,945
                                        
                                        
                                        
                                        4,441Tennessee
                                        
                                        
                                        321
                                        
                                        
                                        
                                        -Total
      income tax paid
                                        
                                        $
                                        5,346
                                        
                                        
                                        $
                                        4,889





The
significant components of the Company's deferred income tax assets as of
December 31, 2008 and 2007 are as follows:




For
      the years ending December 31,
                                        
                                        2008
                                        
                                        
                                        2007Deferred
      Income Tax Assets:Net
      operating loss carryforwards
                                        
                                        $
                                        7,387,500
                                        
                                        
                                        $
                                        7,495,513Reserves
      and accrued liabilities
                                        
                                        
                                        13,947
                                        
                                        
                                        
                                        14,430Other
      assets
                                        
                                        
                                        8,360
                                        
                                        
                                        
                                        11,839Total
      Deferred Income Tax Assets
                                        
                                        $
                                        7,409,807
                                        
                                        
                                        $
                                        7,521,782Valuation
      allowance
                                        
                                        
                                        (7,459,554
                                        )
                                        
                                        
                                        (7,422,561
                                        )Deferred
      Income Tax Liability - Depreciation andAmortization
                                        
                                        
                                        49,747
                                        
                                        
                                        
                                        (99,221
                                        )Net
      Deferred Income Tax Asset
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -




The
amount of, and ultimate realization of, the deferred income tax assets are
dependent, in part, upon the tax laws in effect, the Company's future earnings,
and other future events, the effects of which cannot be determined. The Company
has established a valuation allowance against its deferred income tax assets.
Management believes that, based on a number of factors, the available objective
evidence creates sufficient uncertainty regarding the realizability of these
deferred income tax assets to warrant the valuation allowance.





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


For
      the years ending December 31,
                        
                        2008
                        
                        
                        2007Tax
      at statutory rate (34%)
                        
                        $
                        24,558
                        
                        
                        $
                        136,755Other
      non-deductible expenses and adjustments
                        
                        
                        (62,483
                        )
                        
                        
                        66,688Change
      in valuation allowance
                        
                        
                        36,993
                        
                        
                        
                        (208,632
                        )State
      tax, net of federal tax benefit
                        
                        
                        932
                        
                        
                        
                        5,189Provision
      for Income Taxes
                        
                        $
                        -
                        
                        
                        $
                        -




The
following summarizes the tax net operating loss carryforwards and their
respective expiration dates as of December 31, 2008:




Years
      ending December 31,2011
                            
                            $
                            780,1062017
                            
                            
                            1,082,3732018
                            
                            
                            3,642,8572019
                            
                            
                            3,298,0472020
                            
                            
                            5,087,6502021
                            
                            
                            2,378,3182022
                            
                            
                            3,459,3402023
                            
                            
                            1,205,001Total
      net operating loss carryforwards
                            
                            $
                            20,933,692




29
 Index




NOTE
8 - STOCKHOLDERS' EQUITY





During
the year ended December 31, 2008, the Company issued 75,000 shares of common
stock valued at $18,000 ($0.24 per share based on closing value) to its Board of
Directors for services rendered.





During
the year ended December 31, 2007, the Company issued 75,000 shares of common
stock valued at $11,250 ($0.15 per share based on closing value) to its Board of
Directors for services rendered.





During
the year ended December 31, 2007, the board of directors of the Company approved
a buyback of up to five million Company shares of common stock on the open
market.




During
the year ended December 31, 2007 no purchases were made. Between October 6, 2008
and November 17, 2008, we repurchased under the 2007 repurchase program, 40,300
shares of our common stock in the open market at a cost ranging from $0.128 to
$0.168 per share, totaling $5,953. On December 12, 2008, we repurchased under
the 2007 repurchase program, 250,000 shares of our common stock directly from a
shareholder for $0.13 per share, totaling $32,500.





NOTE
9 - STOCK OPTIONS AND WARRANTS





Employee
Grants - During 2000, the stockholders of the Company approved adoption of the
2000 Stock Option Plan (the "2000 Plan"). During 2002, the stockholders of the
Company approved an amendment to the 2000 Plan to increase the authorized number
of shares of common stock reserved for issuance upon the exercise of stock
options under the 2000 Plan from 2,400,000 shares to 2,700,000. During November
2004, the stockholders of the Company approved a second amendment to the 2000
Plan to increase the authorized number of shares of common stock reserved for
issuance upon the exercise of stock options under the 2000 Plan from 2,700,000
shares to 3,000,000 shares.





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





During
the year ended December 31, 2007, the Company granted options to purchase 20,000
shares of common stock to a consultant for services rendered. These options,
which vested immediately, have an exercise price of $0.10 per share and are
exercisable through July 23, 2012. These options were valued at $1,907 using the
Black-Scholes option pricing model with the following assumptions: risk free
interest rate of 4.9%, dividend yield of 0.0%, volatility of 126% and expected
life of 5 years.





During
the years ended December 31, 2008 and 2007, options to purchase 978,775 and
168,000 shares of common stock, respectively, expired. The Company recognized
the value of these options in the amounts of $232,312 and $29,230 during 2008
and 2007 respectively, as additional paid in capital.




