UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the
quarterly period ended September 30, 2010





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





For the
transition period from _____________   To __________





Commission
file number 000-31037





eRoomSystem
Technologies, Inc.


(Name of
small business issuer in its charter)




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





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





Title
      of each class
            Name
      of each exchange on which
registered





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


Common
Stock, $.001 par value


(Title of
each class)





(Title of
each class)





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





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





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





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





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





Yes  o No  x





The
number of shares of the issuer’s common stock issued and outstanding as of
November 2, 2010 was 23,907,865 shares.





EROOMSYSTEM
TECHNOLOGIES, INC.





TABLE
OF CONTENTS





PART
      I - FINANCIAL INFORMATION
                
                1Item
      1. Financial Statements
                
                1Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations.
                
                9Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.
                
                14Item
      4(T).  Controls and Procedures
                
                15PART
      II - OTHER INFORMATION
                
                15Item
      1. Legal Proceedings.
                
                15Item
      1A. Risk Factors.
                
                15Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
                
                15Item
      3. Defaults Upon Senior Securities.
                
                15Item
      4. Removed and Reserved.
                
                15Item
      5. Other Information.
                
                15Item
      6. Exhibits.
                
                15


-ii-


PART
I - FINANCIAL INFORMATION


Item
1. Financial Statements





eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)





September
      30,
                
                
                December
      31,2010
                
                
                2009ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                
                $
                2,052,220
                
                
                $
                2,302,620Investment
      in certificate of deposit
                
                
                104,593
                
                
                
                -Investment
      in equity securities available for sale
                
                
                34,000
                
                
                
                -Investment
      in real property tax liens
                
                
                75,448
                
                
                
                -Accounts
      receivable, net of allowance for doubtful accounts of  $17,181
      at September 30, 2010 and $19,087 at December 31, 2009
                
                
                95,721
                
                
                
                105,826Inventory
                
                
                75,031
                
                
                
                75,911Advance
      to supplier
                
                
                49,278
                
                
                
                53,011Note
      receivable
                
                
                522,685
                
                
                
                522,685Prepaid
      expenses
                
                
                62,236
                
                
                
                18,716Total
      Current Assets
                
                
                3,071,212
                
                
                
                3,078,769PROPERTY
      AND EQUIPMENTComputer
      and office equipment, net of accumulated depreciation of $26,021 at
      September 30, 2010 and $11,971 at December 31, 2009
                
                
                78,623
                
                
                
                4,801INTANGIBLE ASSETS,net
      of accumulated amortization of $2,954 at September 30, 2010and $1,688 at
      December 31, 2009
                
                
                2,110
                
                
                
                3,376DEPOSITS
                
                
                2,250
                
                
                
                4,950Total
      Assets
                
                $
                3,154,195
                
                
                $
                3,091,896LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                
                $
                20,552
                
                
                $
                25,037Accrued
      liabilities
                
                
                51,082
                
                
                
                94,640Customer
      deposits
                
                
                2,004
                
                
                
                2,004Total
      Current Liabilities
                
                
                73,638
                
                
                
                121,681STOCKHOLDERS'
      EQUITYPreferred
      stock, $0.001 par value; 5,000,000 shares authorized; none
      outstanding
                
                
                -
                
                
                
                -Common
      stock, $0.001 par value; 50,000,000 shares authorized; outstanding:
      23,907,865 shares at September 30, 2010 and 23,832,865 shares at December
      31, 2009
                
                
                23,908
                
                
                
                24,123Additional
      paid-in capital
                
                
                34,156,705
                
                
                
                34,079,467Treasury
      stock at cost; 0 shares at September 30, 2010 and 290,300 shares at
      December 31, 2009
                
                
                -
                
                
                
                (38,453
                )Warrants
      and options outstanding
                
                
                -
                
                
                
                103,123Accumulated
      deficit
                
                
                (31,134,056
                )
                
                
                (31,148,045
                )Accumulated
      other comprehensive gain (loss)
                
                
                34,000
                
                
                
                (50,000
                )Total
      Stockholders' Equity
                
                
                3,080,557
                
                
                
