UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~March 3031, ~~2015~~2016

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

For the transition period from _____________ To __________

Commission file number 000-31037

eRoomSystem Technologies, Inc.

(Exact name of registrant as specified in its charter)

Nevada	87-0540713
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

150 Airport Road, Suite 1200, Lakewood, NJ	08701
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (732) 730-0116

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☐	Smaller reporting company ☒
(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). Yes ☐ No ☒

The number of shares of the issuer’s common stock issued and outstanding as of ~~November~~May 410, ~~2015~~2016 was 24,217,865 shares.

Table Of Contents

EROOMSYSTEM TECHNOLOGIES, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	1211
PART II - OTHER INFORMATION		1312
Item 1.	Legal Proceedings	1312
Item 1A.	Risk Factors	1312
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1312
Item 3.	Defaults Upon Senior Securities	1312
Item 4.	Mine Safety Disclosures	1312
Item 5.	Other Information	1312
Item 6.	Exhibits	1312

Table Of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	Sept 30,			December 31,
	March 31,			December 31,
	2015			2014
	2016			2015
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,~~411~~159,~~699~~790		$	1,~~453~~247,~~971~~739
Restricted cash		-			61,350
Investment in available for sale securities		24,018			23,640
Investment in available for sale securities		24,018			24,455
Notes receivable		1,073,100			1,075,020
Notes receivable		824,415			702,500
Accounts receivable, net of allowance for doubtful accounts of $7,581 and $5,044		100,713			67,008
Accounts receivable, net of allowance for doubtful accounts of $7,805 and $5,101		103,698			67,771
Loan receivable		19,652			-
Inventory		~~104~~97,~~278~~270			79101,~~191~~928
Advance to hotels		7671,~~343~~488			7478,~~370~~473
Prepaid expenses		1044,~~647~~731			~~111~~3,~~064~~369
Total Current Assets		2,~~555~~590,~~098~~762			2,~~574~~597,~~672~~177
PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated depreciation of $22,001 and $15,409		47,383			63,287
Property and equipment, net of accumulated depreciation of $25,832 and $23,524		32,736			39,810
INVESTMENT IN REAL PROPERTY TAX LIENS		263,~~386~~143			223,~~688~~143
DEPOSITS		2,933			2,933
Total Assets	$	2,~~631~~629,~~800~~574		$	2,~~663~~643,~~580~~063
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	2733,~~396~~930		$	2212,~~783~~485
Accrued liabilities		5440,~~394~~812			8780,~~998~~195
Securities borrowed		-			60,959
Total Current Liabilities		74,742			92,680
Total Current Liabilities		81,790			171,740
Total Liabilities		74,742			92,680
Total Liabilities		81,790			171,740
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none outstanding		-			-
Common stock, $0.001 par value; 50,000,000 shares authorized; shares outstanding 24,217,865 and 24,167,865		24,218			24,168
Common stock, $0.001 par value; 50,000,000 shares authorized; shares outstanding 24,217,865 and 24,217,865		24,218			24,218
Additional paid-in capital		34,~~211~~215,~~957~~607			34,~~203~~211,~~953~~957
Accumulated deficit		(31,~~687~~686,~~449~~277	)		(31,~~738~~686,~~002~~698	)
Accumulated other comprehensive income		1,284			~~1,721~~906
Total Stockholders' Equity		2,~~550~~554,~~010~~832			2,~~491~~550,~~840~~383
Total Liabilities and Stockholders' Equity	$	2,~~631~~629,~~800~~574		$	2,~~663~~643,~~580~~063

See accompanying notes to condensed consolidated financial statements.

Table Of Contents

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

(UNAUDITED)

	For the three months ended March 31,
	2016		2015
REVENUE	$	229,059	$	199,794
COST OF REVENUE		148,071		110,692
GROSS MARGIN		80,988		89,102
OPERATING EXPENSES
Selling, general and administrative expense, including non-cash compensation of $3,650 and $0		91,081		93,789
Research and development expense		14,694		12,503
Net Operating Expenses		105,775		106,292
OTHER INCOME
Investment Income		25,208		28,247
Net Income		421		11,057
Other Comprehensive Income
Unrealized holding gain (loss)		378		478
Comprehensive Income	$	799	$	11,535
Basic Income Per Common Share	$	0.00	$	0.00
Diluted Income Per Common Share	$	0.00	$	0.00

