**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: September 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 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 12months (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 November 10,
      2007 was 23,973,165 shares of common stock.





Transitional
      Small Business Disclosure Format (check one): YES o  NO
x











**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 FINANCIALCONDITION OR
                PLAN OF
                OPERATION
            
            6ITEM
                3. CONTROLS AND PROCEDURES
            
            14PART
                II - OTHER INFORMATION
            
            15ITEM
                1. LEGAL PROCEEDINGS
            
            15ITEM
                2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
                OFPROCEEDS
            
            15ITEM
                3. DEFAULTS UPON SENIOR SECURITIES
            
            15ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            15ITEM
                5. OTHER INFORMATION
            
            15ITEM
                6. EXHIBITS
            
            15SIGNATURES
            
            15







-ii-


**PART
      I**


**FINANCIAL
      INFORMATION**





**Item
      1. Financial Statements.**


**eROOMSYSTEM
                  TECHNOLOGIES, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED BALANCE SHEETS
                  (UNAUDITED)**
  **September
                  30,**
              
              **December
                  31,****2007**
              
              **2006****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              2,139,232
              
              $
              1,480,720Accounts
                  receivable, net of allowance for doubtful accounts of $45,981
                  and$49,520
                  at September 30, 2007 and December 31, 2006, respectively
              
              
              259,371
              
              
              280,608Note
                  receivable
              
              
              -
              
              
              17,534Prepaid
                  expenses
              
              
              1,828
              
              
              1,797**Total
                  Current Assets**
              
              
              2,400,431
              
              
              1,780,659**REFRESHMENT
                  CENTERS IN SERVICE**,
                  net of accumulated depreciation of$2,320,851
                  and $2,512,447 at September 30, 2007 and December 31, 2006,
                  respectively
              
              
              520,209
              
              
              840,991**PROPERTY
                  AND EQUIPMENT**Computer
                  and office equipment, net of accumulated depreciation of $6,094
                  and$4,147,
                  at September 30, 2007 and December 31, 2006, respectively
              
              
              3,236
              
              
              5,183**INVESTMENT
                  IN MARKETABLE SECURITIES**
              
              
              14,075
              
              
              64,075**NOTE
                  RECEIVABLE,**net
                  of unamortized discount of $0 and $896 at September 30, 2007 and
December
                  31, 2006, respectively
              
              
              155,416
              
              
              149,103**DEPOSITS**
              
              
              1,382
              
              
              5,813**Total
                  Assets**
              
              $
              3,094,749
              
              $
              2,845,824**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              46,575
              
              $
              57,512Accrued
                  liabilities
              
              
              49,609
              
              
              99,634Customer
                  deposits
              
              
              -
              
              
              11,758Deferred
                  maintenance revenue
              
              
              4,670
              
              
              12,357**Total
                  Current Liabilities**
              
              
              100,854
              
              
              181,261**Total
                  Liabilities**
              
              
              100,854
              
              
              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
                  and23,898,165
                  shares outstanding at September 30, 2007 and December 31, 2006,
                  respectively
              
              
              23,973
              
              
              23,898Additional
                  paid-in capital
              
              
              33,792,010
              
              
              33,751,605Warrants
                  and options outstanding
              
              
              346,585
              
              
              373,908Accumulated
                  deficit
              
              
              (31,118,673
              )
              
              (31,484,848
              )Accumulated
                  other comprehensive loss
              
              
              (50,000
              )
              
              -**Total
                  Stockholders' Equity**
              
              
              2,993,895
              
              
              2,664,563**Total
                  Liabilities and Stockholders' Equity**
              
              $
              3,094,749
              
              $
              2,845,824




See
        accompanying notes to unaudited condensed consolidated financial
        statements





-1-




**eROOMSYSTEM
                  TECHNOLOGIES, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                  (UNAUDITED)**
  **For
                    the Three Months**
                  **Ended
                    September 30,**
                
                **For
                    the Nine Months**
                  **Ended
                    September 30,****2007**
                
                **2006**
                
                **2007**
                
                **2006****REVENUE**Revenue-sharing
                    arrangements
                
                $
                189,530
                
                $
                235,694
                
                $
                625,197
                
                $
                750,845Maintenance
                    fees
                
                
                63,643
                
                
                65,516
                
                
                196,892
                
                
                212,683Product
                    sales
                
                
                65,194
                
                
                5,925
                
                
                125,891
                
                
                60,819**Total
                    Revenue**
                
                
                318,367
                
                
                307,135
                
                
                947,980
                
                
                1,024,347**COST
                    OF REVENUE**Revenue-sharing
                    arrangements
                
