UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




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





For the
quarterly period ended June 30, 2010





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





For the
transition period from _____________   To __________





Commission
file number 000-31037





eRoomSystem
Technologies, Inc.


(Name of
small business issuer in its charter)




Nevada
              
              87-0540713(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)1072
      Madison Ave., Lakewood, NJ
              
              08701(Address and telephone number of principal executive offices)
              
              (Zip
      Code)Issuer’s
      telephone number: (732) 730-0116





Securities
      registered pursuant to Section 12(b) of the Act:Title
      of each class
              Name
      of each exchange on which
registered





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


Common
Stock, $.001 par value


(Title of
each class)





(Title of
each class)





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x       No  ̈




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





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





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




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





Yes  o No  x




The
number of shares of the issuer’s common stock issued and outstanding as of
August 6, 2010 was 23,907,865 shares.








TABLE
OF CONTENTS





PART
      I - FINANCIAL INFORMATION
                1Item
      1. Financial Statements
                1Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations.
                8Item 3. Quantitative and Qualitative
      Disclosures About Market Risk.
                13Item
      4(T).  Controls and Procedures
                13PART
      II - OTHER INFORMATION
                14Item
      1. Legal Proceedings.
                14Item
      1A. Risk Factors.
                14Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
                14Item
      3. Defaults Upon Senior Securities.
                14Item
      4. Removed and Reserved.
                14Item
      5. Other Information.
                14Item
      6. Exhibits.
                14




-ii-





PART
I - FINANCIAL INFORMATION


Item
1. Financial Statements


eROOMSYSTEM TECHNOLOGIES, INC. AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)





June
      30,
                            
                            
                            December
      31,2010
                            
                            
                            2009ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                            
                            $
                            2,021,820
                            
                            
                            $
                            2,302,620Investment
      in certificate of deposit
                            
                            
                            104,403
                            
                            
                            
                            -Investment
      in equity securities available for sale
                            
                            
                            85,000
                            
                            
                            
                            -Investment
      in real property tax liens, at cost, net of $5,000 loan loss
      allowance
                            
                            
                            82,280
                            
                            
                            
                            -Accounts
      receivable, net of allowance for doubtful accounts of  $20,765
      at June 30, 2010 and $19,087 at December 31, 2009
                            
                            
                            117,669
                            
                            
                            
                            105,826Inventory
                            
                            
                            86,133
                            
                            
                            
                            75,911Advance
      to supplier
                            
                            
                            51,025
                            
                            
                            
                            53,011Note
      receivable
                            
                            
                            522,438
                            
                            
                            
                            522,685Prepaid
      expenses
                            
                            
                            11,404
                            
                            
                            
                            18,716Total
      Current Assets
                            
                            
                            3,082,172
                            
                            
                            
                            3,078,769PROPERTY
      AND EQUIPMENTComputer
      and office equipment, net of accumulated depreciation of $19,111 at June
      30, 2010 and $11,971 at December 31, 2009
                            
                            
                            72,561
                            
                            
                            
                            4,801INTANGIBLE ASSETS,net
      of accumulated amortization of $2,532 at June 30, 2010 and $1,688 at
      December 31, 2009
                            
                            
                            2,532
                            
                            
                            
                            3,376DEPOSITS
                            
                            
                            4,950
                            
                            
                            
                            4,950Total
      Assets
                            
                            $
                            3,162,215
                            
                            
                            $
                            3,091,896LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                            
                            $
                            10,450
                            
                            
                            $
                            25,037Accrued
      liabilities
                            
                            
                            63,900
                            
                            
                            
                            94,640Customer
      deposits
                            
                            
                            2,004
                            
                            
                            
                            2,004Total
      Current Liabilities
                            
                            
                            76,354
                            
                            
                            
                            121,681Total
      Liabilities
                            
                            
                            76,354
                            
                            
                            
                            121,681STOCKHOLDERS'
      EQUITYPreferred
      stock, $0.001 par value; 5,000,000 shares authorized; none
      outstanding
                            
                            
                            -
                            
                            
                            
                            -Common
      stock, $0.001 par value; 50,000,000 shares authorized; 23,907,865
      sharesoutstanding
      at June 30, 2010 and 23,832,865 shares at December 31,
2009
                            
                            
                            23,908
                            
                            
                            
                            24,123Additional
      paid-in capital
                            
                            
                            34,156,703
                            
                            
                            
                            34,079,467Treasury
      stock at cost; 0 shares at June 30, 2010 and 290,300shares
      at December 31, 2009
                            
                            
                            -
                            
                            
                            
                            (38,453
                            )Warrants
      and options outstanding
                            
                            
                            -
                            
                            
                            
                            103,123Accumulated
      deficit
                            
                            
                            (31,179,750
                            )
                            
                            
                            (31,148,045
                            )Accumulated
      other comprehensive income (loss)
                            
                            
                            85,000
                            
                            
                            
                            (50,000
                            )Total
      Stockholders' Equity
                            
                            
                            3,085,861
                            
                            
                            
                            2,970,215Total
      Liabilities and Stockholders' Equity
                            
                            $
                            3,162,215
                            
                            
                            $
                            3,091,896





See
accompanying notes to condensed consolidated financial
statements


-1-


eROOMSYSTEM TECHNOLOGIES, INC. AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)





For the Three Months
                          Ended June 30,
                        
                        
                        For the Six Months
                          Ended June 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009REVENUE
      AND INVESTMENT INCOME (LOSSES)Product
      sales
                        
                        $
                        219,106
                        
                        
                        $
                        23,073
                        
                        
                        $
                        409,986
                        
                        
                        $
                        40,106Maintenance
      fees
                        
                        
                        49,668
                        
                        
                        
                        33,372
                        
                        
                        
                        99,552
                        
                        
                        
