**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-QSB**
  (Mark
        One)
 
 x
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  For
                  the quarterly period ended: June 30,
                  2007
  OR
  o
              **TRANSITION
                  REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  For
                  the transition period from: _______to
                  _______
 
 Commission
                  file number:  000-31037
 
 eRoomSystem
        Technologies, Inc.
 (Exact
        name of small business issuer as specified 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
                  of principal executive offices)(732)
                  730-0116(Issuer’s
                  telephone number)
 
 (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.
 YES x NO o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 YES o NO x
  The
        number of shares outstanding of the issuer’s common stock as of August 9, 2007
        was 23,973,165 shares of common stock.
 
 Transitional
        Small Business Disclosure Format (check one):  YES o NO x
 
 *-i-*
  **FORM
        10-QSB**
 **TABLE
        OF CONTENTS**
 PART
                  I - FINANCIAL INFORMATION
              
              1ITEM
                  1. FINANCIAL STATEMENTS
              
              1Condensed
                  Consolidated Balance Sheets (Unaudited)
              
              1Condensed
                  Consolidated Statements of Operations (Unaudited)
              
              2Condensed
                  Consolidated Statements of Cash Flows (Unaudited)
              
              3Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              
              4ITEM
                  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
                  OPERATION
              
              6ITEM
                  3. CONTROLS AND PROCEDURES
              
              14PART
                  II - OTHER INFORMATION
              
              14ITEM
                  1. LEGAL PROCEEDINGS
              
              14ITEM
                  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS
              
              14ITEM
                  3. DEFAULTS UPON SENIOR SECURITIES
              
              14ITEM
                  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              14ITEM
                  5. OTHER INFORMATION
              
              15ITEM
                  6. EXHIBITS
              
              15SIGNATURES
  *-ii-*
 
 **PART
        I**
 **FINANCIAL
        INFORMATION**
 
 **Item
        1. Financial Statements.**
 **eROOMSYSTEM
                    TECHNOLOGIES, INC. AND SUBSIDIARIES****CONDENSED
                    CONSOLIDATED BALANCE SHEETS
                    (UNAUDITED)**
  **June
                    30,**
                
                **December
                    31,****2007**
                
                **2006****ASSETS****CURRENT
                    ASSETS**Cash
                    and cash equivalents
                
                $
                1,879,333
                
                $
                1,480,720Accounts
                    receivable, net of allowance for doubtful accounts of $50,519
                    and
                  $49,520
                    at June 30, 2007 and December 31, 2006, respectively
                
                
                286,276
                
                
                280,608Note
                    receivable
                
                
                -
                
                
                17,534Prepaid
                    expenses
                
                
                3,089
                
                
                1,797**Total
                    Current Assets**
                
                
                2,168,698
                
                
                1,780,659**REFRESHMENT
                    CENTERS IN SERVICE**,
                    net of accumulated depreciation of$2,418,338
                    and $2,512,447 at June 30, 2007 and December 31, 2006,
                    respectively
                
                
                617,183
                
                
                840,991**PROPERTY
                    AND EQUIPMENT**Computer
                    equipment and office equipment, net of accumulated depreciation
                    of $5,519
                    and
                  $4,147,
                    at June 30, 2007 and December 31, 2006, respectively
                
                
                3,811
                
                
                5,183**INVESTMENT
                    IN MARKETABLE SECURITIES**
                
                
                64,075
                
                
                64,075**NOTE
                    RECEIVABLE,**net
                    of unamortized discount of $0 and $896 at June 30, 2007 andDecember
                    31, 2006, respectively
                
                
                147,184
                
                
                149,103**DEPOSITS**
                
                
                1,382
                
                
                5,813**Total
                    Assets**
                
                $
                3,002,333
                
                $
                2,845,824**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES**Accounts
                    payable
                
                $
                36,556
                
                $
                57,512Accrued
                    liabilities
                
                
                52,345
                
                
                99,634Customer
                    deposits
                
                
                11,758
                
                
                11,758Deferred
                    maintenance revenue
                
                
                13,004
                
                
                12,357**Total
                    Current Liabilities**
                
                
                113,663
                
                
                181,261**Total
                    Liabilities**
                
                
                113,663
                
                
                181,261**COMMITMENTS
                    AND CONTINGENCIES**
                
                
                -
                
                
                -**STOCKHOLDERS'
                    EQUITY**Preferred
                      stock, $0.001 par value; 5,000,000 shares authorized; none
                      outstanding
                    Common
                      stock, $0.001 par value; 50,000,000 shares authorized; 23,973,165
                      and
                    23,898,165
                      shares outstanding at June 30, 2007 and December 31, 2006,
                      respectively
                
                
                23,973
                
                
                23,898Additional
                    paid-in capital
                
                
                33,792,010
                
                
                33,751,605Warrants
                    and options outstanding
                
                
                344,678
                
                
                373,908Accumulated
                    deficit
                
                
                (31,271,991
                )
                
                (31,484,848
                )**Total
                    Stockholders' Equity**
                
                
                2,888,670
                
                
                2,664,563**Total
                    Liabilities and Stockholders' Equity**
                
                $
                3,002,333
                
                $
                2,845,824
  See
                    accompanying notes to unaudited 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,****2007**
                
                **2006**
                
                **2007**
                
                **2006****REVENUE**Revenue-sharing
                    arrangements
                
                $
                215,695
                
                $
                240,873
                
                $
                435,667
                
                $
                515,151Maintenance
                    fees
                
                
                67,070
                
                
                66,080
                
                
                133,249
                
                
                147,167Product
                    sales
                
                
                56,947
                
                
                1,469
                
                
                60,697
                
                
                54,894**Total
                    Revenue**
                
                
                339,712
                
                
                308,422
                
                
                629,613
                
                
                717,212**COST
                    OF REVENUE**Revenue-sharing
                    arrangements
                
                
                102,218
                
                
                111,574
                
                
                209,965
                
                
                223,147Maintenance
                
                
                16,278
                
                
                16,266
                
                
                29,842
                
                
                30,198Product
                    sales
                
                
                15,326
                
                
                -
                
                
                16,910
                
                
                57,623**Total
                    Cost of Revenue**
                
                
                133,822
                
                
                127,840
                
                
                256,717
                
                
                310,968**GROSS
                    MARGIN**
                
                
                205,890
                
                
                180,582
                
                
                372,896
                
                
                406,244**OPERATING
                    EXPENSES**Selling,
                      general and administrative expense, including non-cash compensation
of
                      $11,250, $15,563, $11,250 and $32,151,
                      respectively
                
