UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549





FORM 10-Q




xQUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March 31,
2010





oTRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from
_____________   To __________





Commission file number
000-31037





eRoomSystem Technologies,
Inc.


(Name of small business issuer in its
charter)




Nevada
            
            87-0540713(State or other jurisdiction of
      incorporation 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





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


Common Stock, $.001 par
value


(Title of each
class)










(Title of each
class)





Indicate by check mark whether the
registrant (1) filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YesxNoo




Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data file required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the proceeding 12
months (or for such shorter period that the registrant was required to submit
and post such files).  YesxNoo





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





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




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YesoNox




The number of shares of the issuer’s
common stock issued and outstanding as of May 10, 2010 was 23,832,865
shares.










TABLE OF CONTENTS





PART
      I - FINANCIAL INFORMATION
              1Item
      1. Financial Statements
              1Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations.
              7Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.
              11Item
      4(T).  Controls and Procedures
              11PART
      II - OTHER INFORMATION
              11Item
      1. Legal Proceedings.
              11Item
      1A. Risk Factors.
              11Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
              11Item
      3. Defaults Upon Senior Securities.
              11Item
      4. Removed and Reserved.
              11Item
      5. Other Information.
              11Item
      6. Exhibits.
              11





PART I - FINANCIAL INFORMATION


Item 1. Financial
Statements




eROOMSYSTEM TECHNOLOGIES, INC. AND
      SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
      SHEETS (UNAUDITED)
  March 31,
                  
                  
                  December
31,2010
                  
                  
                  2009ASSETSCURRENT
    ASSETSCash and cash
      equivalents
                  
                  $
                  2,068,583
                  
                  
                  $
                  2,302,620Short term
      investment
                  
                  
                  104,019
                  
                  
                  
                  -Accounts receivable, net of
      allowance for doubtful accounts of $16,468 atMarch 31,
      2010 and $19,087 at December 31, 2009
                  
                  
                  93,318
                  
                  
                  
                  105,826Inventory
                  
                  
                  79,475
                  
                  
                  
                  75,911Note
    receivable
                  
                  
                  522,192
                  
                  
                  
                  522,685Prepaid
      expenses
                  
                  
                  58,297
                  
                  
                  
                  71,727Total Current
      Assets
                  
                  
                  2,925,884
                  
                  
                  
                  3,078,769PROPERTY AND
      EQUIPMENTComputer and office equipment, net
      of accumulated depreciation of$12,757 at March 31, 2010 and
      $11,971 at December 31, 2009
                  
                  
                  72,367
                  
                  
                  
                  4,801INVESTMENT IN REAL PROPERTY TAX
      LIENS
                  
                  
                  42,107
                  
                  
                  
                  -INTANGIBLE
      ASSETS,net of
      accumulated amortization of $2,110 at March 31, 2010
      and$1,688 at December 31,
      2009
                  
                  
                  2,984
                  
                  
                  
                  3,376DEPOSITS
                  
                  
                  4,950
                  
                  
                  
                  4,950Total
Assets
                  
                  $
                  3,048,292
                  
                  
                  $
                  3,091,896LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                  
                  $
                  22,227
                  
                  
                  $
                  25,037Accrued
      liabilities
                  
                  
                  52,065
                  
                  
                  
                  94,640Customer
      deposits
                  
                  
                  2,004
                  
                  
                  
                  2,004Total Current
      Liabilities
                  
                  
                  76,296
                  
                  
                  
                  121,681Total
      Liabilities
                  
                  
                  76,296
                  
                  
                  
                  121,681STOCKHOLDERS'
      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 23,832,865at March 31, 2010 and
      23,832,865 at December 31, 2009
                  
                  
                  23,833
                  
                  
                  
                  24,123Additional paid-in
      capital
                  
                  
                  34,145,528
                  
                  
                  
                  34,079,467Treasury stock at cost 0 shares at
      March 31, 2010 and 290,300shares at December 31,
      2009
                  
                  
                  -
                  
                  
                  
                  (38,453
                  )Warrants and options
      outstanding
                  
                  
                  -
                  
                  
                  
                  103,123Accumulated
      deficit
                  
                  
                  (31,147,365
                  )
                  
                  
                  (31,148,045
                  )Accumulated other comprehensive
      loss
                  
                  
                  (50,000
                  )
                  
                  
                  (50,000
                  )Total
      Stockholders' Equity
                  
                  
                  2,971,996
                  
                  
                  
