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, 2009
 
 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. Yes x     No
 o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§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).  Yes x     No
 o
 
 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 filer         
       o
                Accelerated
      filer                    
      oNon-accelerated
      filer            
      o
                Smaller
      reporting company    x(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).
 
 Yeso Nox
  The
number of shares of the issuer’s common stock issued and outstanding as of May
4, 2009 was 24,123,165 shares.
  
  FORM
10-Q
 
 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.
                6Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.
                11Item
      4.  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. Submission of Matters to a Vote of Security Holders.
                11Item
      5. Other Information.
                11Item 6. Exhibits.
                12SIGNATURE
                13
  -iii-
 
 PART
      I - FINANCIAL INFORMATION
 Item
      1. Financial Statements
 
 eROOMSYSTEM TECHNOLOGIES, INC. AND
      SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETS (UNAUDITED)March
      31,
                                    
                                    
                                    December
      31,2009
                                    
                                    
                                    2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                    
                                    $
                                    2,186,781
                                    
                                    
                                    $
                                    2,135,814Accounts
      receivable, net of allowance for doubtful accounts of  $17,848
      and $22,040at March 31, 2009 and December 31, 2008,
      respectively
                                    
                                    
                                    114,583
                                    
                                    
                                    
                                    124,897Notes
      receivable
                                    
                                    
                                    522,192
                                    
                                    
                                    
                                    512,603Prepaid
      expenses
                                    
                                    
                                    99,624
                                    
                                    
                                    
                                    114,512Total
      Current Assets
                                    
                                    
                                    2,923,180
                                    
                                    
                                    
                                    2,887,826REFRESHMENT
      CENTERS IN SERVICE, net of accumulated depreciation
      of$1,041,083
      and $1,015,582 at March 31, 2009 and December 21, 2008,
      respectively
                                    
                                    
                                    72,888
                                    
                                    
                                    
                                    98,389PROPERTY
      AND EQUIPMENTComputer
      and office equipment, net of accumulated depreciation
      of  $10,302 and $9,214, at March 31, 2009 and December 31, 2008,
      respectively
                                    
                                    
                                    9,548
                                    
                                    
                                    
                                    9,591INVESTMENT
      IN MARKETABLE SECURITIES
                                    
                                    
                                    14,075
                                    
                                    
                                    
                                    14,075NOTE
      RECEIVABLE
                                    
                                    
                                    179,612
                                    
                                    
                                    
                                    183,159DEPOSITS
                                    
                                    
                                    3,150
                                    
                                    
                                    
                                    2,250Total
      Assets
                                    
                                    $
                                    3,202,453
                                    
                                    
                                    $
                                    3,195,290LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                                    
                                    $
                                    64,438
                                    
                                    
                                    $
                                    51,687Accrued
      liabilities
                                    
                                    
                                    45,096
                                    
                                    
                                    
                                    52,534Customer
      deposits
                                    
                                    
                                    2,004
                                    
                                    
                                    
                                    2,004Deferred
      maintenance revenue
                                    
                                    
                                    4,517
                                    
                                    
                                    
                                    7,346Total
      Current Liabilities
                                    
                                    
                                    116,055
                                    
                                    
                                    
                                    113,571Total
      Liabilities
                                    
                                    
                                    116,055
                                    
                                    
                                    
                                    113,571COMMITMENTS
      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 24,048,165shares outstanding at March 31, 2009 and December 31,
      2008
                                    
                                    
                                    24,048
                                    
                                    
                                    
                                    24,048Additional
      paid-in capital
                                    
                                    
                                    34,056,286
                                    
                                    
                                    
                                    34,042,247Treasury
      stock at cost 290,300 at March 31, 2009and December 31,
      2008
                                    
                                    
                                    (38,453
                                    )
                                    
                                    
                                    (38,453
                                    )Warrants
      and options outstanding
                                    
                                    
                                    103,123
                                    
                                    
                                    
                                    114,273Accumulated
      deficit
                                    
                                    
                                    (31,008,606
                                    )
                                    
                                    
                                    (31,010,396
                                    )Accumulated
      other comprehensive loss
                                    
                                    
                                    (50,000
                                    )
                                    
                                    
                                    (50,000
                                    )Total
      Stockholders' Equity
                                    
                                    
                                    3,086,398
                                    
                                    
                                    
                                    3,081,719Total
      Liabilities and Stockholders' Equity
                                    
                                    $
                                    3,202,453
                                    
                                    
                                    $
                                    3,195,290
 
 See
accompanying notes to consolidated financial statements
  -1-
 
 eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 For
      the three months ended March 31,
                                                  