	For the three months ended September 30,						For the nine months ended September 30,
	2015			2014			2015			2014
REVENUE	$	229,873		$	198,051		$	644,163		$	577,632
COST OF REVENUE		137,596			97,838			371,963			303,364
GROSS MARGIN		92,277			100,213			272,200			274,268
OPERATING EXPENSES
Selling, general and administrative expense, including non-cash compensation of $1,619, $600, $8,054 and $8,669		95,114			98,224			290,382			324,183
Research and development expense		13,103			8,633			35,672			33,073
Net Operating Expenses		108,217			106,857			326,054			357,256
OTHER INCOME
Investment Income		23,464			15,973			104,407			186,284
Net Income		7,524			9,329			50,553			103,296
Other Comprehensive Income
Unrealized holding gain (loss)		(801	)		(191	)		(437	)		15,542
Reclassification to realized gain (included in net income)		-			-			-			(14,858	)
Comprehensive Income	$	6,723		$	9,138		$	50,116		$	103,980
Basic Income Per Common Share	$	0.00		$	0.00		$	0.00		$	0.00
Diluted Income Per Common Share	$	0.00		$	0.00		$	0.00		$	0.00

See accompanying notes to condensed consolidated financial statements.

Table Of Contents

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the nine months ended September 30,
	For the three months ended March 31,
	2015			2014
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	~~50,553~~421		$	~~103~~11,~~296~~057
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		82,~~441~~309			82,~~138~~266
Accrued interest receivable		~~(2,539~~9	)		(25,~~000~~095	)
Gain on sale of marketable securities		~~(40,160~~-	)		(148,~~858~~358	)
Gain on sale of equipment		-			(850	)
Loss on writedown of equipment		-			261
Loss on writedown of equipment		-			33,645
Non-cash compensation expense		3,650			-
Loss on writedown of note receivable		-			22,500
Non-cash compensation expense		8,054			8,669
Changes in operating assets and liabilities:
Restricted cash		~~61,350~~-			-61,350
Accounts receivable		(3533,~~927~~705	)		(2631,~~829~~732	)
Inventory		(17,624	)		(34,983	)
Loan receivable		(19,652	)		-
Advance to hotels		(1,973	)		(15,083	)
Inventory		12,280			(36,054	)
Prepaid expenses		417			(3,552	)
Advance to hotels		6,985			(3,607	)
Accounts payable		4,613			9,844
Prepaid expenses		(41,362	)		2,717
Accrued liabilities		(33,604	)		(30,430	)
Accounts payable		21,445			5,173
Borrowed shares		(60,959	)		-
Accrued liabilities		(39,383	)		(33,959	)
Customer deposits		-			(4,313	)
Borrowed shares		-			(60,959	)
Net Cash Provided by (Used In) Operating Activities		(59,358	)		53,194
Net Cash Used In Operating Activities		(87,003	)		(96,940	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		-(2,857	)		~~(6,901~~-	)
Purchases of investments in real property tax liens		(3,698	)		(9,266	)
Advances made under notes receivable		-			(390,000	)
Proceeds from sale of equipment		-			850
Proceeds from collection of note receivable		1,911			7,083
Advances made under notes receivable		(390,000	)		(250,000	)
Purchase of marketable securities		-			(91,546	)
Proceeds from collection of note receivable		270,624			250,000
Proceeds from sale of marketable securities		-			199,904
Purchase of marketable securities		(618,107	)		(25,000	)
Net Cash Used in Investing Activities		(946	)		(274,559	)
Proceeds from sale of marketable securities		758,267			39,858
Net Decrease in Cash		(87,949	)		(371,499	)
Proceeds from collection of note receivable, non-performing		-			399,863
Cash and cash equivalents at Beginning of Period		1,247,739			1,453,971
Net Cash Provided by Investing Activities		17,086			399,404
Cash and cash equivalents at End of Period	$	1,159,790		$	1,082,472
Net Increase (Decrease) in Cash		(42,272	)		452,598
Cash and cash equivalents at Beginning of Period		1,453,971			1,376,822
Cash and cash equivalents at End of Period	$	1,411,699		$	1,829,420

See accompanying notes to condensed consolidated financial statements.