                        75,828Revenue-sharing
      arrangements
                        
                        
                        -
                        
                        
                        
                        67,199
                        
                        
                        
                        -
                        
                        
                        
                        148,815Interest
      income
                        
                        
                        22,638
                        
                        
                        
                        35,942
                        
                        
                        
                        53,052
                        
                        
                        
                        73,735Loss
      from other-than-temporary decline in equity securities
                        
                        
                        (50,000
                        )
                        
                        
                        -
                        
                        
                        
                        (50,000
                        )
                        
                        
                        -Total
      Revenue and Investment Income (Losses)
                        
                        
                        241,412
                        
                        
                        
                        159,586
                        
                        
                        
                        512,590
                        
                        
                        
                        338,484COST
      OF REVENUEProduct
      sales
                        
                        
                        117,703
                        
                        
                        
                        17,361
                        
                        
                        
                        251,770
                        
                        
                        
                        32,755Maintenance
                        
                        
                        7,378
                        
                        
                        
                        -
                        
                        
                        
                        23,135
                        
                        
                        
                        7,623Revenue-sharing
      arrangements
                        
                        
                        -
                        
                        
                        
                        21,449
                        
                        
                        
                        -
                        
                        
                        
                        46,951Total
      Cost of Revenue
                        
                        
                        125,081
                        
                        
                        
                        38,810
                        
                        
                        
                        274,905
                        
                        
                        
                        87,329OPERATING
      EXPENSESSelling,
      general and administrative expense, including non-cashcompensation
      of $11,250, $16,207, $12,351 and $19,096,respectively
                        
                        
                        117,421
                        
                        
                        
                        114,628
                        
                        
                        
                        236,367
                        
                        
                        
                        243,217Research
      and development expense
                        
                        
                        31,295
                        
                        
                        
                        5,085
                        
                        
                        
                        33,023
                        
                        
                        
                        5,085Net
      Operating Expenses
                        
                        
                        148,716
                        
                        
                        
                        119,713
                        
                        
                        
                        269,390
                        
                        
                        
                        248,302Net
      Income (Loss)
                        
                        
                        (32,385
                        )
                        
                        
                        1,063
                        
                        
                        
                        (31,705
                        )
                        
                        
                        2,853OTHER
      COMPREHENSIVE INCOMEUnrealized
      holding gains on investment in equity securities
                        
                        
                        85,000
                        
                        
                        
                        -
                        
                        
                        
                        85,000
                        
                        
                        
                        -Reclassification
      adjustment for losses included in operations
                        
                        
                        50,000
                        
                        
                        
                        -
                        
                        
                        
                        50,000
                        
                        
                        
                        -Comprehensive
      Income
                        
                        $
                        102,615
                        
                        
                        $
                        1,063
                        
                        
                        $
                        103,295
                        
                        
                        $
                        2,853Basic
      Earnings (Loss) per Common Share
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -Diluted
      Earnings (Loss) per Common Share
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -





See
accompanying notes to condensed consolidated financial
statements


-2-





eROOMSYSTEM TECHNOLOGIES, INC. AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)





For the Six Months
                      Ended June 30,2010
                    
                    
                    2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                    
                    $
                    (31,705
                    )
                    
                    $
                    2,853Adjustments
      to reconcile net income (loss) to net cash provided by (used
      in)operating
      activities:Depreciation
      and amortization
                    
                    
                    7,984
                    
                    
                    
                    49,096Loan
      loss allowance on investment in real property tax liens
                    
                    
                    5,000
                    
                    
                    
                    -Gain
      on sale of refreshment centers
                    
                    
                    -
                    
                    
                    
                    (1,250
                    )Loss
      from other-than-temporary decline in equity securities
                    
                    
                    50,000Noncash
      compensation expense
                    
                    
                    12,351
                    
                    
                    
                    19,096Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    (11,843
                    )
                    
                    
                    (11,880
                    )Accrued
      interest receivable
                    
                    
                    247
                    
                    
                    
                    (12,343
                    )Inventory
                    
                    
                    (10,222
                    )
                    
                    
                    -Advance
      to supplier
                    
                    
                    1,986
                    
                    
                    
                    -Prepaid
      expenses
                    
                    
                    7,312
                    
                    
                    
                    29,096Accounts
      payable
                    
                    
                    (14,587
                    )
                    
                    
                    (18,180
                    )Accrued
      liabilities
                    
                    
                    (30,740
                    )
                    
                    
                    (5,765
                    )Customer
      deposits and deferred maintenance revenue
                    
                    
                    -
                    
                    
                    
                    (2,292
                    )Net
      Cash Provided By (Used In) Operating Activities
                    
                    
                    (14,217
                    )
                    
                    
                    48,431CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                    
                    
                    (74,900
                    )
                    
                    
                    (2,648
                    )Proceeds
      from sale of refreshment centers
                    
                    
                    -
                    
                    
                    
                    39,250Purchase
      of investment in real property tax liens
                    
                    
                    (107,862
                    )
                    
                    
                    -Proceeds
      from collections of real property tax liens
                    
                    
                    20,582
                    
                    
                    
                    -Purchase
      of investment in certificate of deposit
                    
                    
                    (104,403
                    )
                    
                    
                    -Change
      in long-term deposits
                    
                    
                    -
                    
                    
                    
                    (900
                    )Net
      Cash Provided by (Used In) Investing Activities
                    
                    
                    (266,583
                    )
                    
                    
                    35,702Net
      Increase (Decrease) in Cash
                    
                    
                    (280,800
                    )
                    
                    
                    84,133Cash
      and Cash Equivalents at Beginning of Period
                    
                    
                    2,302,620
                    
                    
                    