                                                  2009
                                                  
                                                  
                                                  2008REVENUERevenue-sharing
      arrangements
                                                  
                                                  $
                                                  81,616
                                                  
                                                  
                                                  $
                                                  187,481Maintenance
      fees
                                                  
                                                  
                                                  42,456
                                                  
                                                  
                                                  
                                                  55,305Product
      sales
                                                  
                                                  
                                                  17,033
                                                  
                                                  
                                                  
                                                  16,448Total
      Revenue
                                                  
                                                  
                                                  141,105
                                                  
                                                  
                                                  
                                                  259,234COST
      OF REVENUERevenue-sharing
      arrangements
                                                  
                                                  
                                                  25,502
                                                  
                                                  
                                                  
                                                  85,601Maintenance
                                                  
                                                  
                                                  7,623
                                                  
                                                  
                                                  
                                                  20,007Product
      sales
                                                  
                                                  
                                                  15,394
                                                  
                                                  
                                                  
                                                  12,140Total
      Cost of Revenue
                                                  
                                                  
                                                  48,519
                                                  
                                                  
                                                  
                                                  117,748GROSS
      MARGIN
                                                  
                                                  
                                                  92,586
                                                  
                                                  
                                                  
                                                  141,486OPERATING
      EXPENSESSelling,
      general and administrative expense, including non-cash compensation of
      $2,889 and $0, respectively
                                                  
                                                  
                                                  128,589
                                                  
                                                  
                                                  
                                                  143,435Research
      and development expense
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  27,216Interest
      and other income
                                                  
                                                  
                                                  (37,793
                                                  )
                                                  
                                                  
                                                  (33,690
                                                  )Net
      Operating Expenses
                                                  
                                                  
                                                  90,796
                                                  
                                                  
                                                  
                                                  136,961Income
      from Operations
                                                  
                                                  
                                                  1,790
                                                  
                                                  
                                                  
                                                  4,525Net
      Income
                                                  
                                                  $
                                                  1,790
                                                  
                                                  
                                                  $
                                                  4,525Basic
      Earnings Per Common Share
                                                  
                                                  $
                                                  0.00
                                                  
                                                  
                                                  $
                                                  0.00Diluted
      Earnings Per Common Share
                                                  
                                                  $
                                                  0.00
                                                  
                                                  
                                                  $
                                                  0.00
  -2-
 
 eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 For
      the three months ended March 31,
                                                              
                                                              2009
                                                              
                                                              
                                                              2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                                              
                                                              $
                                                              1,790
                                                              
                                                              
                                                              $
                                                              4,525Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                                                              
                                                              
                                                              26,589
                                                              
                                                              
                                                              
                                                              86,146Gain
      on sale of refreshment centers
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              10,878Interest
      income from other receivable
                                                              
                                                              
                                                              (9,589
                                                              )
                                                              
                                                              
                                                              (3,750
                                                              )Non-cash
      compensation expense
                                                              
                                                              
                                                              2,889
                                                              
                                                              
                                                              
                                                              -Changes
      in operating assets and liabilities:Accounts
      receivable
                                                              
                                                              
                                                              (27,686
                                                              )
                                                              
                                                              
                                                              (14,000
                                                              )Prepaid
      expenses
                                                              
                                                              
                                                              14,888
                                                              
                                                              
                                                              
                                                              (7,274
                                                              )Accounts
      payable
                                                              
                                                              
                                                              12,751
                                                              
                                                              
                                                              
                                                              24,045Accrued
      liabilities
                                                              
                                                              
                                                              (7,438
                                                              )
                                                              
                                                              
                                                              (30,240
                                                              )Customer
      deposits and deferred maintenance revenue
                                                              
                                                              
                                                              (2,829
                                                              )
                                                              
                                                              
                                                              55,751Net
      Cash Provided By Operating Activities
                                                              
                                                              
                                                              11,365
                                                              
                                                              
                                                              
                                                              126,081CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of fixed assets
                                                              
                                                              
                                                              (1,045
                                                              )
                                                              
                                                              
                                                              (809
                                                              )Proceeds
      from sale of refreshment centers
                                                              
                                                              
                                                              38,000
                                                              
                                                              
                                                              
                                                              -Purchase
      of marketable securities available for sale
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (926,998
                                                              )Sale
      of marketable securities availabe for sale
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              1,325,000Proceeds
      from note receivable
                                                              
                                                              
                                                              3,547
                                                              
                                                              
                                                              
                                                              -Change
      in long term deposits and restricted funds
                                                              
                                                              
                                                              (900
                                                              )
                                                              