                  2,970,215Total Liabilities and
      Stockholders' Equity
                  
                  $
                  3,048,292
                  
                  
                  $
                  3,091,896








1




eROOMSYSTEM TECHNOLOGIES, INC. AND
      SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS
      OF OPERATIONS (UNAUDITED)
  For the three months ended March
      31,
                
                2010
                
                
                2009REVENUEProduct
    sales
                
                $
                190,880
                
                
                $
                17,033Maintenance
      fees
                
                
                49,884
                
                
                
                42,456Revenue-sharing
      arrangements
                
                
                -
                
                
                
                81,616Interest and other
      income
                
                
                30,414
                
                
                
                -Total Revenue
                
                
                271,178
                
                
                
                141,105COST OF
    REVENUEProduct
    sales
                
                
                134,067
                
                
                
                15,394Maintenance
                
                
                15,757
                
                
                
                7,623Revenue-sharing
      arrangements
                
                
                -
                
                
                
                25,502Total Cost of
      Revenue
                
                
                149,824
                
                
                
                48,519GROSS PROFIT
                
                
                121,354
                
                
                
                92,586OPERATING
      EXPENSESSelling, general and
      administrative expense, including non-cash
    compensationof $1,101 and $2,889,
      respectively
                
                
                118,946
                
                
                
                128,589Research and development
      expense
                
                
                1,728
                
                
                
                -Interest and other
      income
                
                
                -
                
                
                
                (37,793
                )Net Operating
      Expenses
                
                
                120,674
                
                
                
                90,796Net Income
                
                
                680
                
                
                
                1,790Basic Earnings Per Common
      Share
                
                $
                0.00
                
                
                $
                0.00Diluted
      Earnings Per Common Share
                
                $
                0.00
                
                
                $
                0.00




See accompanying notes to condensed
consolidated financial statements




2


eROOMSYSTEM TECHNOLOGIES, INC. AND
      SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS
      OF CASH FLOWS (UNAUDITED)
 For the three months ended March
      31,
                
                2010
                
                
                2009CASH FLOWS FROM OPERATING
      ACTIVITIESNet income
                
                $
                680
                
                
                $
                1,790Adjustments to reconcile net
      income to net cash provided by (used in)operating
      activities:Depreciation
                
                
                1,177
                
                
                
                26,589Interest income from note
      receivable
                
                
                493
                
                
                
                (9,589
                )Non-cash compensation expense
                
                
                1,101
                
                
                
                2,889Changes in operating assets and
      liabilities:Accounts
      receivable
                
                
                12,508
                
                
                
                (27,686
                )Inventory
                
                
                (3,564
                )
                
                
                -Prepaid
      expenses
                
                
                13,430
                
                
                
                14,888Accounts payable
                
                
                (2,810
                )
                
                
                12,751Accrued liabilities
                
                
                (42,575
                )
                
                
                (7,438
                )Customer deposits and deferred
      maintenance revenue
                
                
                -
                
                
                
                (2,829
                )Net Cash
      Provided by (Used in) Operating Activities
                
                
                (19,560
                )
                
                
                11,365CASH FLOWS FROM INVESTING
      ACTIVITIESPurchase of property and equipment
                
                
                (68,351
                )
                
                
                (1,045
                )Proceeds from sale of refreshment
      centers
                
                
                -
                
                
                
                38,000Proceeds from collection of note
      receivable
                
                
                -
                
                
                
                3,547Purchase of real property tax
      liens
                
                
                (42,107
                )
                
                
                -Purchase of short-term
      investment
                
                
                (104,019
                )
                
                
                -Change in long term
      deposits
                
                
                -
                
                
                
                (900
                )Net Cash
      Provided by (Used in) Investing Activities
                
                
                (214,477
                )
                
                
                39,602CASH FLOWS FROM FINANCING
      ACTIVITIES
                
                
                -
                
                
                
                -Net Increase (Decrease) in
      Cash
                
                
                (234,037
                )
                
                
                50,967Cash and cash
      equivalents at Beginning of Period
                
                
                2,302,620
                
                
                
                2,135,814Cash and cash
      equivalents at End of Period
                
                $
                2,068,583
                
                
                $
                2,186,781


See accompanying notes to condensed
consolidated financial statements




3








eROOMSYSTEM TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)