                    2,135,814Cash
      and Cash Equivalents at End of Period
                    
                    $
                    2,021,820
                    
                    
                    $
                    2,219,947





See
accompanying notes to condensed consolidated financial statements




-3-


eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




NOTE
1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





Condensed
Financial Statements - The accompanying unaudited condensed consolidated
financial statements include the accounts of eRoomSystem Technologies, Inc. and
its wholly-owned subsidiaries (the "Company"). Intercompany accounts and
transactions have been eliminated in consolidation. These financial statements
are condensed and, therefore, do not include all disclosures normally required
by generally accepted accounting principles. These statements should be read in
conjunction with the Company's annual financial statements for the fiscal year
ended December 31, 2009 included in the Company's Annual Report on Form 10-K. In
particular, the Company's organization, nature of operations and significant
accounting principles were presented in Note 1 to the consolidated financial
statements in that annual report. In the opinion of management, all adjustments
necessary for a fair presentation have been included in the accompanying
unaudited condensed consolidated financial statements and consist of only normal
recurring adjustments. The results of operations presented in the accompanying
unaudited condensed consolidated financial statements for the six and three
months ended June 30, 2010 are not necessarily indicative of the results that
may be expected for the full year ending December 31, 2010.





Cash and Cash
Equivalents – Cash and cash equivalents include highly-liquid debt
investments with original maturities of three months or less, readily
convertible to known amounts of cash. At June 30, 2010, the Company had cash in
excess of federally insured limits of $286,963.





Earnings (Loss)
Per Common Share - Basic earnings (loss) per common share is computed by
dividing net income (loss) by the weighted-average number of shares of common
stock outstanding during the period. Diluted earnings (loss) per common share is
computed by dividing net income (loss) by the weighted-average number of shares
of common stock and dilutive potential common stock equivalents outstanding
during the period. Potential common stock equivalents consist of shares issuable
upon the exercise of stock options and warrants.




The
following table is a reconciliation of the numerators and denominators used in
the calculation of basic and diluted weighted-average common shares outstanding
for the three and six months ended June 30, 2010 and
2009:





For the Three Months
                    Ended June 30,
                  
                  
                  For the Six Months
                    Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net income (loss)
                  
                  $
                  (32,385
                  )
                  
                  $
                  1,063
                  
                  
                  $
                  (31,705
                  )
                  
                  $
                  2,853Basic
      weighted-average common shares outstanding
                  
                  
                  23,854,294
                  
                  
                  
                  24,104,209
                  
                  
                  
                  23,843,638
                  
                  
                  
                  24,076,342Effect
      of dilutive securities:Stock
      options and warrants
                  
                  
                  -
                  
                  
                  
                  3,333
                  
                  
                  
                  -
                  
                  
                  
                  3,333Diluted
      weighted-average common shares outstanding
                  
                  
                  23,854,294
                  
                  
                  
                  24,107,542
                  
                  
                  
                  23,843,638
                  
                  
                  
                  24,079,675Basic
      earnings (loss) per share
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Diluted
      earnings (loss) per share
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -





During the three and six months ended June 30, 2010, there
were 2,270,844 potential common stock equivalents from options and warrants and
during the three and six months ended June 30, 2009, there were 2,202,511
potential common stock equivalents from options and warrants that were not
included in the computation of diluted earnings (loss) per share because their
effect would have been anti-dilutive.




Reclassifications
– Certain reclassifications have been made to the 2009 condensed financial
statements to conform to the 2010 presentation. The reclassifications had no
effect on net income for the three or six months ended June 30,
2009.





NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS





Disclosures about
Fair Value Measurements–In January 2010, the FASB
issued guidance that will require the Company to present separately information
about purchases, sales, issuances and settlements, on a gross basis, in the
reconciliation of fair value measurements using significant unobservable inputs
(Level 3). This guidance is effective for fiscal years beginning after December
15, 2010.  The Company is currently evaluating this guidance and does
not expect that the adoption of this guidance to have a material effect on the
Company.




-4-


NOTE
2 - BUSINESS CONDITION




During
the year ended December 31, 2009 and the six months ended June 30, 2010, the
Company realized a net loss of $137,649 and $31,705, respectively. During the
year ended December 31, 2009 and the six months ended June 30, 2010, the
Company's operations used $55,616 and $14,217 of cash, respectively. The Company
had a cash balance of $2,021,820 as of June 30, 2010. The Company realized a net
loss in the six months ended June 30, 2010 and there is no assurance that the
Company will not continue to suffer losses in the future. The Company’s
remaining hotel maintenance contracts are concluding; however, the Company has
additional contracts with hotels due to the recent purchase of the Kooltech
refreshment centers. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern. Management plans to
acquire an existing operating company to enable the Company to increase revenues
and long-term viability. The Company has also been performing research regarding
potential further investments in either privately-held or publicly traded
emerging growth stage companies. There is no assurance that a viable operating
company or investment can be purchased under terms acceptable to the
Company.





NOTE
3 – INVESTMENTS





Investment in
Certificate of Deposit– At June 30, 2010, the Company had invested in an
unsecured certificate of deposit issued by a bank in the amount of $104,403 that
earns interest at 0.995% and matures on January 9, 2011.





Investment in
Equity Securities Available for Sale– As discussed further in Note 5,
the Company was issued 50,000 shares of stock in Blackbird Corporation in July
2008. On June 7, 2010, Blackbird entered into a share exchange with RPID later
renamed Spot Mobile International Ltd (“Spot Mobile”). The 50,000 shares of
common stock of Blackbird were exchanged for 1,700,000 restricted shares of
common stock of Spot Mobile. Spot Mobile’s common stock is publicly traded and
had a market value of $0.05 per share on June 30, 2010. Therefore, the Company
recorded an $85,000 unrealized gain on the Spot Mobile common stock during the
three months ended June 30, 2010, which gain is included in other comprehensive
income.