                2,970,215Total
      Liabilities and Stockholders' Equity
                
                $
                3,154,195
                
                
                $
                3,091,896





See
accompanying notes to condensed consolidated financial
statements


-1-


eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)





For the Three Months
                          Ended September 30,
                        
                        
                        For the Nine Months
                          Ended September 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009REVENUE
      AND INVESTMENT INCOME (LOSSES)Product
      sales
                        
                        $
                        213,371
                        
                        
                        $
                        115,277
                        
                        
                        $
                        623,357
                        
                        
                        $
                        155,383Maintenance
      fees
                        
                        
                        48,687
                        
                        
                        
                        45,158
                        
                        
                        
                        148,239
                        
                        
                        
                        120,986Revenue-sharing
      arrangements
                        
                        
                        -
                        
                        
                        
                        45,559
                        
                        
                        
                        -
                        
                        
                        
                        194,374Interest
      income
                        
                        
                        32,206
                        
                        
                        
                        20,101
                        
                        
                        
                        85,258
                        
                        
                        
                        93,836Loss
      on other than temporary decline in marketable securities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (50,000
                        )
                        
                        
                        -Total
      Revenue and Investment  Income (Losses)
                        
                        
                        294,264
                        
                        
                        
                        226,095
                        
                        
                        
                        806,854
                        
                        
                        
                        564,579COST
      OF REVENUEProduct
      sales
                        
                        
                        138,229
                        
                        
                        
                        96,008
                        
                        
                        
                        389,999
                        
                        
                        
                        128,763Maintenance
                        
                        
                        4,757
                        
                        
                        
                        23,533
                        
                        
                        
                        27,892
                        
                        
                        
                        31,156Revenue-sharing
      arrangements
                        
                        
                        -
                        
                        
                        
                        8,691
                        
                        
                        
                        -
                        
                        
                        
                        55,642Total
      Cost of Revenue
                        
                        
                        142,986
                        
                        
                        
                        128,232
                        
                        
                        
                        417,891
                        
                        
                        
                        215,561OPERATING
      EXPENSESSelling,
      general and administrative expense, including non-cash compensation of $0,
      $1,079, $12,351 and $20,175, respectively
                        
                        
                        84,158
                        
                        
                        
                        237,309
                        
                        
                        
                        320,525
                        
                        
                        
                        480,526Research
      and development expense
                        
                        
                        21,426
                        
                        
                        
                        2,031
                        
                        
                        
                        54,449
                        
                        
                        
                        7,116Net
      Operating Expenses
                        
                        
                        105,584
                        
                        
                        
                        239,340
                        
                        
                        
                        374,974
                        
                        
                        
                        487,642Net
      Income (Loss)
                        
                        
                        45,694
                        
                        
                        
                        (141,477
                        )
                        
                        
                        13,989
                        
                        
                        
                        (138,624
                        )OTHER
      COMPREHENSIVE INCOMEUnrealized
      gain (loss) on investment in equity securities
                        
                        
                        (51,000
                        )
                        
                        
                        -
                        
                        
                        
                        34,000
                        
                        
                        
                        -Reclassification
      adjustment for losses included in operations
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        50,000
                        
                        
                        
                        -Comprehensive
      Income (Loss)
                        
                        $
                        (5,306
                        )
                        
                        $
                        (141,477
                        )
                        
                        $
                        97,989
                        
                        
                        $
                        (138,624
                        )Basic
      Earnings (Loss) Per Common Share
                        
                        $
                        -
                        
                        
                        $
                        (0.01
                        )
                        
                        $
                        -
                        
                        
                        $
                        (0.01
                        )Diluted
      Earnings (Loss) Per Common Share
                        
                        $
                        -
                        
                        
                        $
                        (0.01
                        )
                        
                        $
                        -
                        
                        
                        $
                        (0.01
                        )





See
accompanying notes to condensed consolidated financial
statements


-2-


eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)





For the Nine Months
                  Ended September 30,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                
                $
                13,989
                
                
                $
                (138,624
                )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                
                
                15,315
                
                
                
                59,027Gain
      on sale of refreshment centers
                
                
                -
                
                
                