NOTE 1 - BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES




Condensed
Financial Statements- The
accompanying unaudited condensed consolidated financial statements include the
accounts of eRoomSystem Technologies, Inc. and its wholly-owned subsidiaries
(the "Company"). Intercompany accounts and transactions have been eliminated in
consolidation. These financial statements are condensed and, therefore, do not
include all disclosures normally required by generally accepted accounting
principles. These statements should be read in conjunction with the Company's
annual financial statements for the fiscal year ended December 31, 2009 included
in the Company's Annual Report on Form 10-K. In particular, the Company's
organization, nature of operations and significant accounting principles were
presented in Note 1 to the consolidated financial statements in that annual
report. In the opinion of management, all adjustments necessary for a fair
presentation have been included in the accompanying unaudited condensed
consolidated financial statements and consist of only normal recurring
adjustments. The results of operations presented in the accompanying unaudited
condensed consolidated financial statements for the three months ended March 31,
2010 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 2010.





Cash and Cash
Equivalents – Cash and cash equivalents include highly-liquid debt
investments with original maturities of three months or less, readily
convertible to known amounts of cash. The Company had no restricted cash as of
March 31, 2010 and 2009. At March 31, 2010, the Company had cash in excess of
federally insured limits of $283,501.





Short-Term
Investment– At March 31,
2010, the Company had invested in an unsecured certificate of deposit issued by
a bank in the amount of $104,019 that earns interest at 1.19% and matures on
June 9, 2010.





Net
Earnings Per Share of Common Stock- Basic earnings per share of common
stock is computed by dividing net income by the weighted-average number of
shares of common stock outstanding. There were no unvested shares of common
stock during the period ended March 31, 2010 and 2009. Diluted earnings per
share of common stock are computed by dividing net income by the
weighted-average number of shares of common stock and dilutive potential common
stock equivalents outstanding. Potential common stock equivalents consist of
shares issuable upon the exercise of stock options and
warrants.




The following table is a reconciliation
of the numerators and denominators used in the calculation of basic and diluted
weighted-average common shares outstanding for the three months ended March 31,
2010 and 2009:





2010
              
              
              2009Basic net
      income
              
              $
              680
              
              
              $
              1,790Basic weighted-average common
      shares outstanding
              
              
              23,832,865
              
              
              
              23,757,865Effect of dilutive
      securitiesStock options and
      warrants
              
              
              58,684
              
              
              
              13,825Diluted weighted-average common
      shares outstanding
              
              
              23,891,549
              
              
              
              23,771,690Basic earnings per
      share
              
              $
              0.00
              
              
              $
              0.00Diluted earnings per
      share
              
              $
              0.00
              
              
              $
              0.00





During the three months ended March 31,
2010 and 2009, there were potential common stock equivalents from options and
warrants of 2,204,660 and 2,142,019, respectively, which were not included in
the computation of diluted earnings per share because their effect would have
been anti-dilutive.




NOTE 2 - BUSINESS
CONDITION




During the year ended December 31, 2009
and the three months ended March 31, 2010, the Company realized a net loss of
$137,649 and net income of $680, respectively. During the year ended December
31, 2009 and the three months ended March 31, 2010, the Company's operations
used $55,616 and $19,560 of cash, respectively. The Company had a cash balance
of $2,068,583 as of March 31, 2010. Although the Company realized net income in
the three months ended March 31, 2010, there is no assurance that the Company
will not suffer losses in the future. The Company’s remaining hotel
revenue-sharing and maintenance contracts are concluding; however, the Company
has additional contracts with hotels due to the recent purchase of the Kooltech
refreshment centers which has increased revenue. 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 plans to acquire an existing operating company to
enable the Company to increase revenues and long-term viability. The Company has
also been performing research regarding potential further investments in either
privately-held or publicly traded emerging growth stage companies. There is no
assurance that a viable operating company or investment can be purchased under
terms acceptable to the Company.




4


NOTE 3 - INVENTORY





The company maintains an inventory of
product that is sold in the refreshment centers in a number ofhotels. The inventory is purchased as
finished goods.




NOTE 4 – NOTE
RECEIVABLE





On July
24, 2008, the Company extended a loan in the amount $500,000 to Blackbird
Corporation (“Blackbird”). The loan is evidenced by a 10% senior secured
convertible promissory note, made by Blackbird in favor of the Company (the
“Secured Note”). In addition, Blackbird issued 50,000 shares to the Company. On
the date of issuance and since that date, Blackbird has not been publicly
traded, there has not been any value for the shares and the shares were valued
at zero. The secured note was extended to June 30, 2010. The interest rate
increased to 18% after December 31, 2008, with interest payable quarterly on the
last business day of each quarter. The carrying amount of the note was increased
by $22,192 of accrued interest in an earlier quarter. Blackbird is current with
their interest payments under the current requirements of the extended loan. The
Company has determined that Blackbird has the ability to repay the note by its
due date of June 30, 2010, and has therefore classified the note as a current
asset at March 31, 2010.





