**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM
        10-KSB**
  x
              ANNUAL
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF 1934For
                  the fiscal year endedDecember
                  31, 2007o
              TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934For
                  the transition period from _____________To
                  __________Commission
                  file number000-31037eRoomSystem
                  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)
                  730-0116Securities
                  registered pursuant to Section 12(b) of the Act:Title
                  of each class
              
              Name
                  of each exchange on which registeredSecurities
                  registered pursuant to Section 12(g) of the Act:Common
                  Stock, $.001 par value(Title
                  of each class)_________________________________(Title
                  of each class)Check
                  whether the issuer (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 xNo
                  oCheck
                  if there is no disclosure of delinquent filers in response to Item
                  405 of
                  Regulation S-B is not contained in this form, and no disclosure
                  will be
                  contained, to the best of the registrant's knowledge, in definitive
                  proxy
                  or information statements incorporated by reference in Part III
                  of this
                  Form 10-KSB or any amendment to this Form 10-KSB. xState
                  issuer’s revenues for its most recent fiscal year:$1,174,150Indicate
                  by check mark whether the registrant is a shell company (as defined
                  in
                  Rule 12b-2 of the Exchange Act).
                Yes
                  oNo
                  x
                
                State
                  the aggregate market value of voting stock held by non-affiliates
                  computed
                  by reference to the price at which the common equity was sold,
                  or the
                  average bid and asked price of such common equity, as of a specified
                  date
                  within the past 60 days. $5,034,365 ($0.21 per share as of February
                  1,
                  2008).State
                  the number of shares outstanding of each of the issuer's classes
                  of common
                  stock, as of the latest practicable date.Common
                  Stock, $.001 par value23,973,165
                  shares outstanding as of February 1, 2008**DOCUMENTS
                  INCORPORATED BY REFERENCE**
                
                None.**Transitional
                  Small Business Disclosure Format (check one):
                  Yes** o******No**x
  
  **TABLE
        OF CONTENTS**
 **PART
                    I**
                
                
                
                **1****ITEM
                    1.**
                
                **DESCRIPTION
                    OF BUSINESS.**
                
                **1****ITEM
                    3.**
                
                **LEGAL
                    PROCEEDINGS.**
                
                **6****ITEM
                    4.**
                
                **SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
                
                **6****PART
                    II**
                
                
                
                **6****ITEM
                    5.**
                
                **MARKET
                    FOR COMMON EQUITY AND RELATED STOCKHOLDER
                    MATTERS.**
                
                **6****ITEM
                    6.**
                
                **MANAGEMENT'S
                    DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**
                
                **7****ITEM
                    7.**
                
                **FINANCIAL
                    STATEMENTS.**
                
                **16****ITEM
                    8.**
                
                **CHANGES
                    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                    DISCLOSURE.**
                
                **30****ITEM
                    8A(T).**
                
                **CONTROLS
                    AND PROCEDURES.**
                
                **30****ITEM
                    8B.**
                
                **OTHER
                    INFORMATION.**
                
                **30****PART
                    III**
                
                
                
                **30****ITEM
                    9.**
                
                **DIRECTORS,
                    EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
                    WITH SECTION
                    16(a) OF THE EXCHANGE ACT.**
                
                **30****ITEM
                    10.**
                
                **EXECUTIVE
                    COMPENSATION.**
                
                **32****ITEM
                    11.**
                
                **SECURITY
                    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                    MANAGEMENT.**
                
                **33****ITEM
                    12.**
                
                **CERTAIN
                    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                    INDEPENDENCE.**
                
                **34****ITEM
                    13**
                
                **EXHIBITS**
                
                **36****ITEM
                    14.**
                
                **PRINCIPAL
                    ACCOUNTANT FEES AND SERVICES.**
                
                **38****SIGNATURES**
                
                
                
                **39**
   -ii-
  **PART
        I**
 
 **ITEM
        1.****DESCRIPTION
        OF BUSINESS**.
 
 As
        used
        in this Annual Report on Form 10-K (this “Report”), references to the “Company,”
the “Registrant,” “we,” “our” or “us” refer to eRoomSystem Technologies, Inc.,
        and includes our subsidiaries, unless the context otherwise
        indicates *.*
 
 ***Forward-Looking
        Statements***
 
 This
        Report contains forward-looking statements. For this purpose, any statements
        contained in this Report that are not statements of historical fact may be
        deemed to be forward-looking statements. Forward-looking information includes
        statements relating to future actions, prospective products, future performance
        or results of current or anticipated products, sales and marketing efforts,
        costs and expenses, interest rates, outcome of contingencies, financial
        condition, results of operations, liquidity, business strategies, cost savings,
        objectives of management, and other matters. You can identify forward-looking
        statements by those that are not historical in nature, particularly those
        that
        use terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,”
“potential,” or “continue” or the negative of these similar terms. The Private
        Securities Litigation Reform Act of 1995 provides a “safe harbor” for
        forward-looking information to encourage companies to provide prospective
        information about themselves without fear of litigation so long as that
        information is identified as forward-looking and is accompanied by meaningful
        cautionary statements identifying important factors that could cause actual
        results to differ materially from those projected in the information.
 
 These
        forward-looking statements are not guarantees of future performance and involve
        risks, uncertainties and assumptions that we cannot predict. In evaluating
        these
        forward-looking statements, you should consider various factors, including
        the
        following: (a) those risks and uncertainties related to general economic
        conditions, (b) whether we are able to manage our planned growth efficiently
        and
        operate profitable operations, (c) whether we are able to generate sufficient
        revenues or obtain financing to sustain and grow our operations, (d) whether
        we
        are able to successfully fulfill our primary requirements for cash, which
        are
        explained below under “Liquidity and Capital Resources”. We assume no obligation
        to update forward-looking statements, except as otherwise required under
        the
        applicable federal securities laws.
 
 **Overview**
 
 eRoomSystem
        Technologies has developed and introduced to the lodging industry an
        intelligent, in-room computerized platform and communications network, or
        the
        eRoomSystem. The eRoomSystem is a computerized platform and processor-based
        system that is installed within our eRoomServ refreshment centers and is
        designed to collect and control data. The eRoomSystem also supports our:
        (i)
        eRoomSafe, an electronic in-room safe, (ii) eRoomTray, an in-room ambient
        tray
        that can sell a wide variety of products at room temperature, and, (iii)
        eRoomEnergy, an in-room digital thermostat that is designed to control virtually
        any fan coil unit or packaged-terminal air conditioner found in hotel
        rooms.
 
 Our
        eRoomSystem and related products deliver in-room solutions that reduce operating
        costs, enhance hotel guest satisfaction and provide higher operating profits
        to
        our customers. The solutions offered by our eRoomSystem and related products
        have allowed us to establish relationships with many premier hotel chains.
        In
        addition to providing our customers with valuable in-room solutions, our
        revenue-sharing program has allowed us to partner with our customers. Through
        our revenue-sharing program, we have been able to install our products at
        little
        upfront cost to hotels, and share in the recurring revenues generated from
        the
        sale of goods and services related to our products.
 
 Currently,
        we have deployed over 10,000 eRoomServ refreshment centers, and over 6,000
        eRoomSafes installed at over 30 hotel properties. Of this amount, approximately
        4,500 refreshment centers and 3,000 eRoomSafes are installed pursuant to
        revenue
        sharing or fixed-payment agreements. At the present time, we do not intend
        to
        install new products at hotels, but will continue to maintain our existing
        product placements on revenue sharing contracts through the end of such
        contracts. We anticipate that future placements of eRoomServ refreshment
        centers
        and eRoom Safes in new hotels, if any, will be limited to the continued
        deployment of such products at hotels following the maturity of their respective
        revenue sharing agreements.
 
 **Summary
        of Our Diversification Initiatives**
 
 In
        addition to our core competencies noted above, in May 2005 we commenced our
        diversification plan by investing in Identica Holdings Corporation, or Identica,
        a company that has since filed a registration statement with the Securities
        and
        Exchange Commission, and which is a distributor and integrator of
        next-generation biometric security solutions, including the TechSphere hand
        vascular pattern biometric technology. Specifically, we invested $10,000
        in
        Identica by purchasing 1,666,667 shares of common stock, or $0.006 per share.
        Our $10,000 investment in Identica represented 10% of Identica's then issued
        and
        outstanding capital stock on a fully-diluted basis. In addition, we provided
        a
        loan to Identica in the amount of $150,000. The loan is secured by a security
        interest in all the assets of Identica and is evidenced by a promissory note.
        In
        consideration for making the loan, we were issued a warrant to purchase
        1,000,000 shares of common stock of Identica, exercisable at $0.15 per share
        at
        any time through May 20, 2010.
  -1-
 
 On
        September 7, 2005, Identica purchased certain assets of our wholly owned
        subsidiary, eRoomSystem Services, Inc., a Nevada corporation, or eRoomServices,
        pursuant to an Asset Purchase Agreement, or the Purchase Agreement.
        Specifically, the assets sold consisted of furniture and computer equipment
        held
        by eRoomServices, as well as a perpetual license to our web technologies
        package
        utilized by our personnel in the maintenance of automated refreshment centers,
        electronic safes and energy management products, or the equipment, installed
        at
        hotels. The Purchase Agreement provided that Identica pay us $60,000 for
        the
        assets, which amount was evidenced by a one-year note bearing interest at
        the
        rate of 8% per annum, compounded monthly. Under the terms of the note, Identica
        would make 7 principal and interest payments in the amount of $9,098 per
        month,
        commencing on the six-month anniversary of the note. The note was fully paid
        in
        May 2007.
 
 In
        addition, on September 7, 2005, the Company and Identica entered into a
        Professional Services and Support Agreement whereby Identica employed the
        technical personnel of eRoomServices. In conjunction therewith, eRoomServices
        continued to be responsible, for a period of 6 months from the date of the
        agreement, for all expenses less $7,000 per month related to such technical
        personnel. Commencing on the six-month anniversary of the agreement, Identica
        became solely responsible for all fixed and variable expenses associated
        with
        the technical personnel and the Salt Lake City facility, including the lease
        of
        the existing premises. However, we have retained the rights to part of the
        offices located at the facility. The terms of the Services Agreement provide
        that Identica shall, at all times, ensure that the Company receives first
        priority with respect to the ongoing maintenance of the Company’s equipment by
        the technical personnel. eRoomServices will continue to exist as a wholly
        owned
        subsidiary of the Company and all existing contracts by and between
        eRoomServices and its hotel clients shall remain outstanding.
 
 On
        October 31, 2005, we loaned an additional $50,000 to Identica, evidenced
        by a
        promissory note that bore no interest and matured on January 31, 2006. This
        promissory note has been repaid.
 
 In
        March
        2006, we invested the sum of $50,000 in a private placement of Aprecia, LLC,
        or
        Aprecia, prior to its registration statement which became effective in January,
        2007, a provider of applied artificial intelligence solutions for gaming
        and
        homeland security applications. In consideration for our investment, we received
        2,083,333 shares of common stock of Aprecia, which at the time of issuance
        constituted 12% of Aprecia's issued and outstanding common stock. Upon
        evaluation of the Company’s investments in the third quarter of 2007, the
        Company determined that the investment in Aprecia was impaired based on their
        most recent filing which shows them as a company with no revenue and negative
        stockholders equity. Therefore, the Company has recorded an unrealized loss
        in
        the amount of $50,000 as accumulated balance of comprehensive net loss in
        the
        year ended December 31, 2007.
 
 We
        are
        continuously performing due diligence on third party companies for the purpose
        of making additional investments in privately-held or publicly traded emerging
        growth stage companies. In the future, we may acquire an existing operating
        company if the opportunity arises. At this time, we have not reached a
        definitive agreement with any such third party companies.
 
 **Our
        Products and Services**
 
 **eRoomSystem**
 
 Since
        our
        inception, it has been our objective to provide innovative in-room amenities
        to
        the lodging industry. Our technologies provide an intelligent, in-room
        computerized platform and communications network that comprises the eRoomSystem.
        At the core of the eRoomSystem is our proprietary hardware and software that
        operate as a multi-tasking imbedded operating system. Our hardware and software
        can operate multiple devices and provide an interactive environment that
        allows
        the hotel guest to input and receive information.
  Installed
        as part of our eRoomServ refreshment center, the eRoomSystem provides the
        communication link between the hotel guest, our products, our file server
        located at the hotel (the eRoomSystem file server), the hotel's property
        management system, and the file server located at our headquarters (the
        eRoomSystem master file server). Our software is remotely upgradeable from
        our
        Salt Lake City facility, which reduces the need for costly on-site visits.
        We
        can also remotely adjust pricing, change messages on the liquid crystal display,
        lock and unlock our units and change the input touchpad layout. From our
        facility, we can also determine whether our products are active and working
        properly and, in the event a participating hotel fails to pay outstanding
        invoices or otherwise violates the terms of its agreement with us, control
        the
        use of our products by remotely locking the units.
 
 The
        eRoomSystem consists of a microprocessor, memory, input/output ports,
        communications transceiver, liquid crystal display, touchpad, power supply
        and
        our proprietary software. The proprietary architecture of our circuit boards
        has
        been designed to minimize the need for hardware upgrades. The eRoomSystem
        includes an embedded system processor that handles simple instructions and
        routes all billing functions and processor-intensive instructions to the
        eRoomSystem file server.
 
 **eRoomServ
        Refreshment Centers**
 
 Our
        eRoomServ refreshment centers consist of the eRoomSystem, a small refrigeration
        unit, electronic controls, LCD display and vending racks. Our newest models
        utilize an upright multi-vending rack. The upright multi-vending rack offers
        greater flexibility for the snack and beverage products offered by hotels,
        and
        is viewed more favorably by our hotel clients than our prior side-vend rack
        design.
  -2-
 
 The
        upright multi-vending rack displays up to 30 different beverages and/or snacks
        and provides an environment similar to that of a convenience store beverage
        cooler. Upon removal of a product, the gravity-based design uses the weight
        of
        the remaining products to cause the products to roll or slide forward. In
        addition to the upright multi-vending rack in the refreshment center, the
        eRoomTray allows hotel properties to separately vend a variety of products
        at
        room temperature within the eRoomSystem environment, including snacks, wine,
        disposable cameras, film, souvenirs, maps and other sundries.
 
 Our
        eRoomServ refreshment center and eRoomTray communicate through the eRoomSystem,
        which uses the hotel property's existing telephone lines, network cabling
        or
        cable television lines. Our eRoomServ refreshment centers and eRoomTray operate
        as follows:
 
 ·
            A
                hotel guest selects a beverage or snack from our eRoomServ refreshment
                center or eRoomTray; 
 ·
            The
                purchase is either immediately confirmed on the liquid crystal display
                and
                acknowledged with an audible beep or subject to a countdown of a
                predetermined (by the hotel) number of seconds prior to purchase
                confirmation; 
 ·
            Upon
                confirmation, the transaction information, such as product type,
                price and
                time of purchase, is simultaneously transferred to the eRoomSystem
                file
                server; 
 ·
            The
                eRoomSystem file server communicates on a real-time basis with the
                hotel's
                property management system and periodically with our eRoomSystem
                master
                file server located at our Salt Lake City facility;
                and 
 ·
            The
                hotel's property management system posts the purchase to the hotel
                guest's
                room account. 
 The
        sales
        data from the eRoomSystem is transmitted to the eRoomSystem file server from
        which hotel employees can access real-time sales reports, inventory levels
        for
        restocking purposes and demographic data. As for the maintenance of our
        refreshment centers, the repair or replacement of any component of our
        refreshment center is relatively simple and is typically provided at no
        additional charge to the property pursuant to the terms of our service and
        maintenance agreement.
 