30
 Index




Outstanding
Stock Options and Warrants - A summary of stock option and warrant activity for
the years ended December 31, 2008 and 2007 is as follows:




Options
      and Warrants
                                                        
                                                        
                                                        Exercise
      Price Range
                                                        
                                                        
                                                        Weighted
      - Average Exercise PriceBalance,  December
      31, 2006
                                                        
                                                        
                                                        3,317,621
                                                        
                                                        
                                                        
                                                        0.10
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1.55
                                                        
                                                        
                                                        
                                                        0.28Granted
                                                        
                                                        
                                                        20,000
                                                        
                                                        
                                                        
                                                        0.10
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        0.10
                                                        
                                                        
                                                        
                                                        0.10Expired
                                                        
                                                        
                                                        (168,000
                                                        )
                                                        
                                                        
                                                        0.17
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        0.30
                                                        
                                                        
                                                        
                                                        0.25Balance,
      December 31, 2007
                                                        
                                                        
                                                        3,169,621
                                                        
                                                        
                                                        $
                                                        0.10
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1.55
                                                        
                                                        
                                                        $
                                                        0.28Expired
                                                        
                                                        
                                                        (978,775
                                                        )
                                                        
                                                        
                                                        0.10
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        0.35
                                                        
                                                        
                                                        
                                                        0.17Balance,  December
      31, 2008
                                                        
                                                        
                                                        2,190,846
                                                        
                                                        
                                                        
                                                        0.10
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1.55
                                                        
                                                        
                                                        
                                                        0.32Exercisable,
      December 31, 2008
                                                        
                                                        
                                                        2,190,846
                                                        
                                                        
                                                        $
                                                        0.10
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1.55
                                                        
                                                        
                                                        $
                                                        0.32Weighted-average
      fair value of options granted during the year endedDecember 31, 2007
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        0.10Weighted-average
      fair value of options granted during the year endedDecember 31, 2008
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        -


The fair
value of stock options was determined at the grant dates using the Black-Scholes
option-pricing model with the following weighted-average assumptions for the
year ended December 31, 2007, risk-free interest rate of 4.9%, dividend yield of
0 percent, volatility of 126%, and expected life of 5 years.





A summary
of the options and warrants outstanding and exercisable as of December 31, 2008
follows:




Outstanding
                        
                        
                        ExercisableRange
      of
                          Exercise
      Prices
                        
                        
                        Number
      Outstanding
                        
                        Weighted
      - Average Remaining Contractual Life
                        
                        Weighted
      - Average Exercise Price
                        
                        
                        Aggregate
      Intrinsic Value
                        
                        Number
      Exercisable
                        
                        
                        Weighted
      - Average Exercise Price
                        
                        
                        Aggregate
      Intrinsic Value$
                        0.10
      - 0.37
                        
                        
                        
                        2,177,203
                        
                        8.5
      years
                        
                        $
                        0.32
                        
                        
                        $
                        697,378
                        
                        
                        
                        2,177,203
                        
                        
                        $
                        0.32
                        
                        
                        $
                        697,3780.90
      - 1.55
                        
                        
                        
                        13,643
                        
                        10.0
      years
                        
                        
                        0.94
                        
                        
                        
                        12,760
                        
                        
                        
                        13,643
                        
                        
                        
                        0.94
                        
                        
                        
                        12,760$
                        0.10
      - 1.55
                        
                        
                        
                        2,190,846
                        
                        8.5
      years
                        
                        $
                        0.32
                        
                        
                        $
                        710,138
                        
                        
                        
                        2,190,846
                        
                        
                        $
                        0.32
                        
                        
                        $
                        710,138




NOTE
10 - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS





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




At
December 31, 2008, the Company had cash in excess of federally insured limits of
$196,127.





At
December 31, 2008, the Company had accounts receivable from two customers
accounting for 77.3% of total accounts receivable.





During
the year ended December 31, 2008, revenues from one customer accounted for 18.5%
of total revenues.




31
 Index





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




None.





ITEM
9A(T).CONTROLS AND
PROCEDURES





EVALUATION
OF DISCLOSURE CONTROLS





Our Chief
Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or
15d-15(e)) as of the end of the period covered by this annual report, has
concluded that our disclosure controls and procedures are effective at a
reasonable assurance level based on his evaluation of these controls and
procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or
15d-15.




MANAGEMENT'S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




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




Our
management evaluated the effectiveness of our internal control over financial
reporting based on the framework inInternal Control—Integrated
Framework  issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based upon that evaluation, management concluded
that the company's internal control over financial reporting was effective as of
December 31, 2008.




LACK
OF SEGREGATION OF DUTIES





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




ATTESTATION
REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM
 
 This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this annual report.





CHANGES
IN INTERNAL CONTROLS





During
the fiscal quarter ended December 31, 2008, there have been no changes in our
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect our internal controls over financial
reporting.





ITEM 9B.OTHER INFORMATION





Not
applicable.





32
 Table of Contents




PART
III





ITEM 10.DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT





The
following information is furnished with respect to our directors and executive
officer. There are no family relationships between or among any of our directors
or executive officer. Our executive officer is an employee of eRoomSystem
Technologies and serves at the discretion of our board.