The note
receivable is evaluated for impairment on a quarterly basis. When projections
indicate that the carrying value of a promissory note is not recoverable, the
carrying value is reduced by the estimated excess of the carrying value over the
projected discounted cash flows. The Blackbird promissory note was evaluated for
impairment as of March 31, 2010 and no impairment was deemed
necessary.





NOTE 5 – PURCHASE OF
ASSETS





On June 17, 2009, the Company purchased
the assets of Kooltech SPE from Cardinal Pointe Capital (“CPC”), which consisted
of automated minibars, automated baskets and product inventory. The Company
formed a subsidiary, eFridge, LLC (“eFridge”) for the purposes of this purchase.
The purchase price is an amount equal to 30% of eFridge’s earnings before
interest, taxes, depreciation and amortization (“EBITDA”) and 30% of eFridge’s
cash flow related to any related new equipment purchased.  Payment of
the purchase price is payable by eFridge to CPC on a monthly basis within twenty
days after the end of each month.





In addition, the Company agreed that in
the event eFridge or any other subsidiary of the Company purchases any new
Kooltech equipment from the manufacturers thereof or broker the sale of new
Kooltech equipment or equipment materially similar to Kooltech’s to third
parties, the Company will pay to CPC an amount equal to $30 per mini-bar and $15
per automated basket so purchased or brokered.





No payments have been made to CPC
through March 31, 2010, as eFridge has not had a positive EBITDA during any of
the nine months since the purchase date.





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





NOTE
6 – INVESTMENT IN REAL PROPERTY TAX LIENS





In the
three months ended March 31, 2010, the Company purchased $42,107 in real
property tax liens from various municipalities in New Jersey. The New Jersey
municipal tax liens are receivable from the real property owners and are secured
by a first priority lien on the related real property. Upon foreclosure, the
Company would obtain ownership of the real property. Due to the value of the
underlying real property in relation to the carrying value of the tax lien
receivable, it is unlikely that the Company will suffer any loan losses on the
investments and, therefore, the Company has not provided an allowance for loan
losses or impairment. The tax lien receivables accrue interest at 18% per annum,
accrue penalties at 2% to 6% and are also increased by the amount of any
expenses incurred. The investment in the real property tax liens are accounted
for as the investment in troubled debts and are carried at cost. In accordance
with accounting standards for troubled debts, interest, penalty and expense
reimbursement revenue is not certain and is recognized upon being
realized.





NOTE
7 – CHANGES TO REVENUE





During
the three months ended March 31, 2010, the Company’s revenue shifted from being
primarily revenue sharing arrangements to one of product sales. Historically,
the Company’s revenue-sharing program provided for a seven-year revenue stream.
Through the revenue-sharing plan, the Company installed refreshment centers at
little or no upfront cost to customers and shared in the recurring revenues
generated from sales of goods and services. The Company has failed to place any
products on a revenue sharing arrangement in the prior six years which has led
to the decrease in revenue sharing revenue. However, the Company has added some
hotels through the purchase of KoolTech’s refreshment centers through which the
Company provides a turnkey solution to those hotels. The Company provides
product to these hotels and the sale of this product is accounted for as product
sales.





Given the
Company’s change in focus on investing in third party emerging growth
companies as well loaning money to same, interest income was reclassified
to revenue during the three months ended March 31, 2010. Interest income for the
three months ended March 31, 2010 was $30,414.





5





NOTE 8 - STOCKHOLDERS’
EQUITY





Based on guidance issued by the
Financial Accounting Standards Board, options and warrants outstanding
were reclassified to additional paid in capital for the three months ended March
31, 2010.





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





During the three months ended March 31,
2010, the Company granted options to purchase 7,500 shares of common stock to an
employee for services rendered. These options, which vested immediately, have an
exercise price of $0.18 per share and are exercisable through March 22, 2015.
These options were valued at $1,101 using the Black-Scholes option pricing model
with the following assumptions: risk free interest rate ranging of 2.65%,
dividend yield of 0.0%, volatility ranging of 115% and expected life of 5 years.
Compensation expense of $1,101 recognized during the three months ended March
31, 2010.





