UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**FORM
      10-KSB**





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934For
                the fiscal year endedDecember
                31, 2005o
            TRANSITION
              REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
              1934For
                the transition period from _________ To __________Commission
                file number000-31037eRoomSystem
                Technologies, Inc.(Name
                of small business issuer in its charter)Nevada
            
            87-0540713(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)1072
                Madison Ave., Lakewood, NJ
            
            08701(Address
                and telephone number of principal executive offices)
            
            (Zip
                Code)Issuer’s
                telephone number:(732)
                730-0116Securities
                registered pursuant to Section 12(b) of the Act:Title
                of each class
            
            Name
                of each exchange on which registeredSecurities
                registered pursuant to Section 12(g) of the Act:Common
                Stock, $.001 par value(Title
                of each class)(Title
                of each class)Check
                whether the issuer (1) filed all reports required to be filed by
                Section
                13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
                12
                months (or for such shorter period that the registrant was required
                to
                file such reports), and (2) has been subject to such filing requirements
                for the past 90 days. xYes
oNoCheck
                if there is no disclosure of delinquent filers in response to Item
                405 of
                Regulation S-B is not contained in this form, and no disclosure will
                be
                contained, to the best of the registrant's knowledge, in definitive
                proxy
                or information statements incorporated by reference in Part III of
                this
                Form 10-KSB or any amendment to this Form 10-KSB. xState
                issuer’s revenues for its most recent fiscal year:
            $1,557,288Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).
              oYes
xNo
              
              State
                the aggregate market value of voting stock held by non-affiliates
                computed
                by reference to the price at which the common equity was sold, or
                the
                average bid and asked price of such common equity, as of a specified
                date
                within the past 60 days. $5,826,936 ($0.24 per share as of March
                17,
                2006).State
                the number of shares outstanding of each of the issuer's classes
                of common
                stock, as of the latest practicable date.Common
                Stock, $.001 par value
            
            24,278,902
                shares as of March 17, 2006**DOCUMENTS
                INCORPORATED BY REFERENCE**
              None.


-
          i -




**TABLE
      OF CONTENTS**




**Page****PART
                  I**
              
              
              1**ITEM
                  1.**
              DESCRIPTION
                  OF BUSINESS.
              1**ITEM
                  2.**
              DESCRIPTION
                  OF PROPERTY.
              8**ITEM
                  3.**
              LEGAL
                  PROCEEDINGS.
              8**ITEM
                  4.**
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS.
              8**PART
                  II**
              
              
              8**ITEM
                  5.**
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
              8**ITEM
                  6.**
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
              10**ITEM
                  7.**
              FINANCIAL
                  STATEMENTS.
              24**ITEM
                  8.**
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE.
              46**ITEM
                  8A.**
              CONTROLS
                  AND PROCEDURES
              46**PART
                  III**
              
              
              47**ITEM
                  9.**
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(a) OF THE EXCHANGE ACT.
              47**ITEM
                  10.**
              EXECUTIVE
                  COMPENSATION.
              49**ITEM
                  11.**
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              51**ITEM
                  12.**
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS.
              53**ITEM
                  13.**
              EXHIBITS
                  AND REPORTS ON FORM 8-K.
              56**ITEM
                  14**.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              56**SIGNATURES**
              58**EXHIBIT
                  INDEX**
              61


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          ii -


**PART
      I**




**ITEM
                1.**
            **DESCRIPTION
                OF BUSINESS.**




**Overview**




eRoomSystem
      Technologies has developed and introduced to the lodging industry an
      intelligent, in-room computerized platform and communications network, or the
      eRoomSystem. The eRoomSystem is a computerized platform and processor-based
      system that is installed within our eRoomServ refreshment centers and designed
      to collect and control data. The eRoomSystem also supports our eRoomSafe, an
      electronic in-room safe, eRoomTray, an in-room ambient tray that can sell a
      wide
      variety of products at room temperature, and eRoomEnergy, an in-room digital
      thermostat that is designed to control virtually any fan coil unit or
      packaged-terminal air conditioner found in hotel rooms.




Our
      eRoomSystem and related products deliver in-room solutions that reduce operating
      costs, enhance hotel guest satisfaction and provide higher operating profits
      to
      our customers. The solutions offered by our eRoomSystem and related products
      have allowed us to establish relationships with many premier hotel chains.
      In
      addition to providing our customers with valuable in-room solutions, our
      revenue-sharing program has allowed us to partner with our customers. Through
      our revenue-sharing program, we have been able to install our products at little
      upfront cost to hotels and share in the recurring revenues generated from the
      sale of goods and services related to our products.




Currently,
      we have more than 10,000 eRoomServ refreshment centers, and over 6,000
      eRoomSafes installed at over 30 hotel properties. Of this amount, over 5,000
      refreshment centers and 3,500 eRoomSafes are installed pursuant to revenue
      sharing or fixed-payment agreements. At the present time, we do not intend
      to
      install new products at hotels, but will continue to maintain our existing
      product placements on revenue sharing contracts through the end of such
      contracts. We anticipate that future placements of eRoomServ refreshment centers
      and eRoom Safes in new hotels, if any, will be limited to the continued
      deployment of such products at hotels following the maturity of their respective
      revenue sharing agreements.




**Summary
      of Our Diversification Initiatives**




In
      addition to our core competencies noted above, in May 2005 we commenced our
      diversification plan by investing in Identica Holdings Corporation, or Identica,
      a privately held distributor and integrator of next-generation biometric
      security solutions, including the TechSphere hand vascular pattern biometric
      technology. Specifically, we invested $10,000 in Identica by purchasing
      1,666,667 shares of common stock, or $0.006 per share. Our $10,000 investment
      in
      Identica represented 10% of Identica’s then issued and outstanding capital stock
      on a fully-diluted basis. In addition, we provided a loan to Identica in the
      amount of $150,000. The loan is secured by a security interest in all the assets
      of Identica and is evidenced by a promissory note. In consideration for making
      the loan, we were issued a warrant to purchase one million (1,000,000) shares
      of
      common stock of Identica, exercisable at $0.15 per share at any time through
      May
      20, 2010.





On
      September 7, 2005, Identica purchased certain assets of our wholly owned
      subsidiary, eRoomSystem Services, Inc., a Nevada corporation, or eRoomServices,
      pursuant to an Asset Purchase Agreement, or the Purchase Agreement.
      Specifically, the assets sold consisted of furniture and computer equipment
      held
      by eRoomServices, as well as a perpetual license to our web technologies package
      utilized by our personnel in the maintenance of automated refreshment centers,
      electronic safes and energy management products, or the Equipment, installed
      at
      hotels. The Purchase Agreement provided that Identica pay us sixty thousand
      ($60,000) dollars for the assets, which amount is evidenced by a one-year note
      bearing interest at the rate of eight percent (8%) per annum, compounded
      monthly, or the Note. Under the terms of the Note, Identica will make seven
      (7)
      principal and interest payments in the amount of $9,098 per month, commencing
      on
      the six-month anniversary of the Note.




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          1 -







In
      addition, on September 7, 2005, the Company and Identica entered into a
      Professional Services and Support Agreement (the “Services Agreement”) whereby
      Identica employed the technical personnel of eRoomServices. In conjunction
      therewith, eRoomServices continued to be responsible, for a period of six (6)
      months from the date of the Agreement, for all expenses less seven thousand
      ($7,000) dollars per month related to such technical personnel. Commencing
      on
      the six-month anniversary of the Agreement, Identica shall be solely responsible
      for all fixed and variable expenses associated with the technical personnel
      and
      the Salt Lake City facility, including subleasing the majority of the existing
      premises from us. However, we have retained the rights to part of the offices
      located at the facility. The terms of the Services Agreement provide that
      Identica shall, at all times, ensure that the Company receives first priority
      with respect to the ongoing maintenance of the Equipment by the technical
      personnel. eRoomServices will continue to exist as a wholly owned subsidiary
      of
      the Company and all existing contracts by and between eRoomServices and its
      hotel clients shall remain outstanding.





On
      October 31, 2005, we loaned an additional fifty thousand ($50,000) dollars
      to
      Identica, evidenced by a promissory note bearing no interest and maturing on
      January 31, 2006. This promissory note has been repaid.




In
      March
      2006, we invested the sum of $50,000 in Aprecia, LLC, or Aprecia, a privately
      held provider of applied artificial intelligence solutions for gaming and
      homeland security applications. Aprecia’s MonitorPlus solution automatically
      examines large amounts of transaction data and issues alerts upon discovery
      of
      potential fraud and potential money-laundering. In consideration for our
      investment, we received 2,083,333 shares of common stock of Aprecia, which
      constitutes 9.98% of Aprecia’s issued and outstanding common stock.





We
      are
      continuously performing due diligence on third party companies for the purpose
      of making additional investments in privately-held or publicly traded emerging
      growth stage companies. In the future, we may acquire an existing operating
      company if the opportunity arises. At this time, we have not reached a
      definitive agreement with any such third party companies.





**Our
      Products and Services** ****




**eRoomSystem**




Since
      our
      inception, it has been our objective to provide innovative in-room amenities
      to
      the lodging industry. Our technologies provide an intelligent, in-room
      computerized platform and communications network that comprises the eRoomSystem.
      At the core of the eRoomSystem is our proprietary hardware and software that
      operate as a multi-tasking imbedded operating system. Our hardware and software
      can operate multiple devices and provide an interactive environment that allows
      the hotel guest to input and receive information.




Installed
      as part of our eRoomServ refreshment center, the eRoomSystem provides the
      communication link between the hotel guest, our products, our file server
      located at the hotel (the eRoomSystem file server), the hotel’s property
      management system, and the file server located at our headquarters (the
      eRoomSystem master file server). Our software is remotely upgradeable from
      our
      facility, which reduces the need for costly on-site visits. We can also remotely
      adjust pricing, change messages on the liquid crystal display, lock and unlock
      our units and change the input touchpad layout. From our headquarters, we can
      also determine
      whether our products are active and working properly and, in
      the
      event a participating hotel fails to pay outstanding invoices or otherwise
      violates the terms of its agreement ,
      control
      the use of our products by remotely locking the units .




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          2 -







The
      eRoomSystem consists of a microprocessor, memory, input/output ports,
      communications transceiver, liquid crystal display, touchpad, power supply
      and
      our proprietary software. The proprietary architecture of our circuit boards
      has
      been designed to minimize the need for hardware upgrades. The eRoomSystem
      includes an embedded system processor that handles simple instructions and
      routes all billing functions and processor-intensive instructions to the
      eRoomSystem file server.




**eRoomServ
      Refreshment Centers**




Our
      eRoomServ refreshment centers consist of the eRoomSystem, a small refrigeration
      unit, electronic controls, LCD display and vending racks. Our newest models
      utilize an upright multi-vending rack. The upright multi-vending rack offers
      greater flexibility for the snack and beverage products offered by hotels,
      and
      is viewed more favorably by our hotel clients than our prior side-vend rack
      design.




The
      upright multi-vending rack displays up to 30 different beverages and/or snacks
      and provides an environment similar to that of a convenience store beverage
      cooler. Upon removal of a product, the gravity-based design uses the weight
      of
      the remaining products to cause the products to roll or slide forward. In
      addition to the upright multi-vending rack in the refreshment center, the
      eRoomTray allows hotel properties to separately vend a variety of products
      at
      room temperature within the eRoomSystem environment, including snacks, wine,
      disposable cameras, film, souvenirs, maps and other sundries.




Our
      eRoomServ refreshment center and eRoomTray communicate through the eRoomSystem,
      which uses the hotel property’s existing telephone lines, network cabling or
      cable television lines. Our eRoomServ refreshment
      centers and eRoomTray operate as follows:




·
            A
                hotel guest selects a beverage or snack from our eRoomServ refreshment
                center or eRoomTray;




·
            The
                purchase is either immediately confirmed on the liquid crystal display
                and
                acknowledged with an audible beep or subject to a countdown of a
                predetermined (by the hotel) number of seconds prior to purchase
                confirmation;




·
            Upon
                confirmation, the transaction information, such as product type,
                price and
                time of purchase, is simultaneously transferred to the eRoomSystem
                file
                server;




·
            The
                eRoomSystem file server communicates on a real-time basis with the
                hotel’s
                property management system and periodically with our eRoomSystem
                master
                file server located at our headquarters; and




·
            The
                hotel’s property management system posts the purchase to the hotel guest’s
                room account.




The
      sales
      data from the eRoomSystem is transmitted to the eRoomSystem file
      server from which hotel employees can access real-time sales reports, inventory
      levels for restocking purposes and demographic data. As for the maintenance
      of
      our refreshment centers, the repair or replacement of any component of our
      refreshment center is relatively simple and is typically provided at no
      additional charge to the property pursuant to the terms of our service and
      maintenance agreement.




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          3 -







**eRoomSafe**




Our
      eRoomSafes are electronic in-room safes offered in conjunction with our
      eRoomSystem. The eRoomSafes have storage space large enough for laptop
      computers, video cameras and briefcases and include an encrypted electronic
      combination that can be changed by the hotel guest. The eRoomSafes utilize
      the
      eRoomSystem to interface with the eRoomSystem file
      server that communicates with the hotel’s property management system.




**The
      following diagram represents the structure and communications network of our
      eRoomSystem, the eRoomSystem file server, the hotel property management system,
      and the eRoomSystem master file server:**









**eRoomTray**




Our
      eRoomTray is an ambient tray for dry goods. The eRoomTray has a terraced design
      and can hold three, to more than twenty, different products. The eRoomTray
      utilizes cross-sensing technology that provides significant flexibility in
      product selection for hotels. The eRoomTray uses the visible countdown timer
      located on the liquid crystal display of the eRoomServ Refreshment Center.
      This
      solution allows the hotel to sell music CD’s souvenirs, disposable cameras,
      maps, snacks and other profitable items. The eRoomTray is unique in that it
      can
      generally be located anywhere in a guestroom. Our eRoomTray products are
      installed at the Hollywood Renaissance Hotel, Hollywood,
      California.




**eRoomEnergy
      Management**




In
      2001,
      we announced our agreement with INNCOM International, Inc., a leader in hotel
      guest-room control systems, through which INNCOM private-labels its e4 Smart
      Digital Thermostat for us as eRoomEnergy and provides assistance in the
      installation and maintenance of the units. The e4 Smart Digital Thermostat
      is
      designed to control virtually any fan coil unit or packaged terminal air
      conditioner found in hotel rooms and comes standard with an illuminated digital
      display, a Fahrenheit/Celsius button, one-touch temperature selection, an
      off/auto button, fan and display buttons. In addition to these user-friendly
      features, the e4 Smart Digital Thermostat includes five relays, an optional
      on-board infrared transceiver, a passive infrared occupancy sensor, and is
      expandable to include functions such as humidity control, outside temperature
      display, refreshment center access reporting, occupancy reporting to
      housekeeping and automatic lighting control.




Our
      eRoomEnergy Management products are installed at the Pechanga Resort &
Casino, Temecula, California.




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          4 -




**eRoomData
      Management**




One
      of
      the byproducts of our technology is the information we have collected since
      our
      first product installation. To date, we have collected several million
      room-nights of data. The eRoomSystem file
      server collects information regarding the usage of our eRoomServ refreshment
      centers on a real-time basis. We use this information to help our customers
      increase their operational efficiencies. The information we obtain is unique
      because we categorize the information according to specific consumer buying
      patterns and demographics.




The
      information we collect is currently offered to our customers as part of our
      service and maintenance agreement, including specific information about their
      guests’ buying patterns and non-confidential information about other hotels in
      similar geographic regions. To this end, our hotel clients benefit in various
      ways from the information we provide. The hotels are responsible for restocking
      the goods sold from our refreshment centers and the real-time sales data
      generated by our refreshment centers helps the hotel maximize personnel
      efficiencies. The transfer of sales data to the hotel prevents guest pilferage
      and minimizes disputes over refreshment center usage, both of which are
      prevalent in the lodging industry, particularly with non-automated units.
      Finally, the ability to track product sales performance allows the hotel to
      stock the refreshment centers with more popular items, which generally leads
      to
      increased sales of product from the refreshment centers. Our system can provide
      reports on daily restocking requirements, daily, monthly and annual product
      sales statistics, overnight audits, inventory control and a variety of
      customized reports.




**Research
      and Development**




At
      the
      core of our products and services is our proprietary software and hardware
      that
      make up our eRoomSystem. Currently, we have suspended all further research
      and
      development projects in conjunction with our existing product line. We do not
      expect to undertake future research and development projects in the future.




**Sales
      and Marketing**


Currently,
      we have more than 10,000 eRoomServ refreshment centers, and over 6,000
      eRoomSafes installed at over 30 hotel properties. Of this amount, over 5,000
      refreshment centers and 3,500 eRoomSafes are installed pursuant to revenue
      sharing or fixed-payment agreements. Our sales and marketing efforts have been
      eliminated with respect to new product placements , and we do not expect to
      re-commence such efforts in the future. However, we may redeploy products
      following the maturity of certain outstanding revenue sharing agreements.




**Manufacturing**




We
      do not
      anticipate the placement of new products in the future and, accordingly, the
      manufacture of our products has become immaterial. We will continue to service
      our existing products placed at over 30 hotels pursuant to existing revenue
      sharing and maintenance agreements.





**Competition**




The
      market for in-room amenities in the lodging industry is quite competitive,
      and
      the competition has further intensified in recent years. Management has made
      the
      decision to cease placing new products in the field and focus on servicing
      our
      existing client base.. If we decide to redeploy products following the maturity
      of certain outstanding revenue sharing agreements, we will be subject to
      significant competition in doing so from our historical competitors, including
      Bartech, MiniBar America and Dometic, among others.




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          5 -




**Intellectual
      Property**




We
      rely
      on a combination of trademark and copyright law, trade secret protection and
      confidentiality and/or license agreements with our employees, customers and
      business partners to protect our proprietary rights in our products, services,
      know-how and information. We currently hold three patents, Patent Nos.
      4,857,714, 4,883,948 and 4,939,352, filed under the name “Credit Card Storage
      System,” all of which protect the use of our credit card technology. These three
      patents expire on August 14, 2006, November 27, 2006 and July 2,
      2007, respectively. These patents have not been highly utilized by us.