Table Of Contents

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, ~~2014~~2015 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 ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2015~~2016.

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.

Investments in Debt and Equity Securities Available for Sale – Debt and equity securities available for sale include securities that can be sold at any time based upon needs or market conditions. Available for sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected in stockholders’ equity as accumulated other comprehensive income ~~(loss)~~.

Accounts Receivable - Accounts receivable are stated at the historical carrying amount, net of write-offs and allowances. The Company has established an overall allowance based upon historical experience of 7% of the outstanding balance in addition to any specific customer collection issues identified by the Company. Uncollectible accounts receivable are written off when a settlement is reached or when the Company has determined that the balance will not be collected.

Inventory - The Company maintains an inventory of product that is sold in the refreshment centers in a number of hotels. The inventory is purchased as finished goods and is valued using the first in, first out method.

Advances to Hotels – The Company makes advances to hotels for their purchases of alcoholic beverages. The hotels’ alcoholic beverages are placed in the Company’s refreshment centers and the advances are settled at the date the hotel customers purchase the beverages from the refreshment centers.

Notes Receivable - The notes receivable are stated at the historical carrying amount, less a loan loss allowance, and are evaluated for impairment. When projections indicate that the carrying value of the note is not recoverable, the carrying value will be reduced by the estimated excess of the carrying value over the projected discounted cash flows. The Company has evaluated the collectability of current notes receivable and believes the notes are realizable as they are secured by the related real property and the estimated fair value of the real property is in excess of the carrying value of the notes and the estimated cost to foreclose and sell the real property.

Investment in Real Property Tax Liens – The investments in the real property tax liens are accounted for as an investment in troubled debts and are carried at cost. Collection of interest, penalties and expense reimbursements is not certain and is recognized upon being realized. The Company has evaluated the collectability of the tax liens and believes the investments are realizable over time as the first position liens are secured by the related real property and the estimated fair value of the real property is in excess of the carrying value of the tax liens and the estimated cost to foreclose and sell the real property. Therefore no impairment was recognized on the tax liens at ~~September~~March 3031, ~~2015~~2016 and December 31, ~~2014~~2015.

Property and Equipment: Property and equipment consist primarily of eRoomServ refreshment centers and are stated at cost, less accumulated depreciation. Major additions and improvements are capitalized, while repairs and maintenance costs are expensed when incurred.

Table Of Contents

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Earnings per Common Share - Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income, by the weighted-average number of common shares and dilutive potential common share equivalents outstanding. When dilutive, the incremental potential common shares issuable upon exercise of stock options are determined by the treasury stock method.

The following table is a reconciliation of the numerators and denominators used in the calculation of basic and diluted loss per share for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015:

	For the three months ended September 30,				For the nine months ended September 30,
	For the three months ended March 31,
	2015		2014		2015		2014
	2016		2015
Net income	$	~~7,524~~421	$	911,~~329~~057	$	~~50,553~~	$	~~103,296~~
Basic weighted-average common shares outstanding		24,217,865		24,~~164~~167,~~278~~865		~~24,187,462~~		~~24,146,326~~
Effect of dilutive securities
Stock options and warrants		6312,~~920~~500		134,~~471~~375		~~57,593~~		~~1,023~~
Diluted weighted-average common shares outstanding		24,~~281~~230,~~785~~365		24,~~165~~202,~~749~~240		~~24,245,055~~		~~24,147,349~~
Basic income per share	$	0.00	$	0.00	$	~~0.00~~	$	~~0.00~~
Diluted income per share	$	0.00	$	0.00	$	~~0.00~~	$	~~0.00~~

During the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015, there were 92275,~~500~~000 and ~~267~~142,500, respectively, of potential common stock equivalents from options ~~that~~ were not included in the computation of diluted loss per share because their effect would have been anti-dilutive.

NOTE 2 – INVESTMENTS

Investment in Real Property Tax Liens – At ~~September~~March 3031, ~~2015~~2016, the Company held $263,~~386~~143 of real property tax liens, carried at lower of cost or estimated net realizable value, 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. The tax lien receivables accrue interest up to 18% per annum, accrue penalties at 2% to 6% and are also increased by the amount of any collection expenses incurred. ~~Additional investments in real property tax liens were made during the nine months ended September 30, 2015 in the amount of $3,698.~~ The investment in the real property tax liens are accounted for as an investment in troubled debts and are carried at cost. Collection of interest, penalties and expense reimbursements is not certain and is recognized upon being realized.