Outstanding
Stock Options and Warrants - A summary of stock option and warrant activity for
the three months ended March 31, 2010 is as follows:





Options and
      Warrants
              
              
              Exercise Price
      Range
              
              
              Weighted - Average Exercise
      PriceBalance, December 31,
      2009
              
              
              2,263,344
              
              
              
              0.10-1.55
              
              
              
              0.32Granted
              
              
              7,500
              
              
              
              0.18 -0.18
              
              
              
              0.18Balance,  March 31,
      2010
              
              
              2,270,844
              
              
              
              0.10-1.55
              
              
              
              0.32Exercisable, March  31,
      2010
              
              
              2,270,844
              
              
              $
              0.10-1.55
              
              
              $
              0.32Weighted-average fair value of
      options granted during the period endedMarch 31,
    2010
              
              
              
              
              
              
              
              
              
              $
              0.18





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
three months ended March 31, 2010: risk free interest rate ranging from 1.15% to
2.70%, dividend yield of 0.0%, volatility ranging from 115% through 119.1% and
expected life ranging from 3 - 5 years.





A summary
of the options and warrants outstanding and exercisable as of March 31, 2010
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
              
              
              
              2,257,201
              
              2.4 years
              
              $
              0.31
              
              
              $
              18,054
              
              
              
              2,257,201
              
              
              $
              0.31
              
              
              $
              18,0540.90 - 1.55
              
              
              
              13,643
              
              2.5 years
              
              
              0.94
              
              
              
              -
              
              
              
              13,643
              
              
              
              0.94
              
              
              
              -$
              0.10 - 1.55
              
              
              
              2,270,844
              
              2.4 years
              
              $
              0.32
              
              
              $
              18,054
              
              
              
              2,270,844
              
              
              $
              0.32
              
              
              $
              18,054




6





Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.




As used in this Form 10-Q, references to
the "Company," "we," “our” or "us" refer to eRoomSystem Technologies, Inc. and
subsidiaries, unless the context otherwise indicates.





This Management’s Discussion and
Analysis or Plan of Operations (“MD&A”) section of our Quarterly Report on
Form 10-Q discusses our results of operations, liquidity and financial
condition, and certain factors that may affect our future results. You should
read this MD&A in conjunction with our consolidated financial statements and
accompanying notes included in this Quarterly Report.





Forward-Looking
Statements





This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors discussed elsewhere in this
report.




Certain information included herein
contains statements that may be considered forward-looking statements, such as
statements relating to our anticipated revenues, gross margin and operating
results, future performance and operations, plans for future expansion, capital
spending, sources of liquidity and financing sources. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future, and accordingly, such results may
differ from those expressed in any forward-looking statements made herein. These
risks and uncertainties include, but are not limited to, those relating to our
liquidity requirements, the continued growth of the lodging industry, the
success of our product-development, marketing and sales activities, vigorous
competition in the lodging industry, dependence on existing management, leverage
and debt service (including sensitivity to fluctuations in interest rates),
domestic or global economic conditions, the inherent uncertainty and costs of
prolonged arbitration or litigation, and changes in federal or state tax laws or
the administration of such laws.




Overview




Our core business is the development and
installation of an intelligent, in-room computer platform and communications
network, or the eRoomSystem, for the lodging industry. The eRoomSystem is a
computerized platform and processor-based system designed to collect and control
data. The eRoomSystem supports our fully automated and interactive eRoomServ
refreshment centers, eRoomSafes, eRoomEnergy products, and the eRoomTray. In
2005, we commenced our diversification strategy of investing in third party
emerging growth companies. In 2009, we purchased Kooltech refreshment centers
that were installed in various hotels from CPC. We may make additional
investments in promising emerging growth companies, and potentially acquire an
operating company if the opportunity arises.





On July 24, 2008, we provided a secured
loan to BlackBird Corporation, a Florida corporation (“BlackBird”), an unrelated
entity. The funding of the loan took place on completion of a transaction by
BlackBird to acquire an unrelated company, USA Datanet Corporation. The
acquisition took place on July 24, 2008. The loan is evidenced by a 10% senior
secured convertible promissory note, made by BlackBird (the “Secured Note”). The
Secured Note matured on June 30, 2009 and the interest rate increased to 18%
annually as of January 1, 2009, with interest payable quarterly on the last
business day of each quarter. An extension to the note was provided through June
30, 2010 at an interest rate of 18%.