                                                              
                                                              (950
                                                              )Net Cash Provided by Investing
      Activities
                                                              
                                                              
                                                              39,602
                                                              
                                                              
                                                              
                                                              396,243CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      Cash Used in Financing Activities
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -Net
      Increase in Cash
                                                              
                                                              
                                                              50,967
                                                              
                                                              
                                                              
                                                              522,324Cash at Beginning of
      Period
                                                              
                                                              
                                                              2,135,814
                                                              
                                                              
                                                              
                                                              355,970Cash
      at End of Period
                                                              
                                                              $
                                                              2,186,781
                                                              
                                                              
                                                              $
                                                              878,294Supplemental
      Cash Flows InformationCash
      paid for interest
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -
 
 See
accompanying notes to 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 subsidiaries (the "Company"). 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 audited financial statements for the fiscal year ended
December 31, 2008 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, 2009 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2009.
  Principles of
Consolidation - The accompanying unaudited condensed consolidated
financial statements include the accounts of eRoomSystem Technologies, Inc. and
its wholly owned subsidiaries. Intercompany accounts and transactions have been
eliminated in consolidation.
  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. Unvested shares of common stock are considered to be
stock options for purposes of computing earnings per share. 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, and shares
issuable upon the conversion of debt.
  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, 2009 and 2008:
 
 2009
                                    
                                    
                                    2008Basic
      net income
                                    
                                    $
                                    1,790
                                    
                                    
                                    $
                                    4,525Diluted
      net income
                                    
                                    $
                                    1,790
                                    
                                    
                                    $
                                    4,525Basic
      weighted-average common shares outstanding
                                    
                                    
                                    24,048,165
                                    
                                    
                                    
                                    23,973,165Effect
      of dilutive securitiesStock
      options and warrants
                                    
                                    
                                    13,825
                                    
                                    
                                    
                                    316,271Diluted
      weighted-average common shares outstanding
                                    
                                    
                                    24,061,990
                                    
                                    
                                    
                                    24,289,436Basic
      earnings per share
                                    
                                    $
                                    0.00
                                    
                                    
                                    $
                                    0.00Diluted
      earnings per share
                                    
                                    $
                                    0.00
                                    
                                    
                                    $
                                    0.00
 
 During
the three months ended March 31, 2009 and 2008, there were potential common
stock equivalents from options and warrants of 2,142,019 and 2,828,350,
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, 2008 and the three months ended March 31, 2009, the
Company realized a net gain of $72,231 and $1,790, respectively. During the year
ended December 31, 2008 and the three months ended March 31, 2009, the Company's
operations provided $240,326 and $11,365 of cash, respectively. The Company had
a cash balance of $2,186,781 as of March 31, 2009. Up until the year ended
December 31, 2004, the Company suffered recurring losses. Although the Company
realized net income in the past five years, the Company revenue has been
decreasing as the Company’s existing hotel revenue-sharing and maintenance
contracts conclude. 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 increase revenues
and long-term viability, and is continuously performing due diligence on third
party companies for this purpose. The Company has also been performing research
regarding potential further investments in either privately-held or publicly
traded emerging growth stage companies.
  -4-
 
 NOTE
3 – NOTE RECEIVABLE
  On July
7, 2008, the Company funded an escrow account in the amount of $500,000 and
signed an agreement to provide a secure loan to BlackBird Corporation, a Florida
corporation (“BlackBird”), an unrelated entity. The funding of the loan was
contingent 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 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% through December
31, 2008. Starting January 1, 2009, the annual rate increases to 18% with
interest payable quarterly on the last business day of each
quarter.
 
 NOTE
4 - STOCKHOLDERS’ EQUITY
 
 During
the three months ended March 31, 2009, options to purchase 60,000 shares of
common stock expired. The Company recognized the carrying value of these options
in the amount of $11,150 as additional paid in capital.
 
 During
the three months ended March 31, 2008, the Company granted options to purchase
25,000 shares of common stock to an employee for services rendered. These
options, which vested immediately, have an exercise price of $0.14 per share and
are exercisable through March 3, 2014. These options were valued at $2,889 using
the Black-Scholes option pricing model with the following assumptions: risk free
interest rate of 1.87%, dividend yield of 0.0%, volatility of 119% and expected
life of 5 years.
  NOTE
5 – SUBSEQUENT EVENT
 
 On April
23, 2008, the Company issued 75,000 shares of common stock to its Board of
Directors in recognition of services rendered. These shares were valued at
$11,250 ($0.15 per share based on closing value).
  -5-
  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., 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. A complete discussion of these risks and uncertainties are contained
in our Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission on March 12, 2009.
  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. To this end, we have an
investment totaling $10,000 in Identica Holdings Corporation (“Identica”). 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. The loan has been continuously extended and is presently due on May 20,
2009. In consideration for making the loan, Identica issued a warrant to us to
purchase one million (1,000,000) shares of common stock of Identica, exercisable
at $0.15 per share at any time through May 20, 2010. We may make additional
investments in 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 matures 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.
 