Investment in Available for Sale Debt Securities

Debt and Equity Securities	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Corporate Debt Securities	$	22,734	$	1,284	$	-	$	24,018
Total	$	22,734	$	1,284	$	-	$	24,018

The corporate debt securities mature on August 31, 2018 and May 29, 2020.

NOTE 3 – NOTES RECEIVABLE

~~Non~~To date, the Company loaned $1,492,000 in amounts ranging from $150,000 to $450,000 to various parties for a one year term with mortgage notes ranging in interest from 5% -~~Performing~~ ~~Loan~~12%. Interest is due and payable monthly. The entire principal amounts are due and payable on the maturity date. The mortgages are collateralized by either commercial or residential property. Proceeds collected on these notes during the three months ended March 31, 2016 totaled $1,919 and during the year ended December 31, 2015 totaled $272,512. The carrying amounts of loans outstanding on March 31, 2016 and December 31, 2015 were $1,073,100 and $1,075,020 including interest accrued. The carrying amount of the notes receivable approximates their fair values based on their short-term maturity.

OnAccrued ~~July~~interest ~~24,~~on ~~2008,~~notes ~~the~~receivable ~~Company~~was ~~loaned~~ $~~500~~7,~~000~~523 toand ~~BlackBird~~$7,531 ~~Corporation (“BlackBird”) under the terms of a 10% senior secured convertible promissory note (the “Secured Note”). The Secured Note bore interest~~ at ~~10%~~March ~~per annum~~31, ~~payable~~2016 ~~quarterly,~~ and ~~was~~December ~~due June 30~~31, ~~2009.~~2015 ~~In addition~~respectively, ~~BlackBird~~and ~~issued~~was ~~50,000~~included ~~shares~~in ofnotes ~~its~~receivable ~~common stock to the Company. BlackBird further agreed~~ in ~~July 2008, notwithstanding~~ the ~~terms~~accompanying ofconsolidated ~~the~~balance ~~note, if the loan was not repaid by January 1, 2009, interest on the note would accrue at 18% per annum starting January 1, 2009~~sheets. ~~The Secured Note was not paid by January 1, 2009 and it continued to accrue interest at 18% per annum. On April 1, 2011, the Company agreed to extend the due date of the Secured Note to June 30, 2011.~~

Table Of Contents

~~BlackBird~~eROOMSYSTEM ~~did not pay its interest payment for the second quarter of 2011 in a timely fashion. On November 3~~TECHNOLOGIES, 2011, the Company entered into a forbearance agreement with BlackBird to reduce the interest rate on the Secured Note to 10% retroactive to April 1, 2011 and to not foreclose on BlackBird’s assets if BlackBird remains in compliance with the terms of the agreementINC. AsAND part of this agreement, BlackBird agreed to pay all outstanding interest due on the loan through September 30, 2011 by November 11, 2011. BlackBird also agreed to make monthly interest payments within 10 days after the end of each month. The outstanding accrued interest of $25,069 as of September 30, 2011 was paid in full on November 10, 2011.SUBSIDIARIES

~~The~~NOTES ~~concession~~TO ~~granted~~CONDENSED toCONSOLIDATED ~~BlackBird~~FINANCIAL onSTATEMENTS November 3, 2011 constituted a troubled debt restructuring under current accounting guidance. As a result, the note was classified as a long-term asset. Interest income under the terms of the Secured Note was no longer being recognized until the carrying value would be recovered, and payments received were recognized as a reduction of the carrying value of the note. During second quarter 2014, the Secured Note was paid in full and interest income of $124,451 was recognized. The carrying value of the note receivable was $399,863 at December 31, 2013.(UNAUDITED)

Notes Receivable

In 2015 and 2014, the Company loaned $1,090,000 in amounts ranging from $250,000 to $450,000 to various parties for a one year term with mortgage notes ranging in interest from 5% - 12%. Interest is due and payable monthly. The entire principal amounts are due and payable on the maturity date. The mortgages are collateralized by either commercial or residential property. Proceeds collected on these notes in 2015 and 2014 totaled $270,624 and $400,000, respectively. The carrying amounts of loans outstanding on September 30, 2015 and December 31, 2014 were $824,415 and $702,500 including interest accrued. The carrying amount of the note receivable approximates its fair value based on its short-term maturity.