                
                87,254
                
                
                111,573
                
                
                297,219
                
                
                334,720Maintenance
                
                
                14,716
                
                
                15,554
                
                
                44,558
                
                
                45,752Product
                    sales
                
                
                10,175
                
                
                2,349
                
                
                27,085
                
                
                59,972**Total
                    Cost of Revenue**
                
                
                112,145
                
                
                129,476
                
                
                368,862
                
                
                440,444**GROSS
                    MARGIN**
                
                
                206,222
                
                
                177,659
                
                
                579,118
                
                
                583,903**OPERATING
                    EXPENSES**Selling,
                    general and administrative expense, including cash compensation
                     non-of $1,907, $(849), $13,157 and $31,302,
                    respectively
                
                
                84,347
                
                
                111,810
                
                
                298,305
                
                
                393,711Sales
                    tax settlement
                
                
                -
                
                
                (15,999
                )
                
                -
                
                
                16,467Interest
                    expense
                
                
                -
                
                
                68,112
                
                
                -
                
                
                109,946Interest
                    and other income
                
                
                (31,443
                )
                
                (15,169
                )
                
                (76,862
                )
                
                (49,898
                )**Net
                    Operating Expenses**
                
                
                52,904
                
                
                148,754
                
                
                221,443
                
                
                470,226**Income
                    from Operations**
                
                
                153,318
                
                
                28,905
                
                
                357,675
                
                
                113,677Gain
                    on forgiveness of liabilities and debt
                
                
                -
                
                
                -
                
                
                8,500
                
                
                -**Net
                    Income**
                
                
                153,318
                
                
                28,905
                
                
                366,175
                
                
                113,677Unrealized
                    loss on investment
                
                
                (50,000
                )
                
                -
                
                
                (50,000
                )
                
                -**Comprehensive
                    Income**
                
                $
                103,318
                
                $
                28,905
                
                $
                316,175
                
                $
                113,677**Basic
                    Earnings Per Common Share**
                
                $
                0.01
                
                $
                0.00
                
                $
                0.02
                
                $
                0.00**Diluted
                    Earnings Per Common Share**
                
                $
                0.01
                
                $
                0.00
                
                $
                0.02
                
                $
                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 Nine Months Ended September 30***
              
              **2007**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              366,175
              
              $
              113,677Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              299,166
              
              
              336,306Gain
                  on forgiveness of debt and liabilities
              
              
              (8,500
              )
              
              -Gain
                  on sale of refreshment centers
              
              
              (47,398
              )
              
              7,622Interest
                  income from shareholder receivables
              
              
              -
              
              
              (819
              )Interest
                  income from other receivable
              
              
              (5,757
              )
              
              (2,912
              )Accretion
                  of debt discount
              
              
              -
              
              
              58,174Amortization
                  of discount on note receivable
              
              
              (897
              )
              
              (1,467
              )Non-cash
                  compensation expense
              
              
              13,157
              
              
              31,302Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              9,479
              
              
              (21,769
              )Prepaid
                  expenses
              
              
              (31
              )
              
              370Accounts
                  payable
              
              
              (2,437
              )
              
              17,820Accrued
                  liabilities
              
              
              (50,025
              )
              
              (58,938
              )Customer
                  deposits and deferred maintenance revenue
              
              
              (7,687
              )
              
              1,763**Net
                  Cash Provided By Operating Activities**
              
              
              565,245
              
              
              481,129**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of fixed assets
              
              
              -
              
              
              (3,863
              )Proceeds
                  from sale of refreshment centers
              
              
              70,961
              
              
              50,000Purchase
                  of investment
              
              
              -
              
              
              (50,000
              )Proceeds
                  from note receivable
              
              
              17,875
              
              
              86,752Change
                  in long term deposits and restricted funds
              
              
              4,431
              
              
              77,487**Net
                  Cash Provided by Investing Activities**
              
              
              93,267
              
              
              160,376**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Principal
                  payments on long-term debt
              
              
              -
              
              
              (709,250
              )**Net
                  Cash Used in Financing Activities**
              
              
              -
              
              
              (709,250
              )**Net
                  Increase in Cash**
              
              
              658,512
              
              
              (67,745
              )**Cash
                  at Beginning of Period**
              
              
              1,480,720
              
              
              1,316,515**Cash
                  at End of Period**
              
              $
              2,139,232
              
              $
              1,248,770**Supplemental
                  Cash Flows Information**Cash
                  paid for interest
              
              $
              -
              
              $
              35,291**Supplemental
                  Disclosure of Noncash Investing and Financing
                  Activities**Shares
                  of common stock cancelled in settlement of notes receivable
              
              $
              -
              
              $
              78,813
  See
        accompanying notes to 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 nine months ended September 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
      September 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
      nine months ended September 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 nine months ended September 30, 2007 and 2006:


***For
                  The Three Months***
                ***Ended
                  September 30,***
              
              ***For
                  The Nine Months***
                ***Ended
                  September 30,******2007***
              
              ***2006***
              
              ***2007***
              
              ***2006***Basic
                  net income
              
              $
              153,318
              
              $
              28,905
              
              $
              366,175
              
              $
              113,677Diluted
                  net income
              
              $
              153,318
              
              $
              28,905
              
              $
              366,175
              
              $
              113,677Basic
                  weighted-average common shares outstanding
              
              
              23,973,165
              
              
              23,898,165
              
              
              23,940,198
              
              
              24,063,955Effect
                  of dilutive securitiesStock
                  options and warrants
              
              
              130,461
              
              
              302,561
              
              
              116,649
              
              
              365,528Diluted
                  weighted-average common shares outstanding
              
              
              24,103,626
              
              
              24,200,726
              
              
              24,056,847
              
              
              24,429,483Basic
                  earnings per share
              
              $
              0.01
              
              $
              0.00
              
              $
              0.02
              
              $
              0.00Diluted
                  earnings per share
              
              $
              0.01
              
              $
              0.00
              
              $
              0.02
              
              $
              0.00




During
      the three and nine months ended September 30, 2007 and 2006, there were
      potential common stock equivalents from options and warrants of 3,045,160,
      3,198,250, 3,058,972, 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.




-4-




**NOTE
      2 - BUSINESS CONDITION**




During
      the year ended December 31, 2006 and the nine months ended September 30, 2007,
      the Company realized a net gain of $162,083 and $366,175, respectively. During
      the year ended December 31, 2006 and the nine months ended September 30, 2007,
      the Company's operations provided $683,126 and $565,245 of cash, respectively.
      The Company had a cash balance of $2,139,232 as of September 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 makes 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 September 30, 2007:


Total
                  minimum lease payments to be received
              
              $
              108,000Less:
                  Allowance for uncollectibles
              
              
              (90,828
              )Net
                  minimum lease payments receivable
              
              
              17,172Less:
                  Unearned income
              
              
              (17,172
              )Net
                  investment in sales-type lease
              
              $
              -




The
      Company recorded revenue sharing and maintenance fee revenue, relating to this
      property, in the amount of $64,800 for the nine months ended September 30,
      2007.




Minimum
      lease payments for the three months ending December 31, 2007, and the succeeding
      fiscal year through the end of the lease term are as follows: $21,600 in 2007;
      $86,400 in 2008.





**NOTE
      4 - UNREALIZED LOSS ON INVESTMENT**





Upon
      evaluation of the Company’s investments in the third quarter of 2007, the
      Company determined that the investment in Aprecia was impaired based on their
      most recent filing which shows them as a company with no revenue and negative
      stockholders equity. Therefore, the Company has recorded an unrealized loss
      in
      the amount of $50,000 as accumulated balance of comprehensive net loss in the
      three months ended September 30, 2007.





**NOTE
      5 - STOCKHOLDERS' EQUITY**





During
      the nine months ended September 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.





During
      the nine months ended September 30, 2006, the Company granted options to
      purchase 20,000 shares of common stock to a consultant for services rendered.
      These options, which vested immediately, have an exercise price of $0.10 per
      share and are exercisable through July 23, 2012. These options were valued
      at
      $1,907 using the Black-Scholes option pricing model with the following
      assumptions: risk free interest rate of 4.86%, dividend yield of 0.0%,
      volatility of 126% and expected life of 5 years.





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).





On
      August
      28, 2007, the board of directors of the Company authorized the repurchase of
      up
      to five million of its outstanding common shares on the open market. In the
      nine
      months ended September 30, 2007, no purchases have been made.




-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
      an
      investment totaling $10,000 in Identica Holdings Corporation (“Identica”). In
      addition, we have loaned Identica $150,000 in cash. The loan is secured by
      a
      security interest in all the assets of Identica and is evidenced by a promissory
      note. 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 of our investment made in a third party
      company in 2005; however, the return on such investments is not
      assured.




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




-6-




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 this end, we 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. We continue to explore opportunities and perform due
      diligence on third parties with respect to additional potential investments.
      At
      this time, we have not reached a definitive agreement to make further
      investments. In addition, we may acquire an operating company in the future
      if
      the opportunity arises. Over time, we may realize revenues from the sale of
      securities purchased from Identica, and other third party companies, if
      applicable. The timing and return on such investments, however, cannot be
      assured.