During
the year ended December 31, 2007, the Company reduced the carrying value of its
investment in Aprecia, Inc. to zero through a $50,000 charge to other
comprehensive loss. During the three months ended June 30, 2010, the Company
determined that Aprecia, Inc. was no longer an operating company, that the
decline in value of this investment was other than temporary and recognized the
$50,000 loss in operations.





Investments
in equity securities as of June 30, 2010 are summarized below:





Cost
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      FairEquity Securities
                      
                      Basis
                      
                      
                      Gains
                      
                      
                      Losses
                      
                      
                      ValueSpot
      Mobile
                      
                      $
                      -
                      
                      
                      $
                      85,000
                      
                      
                      $
                      -
                      
                      
                      $
                      85,000





At June
30, 2010, accumulated other comprehensive income consisted solely of the
unrealized holding gain from the investment in Spot Mobile.





Investment in
Real Property Tax Liens – During the six months ended June 30, 2010, the
Company purchased $107,862 in real property tax liens from various
municipalities in New Jersey. Through June 30, 2010, the Company had collected
$20,582 in tax lien settlements. The New Jersey municipal tax liens are
receivable from the real property owners and are secured by a first priority
lien on the related real property. Upon foreclosure, the Company would obtain
ownership of the real property. The tax lien receivables accrue interest up to
18% per annum, accrue penalties at 2% to 6% per annum and are also increased by
the amount of any collection expenses incurred. The investment in the real
property tax liens are accounted for as an investment in troubled debts and are
carried at cost. Collection of interest, penalties and expense reimbursements is
not certain and is recognized upon being realized. Although the value of the
underlying real property is estimated to exceed the carrying value of the tax
lien receivable and it is therefore unlikely that the Company will suffer any
loan losses on the investments, the Company has created a loan loss allowance on
investment in real property tax liens of $5,000.





NOTE
4 - INVENTORY





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




NOTE
5 – NOTE RECEIVABLE





On July
24, 2008, the Company extended a loan in the amount $500,000 to Blackbird
Corporation (“Blackbird”). The loan is evidenced by a 10% senior secured
convertible promissory note  made by Blackbird in favor of the Company
(the “Secured Note”). In addition, Blackbird issued 50,000 shares of its common
stock to the Company. On the date of issuance and since that date, the fair
value of Blackbird’s common stock was not determinable and the shares were
valued at zero. The Secured Note was extended to December 31, 2010. The interest
rate increased to 18% after December 31, 2008, with interest payable quarterly
on the last business day of each quarter. The carrying amount of the Secured
Note was increased by $22,192 of accrued interest in an earlier quarter.
Blackbird is current in its interest payments under the current requirements of
the extended loan.




-5-


The note
receivable is evaluated for impairment on a quarterly basis. If projections were
to indicate that the carrying value of the promissory note were not recoverable,
the carrying value would be reduced by the estimated excess of the carrying
value over the projected discounted cash flows. The Blackbird promissory note
was evaluated for impairment as of June 30, 2010 and no impairment was deemed
necessary.





NOTE
6 – PURCHASE OF ASSETS





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





In
addition, the Company agreed that in the event eFridge or any other subsidiary
of the Company purchases any new Kooltech equipment from the manufacturers
thereof or broker the sale of new Kooltech equipment or equipment materially
similar to Kooltech’s to third parties, the Company will pay to CPC an amount
equal to $30 per mini-bar and $15 per automated basket so purchased or brokered.
No payments have been made to CPC through June 30, 2010, as eFridge has not had
a positive EBITDA during the twelve months since the purchase date.





During
the six months ended June 30, 2010, the Company purchased vending machines for
placement in a hotel in the amount of $68,351. These machines are being
depreciated over a 7 year period.





NOTE
7 – FAIR VALUE MEASUREMENTS





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





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





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





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





The
Company uses fair value to measure certain assets and liabilities on a recurring
basis when fair value is the primary measure for accounting.  Fair
value is also used on a nonrecurring basis to measure certain assets when
applying lower of cost or market accounting or when adjusting carrying
values.  Fair value is also used when evaluating impairment on certain
assets, including goodwill, intangibles, and long-lived assets.




Following
is a description of the valuation methodologies used for assets measured at fair
value.  There have been no changes in the methodologies used at June
30, 2010.





Investment in Certificate of
Deposit – The investment in the certificate of deposit is based on quoted
prices for similar assets in active markets.





Investment in Equity Securities
Available for Sale – The investment in equity securities available for
sale is based on quoted prices in active markets for identical
assets.





The
methods described above may produce a fair value calculation that may not be
indicative of net realizable value or reflective of future fair values.
Furthermore, while the Company believes its valuation methods are appropriate
and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting
date.





The
following tables set forth by level, within the fair value hierarchy, the
estimated fair values of the Company’s financial assets measured on a recurring
basis as of June 30, 2010:


-6-





Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  TotalInvestment
      in Certificate of Deposit
                  
                  $
                  -
                  
                  
                  $
                  104,403
                  
                  
                  $
                  -
                  
                  
                  $
                  104,403Investment
      in Equity Securities Available for Sale
                  
                  
                  85,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  85,000Total
      assets measured at fair value
                  
                  $
                  85,000
                  
                  
                  $
                  104,403
                  
                  
                  $
                  -
                  
                  
                  $
                  189,403





NOTE
8 – CHANGES TO REVENUE





During
the six months ended June 30, 2010, the Company’s revenue shifted from being
primarily revenue sharing arrangements to one of product sales. The Company has
added some hotels through the purchase of KoolTech’s refreshment centers through
which the Company provides a turnkey solution to those hotels. The Company
provides drinks as well as other refreshments in the refreshment centers and the
sale of these products to the Hotel guests using the auspices of the Hotel is
accounted for as product sales. The Company has a number of one year contracts
with the Hotels in this regards, all of which expire in the next few
months.