Accrued interest on notes receivable was $5,039 and $2,500 at September 30, 2015 and December 31, 2014 respectively, and was included in notes receivable in the accompanying consolidated balance sheets.

NOTE 4 – STOCKHOLDERS’ EQUITY

During the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2016, the Company granted options to purchase 75,000 shares of common stock to employees for services rendered. These options, which vested immediately, have an exercise price of $0.0506 per share and are exercisable through March 2431, ~~2019~~2021. These options were valued at approximately $0.0405 per share, or $3,~~069~~650, using the Black-Scholes option pricing model with the following assumptions: market value of the common stock of $0.0506 per share, risk free interest rate of 1.7621%, dividend yield of 0.0%, volatility of ~~117~~116% and expected life of 5 years. The pricing model utilized the full life of the options as the Company generally has a low turnover rate of its employees.

~~During~~Stock-based ~~the~~compensation ~~nine~~expense ~~months~~relating ~~ended September 30, 2015, the Company granted options~~ to ~~purchase 75,000 shares of common~~ stock ~~to an employee and a consultant for services rendered. These~~ options, ~~which vested immediately, have an exercise price range~~ of $~~0.06~~3,650 toand $0~~.08~~ ~~per~~was ~~share~~recognized ~~and~~during ~~are~~the ~~exercisable~~three ~~through~~months ~~August~~ended March 31, ~~2020.~~2016 ~~These~~and ~~options~~2015, ~~were valued at approximately $0~~respectively.05 ~~per~~There ~~share,~~was orno ~~$4,054,~~unrecognized ~~using~~compensation ~~the~~related ~~Black-Scholes~~to ~~option pricing model with the following assumptions: market value of the common~~ stock ofoptions ~~$0.06~~at toMarch ~~$0.08 per share~~31, ~~risk free interest rate of 1~~2016.~~36%~~ ~~through~~A ~~1.47%,~~summary ~~dividend yield~~ of ~~0.0%,~~stock ~~volatility~~option ~~of 115%-116%~~ and ~~expected~~warrant ~~life~~activity offor 5the ~~years.~~three ~~The~~months ~~pricing~~ended ~~model~~March ~~utilized~~31, ~~the~~2016 ~~full~~is ~~life of the options~~ as ~~the Company generally has a low turnover rate of its employees.~~follows:

Stock-based compensation expense relating to stock options of $8,054 and $8,669 was recognized during the nine months ended September 30, 2015 and 2014, respectively. There was no unrecognized compensation related to stock options at September 30, 2015. A summary of stock option and warrant activity for the six months ended September 30, 2015 is as follows:

	Options and Warrants		Exercise Price Range				Weighted-Average Exercise Price	Weighted-Average Life		Aggregate Intrinsic Value
Balance, December 31, 2015	300,000		$0.05	-	$0.17	$	0.08	5.40	$	-
Granted	75,000		0.06	-	0.06		0.06
Expired	(25,000	)	0.17	-	0.17		0.17
Balance, March 31, 2016	350,000		0.05	-	0.12		0.06	5.00	$	750
Exercisable, March 31, 2016	350,000		$0.05	-	$0.12	$	0.06	5.00	$	750
Weighted-average fair value of options granted during the three months ended March 31, 2016									$	0.05

	Options and Warrants		Exercise Price Range					Weighted - Average Exercise Price		Weighted- Average Life		Aggregate Intrinsic Value
Balance, December 31, 2014		242,500	$	0.05	-	$	0.22	$	0.09		6	$	4,250
Granted		75,000		0.06	-		0.08		0.07		5	$	1,750
Balance, September 30, 2015		317,500		0.05	-		0.22		0.08		6	$	5,750
Exercisable, September 30, 2015		317,500	$	0.05	-	$	0.22	$	0.08		6	$	5,750
Weighted-average fair value of options granted during the nine months ended September 30, 2015												$	0.05

All of the options and warrants were exercisable at March 31, 2016. At March 31, 2016 the intrinsic value for the options and warrants outstanding was $750.