We
      anticipate that we will receive more than 50% of the recurring revenues from
      the
      sale of goods and services generated by our currently installed eRoomServ
      refreshment centers, eRoomSafes and eRoomTray solutions under revenue-sharing
      agreements. Our customers receive the remainder of the recurring
      revenues.





**Revenue
      Recognition**




Sales
      revenue from our products is recognized upon completion of installation and
      acceptance by the customer. We do not, however, expect to generate meaningful
      sales revenue as such revenues are limited to the sales of used equipment as
      well as replacement equipment and parts to hotel clients who previously
      purchased our products. Sales revenue from the placement of our eRoomServ
      refreshment centers and eRoomSafes under our revenue-sharing program are
      accounted for similar to an operating lease, with the revenues recognized as
      earned over the term of the agreement. In some instances, our revenue-sharing
      agreements provide for a guaranteed minimum daily payment by the hotel. We
      negotiated our portion of the revenues generated under our revenue-sharing
      program based upon the cost of the equipment installed and the estimated daily
      sales per unit for the specific customer.




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




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




**Description
      of Expenses**




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




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




Research
      and development expenses consist of payroll and related costs for hardware
      and
      software engineers, quality assurance specialists, management personnel, and
      the
      costs of materials used by our consultants in the maintenance of our existing
      installed products. As we have elected not to install new products at hotels,
      we
      had no research and development expenses in the nine months ended September
      30,
      2007, and we do not expect this to change in future periods.




-7-




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 September 30, 2007 and 2006**




**Revenues**




Revenue
      Sharing Arrangements -- Our revenue from revenue sharing arrangements was
      $189,530 for the three months ended September 30, 2007, compared to $235,694
      for
      the three months ended September 30, 2006, representing a decrease of $46,164,
      or 19.6%. The decrease in revenue sharing revenue was due to the completion
      of a
      number of revenue sharing contracts in 2007.




Maintenance
      Fee Revenues -- Maintenance fee revenues were $63,643 for the three months
      ended
      September 30, 2007, compared to $65,516 for the three months ended September
      30,
      2006, representing a decrease of $1,873, or 2.9%. The decrease in maintenance
      fee revenue was due to the completion of a number of revenue sharing contracts
      in 2007.




Product
      Sales -- Revenue from product sales was $65,194 for the three months ended
      September 30, 2007, compared to $5,925 for the three months ended September
      30,
      2006, representing an increase of $59,269, or 1000.3%. 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
      September 30, 2007.




**Cost
      of Revenue**




Cost
      of
      Revenue Sharing Revenue -- Cost of revenue sharing revenue was $87,254 for
      the
      three months ended September 30, 2007, compared to $111,573 for the three months
      ended September 30, 2006 representing a decrease of $24,319 or 21.8%. The gross
      margin percentage on revenue sharing revenue was 54% for the three months ended
      September 30, 2007, compared to 52.7% for the three months ended September
      30,
      2006. The decrease in cost of revenue sharing revenue is due to the completion
      of some revenue sharing contracts in 2007.




Cost
      of
      Maintenance Fee Revenue -- Our cost of maintenance fee revenue was $14,716
      for
      the three months ended September 30, 2007, compared to $15,554 for the three
      months ended September 30, 2006, representing a decrease of $838, or 5.4%.
      The
      gross margin percentage on maintenance fee revenues was 76.9% for the three
      months ended September 30, 2007, compared to 76.3% for the three months ended
      September 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 three months
      ended September 30, 2007 was $10,175, compared to $2,349 for the three months
      ended September 30, 2006, an increase of $7,826. The gross margin percentage
      on
      revenue from product sales revenue was 84.4% for the three months ended
      September 30, 2007, compared to 60.4% for the three months ended September
      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 September 30,
      2007.




-8-




The
      changes and percent changes with respect to our revenues and our cost of revenue
      for the three months ended September 30, 2007 and 2006 are summarized as
      follows:


**For
                  the Three Months**
                **Ended
                  September 30,**
              
              
              
              **Percent****2007**
              
              **2006**
              
              **Change**
              
              **Change****REVENUE**Revenue-sharing
                  arrangements
              
              $
              189,530
              
              $
              235,694
              
              $
              (46,164
              )
              
              -19.6
              %Maintenance
                  fees
              
              
              63,643
              
              
              65,516
              
              
              (1,873
              )
              
              -2.9
              %Product
                  sales
              
              
              65,194
              
              
              5,925
              
              
              59,269
              
              
              1000.3
              %**Total
                  Revenue**
              
              
              318,367
              
              
              307,135
              
              
              11,232
              
              
              3.7
              %**COST
                  OF REVENUE**
              
              
              
              
              
              
              
              
              -Revenue-sharing
                  arrangements
              
              
              87,254
              
              
              111,573
              
              
              (24,319
              )
              