                
                106,840
                
                
                112,726
                
                
                213,958
                
                
                281,901Sales
                    tax settlement
                
                
                -
                
                
                -
                
                
                -
                
                
                32,466Interest
                    expense
                
                
                -
                
                
                18,922
                
                
                -
                
                
                41,834Interest
                    and other income
                
                
                (25,078
                )
                
                (18,143
                )
                
                (45,419
                )
                
                (34,729
                )**Net
                    Operating Expenses**
                
                
                81,762
                
                
                113,505
                
                
                168,539
                
                
                321,472**Income
                    from Operations**
                
                
                124,128
                
                
                67,077
                
                
                204,357
                
                
                84,772Gain
                    on forgiveness of liabilities and debt
                
                
                -
                
                
                -
                
                
                8,500
                
                
                -**Net
                    Income**
                
                $
                124,128
                
                $
                67,077
                
                $
                212,857
                
                $
                84,772**Basic
                    Earnings Per Common Share**
                
                $
                0.01
                
                $
                0.00
                
                $
                0.01
                
                $
                0.00**Diluted
                    Earnings Per Common Share**
                
                $
                0.01
                
                $
                0.00
                
                $
                0.01
                
                $
                0.00
  See
                    accompanying notes to unaudited condensed consolidated financial
                    statements
  -2-
 **eROOMSYSTEM
                      TECHNOLOGIES, INC. AND SUBSIDIARIES****CONDENSED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (UNAUDITED)**
  ***For
                      the Six Months Ended June 30***
                  
                  **2007**
                  
                  **2006****CASH
                      FLOWS FROM OPERATING ACTIVITIES**Net
                      income
                  
                  $
                  212,857
                  
                  $
                  84,772Adjustments
                      to reconcile net income to net cash provided by operating
                      activities:Depreciation
                  
                  
                  211,337
                  
                  
                  224,098Gain
                      on forgiveness of debt and liabilities
                  
                  
                  (8,500
                  )
                  
                  -Gain
                      on sale of refreshment centers
                  
                  
                  13,843
                  
                  
                  7,622Interest
                      income from shareholder receivables
                  
                  
                  -
                  
                  
                  (819
                  )Interest
                      income from other receivable
                  
                  
                  (1,994
                  )
                  
                  (2,194
                  )Accretion
                      of debt discount
                  
                  
                  -
                  
                  
                  8,760Amortization
                      of discount on note receivable
                  
                  
                  (897
                  )
                  
                  (978
                  )Non-cash
                      compensation expense
                  
                  
                  11,250
                  
                  
                  32,151Changes
                      in operating assets and liabilities:Accounts
                      receivable
                  
                  
                  (5,668
                  )
                  
                  (11,163
                  )Prepaid
                      expenses
                  
                  
                  (1,292
                  )
                  
                  943Accounts
                      payable
                  
                  
                  (12,456
                  )
                  
                  (4,467
                  )Accrued
                      liabilities
                  
                  
                  (47,289
                  )
                  
                  (57,731
                  )Customer
                      deposits and deferred maintenance revenue
                  
                  
                  647
                  
                  
                  9,067**Net
                      Cash Provided By Operating Activities**
                  
                  
                  371,838
                  
                  
                  290,061**CASH
                      FLOWS FROM INVESTING ACTIVITIES**Purchase
                      of fixed assets
                  
                  
                  -
                  
                  
                  (1,949
                  )Proceeds
                      from sale of refreshment centers
                  
                  
                  -
                  
                  
                  50,000Purchase
                      of investment
                  
                  
                  -
                  
                  
                  (50,000
                  )Proceeds
                      from note receivable
                  
                  
                  22,344
                  
                  
                  73,316Change
                      in long term deposits and restricted funds
                  
                  
                  4,431
                  
                  
                  2,230**Net
                      Cash Provided by Investing Activities**
                  
                  
                  26,775
                  
                  
                  73,597**CASH
                      FLOWS FROM FINANCING ACTIVITIES**Principal
                      payments on long-term debt
                  
                  
                  -
                  
                  
                  (155,706
                  )**Net
                      Cash Used in Financing Activities**
                  
                  
                  -
                  
                  
                  (155,706
                  )**Net
                      Increase in Cash**
                  
                  
                  398,613
                  
                  
                  207,952**Cash
                      at Beginning of Period**
                  
                  
                  1,480,720
                  
                  
                  1,316,515**Cash
                      at End of Period**
                  
                  $
                  1,879,333
                  
                  $
                  1,524,467**Supplemental
                      Cash Flows Information**Cash
                      paid for interest
                  
                  $
                  -
                  
                  $
                  18,556**Supplemental
                      Disclosure of Noncash Investing and Financing
                      Activities**Shares
                      of common stock cancelled in settlement of notes receivable
                  
                  $
                  -
                  
                  $
                  78,819
  See
                      accompanying notes to unaudited 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 subsidiaries (the “Company”).
        These financial statements are condensed and, therefore, do not include all
        disclosures normally required by generally accepted accounting principles.
        These
        statements should be read in conjunction with the Company’s audited financial
        statements for the fiscal year ended December 31, 2006 included in the Company’s
        Annual Report on Form 10-KSB. In particular, the Company’s organization, nature
        of operations and significant accounting principles were presented in Note
        1 to
        the consolidated financial statements in that annual report. In the opinion
        of
        management, all adjustments necessary for a fair presentation have been included
        in the accompanying unaudited condensed consolidated financial statements
        and
        consist of only normal recurring adjustments. The results of operations
        presented in the accompanying unaudited condensed consolidated financial
        statements for the three and six months ended June 30, 2007 are not necessarily
        indicative of the results that may be expected for the full year ending December
        31, 2007.
  ***Principles
        of Consolidation*** - The
        accompanying unaudited condensed consolidated financial statements include
        the
        accounts of eRoomSystem Technologies, Inc. and its wholly owned subsidiaries.
        Intercompany accounts and transactions have been eliminated in
        consolidation.
  ***Stock-Based
        Compensation*** - At
        June 30, 2007, the Company had one stock-based employee compensation plan.
        Effective January 1, 2006, the Company adopted the fair value recognition
        provisions of SFAS No. 123 (Revised 2004), Share-Based Payment,
        (“SFAS 123(R)”) using the modified prospective transition method.
        Accordingly, the Company records expense for (i) the unvested portion of
        grants issued during the period and (ii) new grant issuances, both of which
        will be expensed over the requisite service (i.e., vesting)
        periods.
  As
        a
        result of adopting SFAS 123(R), the Company’s results of operations for the
        six months ended June 30, 2007 and 2006 included compensation expense of
        $0 and
        $8,342, respectively, representing $0.00 impact to both basic and diluted
        earnings per share.
  ***Net
        Earnings Per Share of Common Stock*** - Basic
        earnings per share of common stock is computed by dividing net income by
        the
        weighted-average number of shares of common stock outstanding. Unvested shares
        of common stock are considered to be stock options for purposes of computing
        earnings per share. Diluted earnings per share of common stock are computed
        by
        dividing net income by the weighted-average number of shares of common stock
        and
        dilutive potential common stock equivalents outstanding. Potential common
        stock
        equivalents consist of shares issuable upon the exercise of stock options
        and
        warrants, and shares issuable upon the conversion of debt.
  The
        following table is a reconciliation of the numerators and denominators used
        in
        the calculation of basic and diluted weighted-average common shares outstanding
        for the three and six months ended June 30, 2007 and 2006:
 ***For
                    The Three Months***
                  ***Ended
                    June 30,***
                