                (7,277
                )Loss
      from other than temporary decline in marketable securities
                
                
                50,000
                
                
                
                14,074Non-cash
      compensation expense
                
                
                12,351
                
                
                
                20,175Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                10,105
                
                
                
                10,102Accrued
      interest receivable
                
                
                -
                
                
                
                (10,082
                )Inventory
                
                
                880
                
                
                
                (34,373
                )Advance
      to supplier
                
                
                3,733
                
                
                
                -Prepaid
      expenses
                
                
                (43,520
                )
                
                
                42,007Accounts
      payable
                
                
                (4,485
                )
                
                
                (9,732
                )Accrued
      liabilities
                
                
                (43,558
                )
                
                
                4,177Customer
      deposits and deferred maintenance revenue
                
                
                -
                
                
                
                (6,552
                )Net
      Cash Provided By (Used In) Operating Activities
                
                
                14,810
                
                
                
                (57,078
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                
                
                (87,869
                )
                
                
                (3,031
                )Proceeds
      from sale of refreshment centers
                
                
                -
                
                
                
                66,750Purchase
      of investments in real property tax liens
                
                
                (115,736
                )
                
                
                -Proceeds
      from collectioins of real property tax liens
                
                
                40,288
                
                
                
                -Purchase
      of investment in certificate of deposit
                
                
                (104,593
                )
                
                
                -Payment
      of note receivable
                
                
                -
                
                
                
                183,159Change
      in long-term deposits and restricted funds
                
                
                2,700
                
                
                
                (3,100
                )Net
      Cash Provided by (Used In) Investing Activities
                
                
                (265,210
                )
                
                
                243,778Net
      Increase (Decrease) in Cash
                
                
                (250,400
                )
                
                
                186,700Cash
      and Cash Equivalents at Beginning of Period
                
                
                2,302,620
                
                
                
                2,135,814Cash
      and Cash Equivalents at End of Period
                
                $
                2,052,220
                
                
                $
                2,322,514





See
accompanying notes to condensed consolidated financial
statements


-3-


eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE
1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





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





Cash and Cash
Equivalents – Cash and cash equivalents include highly-liquid debt
investments with original maturities of three months or less, readily
convertible to known amounts of cash. At September 30, 2010, the Company had
cash in excess of federally insured limits of $290,729.





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





The
following table is a reconciliation of the numerators and denominators used in
the calculation of basic and diluted earnings (loss) per share for the three and
nine months ended September 30, 2010 and 2009:





For The Three Months
                    Ended September 30,
                  
                  
                  For The Nine Months
                    Ended September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net income (loss)
                  
                  $
                  45,694
                  
                  
                  $
                  (141,477
                  )
                  
                  $
                  13,989
                  
                  
                  $
                  (138,624
                  )Basic
      weighted-average common shares outstanding
                  
                  
                  23,907,865
                  
                  
                  
                  24,123,165
                  
                  
                  
                  23,865,283
                  
                  
                  
                  24,092,121Effect
      of dilutive stock options and warrants
                  
                  
                  44,056
                  
                  
                  
                  -
                  
                  
                  
                  35,294
                  
                  
                  
                  -Diluted
      weighted-average common shares outstanding
                  
                  
                  23,951,921
                  
                  
                  
                  24,123,165
                  
                  
                  
                  23,900,577
                  
                  
                  
                  24,092,121Basic
      earnings (loss) per share
                  
                  $
                  -
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  -
                  
                  
                  $
                  (0.01
                  )Diluted
      earnings (loss) per share
                  
                  $
                  -
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  -
                  
                  
                  $
                  (0.01
                  )





During
the three and nine months ended September 30, 2010, there were 2,037,844
potential common stock equivalents from options and warrants and during the
three and nine months ended September 30, 2009, there were 2,215,844 potential
common stock equivalents from options and warrants that were not included in the
computation of diluted earnings (loss) per share because their effect would have
been anti-dilutive.