On June 17, 2009, the Company purchased
the assets of Kooltech SPE which had been acquired by Cardinal Pointe Capital
(“CPC”). CPC sold the minibars, baskets and stock owned by Kooltech SPE to the
Company. The Company has formed a subsidiary, eFridge, LLC (“eFridge”) for the
purposes of this purchase. The purchase price is an amount equal to thirty
percent (30%) of eFridge’s EBITDA and an amount equal to thirty percent (30%) of
New Equipment Cash Flow.  Payment of the Purchase Price shall be made
by eFridge to CPC on a monthly basis within twenty days after the end of each
month, based on the eFridge’s EBITDA for the month then
ended.





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.





Liquidity
and Capital Resources





At March
31, 2010, our principal sources of liquidity consisted of $2,068,583 of cash and
working capital of $2,849,588, as compared to $2,302,620 of cash and working
capital of $2,957,088 at December 31, 2009. In addition, our stockholders'
equity was $2,971,996 at March 31, 2010, compared to stockholders' equity of
$2,970,215 at December 31, 2009, a decrease of $1,781. The decrease in cash
primarily reflects the payment some accrued liabilities as well as purchase of
fixed assets and an investment.






7




Our
accumulated deficit decreased from $31,148,045 at December 31, 2009 to
$31,147,365 at March 31, 2010. The $680 decrease in accumulated deficit resulted
directly from the net gain realized for the three months ended March 31, 2010.
Our accumulated deficit may increase in the future as existing maintenance
agreements with our hotel clients expire and if we don’t succeed in bringing our
new Kooltech equipment up to par.




Cash flow
used in operations for the three months ended March 31, 2010 was $19,560
as compared to $11,365 provided for the same period ended March 31,
2009.




Investing
activities for the three months ended March 31, 2010 used net cash of $214,477,
compared to $39,602 of net cash provided during the three months ended March 31,
2009.




There
were no financing activities in the three months ended March 31, 2010 and
2009.





Results of
Operations





Description of
Revenues




Although historically, we have received
most of our revenues from the sale or placement under a revenue-sharing program
of our products in hotels, presently most of our revenues are derived from
agreements with hotels in which we provide the equipment as well as the product
and the labor for restocking. A portion of revenue earned is paid to the hotel.
We also generate revenues from maintenance and support services relating to our
existing installed products. In addition, we generate revenue from loans to
third party companies.





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. 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.




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 and turn-key programs accordingly.
Through our revenue-sharing plan, we haveinstalled our products at littleor no upfront cost to our
customers and we receive a share in the recurring revenues generated from sales
of goods and services related to our products and the hotel provides the product
and labor. Through our turn-key solution, our products are  installed
with no upfront cost to our customers and we provide product and labor for
restocking and pay the hotel a small percentage of the recurring revenues
generated from sales of goods and services related to our products. We retain
the ownership of the refreshment centers and safes throughout the term of the
agreements and the right to re-deploy any systems returned to us upon the
expiration or earlier termination of the agreements.





Our revenues over the past years have
been declining as we have focused on service and maintenance of our existing
installed products and have not installed new products at hotels and as existing
revenue sharing agreements conclude. Recently however, we have taken over the
operation of Kooltech minibars located in various hotels. Additionally, in 2005
we commenced our diversification strategy to invest in emerging growth
companies. We continue to explore opportunities and perform due diligence on
third parties with respect to 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 third party companies, if applicable. The timing and return on such
investments, however, cannot be assured.





Revenue Recognition




Historically,
we have received most of our revenues from the sale or placement under a
revenue-sharing program of our products in hotels. More recently we have
purchased minibars and baskets already placed in hotels and setup turnkey
solution at these hotels. In these hotels we receive most of the revenues for
the product sold in the minibars and baskets. We provide 3-5% of revenues to
some of the hotels. We also receive limited revenues through the parts
procurement online website we setup in December 2008 for the material handling
industry. Additionally, we receive
revenues from a loan made to a third party. We may realize revenues from the
sale of securities purchased from third party companies in the
future.





Sales revenue from the sale of products
in the refreshment centers placed on a turn-key arrangement is recognized upon
completion of the sale.





Sales revenue from the placement of our
refreshment centers and safes 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.




8




We also
generate revenues from maintenance and support services relating to our existing
installed products. We have
entered into installation, maintenance and license agreements with many 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 40% 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 cost of goods and labor as well as remaining basis on sale of old refreshment
centers. 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.





Research and development expenses
consist of payroll and related costs for hardware and software engineers,
quality assurance specialists, management personnel, and the costs of materials
used by our consultants in the maintenance of our existing installed products as
well as research and development for new products. Research and development
expenses in the three months ended March 31, 2010 and 2009 were $1,728 and $0,
respectively.