                ***For
                    The Six Months***
                  ***Ended
                    June 30,******2007***
                
                ***2006***
                
                ***2007***
                
                ***2006***Basic
                    net income
                
                $
                124,128
                
                $
                67,077
                
                $
                212,857
                
                $
                84,772Diluted
                    net income
                
                $
                124,128
                
                $
                67,077
                
                $
                212,857
                
                $
                84,772Basic
                    weighted-average common shares outstanding
                
                
                23,948,440
                
                
                23,898,165
                
                
                23,923,441
                
                
                24,147,319Effect
                    of dilutive securitiesStock
                    options and warrants
                
                
                126,923
                
                
                415,203
                
                
                126,923
                
                
                399,371Diluted
                    weighted-average common shares outstanding
                
                
                24,075,363
                
                
                24,313,368
                
                
                24,050,364
                
                
                24,546,690Basic
                    earnings per share
                
                $
                0.01
                
                $
                0.00
                
                $
                0.01
                
                $
                0.00Diluted
                    earnings per share
                
                $
                0.01
                
                $
                0.00
                
                $
                0.01
                
                $
                0.00
  -4-
 During
        the three and six months ended June 30, 2007 and 2006, there were potential
        common stock equivalents from options and warrants of 3,028,698,
        3,198,250, 3,028,698 and 3,214,082, respectively, which were not included in the computation of diluted earnings
        per
        share because their effect would have been anti-dilutive.
  **NOTE
        2 - BUSINESS CONDITION**
  During
        the year ended December 31, 2006 and the six months ended June 30, 2007,
        the
        Company realized a net gain of $162,083 and $212,857, respectively. During
        the
        year ended December 31, 2006 and the six months ended June 30, 2007, the
        Company’s operations provided $683,126 and $371,838 of cash, respectively. The
        Company had a cash balance of $1,879,333 as of June 30, 2007. Up until the
        year
        ended December 31, 2004, the Company suffered recurring losses. Although
        the
        Company realized net income in the past three years, the Company is anticipating
        decreasing revenue as the Company’s existing hotel revenue-sharing and
        maintenance contracts conclude over the next couple of years. Realization
        of
        continued profitable operations is not assured. The accompanying financial
        statements do not include any adjustments relating to the recoverability
        and
        classification of asset carrying amounts or the amount and classification
        of
        liabilities that might result should the Company be unable to continue as
        a
        going concern. Management would like to acquire an existing operating company
        to
        enable the Company to increase revenues and long-term viability, and is
        continuously performing due diligence on third party companies for this purpose.
        The Company has also been performing research regarding potential further
        investments in either privately-held or publicly traded emerging growth stage
        companies.
  **NOTE
        3 - NET INVESTMENT IN SALES-TYPE LEASE**
  During
        June 2004, the Company entered into an agreement with a hotel property owner
        that amended a previous revenue sharing lease agreement that had previously
        been
        non-performing. Under the terms of that agreement, the Company recovered
        a
        receivable that had been written off in the previous year.
  The
        new
        lease agreement terminates on December 31, 2008 at which time the hotel property
        owner takes ownership of the refreshment centers. The property is to make
        monthly payments of $7,200. The new lease agreement has been classified as
        a
        sales-type capital lease. Because the property has a history of non-performance
        and is still under the supervision of a bankruptcy court, the net investment
        in
        the capital lease has been fully allowed against. The following lists the
        components of the net investment in the sales-type lease as of June 30,
        2007:
 Total
                    minimum lease payments to be received
                
                $
                129,600Less:
                    Allowance for uncollectibles
                
                
                (108,994
                )Net
                    minimum lease payments receivable
                
                
                20,606Less:
                    Unearned income
                
                
                (20,606
                )Net
                    investment in sales-type lease
                
                $
                -
  The
        Company recorded revenue sharing and maintenance fee revenue, relating to
        this
        property, in the amount of $43,200 for the six months ended June 30,
        2007.
  Minimum
        lease payments for the six months ending December 31, 2007, and the succeeding
        fiscal year through the end of the lease term are as follows: $43,200 in
        2007;
        $86,400 in 2008.
 
 **NOTE
        4 - STOCKHOLDERS’ EQUITY**
 
 During
        the six months ended June 30, 2007, options to purchase 162,000 shares of
        common
        stock expired. The Company recognized the value of these options in the amount
        of $29,230 as additional paid in capital.
 
 On
        April
        30, 2007, 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).
  -5-
  **Item
          2.**  **Management’s
          Discussion and Analysis or Plan of Operation.**
  As
          used
          in this Form 10-QSB, references to the “Company,” “we,” “our” or “us” refer to
          eRoomSystem Technologies, Inc., unless the context otherwise
          indicates.
 
 This
          Management’s Discussion and Analysis or Plan of Operations (“MD&A”) section
          of our Quarterly Report on Form 10-QSB discusses our results of operations,
          liquidity and financial condition, and certain factors that may affect
          our
          future results. You should read this MD&A in conjunction with our
          consolidated financial statements and accompanying notes included in this
          Quarterly Report.
 