Directors
and Executive Officers




Name
                  
                  Age
                  
                  PositionDavid
      A. Gestetner
                  
                  36
                  
                  President,
      Chief Executive Officer, Secretary and Chairman of the
    BoardHerbert
      A. Hardt
                  
                  66
                  
                  DirectorJames
      C. Savas
                  
                  48
                  
                  DirectorLawrence
      K. Wein
                  
                  66
                  
                  Director




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





David A.
Gestetner has served as President, Chief Executive Officer, Secretary and
Chairman of the Board since October 1, 2003. Throughout his career, Mr.
Gestetner has been involved in various applications of technology, both as an
operator as well as a financier, including founding and operating a
telecommunications business abroad. Mr. Gestetner has received awards for his
innovations and advance applications of technology, including the Howard Golden
Award for an intuitive scientific invention consisting of a system that enables
emergency call routing in telephone systems. Mr. Gestetner possesses a Master's
degree from The Aron Kotler Higher Institute of Learning in New
Jersey.





Herbert
A. Hardt has served as director since June 13, 2002. Mr. Hardt is a co-founder
and principal of Monness, Crespi, Hardt & Co., Inc. Prior to co-founding
Monness, Crespi, Hardt & Co., Inc. in 1979, Mr. Hardt served as vice
president of Fidelity Management and Research Bermuda from 1971 to 1978. Mr.
Hardt received his Bachelor of Arts with a concentration in Engineering and
Applied Physics from Harvard College in 1965 and his Master of Business
Administration from Harvard University in 1971.





James C.
Savas has served as director since June 13, 2002. For more than seven years, Mr.
Savas has been a member of Savas Greene & Company, LLC, an accounting and
business consulting firm located in Salt Lake City, Utah. From 1988 to 1995, Mr.
Savas was a tax accountant for Price Waterhouse. Since April 1999, Mr. Savas has
also served as co-manager of Providence Management, LLC, which is manager of Ash
Capital, LLC, an investment company controlled by Dr. Alan C. Ashton, a former
director and one of the largest stockholders of the Company. Mr. Savas also
serves on the boards of Bullfrog Spas International and Vortex Products, both
privately-held companies. Mr. Savas received his Bachelor of Science in
Accounting from the University of Utah.





Lawrence
K. Wein has served as director since October 2003. Mr. Wein held several key
positions at AT&T for over 30 years. Mr. Wein received his Master's in
Business Administration from Harvard Business School, and his Bachelor of
Science in Engineering from Columbia University.





Involvement
in Certain Legal Proceedings





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




33
 Table of Contents




Auditors; Committees of the Board of
Directors




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





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





Audit
Committee. The audit committee, which was formed on August 18, 2000, is
currently comprised of Messrs. Hardt and Savas. The chairman of the audit
committee is Mr. Hardt. The audit committee met three times during the fiscal
year ended December 31, 2008. The audit committee has the responsibility
to:





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




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




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




·
            perform
      the other responsibilities set forth in its written
    charter.





The audit
committee is comprised exclusively of directors who are not our salaried
employees and all of whom, in the opinion of our board, are free from any
relationship that would interfere with the exercise of independent judgment as a
committee member. Our Board of Directors has determined that Mr. Savas is an
"audit committee financial expert" within the applicable definition of the
Securities and Exchange Commission.





Compensation
Committee. The compensation committee, which was formed on August 18, 2000, is
currently comprised of Messrs. Hardt and Wein. The compensation committee met
once during the fiscal year ended December 31, 2008. In general, the
compensation committee's authority and oversight extends to total compensation,
including base salaries, bonuses, stock options, and other forms of
compensation.





Section
16(a) Beneficial Ownership Reporting Compliance





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





To our
knowledge, based solely on review of the copies of such reports furnished to us
and written representations, we believe that during the fiscal year ended
December 31, 2008 all applicable filing requirements were complied with by our
executive officers and directors.





Code
of Ethics





Our Board
of Directors has not yet adopted a written Code of Business Conduct and
Ethics.




34
 Table of Contents




ITEM 11.EXECUTIVE
COMPENSATION





Summary
Compensation Table





The
following table sets forth summary information concerning the total remuneration
paid or accrued by eRoomSystem Technologies, to or on behalf of our chief
executive officer and our executive officers whose total annual salary exceeded
$100,000 during the fiscal years ended December 31, 2008 and 2007. In accordance
with the rules of the Commission, the compensation described in this table does
not include perquisites and other personal benefits received by the executive
officers named in the table below which does not exceed the lesser of $10,000 or
10% of the total salary and bonus reported for the executive
officers.




Summary
      Compensation TableName
      and Principal Position
                              
                              Year
                              
                              Salary
                              
                              
                              Bonus
                              
                              
                              All
      Other Compensation
                              
                              
                              TotalDavid
      A. Gestetner,
                              
                              2008
                              
                              $
                              150,000
                              
                              
                              $
                              20,000
                              
                              
                              $
                              4,800
                              
                              
                              $
                              174,800President,
      Chief Executive
                              
                              2007
                              
                              $
                              150,000
                              
                              
                              $
                              20,000
                              
                              
                              $
                              4,800
                              
                              
                              $
                              174,800Officer, Secretary and Chairman




David A.
Gestetner commenced serving in the capacities of President, Chief Executive
Officer, Secretary and Chairman of the Board on October 1, 2003. On January 1,
2007, an amendment was made to Mr. Gestetner's employment agreement in which he
will be receiving an annual salary of $150,000 and a monthly car allowance of
$400. Mr. Gestetner is eligible to receive a performance based bonus at the end
of the fiscal year at the discretion of the compensation committee. In addition
the agreement provides for one year of severance upon termination without cause
with salary and benefits continuing at the same rate.





There
were no equity awards granted to or held by our chief executive officer during
the fiscal year ended December 31, 2008.