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





Recent
Accounting Pronouncements –




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


-4-


eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE
2 - BUSINESS CONDITION





During
the year ended December 31, 2009 and the nine months ended September 30, 2010,
the Company realized a net loss of $137,649 and net income of $13,989,
respectively. During the year ended December 31, 2009 and the nine months ended
September 30, 2010, the Company's operations used $55,616 and provided $14,810
of cash, respectively. The Company had a cash and cash equivalent balance of
$2,052,220 as of September 30, 2010. Although the Company realized net income in
the nine months ended September 30, 2010, there is no assurance that the Company
will not suffer losses in the future. The Company’s remaining hotel maintenance
contracts are concluding; however, the Company has additional contracts with
hotels due to the recent purchase of the Kooltech refreshment centers. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern. Management plans to acquire an existing operating
company to enable the Company to increase revenues and long-term viability. The
Company has also been performing research regarding potential further
investments in either privately-held or publicly-traded emerging growth-stage
companies. There is no assurance that a viable operating company or investment
can be purchased under terms acceptable to the Company.





NOTE
3 – INVESTMENTS





Investment in
Certificate of Deposit – At September 30, 2010, the Company had invested
in an unsecured certificate of deposit issued by a bank in the amount of
$104,593 that earns interest at 0.995% and matures on January 9,
2011.





Investment in
Equity Securities Available for Sale – As discussed further in Note 5,
the Company was issued 50,000 shares of stock in Blackbird Corporation in July
2008. On June 7, 2010, Blackbird entered into a share exchange with RPID later
renamed Spot Mobile International Ltd (“Spot Mobile”). The 50,000 shares of
common stock of Blackbird were exchanged for 1,700,000 restricted shares of
common stock of Spot Mobile. The Spot Mobile shares were reverse split in
October 2010 to 56,667 shares. Spot Mobile’s common stock is publicly traded and
had a post-split market value of $0.60 per share on September 30, 2010. The
Company recorded an $85,000 unrealized gain on the investment in Spot Mobile at
June 30, 2010; therefore, a $51,000 unrealized loss was recorded during the
three months ended September 30, 2010, which resulted in a $34,000 unrealized
gain on the Spot Mobile common stock during the nine months ended September 30,
2010, which unrealized gain is included in other comprehensive
income.





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





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





Cost
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairEquity Securities
                  
                  Basis
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueSpot
      Mobile
                  
                  $
                  -
                  
                  
                  $
                  34,000
                  
                  
                  $
                  -
                  
                  
                  $
                  34,000





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





Investment in
Real Property Tax Liens – During the nine months ended September 30,
2010, the Company purchased $119,844 in real property tax liens from various
municipalities in New Jersey. Through September 30, 2010, the Company had
collected $44,396 in tax lien settlements. The New Jersey municipal tax liens
are receivable from the real property owners and are secured by a first priority
lien on the related real property. Upon foreclosure, the Company would obtain
ownership of the real property. The tax lien receivables accrue interest up to
18% per annum, accrue penalties at 2% to 6% per annum and are also increased by
the amount of any collection expenses incurred. The investment in the real
property tax liens are accounted for as an investment in troubled debts and are
carried at cost. Collection of interest, penalties and expense reimbursements is
not certain and is recognized upon being realized.





NOTE
4 - INVENTORY





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


-5-


eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE
5– NOTE RECEIVABLE





On July
24, 2008, the Company extended a loan in the amount $500,000 to Blackbird
Corporation (“Blackbird”). The loan is evidenced by a 10% senior secured
convertible promissory note made by Blackbird in favor of the Company (the
“Secured Note”). In addition, Blackbird issued 50,000 shares of its common stock
to the Company. On the date of issuance and since that date, the fair value of
Blackbird’s common stock was not determinable and the shares were valued at
zero. The Secured Note was extended to December 31, 2010. The interest rate
increased to 18% after December 31, 2008, with interest payable quarterly on the
last business day of each quarter. The carrying amount of the Secured Note was
increased by $22,685 of accrued interest prior to 2010. Blackbird is current in
its interest payments under the current requirements of the extended
loan.