On
      August
      19, 2002, we were issued Patent No. 6,456,067 titled “Inductive Can Sensing for
      Vending Machine”. We have registered RoomSystems, RoomSafe, eRoomEnergy,
      eRoomData, eRoomSystem, and eRoomServ with the United States Patent and
      Trademark Office. In addition, we have pending applications for the following
      trademarks and service marks: eRoomSafe; eRoomManagement; and eRoomSystem
      Technologies. We have also registered our logo and have one pending patent
      application titled “Personalized Smart Room”, Application No. 10/126,468.




Our
      proprietary software consists of three modules and provides the operating system
      for our eRoomSystem. The first module is an operating system that permits
      messages to be scrolled on the flat panel display of our eRoomSystem and allows
      hotel guests to interface with our products. The second module is a Windows®
based program that provides a communication link between our eRoomSystem, our
      products, our eRoomSystem hotel file server and the hotel’s property management
      system. The third module is a Windows® based program that collects data from our
      eRoomSystem hotel file server and produces a wide-variety of management and
      operational reports. Three years ago, we introduced our eRoomSystem version
      4
      software and thereafter our newest version 4.1 software. All but two of our
      existing hotel clients are utilizing our version 4.1 software that provides
      users with a friendly, easy-to-learn graphical environment which generally
      expands the report generating capabilities of the property.




We
      do not
      know if our future patent applications will be issued with the full scope of
      claims we seek, if at all, or whether any patents we receive will be challenged
      or invalidated. Our means of protecting our proprietary rights in the United
      States, and abroad, may not be adequate and competitors may independently
      develop similar technology. We cannot be certain that our services do not
      infringe on patents or other intellectual property rights that may relate to
      our
      services. Like other technology-based businesses, we face the risk that we
      will
      be unable to protect our intellectual property and other proprietary rights,
      and
      the risk that we will be found to have infringed on the proprietary rights
      of
      others. Further, as previously mentioned, it is our intention to focus solely
      on
      servicing our existing hotel clients and we do not intend on placing new
      products in the lodging market.




**Historical
      Summary**




We
      were
      originally incorporated under the laws of the State of North Carolina on March
      17, 1993 as InnSyst! Corporation. On September 28, 1993, the operations of
      InnSyst! were transferred to RoomSystems, Inc., a Virginia corporation,
      incorporated on August 12, 1993, or RoomSystems Virginia. On April 29, 1996,
      the
      operations of RoomSystems Virginia were transferred to RoomSystems, Inc., a
      Nevada corporation, or RoomSystems. Through an agreement and plan of
      reorganization approved by a majority of our stockholders dated
      December 31, 1999, RoomSystems became the wholly owned subsidiary of
      RoomSystems International Corporation. Pursuant to this agreement and plan
      of
      reorganization, all shares of RoomSystems common stock, including all shares
      of
      common stock underlying outstanding options and warrants, Series A convertible
      preferred stock and Series B convertible preferred stock were exchanged for
      the
      identical number and in the same form of securities of RoomSystems International
      Corporation. On February 1, 2000, we changed our name from RoomSystems
      International Corporation to RoomSystems Technologies, Inc. Subsequently, on
      March 29, 2000, with the approval of our stockholders, we changed our name
      to eRoomSystem Technologies, Inc. Thereafter, we changed the name of
      RoomSystems, Inc. to eRoomSystem Services, Inc.




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          6 -






We
      have
      three wholly owned subsidiaries, eRoomSystem Services, Inc. (formerly
      RoomSystems) and eRoomSystem SPE, Inc. RSi BRE, Inc., or RSi BRE, a former
      wholly-owned subsidiary, was liquidated into eRoomSystem Technologies, Inc.
      in
      2004.




eRoomSystem
      Services is our service and maintenance subsidiary that installs all of our
      products, provides electronic software upgrades to our customers, provides
      customer service and maintenance for our products and trains hotel personnel
      on
      the use and maintenance of our products. Pursuant to a series of agreements
      entered into with Identica in 2005, we sold furniture and computer equipment,
      as
      well as a perpetual license to our web technologies package utilized by our
      personnel in the maintenance of automated refreshment centers, electronic safes
      and energy management products installed at hotels. In addition, the three
      technical personnel, formerly employed by us for the purpose of servicing our
      existing products installed at hotels, have been hired by Identica. We continue
      to use these three individuals for our entire product servicing needs pursuant
      to the Professional Services Agreement between us and Identica detailed above.




All
      of
      the outstanding shares of eRoomSystem Services common stock have been pledged
      to
      AMRESCO Leasing Corporation, or AMRESCO.




RSi
      BRE
      was formed as part of the Equipment Transfer Agreement we entered into in
      September 1998 with RSG Investments, LLC, or RSG, a privately held company.
      Previously, RSi BRE held title to 1,717 eRoomServ refreshment centers and 1,304
      eRoomSafes. On February 29, 2004, we entered into a Settlement Agreement and
      Mutual Release Agreement with RSG whereby we paid the sum of $152,823 as a
      full
      and final cancellation of the Equipment Transfer Agreement and subsequent
      Settlement Agreement dated September 1999. As a result, the Company immediately
      commenced recognizing all revenue generated from the four revenue sharing lease
      agreements relating to the 1,717 eRoomServ refreshment centers and 1,304
      eRoomSafes. In 2004, RSi BRE was liquidated into eRoomSystem Technologies,
      Inc.




eRoomSystem
      SPE was formed as part of our long-term financing arrangement with AMRESCO
      Leasing Corporation, which was terminated in August 2002. eRoomSystem SPE owns
      all of the equipment previously funded by AMRESCO under our revenue-sharing
      program, consisting of nine properties comprising 2,775 eRoomServ refreshment
      centers and 2,622 eRoomSafes. AMRESCO has taken a senior security interest
      in
      all of the assets of eRoomSystem SPE. We control eRoomSystem SPE and its
      financial results are consolidated with those of eRoomSystem Technologies and
      eRoomSystem Services.




**Government
      Regulation**




We
      are
      subject to laws and regulations applicable to businesses generally, as well
      as
      to laws and regulations directly applicable to the lodging industry and minibars
      in particular. These laws and regulations relate to qualifying to do business
      in
      the various states and in foreign nations in which we currently have, or propose
      to have, our products.




Apart
      from laws and regulations applicable to us, some of our existing and potential
      customers are subject to additional laws or regulations, such as laws and
      regulations related to liquor and gaming, which may have an adverse effect
      on
      our operations. Due to the licensing requirements relating to the sale of
      alcohol in each state, the failure of any of our revenue-sharing partners to
      obtain or maintain its liquor license would result in the loss of revenue for
      our revenue-sharing partner and us. In addition, due to the heightened
      hotel-casino regulatory environment and our ongoing revenue-sharing agreements
      with hotel-casinos, our operations may be subject to review by a hotel-casino’s
      compliance committee to verify that its involvement with us would not jeopardize
      its gaming license. The regulatory compliance committee of a hotel-casino has
      broad discretion in determining whether or not to approve a transaction with
      a
      third party, which review typically includes the character, fitness and
      reputation of the third party and its officers, directors and principals. If
      our
      history or operations present problems for a hotel-casino, we would either
      have
      to expend resources to address or eliminate the concerns or forego the
      business.




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          7 -




**Employees**




We
      currently employ three full-time employees and have one consultant. In addition,
      pursuant to the Professional Services Agreement with Identica, we utilize three
      of our former employees in the service and maintenance of our existing installed
      products. None of our employees are subject to a collective bargaining
      agreement.




**ITEM
                2.**
            **DESCRIPTION
                OF PROPERTY.**




We
      currently lease office and warehouse space in Salt Lake City, Utah pursuant
      to a
      38-month lease that expires in December 2006. The monthly rent on our Salt
      Lake
      City facility is $1,612 in 2006. Identica is subleasing part of the office
      and
      warehouse from us. We maintain all inventory and replacement parts at this
      facility. In addition, we lease approximately 1,000 square feet of office space
      at 1072 Madison Ave., Lakewood, NJ 08701. This lease is month-to-month and
      the
      monthly lease rate is $1,342.




**ITEM
                3.**
            **LEGAL
                PROCEEDINGS.**




We
      are,
      from time to time, parties to various legal proceedings arising out of our
      business. As of the date of this filing, there are no proceedings pending or
      threatened against us which, if determined adversely, would have a material
      adverse effect on our business, financial condition, and results of operations
      or liquidity. Further, all outstanding accounts payable are current as of the
      date of filing of this Annual Report on Form 10-KSB.




**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS.**




Not
      applicable.




**PART
      II**




**ITEM
                5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS.**




Our
      authorized capital stock consists of 50,000,000 shares of common stock, $0.001
      par value; 5,000,000 shares of preferred stock, $0.001 par value; 500,000 shares
      of Series A convertible preferred stock, $0.001 par value; 2,500,000 shares
      of
      Series B convertible preferred stock, $0.001 par value; 2,000,000 shares of
      Series C convertible preferred stock, $0.001 par value; and 2,777,778 shares
      of
      Series D convertible preferred stock, $0.001 par value. Our current authorized
      capital was effected through an amendment and restatement of our articles of
      incorporation on March 29, 2000, and the filing of a Certificate of Rights,
      Preferences and Privileges relating to the Series D convertible preferred stock
      in November 2002. As of March 17, 2006, there were 24,278,902 shares of common
      stock outstanding and no shares of any class of preferred stock
      outstanding.




**High
      And Low Closing Sale Prices Of Our Common Stock**




Prior
      to
      August 3, 2000, there was no public market for our common stock. In conjunction
      with our initial public offering, our common stock was accepted for listing
      on
      the Nasdaq SmallCap Market under the trading symbol “ERMS”. In April 2003, our
      common stock was delisted from the Nasdaq SmallCap market. Our common stock
      is
      currently quoted on the Over The Counter Bulletin Board under the same symbol.
      As of March 17, 2006, there were approximately 400 stockholders of record
      holding our outstanding common stock.


-
          8 -


The
      following table sets forth the high and low bid information of our common stock,
      as reported by the Nasdaq SmallCap Market (and the Over The Counter Bulletin
      Board for the period January 1, 2003 onward) during the periods
      indicated:




**Calendar
                Quarter Ended**
            
            **Low**
            
            **High**March
                31, 2003
            
            $
            0.11
            
            $
            0.20June
                30, 2003
            
            $
            0.13
            
            $
            0.34September
                30, 2003
            
            $
            0.11
            
            $
            0.21December
                31, 2003
            
            $
            0.14
            
            $
            0.33March
                31, 2004
            
            $
            0.15
            
            $
            0.22June
                30, 2004
            
            $
            0.16
            
            $
            0.37September
                30, 2004
            
            $
            0.31
            
            $
            0.41December
                31, 2004
            
            $
            0.25
            
            $
            0.37March
                31, 2005
            
            $
            0.22
            
            $
            0.35June
                30, 2005
            
            $
            0.19
            
            $
            0.48September
                30, 2005
            
            $
            0.30
            
            $
            0.44December
                31, 2005
            
            $
            0.17
            
            $
            0.40March
                31, 2006 (through March 17, 2006)
            
            $
            0.17
            
            $
            0.30




The
      last
      reported price of our common stock on the Over The Counter Bulletin Board on
      March 17, 2006 was $0.24 per share. We are not aware of any public market for
      our options or warrants.




**Dividend
      Policy**




We
      have
      never declared or paid any cash dividends on our common stock. Our board
      presently, and for the foreseeable future, intends to retain all of our
      earnings, if any, for the purchase of securities in private or publicly traded
      emerging growth companies, or possibly, the acquisition of an operating company
      if the opportunity arises. The declaration and payment of cash dividends in
      the
      future will be at the discretion of our board and will depend upon a number
      of
      factors, including, among others, our future earnings, operations, funding
      requirements, restrictions under our credit facility, our general financial
      condition and any other factors that our board considers important. Investors
      should not purchase our common stock with the expectation of receiving cash
      dividends.




**Recent
      Sales of Unregistered Securities; Use of Proceeds**




On
      November 8, 2002, we issued a promissory note to Ash Capital, LLC for proceeds
      of up to $322,500 (the “Ash Capital Note”). The note bears interest at 8%. The
      principal and interest were originally due on November 8, 2003. All past due
      amounts and accrued interest thereon bear interest at 18%. The Company
      transferred $25,000 from an accounts payable due to Ash Capital, which increased
      the principal amount of the promissory note to $347,500. According to the terms
      of the note, principal and accrued interest on the promissory note could convert
      into Series D Convertible Preferred Stock at $0.90 per share. Each share of
      the
      Series D Convertible Preferred Stock is convertible into six shares of common
      stock, at the rate of $0.15 per share of Series D Preferred Stock. The
      promissory note could be converted into 17.8% of the lesser of the authorized
      capital stock or the outstanding capital stock of the Company.




-
          9 -







On
      October 1, 2003, Ash Capital, LLC agreed to amend the terms of its secured
      convertible promissory note with us to (i) extend the maturity date to the
      earlier of November 8, 2007 or the maturity date of the Notes issued to
      Gestetner Group, LLC and certain third parties and (ii) include as an additional
      event of default any default by us of the secured convertible promissory notes
      with Gestetner Group, LLC and certain third parties. In addition, we issued
      Ash
      Capital, LLC a contingent warrant to purchase shares of common stock,
      exercisable at $0.13 per share through October 1, 2008. The terms of the warrant
      provided Ash
      Capital, LLC may purchase seven percent of the aggregate number of shares of
      the
      Company’s common stock issued to and held on that date by any of the Note
      Holders from the October 1, 2003 funding in excess of 10,000,000 common
      shares. We have
      utilized all monies loaned by Ash Capital, LLC for our business
      operations.




On
      October 1, 2003, we issued secured convertible promissory notes in the original
      principal amount of $250,000 (the “Notes”), collectively, to Gestetner Group,
      LLC, a New Jersey limited liability company, and several third parties, the
      Noteholders. David A. Gestetner, our Chief Executive Officer and President
      is
      the Managing Member of the Gestetner Group, LLC. The terms of the Notes include
      (i) for interest to accrue at the rate of 8% per annum, (ii) a maturity date
      of
      the earlier of (a) October 1, 2008, (b) the date of approval of the Board of
      Directors regarding the merger of the Company with or into any third party
      or
      the sale of all or substantially all of our assets, or (c) the date of the
      closing of any financing (other than commercial credit facilities), the gross
      proceeds of which are at least $1,000,000 and (iii) the right of the
      Noteholders, at any time, to convert all outstanding principal and accrued
      and
      unpaid interest into shares of our common stock at the rate of $0.05 per share;
      provided, however, that we shall have the right to not permit the conversion
      if
      such conversion would result in the Noteholders holding, in the aggregate and
      on
      a fully-diluted basis, more than 49% of our outstanding common stock. In
      addition, the Noteholders have been issued, collectively, warrants to purchase
      5,000,000 shares of our common stock, exercisable at $0.05 per share at any
      time
      through October 1, 2008. We used the proceeds provided by the Noteholders for
      our business operations.




On
      September 1, 2005, Gestetner Group, LLC and the Noteholders converted the Notes,
      in the collective principal amount of $250,000 plus accrued interest of $38,411,
      into 5,768,219 shares of common stock. The Notes were converted into common
      stock at $0.05 per share.




On
      September 1, 2005, Ash Capital, LLC converted the Ash Capital Note, in the
      original principal amount of $347,500 plus accrued interest of $82,332, into
      2,865,550 shares of common stock. The Ash Capital Note was converted at $0.15
      per share. The
      foregoing conversion triggered the issuance of warrants to purchase 53,775
      shares of common stock in favor of Ash Capital at an exercise price of $0.13
      per
      share through October 1, 2008.




On
      September 7, 2005, Gestetner Group, LLC and the Noteholders exercised warrants
      to purchase a total of 5,000,000 shares of common stock for a collective
      exercise price of $250,000. The warrants were exercised at $0.05 per share.




-
          10 -






**ITEM
                6.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION.**




**Overview**




Our
      core
      business is the development and installation of an intelligent, in-room computer
      platform and communications network, or the eRoomSystem, for the lodging
      industry. The eRoomSystem is a computerized platform and processor-based system
      designed to collect and control data. The eRoomSystem supports our fully
      automated and interactive eRoomServ refreshment centers, eRoomSafes, eRoomEnergy
      products, and the eRoomTray. In 2005, we commenced our diversification strategy
      of investing in third party emerging growth companies. To this end, we have
      made
      investments totaling $60,000, consisting of $10,000 in Identica Holdings
      Corporation and $50,000 in Aprecia, LLC. In addition, we have loaned Identica
      $150,000 in cash. The loan is secured by a security interest in all the assets
      of Identica and is evidenced by a promissory note. In consideration for making
      the loan, we were issued a warrant to purchase one million (1,000,000) shares
      of
      common stock of Identica, exercisable at $0.15 per share at any time through
      May
      20, 2010. We may make additional investments in promising emerging growth
      companies, and potentially acquire an operating company if the opportunity
      arises.




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




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




**Description
      of Revenues**




Historically,
      we have received most of our revenues from the sale or placement under a
      revenue-sharing program of our products in hotels. We expect that these revenues
      will account for a substantial majority of our revenues for the foreseeable
      future. In addition, we may receive revenues in the future upon the sale of
      securities received in consideration for investments made in third party
      companies in 2005 and 2006; however, the return on such investments is not
      assured.




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




Our
      revenue-sharing program provides us with a seven-year revenue stream under
      each
      revenue-sharing agreement. Because many of our customers in the lodging industry
      traditionally have limited capacity to finance the purchase of our products,
      we
      designed our revenue-sharing program accordingly. Through our revenue-sharing
      plan, we have installed our products at little or no upfront cost to our
      customers and share in the recurring revenues generated from sales of goods
      and
      services related to our products. We retain the ownership of the eRoomServ
      refreshment centers and eRoomSafes throughout the term of the revenue-sharing
      agreements and the right to re-deploy any systems returned to us upon the
      expiration or earlier termination of the revenue-sharing agreements. We have
      failed to place any products, either on a revenue sharing or sale basis in
      the
      prior three years, and we have no present intention of placing new products
      in
      the future. We do, however, intend to continue to service and maintain our
      existing installed product base for the remaining life of the contracts relating
      thereto.