Compensation
of Directors





The
following table sets forth the equity awards made to members of our board of
directors during the fiscal year ended December 31, 2008:




DIRECTOR
      COMPENSATIONName
                                                
                                                Stock
      Awards
                                                
                                                
                                                Option
      Awards
                                                
                                                
                                                TotalDavid
      Gestetner
                                                
                                                $
                                                -
                                                2
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -Herbert
      A. Hardt
                                                
                                                $
                                                6,000
                                                1
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                6,000James
      C. Savas
                                                
                                                $
                                                6,000
                                                1
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                6,000Lawrence
      K. Wein
                                                
                                                $
                                                6,000
                                                1
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                6,000




(1)
            Reflects
      the issuance of 25,000 shares of common stock to each of Mssrs. Hardt,
      Wein and Savas.(2)
            As
      CEO and President of the Company, David Gestetner does not receive
      director’s compensation.




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




35
 Table of Contents




ITEM 12.SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT





The
following table is a list of the beneficial ownership of common stock as of
February 4, 2009 of (i) all persons who beneficially owned more than 5% of our
outstanding common stock, (ii) all directors, (iii) all executive officers and
(iv) all directors and executive officers as a group, according to
record-ownership listings as of that date, according to the Forms 3, 4 and 5 and
Schedules 13D and 13G, of which we have received copies, and according to
verification as of February 4, 2009 which we have solicited and received from
each director and executive officer. The beneficial ownership is calculated
based on 23,757,865 shares of common stock outstanding as of February 4, 2009.
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities and, accordingly, includes shares issuable upon exercise of options
that are exercisable or become exercisable within 60 days of February 4,
2009.





Unless
otherwise indicated, the persons identified in this table have sole voting and
sole investment power with regard to the shares beneficially owned with the
following address, c/o eRoomSystem Technologies, Inc., 1072 Madison Ave.,
Lakewood, NJ 08701.




Executive
      Officer,  Director or Stockholders with Beneficial Ownership of
      5% or More
                                                            
                                                            Amount
      and Nature of Beneficial Ownership
                                                            
                                                            
                                                            Percent
      of ClassAsh
      Capital, LLC
                                                            
                                                            
                                                            3,830,762
                                                            
                                                            5
                                                            
                                                            
                                                            
                                                            16.0
                                                            %David
      A. Gestetner
                                                            
                                                            
                                                            5,157,644
                                                            
                                                            1
                                                            
                                                            
                                                            
                                                            21.7
                                                            %James
      C. Savas
                                                            
                                                            
                                                            4,043,275
                                                            
                                                            2
                                                            
                                                            
                                                            
                                                            16.8
                                                            %Herbert
      A. Hardt
                                                            
                                                            
                                                            650,821
                                                            
                                                            3
                                                            
                                                            
                                                            
                                                            2.7
                                                            %Lawrence
      K. Wein
                                                            
                                                            
                                                            130,000
                                                            
                                                            4
                                                            
                                                            
                                                            
                                                            0.5
                                                            %Executive
      Officers and Directors, as a group (4 individuals)
                                                            
                                                            
                                                            9,981,740
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            41.2
                                                            %





(1)
Reflects the direct ownership of 4,000 shares of common stock. In addition, also
includes the beneficial ownership of 5,153,644 shares of common stock held by
Gestetner Group, LLC.





(2)
Reflects the direct ownership of 98,321 shares of common stock and options to
purchase 80,000 shares of common stock, the beneficial ownership of 19,231
shares of common stock and an option to purchase 14,961 shares of common stock
held by Providence Management, LLC, an entity for which Mr. Savas is co-manager
and 50% owner, and the beneficial ownership of the following securities held by
Ash Capital, LLC, or Ash Capital, an entity which Providence Management, LLC
serves as the manager and holds a 20% profits interest, (a) 3,685,449 shares of
common stock held by Ash Capital, (b) an option to purchase 145,313 shares of
common stock. Mr. Savas disclaims any beneficial ownership of the shares of
common stock and options to purchase shares of common stock beneficially owned
as a result of his affiliation with Ash Capital, except to the extent of his
pecuniary interest in such securities.





(3)
Reflects the direct ownership of 470,821 shares of common stock and options to
purchase 80,000 shares of common stock, and the beneficial ownership of options
to purchase 100,000 shares of common stock held by Monness, Crespi & Hardt,
an entity of which Mr. Hardt is a principal.





(4)Reflects
the direct ownership of 105,000 shares of common stock and options to purchase
25,000 shares of common stock.





(5)
Reflects the direct ownership of 3,685,449 shares of common stock and an option
to purchase 145,313 shares of common stock. Ash Capital is controlled by Alan C.
Ashton, a former member of our board of directors, audit and compensation
committees.





36
 Table of Contents




Securities
authorized for issuance under equity compensation plans





The
following table sets forth information about the common stock available for
issuance under compensatory plans and arrangements as of December 31,
2008.