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





NOTE
6 – PURCHASE OF ASSETS





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





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





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





NOTE
7 – FAIR VALUE MEASUREMENTS





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





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





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





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





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





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





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


-6-


eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





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





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





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





Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  TotalInvestment
      in Certificate of Deposit
                  
                  $
                  -
                  
                  
                  $
                  104,593
                  
                  
                  $
                  -
                  
                  
                  $
                  104,593Investment
      in Equity Securities Available for Sale
                  
                  
                  34,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  34,000Total
      Assets Measured at Fair Value
                  
                  $
                  34,000
                  
                  
                  $
                  104,593
                  
                  
                  $
                  -
                  
                  
                  $
                  138,593





NOTE
8 – CHANGES TO REVENUE





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





Given the
Company’s change in focus on investing in third party emerging growth companies
as well loaning money to same, interest income for all periods presented was
reclassified to revenue during the nine months ended September 30,
2010.





NOTE
9 - STOCKHOLDERS’ EQUITY





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





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





During
the nine months ended September 30, 2010, the Company granted options to
purchase 7,500 shares of common stock to an employee for services rendered.
These options, which vested immediately, have an exercise price of $0.18 per
share and are exercisable through March 22, 2015. These options were valued at
approximately $0.15 per share, or $1,101, using the Black-Scholes option pricing
model with the following assumptions: risk free interest rate of 2.65%, dividend
yield of 0.0%, volatility of 115% and expected life of 5 years. These options
expired when the employee left the Company in July 2010.





Compensation
expense relating to stock options of $1,101 was recognized during the nine
months ended September 30, 2010. There was no unrecognized compensation related
to stock options at September 30, 2010.


-7-


eROOMSYSTEM
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





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





Weighted-Weighted -
                        
                        
                        AverageAverage
                        
                        
                        Remaining
                        
                        
                        AggregateOptions and
                        
                        Exercise
                        
                        
                        Contractual
                        
                        
                        IntrinsicWarrants
                        
                        Price
                        
                        
                        Term (Years)
                        
                        
                        ValueBalance,
      December 31, 2009
                        
                        
                        2,263,344
                        
                        
                        $
                        0.32Granted
                        
                        
                        7,500
                        
                        
                        
                        0.18Expired
                        
                        
                        (40,000
                        )
                        
                        
                        0.29Balance,  September
      30, 2010
                        
                        
                        2,230,844
                        
                        
                        $
                        0.32
                        
                        
                        
                        2.0
                        
                        
                        $
                        15,650Exercisable,
      September 30, 2010
                        
                        
                        2,230,844
                        
                        
                        $
                        0.32
                        
                        
                        
                        2.0
                        
                        
                        $
                        15,650Weighted-average
      fair value of options granted during the period ended September 30,
      2010
                        
                        
                        
                        
                        
                        $
                        0.15


-8-


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





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





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





Forward-Looking
Statements





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





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





Overview





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





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





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





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





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


-9-


Liquidity
and Capital Resources





At
September 30, 2010, our principal sources of liquidity consisted of $2,052,220
of cash and working capital of $2,997,574, as compared to $2,302,620 of cash and
working capital of $2,957,088 at December 31, 2009. In addition, our
stockholders' equity was $3,080,557 at September 30, 2010, compared to
stockholders' equity of $2,970,215 at December 31, 2009, an increase of
$110,342. The decrease in cash primarily reflects the payment of some accrued
liabilities as well as the purchase of fixed assets and an
investment.





Our
accumulated deficit decreased from $31,148,045 at December 31, 2009 to
$31,134,056 at September 30, 2010. The $13,989 decrease in accumulated deficit
resulted directly from the net income realized for the nine months ended
September 30, 2010. Our accumulated deficit may increase in the future as
existing maintenance agreements with our hotel clients expire and if we don’t
succeed in bringing our new Kooltech equipment up to par.





Cash flow
provided in operations for the nine months ended September 30, 2010 was $14,810
as compared to $57,078 used for the same period ended September 30,
2009.





Investing
activities for the nine months ended September 30, 2010 used net cash of
$265,210, compared to $243,778 of net cash provided during the nine months ended
September 30, 2009.





There
were no financing activities in the nine months ended September 30, 2010 and
2009.