In accordance with generally accepted
accounting principles development costs incurred in the research and development
of new software products to be sold, leased or otherwise marketed are expensed
as incurred until technological feasibility in the form of a working model has
been established. Internally generated capitalizable software development costs
have not been material to date. We have charged our software development costs
to research and development expense in our condensed consolidated statements of
operations.





Comparison of Three Months Ended March
31, 2010 and 2009




Revenues




Product Sales — Revenue from product
sales was $190,880 for the three months ended March 31, 2010, compared to
$17,033 for the three months ended March 31, 2009, representing an increase of
$173,847, or 1020.6%. The increase in product sales revenues was primarily due
to the sale of product in our new hotels in agreements structured in the three
months ended September 30, 2009 utilizing the Kooltech refreshment
centers.





Maintenance Fees— Maintenance fees were
$49,884 for the three months ended March 31, 2010, compared to $42,456 for the
three months ended March 31, 2009, representing an increase of $7,428, or 17.5%.
The increase in maintenance fee revenue was due to maintenance services provided
for a hotel added in 2009.





Revenue Sharing Arrangements — Our
revenue from revenue sharing arrangements was $0 for the three months ended
March 31, 2010, compared to $81,616 for the three months ended March 31, 2009,
representing a decrease of $81,616, or 100%. The decrease in revenue sharing
revenue was due to the completion of a number of revenue sharing contracts in
2009.




Interest and Other Income -  Our
revenue from interest and other income was $30,414 for the three months ended
March 31, 2010. Revenue from interest and other income was reclassified from
operating expenses to demonstrate that it is presently an integral part of our
core business plan.




Cost of Revenue




Cost of Product Sales Revenue — Our cost
of product sales revenue for the three months ended March 31, 2010 was $134,067,
compared to $15,394 for the three months ended March 31, 2009, an increase of
$118,673, or 770.9%. The gross margin percentage on revenue from product sales
revenue was 29.8% for the three months ended March 31, 2010, compared to 9.6%
for the three months ended March 31, 2009. The increase in cost of product sales
revenue relates to the cost of the minibar product sold and labor provided in
the three months ended March 31, 2010 versus the three months ended March 31,
2009. We are presently providing a complete turnkey solution to the hotels,
which includes providing equipment labor and product for the Kooltech equipment
that we purchased in June, 2009.




9




Cost of Maintenance Revenue — Our cost
of maintenance revenue was $15,757 for the three months ended March 31, 2010,
compared to $7,623 for the three months ended March 31, 2009, representing an
increase of $8,134, or 106.7%. The gross margin percentage on maintenance fee
revenues was 68.4% for the three months ended March 31, 2010, compared to 82%
for the three months ended March 31, 2009. The increase in our cost of
maintenance fee revenue was due to the servicing of Kooltech
equipment.





Cost of Revenue Sharing Revenue — Cost
of revenue sharing revenue was $0 for the three months ended March 31, 2010,
compared to $25,502 for the three months ended March 31, 2009 representing a
decrease of $25,502 or 100%. The gross margin percentage on revenue sharing
revenue was 0% for the three months ended March 31, 2010, compared to 68.8% for
the three months ended March 31, 2009. The decrease in gross margin relating to
revenue sharing revenue is due to the completion of revenue sharing contracts in
2009.




The changes and percent changes with
respect to our revenues and our cost of revenue for the three months ended March
31, 2010 and 2009 are summarized as follows:





For the Three Months Ended March
      31,
              
              2010
              
              
              2009
              
              
              Change
              
              
              Percent
                ChangeREVENUEProduct
      sales
              
              $
              190,880
              
              
              $
              17,033
              
              
              $
              173,847
              
              
              
              1020.6
              %Maintenance
      fees
              
              
              49,884
              
              
              
              42,456
              
              
              
              7,428
              
              
              
              17.5
              %Revenue-sharing
      arrangements
              
              
              -
              
              
              
              81,616
              
              
              
              (81,616
              )
              
              
              -100
              %Interest and other
      income
              
              
              30,414
              
              
              
              -
              
              
              
              30,414
              
              
              
              100
              %Total
      Revenue
              
              
              271,178
              
              
              
              141,105
              
              
              
              130,073
              
              
              
              92.2
              %COST OF
    REVENUEProduct
    sales
              
              
              134,067
              
              
              
              15,394
              
              
              
              118,673
              
              
              
              770.9
              %Maintenance
              
              
              15,757
              
              
              