Plan
      Category
                                
                                Number
      of securities to be issued upon exerciseof
      outstanding options, warrants and rights
                                
                                
                                Weighted-averageexercise
      price ofoutstanding
      options, warrants and rights
                                
                                
                                Number
      of securitiesavailable
      for future issuance(a)
                                
                                
                                (b)
                                
                                
                                (c)Equity
      compensation planapproved by security holders
                                
                                
                                1,859,948
                                
                                
                                $
                                0.33
                                
                                
                                
                                1,140,052Equity
      compensation plans notapproved by security holders
                                
                                
                                330,898
                                
                                
                                $
                                0.27
                                
                                
                                
                                -Total
                                
                                
                                2,190,846
                                
                                
                                $
                                0.32
                                
                                
                                
                                1,140,052





Equity
Compensation Plans Approved by Security Holders





The 2000
Stock Option and Incentive Plan, or the 2000 Plan, was adopted by our board on
February 3, 2000 and approved by our stockholders on March 29, 2000. The 2000
Plan was amended by our stockholders on May 7, 2001 when the shares of common
stock authorized under the 2000 Plan were increased from 2,000,000 shares to
2,400,000 shares, amended on July 29, 2002 by our stockholders effectively
increasing the number of shares issuable hereunder to 2,700,000, and amended
further on November 15, 2004 by our stockholders effectively increasing the
number of shares issuable thereunder to 3,000,000. The 2000 Plan provides us
with the vehicle to grant to employees, officers, directors and consultants
stock options and bonuses in the form of stock and options. Under the 2000 Plan,
we can grant awards for the purchase of up to 3,000,000 shares of common stock
in the aggregate, including "incentive stock options" within the meaning of
Section 422 of the United States Internal Revenue Code of 1986 and non-qualified
stock options. As of February 4, 2009, we had options to purchase 1,859,948
shares of our common stock outstanding under the 2000 Plan.





Equity
Compensation Plans Not Approved by Security Holders





Except as
otherwise noted below, the options and warrants under the following compensation
plans are transferable. These options and warrants are exercisable for the
remainder of their stated term in the event of death of the holder or the
termination of the holder's employment with the Company. None of these options
or warrants have a cashless exercise provision.





The 2001
Variable Stock Option and Incentive Plan consists of 205,004 options to purchase
shares of common stock of which 205,004 options were issued to employees in 2001
at an exercise price of $0.26 with a term of 10 years.





The
2001(B) Stock Option and Incentive Plan consists of 100,894 options to purchase
shares of common stock of which 100,894 options were issued to consultants in
2001 at an exercise price ranging from $0.26 to $0.33 with a term of 10
years.





The 2005
Plan Stock Option and Incentive Plan consists of 25,000 warrants to purchase
shares of common stock of which 25,000 warrants were issued to a member of the
board at an exercise price of $0.35 with a term of 5 years.





The
compensation committee has authority to determine the persons to whom awards
will be granted, the nature of the awards, the number of shares to be covered by
each grant, the terms of the grant and with respect to options, whether the
options granted are intended to be incentive stock options, the duration and
rate of exercise of each option, the option price per share, the manner of
exercise and the time, manner and form of payment upon exercise of an
option.




37
 Table of Contents




ITEM 13.CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTORINDEPENDENCE





Director
Independence





Except
for our Chairman, David Gestetner, and James C. Savas, each of our directors,
Messrs. Hebert A. Hardt and Lawrence K. Wein, qualifies as independent directors
under Rule 10A-3 of the Securities Exchange Act of 1934 and as defined in NASD
Marketplace Rule 4200(15). Mr. Savas is the beneficial owner of more than 10% of
our outstanding common stock and Mr. Gestetner is an employee and executive
officer of our company. Aside from his beneficial ownership of more than 10% of
our outstanding common stock, Mr. Savas is independent under Rule 10A-3 of the
Securities Exchange Act of 1934 and as defined in NASD Marketplace Rule
4200(15). The members of our audit committee are Messrs. Hardt and Savas. While
Mr. Hardt is independent for purposes of the audit committee as defined in NASD
Marketplace Rule 4350(d)(2), Mr. Savas is not independent under such rule
because he is the beneficial owner of more than 10% of our outstanding common
stock. However, in the opinion of our Board of Directors, Mr. Savas' beneficial
stock ownership would not interfere with his exercise of independent judgment as
an audit committee member.




Financial
Advisory Agreement with Monness, Crespi & Hardt





On
December 31, 2001, we entered into a financial advisory agreement with Monness,
Crespi & Hardt, or MCH. Herbert A. Hardt is a principal of MCH and has been
a member of our board of directors since June 2002. The agreement provides that
MCH will assist us in structuring and/or placing debt or equity securities in
private or public transactions, and advise us on mergers, acquisitions and
strategic partnerships. In consideration, MCH was issued a warrant to purchase
100,000 shares of common stock exercisable at $0.26 per share.





Grant
and Exercise of Stock Options on December 31, 2001 and Related Matters Involving
Messrs. Harkness, Hrncir and Ellis





On
December 31, 2001, we issued to David S. Harkness, Gregory L. Hrncir, Derek K.
Ellis (each of which are former executive officers of the Company) and Ash
Capital options to purchase 300,000 shares, 225,000 shares, 75,000 shares and
250,000 shares of common stock, respectively, at $0.26 per share, which was the
closing price of our common stock on December 31, 2001. As of the same date, Mr.
Harkness assigned, as a gift, his options to AK Holding Company, a
limited-liability company affiliated with Dr. Alan C. Ashton. In addition, as of
the same date, Messrs. Hrncir and Ellis, Ash Capital and AK Holding Company
exercised their options to purchase an aggregate of 950,000 shares of common
stock (including 636,578 variable options) by payment of $26,000 in February
2002 and by issuing $221,000 of 5% full-recourse promissory notes to us. The
principal and accrued interest on the promissory notes originally had a maturity
date of December 31, 2005. In addition to the shares purchased with the notes,
the notes were secured by 637,500 shares of common stock that have been held by
Messrs. Hrncir and Ellis, Ash Capital and AK Holding Company for more than six
months and by other assets of each of the foregoing parties.