              -21.8
              %Maintenance
              
              
              14,716
              
              
              15,554
              
              
              (838
              )
              
              -5.4
              %Product
                  sales
              
              
              10,175
              
              
              2,349
              
              
              7,826
              
              
              333.2
              %**Total
                  Cost of Revenue**
              
              
              112,145
              
              
              129,476
              
              
              (17,331
              )
              
              -13.4
              %**GROSS
                  MARGIN**
              
              $
              206,222
              
              $
              177,659
              
              $
              28,563
              
              
              16.1
              %**GROSS
                  MARGIN PERCENTAGE**Revenue-sharing
                  arrangements
              
              
              54.0
              %
              
              52.7
              %Maintenance
                  fees
              
              
              76.9
              %
              
              76.3
              %Product
                  sales
              
              
              84.4
              %
              
              60.4
              %**Total
                  Gross Margin Percentage**
              
              
              64.8
              %
              
              57.8
              %




Although
      the preceding table summarizes the net changes and percent changes with respect
      to our revenues and our cost of revenue for the three months ended September
      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 $84,347 for the three months
      ended
      September 30, 2007, compared to $111,810 for the three months ended September
      30, 2006, representing a decrease of $27,463, or 24.6%. The decrease in our
      selling, general and administrative expenses reflects our ongoing commitment
      to
      further reduce fixed overhead expenses.





During
      the three months ended September 30, 2006, $15,999 was refunded to the Company
      from the sales tax settlement the Company paid in the beginning of 2006. No
      refund was received in 2007.





Interest
      expense was $68,112 for the three months ended September 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 $31,443 for the three months ended September 30, 2007
      as
      compared to $15,169 for the three months ended September 30, 2006 representing
      an increase of $16,274, or 38.2%. 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 $153,318 for the three months ended September 30, 2007,
      compared to $28,905 during the three months ended September 30, 2006. The
      $124,413 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.




-9-





**Comparison
      of Nine months Ended September 30, 2007 and 2006**




**Revenues**




Revenue
      Sharing Arrangements -- Our revenue from revenue sharing arrangements was
      $625,197 for the nine months ended September 30, 2007, compared to $750,845
      for
      the nine months ended September 30, 2006, representing a decrease of $125,648,
      or 16.7%. The decrease in revenue sharing revenue was due to the completion
      of a
      number of revenue sharing contracts in 2006 and 2007.




Maintenance
      Fee Revenues -- Maintenance fee revenues were $196,892 for the nine months
      ended
      September 30, 2007, compared to $212,683 for the nine months ended September
      30,
      2006, representing a decrease of $15,791, or 7.4%. The decrease in maintenance
      fee revenue was due to the completion of a number of revenue sharing contracts
      in 2006 and 2007.




Product
      Sales -- Revenue from product sales was $125,891 for the nine months ended
      September 30, 2007, compared to $60,819 for the nine months ended September
      30,
      2006, representing an increase of $65,072, or 107%. The increase in product
      sales revenues was due to additional sales of refreshment centers to
      Hotels.




**Cost
      of Revenue**




Cost
      of
      Revenue Sharing Revenue -- Cost of revenue sharing revenue was $297,219 for
      the
      nine months ended September 30, 2007, compared to $334,720 for the nine months
      ended September 30, 2006 representing a decrease of $37,501 or 11.2%. The gross
      margin percentage on revenue sharing revenue was 52.5% for the nine months
      ended
      September 30, 2007, compared to 55.4% for the nine months ended September 30,
      2006. The decrease in gross margin relating to revenue sharing revenue is due
      to
      the completion of some revenue sharing contracts in 2006 and 2007.




Cost
      of
      Maintenance Fee Revenue -- Our cost of maintenance fee revenue was $44,558
      for
      the nine months ended September 30, 2007, compared to $45,752 for the nine
      months ended September 30, 2006, representing a decrease of $1,194, or 2.6%.
      The
      gross margin percentage on maintenance fee revenues was 77.4% for the nine
      months ended September 30, 2007, compared to 78.5% for the nine months ended
      September 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 nine months
      ended September 30, 2007 was $27,085, compared to $59,972 for the nine months
      ended September 30, 2006, a decrease of $32,887. The gross margin percentage
      on
      revenue from product sales revenue was 78.5% for the nine months ended September
      30, 2007, compared to 1.4% for the nine months ended September 30, 2006. The
      cost of product sales revenue relates to the remaining basis of the refreshment
      centers sold in the nine months ended September 30, 2007 and 2006.