Given the
Company’s change in focus on investing in third party emerging growth companies
as well loaning money to same, interest income was reclassified to revenue
during the three and six months ended June 30, 2010 and 2009. Interest and other
income for the six months ended June 30, 2010 was $53,052.





NOTE
9 - STOCKHOLDERS’ EQUITY





Based on
guidance issued by the Financial Accounting Standards Board, options and
warrants outstanding were reclassified to additional paid-in capital on January
1, 2010. During the six months ended June 30, 2010, the Company constructively
retired 290,300 shares of common stock from treasury stock to common stock and
additional paid in capital. The Company had repurchased the shares in previous
periods under its repurchase program.





During
the six months ended June 30, 2010, the Company granted options to purchase
7,500 shares of common stock to an employee for services rendered. These
options, which vested immediately, have an exercise price of $0.18 per share and
are exercisable through March 22, 2015. These options were valued at $1,101
using the Black-Scholes option pricing model with the following assumptions:
risk free interest rate ranging of 2.65%, dividend yield of 0.0%, volatility
ranging of 115% and expected life of 5 years. Compensation expense of $1,101
recognized during the three months ended June 30, 2010.





On June
4, 2010, the Company issued 75,000 shares of common stock to its Board of
Directors in recognition of services rendered. These shares were valued at
$11,250 ($0.15 per share).





A summary
of stock option and warrant activity for the six months ended June 30, 2010 is
as follows:


Options and
                                                Warrants
                                              
                                              
                                              Exercise Price Range
                                              
                                              
                                              Weighted -
                                                Average Exercise
                                                PriceBalance,
      December 31, 2009
                                              
                                              
                                              2,263,344
                                              
                                              
                                              $
                                              0.10
                                              
                                              -
                                              
                                              $
                                              1.55
                                              
                                              
                                              $
                                              0.32Granted
                                              
                                              
                                              7,500
                                              
                                              
                                              
                                              0.18
                                              
                                              
                                              
                                              
                                              0.18
                                              
                                              
                                              
                                              0.18Balance,  June
      30, 2010
                                              
                                              
                                              2,270,844
                                              
                                              
                                              $
                                              0.10
                                              
                                              -
                                              
                                              $
                                              1.55
                                              
                                              
                                              $
                                              0.32Exercisable,
      June 30, 2010
                                              
                                              
                                              2,270,844
                                              
                                              
                                              $
                                              0.10
                                              
                                              -
                                              
                                              $
                                              1.55
                                              
                                              
                                              $
                                              0.32Weighted-average
      fair value of options granted during the period ended June 30,
      2010
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              0.18





The fair
value of stock options was determined at the grant dates using the Black-Scholes
option-pricing model with the following weighted-average assumptions for the six
months ended June 30, 2010: risk free interest rate ranging from 1.15% to 2.70%,
dividend yield of 0.0%, volatility ranging from 115% through 119.1% and expected
life ranging from 3 - 5 years. A summary of the options and warrants outstanding
and exercisable as of June 30, 2010 follows:





Outstanding
                
                
                ExercisableRange of
                  Exercise Prices
                
                Number
                  Outstanding
                
                Weighted - Average
                  Remaining
                  Contractual Life
                
                Weighted -
                  Average
                  Exercise Price
                
                
                Aggregate
                  Intrinsic Value
                
                
                Number
                  Exercisable
                
                
                Weighted -
                  Average
                  Exercise Price
                
                
                Aggregate
                  Intrinsic
                  Value$
      0.10 - 0.37
                
                
                2,257,201
                
                1.9
      years
                
                $
                0.31
                
                
                $
                18,054
                
                
                
                2,257,201
                
                
                $
                0.31
                
                
                $
                18,0540.90
      - 1.55
                
                
                13,643
                
                2.0
      years
                
                
                0.94
                
                
                
                -
                
                
                
                13,643
                
                
                
                0.94
                
                
                
                -$
      0.10 - 1.55
                
                
                2,270,844
                
                1.9
      years
                
                $
                0.32
                
                
                $
                18,054
                
                
                
                2,270,844
                
                
                $
                0.32
                
                
                $
                18,054


-7-


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




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





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





Forward-Looking
Statements





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




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




Overview




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





On July
24, 2008, we provided a secured loan to BlackBird Corporation, a Florida
corporation (“BlackBird”), an unrelated entity. The funding of the loan took
place on completion of a transaction by BlackBird to acquire an unrelated
company, USA Datanet Corporation. The acquisition took place on July 24, 2008.
The loan is evidenced by a 10% senior secured convertible promissory note, made
by BlackBird (the “Secured Note”). The Secured Note matured on June 30, 2009 and
the interest rate increased to 18% annually as of January 1, 2009, with interest
payable quarterly on the last business day of each quarter. An extension to the
note was provided through December 31, 2010 at an interest rate of
18%.





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





Our
existing products interface with the hotel's property management system through
our eRoomSystem communications network. The hotel's property management system
posts usage of our products directly to the hotel guest's room account. The
solutions offered by our eRoomSystem and related products have allowed us to
install our products and services in several premier hotel chains, including
Marriott International, Hilton Hotels and Carlson Hospitality Worldwide, in the
United States and internationally.





One of
the byproducts of our technology is the information we have collected since our
first product installation. To date, we have collected several million
room-nights of data. Through our eRoomSystem, we are able to collect information
regarding the usage of our products on a real-time basis. We use this
information to help our customers increase their operating
efficiencies.





Liquidity
and Capital Resources





At June
30, 2010, our principal sources of liquidity consisted of $2,021,820 of cash and
working capital of $3,005,818, as compared to $2,302,620 of cash and working
capital of $2,957,088 at December 31, 2009. In addition, our stockholders'
equity was $3,085,861 at June 30, 2010, compared to stockholders' equity of
$2,970,215 at December 31, 2009, an increase of $115,646. The decrease in cash
primarily reflects the payment some accrued liabilities as well as purchase of
fixed assets and an investment.