 **eRoomSafe**
  Our
        eRoomSafes are electronic in-room safes offered in conjunction with our
        eRoomSystem. The eRoomSafes have storage space large enough for laptop
        computers, video cameras and briefcases and include an encrypted electronic
        combination that can be changed by the hotel guest. The eRoomSafes utilize
        the
        eRoomSystem to interface with the eRoomSystem file server that communicates
        with
        the hotel's property management system.
  **The
        following diagram represents the structure and communications network of
        our
        eRoomSystem, the eRoomSystem file server, the hotel property management system,
        and the eRoomSystem master file server:**
  
 
  Our
        eRoomTray is an ambient tray for dry goods. The eRoomTray has a terraced
        design
        and can hold three, to more than twenty, different products. The eRoomTray
        utilizes cross-sensing technology that provides significant flexibility in
        product selection for hotels. The eRoomTray uses the visible countdown timer
        located on the liquid crystal display of the eRoomServ Refreshment Center.
        This
        solution allows the hotel to sell music CD's souvenirs, disposable cameras,
        maps, snacks and other profitable items. The eRoomTray is unique in that
        it can
        generally be located anywhere in a guestroom.
  -3-
  **eRoomEnergy
        Management**
  In
        2001,
        we announced our agreement with INNCOM International, Inc., a leader in hotel
        guest-room control systems, through which INNCOM private-labels its e4 Smart
        Digital Thermostat for us as eRoomEnergy and provides assistance in the
        installation and maintenance of the units. The e4 Smart Digital Thermostat
        is
        designed to control virtually any fan coil unit or packaged terminal air
        conditioner found in hotel rooms and comes standard with an illuminated digital
        display, a Fahrenheit/Celsius button, one-touch temperature selection, an
        off/auto button, fan and display buttons. In addition to these user-friendly
        features, the e4 Smart Digital Thermostat includes five relays, an optional
        on-board infrared transceiver, a passive infrared occupancy sensor, and is
        expandable to include functions such as humidity control, outside temperature
        display, refreshment center access reporting, occupancy reporting to
        housekeeping and automatic lighting control.
  **eRoomData
        Management**
  One
        of
        the byproducts of our technology is the information we have collected since
        our
        first product installation. To date, we have collected several million
        room-nights of data. The eRoomSystem file server collects information regarding
        the usage of our eRoomServ refreshment centers on a real-time basis. We use
        this
        information to help our customers increase their operational efficiencies.
        The
        information we obtain is unique because we are able to categorize the
        information according to specific consumer buying patterns and
        demographics.
  The
        information we collect is currently offered to our customers as part of our
        service and maintenance agreement, including specific information about their
        guests' buying patterns and non-confidential information about other hotels
        in
        similar geographic regions. To this end, our hotel clients benefit in various
        ways from the information we provide. The hotels are responsible for restocking
        the goods sold from our refreshment centers and the real-time sales data
        generated by our refreshment centers helps the hotel maximize personnel
        efficiencies. The transfer of sales data to the hotel prevents guest pilferage
        and minimizes disputes over refreshment center usage, both of which are
        prevalent in the lodging industry, particularly with non-automated units.
        Finally, the ability to track product sales performance allows the hotel
        to
        stock the refreshment centers with more popular items, which generally leads
        to
        increased sales of product from the refreshment centers. Our system can provide
        reports on daily restocking requirements, daily, monthly and annual product
        sales statistics, overnight audits, inventory control and a variety of
        customized reports.
 
 **Research
        and Development**
 
 At
        the
        core of our products and services is our proprietary software and hardware
        that
        make up our eRoomSystem. In the fourth quarter, we have conducted further
        research and development to provide new components for a hotel customer in
        conjunction with our existing product line.
 
 **Sales
        and Marketing**
  Currently,
        we have deployed more than 10,000 eRoomServ refreshment centers, and over
        6,000
        eRoomSafes installed at over 30 hotel properties. Of this amount, approximately
        5,000 refreshment centers and 3,500 eRoomSafes are installed pursuant to
        revenue
        sharing or fixed-payment agreements. Our sales and marketing efforts have
        been
        eliminated with respect to new product placements, and we do not expect to
        re-commence such efforts in the future. However, we may redeploy products
        following the maturity of certain outstanding revenue sharing
        agreements.
 
 **Manufacturing**
 
 We
        do not
        anticipate the placement of new products in the future and, accordingly,
        the
        manufacture of our products has become immaterial. We will continue to service
        our existing products placed pursuant to existing revenue sharing and
        maintenance agreements.
 
 **Competition**
 
 The
        market for in-room amenities in the lodging industry is quite competitive,
        and
        the competition has further intensified in recent years. Management has made
        the
        decision to cease placing new products in the field and focus on servicing
        our
        existing client base. If we decide to redeploy products following the maturity
        of certain outstanding revenue sharing agreements, we will be subject to
        significant competition in doing so from our historical competitors, including
        Bartech, MiniBar America and Dometic, among others.
 
 **Intellectual
        Property**
 
 We
        rely
        upon a combination of trademark and copyright law, trade secret protection
        and
        confidentiality and/or license agreements with our employees, customers and
        business partners to protect our proprietary rights in our products, services,
        know-how and information.
  -4-
 
 We
        have
        registered RoomSystems, RoomSafe, eRoomEnergy, eRoomData, eRoomSystem, and
        eRoomServ with the United States Patent and Trademark Office. In addition,
        we
        have pending applications for the following trademarks and service marks:
        eRoomSafe; eRoomManagement; and eRoomSystem Technologies. We have also
        registered our logo and have one pending patent application titled "Personalized
        Smart Room", Application No. 10/126,468.
 
 Our
        proprietary software consists of three modules and provides the operating
        system
        for our eRoomSystem. The first module is an operating system that permits
        messages to be scrolled on the flat panel display of our eRoomSystem and
        allows
        hotel guests to interface with our products. The second module is a Windows(R)
        based program that provides a communication link between our eRoomSystem,
        our
        products, our eRoomSystem hotel file server and the hotel's property management
        system. The third module is a Windows(R) based program that collects data
        from
        our eRoomSystem hotel file server and produces a wide-variety of management
        and
        operational reports. Three years ago, we introduced our eRoomSystem version
        4
        software and thereafter our newest version 4.1 software. All, but one, of
        our
        existing hotel clients are utilizing our version 4.1 software that provides
        users with a friendly, easy-to-learn graphical environment which generally
        expands the report generating capabilities of the property.
 
 We
        do not
        know if our future patent applications will be issued with the full scope
        of
        claims we seek, if at all, or whether any patents we receive will be challenged
        or invalidated. Our means of protecting our proprietary rights in the United
        States, and abroad, may not be adequate and competitors may independently
        develop similar technology. We cannot be certain that our services do not
        infringe on patents or other intellectual property rights that may relate
        to our
        services. Like other technology-based businesses, we face the risk that we
        will
        be unable to protect our intellectual property and other proprietary rights,
        and
        the risk that we will be found to have infringed on the proprietary rights
        of
        others. Further, as previously mentioned, it is our intention to focus solely
        on
        servicing our existing hotel clients.
 
 **Historical
        Summary**
  We
        were
        originally incorporated under the laws of the State of North Carolina on
        March
        17, 1993 as InnSyst! Corporation. On September 28, 1993, the operations of
        InnSyst! were transferred to RoomSystems, Inc., a Virginia corporation,
        incorporated on August 12, 1993, or RoomSystems Virginia. On April 29, 1996,
        the
        operations of RoomSystems Virginia were transferred to RoomSystems, Inc.,
        a
        Nevada corporation, or RoomSystems. Through an agreement and plan of
        reorganization approved by a majority of our stockholders dated
        December 31, 1999, RoomSystems became the wholly owned subsidiary of
        RoomSystems International Corporation. Pursuant to this agreement and plan
        of
        reorganization, all shares of RoomSystems common stock, including all shares
        of
        common stock underlying outstanding options and warrants, Series A convertible
        preferred stock and Series B convertible preferred stock were exchanged for
        the
        identical number and in the same form of securities of RoomSystems International
        Corporation. On February 1, 2000, we changed our name from RoomSystems
        International Corporation to RoomSystems Technologies, Inc. Subsequently,
        on
        March 29, 2000, with the approval of our stockholders, we changed our name
        to eRoomSystem Technologies, Inc. Thereafter, we changed the name of
        RoomSystems, Inc. to eRoomSystem Services, Inc.
 
 We
        have
        two wholly owned subsidiaries, eRoomSystem Services, Inc. (formerly RoomSystems)
        and eRoomSystem SPE, Inc. RSi BRE, Inc., or RSi BRE, a former wholly-owned
        subsidiary, was liquidated into eRoomSystem Technologies, Inc. in
        2004.
  eRoomSystem
        Services is our service and maintenance subsidiary that installs all of our
        products, provides electronic software upgrades to our customers, provides
        customer service and maintenance for our products and trains hotel personnel
        on
        the use and maintenance of our products. Pursuant to a series of agreements
        entered into with Identica in 2005, we sold furniture and computer equipment,
        as
        well as a perpetual license to our web technologies package utilized by our
        personnel in the maintenance of automated refreshment centers, electronic
        safes
        and energy management products installed at hotels. In addition, the technical
        personnel, formerly employed by us for the purpose of servicing our existing
        products installed at hotels, have been hired by Identica. We continue to
        use
        these individuals for our entire product servicing needs pursuant to the
        Professional Services Agreement between us and Identica detailed
        above.
  RSi
        BRE
        was formed as part of the Equipment Transfer Agreement we entered into in
        September 1998 with RSG Investments, LLC, or RSG, a privately held company.
        Previously, RSi BRE held title to 1,717 eRoomServ refreshment centers and
        1,304
        eRoomSafes. On February 29, 2004, we entered into a Settlement Agreement
        and
        Mutual Release Agreement with RSG whereby we paid the sum of $152,823 as
        a full
        and final cancellation of the Equipment Transfer Agreement and subsequent
        Settlement Agreement dated September 1999. As a result, the Company immediately
        commenced recognizing all revenue generated from the four revenue sharing
        lease
        agreements relating to the 1,717 eRoomServ refreshment centers and 1,304
        eRoomSafes. In 2004, RSi BRE was liquidated into eRoomSystem Technologies,
        Inc.
  eRoomSystem
        SPE was formed as part of our long-term financing arrangement with AMRESCO
        Leasing Corporation, which was terminated in August 2002. eRoomSystem SPE
        owns
        all of the equipment previously funded by AMRESCO under our revenue-sharing
        program, consisting of nine properties comprising 2,775 eRoomServ refreshment
        centers and 2,622 eRoomSafes. AMRESCO had taken a senior security interest
        in
        all of the assets of eRoomSystem SPE. We control eRoomSystem SPE and its
        financial results are consolidated with those of eRoomSystem Technologies
        and
        eRoomSystem Services. On July 14, 2006, the Company repaid the full amount
        due
        and owing under the financing arrangement.
  -5-
 
 **Government
        Regulation**
  We
        are
        subject to laws and regulations applicable to businesses generally, as well
        as
        to laws and regulations directly applicable to the lodging industry and minibars
        in particular. These laws and regulations relate to qualifying to do business
        in
        the various states and in foreign nations in which we currently have, or
        propose
        to have, our products.
  Apart
        from laws and regulations applicable to us, some of our existing and potential
        customers are subject to additional laws or regulations, such as laws and
        regulations related to liquor and gaming, which may have an adverse effect
        on
        our operations. Due to the licensing requirements relating to the sale of
        alcohol in each state, the failure of any of our revenue-sharing partners
        to
        obtain or maintain its liquor license would result in the loss of revenue
        for
        our revenue-sharing partner and us. In addition, due to the heightened
        hotel-casino regulatory environment and our ongoing revenue-sharing agreements
        with hotel-casinos, our operations may be subject to review by a hotel-casino's
        compliance committee to verify that its involvement with us would not jeopardize
        its gaming license. The regulatory compliance committee of a hotel-casino
        has
        broad discretion in determining whether or not to approve a transaction with
        a
        third party, which review typically includes the character, fitness and
        reputation of the third party and its officers, directors and principals.
        If our
        history or operations present problems for a hotel-casino, we would either
        have
        to expend resources to address or eliminate the concerns or forego the
        business.
  **Employees**
  We
        currently employ two full-time employees and have one consultant. In addition,
        pursuant to the Professional Services Agreement with Identica, we utilize
        their
        technical support team in the service and maintenance of our existing installed
        products. None of our employees are subject to a collective bargaining
        agreement.
 
 **ITEM
        2.**  **DESCRIPTION
        OF PROPERTY** **.**
  Our
        headquarters and principal executive offices, comprising approximately 1,100
        square feet, are located at 1072 Madison Ave., Lakewood, NJ 08701. We pay
        $1,125
        per month. This lease expires December 10, 2008.
 
 In
        addition, we currently utilize office and warehouse space in Salt Lake City,
        Utah pursuant to our Professional Services Agreement with Identica. We maintain
        all inventory and replacement parts at this facility. There is no separate
        fee
        charged for these facilities.
 
 **ITEM
        3.****LEGAL
        PROCEEDINGS**.
 
 We
        are,
        from time to time, parties to various legal proceedings arising out of our
        business. Notwithstanding, t here
        are
        no pending legal proceedings to which the Company is a party or in which
        any
        director, officer or affiliate of the Company, any owner of record or
        beneficially of more than 5% of any class of voting securities of the Company,
        or security holder is a party adverse to the Company or has a material interest
        adverse to the Company. The Company’s property is not the subject of any pending
        legal proceedings.
 
 **ITEM
        4.****SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
 
 Not
        applicable.
 
 **PART
        II**
 
 **ITEM
        5.****MARKET
        FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.**
 
 Our
        authorized capital stock consists of 50,000,000 shares of common stock, $0.001
        par value; 5,000,000 shares of preferred stock, $0.001 par value including;
        500,000 shares of Series A convertible preferred stock, $0.001 par value;
        2,500,000 shares of Series B convertible preferred stock, $0.001 par value;
        2,000,000 shares of Series C convertible preferred stock, $0.001 par value;
        and
        2,777,778 shares of Series D convertible preferred stock, $0.001 par value.
        Our
        current authorized capital was effected through an amendment and restatement
        of
        our articles of incorporation on March 29, 2000, and the filing of a Certificate
        of Rights, Preferences and Privileges relating to the Series D convertible
        preferred stock in November 2002. There are no shares of preferred stock
        issued
        and outstanding.
 