 **Forward-Looking
          Statements**
 
 This
          discussion contains forward-looking statements that involve risks and
          uncertainties. Our actual results could differ materially from those anticipated
          in these forward-looking statements as a result of various factors discussed
          elsewhere in this report.
  Certain
          information included herein contains statements that may be considered
          forward-looking statements, such as statements relating to our anticipated
          revenues, gross margin and operating results, future performance and operations,
          plans for future expansion, capital spending, sources of liquidity and
          financing
          sources. Such forward-looking information involves important risks and
          uncertainties that could significantly affect anticipated results in the
          future,
          and accordingly, such results may differ from those expressed in any
          forward-looking statements made herein. These risks and uncertainties include,
          but are not limited to, those relating to our liquidity requirements, the
          continued growth of the lodging industry, the success of our
          product-development, marketing and sales activities, vigorous competition
          in the
          lodging industry, dependence on existing management, leverage and debt
          service
          (including sensitivity to fluctuations in interest rates), domestic or
          global
          economic conditions, the inherent uncertainty and costs of prolonged arbitration
          or litigation, and changes in federal or state tax laws or the administration
          of
          such laws. A complete discussion of these risks and uncertainties are contained
          in our Annual Report on Form 10-KSB, as filed with the Securities and Exchange
          Commission on March 27, 2007.
  **Overview**
  Our
          core
          business is the development and installation of an intelligent, in-room
          computer
          platform and communications network, or the eRoomSystem, for the lodging
          industry. The eRoomSystem is a computerized platform and processor-based
          system
          designed to collect and control data. The eRoomSystem supports our fully
          automated and interactive eRoomServ refreshment centers, eRoomSafes, eRoomEnergy
          products, and the eRoomTray. In 2005, we commenced our diversification
          strategy
          of investing in third party emerging growth companies. To this end, we
          have made
          investments totaling $60,000, consisting of $10,000 in Identica Holdings
          Corporation and $50,000 in Aprecia, LLC. In addition, we have loaned Identica
          $150,000 in cash. The loan is secured by a security interest in all the
          assets
          of Identica and is evidenced by a promissory note. In consideration for
          making
          the loan, Identica issued to us a warrant to purchase one million (1,000,000)
          shares of common stock of Identica, exercisable at $0.15 per share at any
          time
          through May 20, 2010. We may make additional investments in promising emerging
          growth companies, and potentially acquire an operating company if the
          opportunity arises.
  Our
          existing products interface with the hotel’s property management system through
          our eRoomSystem communications network. The hotel’s property management system
          posts usage of our products directly to the hotel guest’s room account. The
          solutions offered by our eRoomSystem and related products have allowed
          us to
          install our products and services in several premier hotel chains, including
          Marriott International, Hilton Hotels and Carlson Hospitality Worldwide,
          in the
          United States and internationally.
  One
          of
          the byproducts of our technology is the information we have collected since
          our
          first product installation. To date, we have collected several million
          room-nights of data. Through our eRoomSystem, we are able to collect information
          regarding the usage of our products on a real-time basis. We use this
          information to help our customers increase their operating
          efficiencies.
  **Description
          of Revenues**
  Historically,
          we have received most of our revenues from the sale or placement under
          a
          revenue-sharing program of our products in hotels. We expect that these
          revenues
          will account for a substantial majority of our revenues for the foreseeable
          future. In addition, we may receive revenues in the future upon the sale
          of
          securities received in consideration for investments made in third party
          companies in 2005 and 2006; however, the return on such investments is
          not
          assured.
  -6-
  We
          also
          generate revenues from maintenance and support services relating to our
          existing
          installed products. Our dependence on the lodging industry, including its
          guests, makes us extremely vulnerable to downturns in the lodging industry
          caused by the general economic environment. Such a downturn could result
          in
          fewer purchases by hotel guests of goods and services from our products
          installed in hotels, and accordingly lower revenues where our products
          are
          placed pursuant to a revenue sharing agreement. Time spent by individuals
          on
          travel and leisure is often discretionary for consumers and may be particularly
          affected by adverse trends in the general economy. The success of our operations
          depends, in part, upon discretionary consumer spending and economic conditions
          affecting disposable consumer income such as employment, wages and salaries,
          business conditions, interest rates, availability of credit and
          taxation.
  Our
          revenue-sharing program provides us with a seven-year revenue stream under
          each
          revenue-sharing agreement. Because many of our customers in the lodging
          industry
          traditionally have limited capacity to finance the purchase of our products,
          we
          designed our revenue-sharing program accordingly. Through our revenue-sharing
          plan, we have installed our products at little or no upfront cost to our
          customers and share in the recurring revenues generated from sales of goods
          and
          services related to our products. We retain the ownership of the eRoomServ
          refreshment centers and eRoomSafes throughout the term of the revenue-sharing
          agreements and the right to re-deploy any systems returned to us upon the
          expiration or earlier termination of the revenue-sharing agreements. We
          have
          failed to place any products, either on a revenue sharing or sale basis
          in the
          prior four fiscal years, and we have no present intention of placing new
          products in the future. We do, however, intend to continue to service and
          maintain our existing installed product base for the remaining life of
          the
          contracts relating thereto.
  Our
          revenues over the past year has been declining as we have focused on service
          and
          maintenance of our existing installed products and have not installed new
          products at hotels and as existing revenue sharing agreements conclude.
          Given
          the foregoing, in 2005 we commenced our diversification strategy to invest
          in
          emerging growth companies. To date we have invested in Identica Holdings
          Corporation, a privately held distributor and integrator of next-generation
          biometric security solutions, including the TechSphere hand vascular pattern
          biometric technology, and Aprecia, LLC, a provider of applied artificial
          intelligence solutions for gaming and homeland security applications. We
          continue to explore opportunities and perform due diligence on third parties
          with respect to additional potential investments. At this time, we have
          not
          reached a definitive agreement to make further investments. In addition,
          we may
          acquire an operating company in the future if the opportunity arises. Over
          time,
          we may realize revenues from the sale of securities purchased from Identica,
          Aprecia and other third party companies, if applicable. The timing and
          return on
          such investments, however, cannot be assured.
  We
          anticipate that we will receive more than 50% of the recurring revenues
          from the
          sale of goods and services generated by our currently installed eRoomServ
          refreshment centers, eRoomSafes and eRoomTray solutions under revenue-sharing
          agreements. Our customers receive the remainder of the recurring
          revenues.
 