-10-




The
      changes and percent changes with respect to our revenues and our cost of revenue
      for the nine months ended September 30, 2007 and 2006 are summarized as
      follows:


**For
                  the Nine Months**
                **Ended
                  September 30,**
              
              
              
              **Percent****2007**
              
              **2006**
              
              **Change**
              
              **Change****REVENUE**Revenue-sharing
                  arrangements
              
              $
              625,197
              
              $
              750,845
              
              $
              (125,648
              )
              
              -16.7
              %Maintenance
                  fees
              
              
              196,892
              
              
              212,683
              
              
              (15,791
              )
              
              -7.4
              %Product
                  sales
              
              
              125,891
              
              
              60,819
              
              
              65,072
              
              
              107.0
              %**Total
                  Revenue**
              
              
              947,980
              
              
              1,024,347
              
              
              (76,367
              )
              
              -7.5
              %**COST
                  OF REVENUE**
              
              
              
              
              
              
              
              
              -Revenue-sharing
                  arrangements
              
              
              297,219
              
              
              334,720
              
              
              (37,501
              )
              
              -11.2
              %Maintenance
              
              
              44,558
              
              
              45,752
              
              
              (1,194
              )
              
              -2.6
              %Product
                  sales
              
              
              27,085
              
              
              59,972
              
              
              (32,887
              )
              
              -54.8
              %**Total
                  Cost of Revenue**
              
              
              368,862
              
              
              440,444
              
              
              (71,582
              )
              
              -16.3
              %**GROSS
                  MARGIN**
              
              $
              579,118
              
              $
              583,903
              
              $
              (4,785
              )
              
              -0.8
              %**Gross
                  Margin Percentage**Revenue-sharing
                  arrangements
              
              
              52.5
              %
              
              55.4
              %Maintenance
                  fees
              
              
              77.4
              %
              
              78.5
              %Product
                  sales
              
              
              78.5
              %
              
              1.4
              %**Total
                  Gross Margin Percentage**
              
              
              61.1
              %
              
              57.0
              %




Although
      the preceding table summarizes the net changes and percent changes with respect
      to our revenues and our cost of revenue for the nine months ended September
      30,
      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 $298,305 for the nine months
      ended
      September 30, 2007, compared to $393,711 for the nine months ended September
      30,
      2006, representing a decrease of $95,406, or 24.2%. The decrease in our selling,
      general and administrative expenses reflects our ongoing commitment to further
      reduce fixed overhead expenses.




Sales
      tax
      settlement -- During the nine months ended September 30, 2006, the Company
      paid
      $16,467 as final settlement of a sales tax audit on previous years. No such
      payments were made in the nine months ended September 30, 2007.




Interest
      expense was $109,946 for the nine months ended September 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 $76,682 for the nine months ended September 30, 2007 as
      compared to $49,898 for the nine months ended September 30, 2006 representing
      an
      increase of $26,964, or 54%. 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 $366,175 for the nine months ended September 30, 2007,
      compared to $113,677 during the nine months ended September 30, 2006. The
      $252,498 increase in net income was primarily due to the interest expense and
      sales tax settlement in 2006, sales of refreshment centers in 2007 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.




-11-





**Comparison
      of Three Months Ended September 30, 2006 and 2005**




**Revenues**




Revenue
      Sharing Arrangements — Our revenue from revenue sharing arrangements was
      $235,694 for the three months ended September 30, 2006, compared to $319,304
      for
      the three months ended September 30, 2005, representing a decrease of $83,610,
      or 26.2%. The decrease in revenue from revenue sharing arrangements was due
      to a
      decrease in revenue sharing units in service during the three months ended
      September 30, 2006 as compared to the three months ended September 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 $65,516 for the three months
      ended September 30, 2006, compared to $87,043 for the three months ended
      September 30, 2005, representing a decrease of $21,527, or 24.7%. The decrease
      was due to a decreased number of units in service.




Product
      Sales — Revenues from product sales were $5,925 for the three months ended
      September 30, 2006, compared to $583 for the three months ended September 30,
      2005, representing a increase of $5,342, or 916.3%. The increase, while
      significant in percentage terms, was not otherwise material given the extremely
      limited product sales volume.




**Cost
      of Revenue**




Cost
      of
      Revenue Sharing Revenue — Our cost of revenue sharing revenue was $111,573 for
      the three months ended September 30, 2006, compared to $128,665 during the
      three
      months ended September 30, 2005, representing a decrease of $17,092, or 13.3%.
      The decrease in cost of revenue related to a decrease in the number of revenue
      sharing units in service. The gross margin percentage on revenue sharing revenue
      was 52.7% for the three months ended September 30, 2006 and 59.7% for the three
      months ended September 30, 2005. The decrease in gross margin percentage was
      directly related to a decrease in the number of revenue sharing units in service
      and fixed overhead expenses comprising a higher percentage of revenue sharing
      revenue.