 **Market
        Information**
 
 Prior
        to
        August 3, 2000, there was no public market for our common stock. In conjunction
        with our initial public offering, our common stock was accepted for listing
        on
        the NASDAQ SmallCap Market under the trading symbol "ERMS". In April 2003,
        our
        common stock was delisted from the NASDAQ SmallCap market. Our common stock
        is
        currently quoted on the Over-The-Counter Bulletin Board under the same symbol.
        As of February 1, 2008, there were 23,973,165 shares of common stock outstanding
        and no shares of any class of preferred stock outstanding.
  -6-
 
 **High
        And Low Sale Prices Of Our Common Stock**
  The
        following table sets forth the high and low bid information of our common
        stock,
        as quoted on the Over The Counter Bulletin Board (which quotations reflect
        inter-dealer prices, without retail mark-up, mark-down or commission and
        may not
        represent actual transactions) for each quarter during the period January
        1,
        2006 through December 31, 2007:
 **Calendar
                    Quarter Ended**
                
                **Low**
                
                **High**March
                    31, 2006
                
                $
                0.17
                
                $
                0.30June
                    30, 2006
                
                $
                0.22
                
                $
                0.29September
                    30, 2006
                
                $
                0.13
                
                $
                0.27December
                    31, 2006
                
                $
                0.11
                
                $
                0.17March
                    31, 2007
                
                $
                0.12
                
                $
                0.18June
                    30, 2007
                
                $
                0.10
                
                $
                0.17September
                    30, 2007
                
                $
                0.10
                
                $
                0.25December
                    31, 2007
                
                $
                0.15
                
                $
                0.21March
                    31, 2008 (through February 1, 2008)
                
                $
                0.19
                
                $
                0.21
  The
        last
        reported price of our common stock on the Over-The-Counter Bulletin Board
        on
        February 1, 2008 was $0.21 per share. We are not aware of any public market
        for
        our options or warrants.
 
 **Holders**
 
 As
        of
        February 1, 2008, there were approximately 400 stockholders of record holding
        our outstanding common stock.
 
 **Dividends**
 
 We
        have
        never declared or paid any cash dividends on our common stock. Our Board
        of
        Directors presently, and for the foreseeable future, intends to retain all
        of
        our earnings, if any, for the purchase of securities in private or publicly
        traded emerging growth companies, or possibly, the acquisition of an operating
        company if the opportunity arises. The declaration and payment of cash dividends
        in the future will be at the discretion of our Board and will depend upon
        a
        number of factors, including, among others, our future earnings, operations,
        funding requirements, restrictions under our credit facility, our general
        financial condition and any other factors that our board considers important.
        Investors should not purchase our common stock with the expectation of receiving
        cash dividends.
 
 **Recent
        Sales of Unregistered Securities; Use of Proceeds**
 
 There
        were no recent sales of unregistered securities in fiscal years ended December
        31, 2007 and 2006.
 
 **Purchases
        of Equity Securities by the Small Business Issuer and Affiliated
        Purchasers**
 
 None.
  **ITEM
        6.**  **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**
 
 Certain
        statements contained in this prospectus, including statements regarding the
        anticipated development and expansion of our business, our intent, belief
        or
        current expectations, primarily with respect to the future operating performance
        of the Company and the services we expect to offer and other statements
        contained herein regarding matters that are not historical facts, are
“forward-looking” statements. Future filings with the Securities and Exchange
        Commission, future press releases and future oral or written statements made
        by
        us or with our approval, which are not statements of historical fact, may
        contain forward-looking statements, because such statements include risks
        and
        uncertainties, actual results may differ materially from those expressed
        or
        implied by such forward-looking statements.
 
 All
        forward-looking statements speak only as of the date on which they are made.
        We
        undertake no obligation to update such statements to reflect events that
        occur
        or circumstances that exist after the date on which they are made.
 
 **Overview**
 
 Our
        core
        business was the development and installation of an intelligent, in-room
        computer platform and communications network, or the eRoomSystem, for the
        lodging industry. The eRoomSystem is a computerized platform and processor-based
        system designed to collect and control data. The eRoomSystem supports our
        fully
        automated and interactive eRoomServ refreshment centers, eRoomSafes, eRoomEnergy
        products, and the eRoomTray. In 2005, we commenced our diversification strategy
        of investing in third party emerging growth companies. To this end, we have
        made
        investments totaling $60,000, consisting of $10,000 in Identica Holdings
        Corporation and $50,000 in Aprecia, LLC. The investment in Aprecia has been
        written off as an unrealized loss. In addition, we have loaned Identica $150,000
        in cash. The loan is secured by a security interest in all the assets of
        Identica and is evidenced by a promissory note. In consideration for making
        the
        loan, we were issued a warrant to purchase 1,000,000 shares of common stock
        of
        Identica, exercisable at $0.15 per share, at any time through May 20, 2010.
        We
        may make additional investments in promising emerging growth companies, and
        potentially acquire an operating company if the opportunity arises.
  -7-
 
 Our
        existing products interface with the hotel's property management system through
        our eRoomSystem communications network. The hotel's property management system
        posts usage of our products directly to the hotel guest's room account. The
        solutions offered by our eRoomSystem and related products have allowed us
        to
        install our products and services in several premier hotel chains, including
        Marriott International, Hilton Hotels and Carlson Hospitality Worldwide,
        in the
        United States and internationally.
 
 One
        of
        the byproducts of our technology is the information we have collected since
        our
        first product installation. To date, we have collected several million
        room-nights of data. Through our eRoomSystem, we are able to collect information
        regarding the usage of our products on a real-time basis. We use this
        information to help our customers increase their operating
        efficiencies.
 
 **Description
        of Revenues**
 
 Historically,
        we have received most of our revenues from the sale or placement under a
        revenue-sharing program of our products in hotels. We expect that these revenues
        will account for a substantial majority of our revenues for the foreseeable
        future. In addition, we may receive revenues in the future upon the sale
        of
        securities received in consideration for investments made in third party
        companies in 2005 and 2006; however, the return on such investments is not
        assured.
 
 We
        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 early termination of the revenue-sharing agreements. We have
        failed to place any products, either on a revenue sharing or sale basis in
        the
        prior three years, and we have no present intention of placing new products
        in
        the future. We do, however, intend to continue to service and maintain our
        existing installed product base for the remaining life of the contracts relating
        thereto.
 
 Our
        revenues over the past few years have been fairly stable as we have focused
        on
        service and maintenance of our existing installed products and have not
        installed new products at hotels. Over time, our revenues relating to our
        installed products will decline as existing revenue sharing agreements conclude.
        Given the foregoing, in 2005 we commenced our diversification strategy to
        invest
        in emerging growth companies. To date we have invested in Identica Holdings
        Corporation, a company which has recently filed a registration statement
        with
        the Securities and Exchange Commission, and which is a distributor and
        integrator of next-generation biometric security solutions, including the
        TechSphere hand vascular pattern biometric technology. We continue to explore
        opportunities and perform due diligence on third parties with respect to
        additional potential investments. At this time, we have not reached a definitive
        agreement to make further investments. In addition, we may acquire an operating
        company in the future if the opportunity arises. Over time, we may realize
        revenues from the sale of securities purchased from Identica and other third
        party companies in the future, if applicable. The timing and return on such
        investments, however, cannot be assured.
 
 We
        anticipate that we will receive more than 50% of the recurring revenues from
        the
        sale of goods and services generated by our currently installed eRoomServ
        refreshment centers, eRoomSafes and eRoomTray solutions under revenue-sharing
        agreements. Our customers receive the remainder of the recurring
        revenues.
 
 No
        new
        products were installed during the years ended December 31, 2007 and
        2006.
 
 **Revenue
        Recognition**
 
 Sales
        revenue from our products is recognized upon completion of installation and
        acceptance by the customer. We do not, however, expect to generate meaningful
        sales revenue as such revenues are limited to the sales of replacement equipment
        and parts to hotel clients who previously purchased our products. Sales revenue
        from the placement of our eRoomServ refreshment centers and eRoomSafes under
        our
        revenue-sharing program are accounted for similar to an operating lease,
        with
        the revenues recognized as earned over the term of the agreement. In some
        instances, our revenue-sharing agreements provide for a guaranteed minimum
        daily
        payment by the hotel. We negotiated our portion of the revenues generated
        under
        our revenue-sharing program based upon the cost of the equipment installed
        and
        the estimated daily sales per unit for the specific customer.
  -8-
 
 We
        have
        entered into installation, maintenance and license agreements with most of
        our
        existing hotel customers. Installation, maintenance and license revenues
        are
        recognized as the services are performed, or pro rata over the service period.
        We defer all revenue paid in advance relating to future services and products
        not yet installed and accepted by our customers.
 
 Our
        installation, maintenance and license agreements stipulate that we collect
        a
        maintenance fee per eRoomServ refreshment center per day, payable on a monthly
        basis. Our objective is to generate gross profit margins of approximately
        50%
        from our maintenance-related revenues. We base this expectation on our
        historical cost of maintenance of approximately $0.04 per unit per day and,
        pursuant to our maintenance agreements, our projected receipt of generally
        not
        less than $0.08 per unit per day.
 
 **Description
        of Expenses**
 
 Cost
        of
        product sales consists primarily of production, shipping and installation
        costs.
        Cost of revenue-sharing arrangements consists primarily of depreciation of
        capitalized costs for the products placed in service. We capitalize the
        production, shipping, installation and sales commissions related to the
        eRoomServ refreshment centers, eRoomSafes, eRoomTrays and eRoomEnergy management
        products placed under revenue-sharing agreements. Cost of maintenance fee
        revenues primarily consists of expenses related to customer support and
        maintenance.
 
 Selling,
        general and administrative expenses primarily consist of general and
        administrative expenses including professional fees, salaries and related
        costs
        for accounting, administration, finance, human resources, information systems
        and legal personnel.
 
 Research
        and development expenses consist of payroll and related costs for hardware
        and
        software engineers, quality assurance specialists, management personnel,
        and the
        costs of materials used by our consultants in the maintenance of our existing
        installed products. As we have elected not to install new products at hotels,
        there was very little research and development expenses in fiscal year 2007.
 
 In
        accordance with Financial Accounting Standards Board, or FASB, Statement
        of
        Financial Accounting Standards, or SFAS, No. 86, "Accounting for the Costs
        of
        Computer Software to be Sold, Leased or Otherwise Marketed," development
        costs
        incurred in the research and development of new software products to be sold,
        leased or otherwise marketed are expensed as incurred until technological
        feasibility in the form of a working model has been established. Internally
        generated capitalizable software development costs have not been material
        to
        date. We have charged our software development costs to research and development
        expense in our consolidated statements of operations.
 
 **Results
        of Operations**
 
 The
        following table sets forth selected statement of operations data as a percentage
        of total revenues for the years indicated:
  -9-
  **Fiscal
                    Years ended December 31,****2007**
                
                **2006**Statement
                    of Operations Data:Revenue:Revenue-sharing
                    arrangements
                
                
                67.5
                %
                
                73.2
                %Maintenance
                    fees
                
                
                21.7
                
                
                20.9Product
                    sales
                
                
                10.8
                
                
                5.9Total
                    revenue
                
                
                100.0
                
                
                100.0Cost
                    of revenue:Revenue-sharing
                    arrangements
                
                
                32.6
                
                
                33.6Maintenance
                
                
                5.0
                
                
                4.9Product
                    sales
                
                
                2.4
                
                
                5.2Total
                    cost of revenue
                
                
                40.0
                
                
                43.7Gross
                    margin
                
                
                60.0
                
                
                56.3Operating
                    expenses:Selling,
                    general and administrative expense
                
                
                35.2
                
                
                41.0Research
                    and development expense
                
                
                0.7
                
                
                -Interest
                    expense
                
                
                -
                
                
                8.2Interest
                    and other income
                
                
                (9.4
                )
                
                (5.0
                )Net
                    operating expenses
                
                
                26.5
                
                
                44.2Income
                    from operations
                
                
                33.5
                %
                
                12.1
                %Other
                    income (expense):Gain
                    on forgiveness of liabilities and debt
                
                
                0.7
                
                
                -Net
                    income (loss)
                
                
                34.2
                %
                
                12.1
                %
  **Comparison
        of Years Ended December 31, 2007 and 2006**
 
 **Revenues**
 
 Revenue
        Sharing Arrangements -- Our revenue from revenue-sharing arrangements was
        $792,281 in 2007 as compared to $979,470 for 2006, representing a decrease
        of
        $187,189, or 19.1%. The decrease in revenue from revenue-sharing arrangements
        was due to completion of a number of revenue-sharing agreements. During the
        years ended December 31, 2007 and 2006, we did not place additional products
        on
        a revenue sharing basis. During the year ended December 31, 2007, revenues
        from
        one customer accounted for 15% of our total revenues.
 
 Maintenance
        Fee Revenue -- Our maintenance fee revenue was $254,428 for 2007 and $278,464
        for 2006, representing a decrease of $24,036, or 8.6%. The decrease in
        maintenance fee revenue was due to a decreased number of products under
        revenue-sharing and maintenance contracts.
 
 Product
        Sales -- Our revenue from product sales was $127,441 in 2007, as compared
        to
        $79,551 in 2006, representing an increase of $47,890, or 60.2%. The increase
        in
        revenue from product sales in 2007 was a result of the sales to hotels of
        their
        equipment upon completion of their revenue-sharing agreement.
 
 **Cost
        of Revenue**
 
 Cost
        of
        Revenue-Sharing Revenue -- Our cost of revenue-sharing revenue was $382,820
        for
        2007 and $449,815 for 2006, representing a decrease of $66,995, or 14.9%.
        The
        decrease in the cost of revenue-sharing revenue resulted from a decrease
        in
        depreciation expense due to the sale of equipment to customers upon completion
        of their revenue-sharing contract. The gross margin percentage on
        revenue-sharing revenue was 51.7% in 2007 as compared to 54.1% in
        2006.
 
 Cost
        of
        Maintenance Revenue -- Our cost of maintenance revenue was $58,349 for 2007
        as
        compared to $64,365 for 2006, representing a decrease of $6,016, or 9.3%.
        The
        decrease in the cost of maintenance revenue was primarily due to the decrease
        in
        the number of bars under maintenance and revenue sharing contracts. The gross
        margin percentage on maintenance revenues was 77.1% in 2007 as compared to
        76.9%
        in 2006.
  -10-
 
 Cost
        of
        Product Sales Revenue -- Our cost of product sales revenue was $28,431 for
        2007
        as compared to $70,085 for 2006, representing a decrease of $41,654, or 59.4%.
        The decrease was due to a lower remaining basis of the equipment sold in
        2007
        over those sold in 2006. The gross margin percentage on revenue from product
        sales revenue was 77.7% in 2007 as compared to 11.9% in 2006.
 