All of the options and warrants were exercisable at September 30, 2015. At September 30, 2015 the intrinsic value for the options and warrants outstanding was $5,750.

NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Generally accepted accounting principles define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, a hierarchy has been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.

Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The Company uses fair value to measure certain assets and liabilities on a recurring basis when fair value is the primary measure for accounting. Fair value is also used on a nonrecurring basis to measure certain assets when applying lower of cost or market accounting or when adjusting carrying values. Fair value is also used when evaluating impairment on certain assets, including notes receivable and long-lived assets. The following table sets forth the estimated fair values of the Company’s financial instruments that are measured at fair value on a reoccurring basis as of ~~September~~March 3031, ~~2015~~2016 and December 31, ~~2014~~2015:

Table Of Contents

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Active

Total

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Markets

Significant

September 30, 2015

for Identical

Significant

Unobservable

Assets

Observable Inputs

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

March 31, 2016

Assets:

Debt securities available for sale

24,018

December 31, 2014

December 31, 2015

Assets:

Debt securities available for sale

2423,~~455~~640

Fair Value of Financial Instruments Not Required To Be Reported at Fair Value

The fair values of real property tax liens, notes receivable and notes receivable, non-performing, are based on a combination of the stated or implied interest rates at the measurement dates, approximate their carrying amounts and are considered to fall within Level 3 of the fair value hierarchy.

NOTE 6 – CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

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

At ~~September~~March 3031, ~~2015~~2016, the Company had accounts receivable from one ~~customer~~customers which accounted for 3936% of total accounts receivable and from a second customer which accounted for 2042% of total accounts receivable.

During the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016, revenues from one customer accounted for 3437% of total revenues and 2827% from a second customer.

During the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015, revenues from one customer accounted for 3635% of total revenues and 2728% from a second customer.

Table Of Contents

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

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

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

Forward-Looking Statements

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

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

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

Overview

InThe ~~January 2014, the~~ Company introduced to the lodging industry an amenity management platform, or the AMENITIES MANAGER™. The platform’s core is proprietary software that provides a cloud-based system to assist a hotel in enhancing its image and theme through distinctive products and managing its amenities with optimized efficiency.

The AMENITIES MANAGER™ ~~delivers~~deliver solutions in order to reduce operating costs, enhance hotel guest satisfaction and provide higher operating profits to our customers. The solutions offered by our AMENITIES MANAGER™ and related products have allowed us to establish relationships with many premier hotel chains. In addition to providing our customers with valuable amenity management solutions that pay for itself, our revenue-sharing program has allowed us to partner with our customers and provide our solutions at little or no up-front cost. Our customers share in revenues generated from the sale of goods and services related to our platform. As an alternative solution, we offer a turnkey arrangement which provides both products and restockers to hotels.

We continue to deploy our Amenities Manager™ at all hotels that we service. Additionally, to date, we have deployed over 12,000 refreshment centers at many hotel properties.

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, Carlson Hospitality Worldwide, as well as in other boutique hotels in the United States and internationally.

Results of Operations

Revenue Recognition

We generate revenues from the sale of products in hotel in-room refreshment centers, from maintenance services and the lease of equipment. Revenue from the sale of refreshments from the refreshment centers is recognized upon removal of the item from the refreshment center by the hotel guest. Maintenance revenue is recognized as the services are performed. Lease revenue is recognized over the term of the lease.

Description of Expenses

Cost of revenue consists primarily of cost of goods sold, as well as customer support and maintenance.

Table Of Contents

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 research and development for new products. Research and development expenses in the ~~nine~~three months ended ~~September~~March 3031, 2015 and 2014 were $3514,~~672~~694 and $3312,~~073~~503, respectively.

In accordance with ASC Codification Topic 730, “Accounting for Research and Development Costs”, 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~~Three ~~months~~Months ~~ended~~Ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015

Revenue

Revenue from product sales and maintenance was $229,~~873~~059 for the three months ended ~~September~~March 3031, ~~2015~~2016, compared to $~~198~~199,~~051~~794 for the three months ended ~~September~~March 3031, ~~2014~~2015, representing an increase of $3129,~~822~~265, or 1615%. The increase in revenues related to improved sales in ~~2015~~2016.