On
October 1, 2003, David S. Harkness entered into a Termination and Release
Agreement that provides for the surrender by the Company of a promissory note,
previously issued by Mr. Harkness in the original principal amount of $78,000,
in exchange for the surrender by Mr. Harkness of 300,000 shares of common stock.
In conjunction with the surrender of accrued compensation owed to Mr. Harkness
for the period April 1, 2003 to October 1, 2003, the Company issued Mr. Harkness
an option to purchase 300,000 shares of common stock at $0.26 per share pursuant
to the 2000 Plan. Under the terms of the Termination and Release Agreement, Mr.
Harkness resigned as Chief Executive Officer, President and Chairman of the
Board of Directors, as well as all officer and director positions held in the
Company's subsidiaries.





On
October 1, 2003, Gregory L. Hrncir entered into a Termination and Release
Agreement that provides for the surrender by the Company of a promissory note,
previously issued by Mr. Hrncir in the original principal amount of $58,500, in
exchange for the surrender by Mr. Hrncir of 225,000 shares of common stock. In
conjunction with the surrender of accrued compensation owed to Mr. Hrncir for
the period April 1, 2003 to October 1, 2003, the Company issued Mr. Hrncir an
option to purchase 225,000 shares of common stock at $0.26 per share pursuant to
the 2000 Plan. Under the terms of the Termination and Release Agreement, Mr.
Hrncir resigned as Chief Operating Officer, General Counsel and Secretary of the
Company, as well as all officer and director positions held in the Company's
subsidiaries. In addition, on October 1, 2003, the Company entered into a
consulting agreement with Mr. Hrncir that provides for the issuance of an option
to purchase 100,000 shares of common stock, exercisable at $0.10 per share for a
period of five years. Mr. Hrncir no longer serves as a consultant to the
Company.




On
October 2, 2003, Derek K. Ellis entered into a Termination and Release Agreement
that provides for the surrender by the Company of a promissory note, previously
issued by Mr. Ellis in the original principal amount of $19,500, in exchange for
the surrender by Mr. Ellis of 75,000 shares of common stock. In conjunction with
the surrender of past compensation by Mr. Ellis for the period April 1, 2003 to
July 31, 2003, the Company issued Mr. Ellis an option to purchase 75,000 shares
of common stock at $0.26 per share pursuant to the 2000 Plan. Previously, on
July 31, 2003, Mr. Ellis had resigned as Chief Financial Officer and Treasurer
of the Company. In addition, on October 2, 2003, the Company entered into a
consulting agreement with Mr. Ellis that provides for the issuance of a
five-year option to purchase up to 180,000 shares of common stock, which option
vests upon the occurrence of certain events, at $0.10 per share and the payment
of a monthly consulting fee of $10,000 for the first month and $3,120 for a
minimum of five, and maximum of seven, subsequent months subject to the
occurrence of certain events. Mr. Ellis no longer serves as a consultant to the
Company.




38
 Table of Contents




ITEM 14.PRINCIPAL ACCOUNTANT FEES AND
SERVICES





The
information required by this item is as follows:





Hansen,
Barnett & Maxwell, P.C., or HB&M, has served as our independent
registered public accounting firm since 2000, and specifically for the fiscal
years ended December 31, 2008 and 2007. HB&M was selected by our board of
directors as our independent registered public accounting firm for the fiscal
year ended December 31, 2008, and by our board of directors and a majority of
our common stockholders for the fiscal year ended December 31,
2004.





Our board
is responsible for pre-approving all audit and permissible non-audit services
provided by HB&M. Our board of directors has concluded that the non-audit
services provided by HB&M are compatible with maintaining auditor
independence. In 2008, no fees were paid to HB&M pursuant to the "de
minimus" exception to the pre-approval policy permitted under the Exchange
Act.





Audit
Committee's Pre-Approval Policies





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





For the
fiscal years ended December 31, 2008 and 2007, the fees for services provided by
HB&M were as follows:




2008
                      
                      
                      2007Audit
      fees  (1)
                      
                      $
                      31,600
                      
                      
                      $
                      30,000Audit-related
      fees (2)
                      
                      
                      -
                      
                      
                      
                      -Tax
      fees (3)
                      
                      
                      -
                      
                      
                      
                      -All
      other fees
                      
                      
                      -
                      
                      
                      
                      -$
                      31,600
                      
                      
                      $
                      30,000







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





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





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





39
 Table of Contents





ITEM 15.EXHIBITS, FINANCIAL STATEMENT
SCHEDULES




ExhibitNumber
                    
                    Document
      Name1.01
                    
                    Form
      of Underwriting Agreement relating to the registrant's initial public
      offering that closed on August 9, 2000
                    Incorporated
      by reference to Pre-effective Amendment No. 2 of Form SB-2 filed on July
      14, 20002.01
                    
                    Agreement
      and Plan of Reorganization by and between RoomSystems International
      Corporation and RoomSystems, Inc. dated December 31, 1999
                    Incorporated
      by reference to Form SB-2 filed on April 14, 20002.02
                    