 The
        changes and percent changes with respect to our revenues and our cost of
        revenue
        for the years ended December 31, 2007 and 2006 are as follows:
  **For
                      the Years Ended****December
                    31,****2007**
                
                **2006**
                
                **Change**
                
                **Percent**
                  **Change****REVENUE**Revenue-sharing
                    arrangements
                
                $
                792,281
                
                $
                979,470
                
                $
                (187,189
                )
                
                19.1
                %Maintenance
                    fees
                
                
                254,428
                
                
                278,464
                
                
                (24,036
                )
                
                8.6
                %Product
                    sales
                
                
                127,441
                
                
                79,551
                
                
                47,890
                
                
                60.2
                %**Total
                    Revenue**
                
                
                1,174,150
                
                
                1,337,485
                
                
                (163,335
                )
                
                12.2
                %**COST
                    OF REVENUE**Revenue-sharing
                    arrangements
                
                
                382,820
                
                
                449,815
                
                
                (66,995
                )
                
                14.9
                %Maintenance
                
                
                58,349
                
                
                64,365
                
                
                (6,016
                )
                
                9.3
                %Product
                    sales
                
                
                28,431
                
                
                70,085
                
                
                (41,654
                )
                
                59.4
                %**Total
                    Cost of Revenue**
                
                $
                469,600
                
                $
                584,265
                
                $
                (114,665
                )
                
                19.6
                %**GROSS
                    MARGIN PERCENTAGE**Revenue-sharing
                    arrangements
                
                
                51.7
                %
                
                54.1
                %Maintenance
                
                
                77.1
                %
                
                76.9
                %Product
                    sales
                
                
                77.7
                %
                
                11.9
                %**Total
                    Gross Margin Percentage**
                
                
                60
                %
                
                56.3
                %
  Although
        the preceding table summarizes the net changes and percent changes with respect
        to our revenues and our cost of revenue for the years ended December 31,
        2007
        and 2006, the trends contained therein are limited to a two-year comparison
        and
        should not be viewed as a definitive indication of our future
        results.
 
 **Operating
        Expenses**
 
 Selling,
        General and Administrative -- Selling, general and administrative expenses
        were
        $412,919 for 2007 and $548,421 for 2006, representing a decrease of $135,502,
        or
        24.7%. Selling, general and administrative expenses represented 35.2% of
        our
        total revenues in 2007 and 41% of our total revenues in 2006. The decrease
        in
        selling, general and administrative expenses related to our continued reduction
        in fixed overhead expenses.
 
 Research
        and Development Expenses -- Research and development expenses were $8,678
        for
        2007 and $0 for 2006, representing an increase of $8,678, or 100%. The increase
        in research and development expenses was due in part to a development project
        to
        provide replacement parts for a hotel customer. Research and development
        expenses represented 0.7% of our total revenue in 2007 and 0% of our total
        revenue in 2006.
 
 Interest
        expense was $0 for 2007 as compared to $109,946 for 2006, a decrease of
        $109,946, or 100%. The decrease in interest expense was due to the payoff
        of
        AMRESCO in July 2006. Interest and other income in the amount of $110,768
        was
        realized in 2007 as compared to $67,230 in 2006. Income from operations for
        2007
        was $393,721, as compared to $162,083 in 2006. The Company also realized
        a gain
        on forgiveness of liabilities and debt of $8,500 in 2007.
 
 **Net
        Income Attributable to Common Stockholders**
 
 We
        realized net income attributable to common stockholders of $402,221 in 2007,
        as
        compared to $162,083 in 2006. The $240,138 increase in net income was primarily
        due to the decrease in selling general and administrative expenses as well
        as
        the increase in interest income and decrease in interest expense.
 
 **Financing
        Arrangement with AMRESCO Leasing Corporation**
  -11-
 
 Under
        the
        terms of a financing agreement with AMRESCO Leasing Corporation, (the "finance
        company"), the finance company had agreed to fund up to 150% of the Company's
        product costs for each eRoomServ refreshment center that had been in service
        for
        90 days, subject to the related hotel customer meeting certain requirements
        and
        conditions during that period. As part of the financing agreement, the Company
        formed eRoomSystem SPE, Inc. ("SPE"), a wholly owned, consolidated subsidiary.
        SPE owns all of the eRoomServ refreshment centers funded by the finance company
        as well as the related revenue-sharing agreements. The finance company had
        a
        senior security interest in the eRoomServ refreshment centers financed under
        the
        financing agreement and the corresponding revenue sharing agreements. SPE
        was
        obligated to repay the amount borrowed under the terms of a note payable
        corresponding to each funding, pursuant to the financing agreement over seven
        years, plus interest, at a variable interest rate determined at the time
        of each
        funding.
 
 The
        notes
        payable were repaid by the Company on July 14, 2006. SPE held payments from
        hotel customers in several restricted bank accounts for payment to the finance
        company and to the Company. The funds were released on July 18,
        2006.
 
 **Liquidity
        and Capital Resources**
 
 At
        December 31, 2007, we had $2,353,972 of cash and working capital of $2,416,398,
        as compared to $1,480,720 of cash and working capital of $1,599,398 at December
        31, 2006. In addition, our stockholders' equity was $3,029,941 at December
        31,
        2007 as compared to $2,664,563 at December 31, 2006, an increase of $365,378.
        The increase in cash, working capital and stockholders' equity reflects the
        continued decrease in cash used in our operations and reduction in fixed
        overhead expenses.
 
 Our
        accumulated deficit decreased to $31,082,627 at December 31, 2007 as compared
        to
        $31,484,848 at December 31, 2006. The decrease in accumulated deficit is
        a
        direct result of our net income of $402,221 in the year ended December 31,
        2007.
 
 Net
        cash
        provided by operating activities for the year ended December 31, 2007 was
        $765,270, as compared to $683,126 of net cash provided by operating activities
        during the year ended December 31, 2006. The $82,144 increase in net cash
        provided by operating activities resulted primarily from the increase in
        net
        income in 2007.
 
 Net
        cash
        provided by investing activities for the year ended December 31, 2007 was
        $107,982, as compared to net cash provided during the year ended December
        31,
        2006 of $190,329. The change resulted primarily from the proceeds of a note
        receivable which was received in 2006.
 
 Net
        cash
        used in financing activities for the year ended December 31, 2007 was $0,
        as
        compared to $709,250 during the year ended December 31, 2006. The cash used
        in
        financing activities resulted from the payoff of the long-term debt relating
        to
        AMRESCO in 2006.
 
 On
        October 1, 2003, the Company issued AMRESCO a warrant to purchase 400,000
        shares
        of common stock, exercisable at $0.10 per share through October 1, 2008.
        If at
        anytime after December 31, 2007, the warrant has an intrinsic value greater
        than
        $300,000 based upon the then current trading price of the Company's common
        stock, then AMRESCO will have the right to "put" the warrant back to the
        Company
        in exchange for $200,000 payable in 12 equal consecutive monthly installments
        with the first payment to be made on the last day of the month in which the
        "put" occurs. Accordingly, the Company may be obligated to pay AMERSCO $200,000.
 
 **Off
        Balance Sheet Arrangements**
 
 We
        have
        no off-balance sheet arrangements.
 
 We
        currently believe that our cash on hand will provide sufficient capital
        resources and liquidity to fund our expected operating expenditures for the
        next
        twelve months.
 
 **Qualitative
        and Quantitative Disclosures About Market Risk**
 
 As
        we
        have decided to cease the placement of new products at hotels, the potential
        currency risks associated with manufacturing the majority of our products
        overseas no longer exist. In addition, given that we have a very limited
        number
        of products placed internationally, and we are paid in U.S. dollars by our
        hotel
        clients not located in the United States, foreign currency exposure risks
        no
        longer apply.
 
 **RISK
        FACTORS**
 
 An
        investment in our common stock involves a high degree of risk. You should
        carefully consider the following factors and other information in this
        prospectus before deciding to invest in our company. If any of the following
        risks actually occur, our business, financial condition, results of operations
        and prospects for growth would likely suffer. As a result, you could lose
        all or
        part of your investment.
  -12-
 
 **Risks
        Related to eRoomSystem Technologies**
 
 **As
        management for the Company has decided to forego further placements of new
        products at hotels and our existing revenue sharing agreements have fixed
        terms,
        we will continue to experience declining revenues in future periods upon
        the
        conclusion of such existing revenue sharing agreements.**
 
 The
        revenue sharing agreements that we have entered into with our hotel customers
        have a seven-year term. As of December 31, 2007, the average remaining life
        of
        these agreements is 0.7 years. Each year, certain of our existing revenue
        sharing agreements will conclude, unless hotels elect to continue under the
        terms of the existing agreement, for which there are no assurances. As the
        revenue sharing agreements conclude, and hotels elect to not extend the term
        thereof, we will experience an incremental decrease in revenue sharing revenue
        as well as maintenance revenue. We do, however, own the equipment and upon
        the
        conclusion of such agreements may decide to re-deploy such equipment at a
        new
        hotel, either on a revenue sharing basis or sale basis.
 
 **While
        we have realized net income for fiscal years 2007 and 2006, we have a history
        of
        significant operating losses and may experience operating losses in the future,
        particularly given the fixed term of our revenue sharing agreements which
        comprise nearly all of our revenues.**
 
 For
        the
        year ended December 31, 2007, we realized net income of $402,221, as compared
        to
        net income of $162,083 for the fiscal year ended December 31, 2006. In addition,
        our operations provided net cash of $765,270 for the year ended December
        31,
        2007, as compared to $683,126 for the year ended December 31, 2006. However,
        we
        have a history of significant operating losses and may realize operating
        losses
        in the future, specifically upon the conclusion of a measurable percentage
        of
        our existing revenue sharing agreements. While we are actively embarking
        upon
        our diversification strategy of investing in third party emerging growth
        companies and, potentially, acquiring an operating company if the opportunity
        arises, we have not realized any revenues to date from such activities. Further,
        there is no assurance that our investments in third party companies to date
        will
        result in us realizing meaningful revenues, if at all, or that we will be
        successful in acquiring an operating company. To the extent that we do not
        replace revenue sharing revenue as it decreases, our financial condition
        and
        results of operations will likely be materially adversely affected.
 
 **Although
        we commenced our diversification strategy in 2005 by making investments in
        third
        party companies, there is no assurance that we will realize a return on such
        investments.**
 
 The
        securities issued to us from our investments in Identica Holdings Corporation
        and Aprecia, LLC are not marketable. Identica is privately held and Aprecia's
        stock has not started trading yet and is currently listed on the pink sheets.
        It
        is not known when, or if, these securities will be readily marketable, if
        at
        all. Furthermore, even if such securities become readily marketable, there
        is no
        assurance that we will receive a return on our investment sufficient to offset
        the anticipated decline in our revenues relating to existing revenue sharing
        agreements which will expire. Thus, in the event we do not realize a material
        return on our investments in Identica and Aprecia, our future operating results
        will likely be materially adversely affected.
 
 **While
        we are exploring the possibility of acquiring an operating company to augment
        our historical business and recent investments in third party emerging growth
        companies, given our cash position, among other things, there is no assurance
        that we will be successful in consummating a transaction on favorable terms,
        if
        at all.**
 
 We
        have
        undertaken a significant amount of due diligence on several operating companies
        regarding a potential acquisition. To date, we have not been successful in
        reaching a definitive agreement with such companies. While we intend to continue
        our search for a suitable operating company, there is no assurance that we
        will
        be successful given our relatively limited cash on hand, lack of liquidity
        in
        our common stock, and our common stock not being listed on a national securities
        exchange, among other factors. Nevertheless, we intend to continue to explore
        potential acquisitions, along with additional investments in third party
        emerging growth companies. We view the acquisition of an operating company
        on
        favorable terms as our most important objective for 2008. Should we not achieve
        this objective in 2008, our financial condition and results of operation
        will
        likely be adversely affected as existing revenue sharing agreements reach
        their
        conclusion.
 
 **Based
        on the numerous reductions-in-force we have affected in the past several
        years
        to reduce fixed overhead expenses along with outsourcing our ongoing maintenance
        and service operation and given the current composition of employees the
        loss of
        additional key personnel would seriously impact our
        operations.**
 
 We
        are
        dependent upon the abilities and efforts of certain personnel, specifically
        David A. Gestetner, our sole executive officer. Our future success will depend
        in large part upon Mr. Gestetner. We currently do not carry key man life
        insurance on Mr. Gestetner, and we have no present intention of doing so
        in the
        near future. There can be no assurance that we will be able to locate and
        retain
        a suitable replacement for Mr. Gestetner in the event Mr. Gestetner is no
        longer
        employed by us.
 
 **Risks
        Related to Our Industry**
 
 **We
        rely on the economic health of the lodging industry to generate revenues
        from
        our existing revenue sharing agreements, and any condition that may adversely
        impact the lodging industry will adversely impact the revenues we receive
        from
        revenue sharing agreements**
  -13-
 
 Nearly
        all of our revenue is generated from our existing revenue sharing agreements
        and
        maintenance agreements associated therewith. The economic health of the lodging
        industry, and, therefore, our revenues, are affected by a number of factors
        beyond our control, including:
 
 ·
            general
                economic conditions; 
 ·
            levels
                of disposable income of the hotel
                patrons; 
 ·
            acts
                of terrorism and anti-terrorism efforts; 
 ·
            increased
                transportation costs resulting in decreased travel by patrons and
                decreased hotel occupancy and RevPar; 
 ·
            changes
                or proposed changes in tax laws; 
 ·
            legal
                and regulatory issues affecting the development, operation and licensing
                of hotels; and 
 ·
            competitive
                conditions in the lodging industry, including the effect of such
                conditions on the pricing of the merchandise sold in our products
                installed at hotels. 
 The
        foregoing factors may impact our hotel clients and their guests as relates
        to
        the consumption of merchandise sold in our products installed on a revenue
        sharing basis.
 
 **Terrorist
        attacks or acts of war may seriously harm our business**
 
 Terrorist
        attacks or acts of war may cause damage or disruption to our Company, our
        employees, our facility and our customers, which could significantly impact
        our
        revenues, costs and expenses, and financial condition. The terrorist attacks
        that took place in the United States on September 11, 2001 were unprecedented
        events that have created many economic and political uncertainties, especially
        to the lodging industry, some of which have materially adversely affected
        our
        business, results of operations, and financial condition and may do so again
        in
        the future. In particular, the lodging industry was materially affected by
        the
        downturn in the tourism industry as a result of the September 11 attacks.
        While
        it has since recovered, we experienced a fairly significant decrease in
        utilization of our revenue sharing products for a significant period following
        September 11, 2001 particularly in the New York metro area given the lower
        occupancy rates and the significant number of installations we have in this
        region. The potential for future terrorist attacks, the national and
        international responses to terrorist attacks, and other acts of war or hostility
        have created many economic and political uncertainties, which could materially
        adversely affect our business, results of operations, and financial condition
        in
        ways that we currently cannot predict.
 
 The
        strength and profitability of our business depends on the overall demand
        for our
        existing installed products at hotels. Lodging industry revenues are sensitive
        to general economic conditions and generally rise or fall more rapidly in
        relation to the condition of the overall economy. Although we cannot accurately
        estimate the economic impact of a future terrorist attack at this time, the
        lodging industry was negatively affected by the reduction in air travel and
        tourism.
 