 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.
  -6-
  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 our investment made in a third party
company in 2005; however, the return on such investment is not
assured.
 
 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.
  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 earlier termination of the revenue-sharing agreements. We have
failed to place any products, either on a revenue sharing or sale basis in the
prior five fiscal 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 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. Given
the foregoing, in 2005 we commenced our diversification strategy to invest in
emerging growth companies. To this end, we invested in Identica Holdings
Corporation, a privately held distributor and integrator of next-generation
biometric security solutions a company that has since filed a registration
statement with the Securities and Exchange Commission, 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, if
applicable. The timing and return on such investments, however, cannot be
assured.
 
 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.
 
 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 used equipment as
well as 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.
  -7-





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 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 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.





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. There
were no research and development expenses in the three months ended March 31,
2009.




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




Comparison
of Three Months Ended March 31, 2009 and 2008




Revenues




Revenue
Sharing Arrangements — Our revenue from revenue sharing arrangements was $81,616
for the three months ended March 31, 2009, compared to $187,481 for the three
months ended March 31, 2008, representing a decrease of $105,865, or 56.5%. The
decrease in revenue sharing revenue was due to the completion of a number of
revenue sharing contracts in 2009 and 2008.




Maintenance
Fee Revenues — Maintenance fee revenues were $42,456 for the three months ended
March 31, 2009, compared to $55,305 for the three months ended March 31, 2008,
representing a decrease of $12,849 or 23.2%. The decrease in maintenance fee
revenue was due to the completion of a number of revenue sharing and maintenance
contracts in 2009 and 2008.


-8-




Product
Sales — Revenue from product sales was $17,033 for the three months ended March
31, 2009, compared to $16,448 for the three months ended March 31, 2008,
representing an increase of $585 or 3.6%. The increase in product sales revenues
was immaterial.




Cost
of Revenue




Cost of
Revenue Sharing Revenue — Cost of revenue sharing revenue was $25,502 for the
three months ended March 31, 2009, compared to $85,601 for the three months
ended March 31, 2008 representing a decrease of $60,099 or 70.2%. The gross
margin percentage on revenue sharing revenue was 68.8% for the three months
ended March 31, 2009, compared to 54.3% for the three months ended March 31,
2008. The increase in gross margin percentage relating to revenue sharing
revenue is due to the completion of some revenue sharing contracts in 2009 and
2008.




Cost of
Maintenance Fee Revenue — Our cost of maintenance fee revenue was $7,623 for the
three months ended March 31, 2009, compared to $20,007 for the three months
ended March 31, 2008, representing an decrease of $12,384, or 61.9%. The gross
margin percentage on maintenance fee revenues was 82.0% for the three months
ended March 31, 2009, compared to 63.8% for the three months ended March 31,
2008. The decrease in our cost of maintenance fee revenue was due to the
decrease in revenue share contracts.




Cost of
Product Sales Revenue — Our cost of product sales revenue for the three months
ended March 31, 2009 was $15,394, compared to $12,140 for the three months ended
March 31, 2008, an increase of $3,254, or 26.8%. The gross margin percentage on
revenue from product sales revenue was 9.6% for the three months ended March 31,
2009, compared to 26.2% for the three months ended March 31, 2008. The increase
in cost of product sales revenue relates to the low margin on the sale of parts
sold in the three months ended March 31, 2009 versus the three months ended
March 31, 2008.