-
          11 -


Our
      revenues over the past few years have been fairly stable as we have focused
      on
      service and maintenance of our existing installed products and have not
      installed new products at hotels. Over time, our revenues relating to our
      installed products will decline as existing revenue sharing agreements conclude.
      Given the foregoing, in 2005 we commenced our diversification strategy to invest
      in emerging growth companies. To date we have invested in Identica Holdings
      Corporation, a privately held distributor and integrator of next-generation
      biometric security solutions, including the TechSphere hand vascular pattern
      biometric technology, and Aprecia, LLC, a privately held provider of applied
      artificial intelligence solutions for gaming and homeland security applications.
      We continue to explore opportunities and perform due diligence on third parties
      with respect to additional potential investments. At this time, we have not
      reached a definitive agreement to make further investments. In addition, we
      may
      acquire an operating company in the future if the opportunity arises. Over
      time,
      we may realize revenues from the sale of securities purchased from Identica,
      Aprecia and other third party companies in the future, if applicable. The timing
      and return on such investments, however, cannot be assured.




We
      anticipate that we will receive more than 50% of the recurring revenues from
      the
      sale of goods and services generated by our currently installed eRoomServ
      refreshment centers, eRoomSafes and eRoomTray solutions under revenue-sharing
      agreements. Our customers receive the remainder of the recurring revenues.
      AMRESCO is paid from our portion of the revenues pursuant to our financing
      agreement with AMRESCO, relating solely to those units for which it previously
      provided financing.




We
      installed zero new products in the years ended December 31, 2005 and
      2004.




**Revenue
      Recognition**




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




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.




-
          12 -






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,
      our research and development expenses were not material in fiscal year 2005
      and
      we do not expect this to change in the future periods.




In
      accordance with Financial Accounting Standards Board, or FASB, Statement of
      Financial Accounting Standards, or SFAS, No. 86, “Accounting for the Costs
      of Computer Software to be Sold, Leased or Otherwise Marketed,” development
      costs incurred in the research and development of new software products to
      be
      sold, leased or otherwise marketed are expensed as incurred until technological
      feasibility in the form of a working model has been established. Internally
      generated capitalizable software development costs have not been material to
      date. We have charged our software development costs to research and development
      expense in our consolidated statements of operations.




-
          13 -






**Results
      of Operations**




The
      following table sets forth selected statement of operations data as a percentage
      of total revenues for the years indicated:


**Fiscal
                Years ended December 31,****2005**
            
            **2004**Statement
                of Operations Data:Revenue:Revenue-sharing
                arrangements
            
            
            77.3
            %
            
            69.4
            %Maintenance
                fees
            
            
            22.2
            
            
            22.8Product
                sales
            
            
            0.5
            
            
            7.8Total
                revenue
            
            
            100.0
            %
            
            100.0Cost
                of revenue:Revenue-sharing
                arrangements
            
            
            32.9
            %
            
            32.4
            %Maintenance
            
            
            3.8
            
            
            4.6Product
                sales
            
            
            0.1
            
            
            0.2Total
                cost of revenue
            
            
            36.8
            
            
            37.2Gross
                margin
            
            
            63.2
            
            
            62.8Operating
                expenses:Selling,
                general and administrative expense
            
            
            41.3
            %
            
            49.3
            %Research
                and development expense
            
            
            0.1
            
            
            2.4Interest
                expense
            
            
            20.5
            
            
            13.2Gain
                in collection of previously written off receivables
            
            
            0.0
            
            
            (19.6
            )Gain
                on sale of assets
            
            
            (3.4
            )
            
            0.0Interest
                and other income
            
            
            (5.4
            )
            
            (0.5
            )Net
                operating expenses
            
            
            53.1
            
            
            44.8Income
                from operations
            
            
            10.2
            %
            
            18.1
            %Other
                income (expense):Gain
                on forgiveness of liabilities and debt
            
            
            0.1
            
            
            38.5Net
                income (loss)
            
            
            10.3
            %
            
            56.6
            %





**Years
      Ended December 31, 2005 and** **2004**




**Revenues**




Revenue
      Sharing Arrangements — Our revenue from revenue-sharing arrangements was
      $1,204,219 in 2005 as compared to $1,103,945 for 2004, representing an increase
      of $100,274, or 9.1%. The increase in revenue from revenue-sharing arrangements
      was due to better performance of our products installed pursuant to revenue
      sharing agreements. During the years ended December 31, 2005 and 2004, we did
      not place additional products on a revenue sharing basis.




Maintenance
      Fee Revenue — Our maintenance fee revenue was $345,738 for 2005 and $363,501 for
      2004, representing a decrease of $17,763, or 4.9%. The decrease in maintenance
      fee revenue was due to a decreased number of products installed with maintenance
      agreements.




Product
      Sales — Our revenue from product sales was $7,331 in 2005, as compared to
      $123,713 in 2004, representing a decrease of $116,382, or 94.1%. The decrease
      in
      revenue from product sales was a result of no material equipment sales occurring
      in 2005.




-
          14 -







**Cost
      of Revenue**




Cost
      of
      Revenue-Sharing Revenue — Our cost of revenue-sharing revenue was $512,316 for
      2005 and $515,124 for 2004, representing a decrease of $2,808, or 0.5%. The
      decrease in the cost of revenue-sharing revenue was not material. The gross
      margin percentage on revenue-sharing revenue was 57.5% in 2005 as compared
      to
      53.3% in 2004.




Cost
      of
      Maintenance Revenue — Our cost of maintenance revenue was $58,786 for 2005 as
      compared to $72,915 for 2004, representing a decrease of $14,129, or 19.4%.
      The
      decrease in the cost of maintenance revenue was primarily due to fewer repair
      issues, with respect to installed products, in 2005 as compared to 2004. The
      gross margin percentage on maintenance revenues was 83.0% in 2005 as compared
      to
      79.9% in 2004.




Cost
      of
      Product Sales Revenue — Our cost of product sales revenue was $1,261 for 2005 as
      compared to $3,142 for 2004, representing a decrease of $1,881, or 59.9%. The
      decrease, while significant from a percentage standpoint, was not material.
      The
      gross margin percentage on revenue from product sales revenue was 82.8% in
      2005
      as compared to 97.5% in 2004. The high gross margin percentage in 2004 relates
      to the sale of 260 refreshment centers that were previously written-off and,
      accordingly, no cost of product sales was attributed to such sale.




The
      changes and percent changes with respect to our revenues and our cost of revenue
      for the years ended December 31, 2005 and 2004 are as follows:


**For
                  the Years Ended****December
                  31,****2005**
              
              **2004**
              
              **Change**
              
              **Percent
                  Change****REVENUE**Revenue-sharing
                  arrangements
              
              $
              1,204,219
              
              $
              1,103,945
              
              $
              100,274
              
              
              9.1
              %Maintenance
                  fees
              
              
              345,738
              
              
              363,501
              
              
              (17,763
              )
              
              4.9
              %Product
                  sales
              
              
              7,331
              
              
              123,713
              
              
              (116,382
              )
              
              94.1
              %**Total
                  Revenue**
              
              
              1,557,288
              
              
              1,591,159
              
              
              (33,871
              )
              
              2.1
              %**COST
                  OF REVENUE**Revenue-sharing
                  arrangements
              
              
              512,316
              
              
              515,124
              
              
              (2,808
              )
              
              0.5
              %Maintenance
              
              
              58,786
              
              
              72,915
              
              
              (14,129
              )
              
              19.4
              %Product
                  sales   3,142
              
              
              1,261
              
              
              3,142
              
              
              (1,881
              )
              
              59.9
              %**Total
                  Cost of Revenue**
              
              
              572,363
              
              
              591,181
              
              
              (18,818
              )
              
              3.2
              %**GROSS
                  MARGIN PERCENTAGE**Revenue-sharing
                  arrangements
              
              
              57.5
              %
              
              53.3
              %Maintenance
              
              
              83.0
              %
              
              79.9
              %Product
                  sales
              
              
              82.8
              %
              
              97.5
              %**Total
                  Gross Margin Percentage**
              
              
              63.2
              %
              
              62.8
              %





Although
      the preceding table summarizes the net changes and percent changes with respect
      to our revenues and our cost of revenue for the years ended December 31, 2005
      and 2004, the trends contained therein are limited to a two-year comparison
      and
      should not be viewed as a definitive indication of our future
      results.




-
          15 -




**Operating
      Expenses** ****




Selling,
      General and Administrative — Selling, general and administrative expenses were
      $642,508 for 2005 and $784,110 for 2004, representing a decrease of $141,602,
      or
      18.1%. Selling, general and administrative expenses represented 41.3% of our
      total revenues in 2005 and 49.3% of our total revenues in 2004. The decrease
      in
      selling, general and administrative expenses related to our continued reduction
      in fixed overhead expenses.




Research  and
      Development Expenses — Research and development expenses were $1,959 for 2005
      and $38,527 for 2004, representing a decrease of $36,568, or 94.9%. The decrease
      in research and development expenses was due to our decision not to undertake
      new research and development projects given that we do not anticipate making
      further placements of new products at hotels. Research and development expenses
      represented 0.1% of our total revenue in 2005 and 2.4% of our total revenue
      in
      2004.




Interest
      expense was $319,062 for 2005 as compared to $209,961 for 2004, an increase
      of
      $109,101, or 52.0%. The increase in interest expense related primarily to the
      remainder of the unamortized discount of $154,109 that was recognized upon
      the
      early conversion of the outstanding notes payable on September 7, 2005. In
      2005,
      we did not realize a gain on collection of previously written off receivables,
      as compared to a gain on collection of previously written off receivables in
      the
      amount of $312,500 in 2004. We realized a gain on the sale of assets in 2005
      of  $52,624,
      as compared to no gain on the sale of assets in 2004. Income from operations
      for
      2005 was $158,405, as compared to $287,308 in 2004. The Company also realized
      a
      gain on forgiveness of liabilities and debt of $2,097 in 2005 as compared to
      $612,718 in 2004.




**Net
      Income Attributable to Common Stockholders** ****




We
      realized net income attributable to common stockholders of $160,502 in 2005,
      as
      compared to $900,072 in 2004. The $739,570 decrease in net income was primarily
      due to not realizing a gain on collection of previously written off receivables
      in 2005 as well as realizing a significantly reduced gain on forgiveness of
      liabilities and debt offset, in part, by realizing a gain on the sale of assets
      in 2005.




**Financing
      Arrangement with AMRESCO Leasing Corporation**




In
      1999,
      we entered into the amended and restated program agreement with AMRESCO, which
      represented an exclusive, post-installation, financing arrangement for the
      funding of units placed with domestic hotel customers under our revenue-sharing
      agreements. On May 11, 2000, we replaced this agreement with a master business
      lease financing agreement. Thereafter, on February 23, 2001, we amended and
      restated the master business lease financing agreement and related exhibits.




In
      September 2002, we announced
      the receipt of written notice from AMRESCO
      Leasing Corporation of its intention to cease funding any future loans pursuant
      to the Amended and Restated Master Business Lease Financing Agreement. AMRESCO
      indicated that the decision to cease funding future loans was based on its
      determination that the Company was not able to meet its debt obligations in
      the
      ordinary course of business, and also that it had altered its policy not to
      originate any new loans and to only service its existing portfolio of
      loans.




Under
      the
      terms of this terminated agreement, we were able to finance up to 150% of the
      fully burdened cost to manufacture and install our products, through an
      open-ended line of credit, over the seven-year term of the agreement.




As
      part
      of the AMRESCO financing, we formed eRoomSystem SPE, a wholly owned subsidiary.
      eRoomSystem SPE owns all of the units funded by AMRESCO under our
      revenue-sharing agreements, which funding totals $1,684,416 in original
      principal amount. AMRESCO has taken a senior security interest in the units
      financed under the financing agreement and all proceeds generated by, and
      derived from, those products.




-
          16 -




Until
      October 1, 2003, the interest rate for the funds under the AMRESCO financing
      arrangement was based upon the seven-year treasury rate plus an additional
      incremental rate that varies depending upon the total amount outstanding under
      the financing arrangement. The incremental rate varied according to the
      thresholds provided in the following table:




**Threshold**
            
            **Interest
                Rate**Aggregate
                fundings of less than $25 million
            
            Seven-year
                treasury rate plus 12.5%Aggregate
                fundings from $25 million and equal to $125 million
            
            Seven-year
                treasury rate plus 10.0%Aggregate
                fundings of more than $125 million and equal to $150
                million
            
            Seven-year
                treasury rate plus 8.5%Aggregate
                fundings of more than $150 million and equal to $175
                million
            
            Seven-year
                treasury rate plus 7.5%Aggregate
                fundings of more than $175 million
            
            Seven-year
                treasury rate plus 6.5%










On
      October 1, 2003, as a condition to receiving $250,000 in debt financing from
      the
      Gestetner Group, LLC and several third parties, AMRESCO and the Company entered
      into an agreement for the purpose of modifying the notes payable to AMRESCO.
      The
      terms of such agreement provide that all loan fundings, and all corresponding
      notes payable, made by AMRESCO to the Company shall bear interest at the rate
      of
      8% per annum during the period October 1, 2003 to September 30, 2005. From
      October 1, 2005 until all debt obligations in favor of AMRESCO are paid in
      full,
      all promissory notes in favor of AMRESCO shall bear interest at the rate of
      10%
      per annum. The Company has, and will continue to, realize a sizable cost savings
      based upon the interest reduction from the former rate of 17.19% per
      annum.






In
      consideration for the interest rate reduction, the Company issued AMRESCO a
      warrant to purchase 400,000 shares of common stock, exercisable at $0.10 per
      share through October 1, 2008. If such warrant has an intrinsic value greater
      than $300,000 at any time during such period, AMRESCO has the right to exercise
      a “put” regarding the warrant to the Company for $200,000, payable in twelve
      equal monthly installments.




**Liquidity
      and Capital Resources** ****




On
      August
      9, 2000, we closed our initial public offering for 1,800,000 shares of common
      stock. We received gross proceeds of $11,700,000 and, after deducting
      underwriting discounts and commissions and offering expenses, net proceeds
      of
      approximately $9,860,000. The net offering proceeds were used for funding the
      production and installation of our products and services, the repayment of
      a
      substantial portion of our outstanding indebtedness and related accrued
      interest, the payment of cash dividends on our Series A and Series C
      convertible preferred stock, our advertising and promotional expenses,
      additional research and development to improve our existing products and
      services and to develop our future products and services, and general corporate
      purposes and working capital, including the payment of accounts payable incurred
      prior to the closing of our initial public offering. We used the net proceeds
      from our initial public offering through the nine months ended
      September 30, 2001.




-
          17 -


In
      addition to the funds received pursuant to our initial public offering, we
      have
      received $1,684,416 in fundings through our prior financial arrangements with
      AMRESCO in 2001 and 2002, collectively, and $1,416,029 in gross proceeds from
      our private placement of common stock in March 2002. The funds from AMRESCO
      and
      our private placement have been used to fund working capital and general
      corporate purposes.




On
      November 8, 2002, we issued a promissory note to Ash Capital, LLC for proceeds
      of up to $322,500. The note bore interest at 8%. The principal and interest
      were
      originally due on November 8, 2003. All past due amounts and accrued interest
      thereon bear interest at 18%. During the period November 8, 2002 through
      September 30, 2003, we received loan proceeds of $322,500, and also transferred
      $25,000 from an accounts payable due to Ash Capital, which increased the
      principal amount of the promissory note to $347,500, or the Ash Capital Note.
      At
      any time, principal and accrued interest on the promissory note is convertible
      into Series D Convertible Preferred Stock at $0.90 per share. Each share of
      the
      Series D Convertible Preferred Stock is convertible into six shares of common
      stock, at the rate of $0.15 per share of Series D Preferred Stock. On October
      1,
      2003, Ash Capital, LLC agreed to amend the terms of its secured convertible
      promissory note with us to (i) extend the maturity date to the earlier of
      November 8, 2007 or the maturity date of the Notes issued to Gestetner Group,
      LLC and several third parties and (ii) include as an additional event of default
      any default by us the secured convertible promissory notes with Gestetner Group,
      LLC and several third parties. In addition, we have issued Ash Capital, LLC
      a
      contingent warrant to purchase shares of common stock, exercisable at $0.13
      per
      share through October 1, 2008. The terms of the warrant provide that the number
      of shares exercisable by Ash Capital, LLC will be determined by a formula,
      [A -
      B] times C, whereby (i) A equals the aggregate number of shares of our common
      stock that are, on the date of the exercise of the Ash Capital warrant, issued
      to and held by any of the Gestetner Group, LLC and several third parties that
      purchased, collectively, $250,000 of secured convertible promissory notes on
      October 1, 2003, (ii) B equals 10,000,000 and (iii) C equals .07. We have
      utilized all monies loaned by Ash Capital, LLC for our business operations.
      On
      September 1, 2005, Ash Capital, LLC converted the Ash Capital Note, in the
      original principal amount of $347,500 plus accrued interest of $82,332, into
      2,865,550 shares of common stock. The Ash Capital Note was converted at $0.15
      per share. The foregoing conversion triggered the issuance of warrants to
      purchase 53,775 shares of common stock in favor of Ash Capital.




On
      October 1, 2003, we issued secured convertible promissory notes in the original
      principal amount of $250,000 (the “Notes”), collectively, to Gestetner Group,
      LLC, a New Jersey limited liability company, and several third parties, the
      Noteholders. David A. Gestetner, our Chief Executive Officer and President
      is
      the Managing Member of the Gestetner Group, LLC. The terms of the Notes include
      (i) for interest to accrue at the rate of 8% per annum, (ii) a maturity date
      of
      the earlier of (a) October 1, 2008, (b) the date of approval of the Board of
      Directors regarding the merger of the Company with or into any third party
      or
      the sale of all or substantially all of our assets, or (c) the date of the
      closing of any financing (other than commercial credit facilities), the gross
      proceeds of which are at least $1,000,000 and (iii) the right of the
      Noteholders, at any time, to convert all outstanding principal and accrued
      and
      unpaid interest into shares of our common stock at the rate of $0.05 per share;
      provided, however, that we shall have the right to not permit the conversion
      if
      such conversion would result in the Noteholders holding, in the aggregate and
      on
      a fully-diluted basis, more than 49% of our outstanding common stock. In
      addition, the Noteholders have been issued, collectively, warrants to purchase
      5,000,000 shares of our common stock, exercisable at $0.05 per share at any
      time
      through October 1, 2008. We have used the proceeds provided by the Noteholders
      for our business operations. On September 1, 2005, Gestetner Group, LLC and
      the
      Noteholders converted the Notes, in the collective principal amount of $250,000
      plus accrued interest of $38,411, into 5,768,219 shares of common stock. The
      Notes were converted into common stock at $0.05 per share. On September 7,
      2005,
      Gestetner Group, LLC and the Noteholders exercised warrants to purchase a total
      of 5,000,000 shares of common stock for a collective exercise price of $250,000.
      The warrants were exercised at $0.05 per share.