 **Revenue
          Recognition**
  Sales
          revenue from our products is recognized upon completion of installation
          and
          acceptance by the customer. We do not, however, expect to generate meaningful
          sales revenue as such revenues are limited to the sales of used equipment
          as
          well as replacement equipment and parts to hotel clients who previously
          purchased our products. Sales revenue from the placement of our eRoomServ
          refreshment centers and eRoomSafes under our revenue-sharing program are
          accounted for similar to an operating lease, with the revenues recognized
          as
          earned over the term of the agreement. In some instances, our revenue-sharing
          agreements provide for a guaranteed minimum daily payment by the hotel.
          We
          negotiated our portion of the revenues generated under our revenue-sharing
          program based upon the cost of the equipment installed and the estimated
          daily
          sales per unit for the specific customer.
  We
          have
          entered into installation, maintenance and license agreements with most
          of our
          existing hotel customers. Installation, maintenance and license revenues
          are
          recognized as the services are performed or pro rata over the service period.
          We
          defer all revenue paid in advance relating to future services and products
          not
          yet installed and accepted by our customers.
  Our
          installation, maintenance and license agreements stipulate that we collect
          a
          maintenance fee per eRoomServ refreshment center per day, payable on a
          monthly
          basis. Our objective is to generate gross profit margins of approximately
          40%
          from our maintenance-related revenues. We base this expectation on our
          historical cost of maintenance of approximately $0.04 per unit per day
          and,
          pursuant to our maintenance agreements, our projected receipt of generally
          not
          less than $0.08 per unit per day.
  -7-
  **Description
          of Expenses**
  Cost
          of
          product sales consists primarily of production, shipping and installation
          costs.
          Cost of revenue-sharing arrangements consists primarily of depreciation
          of
          capitalized costs for the products placed in service. We capitalize the
          production, shipping, installation and sales commissions related to the
          eRoomServ refreshment centers, eRoomSafes, eRoomTrays and eRoomEnergy management
          products placed under revenue-sharing agreements. Cost of maintenance fee
          revenues primarily consists of expenses related to customer support and
          maintenance.
  Selling,
          general and administrative expenses primarily consist of general and
          administrative expenses including professional fees, salaries and related
          costs
          for accounting, administration, finance, human resources, information systems
          and legal personnel.
  Research
          and development expenses consist of payroll and related costs for hardware
          and
          software engineers, quality assurance specialists, management personnel,
          and the
          costs of materials used by our consultants in the maintenance of our existing
          installed products. As we have elected not to install new products at hotels,
          we
          had no research and development expenses in the six months ended June 30,
          2007,
          and we do not expect this to change in future periods.
  In
          accordance with Financial Accounting Standards Board, or FASB, Statement
          of
          Financial Accounting Standards, or SFAS, No. 86, “Accounting for the Costs
          of Computer Software to be Sold, Leased or Otherwise Marketed,” development
          costs incurred in the research and development of new software products
          to be
          sold, leased or otherwise marketed are expensed as incurred until technological
          feasibility in the form of a working model has been established. Internally
          generated capitalizable software development costs have not been material
          to
          date. We have charged our software development costs to research and development
          expense in our consolidated statements of operations.
 
 **Results
          of Operations**
  **Comparison
          of Three Months Ended June 30, 2007 and 2006**
  **Revenues**
  Revenue
          Sharing Arrangements -- Our revenue from revenue sharing arrangements was
          $215,695 for the three months ended June 30, 2007, compared to $240,873
          for the
          three months ended June 30, 2006, representing a decrease of $25,178, or
          10.5%.
          The decrease in revenue sharing revenue was due to the completion of a
          number of
          revenue sharing contracts in 2006.
  Maintenance
          Fee Revenues -- Maintenance fee revenues were $67,070 for the three months
          ended
          June 30, 2007, compared to $66,080 for the three months ended June 30,
          2006,
          representing an increase of $990, or 1.5%. The increase in maintenance
          fee
          revenue was immaterial.
  Product
          Sales -- Revenue from product sales was $56,947 for the three months ended
          June
          30, 2007, compared to $1,469 for the three months ended June 30, 2006,
          representing an increase of $55,478, or 3776.6%. The increase in product
          sales
          revenues was primarily due to the sale of some refreshment centers to a
          hotel at
          the completion of its revenue share contract in the three months ended
          June 30,
          2007.
  **Cost
          of Revenue**
  Cost
          of
          Revenue Sharing Revenue -- Cost of revenue sharing revenue was $102,218
          for the
          three months ended June 30, 2007, compared to $111,574 for the three months
          ended June 30, 2006 representing a decrease of $9,356 or 8.4%. The gross
          margin
          percentage on revenue sharing revenue was 52.6% for the three months ended
          June
          30, 2007, compared to 53.7% for the three months ended June 30, 2006. The
          decrease in gross margin relating to revenue sharing revenue is due to
          the
          completion of some revenue sharing contracts in 2006.
  -8-
  Cost
          of
          Maintenance Fee Revenue -- Our cost of maintenance fee revenue was $16,278
          for
          the three months ended June 30, 2007, compared to $16,266 for the three
          months
          ended June 30, 2006, representing an increase of $12, or 0.1%. The gross
          margin
          percentage on maintenance fee revenues was 75.7% for the three months ended
          June
          30, 2007, compared to 75.4% for the three months ended June 30, 2006. The
          slight
          increase in our cost of maintenance fee revenue is immaterial.
  Cost
          of
          Product Sales Revenue -- Our cost of product sales revenue for the three
          months
          ended June 30, 2007 was $15,326, compared to $0 for the three months ended
          June
          30, 2006, an increase of $15,326. The gross margin percentage on revenue
          from
          product sales revenue was 73.1% for the three months ended June 30, 2007,
          compared to 100% for the three months ended June 30, 2006. The increase
          in cost
          of product sales revenue relates to the remaining basis of the refreshment
          centers sold in the three months ended June 30, 2007.
  The
          changes and percent changes with respect to our revenues and our cost of
          revenue
          for the three months ended June 30, 2007 and 2006 are summarized as
          follows:
  **For
                        the Three Months**
                      **Ended
                        June 30,**
                    
                    **Change**
                    
                    **Percent
                        Change****2007**
                    
                    **2006****REVENUE**Revenue-sharing
                        arrangements
                    
                    $
                    215,695
                    
                    $
                    240,873
                    
                    $
                    (25,178
                    )
                    
                    -10.5
                    %Maintenance
                        fees
                    
                    
                    67,070
                    
                    
                    66,080
                    
                    
                    990
                    
                    
                    1.5
                    %Product
                        sales
                    
                    
                    56,947
                    
                    
                    1,469
                    
                    
                    55,478
                    
                    
                    3776.6
                    %**Total
                        Revenue**
                    
                    
                    339,712
                    
                    
                    308,422
                    
                    
                    31,290
                    
                    
                    10.1
                    %**COST
                        OF REVENUE**
                    
                    
                    
                    
                    
                    
                    
                    
                    -Revenue-sharing
                        arrangements
                    
                    
                    102,218
                    
                    
                    111,574
                    
                    
                    (9,356
                    )
                    
                    -8.4
                    %Maintenance
                    
                    
                    16,278
                    
                    
                    16,266
                    
                    
                    12
                    
                    
                    0.1
                    %Product
                        sales
                    
                    
                    15,326
                    
                    
                    -
                    
                    
                    15,326**Total
                        Cost of Revenue**
                    
                    
                    133,822
                    
                    
                    127,840
                    
                    
                    5,982
                    
                    
                    4.7
                    %**GROSS
                        MARGIN**
                    
                    $
                    205,890
                    
                    $
                    180,582
                    
                    $
                    25,308
                    
                    
                    14.0
                    %**GROSS
                        MARGIN PERCENTAGE**Revenue-sharing
                        arrangements
                    
                    
                    52.6
                    %
                    
                    53.7
                    %Maintenance
                        fees
                    
                    
                    75.7
                    %
                    
                    75.4
                    %Product
                        sales
                    
                    
                    73.1
                    %
                    
                    100.0
                    %**Total
                        Gross Margin Percentage**
                    
                    
                    60.6
                    %
                    
                    58.6
                    %
 Although
          the preceding table summarizes the net changes and percent changes with
          respect
          to our revenues and our cost of revenue for the three months ended June
          30, 2007
          and 2006, 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 $106,840 for the three months
          ended June 30, 2007, compared to $112,726 for the three months ended June
          30,
          2006, representing a decrease of $5,886, or 5.2%. The decrease in our selling,
          general and administrative expenses reflects our ongoing commitment to
          further
          reduce fixed overhead expenses.
  Interest
          expense was $18,922 for the three months ended June 30, 2006. No interest
          expense was paid in 2007 due to the final payoff of all outstanding notes
          in
          third quarter 2006.
 