Results
of Operations





Description
of Revenues





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





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





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





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





Revenue
Recognition





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


-10-


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





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





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





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





Description
of Expenses





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





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





Research
and development expenses consist of payroll and related costs for hardware and
software engineers, quality assurance specialists, management personnel, and the
costs of materials used by our consultants in the maintenance of our existing
installed products as well as research and development for new products.
Research and development expenses in the nine months ended September 30, 2010
and 2009 were $54,449 and $7,116, respectively.





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





Comparison
of Three Months Ended September 30, 2010 and 2009





Revenues





Product
Sales — Revenue from product sales was $213,371 for the three months ended
September 30, 2010, compared to $115,277 for the three months ended September
30, 2009, representing an increase of $98,094, or 85.1%. The increase in product
sales revenues was primarily due to the sale of product in new hotels added in
4th
quarter, 2009.





Maintenance
Fees— Maintenance fees were $48,687 for the three months ended September 30,
2010, compared to $45,158 for the three months ended September 30, 2009,
representing an increase of $3,529, or 7.8%. The increase in maintenance fee
revenue was immaterial.





Revenue
Sharing Arrangements — Our revenue from revenue sharing arrangements was $0 for
the three months ended September 30, 2010, compared to $45,559 for the three
months ended September 30, 2009, representing a decrease of $45,559, or 100%.
The decrease in revenue sharing revenue was due to the completion of revenue
sharing contracts in 2009.





Interest
— Our income from interest was $32,206 for the three months ended September 30,
2010, compared to $20,101 for the three months ended September 30, 2009,
representing an increase of $12,105, or 60.2%. The increase related to loss
recorded in the three months ended September 30, 2009. Revenue from interest was
reclassified from operating expenses to demonstrate that it is presently an
integral part of our core business plan.


-11-


Cost
of Revenue





Cost of
Product Sales Revenue — Our cost of product sales revenue for the three months
ended September 30, 2010 was $138,229, compared to $96,008 for the three months
ended September 30, 2009, an increase of $42,221, or 44%. The increase in cost
of product sales revenue relates to the increase in Hotels since September 30,
2009.





Cost of
Maintenance Revenue — Our cost of maintenance revenue was $4,757 for the three
months ended September 30, 2010, compared to $23,533 for the three months ended
September 30, 2009, representing a decrease of $18,776, or 79.8%. The decrease
in our cost of maintenance fee revenue was decreased cost of servicing of
Kooltech equipment.





Cost of
Revenue Sharing Revenue — Cost of revenue sharing revenue was $0 for the three
months ended September 30, 2010, compared to $8,691 for the three months ended
September 30, 2009 representing a decrease of $8,691 or 100%.





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





For the Three Months
                      EndedSeptember30,Percent2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    ChangeREVENUEProduct
      sales
                    
                    $
                    213,371
                    
                    
                    $
                    115,277
                    
                    
                    $
                    98,094
                    
                    
                    
                    85.1
                    %Maintenance
      fees
                    
                    
                    48,687
                    
                    
                    
                    45,158
                    
                    
                    
                    3,529
                    
                    
                    
                    7.8
                    %Revenue-sharing
      arrangements
                    
                    
                    -
                    
                    
                    
                    45,559
                    
                    
                    
                    (45,559
                    )
                    
                    
                    -100.0
                    %Interest
      income
                    
                    
                    32,206
                    
                    
                    
                    20,101
                    
                    
                    
                    12,105
                    
                    
                    
                    60.2
                    %Total
      Revenue
                    
                    
                    294,264
                    
                    
                    
                    226,095
                    
                    
                    
                    68,169
                    
                    
                    
                    30.2
                    %COST
      OF REVENUEProduct
      sales
                    
                    
                    138,229
                    
                    
                    
                    96,008
                    
                    
                    
                    42,221
                    
                    
                    
                    44.0
                    %Maintenance
                    
                    
                    4,757
                    
                    
                    
                    23,533
                    
                    
                    
                    (18,776
                    )
                    
                    
                    -79.8
                    %Revenue-sharing
      arrangements
                    
                    
                    -
                    
                    
                    
                    8,691
                    
                    
                    
                    (8,691
                    )
                    
                    
                    -100.0
                    %Total
      Cost of Revenue
                    
                    $
                    142,986
                    
                    
                    $
                    128,232
                    
                    
                    $
                    14,754
                    
                    
                    
                    11.5
                    %





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,
2010 and 2009, the trends contained therein are limited and should not be viewed
as a definitive indication of our future results.