                    Transfer
      Pricing Agreement by and between RoomSystems International Corporation and
      RoomSystems, Inc. dated December 31, 1999
                    Incorporated
      by reference to Form SB-2 filed on April 14, 20003.01
                    
                    Amendment
      and Restatement of Articles of Incorporation
                    
                    Incorporated
      by reference to Form SB-2 filed on April 14, 20003.02
                    
                    Certificate
      of Correction dated May 30, 2000
                    
                    Incorporated
      by reference to Pre-effective Amendment No. 1 of Form SB-2 filed on July
      14, 20003.03
                    
                    Amended
      and Restated Certificate of Designation, Preferences, Rights and
      Limitation of Series A convertible preferred stock
                    Incorporated
      by reference to Form SB-2 filed on June 9, 20003.04
                    
                    Amended
      and Restated Certificate of Designation, Preferences, Rights and
      Limitation of Series B convertible preferred stock
                    Incorporated
      by reference to Form SB-2 filed on April 14, 20003.05
                    
                    Certificate
      of Designation, Preferences, Rights and Limitation of Series C convertible
      preferred stock
                    Incorporated
      by reference to Form SB-2 filed on April 14, 20003.06
                    
                    Amended
      and Restated Bylaws
                    
                    Incorporated
      by reference to Form SB-2 filed on June 9, 20003.07
                    
                    Second
      Amendment and Restatement of Articles of Incorporation
                    Incorporated
      by reference to Pre-effective Amendment No. 2 of Form SB-2 filed on July
      14, 20003.08
                    
                    Second
      Amended and Restated Bylaws
                    
                    Incorporated
      by reference to Pre-effective Amendment No. 2 of Form SB-2 filed on July
      14, 20004.01
                    
                    Form
      of Common Stock Certificate
                    
                    Incorporated
      by reference to Form SB-2 filed on April 14, 200010.01
                    
                    Amended
      and Restated 2000 Stock Option and Incentive Plan
                    
                    Incorporated
      by reference to Form SB-2 filed on June 9, 200010.08
                    
                    Promissory
      Note Repurchase Agreement by and between Steven L. Sunyich and
      RoomSystems, Inc dated September 1, 1999.
                    Incorporated
      by reference to Form SB-2 filed on April 14, 200010.1
                    
                    Equipment
      Transfer Agreement by and between RoomSystems, Inc., RoomSystems
      International Corporation, RSi BRE, Inc. and RSG Investments, LLC dated
      September 28, 1999
                    Incorporated
      by reference to Form SB-2 filed on April 14, 200010.10A
                    
                    Exhibits
      to Equipment Transfer Agreement by and between RoomSystems, Inc.,
      RoomSystems International Corporation, RSi BRE, Inc. and RSG Investments,
      LLC dated September 28, 1999
                    Incorporated
      by reference to Form SB-2 filed on June 9, 200010.11
                    
                    Amendment
      to Equipment Transfer Agreement by and between RoomSystems, Inc.,
      RoomSystems International Corporation, RSi BRE, Inc. and RSG Investments,
      LLC dated November 23, 1999
                    Incorporated
      by reference to Form SB-2 filed on April 14,
  2000







40
 Table of Contents





10.13
              
              Loan
      and Security Agreement by and between RoomSystem Technologies, Inc. and
      Ash Capital, LLC dated February 15, 2000
              Incorporated
      by reference to Form SB-2 filed on April 14, 200010.13A
              
              Exhibits
      to Loan and Security Agreement by and between RoomSystem Technologies,
      Inc. and Ash Capital, LLC dated February 15, 2000
              Incorporated
      by reference to Form SB-2 filed on June 9, 200010.15
              
              Form
      of Hotel Revenue-Sharing Lease Agreement
              
              Incorporated
      by reference to Form SB-2 filed on June 9, 200010.16
              
              Form
      of Noncompetition and Nondisclosure Agreement (Sales)
              Incorporated
      by reference to Form SB-2 filed on April 14, 200010.17
              
              Form
      of Consulting Agreement
              
              Incorporated
      by reference to Form SB-2 filed on April 14, 200010.18
              
              Form
      of Sales Representation Agreement
              
              Incorporated
      by reference to Form SB-2 filed on April 14, 200010.19
              
              Form
      of Executive Employment Agreement
              
              Incorporated
      by reference to Form SB-2 filed on April 14, 200010.2
              
              Form
      of Offshore Loan Subscription Agreement dated as of April 13,
      2000
              Incorporated
      by reference to Form SB-2 filed on April 14, 200010.21
              
              Form
      of Secured Subordinated Promissory Note dated as of April 13,
      2000
              Incorporated
      by reference to Form SB-2 filed on April 14, 200010.22
              
              Form
      of Installation, Co-Maintenance and Software Licensing and Upgrade
      Agreement
              Incorporated
      by reference to Form SB-2 filed on June 9, 200010.23
              
              Master
      Business Lease Financing Agreement by and among AMRESCO Leasing
      Corporation, eRoomSystem SPE, Inc., RoomSystems, Inc. and eRoomSystem
      Technologies, Inc. dated May 11, 2000
              Incorporated
      by reference to Pre-effective Amendment No. 3 of Form SB-2 filed on July
      19, 200010.3
              
              Shareholders'
      Agreement and Proxy by and among Ash Capital, LLC, RoomSystems, Inc. and
      certain stockholders of RoomSystems, Inc. dated August 17,
      1999
              Incorporated
      by reference to Form SB-2 filed on April 14, 200010.35
              