 Interest
          and other income was $25,078 for the three months ended June 30, 2007 as
          compared to $18,143 for the three months ended June 30, 2006 representing
          an
          increase of $6,935, or 38.2%. The increase was due to the interest earned
          on our
          increasing balance of cash and cash equivalents.
 
 -9-
 **Net
          Income Attributable to Common Stockholders**
  We
          realized net income of $124,128 for the three months ended June 30, 2007,
          compared to $67,077 during the three months ended June 30, 2006. The $57,051
          increase in net income was primarily due to the sale of refreshment centers
          to a
          Hotel as well as a decrease in our selling, general and administrative
          costs, a
          decrease in our interest expense and increase in our interest income. We
          may
          incur losses in the future as existing revenue sharing agreements with
          our hotel
          clients expire.
 
 **Comparison
          of Six Months Ended June 30, 2007 and 2006**
  **Revenues**
  Revenue
          Sharing Arrangements -- Our revenue from revenue sharing arrangements was
          $435,667 for the six months ended June 30, 2007, compared to $515,151 for
          the
          six months ended June 30, 2006, representing a decrease of $79,484, or
          15.4%.
          The decrease in revenue sharing revenue was due to the completion of a
          number of
          revenue sharing contracts in 2006.
  Maintenance
          Fee Revenues -- Maintenance fee revenues were $133,249 for the six months
          ended
          June 30, 2007, compared to $147,167 for the six months ended June 30, 2006,
          representing a decrease of $13,918, or 9.5%. The decrease in maintenance
          fee
          revenue was due to the completion of a number of revenue sharing contracts
          in
          2006.
  Product
          Sales -- Revenue from product sales was $60,697 for the six months ended
          June
          30, 2007, compared to $54,894 for the six months ended June 30, 2006,
          representing an increase of $5,803, or 10.6%. The increase in product sales
          revenues was immaterial.
  **Cost
          of Revenue**
  Cost
          of
          Revenue Sharing Revenue -- Cost of revenue sharing revenue was $209,965
          for the
          six months ended June 30, 2007, compared to $223,147 for the six months
          ended
          June 30, 2006 representing a decrease of $13,182 or 5.9%. The gross margin
          percentage on revenue sharing revenue was 51.8% for the six months ended
          June
          30, 2007, compared to 56.7% for the six months ended June 30, 2006. The
          decrease
          in gross margin relating to revenue sharing revenue is due to the completion
          of
          some revenue sharing contracts in 2006.
  Cost
          of
          Maintenance Fee Revenue -- Our cost of maintenance fee revenue was $29,842
          for
          the six months ended June 30, 2007, compared to $30,198 for the six months
          ended
          June 30, 2006, representing an decrease of $356, or 1.2%. The gross margin
          percentage on maintenance fee revenues was 77.6% for the six months ended
          June
          30, 2007, compared to 79.5% for the six months ended June 30, 2006. The
          slight
          decrease in our cost of maintenance fee revenue is immaterial.
  Cost
          of
          Product Sales Revenue -- Our cost of product sales revenue for the six
          months
          ended June 30, 2007 was $16,910, compared to $57,623 for the six months
          ended
          June 30, 2006, a decrease of $40,713. The gross margin percentage on revenue
          from product sales revenue was 72.1% for the six months ended June 30,
          2007,
          compared to (5.0)% for the six months ended June 30, 2006. The cost of
          product
          sales revenue relates to the remaining basis of the refreshment centers
          sold in
          the six months ended June 30, 2007 and 2006.
  The
          changes and percent changes with respect to our revenues and our cost of
          revenue
          for the six months ended June 30, 2007 and 2006 are summarized as
          follows:
 
 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,
          2007
          and 2006, 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 $213,958 for the six months
          ended
          June 30, 2007, compared to $281,901 for the six months ended June 30, 2006,
          representing a decrease of $67,943, or 24.1%. The decrease in our selling,
          general and administrative expenses reflects our ongoing commitment to
          further
          reduce fixed overhead expenses.
  -10-
 Sales
          tax
          settlement -- During the six months ended June 30, 2006, the Company paid
          $32,466 as final settlement of a sales tax audit on previous years. No
          such
          payments were made in the six months ended June 30, 2007.
  Interest
          expense was $41,834 for the six months ended June 30, 2006. No interest
          expense
          was paid in 2007 due to the final payoff of all outstanding notes in third
          quarter of 2006.
 
 Interest
          and other income was $45,419 for the six months ended June 30, 2007 as
          compared
          to $34,729 for the six months ended June 30, 2006 representing an increase
          of
          $10,690, or 30.8%. The increase was due to the interest earned on our increasing
          balance of cash and cash equivalents.
 
 **Net
          Income Attributable to Common Stockholders**
  We
          realized net income of $212,857 for the six months ended June 30, 2007,
          compared
          to $84,772 during the six months ended June 30, 2006. The $128,085 increase
          in
          net income was primarily due to the interest expense and sales tax settlement
          in
          2006 as well as the significant decrease in our selling, general and
          administrative costs between 2006 and 2007. We may incur losses in the
          future as
          existing revenue sharing agreements with our hotel clients expire.
 
 **Comparison
          of Three Months Ended June 30, 2006 and 2005**
 
 **Revenues**
 
 Revenue
          Sharing Arrangements -- Our revenue from revenue sharing arrangements was
          $240,873 for the three months ended June 30, 2006, compared to $306,407
          for the
          three months ended June 30, 2005, representing a decrease of $65,534, or
          21.4%.
          The decrease in revenue from revenue sharing arrangements was due to a
          decrease
          in revenue sharing units in service during the three months ended June
          30, 2006
          as compared to the three months ended June 30, 2005. The decrease in revenue
          sharing units in service relates to certain revenue sharing agreements
          reaching
          the conclusion of the seven-year term.
 