 **We
        have experienced loss of market share due to the intense competition from
        companies with longer operating histories, greater resources and more
        established brand names that market in-room amenities to the lodging industry,
        the conclusion of some of our revenue sharing agreements, and the lack of
        new
        product sales in the last four fiscal years.**
 
 The
        market for in-room amenities in the lodging industry is very competitive,
        and we
        expect competition to intensify in the future. The foregoing served as a
        primary
        reason for implementation of our diversification strategy. Our competitors
        vary
        in size and in the scope and breadth of the products and services they offer
        and
        include Bartech Systems International, Dometic Corporation and MiniBar Systems,
        among others. Each of our competitors have longer operating histories, larger
        customer bases, greater brand recognition, and substantially greater capital,
        research and development, manufacturing, marketing, service, support, technical
        and other resources than we currently do. While we do not intend to manufacture
        and install new products in the lodging industry, the foregoing factors directly
        impact our ability to the continued deployment of such products at hotels
        following the maturity of their respective revenue sharing
        agreements.
 
 **Risks
        Related to Our Common Stock**
 
 **Our
        diversification strategy, particularly a potential acquisition of an operating
        company, will likely require us to obtain additional financing in the form
        of
        the sale of debt or equity securities, the result of which would have a dilutive
        effect on the relative ownership of our existing
        stockholders.**
  -14-
  Based
        upon our existing cash and cash equivalents on hand, which was $2,353,972
        as of
        December 31, 2007, we will likely require additional capital to successfully
        implement our diversification strategy. Funding may take the form of common
        stock, preferred stock or convertible debt. The issuance of additional equity
        or
        convertible debt securities will have the effect of reducing the percentage
        ownership of our current stockholders. In addition, such equity or convertible
        debt securities may have additional rights, preferences or privileges to
        those
        of our common stock, such as registration rights. There are no assurances
        that
        funding will be available to us on favorable terms, if at all.
 
 **Our
        executive officers and members of our board of directors beneficially own
        40.8%
        of the outstanding shares of our common stock and could limit the ability
        of our
        other stockholders to influence the outcome of director elections and other
        transactions submitted to a vote of stockholders.**
 
 Our
        executive officers and members of our board of directors beneficially own
        9,985,515 shares of common stock, or approximately 40.8% of the outstanding
        shares of our common stock. These stockholders may have the power to influence
        all matters requiring approval by our stockholders, including the election
        of
        directors and approval of mergers and other significant corporate
        transactions.
 
 **Our
        stock price may fall as a result of the 23,973,165 shares of common stock,
        or
        100% of our outstanding common stock, that is currently eligible for
        resale.**
 
 Sales
        of
        a substantial number of shares of common stock in the public market could
        cause
        the market price for our common stock to decline. Of the 23,973,165 shares
        of
        common stock outstanding as of February 1, 2008, as per the transfer agent,
        19,288,701 shares representing 80.5% of our outstanding shares of common
        stock
        are immediately available for resale.
 
 In
        addition to the foregoing shares, up to 4,684,464 shares of common stock,
        or
        19.5% of our outstanding shares of common stock, are available for resale
        in
        accordance with Rule 144 or 144(k) under the Securities Act. These shares
        represent 23,973,165 shares, or 100% of our outstanding shares of common
        stock.
 
 As
        of
        December 31, 2007, we had options and warrants outstanding to purchase 3,169,621
        shares of common stock at a weighted average exercise price of $0.28 per
        share,
        all of which are immediately exercisable.
 
 The
        sale
        of a substantial number of shares of our common stock within a short period
        of
        time could cause our stock price to fall. In addition, the sale of these
        shares
        could impair our abilities to raise capital through the sale of additional
        common stock.
  -15-
  **I** **TEM
        7. FINANCIAL STATEMENTS.**
  eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 INDEX
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Report
                    of Independent Registered Public Accounting Firm
                
                
                17Consolidated
                    Balance Sheets
                
                
                18Consolidated
                    Statements of Operations
                
                
                19Consolidated
                    Statements of Stockholders' Equity
                
                
                20Consolidated
                    Statements of Cash Flows
                
                
                21Notes
                    to Consolidated Financial Statements
                
                
                22
  -16-
  REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  **H****ANSEN,****B****ARNETT****&
                  M****AXWELL,
                  P.C.**
                A
                  Professional Corporation
                CERTIFIED
                  PUBLIC ACCOUNTANTS
                AND
                BUSINESS
                  CONSULTANTS
                5
                  Triad Center, Suite 750
                Salt
                  Lake City, UT 84180-1128
                Phone:
                  (801) 532-2200
                Fax:
                  (801) 532-7944
                www.hbmcpas.com
              
              **Registered
                  with the Public Company**
                **Accounting
                  Oversight Board**
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Directors and the Stockholders
 eRoomSystem
        Technologies, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheets of eRoomSystem
        Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2007 and
        2006, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the years then ended. These financial statements
        are
        the responsibility of the Company’s management. Our responsibility is to express
        an opinion on these consolidated financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of eRoomSystem Technologies,
        Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of
        its
        operations and its cash flows for the years then ended in conformity with
        accounting principles generally accepted in the United States of
        America.
 
 
 
 
 **HANSEN,
        BARNETT & MAXWELL, P.C.**
 
 Salt
        Lake
        City, Utah
 February
        26, 2008
  -17-
  **eROOMSYSTEM
          TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          BALANCE SHEETS**
  **December
                    31,****2007**
                
                **2006****ASSETS****CURRENT
                    ASSETS**Cash
                    and cash equivalents
                
                $
                2,353,972
                
                $
                1,480,720Accounts
                    receivable, net of allowance for doubtful accounts of $32,399
                    and
                    $49,520at
                    December 31, 2007 and 2006, respectively
                
                
                182,416
                
                
                280,608Notes
                    receivable
                
                
                -
                
                
                17,534Prepaid
                    expenses
                
                
                10,831
                
                
                1,797**Total
                    Current Assets**
                
                
                2,547,219
                
                
                1,780,659**REFRESHMENT
                    CENTERS IN SERVICE**,
                    net of accumulated depreciation of$2,406,453
                    and $2,512,447 at December 31, 2007 and 2006, respectively
                
                
                434,609
                
                
                840,991**PROPERTY
                    AND EQUIPMENT**Computer
                    and office equipment, net of accumulated depreciation of$6,657
                    and $4,147, at December 31, 2007 and 2006, respectively
                
                
                3,261
                
                
                5,183**INVESTMENT
                    IN MARKETABLE SECURITIES**
                
                
                14,075
                
                
                64,075**NOTE
                    RECEIVABLE,**net
                    of unamortized discount of $0 and $896 at December 31, 2007 andDecember
                    31, 2006, respectively
                
                
                159,166
                
                
                149,103**DEPOSITS**
                
                
                2,432
                
                
                5,813**Total
                    Assets**
                
                $
                3,160,762
                
                $
                2,845,824**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES**Accounts
                    payable
                
                $
                49,070
                
                $
                57,512Accrued
                    liabilities
                
                
                71,289
                
                
                99,634Customer
                    deposits
                
                
                -
                
                
                11,758Deferred
                    maintenance revenue
                
                
                10,462
                
                
                12,357**Total
                    Current Liabilities**
                
                
                130,821
                
                
                181,261**Total
                    Liabilities**
                
                
                130,821
                
                
                181,261**COMMITMENTS
                    AND CONTINGENCIES**
                
                
                -
                
                
                -**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; 23,973,165
                    sharesand
                    23,898,165 shares outstanding at December 31, 2007and
                    December 31, 2006, respectively
                
                
                23,973
                
                
                23,898Additional
                    paid-in capital
                
                
                33,792,010
                
                
                33,751,605Warrants
                    and options outstanding
                
                
                346,585
                
                
                373,908Accumulated
                    deficit
                
                
                (31,082,627
                )
                
                (31,484,848
                )Accumulated
                    other comprehensive loss
                
                
                (50,000
                )
                
                -**Total
                    Stockholders' Equity**
                
                
                3,029,941
                
                
                2,664,563**Total
                    Liabilities and Stockholders' Equity**
                
                $
                3,160,762
                
                $
                2,845,824
 See
          accompanying notes to consolidated financial statements
  -18-


**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**


**For
                  the years ended****December
                  31,****2007**
              
              **2006****REVENUE**Revenue-sharing
                  arrangements
              
              $
              792,281
              
              $
              979,470Maintenance
                  fees
              
              
              254,428
              
              
              278,464Product
                  sales
              
              
              127,441
              
              
              79,551**Total
                  Revenue**
              
              
              1,174,150
              
              
              1,337,485**COST
                  OF REVENUE**Revenue-sharing
                  arrangements
              
              
              382,820
              
              
              449,815Maintenance
              
              
              58,349
              
              
              64,365Product
                  sales
              
              
              28,431
              
              
              70,085**Total
                  Cost of Revenue**
              
              
              469,600
              
              
              584,265**GROSS
                  MARGIN**
              
              
              704,550
              
              
              753,220**OPERATING
                  EXPENSES**Selling,
                  general and administrative expense, including non-cash
                  compensationof
                  $13,157 and $33,563, respectively
              
              
              412,919
              
              
              548,421Research
                  and development expense
              
              
              8,678
              
              
              -Interest
                  expense
              
              
              -
              
              
              109,946Interest
                  and other income
              
              
              (110,768
              )
              
              (67,230
              )**Net
                  Operating Expenses**
              
              
              310,829
              
              
              591,137**Income
                  from Operations**
              
              
              393,721
              
              
              162,083Gain
                  on forgiveness of liabilities and debt
              
              
              8,500
              
              
              -**Net
                  Income**
              
              
              402,221
              
              
              162,083Unrealized
                  loss on investment
              
              
              (50,000
              )
              
              -**Comprehensive
                  Income**
              
              $
              352,221
              
              $
              162,083**Basic
                  Earnings Per Common Share**
              
              $
              0.02
              
              $
              0.01**Diluted
                  Earnings Per Common Share**
              
              $
              0.02
              
              $
              0.01
  See
        accompanying notes to consolidated financial statements




-19-




**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**




**Shares**
              
              **Amount****2007**
              
              **2006**
              
              **2007**
              
              **2006****COMMON
                  STOCK**Balance
                  at Beginning of Year
              
              
              23,898,165
              
              
              24,228,902
              
              $
              23,898
              
              $
              24,229Issuance
                  to directors for services
              
              
              75,000
              
              
              50,000
              
              
              75
              
              
              50Relinquishment
                  of shares in settlement of notes receivable
              
              
              -
              
              
              (380,737
              )
              
              -
              
              
              (381
              )Balance
                  at End of Year
              
              
              23,973,165
              
              
              23,898,165
              
              
              23,973
              
              
              23,898**ADDITIONAL
                  PAID-IN-CAPITAL**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              33,751,605
              
              
              33,754,361Issuance
                  to directors for services
              
              
              
              
              
              
              
              
              11,175
              
              
              11,950Expiration
                  of warrants and options
              
              
              
              
              
              
              
              
              29,230
              
              
              63,726Relinquishment
                  of shares in settlement of notes receivable
              
              
              
              
              
              
              
              
              -
              
              
              (78,432
              )Balance
                  at End of Year
              
              
              
              
              
              
              
              
              33,792,010
              
              
              33,751,605**WARRANTS
                  AND OPTIONS OUTSTANDING**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              373,908
              
              
              416,071Expiration
                  of warrants and options
              
              
              
              
              
              
              
              
              (29,230
              )
              
              (63,726
              )Issuance
                  of options and warrants related to consulting services and financing
                  activities
              
              
              
              
              
              
              
              
              1,907
              
              
              10,960Issuance
                  of options to employees
              
              
              
              
              
              
              
              
              -
              
              
              6,465Issuance
                  of options to a member of the Board
              
              
              
              
              
              
              
              
              -
              
              
              4,138Balance
                  at End of Year
              
              
              
              
              
              
              
              
              346,585
              
              
              373,908**NOTES
                  RECEIVABLE FROM SHAREHOLDER**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              -
              
              
              (78,000
              )Shares
                  received in settlement of notes receivable
              
              
              
              
              
              
              
              
              -
              
              
              78,813Interest
                  accrued
              
              
              
              
              
              
              
              
              -
              
              
              (813
              )Balance
                  at End of Year
              
              
              
              
              
              
              
              
              -
              
              
              -**ACCUMULATED
                  DEFICIT**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              (31,484,848
              )
              
              (31,646,931
              )Net
                  income
              
              
              
              
              
              
              
              
              402,221
              
              
              162,083Balance
                  at End of Year
              
              
              
              
              
              
              
              
              (31,082,627
              )
              
              (31,484,848
              )**ACCUMULATED
                  OTHER COMPREHENSIVE LOSS**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              -
              
              
              -Unrealized
                  Loss on Marketable Securities
              
              
              
              
              
              
              
              
              (50,000
              )
              
              -Balance
                  at End of Year
              
              
              
              
              
              
              
              
              (50,000
              )
              
              -**Total
                  Stockholders' Equity at End of Year**
              
              
              
              
              
              
              
              $
              3,029,941
              
              $
              2,664,563




See
        accompanying notes to consolidated financial statements


-20-


**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
        STATEMENTS OF CASH FLOWS**


**For
                  the years ended****December
                  31,****2007**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              402,221
              
              $
              162,083Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              384,742
              
              
              452,101Gain
                  on forgiveness of debt and liabilities
              
              
              (8,500
              )
              
              -Gain
                  on sale of refreshment centers
              
              
              (63,164
              )
              
              (1,479
              )Interest
                  income from shareholder receivable
              
              
              -
              
              
              (813
              )Interest
                  income from other receivable
              
              
              (9,507
              )
              
              (3,309
              )Accretion
                  of debt discount
              
              
              -
              
              
              58,174Amortization
                  of discount on note receivable
              
              
              (897
              )
              
              (1,956
              )Non-cash
                  compensation expense
              
              
              13,157
              
              
              33,563Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              86,434
              
              
              (17,216
              )Prepaid
                  expenses
              
              
              (9,034
              )
              
              9,722Accounts
                  payable
              
              
              58
              
              
              675Accrued
                  liabilities
              
              
              (28,345
              )
              
              (10,144
              )Customer
                  deposits and deferred maintenance revenue
              
              
              (1,895
              )
              
              1,725**Net
                  Cash Provided By Operating Activities**
              
              
              765,270
              
              
              683,126**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of fixed assets
              
              
              -
              
              
              (4,664
              )Proceeds
                  from sale of refreshment centers
              
              
              86,726
              
              
              68,500Purchase
                  of investment and note receivable
              
              
              -
              
              
              (50,000
              )Proceeds
                  from note receivable
              
              
              17,875
              
              
              97,006Change
                  in long term deposits and restricted funds
              
              
              3,381
              
              
              79,487**Net
                  Cash Provided by Investing Activities**
              
              
              107,982
              
              
              190,329**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Principal
                  payments on long-term debt
              
              
              -
              
              
              (709,250
              )**Net
                  Cash Used in Financing Activities**
              
              
              -
              
              
              (709,250
              )**Net
                  Increase in Cash**
              
              
              873,252
              
              
              164,205**Cash
                  at Beginning of Period**
              
              
              1,480,720
              
              
              1,316,515**Cash
                  at End of Period**
              
              $
              2,353,972
              
              $
              1,480,720**Supplemental
                  Cash Flows Information**Cash
                  paid for interest
              
              $
              -
              
              $
              35,291**Supplemental
                  Disclosure of Noncash Investing and Financing
                  Activities**Shares
                  of common stock cancelled in settlement of notes
                  receivable
              
              $
              -
              
              $
              78,813




See
        accompanying notes to consolidated financial statements




-21-




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
      POLICIES**





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





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





Up
      until
      the year ended December 31, 2004, the Company had suffered recurring losses.
      During the years ended December 31, 2007 and 2006, the Company realized net
      income of $402,221and $162,083, respectively. During the years ended December
      31, 2007 and 2006, the Company's operations provided $765,270 and $683,126
      of
      cash, respectively. The Company had cash of $2,353,972 as of December
      31, 2007. At December 31, 2007, the Company had working capital of $2,416,398.
      Although the Company realized a profit in 2007 as well as in 2006, the Company
      is anticipating decreasing revenue as the Company's existing hotel
      revenue-sharing and maintenance contracts conclude over the next couple of
      years. This raises substantial doubt about the Company's ability to continue
      as
      a going concern. Realization of continued profitable operations is not assured.
      The accompanying financial statements do not include any adjustments relating
      to
      the recoverability and classification of asset carrying amounts or the amount
      and classification of liabilities that might result should the Company be unable
      to continue as a going concern. Management would like to acquire an existing
      operating company to enable the Company to grow and is continuously performing
      due diligence on third party companies for this purpose. The Company has also
      been performing research in order to invest in privately-held or publicly traded
      emerging growth stage companies.