Operating
Expenses





Selling,
General and Administrative — Selling, general and administrative expenses,
including non-cash compensation expense, were $84,158 for the three months ended
September 30, 2010, compared to $237,309 for the three months ended September
30, 2009, representing a decrease of $153,151, or 64.5%. The decrease in our
selling, general and administrative expenses related to the start-up costs for
the Kooltech equipment as well as the write-off of an uncollectible account that
took place during the three months ended September 30, 2009.





Research
and Development—Research and development expenses were $21,426 for the three
months ended September 30, 2010, compared to $2,031 for the three months ended
September 30, 2009 representing an increase of $19,395. The increase in our
research and development expenses for the three months ended September 30, 2010
reflects an increase in new product development in 2010.





Net
Income Attributable to Common Stockholders





We
realized a net income of $45,694 for the three months ended September 30, 2010,
compared to a net loss of $141,477 during the three months ended September 30,
2009. The $187,171 increase in net income was primarily related to the increase
in revenue as well as a decrease in the many costs involved in the equipment
purchase from CPC during the three months ended September 30, 2009. We may incur
losses in the future as existing with our hotel clients expire and as we replace
some older models of refreshment centers.


-12-


Comparison
of Nine months Ended September 30, 2010 and 2009





Revenues





Product
Sales — Revenue from product sales was $623,357 for the nine months ended
September 30, 2010, compared to $155,383 for the nine months ended September 30,
2009, representing an increase of $467,974, or 301.2%. The increase in product
sales revenues was primarily due to the sale of product in our new hotels added
since June 30, 2009 utilizing the Kooltech refreshment centers.





Maintenance
Fee Revenues — Maintenance fee revenues were $148,239 for the nine months ended
September 30, 2010, compared to $120,986 for the nine months ended September 30,
2009, representing an increase of $27,253, or 22.5%. The increase in maintenance
fee revenue was due to additional maintenance services at a hotel.





Revenue
Sharing Arrangements — Our revenue from revenue sharing arrangements was $0 for
the nine months ended September 30, 2010, compared to $194,374 for the nine
months ended September 30, 2009, representing a decrease of $194,374, or 100%.
The decrease in revenue sharing revenue was due to the completion of revenue
sharing contracts in 2009.





Interest
Income - Our revenue from interest and other income was $85,258 for the nine
months ended September 30, 2010 as compared to $93,836 for the nine months ended
September 30, 2009, representing a decrease of $8,578, or 9.1%. The decrease
related to the sharply decreasing interest rates. Revenue from interest and
other income was reclassified from operating expenses to demonstrate that it is
presently an integral part of our core business plan.





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





Cost
of Revenue





Cost of
Product Sales Revenue — Our cost of product sales revenue for the nine months
ended September 30, 2010 was $389,999, compared to $128,763 for the nine months
ended September 30, 2009, an increase of $261,236 or 202.9%. The increase in
cost of product sales revenue relates to the increased minibar product sold and
labor provided in the nine months ended September 30, 2010 versus the nine
months ended September 30, 2009. We are presently providing a complete turnkey
solution to the hotels, which includes providing equipment labor and product for
the Kooltech equipment that we purchased in June, 2009.





Cost of
Maintenance Fee Revenue — Our cost of maintenance fee revenue was $27,892 for
the nine months ended September 30, 2010, compared to $31,156 for the nine
months ended September 30, 2009, representing a decrease of $3,264, or 10.5%.
The decrease in our cost of maintenance fee revenue was due to greater
efficiencies put into place.





Cost of
Revenue Sharing Revenue — Cost of revenue sharing revenue was $0 for the nine
months ended September 30, 2010, compared to $65,642 for the nine months ended
September 30, 2009 representing a decrease of $55,642 or 100%.