-
          18 -




At
      December 31, 2005, we had $1,316,515 of cash and working capital of
      $1,211,956, as compared to $646,386 of cash and working capital of $445,482
      at
      December 31, 2004. In addition, our stockholders’ equity was $2,469,730 at
      December 31, 2005 as compared to $1,312,657 at December 31, 2004, an increase
      of
      $1,157,073. The increase in cash, working capital and stockholders’ equity
      reflects the continued decrease in cash used in our operations and reduction
      in
      fixed overhead expenses along with the elimination, on generally favorable
      terms, of accounts payable and other previously existing current liabilities.




Our
      accumulated deficit decreased to $31,646,931 at December 31, 2005 as compared
      to
      $31,807,433 at December 31, 2004. The decrease in accumulated is a direct result
      of our net income of $160,502 for the year ended December 31, 2005.




Net
      cash
      provided by operating activities for the year ended December 31, 2005 was
      $901,677, as compared to $730,322 of net cash provided by operating activities
      during the year ended December 31, 2004. The $171,355 increase in net cash
      provided by operating activities resulted primarily from the significant
      reduction in gain realized, the increase in accretion of debt discount, the
      deposit of $225,000 from attorney’s escrow, offset, in part, by lower net income
      and an increase in accounts receivable.




Net
      cash
      used in investing activities for the year ended December 31, 2005 was $202,244,
      as compared to $19,716 during the year ended December 31, 2004. The increase
      in
      net cash used in investing activities resulted primarily from the investments
      made in Identica Holdings Corporation offset, in part, by the change in
      long-term deposits and restricted funds.




Net
      cash
      used in financing activities for the year ended December 31, 2005 was $29,304,
      as compared to $446,205 during the year ended December 31, 2004. The decrease
      in
      cash used in financing activities resulted from a significant decrease in
      principal payments on long-term debt relating to AMRESCO, and the receipt of
      proceeds from the exercise of options and warrants.




**Qualitative
      and Quantitative Disclosures About Market Risk**




As
      we
      have decided to cease the placement of new products at hotels, the potential
      currency risks associated with manufacturing the majority of our products
      overseas no longer exist. In addition, given that we have a very limited number
      of products placed internationally, and we are paid in U.S. dollars by our
      hotel
      clients not located in the United States, foreign currency exposure risks no
      longer apply.







-
          19 -


**RISK
      FACTORS**




*We
      are subject to a high degree of risk as we are considered to be in unsound
      financial condition. The following risks, if any one or more occurs, could
      materially harm our business, financial condition or future results of
      operations. If that occurs, the trading price of our common stock could decline.*




**Risks
      Related to** **e** **RoomSystem
      Technologies**




***As
      management for the Company has decided to forego further placements of new
      products at hotels and our existing revenue sharing agreements have fixed terms,
      we will experience declining revenues in future periods upon the conclusion
      of
      such existing revenue sharing agreements***




The
      revenue sharing agreements that we have entered into with our hotel customers
      have a seven-year term. As of December 31, 2005, the average remaining life
      of
      these agreements is 1.7 years. Each year, certain of our existing revenue
      sharing agreements will conclude, unless hotels elect to continue under the
      terms of the existing agreement, for which there are no assurances. As the
      revenue sharing agreements conclude, and hotels elect to not extend the term
      thereof, we will experience an incremental decrease in revenue sharing revenue
      as well as maintenance revenue. We do, however, own the equipment and upon
      the
      conclusion of such agreements may decide to re-deploy such equipment at a new
      hotel, either on a revenue sharing basis or sale basis. To date, we have not
      utilized this strategy given that in our experience most equipment, upon the
      conclusion of the seven-year revenue sharing agreement, would require
      significant capital expense to redeploy at another hotel. Given the foregoing,
      as revenue sharing agreements conclude and our revenues decline as a result
      thereof, our financial condition and operating results will likely be materially
      adversely affected. ****




**While
      we have realized net income for fiscal years 2005 and 2004, we have a history
      of
      significant operating losses and may experience operating losses in the future,
      particularly given the fixed term of our revenue sharing agreements which
      comprise nearly all of our revenues**




For
      the
      year ended December 31, 2005, we realized net income of $160,502, as
      compared to net income of $900,072 for the fiscal year ended December 31, 2004.
      In addition, our operations provided net cash of $901,677 for the year ended
      December 31, 2005, as compared to $730,322 for the year ended December 31,
      2004.
      However, we have a history of significant operating losses and may realize
      operating losses in the future, specifically upon the conclusion of a measurable
      percentage of our existing revenue sharing agreements. While we are actively
      embarking upon our diversification strategy of investing in third party emerging
      growth companies and, potentially, acquiring an operating company if the
      opportunity arises. we have not realized any revenues to date from such
      activities. Further, there is no assurance that our investments in third party
      companies to date will result in us realizing meaningful revenues, if at all,
      or
      that we will be successful in acquiring an operating company. To the extent
      we
      do not replace revenue sharing revenue as it decreases, our financial condition
      and results of operations will likely be materially adversely affected.





***Although
      we commenced our diversification strategy in 2005 by making investments in
      third
      party companies, there is no assurance that we will realize a return on such
      investments,***





The
      securities we were issued relating to our investments in Identica Holdings
      Corporation and Aprecia, LLC are not marketable as each of these companies
      are
      privately held. It is not known when, or if, these securities will be readily
      marketable, if at all. Furthermore, even if such securities become readily
      marketable, there is no assurance that we will receive a return on our
      investment sufficient to offset the anticipated decline in our revenues relating
      to existing revenue sharing agreements which will expire. Thus, in the event
      we
      do not realize a material return on our investments in Identica and Aprecia,
      our
      future operating results will likely be materially adversely affected.


-
          20 -




***While
      we are exploring the possibility of acquiring an operating company to augment
      our historical business and recent investments in third party emerging growth
      companies, given our cash position, among other things, there is no assurance
      that we will be successful in consummating a transaction on favorable terms,
      if
      at all***





We
      have
      undertaken a significant amount of due diligence on several operating companies
      regarding a potential acquisition. To date, we have not been successful in
      reaching a definitive agreement with such companies. While we intend to continue
      our search for a suitable operating company, there is no assurance that we
      will
      be successful given our relatively limited cash on hand, lack of liquidity
      in
      our common stock, and our common stock not being listed on a national securities
      exchange, among other factors. Nevertheless, we intend to continue to explore
      potential acquisitions, along with additional investments in third party
      emerging growth companies. We view the acquisition of an operating company
      on
      favorable terms as our most important objective for 2006. Should we not achieve
      this objective in 2006, our financial condition and results of operation will
      likely be adversely affected as existing revenue sharing agreements reach their
      conclusion.





***Based
      on the numerous reductions-in-force we have effected in the past several years
      to reduce fixed overhead expenses along with outsourcing our ongoing maintenance
      and service operation and given the current composition of employees the loss
      of
      additional key personnel would seriously impact our
      operations***




We
      are
      dependent upon the abilities and efforts of certain personnel, specifically
      David A. Gestetner. Our future success will depend in large part upon Mr.
      Gestetner. We currently do not carry key man life insurance on Mr. Gestetner,
      and we have no present intention of doing so in the near future. There can
      be no
      assurance that we will be able to locate and retain a suitable replacement
      for
      Mr. Gestetner in the event Mr. Gestetner is no longer employed by us.




**Risks
      Related to Our Industry**




***We
      rely on the economic health of the lodging industry to generate revenues from
      our existing revenue sharing agreements, and any condition that may adversely
      impact the lodging industry will adversely impact the revenues we receive from
      revenue sharing agreements***




Nearly
      all of our revenue is generated from our existing revenue sharing agreements
      and
      maintenance agreements associated therewith. The economic health of the lodging
      industry, and, therefore, our revenues, are affected by a number of factors
      beyond our control, including:




·
            general
                economic conditions;




·
            levels
                of disposable income of the hotel
                patrons;




·
            acts
                of terrorism and anti-terrorism
                efforts;




·
            increased
                transportation costs resulting in decreased travel by patrons and
                decreased hotel occupancy and
                RevPar;




·
            changes
                or proposed changes in tax laws;






-
          21 -




·
            legal
                and regulatory issues affecting the development, operation and licensing
                of hotels; and




·
            competitive
                conditions in the lodging industry, including the effect of such
                conditions on the pricing of the merchandise sold in our products
                installed at hotels.




The
      foregoing factors may impact our hotel clients and their guests as relates
      to
      the consumption of merchandise sold in our products installed on a revenue
      sharing basis.




***Terrorist
      attacks or acts of war may seriously harm our
      business***




Terrorist
      attacks or acts of war may cause damage or disruption to our company, our
      employees, our facility and our customers, which could significantly impact
      our
      revenues, costs and expenses, and financial condition. The terrorist attacks
      that took place in the United States on September 11, 2001 were
      unprecedented events that have created many economic and political
      uncertainties, especially to the lodging industry, some of which have materially
      adversely affected our business, results of operations, and financial condition
      and may do so again in the future. In particular, the lodging industry was
      materially affected by the downturn in the tourism industry as a result of
      the
      September 11 attacks. While it has since recovered, we experienced a fairly
      significant decrease in utilization of our revenue sharing products for a
      significant period following September 11, 2001 particularly in the New York
      metro area given the lower occupancy rates and the significant number of
      installations we have in this region. The potential for future terrorist
      attacks, the national and international responses to terrorist attacks, and
      other acts of war or hostility have created many economic and political
      uncertainties, which could materially adversely affect our business, results
      of
      operations, and financial condition in ways that we currently cannot
      predict.




The
      strength and profitability of our business depends on the overall demand for
      our
      existing installed products at hotels. Lodging industry revenues are sensitive
      to general economic conditions and generally rise or fall more rapidly in
      relation to the condition of the overall economy. Although we cannot accurately
      estimate the economic impact of a future terrorist attack at this time, the
      lodging industry was negatively affected by the reduction in air travel and
      tourism.




***We
      have experienced loss of market share due to the intense competition from
      companies with longer operating histories, greater resources and more
      established brand names that market in-room amenities to the lodging industry,
      the conclusion of some of our revenue sharing agreements, and the lack of new
      product sales in the last three fiscal years.***




The
      market for in-room amenities in the lodging industry is very competitive, and
      we
      expect competition to intensify in the future. The foregoing served as a primary
      reason for implementation of our diversification strategy. Our competitors
      vary
      in size and in the scope and breadth of the products and services they offer
      and
      include Bartech Systems International, Dometic Corporation and MiniBar Systems,
      among others. Each of our competitors have longer operating histories, larger
      customer bases, greater brand recognition, and substantially greater capital,
      research and development, manufacturing, marketing, service, support, technical
      and other resources than we currently do. While we do not intend to manufacture
      and install new products in the lodging industry, the foregoing factors directly
      impact our ability to the continued deployment of such products at hotels
      following the maturity of their respective revenue sharing agreements.




-
          22 -




**Risks
      Related to Our Common Stock**




***Our
      diversification strategy, particularly a potential acquisition of an operating
      company, will likely require us to obtain additional financing in the form
      of
      the sale of debt or equity securities, the result of which would have a dilutive
      effect on the relative ownership of our existing
      stockholders***




Based
      upon our existing cash on hand, which was $1,316,515 as of December 31, 2005,
      we
      will likely require additional capital to successfully implement our
      diversification strategy. Funding may take the form of common stock, preferred
      stock or convertible debt. The issuance of additional equity or convertible
      debt
      securities will have the effect of reducing the percentage ownership of our
      current stockholders. In addition, such equity or convertible debt securities
      may have additional rights, preferences or privileges to those of our common
      stock, such as registration rights. There are no assurances that funding will
      be
      available to us on favorable terms, if at all.




***Our
      executive officers and members of our board of directors beneficially own 42.3%
      of the outstanding shares of our common stock and could limit the ability of
      our
      other stockholders to influence the outcome of director elections and other
      transactions submitted to a vote of stockholders***




Our
      executive officers and members of our board of directors beneficially own
      10,256,252 shares of common stock, or approximately 42.3% of the outstanding
      shares of our common stock. These stockholders may have the power to influence
      all matters requiring approval by our stockholders, including the election
      of
      directors and approval of mergers and other significant corporate transactions.




***Our
      stock price may fall as a result of the 10,535,133 shares of common stock,
      or
      43.4% of our outstanding common stock, that is currently eligible for
      resale***




Sales
      of
      a substantial number of shares of common stock in the public market could cause
      the market price for our common stock to decline. Of the 24,278,902 shares
      of
      common stock outstanding as of March 17, 2006, 321,875 shares have been
      registered pursuant to a selling stockholder registration statement and
      1,800,000 shares were sold in our initial public offering, which closed on
      August 9, 2000. The foregoing shares, representing 8.7% of our outstanding
      shares of common stock, are immediately available for resale.




In
      addition to the foregoing shares, up to 8,413,258 shares of common stock, or
      34.7% of our outstanding shares of common stock, are available for resale in
      accordance with Rule 144(k) under the Securities Act. These shares, along with
      the shares of common stock sold in our initial public offering and the shares
      registered in the selling stockholder offering, represent 10,535,133 shares,
      or
      43.4% of our outstanding shares of common stock. As to our remaining shares
      of
      common stock, 13,743,769 are currently ineligible for resale.




As
      of
      December 31, 2005, we had options and warrants outstanding to purchase
      3,504,621 shares of common stock at a weighted average exercise price of $0.28
      per share, all of which are immediately exercisable.




The
      sale
      of a substantial number of shares of our common stock within a short period
      of
      time could cause our stock price to fall. In addition, the sale of these shares
      could impair our abilities to raise capital through the sale of additional
      common stock.




-
          23 -


**ITEM
      7.**  **FINANCIAL
      STATEMENTS.**




**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**






Report
                  of Independent Certified Public Accountants
              25Consolidated
                  Balance Sheets
              26Consolidated
                  Statements of Operations
              27Consolidated
                  Statements of Stockholders' Equity
              28Consolidated
                  Statements of Cash Flows
              29Notes
                  to Consolidated Financial Statements
              30






-
          24 -






**H****ANSEN****,
                  B****ARNETT****&
                  M****AXWELL**
                **A
                  Professional Corporation**
                CERTIFIED
                    PUBLIC ACCOUNTANTS
                  AND
                  BUSINESS
                    CONSULTANTS
                  5
                    Triad Center, Suite 750
                  Salt
                    Lake City, UT 84180-1128
                  Phone:
                    (801) 532-2200
                  Fax:
                    (801) 532-7944
                  www.hbmcpas.com




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Directors and the Stockholders


eRoomSystem
      Technologies, Inc.





We
      have
      audited the accompanying consolidated balance sheets of eRoomSystem
      Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2005 and
      2004, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the years then ended. These financial statements
      are
      the responsibility of the Company’s management. Our responsibility is to express
      an opinion on these consolidated financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of eRoomSystem Technologies,
      Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of
      its
      operations and its cash flows for the years then ended in conformity with
      accounting principles generally accepted in the United States of
      America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 1 to the
      financial statements, up until December 31, 2004 the had suffered recurring
      losses from operations, and the net income earned for the years ended December
      31, 2005 and 2004 was derived primarily from non-recurring items. This raises
      substantial doubt about the Company’s ability to continue as a going concern.
      The financial statements do not include any adjustments that might result from
      the outcome of this uncertainty.