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





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





Cash
      Equivalents and Fair Value of Financial Instruments - Cash equivalents include
      the Company’s Auction Rate debt and preferred stock securities. Auction rate
      securities are term securities that earn income at a rate that periodically
      resets, from 7-35 days, to reflect current market conditions through an auction
      process. The Company had no restricted cash, as of December 31, 2007 and 2006,
      respectively.





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





Accounts
      Receivable - Accounts Receivable are stated at the historical carrying amount,
      net of write-offs and allowances. The Company has established an overall
      allowance based upon historical experience of 15% of the outstanding balance
      in
      addition to any specific customer collection issues identified by the Company.
      Uncollectible accounts receivable are written off when a settlement is reached
      or when the Company has determined that the balance will not be
      collected.





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





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




-22-




Depreciation
      and amortization expense related to eRoomServ refreshment centers in service
      and
      property and equipment was $384,742 and $452,101 for the years ended December
      31, 2007 and 2006, respectively.




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


On
      retirement or disposition of property and equipment, the cost and related
      accumulated depreciation and amortization are removed from the accounts and
      any
      resulting gain or loss is recognized in the statement of operations. In the
      year
      ended December 31, 2007, the Company sold refreshment centers with a carrying
      value of $23,562 for $94,336, recognizing a gain on sale of $70,774. In the
      year
      ended December 31, 2006, the Company sold refreshment centers with a carrying
      value of $67,021 for $68,500, recognizing a gain on sale of $1,479.





Capitalized
      Software Costs - In accordance with FASB Statement of Financial Accounting
      Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to
      be
      Sold, Leased or Otherwise Marketed, development costs incurred in the research
      and development of new software products to be sold, leased or otherwise
      marketed are expensed as incurred until technological feasibility in the form
      of
      a working model has been established. Internally generated capitalizable
      software development costs have not been material for the years ended December
      31, 2007 and 2006. The Company has charged its software development costs to
      research and development expense in the accompanying consolidated statements
      of
      operations.





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





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





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





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





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





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





Stock-Based
      Compensation. The Company has one stock-based employee compensation plan, which
      is described more fully in Note 9. Prior to January 1, 2006, the Company
      accounted for the plan under the recognition and measurement provisions of
      Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
      Employees, ("APB 25") and related Interpretations, as permitted by SFAS No.
      123,
      Accounting for Stock-Based Compensation ("SFAS 123"). Effective January 1,
      2006,
      the Company adopted the fair value recognition provisions of SFAS No. 123
      (Revised 2004), Share-Based Payment, ("SFAS 123(R)") using the modified
      prospective transition method. Accordingly, the Company records expense for
      (i)
      the unvested portion of grants issued during 2007 and 2006 and (ii) new grant
      issuances, both of which will be expensed over the requisite service (i.e.,
      vesting) periods.





As
      a
      result of adopting SFAS 123(R), the Company's results of operations for the
      year
      ended December 31, 2007 and 2006 included compensation expense of $0 and
      $10,603, respectively, representing $0.00 impact to both basic and diluted
      earnings per share.





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




-23-




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





The
      following table is a reconciliation of the numerators and denominators used
      in
      the calculation of basic and diluted weighted-average common shares outstanding
      for the years ending December 31, 2007 and 2006:




**2007**
              
              **2006**Basic
                  net income
              
              $
              402,221
              
              $
              162,083Diluted
                  net income
              
              $
              402,221
              
              $
              162,083Basic
                  weighted-average common shares outstanding
              
              
              23,948,507
              
              
              23,980,591Effect
                  of dilutive securitiesStock
                  options and warrants
              
              
              174,953
              
              
              309,269Diluted
                  weighted-average common shares outstanding
              
              
              24,123,460
              
              
              24,289,860Basic
                  earnings per share
              
              $
              0.02
              
              $
              0.01Diluted
                  earnings per share
              
              $
              0.02
              
              $
              0.01


As
      of
      December 31, 2007 and 2006, there were potential common stock equivalents from
      options and warrants of 2,994,668 and 3,008,352, respectively that were not
      included in the computation of diluted earnings per common share because their
      effect would have been anti-dilutive.





Recent
      Accounting Pronouncements -   In September 2006, the FASB issued SFAS No. 157
“Fair
      Value Measurements” (“SFAS 157”). SFAS 157 establishes a common definition for
      fair value to be applied to U.S. generally accepted accounting principles
      requiring use of fair value, establishes a framework for measuring fair value,
      and expands disclosure about such fair value measurements. SFAS 157 is effective
      for fiscal years beginning after November 15, 2007. In February 2008, the FASB
      decided to issue a final Staff Position to allow a one-year deferral of adoption
      of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are
      recognized or disclosed at fair value in the financial statements on a
      nonrecurring basis. The FASB also decided to amend SFAS 157 to exclude FASB
      Statement No. 13 and its related interpretative accounting pronouncements that
      address leasing transactions. The Company is currently assessing the impact,
      if
      any, of SFAS 157 on its consolidated financial statements.




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





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




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




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




-24-




**NOTE
      2 - INVESTMENT IN SPECIAL PURPOSE ENTITIES**





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





**NOTE
      3 - INVESTMENTS**





On
      May
      20, 2005 the Company invested $10,000 in Identica Holdings Corporation, a Nevada
      corporation, by purchasing 1,666,667 shares of common stock, at $0.006 per
      share. This investment represented 10% of Identica's then outstanding capital
      stock on a fully-diluted basis. Identica is a privately held company that has
      expressed an interest in becoming a public company in the future and has filed
      a
      registration statement with the SEC for this purpose, which has not yet been
      declared effective. This investment will be carried at the lower of cost or
      market and will be periodically evaluated for impairment.





In
      addition, the Company loaned Identica $150,000 in cash. The loan is secured
      by a
      security interest in all the assets of Identica and is evidenced by a promissory
      note. On June 20, 2007, the Company extended the loan for an additional year.
      The terms of the extended promissory note include interest accruing on the
      unpaid principal balance in the amount of 10% per annum and a maturity date
      of
      June 20, 2008.





In
      consideration for making the loan, the Company was issued a warrant to purchase
      one million (1,000,000) shares of common stock of Identica, exercisable at
      $0.15
      per share at any time through May 20, 2010. The warrants were valued at $4,075
      using the Black-Scholes pricing model with the following assumptions: risk
      free
      interest rate 3.88%, dividend yield of 0.0%, volatility of 150% and expected
      life of 5 years. The discount will be amortized over the expected twenty-five
      month term as interest income.





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


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





In
      October, 2005, the Company loaned Identica an additional $50,000 in cash. The
      loan was not secured and was evidenced by a promissory note. The terms of the
      promissory note included zero interest and a maturity date of January 31, 2006.
      The note was paid in full in March 2006.





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




**NOTE
      4 - NET INVESTMENT IN SALES-TYPE LEASE**





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




-25-




The
      new
      lease agreement terminates on December 31, 2008 at which time the hotel property
      owner takes ownership of the refreshment centers. The property is to make
      monthly payments of $7,200. The new lease agreement has been classified as
      a
      sales-type capital lease. Because the property has a history of non-performance
      and is still under the supervision of a bankruptcy court, the net investment
      in
      the capital lease has been fully allowed against. The following lists the
      components of the net investment in the sales-type lease as of December 31,
      2007:




Total
                  minimum lease payments to be received
              
              $
              86,400Less:
                  Allowance for uncollectibles
              
              
              (72,663
              )Net
                  minimum lease payments receivable
              
              
              13,737Less:
                  Unearned income
              
              
              (13,737
              )Net
                  investment in sales-type lease
              
              $
              -




The
      Company recorded revenue-sharing and maintenance fee revenue in the amounts
      of
      $86,400 and $86,400 for the years ended December 31, 2007 and 2006,
      respectively.





Minimum
      lease payments through the end of the lease term are as follows: $86,400 in
      2008.





**NOTE
      5 - NOTES PAYABLE AND LONG-TERM DEBT**





As
      December 31, 2007 and 2006, there were no notes payable or long-term
      debts.





On
      July
      14, 2006, the Company repaid its outstanding loan payable to Amresco Commercial
      Finance in the principal amount of $553,542 plus accrued interest of $2,217.
      The
      remaining unamortized discount on the note of $49,414 was recognized as interest
      expense.





The
      notes
      payable were repaid by the Company on July 14, 2006. SPE held payments from
      hotel customers in several restricted bank accounts for payment to the finance
      company and to the Company. The funds were released on July 18,
      2006.





The
      Company issued AMRESCO a warrant to purchase 400,000 shares of common stock,
      exercisable at $0.10 per share through October 1, 2008. If at anytime after
      December 31, 2007, the warrant has an intrinsic value greater than $300,000
      based upon the then current trading price of the Company's common stock, then
      AMRESCO will have the right to "put" the warrant back to the Company in exchange
      for $200,000 payable in 12 equal consecutive monthly installments with the
      first
      payment to be made on the last day of the month in which the "put" occurs.
      The
      warrants to purchase 400,000 shares of common stock were recognized in October
      2003 as a troubled debt restructuring, with the $97,956 fair value of the
      warrants recorded as a discount to the notes payable to be amortized over the
      remaining life of the notes as a charge to interest expense. The discount was
      fully amortized in July 2006 upon full repayment of the notes.





**NOTE
      6 - COMMITMENTS AND CONTINGENCIES**





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





Operating
      Leases as Lessor - The Company accounts for its revenue-sharing agreements
      as
      operating leases. As of December 31, 2007, the Company had one revenue-sharing
      agreement for which the customer is contractually obligated to pay minimum
      monthly payments. Carrying value of these leased assets was $60,578 as of
      December 31, 2007. Agreements with all other customers provide for an allocation
      of revenues to the Company with no minimum monthly payment. Accordingly, the
      Company is unable to estimate future amounts to be received under these
      agreements.





Future
      minimum payments to be received under contracts that provide for minimum monthly
      amounts were as follows as of December 31, 2007:




Year
                  ending December 31,2008
              
              $
              48,266Total
              
              $
              48,266


Operating
      Leases as Lessee - In November 2003 the Company moved to a new facility in
      Salt
      Lake City, Utah. The Company entered into a 38-month lease agreement that
      terminated in December 2006. Identica sub-let the premises from the Company
      and
      paid for the rent directly starting in April 2006. The lease provided for
      monthly rent payments of $1,612. There are no future lease
      payments.





In
      December 2007, the Company rented a second office at its Lakewood, NJ facility.
      The Company entered into a 12 month lease agreement that will end in December
      2008. The lease provides for monthly rent payments of $525. Future lease
      payments in 2008 are $5,944.36.




-26-




Rent
      expense for the years ended December 31, 2007 and 2006 was $7,576 and $17,935,
      respectively.





**NOTE
      7 - INCOME TAXES**





The
      Company has paid no federal income taxes. The following is a schedule of state
      income taxes paid in 2007 and 2006:




*For
                  the years ended December 31,*
              
              **2007**
              
              **2006**Massachusetts
              
              $
              -
              
              $
              1,368New
                  Jersey
              
              
              448
              
              
              1,622New
                  York
              
              
              4,441
              
              
              2,435Tennessee
              
              
              -
              
              
              380Total
                  income tax paid
              
              $
              4,889
              
              $
              5,805


The
      significant components of the Company's deferred income tax assets as of
      December 31, 2007 and 2006 are as follows:




*For
                  the years ending December 31,*
              
              **2007**
              
              **2006**Deferred
                  Income Tax Assets:Net
                  operating loss carryforwards
              
              $
              7,495,513
              
              $
              7,822,321Reserves
                  and accrued liabilities
              
              
              14,430
              
              
              23,988Other
                  assets
              
              
              11,839
              
              
              17,881Total
                  Deferred Income Tax Assets
              
              $
              7,521,782
              
              $
              7,864,190Valuation
                  allowance
              
              
              (7,422,561
              )
              
              (7,631,192
              )Deferred
                  Income Tax Liability - Depreciation andAmortization
              
              
              (99,221
              )
              
              (232,998
              )Net
                  Deferred Income Tax Asset
              
              $
              -
              
              $
              -


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





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




*For
                  the years ending December 31,*
              
              **2007**
              
              **2006**Tax
                  at statutory rate (34%)
              
              $
              136,755
              
              $
              55,108Other
                  non-deductible expenses and adjustments
              
              
              66,688
              
              
              32,121Change
                  in valuation allowance
              
              
              (208,632
              )
              
              (89,320
              )State
                  tax, net of federal tax benefit
              
              
              5,189
              
              
              2,091Provision
                  for Income Taxes
              
              $
              -
              
              $
              -


The
      following summarizes the tax net operating loss carryforwards and their
      respective expiration dates as of December 31, 2007:




*Years
                  ending December 31,*2011
              
              $
              1,086,1792017
              
              
              1,082,3732018
              
              
              3,642,8572019
              
              
              3,298,0472020
              
              
              5,087,6502021
              
              
              2,378,3182022
              
              
              3,459,3402023
              
              
              1,205,001Total
                  net operating loss carryforwards
              
              $
              21,239,765


**NOTE
      8 - STOCKHOLDERS' EQUITY**





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




-27-




During
      the year ended December 31, 2007, the board of directors of the Company approved
      a buyback of up to five million Company shares of common stock on the open
      market. During the year ended December 31, 2007 no purchases have been
      made.