 Maintenance
          Fee Revenues -- Our maintenance fee revenues were $66,080 for the three
          months
          ended June 30, 2006, compared to $81,756 for the three months ended June
          30,
          2005, representing a decrease of $15,676, or 19.2%. The decrease
 was
          due
          to a decreased number of units in service.
 
 Product
          Sales -- Revenues from product sales were $1,469 for the three months ended
          June
          30, 2006, compared to $2,336 for the three months ended June 30, 2005,
          representing a decrease of $867, or 37.1%. The decrease, while significant
          in
          percentage terms, was not otherwise material given the extremely limited
          sales
          volume.
  **Cost
          of Revenue**
  Cost
          of
          Revenue Sharing Revenue -- Our cost of revenue sharing revenue was $111,574
          for
          the three months ended June 30, 2006, compared to $128,667 during the three
          months ended June 30, 2005, representing a decrease of $17,093, or 13.3%.
          The
          decrease in cost of revenue related to a decrease in the number of revenue
          sharing units in service and the revenue sharing revenue. The gross margin
          percentage on revenue sharing revenue was 53.7% for the three months ended
          June
          30, 2006 and 58.0% for the three months ended June 30, 2005. The decrease
          in
          gross margin percentage was primarily due to a slight decrease in revenue
          generated on a per unit basis.
 
 Cost
          of
          Maintenance Fee Revenue -- Our cost of maintenance fee revenue was $16,266
          for
          the three months ended June 30, 2006, compared to $17,533 for the three
          months
          ended June 30, 2005, representing a decrease of $1,267, or 7.2%. The decrease
          in
          our cost of maintenance fee revenue was related to lower maintenance fee
          revenue. The gross margin percentage on maintenance fee revenue was 75.4%
          for
          the three months ended June 30, 2006 and 78.6% for the three months ended
          June
          30, 2005. The decrease in gross margin percentage on maintenance fee revenue
          relates to the decrease in maintenance fee revenue as well as fixed overhead
          expense comprising a slightly higher percentage of maintenance fee revenue
          based
          upon fewer units in service.
 
 -11-
 Cost
          of
          Product Sales Revenue -- Our cost of product sales revenue for the three
          months
          ended June 30, 2006 was zero, as compared to $1,254 for the three months
          ended
          June 30, 2005, a decrease of $1,254, or 100.0%. The gross margin percentage
          on
          revenue from product sales revenue was 100.0% for the three months ended
          June
          30, 2006 as compared to 46.3% for the three months ended June 30, 2005.
          While
          the percentage change in cost of product sales revenue is material, given
          the
          limited product sales in the two periods, the change from period to period
          is
          immaterial.
 
 **Expenses
          and Other Income**
  Selling,
          General and Administrative -- Selling, general and administrative expenses
          were
          $112,726 for the three months ended June 30, 2006, compared to $135,392
          for the
          three months ended June 30, 2005, representing a decrease of $22,666, or
          16.7%.
          The decrease in our selling, general and administrative expenses from the
          three
          months ended June 30, 2005 to the three months ended June 30, 2004 reflects
          our
          ongoing efforts to further reduce fixed overhead expenses and is partly
          due to
          the cost savings realized from the outsourcing of maintenance of our automated
          refreshment center units through Identica.
 
 Research
          and Development Expenses -- Research and development expenses were zero
          for the
          three months ended June 30, 2006, compared to $383 for the three months
          ended
          June 30, 2005, representing a decrease of $383, or 100.0%. Research and
          development expenses represented zero percent of our total revenue for
          the three
          months ended June 30, 2006 and 0.1% of our total revenue for the three
          months
          ended June 30, 2005. The decrease in research and development expenses
          was due
          to no new research and development projects being undertaken during the
          three
          months ended June 30, 2006. We do not anticipate undertaking additional
          research
          and development in future periods.
 
 Interest
          Expense for the three months ended June 30, 2006 was $18,922 as compared
          to
          $47,289 for the same period in 2005, a decrease of $28,367, or 60.0%. Interest
          and other income for the three months ended June 30, 2006 was $18,143 as
          compared to $9,931 for the same period in 2005, an increase of $8,212,
          or 82.7%.
          Income from operations was $67,077 for the three months ended June 30,
          2006,
          compared to $69,912 for the three months ended June 30, 2005. The decrease
          in
          income from operations was immaterial.
  **Net
          Income Attributable to Common Stockholders**
  We
          realized net income of $67,077 during the three months ended June 30, 2006
          as
          compared to $69,912 during the three months ended June 30, 2005. The $2,835
          decrease was immaterial.
 
 **Comparison
          of Six Months Ended June 30, 2006 and 2005**
 
 **Revenues**
 
 Revenue
          Sharing Arrangements -- Our revenue from revenue sharing arrangements was
          $515,151 for the six months ended June 30, 2006, compared to $577,446 for
          the
          six months ended June 30, 2005, representing a decrease of $62,295, or
          10.8%.
          The decrease in revenue from revenue sharing arrangements was due to a
          decrease
          in revenue sharing units in service resulting from the conclusion of certain
          revenue sharing agreements.
 
 Maintenance
          Fee Revenues -- Our maintenance fee revenues were $147,167 for the six
          months
          ended June 30, 2006, compared to $167,489 for the six months ended June
          30,
          2005, representing a decrease of $20,322, or 12.1%. The decrease was due
          to a
          decrease in units under maintenance contract.
 
 Product
          Sales -- Revenues from product sales were $54,894 for the six months ended
          June
          30, 2006, compared to $4,943 for the six months ended June 30, 2005,
          representing an increase of $49,951, or 1,010.5%. The significant increase
          in
          cost of product sales revenue relates to the automated refreshment centers
          sold
          in the three months ended March 31, 2006 upon conclusion of the revenue
          share
          arrangements.
 
 **Cost
          of Revenue**
 
 Cost
          of
          Revenue Sharing Revenue -- Our cost of revenue sharing revenue was $223,147
          for
          the six months ended June 30, 2006, as compared to $257,333 for the six
          months
          ended June 30, 2005, representing a decrease of $34,186, or 13.3%. The
          decrease
          in cost of revenue sharing revenue directly relates to the decrease in
          revenue
          sharing revenue. The gross margin percentage on revenue sharing revenue
          was
          56.7% for the six months ended June 30, 2006 and 55.4% for the six months
          ended
          June 30, 2004. The increase in gross margin percentage was
          immaterial.
 
 Cost
          of
          Maintenance Fee Revenue -- Our cost of maintenance fee revenue was $30,198
          for
          the six months ended June 30, 2006, compared to $31,818 for the six months
          ended
          June 30, 2005, representing a decrease of $1,620, or 5.1%. The gross margin
          percentage on maintenance fee revenue was 79.5% for the six months ended
          June
          30, 2006 and 81.0% for the six months ended June 30, 2005. The decrease
          in cost
          of maintenance revenue and the gross margin percentage on maintenance fee
          revenue was immaterial.
 