**HANSEN,
      BARNETT & MAXWELL**





Salt
      Lake
      City, Utah


March
      20,
      2006





-
          25 -


**eROOMSYSTEM
                    TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                    BALANCE SHEETS****December
                    31,****2005**
                
                **2004****ASSETS****CURRENT
                    ASSETS**Cash
                
                $
                1,316,515
                
                $
                646,386Attorney's
                    Escrow
                
                
                -
                
                
                225,000Accounts
                    receivable, net of allowance for doubtful accounts of $49,294
                    and$29,045
                    at December 31, 2005 and 2004, respectively
                
                
                263,392
                
                
                164,586Notes
                    receivable
                
                
                111,231
                
                
                -Prepaid
                    expenses
                
                
                11,519
                
                
                16,317**Total
                    Current Assets**
                
                
                1,702,657
                
                
                1,052,289**REFRESHMENT
                    CENTERS IN SERVICE**,
                    net of accumulated depreciation of
                  $2,289,694
                    and $1,777,378 at December 31, 2005 and
                    2004, respectively
                
                
                1,357,827
                
                
                1,870,143**PROPERTY
                    AND EQUIPMENT**Production
                    equipment
                
                
                -
                
                
                22,210Computer
                    equipment
                
                
                4,666
                
                
                76,031Vehicles
                    and other
                
                
                -
                
                
                44,1534,666
                
                
                142,394Less
                    accumulated depreciation and amortization
                
                
                (1,861
                )
                
                (129,481
                )**Net
                    Property and Equipment**
                
                
                2,805
                
                
                12,913**INVESTMENT
                    IN MARKETABLE SECURITIES**
                
                
                14,075
                
                
                -**NOTE
                    RECEIVABLE,**net
                    of unamortized discount of $2,852 and $0 at December 31, 2005
                    andDecember
                    31, 2004, respectively
                
                
                147,147
                
                
                -**DEPOSITS**
                
                
                85,300
                
                
                95,300**Total
                    Assets**
                
                
                3,309,811
                
                
                3,030,645**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES**Notes
                    payable and current portion of long-term debt
                
                
                301,696
                
                
                228,337Accounts
                    payable
                
                
                56,837
                
                
                109,089Accrued
                    liabilities
                
                
                109,778
                
                
                137,492Accrued
                    interest
                
                
                -
                
                
                81,615Customer
                    deposits
                
                
                11,758
                
                
                11,758Deferred
                    maintenance revenue
                
                
                10,632
                
                
                38,516**Total
                    Current Liabilities**
                
                
                490,701
                
                
                606,807**LONG-TERM
                    DEBT, net of current portion**
                
                
                349,380
                
                
                1,111,181**Total
                    Liabilities**
                
                
                840,081
                
                
                1,717,988**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; 24,228,902
                    sharesand
                    10,465,133 shares outstanding at December 31, 2005and
                    December 31, 2004, respectively
                
                
                24,229
                
                
                10,465Additional
                    paid-in capital
                
                
                33,754,361
                
                
                32,074,454Warrants
                    and options outstanding
                
                
                416,071
                
                
                1,109,930Note
                    receivable from shareholder
                
                
                (78,000
                )
                
                (74,759
                )Accumulated
                    deficit
                
                
                (31,646,931
                )
                
                (31,807,433
                )**Total
                    Stockholders' Equity**
                
                
                2,469,730
                
                
                1,312,657**Total
                    Liabilities and Stockholders' Equity**
                
                $
                3,309,811
                
                $
                3,030,645See
                    accompanying notes to consolidated financial
                    statements
 -
                26 -


**eROOMSYSTEM
                    TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF OPERATIONS****For
                    the years ended December 31,****2005**
                
                **2004****REVENUE**Revenue-sharing
                    arrangements
                
                $
                1,204,219
                
                $
                1,103,945Maintenance
                    fees
                
                
                345,738
                
                
                363,501Product
                    sales
                
                
                7,331
                
                
                123,713**Total
                    Revenue**
                
                
                1,557,288
                
                
                1,591,159**COST
                    OF REVENUE**Revenue-sharing
                    arrangements
                
                
                512,316
                
                
                515,124Maintenance
                
                
                58,786
                
                
                72,915Product
                    sales
                
                
                1,261
                
                
                3,142**Total
                    Cost of Revenue**
                
                
                572,363
                
                
                591,181**GROSS
                    MARGIN**
                
                
                984,925
                
                
                999,978**OPERATING
                    EXPENSES**Selling,
                    general and administrative expense, including non-cash
                    compensationof
                    $14,869 and $28,558, respectively
                
                
                642,508
                
                
                784,110Research
                    and development expense
                
                
                1,959
                
                
                38,527Interest
                    expense
                
                
                319,062
                
                
                209,961Gain
                    on collection of previously written off receivables
                
                
                -
                
                
                (312,500
                )Gain
                    on sale of assets
                
                
                (52,624
                )
                
                -Interest
                    and other income
                
                
                (84,385
                )
                
                (7,428
                )**Net
                    Operating Expenses**
                
                
                826,520
                
                
                712,670**Income
                    from Operations**
                
                
                158,405
                
                
                287,308Gain
                    on forgiveness of liabilities and debt
                
                
                2,097
                
                
                612,764**Net
                    Income**
                
                $
                160,502
                
                $
                900,072**Basic
                    Earnings Per Common Share**
                
                $
                0.01
                
                $
                0.09**Diluted
                    Earnings Per Common Share**
                
                $
                0.01
                
                $
                0.04See
                    accompanying notes to consolidated financial statements
  -
            27 -


**eROOMSYSTEM
                  TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS' EQUITY****FOR
                  THE YEARS ENDED DECEMBER 31, 2005 AND 2004****Shares**
              
              **Amount****2005**
              
              **2004**
              
              **2005**
              
              **2004****COMMON
                  STOCK**Balance
                  at Beginning of Year
              
              
              10,465,133
              
              
              10,383,933
              
              $
              10,465
              
              $
              10,384Exercise
                  of stock options
              
              
              5,130,000
              
              
              20,000
              
              
              5,130
              
              
              20Issuance
                  to directors for services
              
              
              -
              
              
              60,000
              
              
              -
              
              
              60Issuance
                  to consultant for services
              
              
              -
              
              
              1,200
              
              
              -
              
              
              1Conversion
                  of notes outstanding
              
              
              8,633,769
              
              
              -
              
              
              8,634
              
              
              -Balance
                  at End of Year
              
              
              24,228,902
              
              
              10,465,133
              
              
              24,229
              
              
              10,465**ADDITIONAL
                  PAID-IN-CAPITAL**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              32,074,454
              
              
              32,028,402Exercise
                  of stock options
              
              
              
              
              
              
              
              
              499,726
              
              
              3,380Issuance
                  to directors for services
              
              
              
              
              
              
              
              
              -
              
              
              10,140Issuance
                  to consultant for services
              
              
              
              
              
              
              
              
              -
              
              
              443Conversion
                  of notes outstanding
              
              
              
              
              
              
              
              
              709,609
              
              
              -Expiration
                  of warrants and options
              
              
              
              
              
              
              
              
              470,572
              
              
              32,089Balance
                  at End of Year
              
              
              
              
              
              
              
              
              33,754,361
              
              
              32,074,454**WARRANTS
                  AND OPTIONS OUTSTANDING**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              1,109,930
              
              
              1,092,416Expiration
                  of warrants and options
              
              
              
              
              
              
              
              
              (708,728
              )
              
              (32,089
              )Issuance
                  of stock options in settlement of accrued liabilities
              
              
              
              
              
              
              
              
              -
              
              
              31,688Increase
                  in value of variable options
              
              
              
              
              
              
              
              
              (4,244
              )
              
              4,244Issuance
                  of options and warrants related to consulting services and financing
                  activities
              
              
              
              
              
              
              
              
              19,113
              
              
              13,671Balance
                  at End of Year
              
              
              
              
              
              
              
              
              416,071
              
              
              1,109,930**NOTES
                  RECEIVABLE FROM SHAREHOLDER**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              (74,759
              )
              
              (71,500
              )Interest
                  accrued
              
              
              
              
              
              
              
              
              (3,241
              )
              
              (3,259
              )Balance
                  at End of Year
              
              
              
              
              
              
              
              
              (78,000
              )
              
              (74,759
              )**ACCUMULATED
                  DEFICIT**Balance
                  at Beginning of Year
              
              
              
              
              
              
              
              
              (31,807,433
              )
              
              (32,707,505
              )Net
                  gain
              
              
              
              
              
              
              
              
              160,502
              
              
              900,072Balance
                  at End of Year
              
              
              
              
              
              
              
              
              (31,646,931
              )
              
              (31,807,433
              )**Total
                  Stockholders' Equity at End of Year**
              
              
              
              
              
              
              
              $
              2,469,730
              
              $
              1,312,657


-
          28 -


**eROOMSYSTEM
                TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****For
                the years ended**
              **December
                31,****2005**
            
            **2004****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            160,502
            
            $
            900,072Adjustments
                to reconcile net income to net cash (provided )by operating
                activities:Depreciation
            
            
            517,292
            
            
            524,758Gain
                on forgiveness of debt and liabilities
            
            
            (2,097
            )
            
            (612,764
            )Gain
                on sale of assets
            
            
            (52,624
            )
            
            -Interest
                income from shareholder receivable
            
            
            (3,241
            )
            
            (3,259
            )Interest
                income from other receivable
            
            
            (1,231
            )
            
            -Accretion
                of debt discount
            
            
            205,062
            
            
            67,665Amortization
                of discount on note receivable
            
            
            (1,222
            )
            
            -Non-cash
                compensation expense
            
            
            14,869
            
            
            28,558Changes
                in operating assets and liabilities:Attorney's
                escrow
            
            
            225,000
            
            
            (225,000
            )Accounts
                receivable
            
            
            (98,806
            )
            
            61,799Prepaid
                expenses
            
            
            4,798
            
            
            (129
            )Accounts
                payable
            
            
            (50,155
            )
            
            (82,795
            )Accrued
                liabilities
            
            
            11,414
            
            
            88,597Customer
                deposits and deferred maintenance revenue
            
            
            (27,884
            )
            
            (17,180
            )**Net
                Cash Provided By Operating Activities**
            
            
            901,677
            
            
            730,322**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of fixed assets
            
            
            (2,244
            )
            
            (1,066
            )Change
                in long term deposits and restricted funds
            
            
            10,000
            
            
            (18,650
            )Purchase
                of investment and note receivable
            
            
            (210,000
            )
            
            -**Net
                Cash Used In Investing Activities**
            
            
            (202,244
            )
            
            (19,716
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Principal
                payments on long-term debt
            
            
            (296,004
            )
            
            (449,605
            )Proceeds
                from exercise of options and warrants
            
            
            266,700
            
            
            3,400**Net
                Cash Used in Financing Activities**
            
            
            (29,304
            )
            
            (446,205
            )**Net
                Increase in Cash**
            
            
            670,129
            
            
            264,401**Cash
                at Beginning of Period**
            
            
            646,386
            
            
            381,985**Cash
                at End of Period**
            
            $
            1,316,515
            
            $
            646,386**Supplemental
                Cash Flows Information**Cash
                paid for interest
            
            $
            74,872
            
            $
            94,052**Supplemental
                Disclosure of Noncash Investing and Financing
                Activities**Stock
                options issued in settlement of accounts payable
            
            $
            -
            
            $
            31,688Outstanding
                notes payable converted to stock
            
            $
            718,243
            
            $
            -Note
                received for assets sold
            
            $
            60,000
            
            $
            -


-
          29 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


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




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




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




Up
      until
      the year ended December 31, 2004, the Company had suffered recurring losses.
      During the years ended December 31, 2005 and 2004, the Company realized net
      income of $160,502 and $900,072, respectively. During the years ended December
      31, 2005 and 2004, the Company's operations provided $901,677 and $730,322
      of
      cash, respectively. The Company had cash of $1,316,515 as of December 31, 2005.
       At December 31, 2005, the Company had working capital of $1,211,956.
      Although the Company realized a profit in 2005 as well as significant profit
      in
      2004 it was primarily from non-recurring items. In 2005 the gain was primarily
      due to a sale of assets and proceeds from insurance. In 2004, the profit related
      to specifically gains on collection of previously written off receivables and
      gain on forgiveness of debt. This raises substantial doubt about the Company's
      ability to continue as a going concern. Realization of continued profitable
      operations is not assured. The accompanying financial statements do not include
      any adjustments relating to the recoverability and classification of asset
      carrying amounts or the amount and classification of liabilities that might
      result should the Company be unable to continue as a going concern.
 Management would like to acquire an existing operating company to enable
      the Company to grow and is continuously performing due diligence on third party
      companies for this purpose. The Company has also been performing research in
      order to invest in privately-held or publicly traded emerging growth stage
      companies.




On
      October 1, 2003 the Company had a change in management and issued secured
      convertible promissory notes in the original principal amount of $250,000.
       On September 7, 2005, the holders of the notes converted the principal
      amount of $250,000 together with accrued interest into 5,768,219 shares of
      common stock.




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




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




***Cash
      Equivalents and Fair Value of Financial Instruments*** -
      Cash
      equivalents include highly liquid debt investments with original maturities
      of
      three months or less, readily convertible to known amounts of cash. The Company
      had $73,688 and $73,688 of restricted cash, classified as deposits, to be
      distributed as loan repayments to a financing company as of December 31, 2005
      and 2004, respectively.




-
          30 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


In
      January 2004, the Company deposited $20,000 with a bank as collateral in order
      to effect electronic fund transfers through the bank. This certificate of
      deposit came due in January 2005, and was rolled into the checking account.




The
      carrying amounts reported in the accompanying consolidated financial statements
      for cash, accounts receivable, notes receivable and accounts payable approximate
      fair values because of the immediate or short-term maturities of these financial
      instruments. The Company’s long term note receivable is carried at principal
      plus accrued interest. The carrying amounts of the Company's debt obligations
      approximate fair value based on current interest rates available to the Company,
      with the exception of one convertible note payable, issued during 2003, that
      had
      a discounted carrying value of $62,603 at December 31, 2004, as compared to
      an
      approximate fair value of $250,000, which was the face amount of the note.
      This
      note was converted to shares of the Company’s common stock during
      2005.




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





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





Depreciation
      and amortization expense related to eRoomServ refreshment centers in service
      and
      property and equipment was $517,292 and $524,758 for the years ended December
      31, 2005 and 2004, respectively.




On
      retirement or disposition of property and equipment, the cost and related
      accumulated depreciation and amortization are removed from the accounts and
      any
      resulting gain or loss is recognized in the statement of operations.  In
      the year ended December 31, 2005, the Company exchanged fixed assets with a
      carrying value of $7,376 for a note receivable of $60,000, recognizing a gain
      on
      disposal of $52,624.




***Capitalized
      Software Costs*** -
      In
      accordance with FASB Statement of Financial Accounting Standards (“SFAS”) No.
      86, *Accounting
      for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed* ,
      development costs incurred in the research and development of new software
      products to be sold, leased or otherwise marketed are expensed as incurred
      until
      technological feasibility in the form of a working model has been established.
      Internally generated capitalizable software development costs have not been
      material for the years ended December 31, 2005 and 2004. The Company has charged
      its software development costs to research and development expense in the
      accompanying consolidated statements of operations.




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




-
          31 -




**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




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




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




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




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




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




***Stock-Based
      Compensation*** **-** At
      December 31, 2005, the Company has one stock-based employee compensation plan,
      which is described more fully in Note 10. The Company accounts for the plan
      under the recognition method and measurement principles of APB Opinion No.
      25, *Accounting
      for Stock Issued to Employees* ,
      and
      related Interpretations. During the years ended December 31, 2005 and 2004,
      the
      Company recognized compensation expense relating to stock options and warrants
      of $14,869 and $28,558, respectively. The following table illustrates the effect
      on net income and basic and diluted income per common share if the Company
      had
      applied the fair value recognition provisions of FASB Statement No. 123, *Accounting
      for Stock-Based Compensation* ,
      to
      stock-based employee and consultant compensation:


-
          32 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


For
                  the years ending December 31,
              
              **2005**
              
              **2004**Net
                  income, as reported
              
              $
              160,502
              
              $
              900,072Add:
                  Stock-based employee and consultant compensationexpenses
                  included in net income
              
              
              14,869
              
              
              28,558Deduct:
                  Total stock-based employee and consultantcompensation
                  expense determined under fair value based methodfor
                  all awards
              
              
              (29,600
              )
              
              (74,204
              )Pro
                  forma net earnings
              
              $
              145,771
              
              $
              854,426Earnings
                  per common share:Basic
                  as reported
              
              $
              0.01
              
              $
              0.09Basic
                  pro forma
              
              $
              0.01
              
              $
              0.09Diluted
                  as reported
              
              $
              0.01
              
              $
              0.04Diluted
                  pro forma
              
              $
              0.01
              
              $
              0.04


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




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





The
      following table is a reconciliation of the numerators and denominators used
      in
      the calculation of basic and diluted weighted-average common shares outstanding
      for the years ending December 31, 2005 and 2004:




**2005**
              
              **2004**Basic
                  net income
              
              $
              160,502
              
              $
              900,072Interest
                  expense from convertible debt
              
              
              -
              
              
              97,910Diluted
                  net income
              
              $
              160,502
              
              $
              997,982Basic
                  weighted-average common shares outstanding
              
              
              15,005,581
              
              
              10,433,772Effect
                  of dilutive securitiesStock
                  options and warrants
              
              
              667,801
              
              
              4,811,116Convertible
                  debt
              
              
              -
              
              
              7,316,667Diluted
                  weighted-average common shares outstanding
              
              
              15,673,382
              
              
              22,561,555Basic
                  earnings per share
              
              $
              0.01
              
              $
              0.09Diluted
                  earnings per share
              
              $
              0.01
              
              $
              0.04


-
          33 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


As
      of
      December 31, 2005 and 2004, there were potential common stock equivalents from
      options, warrants and convertible debt of shares 2,836,820 and 3,909,730,
      respectively that were not included in the computation of diluted earnings
      per
      common share because their effect would have been anti-dilutive.




***Recent
      Accounting Pronouncements -*** In
      December 2004, FASB issued SFAS No. 123(R), "Share-Based Payment” (“SFAS
      123(R)”). SFAS 123(R) revises FASB Statement No. 123, "Accounting for
      Stock-Based Compensation,” and supersedes APB Opinion No. 25, "Accounting for
      Stock Issued to Employees.” SFAS 123(R) focuses primarily on accounting for
      transactions in which an entity obtains employee services in share-based payment
      transactions. SFAS 123(R) requires companies to recognize in the statement
      of
      operations the cost of employee services received in exchange for awards of
      equity instruments based on the grant-date fair value of such awards (with
      limited exceptions). SFAS 123(R) is effective as of the first reporting period
      beginning after June 15, 2005 for large business issuers, and December 15,
      2005
      for small business issuers. Accordingly, the Company will adopt SFAS 123(R)
      in
      first quarter of fiscal 2006. The Company is currently evaluating the provisions
      of SFAS 123(R) and does not expect the implementation of the provisions of
      these
      pronouncements to have a materially significant effect on the Company’s
      consolidated financial statement presentation.




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





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





During
      1999, eRoomSystem Technologies, Inc. formed RSi BRE, Inc. (“RSi BRE”) as a
      wholly-owned subsidiary to own and operate certain eRoomServ refreshment center
      units under the terms of related revenue-sharing agreements. RSi BRE was formed
      as a condition of an obligation under a financing agreement referred to as
      the Equipment
      Transfer Agreement (the "Transfer Agreement") with RSG Investments, LLC (“RSG”)
      whereby the ownership of 2,270 eRoomServ refreshment center units and the
      related revenue-sharing agreements were transferred to RSi BRE.  The board
      of directors of RSi BRE comprised of one appointee from the Company, one
      appointee from RSG and one independent appointee. All operating decisions,
      including disbursements, of RSi BRE required unanimous consent of RSi BRE's
      board of directors. As a result, the Company did not control RSi BRE. On
      February 29, 2004, the Company reached a settlement agreement with RSG
      Investments, LLC, under which RSi BRE has come completely under the control
      of
      the Company’s management.