During
      the year ended December 31, 2006, the Company issued 50,000 shares of common
      stock valued at $12,000 ($0.24 per share) to its Board of Directors for
      extraordinary services rendered.





On
      March
      30, 2006, Ash Capital, an affiliate of the Company and managed by Providence
      Management, LLC, the managing member of which is James C. Savas, a director
      of
      the Company, relinquished 380,737 shares of common stock, or the Share Payment,
      as full and final payment of an outstanding promissory note in the original
      principal amount of $65,000 issued in favor of the Company on December 31,
      2001,
      or the 2001 Ash Capital Note. The 2001 Ash Capital Note was issued in
      conjunction with Ash Capital's exercise of a stock option to purchase 250,000
      shares at an exercise price of $0.26 per share on December 31, 2001. The Ash
      Capital Note had a term of four years and accrued simple interest at the rate
      of
      5% per annum. As of the date of the Share Payment, the Ash Capital Note had
      accrued interest in the amount of $13,813, for a total outstanding amount of
      $78,813, or the Ash Capital Note Balance, as of March 30, 2006.





**NOTE
      9 - STOCK OPTIONS AND WARRANTS**





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





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





During
      the year ended December 31, 2007, the Company granted options to purchase 20,000
      shares of common stock to a consultant for services rendered. These options,
      which vested immediately, have an exercise price of $0.10 per share and are
      exercisable through July 23, 2012. These options were valued at $1,907 using
      the
      Black-Scholes option pricing model with the following assumptions: risk free
      interest rate of 4.86%, dividend yield of 0.0%, volatility of 126% and expected
      life of 5 years.





During
      the year ended December 31, 2006, the Company granted options to purchase 65,000
      shares of common stock to an employee and a member of the Board of Directors.
      These options, which vested immediately, have exercise prices ranging from
      $0.13
      to $0.24 per share, and are exercisable through January 17, 2016. In compliance
      with SFAS 123 (R) as further discussed in Note 1, these options were valued
      at
      $10,603 using the Black-Scholes option pricing model with the following
      assumptions: risk free interest rate ranging from 4.34% to 5.10%, dividend
      yield
      of 0.0%, volatility ranging from 130% to 135%, and expected average life ranging
      between 5 and 10 years.





During
      the year ended December 31, 2006, the Company granted options to purchase 53,000
      shares of common stock to consultants. These options, which vested immediately,
      have an exercise price ranging from $0.17 to $0.24 per share and are exercisable
      through June 29, 2011. These options were valued at $10,960 using the
      Black-Scholes option pricing model with the following assumptions: risk free
      interest rate ranging from 4.31% to 5.10%, dividend yield of 0.0%, volatility
      ranging from 131% to 135% and expected life of 5 years.





During
      the years ended December 31, 2007 and 2006, options to purchase 168,000 and
      305,000 shares of common stock, respectively, expired. The Company recognized
      the value of these options in the amounts of $29,230 and $63,726 during 2007
      and
      2006 respectively, as additional paid in capital.




-28-




Outstanding
      Stock Options and Warrants - A summary of stock option and warrant activity
      for
      the years ended December 31, 2007 and 2006 is as follows:




Weighted
                  -Options
                  and
              
              
              
              
              
              
              
              AverageWarrants
              
              Exercise
                  Price Range
              
              Exercise
                  PriceBalance,
                  December 31, 2005
              
              
              3,504,621
              
              $
              0.10
              
              
              -
              
              
              1.55
              
              $
              0.28Granted
              
              
              118,000
              
              
              0.13
              
              
              -
              
              
              0.24
              
              
              0.20Expired
              
              
              (305,000
              )
              
              0.15
              
              
              -
              
              
              0.26
              
              
              0.22Balance,
                  December 31, 2006
              
              
              3,317,621
              
              
              0.10
              
              
              -
              
              
              1.55
              
              
              0.28Granted
              
              
              20,000
              
              
              0.10
              
              
              -
              
              
              0.10
              
              
              0.10Expired
              
              
              (168,000
              )
              
              0.17
              
              
              -
              
              
              0.30
              
              
              0.25Balance,
                  December 31, 2007
              
              
              3,169,621
              
              $
              0.10
              
              
              -
              
              
              1.55
              
              $
              0.28Exercisable,
                  December 31, 2007
              
              
              3,169,621
              
              $
              0.10
              
              
              -
              
              
              1.55
              
              $
              0.28Weighted-average
                  fair value of options granted during the year ended December 31,
                  2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              0.18Weighted-average
                  fair value of options granted during the year ended December 31,
                  2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              0.10


The
      fair
      value of stock options was determined at the grant dates using the Black-Scholes
      option-pricing model with the following weighted-average assumptions for the
      years ended December 31, 2007 and 2006, respectively: risk-free interest rate
      of
      4.9% and 4.9%, dividend yield of 0 percent, volatility of 126% and 132%, and
      expected lives of 5.0 and 6.1 years.





A
      summary
      of the options and warrants outstanding and exercisable as of December 31,
      2007
      follows:




Outstanding
              
              ExercisableWeighted
                  - Average
              
              Weighted
                  -
              
              Aggregate
              
              
              
              Weighted
                  -
              
              AggregateRange
                  of
              
              Number
              
              Remaining
              
              Average
              
              Intrinsic
              
              Number
              
              Average
              
              IntrinsicExercise
                  Prices
              
              Outstanding
              
              Contractual
                  Life
              
              Exercise
                  Price
              
              Value
              
              Exercisable
              
              Exercise
                  Price
              
              Value$
                  0.10 - 0.37
              
              
              3,155,978
              
              
              7.7
                  years
              
              $
              0.27
              
              $
              865,451
              
              
              3,155,978
              
              $
              0.27
              
              $
              865,4510.90
                  - 1.91
              
              
              13,643
              
              
              10.0
                  years
              
              
              0.94
              
              
              12,760
              
              
              13,643
              
              
              0.94
              
              
              12,760$
                  0.10 - 7.80
              
              
              3,169,621
              
              
              7.7
                  years
              
              $
              0.28
              
              $
              878,211
              
              
              3,169,621
              
              $
              0.28
              
              $
              878,211


**NOTE
      10 - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT
      CUSTOMERS**





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





At
      December 31, 2007, the Company had $2,295,347 invested in “Auction Rate
      Securities”  which  are
      rated
      AAA by Standard & Poor’s.  The
      auctions related to these securities  have
      been
      having some liquidity issues and therefore the securities may not be redeemable
      in the short term.  The
      Company believes that its current holdings of Auction Rate Securities will
      not
      result in any material write down of value of these securities .





At
      December 31, 2007, the Company had accounts receivable from two customers
      accounting for 51% of total accounts receivable.





During
      the year ended December 31, 2007, revenues from one customer accounted for
      15%
      of total revenues.




-29-


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





Not
      applicable.





**ITEM
      8A(T).****CONTROLS
      AND PROCEDURES.**





**EVALUATION
      OF DISCLOSURE CONTROLS**





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




**MANAGEMENT'S
      REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**




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




Our
      management evaluated the effectiveness of our internal control over financial
      reporting based on the framework in *Internal
      Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      upon that evaluation, management concluded that the company's internal control
      over financial reporting was effective as of December 31, 2007.




**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**





During
      the fiscal quarter ended December 31, 2007, there have been no changes in our
      internal control over financial reporting that have materially affected or
      are
      reasonably likely to materially affect our internal controls over financial
      reporting.





**ITEM
      8B.****OTHER
      INFORMATION**.





Not
      applicable.





**PART
      III**





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





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




-30-




**Directors
      and Executive Officers**




Name
              
              Age
              
              PositionDavid
                  A. Gestetner
              
              35
              
              President,
                  Chief Executive Officer, Secretary and Chairman of the
                  BoardHerbert
                  A. Hardt
              
              65
              
              DirectorJames
                  C. Savas
              
              47
              
              DirectorLawrence
                  K. Wein
              
              65
              
              Director


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





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





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





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





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





**Involvement
      in Certain Legal Proceedings**





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





**Auditors** ; **Committees
      of the Board of Directors**




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





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





Audit
      Committee. The audit committee, which was formed on August 18, 2000, is
      currently comprised of Messrs. Hardt and Savas. The chairman of the audit
      committee is Mr. Hardt. The audit committee met four times during the fiscal
      year ended December 31, 2007. The audit committee has the responsibility
      to:





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





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





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





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





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




-31-




Compensation
      Committee. The compensation committee, which was formed on August 18, 2000,
      is
      currently comprised of Messrs. Hardt and Wein. The compensation committee met
      once during the fiscal year ended December 31, 2007. In general, the
      compensation committee's authority and oversight extends to total compensation,
      including base salaries, bonuses, stock options, and other forms of
      compensation.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





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





To
      our
      knowledge, based solely on review of the copies of such reports furnished to
      us
      and written representations, we believe that during the fiscal year ended
      December 31, 2007 all applicable filing requirements were complied with by
      our
      executive officers and directors.





**Code
      of Ethics**





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





**ITEM
      10.****EXECUTIVE
      COMPENSATION.**





**Summary
      Compensation Table**





The
      following table sets forth summary information concerning the total remuneration
      paid or accrued by eRoomSystem Technologies, to or on behalf of our chief
      executive officer and our executive officers whose total annual salary exceeded
      $100,000 during the fiscal years ended December 31, 2007 and 2006. In accordance
      with the rules of the Commission, the compensation described in this table
      does
      not include perquisites and other personal benefits received by the executive
      officers named in the table below which does not exceed the lesser of $10,000
      or
      10% of the total salary and bonus reported for the executive
      officers.




**Summary
                    Compensation Table****Name
                    and Principal Position**
                
                **Year**
                
                **Salary**
                
                **Bonus**
                
                **All
                    Other Compensation**
                
                **Total**David
                    A. Gestetner,
                
                
                2007
                
                $
                150,000
                
                $
                20,000
                
                $
                4,800
                
                $
                174,800President,
                    Chief Executive
                
                
                2006
                
                $
                100,000
                
                $
                50,000
                
                $
                2,400
                
                $
                152,400Officer,
                    Secretary and Chairman


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





There
      were no equity awards granted to or held by our chief executive officer during
      the fiscal year ended December 31, 2007.





**Compensation
      of Directors**





The
      following table sets forth the equity awards made to members of our board of
      directors during the fiscal year ended December 31, 2007:




**DIRECTOR
                  COMPENSATION****Name**
              
              **Stock
                  Awards**
              
              **Option
                  Awards**
              
              **Total**David
                  Gestetner
              
              $
              -
              2
              $
              -
              
              $
              -Herbert
                  A. Hardt
              
              $
              3,750
              1
              $
              -
              
              $
              3,750Lawrence
                  K. Wein
              
              $
              3,750
              1
              $
              -
              
              $
              3,750James
                  C. Savas
              
              $
              3,750
              1
              $
              -
              
              $
              3,750


(1)
            Reflects
                the issuance of 25,000 shares of common stock to each of Mssrs. Hardt,
                Wein and Savas.


(2)
            As
                CEO and President of the Company, David Gestetner does not receive
                director’s compensation.




-32-




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





**ITEM
      11.****SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.**





The
      following table is a list of the beneficial ownership of common stock as of
      February 1, 2008 of (i) all persons who beneficially owned more than 5% of
      our
      outstanding common stock, (ii) all directors, (iii) all executive officers
      and
      (iv) all directors and executive officers as a group, according to
      record-ownership listings as of that date, according to the Forms 3, 4 and
      5 and
      Schedules 13D and 13G, of which we have received copies, and according to
      verification as of February 1, 2008 which we have solicited and received from
      each director and executive officer. The beneficial ownership is calculated
      based on 23,973,165 shares of common stock outstanding as of February 1, 2008.
      Beneficial ownership is determined in accordance with the rules of the
      Commission and generally includes voting or investment power with respect to
      securities and, accordingly, includes shares issuable upon exercise of options
      that are exercisable or become exercisable within 60 days of February 1,
      2008.





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




**Executive
                  Officer, Director or Stockholders with Beneficial**
              
              **Amount
                  and Nature of Beneficial**
              
              **Percent
                  of****Ownership
                  of 5% or More**
              
              **Ownership**
              
              **Class**Ash
                  Capital, LLC
              
              
              3,884,537
              5
              
              16.1
              %David
                  A. Gestetner
              
              
              5,157,644
              1
              
              21.5
              %James
                  C. Savas
              
              
              4,072,050
              2
              
              16.8
              %Herbert
                  A. Hardt
              
              
              625,821
              3
              
              2.6
              %Lawrence
                  K. Wein
              
              
              130,000
              4
              
              0.5
              %Executive
                  Officers and Directors, as a group (4 individuals)
              
              
              9,985,515
              
              
              40.8
              %
   (1)
      Reflects the direct ownership of 4,000 shares of common stock. In addition,
      also
      includes the beneficial ownership of 5,153,644 shares of common stock held
      by
      Gestetner Group, LLC.





(2)
      Reflects the direct ownership of 73,321 shares of common stock and options
      to
      purchase 80,000 shares of common stock, the beneficial ownership of 19,231
      shares of common stock and an option to purchase 14,961 shares of common stock
      held by Providence Management, LLC, an entity for which Mr. Savas is co-manager
      and 50% owner, and the beneficial ownership of the following securities held
      by
      Ash Capital, LLC, or Ash Capital, an entity which Providence Management, LLC
      serves as the manager and holds a 20% profits interest, (a) 3,685,449 shares
      of
      common stock held by Ash Capital, (b) an option to purchase 145,313 shares
      of
      common stock, and (c) a warrant to purchase 53,775 shares of common stock.
      Mr.
      Savas disclaims any beneficial ownership of the shares of common stock and
      options to purchase shares of common stock beneficially owned as a result of
      his
      affiliation with Ash Capital, except to the extent of his pecuniary interest
      in
      such securities.





(3)
      Reflects the direct ownership of 445,821 shares of common stock and options
      to
      purchase 80,000 shares of common stock, and the beneficial ownership of options
      to purchase 100,000 shares of common stock held by Monness, Crespi & Hardt,
      an entity of which Mr. Hardt is a principal.





(4)Reflects
      the direct ownership of 80,000 shares of common stock and options to purchase
      50,000 shares of common stock.





(5)
      Reflects the direct ownership of 3,685,449 shares of common stock, an option
      to
      purchase 145,313 shares of common stock, and a warrant to purchase 53,775 shares
      of common stock. Ash Capital is controlled by Alan C. Ashton, a former member
      of
      our board of directors, audit and compensation committees.




-33-




**Securities
      authorized for issuance under equity compensation plans**





The
      following table sets forth information about the common stock available for
      issuance under compensatory plans and arrangements as of December 31,
      2007.