Cost
      of
      Maintenance Fee Revenue — Our cost of maintenance fee revenue was $15,554 for
      the three months ended September 30, 2006, compared to $15,736 for the three
      months ended September 30, 2005, representing a decrease of $182, or 1.2%.
      The
      decrease in our cost of maintenance fee revenue was not material. The gross
      margin percentage on maintenance fee revenue was 76.3% for the three months
      ended September 30, 2006 and 81.9% for the three months ended September 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.




Cost
      of
      Product Sales Revenue — Our cost of product sales revenue for the three months
      ended September 30, 2006 was $2,349, as compared to zero for the three months
      ended September 30, 2005, an increase of $2,349, or 100.0%. The gross margin
      percentage on revenue from product sales revenue was 60.4% for the three months
      ended September 30, 2006 as compared to 100.0% for the three months ended
      September 30, 2005. While the percentage change in cost of product sales revenue
      is material, given the limited product sales in the two fiscal quarters ended
      September 30, 2005 and 2006, the change from period to period is
      immaterial.





**Expenses
      and Other Income**




Selling,
      General and Administrative — Selling, general and administrative expenses were
      $111,810 for the three months ended September 30, 2006, compared to $167,211
      for
      the three months ended September 30, 2005, representing a decrease of $55,401,
      or 33.1%. The decrease in our selling, general and administrative expenses
      from
      the three months ended September 30, 2006 to the three months ended September
      30, 2005 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.




Sales
      tax
      settlement for the three months ended September 30, 2006 was $15,999 as compared
      to zero for the three months ended September 30, 2005, a decrease of $15,999,
      or
      100.0%.




Interest
      expense for the three months ended September 30, 2006 was $68,112 as compared
      to
      $199,498 for the same period in 2005, a decrease of $131,386, or 65.9%. Gain
      on
      sale of assets was zero for the three months ended September 30, 2006 as
      compared to $52,624 for the same period in 2005, a decrease of $52,624, or
      100.0%. Interest and other income for the three months ended September 30,
      2006
      was $15,169 as compared to $6,745 for the same period in 2005, an increase
      of
      $8,424, or 124.9%. Income from operations was $28,905 for the three months
      ended
      September 30, 2006, compared to a loss of $44,811 for the three months ended
      September 30, 2005, a change of $73,716.




-12-




**Net
      Income Attributable to Common Stockholders**




We
      realized net income of $28,905 during the three months ended September 30,
      2006
      as compared to a net loss of $42,714, an increase of $71,619.





**Comparison
      of Nine Months Ended September 30, 2006 and 2005**





**Revenues**





Revenue
      Sharing Arrangements — Our revenue from revenue sharing arrangements was
      $750,845 for the nine months ended September 30, 2006, compared to $896,750
      for
      the nine months ended September 30, 2005, representing a decrease of $145,905,
      or 16.3%. The decrease in revenue from revenue sharing arrangements was due
      to a
      decrease in revenue sharing units in service during the nine months ended
      September 30, 2006 as compared to the nine months ended September 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 $212,683 for the nine months
      ended September 30, 2006, compared to $254,532 for the nine months ended
      September 30, 2005, representing a decrease of $41,849, or 16.4%. The decrease
      was due to a decreased number of units in service.




Product
      Sales — Revenues from product sales were $60,819 for the nine months ended
      September 30, 2006, compared to $5,526 for the nine months ended September
      30,
      2005, representing an increase of $55,293, or 1,000.6%. The increase was due
      to
      the sale of refreshment centers to a hotel client upon the completion of its
      revenue sharing agreement in the three months ended March 31, 2006.




**Cost
      of Revenue**




Cost
      of
      Revenue Sharing Revenue — Our cost of revenue sharing revenue was $334,720 for
      the nine months ended September 30, 2006, compared to $385,998 during the nine
      months ended September 30, 2005, representing a decrease of $51,278, or 13.3%.
      The decrease in cost of revenue related to a decrease in the number of revenue
      sharing units in service. The gross margin percentage on revenue sharing revenue
      was 55.4% for the nine months ended September 30, 2006 and 57.0% for the nine
      months ended September 30, 2005. The decrease in gross margin percentage was
      directly related to a decrease in the number of revenue sharing units in service
      and fixed overhead expenses comprising a higher percentage of revenue sharing
      revenue.