Under
      the
      terms of the Transfer Agreement, RSG received $0.57 per refreshment center
      unit
      per day of the revenue realized from the revenue-sharing agreements held by
      RSi
      BRE over the remaining life of their seven-year revenue-sharing agreements.
      However, the $0.57 per unit per day was paid to RSG only after $0.11 per unit
      per day had been paid to the Company to cover property taxes and maintenance.
      To
      the extent that at least $0.68 per unit per day in revenue was not realized
      from
      the refreshment center units, the Company had no obligation to pay the
      difference to RSG. Rather, RSG was subject to the risk that revenues generated
      from the refreshment center units were not at least $0.68 per unit per day.
      To
      the extent that the revenue per unit per day exceeded $0.68, the incremental
      amount was paid to the Company.




On
      February 29, 2004, the Company negotiated a settlement of the RSG obligation
      for
      a cash payment of $152,823.  The Company recognized a gain on forgiveness
      of $162,718 during 2004. The Company has
      liquidated RSi BRE into eRoomSystem Technologies, Inc.


-
          34 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      3 - INVESTMENT IN IDENTICA**





On
      May
      20, 2005 the Company invested $10,000 in Identica Holdings Corporation, a Nevada
      corporation, by purchasing 1,666,667 shares of common stock, at $0.006 per
      share. This investment represented 10% of Identica’s then outstanding capital
      stock on a fully-diluted basis. Identica is a privately held company that has
      expressed an interest in becoming a public company in the future. This
      investment will be carried at the lower of cost or market and will be
      periodically evaluated for impairment.





In
      addition, the Company loaned Identica $150,000 in cash. The loan is secured
      by a
      security interest in all the assets of Identica and is evidenced by a promissory
      note. The terms of the promissory note include interest accruing on the unpaid
      principal balance commencing twenty-four (24) months from date of the loan
      at
      the rate of ten percent per annum and a maturity date of June 20, 2007. In
      consideration for making the loan, the Company was issued a warrant to purchase
      one million (1,000,000) shares of common stock of Identica, exercisable at
      $0.15
      per share at any time through May 20, 2010. The warrants were valued at $4,075
      using the Black-Scholes pricing model with the following assumptions: risk
      free
      interest rate 3.88%, dividend yield of 0.0%, volatility of 150% and expected
      life of 5 years. The discount will be amortized over the expected twenty-five
      month term as interest income.




In
      September 2005, the Company entered into an Asset Purchase Agreement with
      Identica. Pursuant
      to the Agreement, Identica has purchased certain assets of the Company.
      Specifically, the assets consist of furniture and computer equipment held by
      the
      Company, as well as the Company’s web technologies package utilized by the
      Company’s technical support team to which the Company retained a perpetual
      license. The Agreement provides that Identica will pay the sum of $60,000 for
      the assets, which amount is evidenced by a one-year note bearing interest at
      the
      rate of 8% per annum, compounded monthly. Under the terms of the Note, Identica
      will make seven principal and interest payments in the amount of $9,098 per
      month, commencing on the six-month anniversary of the Note with a
      maturity date of September 7, 2006. In addition, at the same time, the Company
      entered into a Professional
      Services and Support Agreement whereby Identica will employ the technical
      personnel of the Company. In conjunction therewith, the Company will continue
      to
      be responsible, for a period of 6 months from the date of the Agreement for
      all
      expenses less $7,000 dollars per month related to such technical personnel. Thereafter,
      the Company will pay Identica $0.50 per Hotel room per month to service all
      equipment that the Company is contractually obligated to service.




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




**NOTE** **4
      - GAIN ON COLLECTION OF PREVIOUSLY WRITTEN OFF RECEIVABLES**




***Termination
      and Release of Revenue Sharing Agreement*** -
      During
      December 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 Company has
      recorded a gain of $112,500 on the collection of previously written off
      receivables. In addition, as part of the agreement, the refreshment
      centers were purchased by the Hotel and product sales revenue was recorded
      in the amount of $112,500 during the year ended December 31, 2004.




***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 Company has
      recorded a gain in the amount of $200,000 during the year ended December 31,
      2004.


-
          35 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




The
      new
      lease agreement terminates on December 31, 2008 at which time the hotel property
      owner takes ownership of the refreshment centers.  The property is to make
      monthly payments of $7,200.  The new lease agreement has been classified as
      a sales-type capital lease.  Because the property has a history of
      non-performance and is still under the supervision of a bankruptcy court, the
      net investment in the capital lease has been fully allowed against.  The
      following lists the components of the net investment in the sales-type lease
      as
      of December 31, 2005:







Total
                minimum lease payments to be received
            
            $
            259,200Less:
                Allowance for uncollectibles
            
            
            (217,988
            )Net
                minimum lease payments receivable
            
            
            41,212Less:
                Unearned income
            
            
            (41,212
            )Net
                investment in sales-type lease
            
            $
            -




The
      Company recorded revenue-sharing and maintenance fee revenue in the amounts
      of
      $ 86,400
      and $50,400 for the years ended December 31, 2005 and 2004, respectively.




Minimum
      lease payments through the end of the lease term are as follows:  $86,400
      in 2006, $86,400 in 2007, and $86,400 in 2008.




**NOTE
      5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**






In
      the
      year ended December 31, 2004, the Company settled outstanding payables to
      vendors and contractors in the amount of $430,386 and outstanding accrued
      payroll in the amount of $51,007. Of the liabilities settled, $72,205 was
      settled through the issuance of warrants and options to purchase 172,000 shares
      of common stock (see Note 10).  Gain on forgiveness of debt was recognized
      in the amount of $362,828.




The
      gain
      on forgiveness of debt for the year ended December 31, 2004 consisted of the
      following:







RSG
                Investments (Note 2)
            
            $
            162,718Note
                payable to supplier (Note6)
            
            
            87,218Accounts
                payable and accrued liabilities
            
            
            362,828Total
                gain on forgiveness of debt
            
            $
            612,764




-
          36 -


**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




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




Notes
      payable and long-term debt consists of the following:





*For
                the Years Ending December 31,*
            
            **2005**
            
            **2004**Notes
                  payable to financing company, interest at 10% per annum secured
                  by eRoomServ refreshment centers held by SPE, less
                  unamortized discount of $58,173 and $75,838 as
                  of December 31, 2005 and 2004,
                  respectively
            
            $
            651,076
            
            $
            929,415Convertible
                    note payable to stockholder, 8%, secured by all assetsof the
                    Company, subordinate to notes payable to financing company, converted
                    on
                    September 7, 2005
            
            
            -
            
            
            347,500Convertible
                note payable 8%, net of unamortized discount of $187,397 as of December
                31, 2004 converted on September 7, 2005
            
            
            -
            
            
            62,603Total
                Notes Payable and Long-Term Debt
            
            
            651,076
            
            
            1,339,518Less:
                Current Portion of Long-Term Debt
            
            
            (301,696
            )
            
            (228,337
            )Long-Term
                Debt, Net of Current Portion
            
            $
            349,380
            
            $
            1,111,181





Future
      maturities of notes payable and long-term debt are as follows:





*Years
                ending December 31,*2006
            $
                301,6962007
            224,9132008
            124,467Total
            $
                 651,076





***Amresco
      Financing Agreement*** -
      Under
      the terms of a financing agreement with AMRESCO Leasing Corporation, (the
“finance company”), the finance company had agreed to fund up to 150% of the
      Company’s product costs for each eRoomServ refreshment center that had been in
      service for 90 days, subject to the related hotel customer meeting certain
      requirements and conditions during that period.  As part of the financing
      agreement, the Company formed eRoomSystem SPE, Inc. (“SPE”), a wholly owned,
      consolidated subsidiary. SPE owns all of the eRoomServ refreshment centers
      funded by the finance company as well as the related revenue-sharing agreements.
       The finance company has a senior security interest in the eRoomServ
      refreshment centers financed under the financing agreement and the corresponding
      revenue sharing agreements.  SPE is obligated to repay the amount borrowed
      under the terms of a note payable corresponding to each funding, pursuant to
      the
      financing agreement over seven years, plus interest, at a variable interest
      rate
      determined at the time of each funding.




The
      notes
      payable are collateralized by eRoomServ refreshment centers with a carrying
      value of $774,084 at December 31, 2005.  SPE holds payments from hotel
      customers in several restricted bank accounts for payment to the finance company
      and to the Company.  As of December 31, 2005, the Company had non-current
      deposits of $73,688 that were designated for this purpose.


-
          37 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





On
      September 18, 2002, management was notified by the finance company of its
      intention to cease funding loans to the Company.  Management has not been
      successful and there is no assurance that management will be successful in
      obtaining a new source of financing, and if successful, that the terms of such
      new financing will be favorable to the Company.




As
      a
      requirement of the October 1, 2003, Gestetner Group, LLC funding arrangement,
      the Company entered into an agreement that amended the terms of the notes
      payable due to AMRESCO Leasing Corporation.  The amendment states that for
      the two-year period commencing on October 1, 2003, the rate at which interest
      is
      accruing on debt obligations owed by the Company to AMRESCO shall be reduced
      to
      eight percent per annum, and from October 1, 2005 until the debt obligations
      have been paid in full, the rate at which interest is accruing will be ten
      percent per annum. Previously, the debt obligations were accruing interest
      at
      the seven-year treasury rate plus 12.5 percent.




In
      consideration for the reduction in the interest rate, the Company issued AMRESCO
      a warrant to purchase 400,000 shares of common stock, exercisable at $0.10
      per
      share through October 1, 2008. If at anytime after December 31, 2005, the
      warrant has an intrinsic value greater than $300,000 based upon the then current
      trading price of the Company’s common stock, then AMRESCO will have the right to
“put” the warrant back to the Company in exchange for $200,000 payable in 12
      equal consecutive monthly installments with the first payment to be made on
      the
      last day of the month in which the “put” occurs. The warrants to purchase
      400,000 shares of common stock were recognized in October 2003 as a troubled
      debt restructuring, with the $97,956 fair value of the warrants recorded as
      a
      discount to the notes payable to be amortized over the remaining life of the
      notes as a charge to interest expense.




***Convertible
      Note Payable to Stockholder*** - On
      November 8, 2002, the Company entered into a promissory note with Ash Capital,
      LLC for proceeds of up to $322,500. The note bears interest at 8%. All past
      due
      amounts and accrued interest thereon bear interest at 18%. The Company borrowed
      $322,500, under the terms of the promissory note. The Company transferred
      $25,000 from an accounts payable due to Ash Capital, which increased the
      principal amount of the promissory note to $347,500.




According
      to the terms of the note, principal and accrued interest on the promissory
      note
      could convert into Series D Convertible Preferred Stock at $0.90 per share.
      Each
      share of the Series D Convertible Preferred Stock is convertible into six shares
      of common stock, at the rate of $0.15 per share of Series D Preferred Stock.
      The
      promissory note could be converted into 17.8% of the lesser of the authorized
      capital stock or the outstanding capital stock of the Company. The Company
      agreed not to increase the outstanding capital stock of the Company or issue
      securities convertible into capital stock without prior consent of Ash
      Capital.




The
      Company determined that Ash Capital LLC received a beneficial conversion option
      valued at $322,500 on November 8, 2002. Accordingly, the Company allocated
      all
      of the $120,500 of proceeds received during the year ended December 31, 2003
      to
      the beneficial conversion option that resulted in an offsetting discount to
      the
      note payable. The discount on the note payable was amortized to interest expense
      from the dates proceeds were received through November 8, 2003, in accordance
      with EITF 98-5, *Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Ratios* ,
      and
      EITF 00-27, *Application
      of Issue No. 98-5 to Certain Convertible Instruments* ,
      and
      amounted to $304,082 of accretion of the discount during the year ended December
      31, 2003, which included $183,582 of unamortized discount from the beneficial
      conversion option that remained at December 31, 2002.




-
          38 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


As
      a
      requirement of the October 1, 2003, Gestetner Group, LLC and several unrelated
      parties, funding arrangement, Ash Capital, LLC agreed to amend the terms of
      its
      secured convertible promissory note with the Company to (i) extend the maturity
      date to the earlier of November 8, 2007 or the maturity date of the Notes to
      Gestetner Group and several unrelated parties issued to the Note Holders and
      (ii) include as an additional event of default any default of the Company under
      the Notes to Gestetner Group and the other unrelated parties.




In
      addition, the Company issued Ash Capital, LLC a contingent warrant to purchase
      shares of common stock, exercisable at $0.13 per share through October 1, 2008.
      The terms of the warrant provided that on the dates exercised, Ash Capital,
      LLC
      may purchase seven percent of the aggregate number of shares of the Company’s
      common stock issued to and held on that date by any of the Note Holders from
      the
      October 1, 2003 funding in excess of 10,000,000 common shares. The Company
      would
      record the fair value of the warrants as a discount to the note payable to
      be
      amortized over the remaining life of the note as a charge to interest expense.




On
      October 1, 2003, Ash Capital, LLC and Gestetner Group, LLC entered into an
      Intercreditor and Collateral Agency Agreement that provided for the secured
      obligations of the Company to both parties to rank equally. Ash Capital is
      to
      serve on its own behalf and as the agent for Gestetner Group, LLC, based upon
      its written instruction, to foreclose upon, collect and dispose of all or any
      portion of the collateral set forth in Ash Capital’s secured convertible
      promissory note and the Gestetner Group and other unrelated parties Notes,
      should a default occur by the Company under the terms of such agreements. In
      addition, for the term of the Gestetner Group and several unrelated parties
      Notes, Ash Capital has agreed, subject to obtaining the prior written consent
      of
      Gestetner Group, LLC otherwise, to vote or to cause any of its affiliates or
      subsidiaries to vote all of its or their shares of common stock of the Company
      (i) for the election of any two nominees of the Gestetner Group and several
      unrelated parties Note Holders and (ii) against any increase in the size of
      the
      Board of Directors of the Company above four members.




On
      September 1, 2005, Ash Capital converted its note and accrued interest into
      2,865,550 shares of common stock. The foregoing conversion triggered the
      issuance of warrants to purchase 53,775 shares of common stock in favor of
      Ash
      Capital.




***Gestetner
      Group Secured Promissory Notes*** **-** On
      October 1, 2003, the Company issued secured convertible promissory notes
      (“Notes”), in the original principal amount of $250,000, collectively, to
      Gestetner Group, LLC, a New Jersey limited liability company, and several third
      parties (collectively, the “Note Holders”).  David A. Gestetner, the Chief
      Executive Officer and President of the Company, is the Managing Member of the
      Gestetner Group, LLC. The terms of the Notes included, inter alia, (i) for
      interest to accrue at the rate of 8% per annum, (ii) a maturity date of the
      earlier of (a) October 1, 2008, (b) the date of approval of the Board of
      Directors regarding the merger of the Company with or into any third party
      or
      the sale of all or substantially all of the assets of the Company, or (c) the
      date of the closing of any financing (other than commercial credit facilities),
      the gross proceeds of which are at least $1,000,000 and (iii) the right of
      the
      Note Holders, at any time, to convert all outstanding principal and accrued
      and
      unpaid interest into shares of common stock of the Company at the rate of $0.05
      per share; provided, however, that the Company shall have the right to not
      permit the conversion if such conversion would result in the Note Holders
      holding, in the aggregate and on a fully-diluted basis, more than 49% of the
      outstanding common stock of the Company.  In addition, the Note Holders
      have been issued, collectively, warrants to purchase 5,000,000 shares of common
      stock of the Company, exercisable at $0.05 per share at any time through October
      1, 2008.




The
      proceeds were allocated between the Notes and warrants based on their relative
      fair values, with $42,389 allocated to the Notes and $207,611 allocated to
      the
      warrants. In addition, the Note Holders received a beneficial conversion option
      of $42,389. The resulting $250,000 discount to the Notes was being amortized
      over the expected five-year term of the Notes as interest expense.




-
          39 -


**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


On
      September 1, 2005, Gestetner Group LLC and the other unrelated parties converted
      their notes and accrued interest into 5,768,219 shares of common stock, and
      the
      unamortized discount of $154,109 was recognized as interest expense.




***Note
      Payable to Supplier -*** During
      January 2004, a note payable with a carrying value of $70,000 plus accrued
      interest of $17,218 was purchased by an outside party who subsequently cancelled
      the note and released the Company from any obligation to pay the note or accrued
      interest.  The Company recorded a gain on forgiveness of debt of $87,218
      during the year ending December 31, 2004.




NOTE 7
      -    COMMITMENTS
      AND CONTINGENCIES




***Employment
      and Consulting Agreements*** **-** On
      October 1, 2005, the Company extended the employment agreement with its chief
      executive officer and president for one year as per the Agreement signed on
      October 1, 2003.  The agreement provides for an annual salary of $100,000.
 If the chief executive officer is terminated without cause, the agreement
      provides for one year’s annual salary as severance pay. The agreement requires
      that the chief executive officer may not compete with the Company during the
      term of employment and for three years subsequent to termination.





On
      November 24, 2003, the Company entered a two-year consulting agreement for
      design services in return for monthly payments of $1,700 and stock options
      to
      purchase 100,000 shares of common stock at an exercise price of $0.15 per share,
      expiring three years from the date of the agreement.  These options were
      valued at $15,000, based upon their fair value measured using the Black-Scholes
      option pricing model with the following assumptions: 2.1 percent risk-free
      rate,
      0 percent expected dividend yield, 171 percent volatility and a three year
      estimated life.




***Registration
      Rights*** **-** The
      Company has granted certain common stock and warrant holders the right, subject
      to applicable terms and conditions, to require the Company to register their
      common stock (or equivalent common shares upon the exercise of the warrants)
      on
      a best efforts basis under the Securities Act for offer to sell to the public.




***Legal*** **-** In
      November 2002, a former landlord in St. George, Utah filed a lawsuit against
      the
      Company that alleged breach of a lease agreement.  On March 6, 2003,
      summary judgment in the amount of $47,442 was granted to the former landlord.
       The Company had accrued $41,000 as of December 31, 2003. In March 2004,
      the Company paid $10,000 in complete settlement of this lawsuit. A gain on
      extinguishment of debt was recorded for $31,000, which is included in the amount
      disclosed in Note 5.