Plan
                  Category
              
              Number
                      of securities to be issued upon exercise
                    of
                      outstanding options, warrants and rights
              
              Weighted-average
                    exercise
                      price of
                    outstanding
                      options, warrants and rights
              
              Number
                    of securities
                  available
                    for future issuance(a)
              
              (b)
              
              (c)Equity
                  compensation planapproved
                  by security holders
              
              
              2,384,948
              
              $
              0.31
              
              
              615,052Equity
                  compensation plans notapproved
                  by security holders
              
              
              784,673
              
              $
              0.17
              
              
              -**Total**
              
              
              3,169,621
              
              $
              0.28
              
              
              615,052


**Equity
      Compensation Plans Approved by Security Holders**





The
      2000
      Stock Option and Incentive Plan, or the 2000 Plan, was adopted by our board
      on
      February 3, 2000 and approved by our stockholders on March 29, 2000. The 2000
      Plan was amended by our stockholders on May 7, 2001 when the shares of common
      stock authorized under the 2000 Plan were increased from 2,000,000 shares to
      2,400,000 shares, amended on July 29, 2002 by our stockholders effectively
      increasing the number of shares issuable hereunder to 2,700,000, and amended
      further on November 15, 2004 by our stockholders effectively increasing the
      number of shares issuable thereunder to 3,000,000. The 2000 Plan provides us
      with the vehicle to grant to employees, officers, directors and consultants
      stock options and bonuses in the form of stock and options. Under the 2000
      Plan,
      we can grant awards for the purchase of up to 3,000,000 shares of common stock
      in the aggregate, including "incentive stock options" within the meaning of
      Section 422 of the United States Internal Revenue Code of 1986 and non-qualified
      stock options. As of February 1, 2008, we had options to purchase 2,384,948
      shares of our common stock outstanding under the 2000 Plan.





**Equity
      Compensation Plans Not Approved by Security Holders**





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





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





The
      2001(B) Stock Option and Incentive Plan consists of 100,894 options to purchase
      shares of common stock of which 100,894 options were issued to consultants
      in
      2001 at an exercise price ranging from $0.26 to $0.33 with terms ranging from
      5
      to 10 years.





The
      2003
      Stock Option and Incentive Plan consists of 400,000 warrants to purchase shares
      of common stock of which 400,000 warrants were issued to a vendor in 2003 at
      an
      exercise price of $0.10 with a term of 5 years.





The
      2005
      Plan Stock Option and Incentive Plan consists of 78,775 warrants to purchase
      shares of common stock of which 78,775 warrants were issued to a vendor and
      member of the board at an exercise price ranging from $0.13 to $0.35 with terms
      ranging from 3 to 5 years.





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





**ITEM
      12.****CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.**





**Director
      Independence**





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




-34-




**Transactions
      Involving Ash Capital, LLC**





On
      March
      30, 2006, Ash Capital, LLC relinquished 380,737 shares of common stock (the
      "Share Payment") as full and final payment of an outstanding promissory note
      in
      the original principal amount of $65,000 issued in favor of the Company on
      December 31, 2001 (the "Ash Capital Note"). The Ash Capital Note was issued
      in
      conjunction with Ash Capital's exercise of a stock option to purchase 250,000
      shares at an exercise price of $0.26 per share. The Ash Capital Note had a
      term
      of four years and accrued simple interest at the rate of 5% per
      annum.





As
      of the
      date of the Share Payment, the Ash Capital Note had accrued interest in the
      amount of $13,812.50, for a total outstanding amount of $78,812.50 ("Ash Capital
      Note Balance") as of March 30, 2006.





The
      Share
      Payment represents a price of $0.207 per share. The number of shares of common
      stock relinquished by Ash Capital was determined using the following formula:
      (a) shares of common stock equal to the greater of (i) the Ash Capital Note
      Balance divided by a ten (10) percent discount on the 30-day trailing average
      closing price of the Company's common stock, or (ii) the Ash Capital Note
      Balance divided by the ten (10) percent discount on the closing price of the
      Company's common stock on March 29, 2006.





**Financial
      Advisory Agreement with Monness, Crespi & Hardt**





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





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





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





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





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





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


-35-




**ITEM
      13**  **EXHIBITS** ****





ExhibitNumber
            
            Document
                Name1.01
            
            Form
                of Underwriting Agreement relating to the registrant's initial public
                offering that closed on August 9, 2000
            
            Incorporated
                by reference to Pre-effective Amendment No. 2 of Form SB-2 filed
                on July
                14, 20002.01
            
            Agreement
                and Plan of Reorganization by and between RoomSystems International
                Corporation and RoomSystems, Inc. dated December 31, 1999
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 20002.02
            
            Transfer
                Pricing Agreement by and between RoomSystems International Corporation
                and
                RoomSystems, Inc. dated December 31, 1999
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 20003.01
            
            Amendment
                and Restatement of Articles of Incorporation
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 20003.02
            
            Certificate
                of Correction dated May 30, 2000
            
            Incorporated
                by reference to Pre-effective Amendment No. 1 of Form SB-2 filed
                on July
                14, 20003.03
            
            Amended
                and Restated Certificate of Designation, Preferences, Rights and
                Limitation of Series A convertible preferred stock
            
            Incorporated
                by reference to Form SB-2 filed on June 9, 20003.04
            
            Amended
                and Restated Certificate of Designation, Preferences, Rights and
                Limitation of Series B convertible preferred stock
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 20003.05
            
            Certificate
                of Designation, Preferences, Rights and Limitation of Series C convertible
                preferred stock
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 20003.06
            
            Amended
                and Restated Bylaws
            
            Incorporated
                by reference to Form SB-2 filed on June 9, 20003.07
            
            Second
                Amendment and Restatement of Articles of Incorporation
            
            Incorporated
                by reference to Pre-effective Amendment No. 2 of Form SB-2 filed
                on July
                14, 20003.08
            
            Second
                Amended and Restated Bylaws
            
            Incorporated
                by reference to Pre-effective Amendment No. 2 of Form SB-2 filed
                on July
                14, 20004.01
            
            Form
                of Common Stock Certificate
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.01
            
            Amended
                and Restated 2000 Stock Option and Incentive Plan
            
            Incorporated
                by reference to Form SB-2 filed on June 9, 200010.08
            
            Promissory
                Note Repurchase Agreement by and between Steven L. Sunyich and
                RoomSystems, Inc dated September 1, 1999.
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.1
            
            Equipment
                Transfer Agreement by and between RoomSystems, Inc., RoomSystems
                International Corporation, RSi BRE, Inc. and RSG Investments, LLC
                dated
                September 28, 1999
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.10A
            
            Exhibits
                to Equipment Transfer Agreement by and between RoomSystems, Inc.,
                RoomSystems International Corporation, RSi BRE, Inc. and RSG Investments,
                LLC dated September 28, 1999
            
            Incorporated
                by reference to Form SB-2 filed on June 9, 200010.11
            
            Amendment
                to Equipment Transfer Agreement by and between RoomSystems, Inc.,
                RoomSystems International Corporation, RSi BRE, Inc. and RSG Investments,
                LLC dated November 23, 1999
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.13
            
            Loan
                and Security Agreement by and between RoomSystem Technologies, Inc.
                and
                Ash Capital, LLC dated February 15, 2000
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.13A
            
            Exhibits
                to Loan and Security Agreement by and between RoomSystem Technologies,
                Inc. and Ash Capital, LLC dated February 15, 2000
            
            Incorporated
                by reference to Form SB-2 filed on June 9, 200010.15
            
            Form
                of Hotel Revenue-Sharing Lease Agreement
            
            Incorporated
                by reference to Form SB-2 filed on June 9, 200010.16
            
            Form
                of Noncompetition and Nondisclosure Agreement (Sales)
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.17
            
            Form
                of Consulting Agreement
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.18
            
            Form
                of Sales Representation Agreement
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 2000




-36-




10.19
            
            Form
                of Executive Employment Agreement
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.2
            
            Form
                of Offshore Loan Subscription Agreement dated as of April 13, 2000
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.21
            
            Form
                of Secured Subordinated Promissory Note dated as of April 13, 2000
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.22
            
            Form
                of Installation, Co-Maintenance and Software Licensing and Upgrade
                Agreement
            
            Incorporated
                by reference to Form SB-2 filed on June 9, 200010.23
            
            Master
                Business Lease Financing Agreement by and among AMRESCO Leasing
                Corporation, eRoomSystem SPE, Inc., RoomSystems, Inc. and eRoomSystem
                Technologies, Inc. dated May 11, 2000
            
            Incorporated
                by reference to Pre-effective Amendment No. 3 of Form SB-2 filed
                on July
                19, 200010.3
            
            Shareholders'
                Agreement and Proxy by and among Ash Capital, LLC, RoomSystems, Inc.
                and
                certain stockholders of RoomSystems, Inc. dated August 17,
                1999
            
            Incorporated
                by reference to Form SB-2 filed on April 14, 200010.35
            
            Amended
                and Restated Master Business Lease Financing Agreement by and among
                AMRESCO Leasing Corporation, eRoomSystem SPE, Inc., RoomSystems,
                Inc. and
                eRoomSystem Technologies, Inc. dated February 23, 2001
            
            Incorporated
                by reference to Form 10-KSB filed on April 2, 200110.38
            
            Stock
                Purchase Agreement by and between eRoomSystem Technologies, Inc.
                and Ash
                Capital, LLC dated November 8, 2002
            
            Incorporated
                by reference to Form 10-QSB filed on November 14, 200210.39
            
            Secured
                Convertible Promissory Note issued in favor of Ash Capital, LLC dated
                November 8, 2002.
            
            Incorporated
                by reference to Form 10-QSB filed on November 14, 200210.41
            
            Amendment
                Agreement between eRoomSystem Technologies, Inc., eRoomSystem Services,
                Inc., eRoomSystem SPE, Inc., RSi BRE, Inc., AMRESCO Commercial Finance,
                Inc., AMRESCO Leasing Corporation and Gestetner Group, LLC dated
                October
                1, 2003
            
            Incorporated
                by reference to Form 10-KSB filed on March 30, 200410.43
            
            Warrant
                to Purchase Shares of Common Stock issued in favor of AMRESCO Commercial
                Finance, Inc. dated October 1, 2003
            
            Incorporated
                by reference to Form 10-KSB filed on March 30, 200410.44
            
            Warrant
                to Purchase Shares of Common Stock issued in favor of Ash Capital,
                LLC
                dated October 1, 2003
            
            Incorporated
                by reference to Form 10-KSB filed on March 30, 200410.46
            
            Investors
                Rights Agreement between eRoomSystem Technologies, Inc., Ash Capital,
                LLC,
                and certain security holders dated October 1, 2003
            
            Incorporated
                by reference to Form 10-KSB filed on March 30, 200410.47
            
            Termination
                and Release Agreement between eRoomSystem Technologies, Inc. and
                David S.
                Harkness dated October 1, 2003.
            
            Incorporated
                by reference to Form 10-KSB filed on March 30, 200410.48
            
            Termination
                and Release Agreement between eRoomSystem Technologies, Inc. and
                Gregory
                L. Hrncir dated October 1, 2003.
            
            Incorporated
                by reference to Form 10-KSB filed on March 30, 200410.5
            
            Termination
                and Release Agreement between eRoomSystem Technologies, Inc. and
                Derek K.
                Ellis dated October 1, 2003
            
            Incorporated
                by reference to Form 10-KSB filed on March 30, 200410.74
            
            Secured
                Promissory Note issued in favor of eRoomSystem Technologies, Inc.
                by
                Identica Corporation dated May 23, 2005
            
            Incorporated
                by reference to Form 8-K filed on May 25, 200510.75
            
            Security
                Agreement by and between eRoomSystem Technologies, Inc. and Identica
                Corporation dated May 23, 2005.
            
            Incorporated
                by reference to Form 8-K filed on May 25, 200510.76
            
            Warrant
                issued in favor of eRoomSystem Technologies, Inc. by Identica Corporation
                dated May 23, 2005.
            
            Incorporated
                by reference to Form 8-K filed on May 25, 200510.77
            
            Asset
                Purchase Agreement between eRoomSystem Technologies, Inc. and Identica
                Corporation dated September 7, 2005
            
            Incorporated
                by reference to Form 8-K filed on September 13, 200510.78
            
            Professional
                Services Agreement between eRoomSystem Technologies, Inc. and Identica
                Corporation dated September 7, 2005
            
            Incorporated
                by reference to Form 8-K filed on September 13, 200510.79
            
            Settlement
                Agreement by and between eRoomSystem Technologies, Inc. and Hall
                Communications Inc. dated December 31, 2001.
            
            Incorporated
                by reference to Form SB-2/A filed on August 30, 200610.8
            
            Employment
                Agreement of David Gestetner dated as of January 1, 2007
            
            Incorporated
                by reference to Form 10-KSB filed on March 29, 200721.01
            
            List
                of Subsidiaries
            
            Incorporated
                by reference to Form 10-KSB filed on March 31, 200631
            
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith32
            
            Certification
                Pursuant to 18 U.S.C. Section 1350 as adopted by Section 906 of the
                Sarbanes-Oxley Act of 2002
            
            Filed
                herewith




-37-




**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.**





The
      information required by this item is as follows:





Hansen,
      Barnett & Maxwell, P.C., or HB&M, has served as our independent
      registered public accounting firm since 2000, and specifically for the fiscal
      years ended December 31, 2007 and 2006. HB&M was selected by our board of
      directors as our independent registered public accounting firm for the fiscal
      year ended December 31, 2007, and by our board of directors and a majority
      of
      our common stockholders for the fiscal year ended December 31,
      2004.





Our
      board
      is responsible for pre-approving all audit and permissible non-audit services
      provided by HB&M. Our board of directors has concluded that the non-audit
      services provided by HB&M are compatible with maintaining auditor
      independence. In 2007, no fees were paid to HB&M pursuant to the "de
      minimus" exception to the pre-approval policy permitted under the Exchange
      Act.





**Audit
      Committee's Pre-Approval Policies**





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





For
      the
      fiscal years ended December 31, 2007 and 2006, the fees for services provided
      by
      HB&M were as follows:




**2007**
              
              **2006**Audit
                  fees (1)
              
              $
              30,000
              
              $
              38,110Audit-related
                  fees (2)
              
              
              -Tax
                  fees (3)
              
              
              -
              
              
              -All
                  other fees
              
              
              -
              
              
              -$
              30,000
              
              $
              38,110


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





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





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




-38-


**SIGNATURES**





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





**eRoomSystem
                Technologies, Inc.**By:
            /s/
                David A. GestetnerName:
            David
                A. GestetnerTitle:
            President,
                Chief Executive Officer, Secretary and
                Chairman
                  of the BoardDate:
            March
                13, 2008




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




**Signature**
              
              **Title**
              
              **Date**President,
                  Chief Executive Officer,/s/
                  David A. Gestetner
              
              Secretary
                  and Chairman of the Board
              
              March
                  13, 2008David
                  A. Gestetner
              
              (Principal
                  Executive Officer and Principal
                  Financial
                    and Accounting Officer)/s/
                  Herbert A. Hardt
              
              Director
              
              March
                  13, 2008Herbert
                  A. Hardt/s/
                  James C. Savas
              
              Director
              
              March
                  13, 2008James
                  C. Savas/s/
                  Lawrence K. Wein
              
              Director
              
              March
                  13, 2008Lawrence
                  K. Wein
  -39-