Cost of Revenue

Our cost of product sales and maintenance revenue for the three months ended ~~September~~March 3031, ~~2015~~2016 was $~~137~~148,~~596~~071, compared to $97110,~~838~~692 for the three months ended ~~September~~March 3031, ~~2014~~2015, an increase of $3937,~~758~~379, or 4134%. The increase in cost of revenue related to the increase in sales as well as anincreases ~~increase~~ in labor costs and cost of ~~labor~~goods. The gross margin percentage on revenue from product sales ~~and maintenance~~ revenue was 4035% in ~~2015~~2016 as compared to 5145% in ~~2014~~2015.

The changes and percent changes with respect to our revenues and our cost of revenue for the three months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015 are summarized as follows:

	For the three months ended September 30,
	For the three months ended March 31,
	2015		2014		Change		Percent Change
	2016		2015		Change		Percent Change
REVENUE	$	229,~~873~~059	$	~~198~~199,~~051~~794	$	3129,~~822~~265		1615	%
COST OF REVENUE	$	~~137~~148,~~596~~071	$	97110,~~838~~692	$	3937,~~758~~379		4134	%

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 ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015, 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 $9591,~~114~~081 for the three months ended ~~September~~March 3031, ~~2015~~2016, compared to $9893,~~224~~789 for the three months ended ~~September~~March 3031, ~~2014~~2015, representing a decrease of $32,~~110~~708, or 3% due to a combination of a lot of small items.

Research and Development—Research and development expenses were $1314,~~103~~694 for the three months ended ~~September~~March 3031, ~~2015~~2016, compared to $812,~~633~~503 for the three months ended ~~September~~March 3031, ~~2014~~2015 representing an increase of $42,~~470~~191 or 5218%.

Investment Income

Our investment income was $2325,~~464~~208 for the three months ended ~~September~~March 3031, ~~2015~~2016, compared to $1528,~~973~~247 for the three months ended ~~September~~March 3031, ~~2014~~2015, representing ana ~~increase~~decrease of $73,~~491~~039, or 4711%. The change in investment income related sales of available-for-sale securities in the three months ended March 31, 2015.

Table Of Contents

Net Income

We realized a net income of $~~7,524~~421 for the three months ended ~~September~~March 3031, ~~2015~~2016, compared to a net income of $911,~~329~~057 for the three months ended ~~September~~March 3031, ~~2014~~2015. The $10,636 change related primarily to the decrease in gross margin during the three months ended March 31, 2016.

Comparison of nine months ended September 30, 2015 and 2014

Revenue

Revenue from product sales and maintenance was $644,163 for the nine months ended September 30, 2015, compared to $577,632 for the nine months ended September 30, 2014, representing an increase of $66,531, or 12%. The increase in revenues related to improved sales in 2015.

Cost of Revenue

Our cost of product sales and maintenance revenue for the nine months ended September 30, 2015 was $371,963, compared to $303,364 for the nine months ended September 30, 2014, an increase of $68,599, or 23%. The increase in cost of revenue related to the increase in sales as well as an increase in cost of labor. The gross margin percentage on revenue from product sales revenue was 42% in 2015 as compared to 47% in 2014.

The changes and percent changes with respect to our revenues and our cost of revenue for the nine months ended September 30, 2015 and 2014 are summarized as follows:

	For the nine months ended September 30,
	2015		2014		Change		Percent Change
REVENUE	$	644,163	$	577,632	$	66,531		12	%
COST OF REVENUE	$	371,963	$	303,364	$	68,599		23	%

Although the preceding table summarizes the net changes and percent changes with respect to our revenues and our cost of revenue for the nine months ended September 30, 2015 and 2014, 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 $290,382 for the nine months ended September 30, 2015, compared to $324,183 for the nine months ended September 30, 2014, representing a decrease of $33,801, or 10% due to a write-off of obsolete inventory in 2014.

Research and Development—Research and development expenses were $35,672 for the nine months ended September 30, 2015, compared to $33,073 for the nine months ended September 30, 2014 representing an increase of $2,599 or 8%.

Investment Income

Our investment income was $104,407 for the nine months ended September 30, 2015, compared to $186,284 for the nine months ended September 30, 2014, representing a decrease of $81,877, or 44%. The decrease in investment income related to the recapture of interest income during the three months ended June 30, 2014 due to payment in full of the Blackbird note receivable.