***Operating
      Leases as Lessor*** **-** The
      Company accounts for its revenue-sharing agreements as operating leases. As
      of
      December 31, 2005, the Company had three revenue-sharing agreements for which
      the customers were contractually obligated to pay minimum monthly payments.
      Carrying value of these leased assets was $291,118 as of December 31, 2005.
      Agreements with all other customers provide for an allocation of revenues to
      the
      Company with no minimum monthly payment. Accordingly, the Company is unable
      to
      estimate future amounts to be received under these agreements.




Future
      minimum payments to be received under contracts that provide for minimum monthly
      amounts were as follows as of December 31, 2005:


Years
                  ending December 31,2006
              $
              296,1542007
              
              136,6292008
              
              48,266Total
              $
              481,049
  -
            40 -
  **eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


***Operating
      Leases as Lessee*** **-** In
      November 2003 the Company moved to a new facility in Salt Lake City, Utah.
      The
      Company entered into a 38-month lease agreement that will terminate in December
      2006.  The lease provides for monthly rent payments of $1,612.
   Future minimum payments are as follows as of December 31,
      2005:





Year
                  ending December 31,2006
              $
              19,344Total
              $
              19,344





Rent
      expense for the years ended December 31, 2005 and 2004 was $32,912 and $28,124,
      respectively.




**NOTE****8
      -- INCOME TAXES**




The
      Company has paid no federal income taxes.  The following is a schedule of
      state income taxes paid in 2005 and 2004:





*For
                  the years ended December 31,*
              2005
              
              2004New
                  Jersey
              $
              3,389
              
              $
              -New
                  York
              
              1,369
              
              
              -Total
                  income tax paid
              $
              4,758
              
              $
              -


The
      significant components of the Company's deferred income tax assets as of
      December 31, 2005 and 2004 are as follows:





*For
                  the years ending December 31,*
              **2005**
              
              **2004**Deferred
                  Income Tax Assets:Net
                  operating loss carryforwards
              $
              7,894,574
              
              $
              8,870,695Reserves
                  and accrued liabilities
              
              27,224
              
              
              38,346Other
                  assets
              
              17,801
              
              
              10,655Total
                  Deferred Income Tax Assets
              $
              7,939,599
              
              $
              8,919,696Valuation
                  allowance
              
              (7,720,512
              )
              
              (8,491,798
              )Deferred
                  Income Tax Liability - Depreciation andAmortization
              
              (219,087
              )
              
              (427,898
              )Net
                  Deferred Income Tax Asset
              $
              -
              
              $
              -




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




The
        following is a reconciliation of the amount of tax benefit that would result
        from applying the federal statutory rate to pretax loss with the benefit
        from
        income taxes:
  *For
                    the years ending December 31,*
                **2005**
                
                **2004**Benefit
                    at statutory rate (34%)
                $
                54,571
                
                $
                306,024Other
                    non-deductible expenses and adjustments
                
                714,645
                
                
                (124,805
                )Change
                    in valuation allowance
                
                (771,286
                )
                
                (192,830
                )State
                    tax benefit, net of federal tax benefit
                
                2,070
                
                
                11,611Net
                    Benefit From Income Taxes
                $
                -
                
                $
                -


-
          41 -


**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




The
        following summarizes the tax net operating loss carryforwards and their
        respective expiration dates as of December 31, 2005:





*Years
                  ending December 31,*2011
              $
              1,784,7822017
              
              1,082,3732018
              
              3,642,8572019
              
              3,298,0472020
              
              5,087,6502021
              
              2,704,3792022
              
              3,600,8052023
              
              1,169,588Total
                  net operating loss carryforwards
              $
              22,370,481





**NOTE
      9 -- STOCKHOLDERS' EQUITY**




The
      Company issued 60,000 shares of common stock valued at $10,200 ($0.17 per share)
      to its Board of Directors for services rendered during the year ending December
      31, 2004.




During
      the year ending December 31, 2005, warrants and options to purchase 4,000,000
      shares of common stock were exercised by Gestetner Group, LLC, a related party,
      for cash proceeds of $200,000. The exercise price was $0.05 per share.





During
      the years ending December 31, 2005 and 2004, warrants and options to purchase
      1,130,000 and 20,000 shares of common stock, respectively, were exercised for
      cash proceeds of $64,621 and $3,400, respectively. The exercise price ranged
      from $0.05 - $0.26 per share.




On
      September 1, 2005, Gestetner Group, LLC, and Ash Capital, LLC, both related
      parties, and several unrelated parties, converted their secured convertible
      promissory notes, in the original principal amount of $597,500, plus accrued
      interest of $120,743, into 8,633,769 shares of common stock. The notes in the
      cumulative amount of $250,000 to Gestetner Capital, LLC and the unrelated
      parties, were originally issued on October 1, 2003 and were converted at $0.05
      per share. The Ash Capital Note was converted at $0.15 per share. The foregoing
      conversion and warrant exercise triggered the issuance of warrants to purchase
      53,775 shares of common stock in favor of Ash Capital. These
      warrants, which vested immediately, have an exercise price of $0.13 per share
      and are exercisable through October
      1, 2008 . These
      options were valued at $19,113 using the Black-Scholes option pricing model
      with
      the following assumptions: risk free interest rate of 4.05%, dividend yield
      of
      0.0%, volatility of 138%, and expected life of 3 years.





**NOTE** **10
      -- STOCK OPTIONS AND WARRANTS**




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




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




-
          42 -


**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




During
      the year ended December 31, 2005, the Company granted options to purchase 40,000
      shares of common stock to employees and members of the Board of Directors.
      These
      options, which vested immediately, have exercise prices ranging from $0.22
      to
      $0.35 per share, and are exercisable through August 10, 2010. The Company
      recognized compensation expense of $0, which was the intrinsic value of the
      options on the date granted.





During
      the year ended December 31, 2004, the Company granted options to purchase
      135,000 shares of common stock to employees and members of the Board of
      Directors. These options, which vested immediately, have exercise prices ranging
      from $0.15 to $0.26 per share, and are exercisable through November 15, 2014.
      The Company recognized compensation expense of $200, which was the intrinsic
      value of the options on the date granted.




During
      the year ended December 31, 2004, the Company granted options and warrants
      to
      purchase 71,000 shares of common stock to consultants. These options and
      warrants, which vested immediately, have exercise prices ranging from $0.10
      to
      $0.26 per share and are exercisable through February 1, 2009. These options
      and
      warrants were valued at $19,456 using the Black-Scholes option pricing model
      with the following assumptions: risk free interest rate ranging from 2.97%
      to
      3.36%, dividend yield of 0.0%, volatility ranging from 146% to 173%, and
      expected average life ranging between 3 and 5 years. In addition, the Company
      granted options to purchase 20,000 shares of common stock to a consultant
      contingent on contract performance. These options, which have not vested, have
      an exercise price of $0.37 per share and are exercisable for a period of 3
      years. These options were valued at $6,000 using the Black-Scholes option
      pricing model with the following assumptions: risk free interest rate of 2.85%,
      dividend yield of 0.0%, volatility of 149%.




During
      the year ended December 31, 2004, the Company granted options to purchase
      172,000 shares of common stock to vendors in settlement of $72,205 of accounts
      payable. These options, which vested immediately, have exercise prices ranging
      from $0.25 to $0.35 per share and are exercisable through March 31, 2008. These
      options were valued at $31,688 using the Black-Scholes option pricing model
      with
      the following assumptions: risk free interest rate ranging from 1.95% to 3.02%,
      dividend yield of 0.0%, volatility ranging from 152% to 153%, and expected
      life
      ranging between 3 and 4 years. The Company recognized a gain on extinguishment
      of debt in the amount of $42,519 relating to such vendors.




During
      the years ended December 31, 2005 and 2004, options to purchase 180,000 and
      214,173 shares of common stock, respectively, expired. The Company recognized
      the value of these options in the amounts of $470,572 and $32,089 during 2005
      and 2004 respectively, as additional paid in capital.




-
          43 -


**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




***Outstanding
      Stock Options and Warrants*** **-** A
      summary
      of stock option and warrant activity for the years ended December 31, 2005
      and
      2004 is as follows:




Options
                  and Warrants
              Exercise
                  Price Range
              Weighted
                  - Average Exercise PriceBalance,
                  December 31, 2003
              8,577,019
              $0.05
              -
              12.80
              $0.31Granted
              378,000
              0.10
              -
              0.35
              0.23Exercised
              (20,000)
              0.17
              -
              0.17
              0.17Expired
              (214,173)
              0.36
              -
              1.91
              0.86Balance,
                  December 31, 2004
              8,720,846
              $
                  0.05
              -
              7.80
              $
                  0.30Granted
              93,775
              0.13
              -
              0.35
              0.20Exercised
              (5,130,000)
              0.05
              -
              0.26
              0.05Expired
              (180,000)
              7.80
              -
              7.80
              7.80Balance,
                  December 31, 2005
              3,504,621
              0.10
              -
              1.55
              0.28Exercisable,
                  December 31, 2005
              3,504,621
              $
                  0.10
              -
              1.55
              $
                  0.28Weighted-average
                  fair value of options granted during the year endedDecember
                  31, 2004
              
              
              
              
              $
                  0.09Weighted-average
                  fair value of options granted during the year endedDecember
                  31, 2005
              
              
              
              
              $
                  0.32




The
      fair
      value of stock options was determined at the grant dates using the Black-Scholes
      option-pricing model with the following weighted-average assumptions for the
      years ended December 31, 2005 and 2004, respectively:  risk-free interest
      rate of 4.0 and 3.0 percent, dividend yield of 0 and 0 percent, volatility
      of
      139 and 153 percent, and expected lives of 3.6 and 4.8 years.







A
      summary
      of stock option and warrant grants with exercise prices less than, equal to
      or
      greater than the estimated fair value on the date of grant during the years
      ended December 31, 2005 and 2004 is as follows:




Options
                  and Warrants Granted
              
              Weighted
                  Average Exercise
                Price
              
              Weighted
                  - Average Fair Value of Options and Warrants*For
                  the Year Ended December 31, 2005*Grants
                    with exercise price less thanmarket
                    value
              
              
              53,775
              
              $
              0.13
              
              $
              0.36Grants
                    with exercise price greater than market value
              
              
              40,000
              
              $
              0.30
              
              $
              0.26*For
                  the Year Ended December 31, 2004*Grants
                  with exercise price less thanmarket
                  value
              
              
              60,000
              
              $
              0.10
              
              $
              0.19Grants
                  with exercise price equal tomarket
                  value
              
              
              75,000
              
              $
              0.26
              
              $
              0.26Grants
                  with exercise price greater thanmarket
                  value
              
              
              243,000
              
              $
              0.25
              
              $
              0.18




A
      summary
      of the options and warrants outstanding and exercisable as of December 31,
      2005
      follows:


-
          44 -


**eROOMSYSTEM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  Outstanding
              
              ExercisableRange
                  of
                Exercise
                  Prices
              
              Number
                  Outstanding
              
              Weighted
                  - Average Remaining Contractual Life
              
              Weighted
                  - Average Exercise Price
              
              Number
                  Exercisable
              
              Weighted
                  - Average Exercise Price$
                  0.10 - 0.37
              
              
              3,490,978
              
              
              4.4
                  years
              
              $
              0.27
              
              
              3,490,978
              
              $
              0.270.90
                  - 1.55
              
              
              13,643
              
              
              6.5
                  years
              
              
              0.94
              
              
              13,643
              
              
              0.94$
                  0.10 - 1.55
              
              
              3,504,621
              
              
              4.4
                  years
              
              $
              0.28
              
              
              3,504,621
              
              $
              0.28




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




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




At
      December 31, 2005, the Company had cash in excess of federally insured limits
      of
      $1,185,506.




During
      the year ended December 31, 2005, revenues from one customer accounted for
      11%
      of total revenues.




**NOTE
      1** **2
      --** **SUBSEQUENT
      EVENTS**




On
      March
      7, 2006, the Company purchased 2,083,333 shares of common stock of Aprecia,
      LLC.
      The shares purchased represent 9.98% of the issued and outstanding common stock
      of Aprecia. Aprecia is a provider of applied artificial intelligence solutions
      for gaming and homeland security applications.




On
      March
      17, 2006, the Company issued 50,000 shares of common stock valued at $12,000
      ($0.24 per share) to two members of its Board for extraordinary services
      rendered.




-
          45 -


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




Not
      applicable.




**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES.** **[ITEM 307, 308]**




We
      evaluated the effectiveness of our disclosure controls and procedures as of
      December 31, 2005, the end of the fiscal period covered by this Annual Report
      on
      Form 10-KSB. This evaluation was made under the supervision of our principal
      executive officer and principal financial officer, and in conjunction with
      our
      accounting personnel and legal consultant.





We
      reviewed and evaluated the effectiveness of the design and operation of our
      disclosure controls and procedures, as of the end of the fiscal year covered
      by
      this report, as required by Securities Exchange Act Rule 13a-15, and
      concluded that our disclosure controls and procedures are effective to ensure
      that information required to be disclosed in our reports filed with the
      Securities and Exchange Commission pursuant to the Securities Exchange Act
      of
      1934, as amended, is accumulated and communicated to management on a timely
      basis, including our principal executive officer and principal financial
      officer.





Based
      on
      this evaluation, our principal executive officer and principal financial officer
      concluded that, as of December 31, 2005, our disclosure controls and procedures
      are reasonably effective. During the fiscal quarter ended December 31,
      2005, there have been no changes in our internal control over financial
      reporting, that have materially affected or are reasonably likely to materially
      affect our internal controls over financial reporting.





**Management’s
      Report on Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and
      15d-15(f) under the Securities Exchange Act of 1934. Our internal control
      framework and processes were designed to provide reasonable assurance to
      management and our Board of Directors regarding the reliability of financial
      reporting and the preparation of our consolidated financial statements for
      external purposes in accordance with accounting principles generally accepted
      in
      the United States of America.





Our
      internal control over financial reporting includes those policies and procedures
      that:





·pertain
                to the maintenance of records, in reasonable detail, accurately and
                fairly
                reflect the transactions and dispositions of our assets;·provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that our receipts and expenditures are
                being
                made only in accordance with authorizations of our management and
                our
                Board of Directors; and





·provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use, or disposition of our assets that
                could
                have a material effect on our consolidated financial statements.




Because
      of its inherent limitations, a system of internal control over financial
      reporting may not prevent or detect misstatements. Further, because of changing
      conditions, effectiveness of internal control over financial reporting may
      vary
      over time. Thus, projections of any evaluation of effectiveness to future
      periods are subject to the risks that controls may become inadequate because
      of
      changes in conditions and that the degree of compliance with the policies or
      procedures may deteriorate. Management is of the opinion, however, that our
      systems are reasonably effective and provide reasonable assurance with respect
      to financial statement preparation and presentation.


-
          46 -




Our
      principal executive officer and principal accounting officer assessed the
      effectiveness of our internal control over financial reporting as of December
      31, 2005. In making this assessment, we have taken into account the criteria
      set
      forth by the Committee of Sponsoring Organizations of the Treadway Commission
      (“COSO”) in *Internal
      Control - Integrated Framework* in
      formulating our internal controls *.*


Management
      reviewed the results of its assessment with our Audit Committee and the Board
      of
      Directors


of
      the
      Company.





B ased
      upon
      its assessment, management believes that we maintained reasonable effective
      internal control over financial reporting as of December 31, 2005.




**PART
      III**




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




The
      following information is furnished with respect to each member of our board
      and
      our executive officers who are not directors. There are no family relationships
      between or among any of our directors or executive officers. Each of our
      executive officers is an employee of eRoomSystem Technologies and serves at
      the
      discretion of our board.




**Directors
      and Executive Officers**




**Name**
            **Age**
            **Position**David
                A. Gestetner
            33
            President,
                Chief Executive Officer, Secretary and Chairman of the BoardHerbert
                A. Hardt
            63
            DirectorJames
                C. Savas
            45
            DirectorLawrence
                K. Wein
            63
            Director





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




*David
      A. Gestetner* has
      served as our president, chief executive officer, secretary and chairman of
      the
      board since October 1, 2003. Throughout his career, Mr. Gestetner has been
      involved in various applications of technology, both as an operator as well
      as a
      financier, including founding and operating a telecommunications business
      abroad. Mr. Gestetner has received awards for his innovations and advance
      applications of technology, including the Howard Golden Award for an intuitive
      scientific invention consisting of a system that enables emergency call routing
      in telephone systems. Mr. Gestetner possesses a Master’s degree from The Aron
      Kotler Higher Institute of Learning in New Jersey.




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




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




-
          47 -




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





**Committees
      of the Board of Directors** ****




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




*Audit
      Committee* *.* The
      audit
      committee, which was formed on August 18, 2000, is currently comprised of
      Messrs. Hardt and Savas. The chairman of the audit committee is Mr. Hardt.
      The audit committee met four times during the fiscal year ended
      December 31, 2005. The audit committee has the responsibility
      to:




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


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


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


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




The
      audit
      committee is comprised exclusively of directors who are not our salaried
      employees and a majority of who are, in the opinion of our board, free from
      any
      relationship that would interfere with the exercise of independent judgment
      as a
      committee member.




*Compensation
      Committee* .
      The
      compensation committee, which was formed on August 18, 2000, is currently
      comprised of Messrs. Hardt and Wein. The compensation committee met once during
      the fiscal year ended December 31, 2005. In general, the compensation
      committee’s authority and oversight extends to total compensation, including
      base salaries, bonuses, stock options, and other forms of compensation. More
      specifically, the compensation committee has the responsibility to:




·
            recommend
                executive compensation policy to our
                board;


·
            determine
                compensation of our senior
                executives;


·
            determine
                the performance criteria and bonuses to be granted; and


·
            administer
                and approve stock option grants.




In
      recommending executive compensation, the compensation committee has the
      responsibility to ensure that the compensation program for executives of
      eRoomSystem Technologies is effective in attracting and retaining key officers,
      links pay to business strategy and performance, and is administered in a fair
      and equitable fashion in the stockholder’s interest.