-8-




Our
accumulated deficit increased from $31,148,045 at December 31, 2009 to
$31,179,750 at June 30, 2010. The $31,705 increase in accumulated deficit
resulted directly from the net loss realized for the six months ended June 30,
2010. Our accumulated deficit may increase in the future as existing maintenance
agreements with our hotel clients expire and if we don’t succeed in bringing our
new Kooltech equipment up to par.




Cash flow
used in operations for the six months ended June 30, 2010 was $14,217
as compared to $48,431 provided for the same period ended June 30,
2010.




Investing
activities for the six months ended June 30, 2010 used net cash of $266,583,
compared to $35,702 of net cash provided during the six months ended June 30,
2009.




There
were no financing activities in the six months ended June 30, 2010 and
2009.





Results of Operations





Description
of Revenues




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





Our
dependence on the lodging industry, including its guests, makes us extremely
vulnerable to downturns in the lodging industry caused by the general economic
environment. Such a downturn could result in fewer purchases by hotel guests of
goods and services from our products installed in hotels, and accordingly lower
revenues where our products are placed. Time spent by individuals on travel and
leisure is often discretionary for consumers and may be particularly affected by
adverse trends in the general economy. The success of our operations depends, in
part, upon discretionary consumer spending and economic conditions affecting
disposable consumer income such as employment, wages and salaries, business
conditions, interest rates, availability of credit and taxation.




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





Our
revenues over the past years have been declining as we have focused on service
and maintenance of our existing installed products and have not installed new
products at hotels and as existing revenue sharing agreements conclude. Recently
however, we have taken over the operation of Kooltech minibars located in
various hotels. Additionally, in 2005 we commenced our diversification strategy
to invest in emerging growth companies. We continue to explore opportunities and
perform due diligence on third parties with respect to additional potential
investments. At this time, we have not reached a definitive agreement to make
further investments. In addition, we may acquire an operating company in the
future if the opportunity arises. Over time, we may realize revenues from the
sale of securities purchased from third party companies, if applicable. The
timing and return on such investments, however, cannot be
assured.





Revenue
Recognition




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





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





Sales
revenue from the placement of our refreshment centers and safes under our
revenue-sharing program are accounted for similar to an operating lease, with
the revenues recognized as earned over the term of the
agreement.


-9-





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




Our
installation, maintenance and license agreements stipulate that we collect a
maintenance fee per eRoomServ refreshment center per day, payable on a monthly
basis. Our objective is to generate gross profit margins of approximately 40%
from our maintenance-related revenues. We base this expectation on our
historical cost of maintenance of approximately $0.04 per unit per day and,
pursuant to our maintenance agreements, our projected receipt of generally not
less than $0.08 per unit per day.





Description
of Expenses




Cost of
product sales consists primarily of cost of goods and labor as well as remaining
basis on sale of old refreshment centers. Cost of revenue-sharing arrangements
consists primarily of depreciation of capitalized costs for the products placed
in service. We capitalize the production, shipping, installation and sales
commissions related to the eRoomServ refreshment centers, eRoomSafes, eRoomTrays
and eRoomEnergy management products placed under revenue-sharing agreements.
Cost of maintenance fee revenues primarily consists of expenses related to
customer support and maintenance.





Selling,
general and administrative expenses primarily consist of general and
administrative expenses including professional fees, salaries and related costs
for accounting, administration, finance, human resources, information systems
and legal personnel.





Research
and development expenses consist of payroll and related costs for hardware and
software engineers, quality assurance specialists, management personnel, and the
costs of materials used by our consultants in the maintenance of our existing
installed products as well as research and development for new products.
Research and development expenses in the six months ended June 30, 2010 and 2009
were $33,023 and $5,085, respectively.




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





Comparison
of Three Months Ended June 30, 2010 and 2009




Revenues




Product
Sales — Revenue from product sales was $219,106 for the three months ended June
30, 2010, compared to $23,073 for the three months ended June 30, 2009,
representing an increase of $196,033, or 849.6%. The increase in product sales
revenues was primarily due to the sale of product in our new hotels in
agreements structured in the three months ended September 30, 2009 utilizing the
Kooltech refreshment centers.





Maintenance
Fees— Maintenance fees were $49,668 for the three months ended June 30, 2010,
compared to $33,372 for the three months ended June 30, 2009, representing an
increase of $16,296, or 48.8%. The increase in maintenance fee revenue was due
to maintenance services provided for a hotel added in 2009.





Revenue
Sharing Arrangements — Our revenue from revenue sharing arrangements was $0 for
the three months ended June 30, 2010, compared to $67,199 for the three months
ended June 30, 2009, representing a decrease of $67,199, or 100%. The decrease
in revenue sharing revenue was due to the completion of revenue sharing
contracts in 2009.




Interest
— Our income from interest was $22,638 for the three months ended June 30, 2010,
compared to $35,942 for the three months ended June 30, 2009, representing a
decrease of $13,304, or 37%. The decrease related to the sharply decreasing
interest rates. Revenue from interest was reclassified from operating expenses
to demonstrate that it is presently an integral part of our core business
plan.





Loss on
other than temporary decline in marketable securities — The loss represented the
write-off of an investment made in 2005 in Aprecia, Inc. in the amount of
$50,000. Aprecia is no longer an operating company and therefore, a loss was
recognized during the three months ended June 30, 2010.




Cost
of Revenue




Cost of
Product Sales Revenue — Our cost of product sales revenue for the three months
ended June 30, 2010 was $117,703, compared to $17,361 for the three months ended
June 30, 2009, an increase of $100,342, or 577.9%. The increase in cost of
product sales revenue relates to the cost of the minibar product sold and labor
provided in the three months ended June 30, 2010 versus the three months ended
June 30, 2009. We are presently providing a complete turnkey solution to the
hotels, which includes providing equipment labor and product for the Kooltech
equipment that we purchased in June, 2009.