 -12-
 
 Cost
              of
              Product Sales Revenue -- Our cost of product sales revenue for the
              six months
              ended June 30, 2006 was $57,623 as compared to $1,261 for the six months
              ended
              June 30, 2005, an increase of $56,362, or 4,469.6%. The gross margin
              percentage
              on revenue from product sales revenue was (5.0%) for the six months
              ended June
              30, 2006 as compared to 74.5% for the six months ended June 30, 2005.
              The
              significant increase in cost of product sales revenue relates to a
              significant
              product sale occurring in the six months ended June 30, 2006 and minimal
              sales
              occurring in the same period of 2005.
 **Expenses
          and Other Income**
 
 Selling,
          General and Administrative -- Selling, general and administrative expenses
          were
          $281,901 for the six months ended June 30, 2006, compared to $298,556 for
          the
          six months ended June 30, 2005, representing a decrease of $16,655, or
          5.6%. The
          decrease in our selling, general and administrative expenses from the six
          months
          ended June 30, 2006 to the six months ended June 30, 2005 reflects our
          continued
          efforts to further reduce fixed overhead expenses.
 
 Research
          and Development Expenses -- Research and development expenses were zero
          for the
          six months ended June 30, 2006, compared to $1,959 for the six months ended
          June
          30, 2005, representing a decrease of $1,959, or 100.0%. Research and development
          expenses represented zero percent of our total revenue for the six months
          ended
          June 30, 2006 and 0.3% of our total revenue for the six months ended June
          30,
          2005. We do not anticipate undertaking any research and development in
          the
          future.
 
 Interest
          expense for the six months ended June 30, 2006 was $41,834 as compared
          to
          $95,715 for the same period in 2005, a decrease of $53,881, or 56.3%. Interest
          and other income for the six months ended June 30, 2006 was $34,729 as
          compared
          to $13,999 for the same period in 2005, an increase of $20,730, or 148.1%.
          Income from operations was $84,772 for the six months ended June 30, 2006
          as
          compared to $77,235 for the same period in 2005.
 
 **Net
          Income Attributable to Common Stockholders**
 
 We
          realized net income of $84,772 during the six months ended June 30, 2006
          as
          compared to $77,235 during the six months ended June 30, 2005, an increase
          of
          $7,537, or 9.8%.
  **Liquidity
          and Capital Resources**
  At
          June
          30, 2007, our principal sources of liquidity consisted of $1,879,333 of
          cash and
          working capital of $2,055,035, as compared to $1,480,720 of cash and working
          capital of $1,599,398 at December 31, 2006. In addition, our stockholders'
          equity was $2,888,670 at June 30, 2007, compared to stockholders' equity
          of
          $2,664,563 at December 31, 2006, an increase of $224,107. The increase
          in cash
          reflects the increase in working capital and stockholders' equity.
  Our
          accumulated deficit decreased from $31,484,848 at December 31, 2006 to
          $31,271,991 at June 30, 2007. The $212,857 decrease in accumulated deficit
          resulted directly from the net income realized for the six months ended
          June 30,
          2007. Our accumulated deficit may increase in the future as existing revenue
          sharing agreements with our hotel clients expire.
 
 Our
          operations provided net cash of $371,838 for the six months ended June
          30, 2007,
          compared to $290,061 during the six months ended June 30, 2006. The $81,777
          increase in net cash provided by our operating activities resulted primarily
          from the increase in net income during the six months ended June 30,
          2007.
  Investing
          activities for the six months ended June 30, 2007 provided net cash of
          $26,775,
          compared to $73,597 of net cash provided during the six months ended June
          30,
          2006. The $46,822 decrease in net cash provided consisted primarily of
          the
          decrease in proceeds from a note receivable.
  There
          were no financing activities in the six months ended June 30, 2007 as compared
          to $155,706 used during the six months ended June 30, 2006. This was due
          to the
          repayment in full of the long-term debt in 2006.
  We
          may
          require additional capital in the future to remain viable and to achieve
          our
          long-term business objectives. There can be no assurance that such financing
          will be made available, or if it is made available, on acceptable terms.
          If such
          future financing is procured in the form of equity, the shareholdings of
          the
          current stockholders of the Company will be diluted.
  -13-
  **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, 2007.
 
 **Item
          3.  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 principal executive and financial officer
          has
          reviewed the effectiveness of our "disclosure controls and procedures"
          (as
          defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c))
          within the end of the period covered by this Quarterly Report on Form 10-QSB
          and
          has 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. There were no significant
          changes
          in our internal controls or in other factors that could significantly affect
          these controls subsequent to the last day they were evaluated by our principal
          executive and financial officer.
 
 **Lack
          of Segregation of Duties**
  Management
          is aware that there is a lack of segregation of duties at the Company due
          to the
          small number of employees dealing with general administrative and financial
          matters. However, at this time management has decided that considering
          the
          abilities of the employees now involved and the control procedures in place,
          the
          risks associated with such lack of segregation are low and the potential
          benefits of adding employees to clearly segregate duties do not justify
          the
          substantial expenses associated with such increases. Management will
          periodically reevaluate this situation.
  **Changes
          in Internal Controls**
  There
          were no changes in our internal controls over financial reporting (as such
          item
          is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during
          the
          most fiscal quarter (the three months ended June 30, 2007), that have materially
          affected, or are reasonably likely to materially affect, our internal controls
          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
          2. Unregistered Sales of Equity Securities and Use of
          Proceeds.**
  Not
          applicable.
  **Item
          3. Defaults Upon Senior Securities.**
  Not
          applicable.
 
 **Item
          4. Submission of Matters to a Vote of Security Holders.**
  Not
          applicable.
  -14-
  **Item
          5. Other Information.**
  Not
          applicable.
  **Item
          6.**  **Exhibits.**
 
 **Exhibit
                  No.**
                
                **Description**31.1
                
                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
  -15-
  **SIGNATURE**
  Pursuant
          to the requirements of the Securities Exchange Act of 1934, the registrant
          has
          duly caused this quarterly report on Form 10-QSB to be signed on its behalf
          by
          the undersigned thereunto duly authorized.
  eRoomSystem
                  Technologies, Inc.(Registrant)Date: August
                  14, 2007
                By:
                /s/ David
                  A.
                  GestetnerName:David
                  A. GestetnerTitle:President,
                    Chief Executive Officer, Secretary,
                  and Chairman of the Board
                  (Principal
                    Executive, Financial,and
                    Accounting Officer)
  -16-