              7,623
              
              
              
              8,134
              
              
              
              106.7
              %Revenue-sharing
      arrangements
              
              
              -
              
              
              
              25,502
              
              
              
              (25,502
              )
              
              
              -100
              %Total Cost of
      Revenue
              
              $
              149,824
              
              
              $
              48,519
              
              
              $
              101,305
              
              
              
              208.8
              %GROSS MARGIN
      PERCENTAGEProduct
      sales
              
              
              29.8
              %
              
              
              9.6
              %Maintenance
              
              
              68.4
              %
              
              
              82.0
              %Revenue-sharing
      arrangements
              
              
              0.0
              %
              
              
              68.8
              %Interest and other
      income
              
              
              100.0
              %
              
              
              0.0
              %Total Gross
      Margin Percentage
              
              
              44.8
              %
              
              
              65.6
              %





Although the preceding table summarizes
the net changes and percent changes with respect to our revenues and our cost of
revenue for the three months ended March 31, 2010 and 2009, the trends contained
therein are limited and should not be viewed as a definitive indication of our
future results.




Operating Expenses




Selling, General and Administrative —
Selling, general and administrative expenses, including non-cash compensation
expense, were $118,946 for the three months ended March 31, 2010, compared to
$128,589 for the three months ended March 31, 2009, representing a decrease of
$9,643, or 7.5%. The decrease in our selling, general and administrative
expenses was due to increasing efficiencies in our
operations.




Research and Development—Research and
development expenses were $1,728 for the three months ended March 31, 2010,
compared to $0 for the three months ended March 31, 2009 representing an
increase of $1,728. The increase in our research and development expenses for
the three months ended March 31, 2010 reflects an increase in new product
development in 2010.




Net Income Attributable to Common
Stockholders




We realized net income of $680 for the
three months ended March 31, 2010, compared to net income of $1,790 during the
three months ended March 31, 2009. The $1,110 decrease in net income was
immaterial. We may incur losses in the future as existing revenue sharing
agreements with our hotel clients continue expire and as we continue to bring
our recently purchased equipment up to par. There is no assurance that we will
be successful in bringing the equipment up to par.





10




Contractual Cash Obligations and
Commercial Commitments




There were no significant contractual
cash obligations or commercial commitments either on or off balance sheet as of
March 31, 2010.





Off Balance Sheet
Arrangements





We have no off-balance sheet
arrangements.





Item 3.Quantitative and
Qualitative Disclosures About Market Risk.





A smaller reporting company, as defined
by Item 10 of Regulation S-K, is not required to provide the information
required by this item.




Item 4(T).  Controls and
Procedures




Evaluation of Disclosure Controls and
Procedures





Our disclosure controls and procedures
are designed to ensure that information required to be disclosed in reports that
we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the United States Securities and Exchange Commission. Our
Chief Executive Officer and Chief Financial Officer has reviewed the
effectiveness of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the
end of the period covered by this Quarterly Report on Form 10-Q and have
concluded that the disclosure controls and procedures are effective to ensure
that material information relating to the Company is recorded, processed,
summarized, and reported in a timely manner.





Changes in Internal Controls over
Financial Reporting





There have been no changes  in
the  Company’s  internal  control  over  financial
reporting identified in connection with the evaluation required by paragraph (d)
of Rule  240.15d-15  that occurred during the Company’s last
fiscal quarter that has  materially  affected,  or
is reasonable  likely to materially  affect,  the
Company internal control over financial reporting.





PART II - OTHER
INFORMATION




Item 1. Legal
Proceedings.




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




Item 1A. Risk
Factors.





A smaller reporting
company, as defined by Item 10 of Regulation S-K, is not required to provide the
information required by this item.





Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds.




None




Item 3. Defaults Upon Senior
Securities.




Not applicable.





Item 4. Removed and
Reserved.




Item 5. Other
Information.




Not applicable.





Item 6. Exhibits.




Exhibit No.
            
            Description31.1
            
            Certification pursuant to Section
      302 of the Sarbanes-Oxley Act of 200232.1
            
            Certification pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002




11




SIGNATURE




Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this quarterly
report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly
authorized.




eRoomSystem Technologies,
      Inc.(Registrant)Date: May 17,
      2010By:
            /s/ David A.
      GestetnerName:
            David A.
      GestetnerTitle:
            President, Chief Executive
      Officer, Secretary,and Chairman of the
      Board(Principal Executive, Financial,
      and Accounting
      Officer)





12