-10-





Cost of
Maintenance Revenue — Our cost of maintenance revenue was $7,378 for the three
months ended June 30, 2010, compared to $0 for the three months ended June 30,
2009, representing an increase of $7,378, or 100%. The increase in our cost of
maintenance fee revenue was due to the servicing of Kooltech
equipment.





Cost of
Revenue Sharing Revenue — Cost of revenue sharing revenue was $0 for the three
months ended June 30, 2010, compared to $21,449 for the three months ended June
30, 2009 representing a decrease of $21,449 or 100%.




The
changes and percent changes with respect to our revenues and our cost of revenue
for the three months ended June 30, 2010 and 2009 are summarized as
follows:




For
      the Three MonthsEnded
      June 30,2010
                            
                            
                            2009
                            
                            
                            Change
                            
                            
                            Percent
                              ChangeREVENUE
      AND INVESTMENT INCOMEProduct
      sales
                            
                            $
                            219,106
                            
                            
                            $
                            23,073
                            
                            
                            $
                            196,033
                            
                            
                            
                            849.6
                            %Maintenance
      fees
                            
                            
                            49,668
                            
                            
                            
                            33,372
                            
                            
                            
                            16,296
                            
                            
                            
                            48.8
                            %Revenue-sharing
      arrangements
                            
                            
                            -
                            
                            
                            
                            67,199
                            
                            
                            
                            (67,199
                            )
                            
                            
                            -100.0
                            %Interest
      Income
                            
                            
                            22,638
                            
                            
                            
                            35,942
                            
                            
                            
                            (13,304
                            )
                            
                            
                            -37.0
                            %Loss
      on other than temporary decline in marketable securities
                            
                            
                            (50,000
                            )
                            
                            
                            -
                            
                            
                            
                            (50,000
                            )
                            
                            
                            100.0
                            %Total
      Revenue and Investment Income
                            
                            
                            241,412
                            
                            
                            
                            159,586
                            
                            
                            
                            81,826
                            
                            
                            
                            51.3
                            %COST
      OF REVENUEProduct
      sales
                            
                            
                            117,703
                            
                            
                            
                            17,361
                            
                            
                            
                            100,342
                            
                            
                            
                            578.0
                            %Maintenance
                            
                            
                            7,378
                            
                            
                            
                            -
                            
                            
                            
                            7,378
                            
                            
                            
                            100.0
                            %Revenue-sharing
      arrangements
                            
                            
                            -
                            
                            
                            
                            21,449
                            
                            
                            
                            (21,449
                            )
                            
                            
                            -100.0
                            %Total Cost of
      Revenue
                            
                            $
                            125,081
                            
                            
                            $
                            38,810
                            
                            
                            $
                            86,271
                            
                            
                            
                            222.3
                            %








Although
the preceding table summarizes the net changes and percent changes with respect
to our revenues and our cost of revenue for the three months ended June 30, 2010
and 2009, the trends contained therein are limited and should not be viewed as a
definitive indication of our future results.




Operating
Expenses




Selling,
General and Administrative — Selling, general and administrative expenses,
including non-cash compensation expense, were $117,421 for the three months
ended June 30, 2010, compared to $114,628 for the three months ended June 30,
2009, representing an increase of $2,793, or 2.4%. The increase in our selling,
general and administrative expenses was immaterial.




Research
and Development—Research and development expenses were $31,295 for the three
months ended June 30, 2010, compared to $5,085 for the three months ended June
30, 2009 representing an increase of $26,210. The increase in our research and
development expenses for the three months ended June 30, 2010 reflects an
increase in new product development in 2010.




Net
Income Attributable to Common Stockholders




We
realized a net loss of $32,385 for the three months ended June 30, 2010,
compared to net income of $1,063 during the three months ended June 30, 2009.
The $33,438 decrease in net income was primarily related to the write-off of an
investment. We may incur losses in the future as existing revenue sharing
agreements with our hotel clients continue expire and as we continue to bring
our recently purchased equipment up to par. There is no assurance that we will
be successful in bringing the equipment up to par.


-11-





Comparison
of Six Months Ended June 30, 2010 and 2009




Revenues




Product
Sales — Revenue from product sales was $409,986 for the six months ended June
30, 2010, compared to $40,106 for the six months ended June 30, 2009,
representing an increase of $369,880, or 922.3%. The increase in product sales
revenues was primarily due to the sale of product in our new hotels in
agreements structured in the three months ended September 30, 2009 utilizing the
Kooltech refreshment centers.





Maintenance
Fee Revenues — Maintenance fee revenues were $99,552 for the six months ended
June 30, 2010, compared to $75,828 for the six months ended June 30, 2009,
representing an increase of $23,724, or 31.3%. The increase in maintenance fee
revenue was due to maintenance services provided for a hotel added in
2009.





Revenue
Sharing Arrangements — Our revenue from revenue sharing arrangements was $0 for
the six months ended June 30, 2010, compared to $148,815 for the six months
ended June 30, 2009, representing a decrease of $148,815, or 100%. The decrease
in revenue sharing revenue was due to the completion of revenue sharing
contracts in 2009.





Interest
Income - Our revenue from interest and other income was $53,052 for the six
months ended June 30, 2010 as compared to $73,735 for the six months ended June
30, 2009, representing a decrease of $20,683, or 28.1%. The decrease related to
the sharply decreasing interest rates. Revenue from interest and other income
was reclassified from operating expenses to demonstrate that it is presently an
integral part of our core business plan.