The
changes and percent changes with respect to our revenues and our cost of revenue
for the three months ended March 31, 2009 and 2008 are summarized as
follows:





FortheThreeMonthsEndedMarch31
                    
                    2009
                    
                    
                    2008
                    
                    
                    Change
                    
                    
                    Percent
                      ChangeREVENUERevenue-sharing
      arrangements
                    
                    $
                    81,616
                    
                    
                    $
                    187,481
                    
                    
                    $
                    (105,865
                    )
                    
                    
                    -56.5
                    %Maintenance
      fees
                    
                    
                    42,456
                    
                    
                    
                    55,305
                    
                    
                    
                    (12,849
                    )
                    
                    
                    -23.2
                    %Product
      sales
                    
                    
                    17,033
                    
                    
                    
                    16,448
                    
                    
                    
                    585
                    
                    
                    
                    3.6
                    %Total
      Revenue
                    
                    
                    141,105
                    
                    
                    
                    259,234
                    
                    
                    
                    (118,129
                    )
                    
                    
                    -45.6
                    %COST
      OF REVENUERevenue-sharing
      arrangements
                    
                    
                    25,502
                    
                    
                    
                    85,601
                    
                    
                    
                    (60,099
                    )
                    
                    
                    -70.2
                    %Maintenance
                    
                    
                    7,623
                    
                    
                    
                    20,007
                    
                    
                    
                    (12,384
                    )
                    
                    
                    -61.9
                    %Product
      sales
                    
                    
                    15,394
                    
                    
                    
                    12,140
                    
                    
                    
                    3,254
                    
                    
                    
                    26.8
                    %Total
      Cost of Revenue
                    
                    $
                    48,519
                    
                    
                    $
                    117,748
                    
                    
                    $
                    (69,229
                    )
                    
                    
                    -58.8
                    %GROSS
      MARGIN PERCENTAGERevenue-sharing
      arrangements
                    
                    
                    68.8
                    %
                    
                    
                    54.3
                    %Maintenance
                    
                    
                    82.0
                    %
                    
                    
                    63.8
                    %Product
      sales
                    
                    
                    9.6
                    %
                    
                    
                    26.2
                    %Total Gross Margin
      Percentage
                    
                    
                    65.6
                    %
                    
                    
                    54.6
                    %


-9-


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,
2009 and 2008, 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 $128,589 for the three months
ended March 31, 2009, compared to $143,435 for the three months ended March 31,
2008, representing a decrease of $14,846, or 10.4%. The decrease in our selling,
general and administrative expenses our ongoing commitment to further reduce
fixed overhead expenses.




Research
and Development—Research and development expenses were $zero for the three
months ended March 31, 2009, compared to $27,216 for the three months ended
March 31, 2008 representing an decrease of $27,216. The decrease in our research
and development expenses for the three months ended March 31, 2009 reflects no
further product development in 2009.




Interest
and other income was $37,793 for the three months ended March 31, 2009 as
compared to $33,690 for the three months ended March 31, 2008 representing an
increase of $4,103 or 12.2%. The increase was due to the increased interest
earned on Blackbird which offset the decreasing rates earned on our
cash.





Net
Income Attributable to Common Stockholders




We
realized net income of $1,790 for the three months ended March 31, 2009,
compared to $4,525 during the three months ended March 31, 2008. The $2,735
decrease in net income was primarily due to decreasing revenue sharing
agreements. We may incur losses in the future as existing revenue sharing
agreements with our hotel clients expire.





Liquidity
and Capital Resources





At March
31, 2009, our principal sources of liquidity consisted of $2,186,781 of cash and
working capital of $2,807,125, as compared to $2,135,814 of cash and working
capital of $2,774,255 at December 31, 2008. In addition, our stockholders'
equity was $3,086,398 at March 31, 2009, compared to stockholders' equity of
$3,081,719 at December 31, 2008, an increase of $4,679. The increase in cash
reflects the increase in working capital, and increase in stockholders'
equity.




Our
accumulated deficit decreased from $31,010,396 at December 31, 2008 to
$31,008,686 at March 31, 2008. The $1,790 decrease in accumulated deficit
resulted directly from the net income realized for the three months ended March
31, 2009. Our accumulated deficit may increase in the future as existing revenue
sharing agreements with our hotel clients expire.




Our
operations provided net cash of $11,365 for the three months ended March 31,
2009, compared to $126,081 during the three months ended March 31,
2008.




Investing
activities for the three months ended March 31, 2009 provided net cash of
$39,602, compared to $396,243 of net cash provided during the three months ended
March 31, 2008. The change consisted primarily of an increase in the sale of
investment securities.




There
were no financing activities in the three months ended March 31, 2009 and
2008.





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, 2009.





Off
Balance Sheet Arrangements





We have
no off-balance sheet arrangements.


-10-


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. Submission of Matters to a Vote of Security Holders.




Not
applicable.




Item
5. Other Information.




Not
applicable.


-11-


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


-12-


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 13, 2009By:
                /s/ David A. GestetnerName:
                David A. GestetnerTitle:
                President, Chief Executive Officer,
      Secretary,and
      Chairman of the Board(Principal
      Executive, Financial,and
      Accounting Officer)


-13-