Net Income

We realized a net income of $50,553 for the nine months ended September 30, 2015, compared to a net income of $103,296 for the nine months ended September 30, 2014. The $52,743 change during the nine months ended September 30, 2015 related primarily to the recapture of interest income during the nine months ended September 30, 2014, as discussed above.

Liquidity and Capital Resources

Our accumulated deficit decreased from $31,~~738~~686,~~002~~698 at December 31, ~~2014~~2015 to $31,~~687~~686,~~449~~277 at ~~September~~March 3031, ~~2015~~2016. The $~~50,553~~421 decrease in accumulated deficit resulted directly from the net income realized for the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016.

At ~~September~~March 3031, ~~2015~~2016, our principal sources of liquidity consisted of $1,~~411~~159,~~699~~790 of cash ~~and~~as ~~working~~compared ~~capital~~to of $21,~~473~~247,~~308~~739 at December 31, as2015. ~~compared~~At toMarch $131,~~453~~ 2016,~~971~~ ofwe ~~cash~~had ~~and~~ working capital of $2,~~402~~516,~~932~~020, as compared to $2,504,497 at December 31, ~~2014~~2015. In addition, our stockholders' equity was $2,~~550~~554,~~010~~832 at ~~September~~March 3031, ~~2015~~2016, compared to stockholders' equity of $2,~~491~~550,~~840~~383 at December 31, ~~2014~~2015, an increase of $584,~~170~~449. The decrease in cash reflects various items. We believe that we have sufficient funds for the next twelve months.

Net cash used in operations for the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 was $5987,~~358~~003 as compared to $5396,~~194~~940 ~~provided~~used in the period ended ~~September~~March 3031, ~~2014~~2015.

Investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 ~~provided~~used net cash of $17946,~~086,~~ compared to $~~399~~274,~~404~~559 of net cash ~~provided~~used during the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015. The change in cash used related to the ~~proceeds~~advance ~~from~~under ~~the~~a ~~payment~~Note ofReceivable ~~the~~in ~~Blackbird note~~2015.

There were no financing activities in the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 will be effective for the Company retrospectively beginning January 1, 2017, with early adoption not permitted. Management is currently evaluating the impact of the pending adoption of ASU 2014-09 on the Company’s consolidated financial statements.

Contractual Cash Obligations and Commercial Commitments

There were no significant contractual cash obligations or commercial commitments either on or off balance sheet as of ~~September~~March 3031, ~~2015~~2016.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Table Of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer have 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 because of the material weakness in our internal control over financial reporting due to lack of segregation of duties, the Company’s disclosure controls and procedures were not effective as of ~~September~~March 3031, ~~2015~~2016 to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that the Company’s disclosure and controls are designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Notwithstanding the material weakness discussed below, our principal executive officer and principal financial officer have concluded that the condensed consolidated financial statements (unaudited) included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Lack of Segregation of Duties

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

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

1211

Table Of Contents

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

~~On April 20, 2015, the Company granted immediately exercisable five-year options to purchase an aggregate of 50,000 shares of common stock at an exercise price of $0~~None.~~06 per share to an employee for services provided to the Company.~~

On June 15, 2015, the Company granted shares of common stock to Lawrence K. Wein, a member of the Board of Directors, in the amount of 25,000 shares and to James Savas, a member of the Board of Directors, in the amount of 25,000 shares. The shares were issued for services provided to the Company.

On August 31, 2015, the Company granted immediately exercisable five-year options to purchase an aggregate of 25,000 shares of common stock at an exercise price of $0.08 per share to a consultant for services provided to the Company.

We believe that the above issuances were exempt from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(2) thereof and/or Regulation D promulgated thereunder.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		Description
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

1312

Table Of Contents

SIGNATURE

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

	eRoomSystem Technologies, Inc.
	(Registrant)
Date: November 9, 2015
Date: May 10, 2016
	By:	/s/ David A. Gestetner
	Name:	David A. Gestetner
	Title:	President, Chief Executive Officer, Secretary,
		and Chairman of the Board
		(Principal Executive, Financial, and Accounting Officer)

14 13

Filing Compare · EROOMSYSTEM TECHNOLOGIES INC