Cost
      of
      Maintenance Fee Revenue — Our cost of maintenance fee revenue was $45,752 for
      the nine months ended September 30, 2006, compared to $47,554 for the nine
      months ended September 30, 2005, representing a decrease of $1,802, or 3.8%.
      The
      decrease in our cost of maintenance fee revenue was not material. The gross
      margin percentage on maintenance fee revenue was 78.5% for the nine months
      ended
      September 30, 2006 and 81.3% for the nine months ended September 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.




Cost
      of
      Product Sales Revenue — Our cost of product sales revenue for the nine months
      ended September 30, 2006 was $59,972, as compared to $1,261 for the nine months
      ended September 30, 2005, an increase of $58,711, or 4,655.9%. The gross margin
      percentage on revenue from product sales revenue was 1.4% for the nine months
      ended September 30, 2006 as compared to 77.2% for the nine months ended
      September 30, 2005. The significant decrease in gross margin percentage on
      product sales revenue relates to the cost of the sale of refreshment centers
      to
      a hotel client upon the completion of its revenue sharing
      agreement.




**Expenses
      and Other Income**





Selling,
      General and Administrative — Selling, general and administrative expenses were
      $393,711 for the nine months ended September 30, 2006, compared to $465,767
      for
      the nine months ended September 30, 2005, representing a decrease of $72,056,
      or
      15.5%. The decrease in our selling, general and administrative expenses from
      the
      nine months ended September 30, 2006 to the nine months ended September 30,
      2005
      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 Expense — Research and development expense was zero for the nine
      months ended September 30, 2006, compared to $1,959 for the nine months ended
      September 30, 2005, representing a decrease of $1,959, or 100.0%. The decrease,
      while significant from a percentage standpoint, is immaterial given the minimal
      research and development expense. The Company does not intend to undertake
      research and development work in the future relating to its existing business.




Sales
      tax
      settlement expense for the nine months ended September 30, 2006 was $16,467
      as
      compared to zero for the nine months ended September 30, 2005, an increase
      of
      $16,467, or 100.0%.




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Interest
      expense for the nine months ended September 30, 2006 was $109,946 as compared
      to
      $295,213 for the same period in 2005, a decrease of $185,267, or 62.8%. Gain
      on
      sale of assets was zero for the nine months ended September 30, 2006 as compared
      to $52,624 for the same period in 2005, a decrease of $52,624, or 100.0%.
      Interest and other income for the nine months ended September 30, 2006 was
      $49,898 as compared to $20,744 for the same period in 2005, an increase of
      $29,154, or 140.5%. Income from operations was $113,677 for the nine months
      ended September 30, 2006, compared to $32,424 for the nine months ended
      September 30, 2005, an increase of $81,253.





**Net
      Income Attributable to Common Stockholders**





We
      realized net income of $113,677 during the nine months ended September 30,
      2006
      as compared to $34,521 during the nine months ended September 30, 2005, an
      increase $79,156.




**Liquidity
      and Capital Resources**




At
      September 30, 2007, our principal sources of liquidity consisted of $2,139,232
      of cash and working capital of $2,299,577, 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 $2,993,895 at September 30, 2007, compared to
      stockholders' equity of $2,664,563 at December 31, 2006, an increase of
      $329,332. 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
      $31,118,673 at September 30, 2007. The $366,175 decrease in accumulated deficit
      resulted directly from the net income realized for the nine months ended
      September 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 $565,245 for the nine months ended September
      30,
      2007, compared to $481,129 during the nine months ended September 30, 2006.
      The
      $84,116 increase in net cash provided by our operating activities resulted
      primarily from the increase in net income during the nine months ended September
      30, 2007.





Investing
      activities for the nine months ended September 30, 2007 provided net cash of
      $93,267, compared to $160,376 of net cash provided during the nine months ended
      September 30, 2006. The $67,109 decrease in net cash provided consisted
      primarily of the decrease in proceeds from a note receivable.




There
      were no financing activities in the nine months ended September 30, 2007 as
      compared to $709,250 used during the nine months ended September 30, 2006.
      This
      was due to the repayment in full of the Company’s 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.




**Contractual
      Cash Obligations and Commercial Commitments**




There
      were no significant contractual cash obligations or commercial commitments
      either on or off balance sheet as of September 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.




-14-




**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 September 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.**




We
      did
      not make any purchases of our outstanding common stock during the quarter ended
      September 30, 2007.




**Item
      3. Defaults Upon Senior Securities.**




Not
      applicable.





**Item
      4. Submission of Matters to a Vote of Security Holders.**




Not
      applicable.





**Item
      5. Other Information.**




Not
      applicable.




**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




**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:November
              14, 2007By:
            /s/ David A. GestetnerName:David
              A. GestetnerTitle:President,
                Chief Executive Officer, Secretary,
              and Chairman of the Board
              (Principal Executive, Financial,
              and Accounting Officer)








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