              Amended
      and Restated Master Business Lease Financing Agreement by and among
      AMRESCO Leasing Corporation, eRoomSystem SPE, Inc., RoomSystems, Inc. and
      eRoomSystem Technologies, Inc. dated February 23, 2001
              Incorporated
      by reference to Form 10-KSB filed on April 2, 200110.38
              
              Stock
      Purchase Agreement by and between eRoomSystem Technologies, Inc. and Ash
      Capital, LLC dated November 8, 2002
              Incorporated
      by reference to Form 10-QSB filed on November 14, 200210.39
              
              Secured
      Convertible Promissory Note issued in favor of Ash Capital, LLC dated
      November 8, 2002.
              Incorporated
      by reference to Form 10-QSB filed on November 14, 200210.41
              
              Amendment
      Agreement between eRoomSystem Technologies, Inc., eRoomSystem Services,
      Inc., eRoomSystem SPE, Inc., RSi BRE, Inc., AMRESCO Commercial Finance,
      Inc., AMRESCO Leasing Corporation and Gestetner Group, LLC dated October
      1, 2003
              Incorporated
      by reference to Form 10-KSB filed on March 30,
  2004






41
 Table of Contents






10.43
              
              Warrant
      to Purchase Shares of Common Stock issued in favor of AMRESCO Commercial
      Finance, Inc. dated October 1, 2003
              Incorporated
      by reference to Form 10-KSB filed on March 30, 200410.44
              
              Warrant
      to Purchase Shares of Common Stock issued in favor of Ash Capital, LLC
      dated October 1, 2003
              Incorporated
      by reference to Form 10-KSB filed on March 30, 200410.46
              
              Investors
      Rights Agreement between eRoomSystem Technologies, Inc., Ash Capital, LLC,
      and certain security holders dated October 1, 2003
              Incorporated
      by reference to Form 10-KSB filed on March 30, 200410.47
              
              Termination
      and Release Agreement between eRoomSystem Technologies, Inc. and David S.
      Harkness dated October 1, 2003.
              Incorporated
      by reference to Form 10-KSB filed on March 30, 200410.48
              
              Termination
      and Release Agreement between eRoomSystem Technologies, Inc. and Gregory
      L. Hrncir dated October 1, 2003.
              Incorporated
      by reference to Form 10-KSB filed on March 30, 200410.5
              
              Termination
      and Release Agreement between eRoomSystem Technologies, Inc. and Derek K.
      Ellis dated October 1, 2003
              Incorporated
      by reference to Form 10-KSB filed on March 30, 200410.74
              
              Secured
      Promissory Note issued in favor of eRoomSystem Technologies, Inc. by
      Identica Corporation dated May 23, 2005
              Incorporated
      by reference to Form 8-K filed on May 25, 200510.75
              
              Security
      Agreement by and between eRoomSystem Technologies, Inc. and Identica
      Corporation dated May 23, 2005.
              Incorporated
      by reference to Form 8-K filed on May 25, 200510.76
              
              Warrant
      issued in favor of eRoomSystem Technologies, Inc. by Identica Corporation
      dated May 23, 2005.
              Incorporated
      by reference to Form 8-K filed on May 25, 200510.77
              
              Asset
      Purchase Agreement between eRoomSystem Technologies, Inc. and Identica
      Corporation dated September 7, 2005
              Incorporated
      by reference to Form 8-K filed on September 13, 200510.78
              
              Professional
      Services Agreement between eRoomSystem Technologies, Inc. and Identica
      Corporation dated September 7, 2005
              Incorporated
      by reference to Form 8-K filed on September 13, 200510.79
              
              Settlement
      Agreement by and between eRoomSystem Technologies, Inc. and Hall
      Communications Inc. dated December 31, 2001.
              Incorporated
      by reference to Form SB-2/A filed on August 30, 200610.8
              
              Employment
      Agreement of David Gestetner dated as of January 1, 2007
              Incorporated
      by reference to Form 10-KSB filed on March 29, 200721.01
              
              List
      of Subsidiaries
              
              Incorporated
      by reference to Form 10-KSB filed on March 31, 200631
              
              Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
              Filed
      herewith32
              
              Certification Pursuant to 18 U.S.C. Section 1350 as
      adopted by Section 906 of the Sarbanes-Oxley Act of
    2002
              Filed
      herewith






42
 Table of Contents




SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





eRoomSystem
      Technologies, Inc.By:
                /s/
      David A. GestetnerName:
                David
      A. GestetnerTitle:
                President,
      Chief Executive Officer, Chief Financial Officer Secretary
                  and
      Chairman of the BoardDate:
                March
      12, 2009




In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




Signature
                                    
                                    Title
                                    
                                    Date/s/
      David A. Gestetner
                                    
                                    President,
      Chief Executive Officer,
                                    
                                    March
      12, 2009David
      A. Gestetner
                                    
                                    Secretary
      and Chairman of the Board(Principal Executive
      Officer and Principal
                                      Financial
      and Accounting Officer)/s/
      Herbert A. Hardt
                                    
                                    Director
                                    
                                    March
      12, 2009Herbert
      A. Hardt/s/
      James C. Savas
                                    
                                    Director
                                    
                                    March
      12, 2009James
      C. Savas/s/
      Lawrence K. Wein
                                    
                                    Director
                                    
                                    March
      12, 2009Lawrence
      K. Wein





43
 Table of Contents