-13-


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





For the Nine Months
                    EndedSeptember30,Percent2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  ChangeREVENUEProduct
      sales
                  
                  $
                  623,357
                  
                  
                  $
                  155,383
                  
                  
                  $
                  467,974
                  
                  
                  
                  301.2
                  %Maintenance
      fees
                  
                  
                  148,239
                  
                  
                  
                  120,986
                  
                  
                  
                  27,253
                  
                  
                  
                  22.5
                  %Revenue-sharing
      arrangements
                  
                  
                  -
                  
                  
                  
                  194,374
                  
                  
                  
                  (194,374
                  )
                  
                  
                  -100.0
                  %Interest
      income
                  
                  
                  85,258
                  
                  
                  
                  93,836
                  
                  
                  
                  (8,578
                  )
                  
                  
                  -9.1
                  %Loss
      on other than temporary decline in marketable securities
                  
                  
                  (50,000
                  )
                  
                  
                  0
                  
                  
                  
                  (50,000
                  )Total
      Revenue
                  
                  
                  806,854
                  
                  
                  
                  564,579
                  
                  
                  
                  242,275
                  
                  
                  
                  42.9
                  %COST
      OF REVENUEProduct
      sales
                  
                  
                  389,999
                  
                  
                  
                  128,763
                  
                  
                  
                  261,236
                  
                  
                  
                  202.9
                  %Maintenance
                  
                  
                  27,892
                  
                  
                  
                  31,156
                  
                  
                  
                  (3,264
                  )
                  
                  
                  -10.5
                  %Revenue-sharing
      arrangements
                  
                  
                  -
                  
                  
                  
                  55,642
                  
                  
                  
                  (55,642
                  )
                  
                  
                  -100.0
                  %Total
      Cost of Revenue
                  
                  $
                  417,891
                  
                  
                  $
                  215,561
                  
                  
                  $
                  202,330
                  
                  
                  
                  93.9
                  %





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,
2010 and 2009, the trends contained therein are limited and should not be viewed
as a definitive indication of our future results.





Operating
Expenses





Selling,
General and Administrative — Selling, general and administrative expenses,
including non-cash compensation expense, were $320,525 for the nine months ended
September 30, 2010, compared to $480,526 for the nine months ended September 30,
2009, representing a decrease of $160,001, or 33.3%. The decrease in our
selling, general and administrative expenses relates to the increased expenses
during the nine months ended September 30, 2009 due to startup costs after the
purchase of Kooltech equipment as well as the write-off of an uncollectible
account.





Research
and Development—Research and development expenses were $54,449, for the nine
months ended September 30, 2010, compared to $7,116 for the nine months ended
September 30, 2009 representing an increase of $47,333. The increase in our
research and development expenses for the nine months ended September 30, 2010
reflects an increase in new product development in 2010.





Net
Income (Loss) Attributable to Common Stockholders





We
realized a net income of $13,989 for the nine months ended September 30, 2010,
compared to a net loss of $138,624 during the nine months ended September 30,
2009. The $152,613 increase in net income was primarily related to the increase
in revenue over the nine months as well as a decrease in the many costs incurred
during the nine months ended September 30, 2009 that were involved in the
equipment purchase from CPC.





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, 2010.





Off
Balance Sheet Arrangements





We have
no off-balance sheet arrangements.





Item 3. Quantitative and Qualitative
Disclosures About Market Risk.





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


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Item
4(T).  Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





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





Changes
in Internal Controls over Financial Reporting





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





PART
II - OTHER INFORMATION





Item
1. Legal Proceedings.





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





Item
1A. Risk Factors.





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





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





None





Item
3. Defaults Upon Senior Securities.





Not
applicable.





Item
4. Removed and Reserved.





Item
5. Other Information.





Not
applicable.





Item
6. Exhibits.




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


-15-


SIGNATURE





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




eRoomSystem
      Technologies, Inc.(Registrant)Date:
      November 12, 2010By:
            /s/ David A. GestetnerName:
            David A. GestetnerTitle:
            President, Chief Executive Officer,
      Secretary,and Chairman of the
Board(Principal
      Executive, Financial,and
      Accounting Officer)


-16-