Loss on
other than temporary decline in marketable securities — The loss represented the
write-off of an investment made in 2005 in Aprecia, Inc. in the amount of
$50,000. Aprecia is no longer an operating company and therefore, a loss was
recognized during the six months ended June 30, 2010.




Cost
of Revenue




Cost of
Product Sales Revenue — Our cost of product sales revenue for the six months
ended June 30, 2010 was $251,770, compared to $32,755 for the six months ended
June 30, 2009, an increase of $219,015 or 668.6%. The increase in cost of
product sales revenue relates to the cost of the minibar product sold and labor
provided in the six months ended June 30, 2010 versus the six months ended June
30, 2009. We are presently providing a complete turnkey solution to the hotels,
which includes providing equipment labor and product for the Kooltech equipment
that we purchased in June, 2009.




Cost of
Maintenance Fee Revenue — Our cost of maintenance fee revenue was $23,135 for
the six months ended June 30, 2010, compared to $7,623 for the six months ended
June 30, 2009, representing an increase of $15,512, or 203.5%. The increase in
our cost of maintenance fee revenue was due to the increased amount of equipment
being serviced.





Cost of
Revenue Sharing Revenue — Cost of revenue sharing revenue was $0 for the six
months ended June 30, 2010, compared to $46,951 for the six months ended June
30, 2009 representing a decrease of $46,951 or 100%.





The
changes and percent changes with respect to our revenues and our cost of revenue
for the six months ended June 30, 2010 and 2009 are summarized as
follows:


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For
      the Six MonthsEnded
      June 30,2010
                            
                            
                            2009
                            
                            
                            Change
                            
                            
                            Percent
                              ChangeREVENUE
      AND INVESTMENT INCOMEProduct
      sales
                            
                            $
                            409,986
                            
                            
                            $
                            40,106
                            
                            
                            $
                            369,880
                            
                            
                            
                            922.3
                            %Maintenance
      fees
                            
                            
                            99,552
                            
                            
                            
                            75,828
                            
                            
                            
                            23,724
                            
                            
                            
                            31.3
                            %Revenue-sharing
      arrangements
                            
                            
                            -
                            
                            
                            
                            148,815
                            
                            
                            
                            (148,815
                            )
                            
                            
                            -100.0
                            %Interest
      Income
                            
                            
                            53,052
                            
                            
                            
                            73,735
                            
                            
                            
                            (20,683
                            )
                            
                            
                            -28.1
                            %Loss
      on other than temporary decline in marketable securities
                            
                            
                            (50,000
                            )
                            
                            
                            -
                            
                            
                            
                            (50,000
                            )
                            
                            
                            100.0
                            %Total
      Revenue and Investment Income
                            
                            
                            512,590
                            
                            
                            
                            338,484
                            
                            
                            
                            174,106
                            
                            
                            
                            51.4
                            %COST
      OF REVENUEProduct
      sales
                            
                            
                            251,770
                            
                            
                            
                            32,755
                            
                            
                            
                            219,015
                            
                            
                            
                            668.6
                            %Maintenance
                            
                            
                            23,135
                            
                            
                            
                            7,623
                            
                            
                            
                            15,512
                            
                            
                            
                            203.5
                            %Revenue-sharing
      arrangements
                            
                            
                            -
                            
                            
                            
                            46,951
                            
                            
                            
                            (46,951
                            )
                            
                            
                            -100.0
                            %Total Cost of
      Revenue
                            
                            $
                            274,905
                            
                            
                            $
                            87,329
                            
                            
                            $
                            187,576
                            
                            
                            
                            214.8
                            %








Although
the preceding table summarizes the net changes and percent changes with respect
to our revenues and our cost of revenue for the six months ended June 30, 2010
and 2009, the trends contained therein are limited and should not be viewed as a
definitive indication of our future results.





Operating
Expenses




Selling,
General and Administrative — Selling, general and administrative expenses,
including non-cash compensation expense, were $236,367 for the six months ended
June 30, 2010, compared to $243,217 for the six months ended June 30, 2009,
representing a decrease of $6,850, or 2.8%. The decrease in our selling, general
and administrative expenses is immaterial.




Research
and Development—Research and development expenses were $33,023, for the six
months ended June 30, 2010, compared to $5,085 for the six months ended June 30,
2009 representing an increase of $27,938. The increase in our research and
development expenses for the six months ended June 30, 2010 reflects an increase
in new product development in 2010.




Net
Income/(Loss) Attributable to Common Stockholders




We
realized a net loss of $31,705 for the six months ended June 30, 2010, compared
to a net income of $2,853 during the six months ended June 30, 2009. The $34,558
decrease in net income was primarily due to the write-off of an
investment.





Contractual
Cash Obligations and Commercial Commitments




There
were no significant contractual cash obligations or commercial commitments
either on or off balance sheet as of June 30, 2010.





Off
Balance Sheet Arrangements





We have
no off-balance sheet arrangements.





Item 3. Quantitative and Qualitative
Disclosures About Market Risk.





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




Item
4(T).  Controls and Procedures




Evaluation
of Disclosure Controls and Procedures





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


-13-





Changes
in Internal Controls over Financial Reporting





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





PART
II - OTHER INFORMATION




Item
1. Legal Proceedings.




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




Item
1A. Risk Factors.





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





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




None




Item
3. Defaults Upon Senior Securities.




Not
applicable.





Item
4. Removed and Reserved.




Item
5. Other Information.




Not
applicable.





Item
6. Exhibits.




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


-14-


SIGNATURE




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




eRoomSystem
      Technologies, Inc.(Registrant)Date:
      August 16, 2010By:
            /s/
      David A. GestetnerName:
            David
      A. GestetnerTitle:
            President,
      Chief Executive Officer, Secretary,and
      Chairman of the Board(Principal
      Executive, Financial,and
      Accounting Officer)


-15-