**Board
      of Directors Meetings**




Our
      board
      generally meets quarterly, and during the fiscal year ended December 31,
      2005, our board held a total of four meetings. All of the incumbent directors
      attended at least 75% of the total number of meetings of the board held during
      the period for which they have been a director, and the total number of the
      meetings held by all committees of our board on which they served.




-
          48 -




**Director
      Compensation**




Our
      non-employee directors receive stock options to purchase 25,000 shares of our
      common stock at each annual meeting. Directors who are our employees do not
      receive compensation for their services as directors.




**Compensation
      Committee Interlocks and Insider Participation**




The
      compensation of executive officers is established by our board pursuant to
      recommendations from the compensation committee. No member of our compensation
      committee will serve as a member of a board of directors or compensation
      committee of any entity that has one or more of its executive officers serving
      as a member of our board or compensation committee. However, David A.
      Gestetner, our president, chief executive officer secretary and chairman of
      the
      board, is the managing member of Gestetner Group, LLC.




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




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




To
      our
      knowledge, based solely on review of the copies of such reports furnished to
      us
      and written representations, no other reports were required during the fiscal
      year ended December 31, 2005.




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




**Summary
      Compensation Table**




The
      following table sets forth summary information concerning the total remuneration
      paid or accrued by eRoomSystem Technologies, to or on behalf of our chief
      executive officer and our executive officers whose total annual salary exceeded
      $100,000 during the fiscal years ended December 31, 2005, 2004 and 2003. In
      accordance with the rules of the Commission, the compensation described in
      this
      table does not include perquisites and other personal benefits received by
      the
      executive officers named in the table below which does not exceed the lesser
      of
      $50,000 or 10% of the total salary and bonus reported for the executive
      officers.




**Annual
                Compensation**
            
            **Long-Term
                Compensation**
            
            **Other
                Compensation****Name
                and Principal Position**
            
            **Year**
            
            **Salary**
            
            **Bonus**
            
            **Securities
                Underlying Options/Sirs**David
                A. Gestetner,
              President,
                Chief Executive Officer, Secretary and Chairman of the
                Board
            
            2005
            
            $100,000
            
            $50,000
            
            0
            
            $2,4002004
            
            $100,000
            
            $50,000
            
            0
            
            $2,4002003
            
            $25,000
            
            $0
            
            0
            
            $600




David
      A.
      Gestetner commenced serving in the capacities of President, Chief Executive
      Officer, Secretary and Chairman of the Board on October 1, 2003. Mr. Gestetner
      receives an annual salary of $100,000 and a monthly car allowance of $200.
      In
      addition, in conjunction with the investment of the Gestetner Group, LLC of
      $50,000 in convertible secured promissory notes on October 1, 2003, Gestetner
      Group, LLC was issued a warrant to purchase 4,000,000 shares of common stock,
      exercisable at $0.05 per share through October 1, 2008. In addition, the secured
      convertible promissory note held by the Gestetner Group, LLC was convertible
      into 1,000,000 shares of common stock at the rate of $0.05 per share. Mr.
      Gestetner serves as the managing member of the Gestetner Group, LLC. On
      September 1, 2005, the Gestetner Group, LLC converted all outstanding principal
      and accrued interest relating to the convertible secured promissory note set
      forth above into 1,153,644 shares of common stock at the conversion rate of
      $0.05 per share. In addition, on September 7, 2005, the Gestetner Group, LLC
      exercised its warrant to purchase 4,000,000 shares, at an exercise price of
      $0.05 per share, for a total exercise price of $200,000.




-
          49 -




**2000
      Stock Option and Incentive Plan**




The
      2000
      Stock Option and Incentive Plan, or the 2000 Plan, was adopted by our board
      on
      February 3, 2000 and approved by our stockholders on March 29, 2000.
      The 2000 Plan was amended by our stockholders on May 7, 2001 when the shares
      of
      common stock authorized under the 2000 Plan were increased from 2,000,000 shares
      to 2,400,000 shares, amended on July 29, 2002 by our stockholders effectively
      increasing the number of shares issuable hereunder to 2,700,000, and amended
      further on November 15, 2004 by our stockholders effectively increasing the
      number of shares issuable thereunder to 3,000,000. The 2000 Plan provides us
      with the vehicle to grant to employees, officers, directors and consultants
      stock options and bonuses in the form of stock and options. Under the 2000
      Plan,
      we can grant awards for the purchase of up to 3,000,000 shares of common stock
      in the aggregate, including “incentive stock options” within the meaning of
      Section 422 of the United States Internal Revenue Code of 1986 and non-qualified
      stock options. As of March 17, 2006, we had options to purchase 2,501,946 shares
      of our common stock outstanding under the 2000 Plan.




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




**Option/SAR
      Grants in Last Fiscal Year** ****




The
      following table sets forth information regarding grants of stock options during
      the fiscal year ended December 31, 2005 made to our executive officers:




**Individual
                Grants****Name**
            
            **Number
                of Securities Underlying Options/Sirs Granted**
            
            **Percent
                of Total Options/Sirs Granted to Employees in Fiscal
                Year**
            
            **Exercise
                or Base Price ($/Share)**
            
            **Expiration
                Date**David
                A. Gestetner
            
            N/A
            
            N/A
            
            N/A
            
            N/A




-
          50 -




**Aggregated
      Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR
      Values**




The
      following table sets forth information related to the exercise of stock options
      by Messr. Gestetner and information related to the fiscal year-end value of
      unexercised stock options held by our named executive officers. We have not
      issued any stock appreciation rights.




**Name**
              
              **Shares
                  Acquired on Exercise (#)**
              
              **Value
                  Realized ($)**
              
              **Number
                  of Securities Underlying Unexercised Options/SARs at Fiscal
                  Year-End**
              
              **Value
                  of Unexercised in-the-Money Options/SARs at Fiscal
                  Year-End****Exercisable/Unexercisable**
              
              **Exercisable/Unexercisable**David
                  A. Gestetner
              
              N/A
              
              N/A
              
              N/A
              N/A
              
              N/A
              N/A




**Employment
      Agreements**




The
      employment agreement of Messr. Gestetner was issued on October 1, 2003. The
      term
      of the employment agreement is two (2) years, with successive one (1) year
      renewable options. The
      employment agreement was extended for a term of one (1) year on October 1,
      2005.




**Report
      on Repricing of Options/SARs**




During
      the fiscal year ended December 31, 2002, we conducted a stock option exchange
      program whereby the holders of eligible stock options were allowed to surrender
      their stock options in exchange for the issuance of new stock options at least
      six months and one day after we accepted the surrendered stock options for
      cancellation, *i.e.* ,
      on or
      following July 22, 2002. Eligible stock options were those stock options issued
      under the 2000 Plan to current employees, directors, independent sales
      representatives and consultants with an exercise price of $1.50 or more. Of
      the
      stock options to purchase 1,367,855 shares of common stock eligible for
      surrender, holders of eligible stock options surrendered stock options to
      purchase all 1,367,855 shares of common stock. On July 23, 2002, we reissued
      options to purchase 1,366,102 shares of common stock exercisable at $0.37 per
      share through July 23, 2012.




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




The
      following table is a list of the beneficial ownership of common stock as of
      March 17, 2006 of (i) all persons who beneficially owned more than 5% of
      our outstanding common stock, (ii) all directors, (iii) all executive
      officers and (iv) all directors and executive officers as a group,
      according to record-ownership listings as of that date, according to the Forms
      3, 4 and 5 and Schedules 13D and 13G, of which we have received copies, and
      according to verification as of March 17, 2006 which we have solicited and
      received from each director and executive officer. The beneficial ownership
      is
      calculated based on 24,278,902 shares of common stock outstanding as of March
      17, 2006. Beneficial ownership is determined in accordance with the rules of
      the
      Commission and generally includes voting or investment power with respect to
      securities and, accordingly, includes shares issuable upon exercise of options
      that are exercisable or become exercisable within 60 days of March 17,
      2006.




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




-
          51 -







**Executive
                Officer or Director**
            
            **Amount
                and Nature of Beneficial Ownership**
            
            **Percent
                of Class**David
                A. Gestetner
            
            
            5,157,644
            1
            
            21.24
            %James
                C. Savas
            
            
            4,402,787
            2
            
            18.13
            %Herbert
                A. Hardt
            
            
            600,821
            3
            
            2.47
            %Lawrence
                K. Wein
            
            
            105,000
            4
            
            0.43
            %Executive
                Officers and Directors, as a group (4 individuals)
            
            
            10,266,252
            
            
            42.27
            %**Stockholders
                with Beneficial Ownership of 5% or More**David
                A. Gestetner
            
            
            5,157,644
            1
            
            21.24
            %James
                C. Savas
            
            
            4,402,787
            2
            
            18.13
            %Ash
                Capital, LLC
            
            
            4,265,274
            5
            
            17.57
            %Herbert
                A. Hardt
            
            
            600,821
            3
            
            2.47
            %









__________________


1 Reflects
      the direct ownership of 4,000 shares of common stock. In addition, also includes
      the beneficial ownership of (i) 1,153,644 shares of common stock issued to
      Gestetner Group, LLC on September 1, 2005 upon the conversion of a promissory
      note, at the rate of $0.05 per share, in the original principal amount of
      $50,000 plus accrued interest of $38,411, and (ii) 4,000,000 shares of common
      stock issued to Gestetner Group, LLC on September 7, 2005 relating to the
      exercise of a warrant at $0.05 per share.




2 Reflects
      the direct ownership of 48,321 shares of common stock and options to purchase
      55,000 shares of common stock, the beneficial ownership of 19,231 shares of
      common stock and an option to purchase 14,961 shares of common stock held by
      Providence Management, LLC, an entity for which Mr. Savas is co-manager and
      50%
      owner, and the beneficial ownership of the following securities held by Ash
      Capital, LLC, or Ash Capital, an entity which Providence Management, LLC serves
      as the manager and holds a 20% profits interest, (a) 4,066,186 shares of common
      stock (2,865,550 shares of which were issued on September 1, 2005 upon the
      conversion by Ash Capital of a promissory note, in the original principal amount
      of $347,500 plus accrued interest of $82,332, at the rate of $0.15 per share),
      (b) an option to purchase 145,313 shares of common stock, and (c) a warrant
      to
      purchase 53,775 shares of common stock. Mr. Savas disclaims any beneficial
      ownership of the shares of common stock and options to purchase shares of common
      stock beneficially owned as a result of his affiliation with Ash Capital.




3 Reflects
      the direct ownership of 420,821 shares of common stock and options to purchase
      80,000 shares of common stock, and the beneficial ownership of options to
      purchase 100,000 shares of common stock held by Monness, Crespi & Hardt, an
      entity of which Mr. Hardt is a principal.




4 Reflects
      the direct ownership of 55,000 shares of common stock and options to purchase
      50,000 shares of common stock.




5 Reflects
      the direct ownership of 4,109,507 shares of common stock, an option to purchase
      145,313 shares of common stock, and a warrant to purchase 53,775 shares of
      common stock. Ash Capital is controlled by Alan C. Ashton, a former member
      of
      our board of directors, audit and compensation committees.




-
          52 -







**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS.**




**Transactions
      Involving Gestetner Group, LLC**




On
      October 1, 2003, we issued secured convertible promissory notes in the original
      principal amount of $250,000 (the “Notes”), collectively, to Gestetner Group,
      LLC, a New Jersey limited liability company, and several third parties, or
      the
      Noteholders. David A. Gestetner, our Chief Executive Officer and President,
      serves as the Managing Member of the Gestetner Group, LLC. The terms of the
      Notes provided for (i) interest to accrue at the rate of 8% per annum, (ii)
      a
      maturity date of the earlier of (a) October 1, 2008, (b) the date of approval
      of
      the Board of Directors regarding the merger of the Company with or into any
      third party or the sale of all or substantially all of our assets, or (c) the
      date of the closing of any financing (other than commercial credit facilities),
      the gross proceeds of which are at least $1,000,000, and (iii) the right of
      the
      Noteholders, at any time, to convert all outstanding principal and accrued
      and
      unpaid interest into shares of our common stock at the rate of $0.05 per share;
      provided, however, that we shall have the right to not permit the conversion
      if
      such conversion would result in the Noteholders holding, in the aggregate and
      on
      a fully-diluted basis, more than 49% of our outstanding common stock.




In
      addition, the Noteholders have been issued, collectively, warrants to purchase
      5,000,000 shares of our common stock, exercisable at $0.05 per share at any
      time
      through October 1, 2008. Specifically, the Gestetner Group, LLC holds a warrant
      to purchase 4,000,000 shares of common stock on the terms set forth above,
      and
      holds a secured convertible promissory note in the original principal amount
      of
      $50,000.




The
      shares of common stock underlying the secured convertible promissory notes,
      as
      well as the warrants to purchase shares of common stock, issued to the
      Noteholders include registration rights that provide, under certain
      circumstances, for the registration of such shares of common stock. We used
      the
      proceeds provided by the Noteholders for our business operations.




On
      September 1, 2005, the Noteholders converted the Notes, in the original
      principal amount of $250,000 plus accrued interest of $38,411, into 5,768,219
      shares of common stock. The Notes were converted at $0.05 per share. In
      addition, on September 7, 2005, the Noteholders exercised warrants to purchase
      a
      total of 5,000,000 shares of common stock. The warrants were exercised at a
      price of $0.05 per share. The Company received $250,000 from the exercise of
      the
      warrants.




**Transactions
      Involving Ash Capital, LLC**




On
      November 8, 2002, the Company entered into a secured convertible promissory
      note
      (the “Ash Capital Note”) with Ash Capital for proceeds of up to $322,500. The
      Ash Capital Note was later increased to $347,500 upon the funding of an
      additional loan in the original principal amount of $25,000 on August 22, 2003.
      The note bears interest at 8%. The principal and interest were originally due
      on
      the earlier of (i) November 8, 2003, (ii) a default under the secured
      convertible promissory note, (iii) five days after the date of any breach by
      the
      Company of any agreement with Ash Capital or any affiliate of Ash Capital,
      unless the secured convertible promissory note has been converted. All past
      due
      amounts and accrued interest thereon shall bear interest at 18%.





On
      October 1, 2003, Ash Capital and the Company agreed to modify the terms of
      the
      secured convertible promissory note with the Company to (i) extend the maturity
      date to the earlier of November 8, 2007 or the maturity date of the convertible
      secured promissory notes of the Gestetner Group, LLC, and several third parties,
      and (ii) include as an additional event of default any default of the Company
      under the Notes to the Gestetner Group, LLC and several third parties.





In
      addition, the Company also issued Ash Capital a contingent warrant to purchase
      shares of common stock, exercisable at $0.13 per share through October 1, 2008. The
      terms
      of the warrant provided that on the dates exercised, Ash Capital, LLC may
      purchase seven percent of the aggregate number of shares of the Company’s common
      stock issued to and held on that date by any of the Note Holders from the
      October 1, 2003 funding in excess of 10,000,000 common shares. The
      shares of common stock underlying the Ash Capital warrant include registration
      rights that provide Ash Capital, under certain circumstances and in conjunction
      with Gestetner Group, LLC and several third parties, to register such underlying
      shares of common stock.




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          53 -







On
      October 1, 2003, Ash Capital and Gestetner Group, LLC entered into an
      Intercreditor and Collateral Agency Agreement that provides for the secured
      obligations of the Company to both parties to rank equally. Ash Capital is
      to
      serve on its own behalf and as the agent for Gestetner Group, LLC, based upon
      its written instruction, to foreclose upon, collect and dispose of all or any
      portion of the collateral set forth in Ash Capital’s secured convertible
      promissory note and the Gestetner Group and other unrelated parties Notes,
      should a default occur by the Company under the terms of such agreements. In
      addition, for the term of the Gestetner Group Notes, Ash Capital has agreed,
      subject to obtaining the prior written consent of Gestetner Group, LLC
      otherwise, to vote or to cause any of its affiliates or subsidiaries to vote
      all
      of its or their shares of common stock of the Company (i) for the election
      of
      any two nominees of the Gestetner Group and several unrelated Noteholders and
      (ii) against any increase in the size of the Board of Directors of the Company
      above four members.




On
      September 1, 2005, Ash Capital converted the
      Ash
      Capital Note, in the original principal amount of $347,500 plus accrued interest
      of $82,332, into 2,865,550 shares of common stock. The Ash Capital Note, which
      relates to loans of $322,500 and $25,000 made to the Company on November 8,
      2002
      and August 22, 2003, respectively, was converted at $0.15 per share.




On
        March
        30, 2006, Ash Capital, LLC, an affiliate of the Company and managed by
        Providence Management, LLC, the managing member of which is James C. Savas,
        a
        director of the Company, relinquished 380,737 shares of common stock (the
“Share
        Payment”) as full and final payment of an outstanding promissory note in the
        original principal amount of $65,000 issued in favor of the Company on December
        31, 2001 (the “Ash Capital Note”). The Ash Capital Note was issued in
        conjunction with Ash Capital’s exercise of a stock option to purchase 250,000
        shares at an exercise price of $0.26 per share. The Ash Capital Note had
        a term
        of four years and accrued simple interest at the rate of 5% per
        annum.
 
 As
        of the
        date of the Share Payment, the Ash Capital Note had accrued interest in the
        amount of $13,812.50, for a total outstanding amount of $78,812.50 (“Ash Capital
        Note Balance”) as of March 30, 2006.
 
 The
        Share
        Payment represents a price of $0.207 per share. The number of shares of common
        stock relinquished by Ash Capital was determined using the following formula:
        (a) shares of common stock equal to the greater of (i) the Ash Capital Note
        Balance divided by a ten (10) percent discount on the 30-day trailing average
        closing price of the Company’s common stock, or (ii) the Ash Capital Note
        Balance divided by the ten (10) percent discount on the closing price of
        the
        Company’s common stock on March 29, 2006.




**Transactions
      Involving RSG Investments, LLC**




On
      July
      17, 1998, we entered into an agreement with RSG Investments through which RSG
      Investments loaned us $1.5 million. RSG Investments is a privately-held company
      in which John J. Prehn, one of our former directors, is a member.
      Mr. Prehn previously served as the managing director of AMRESCO. At the
      time of these agreements, RSG Investments and AMRESCO were not affiliated with
      us, and Mr. Prehn did not serve on our board of directors.




The
      purpose of the $1.5 million loan was to fund the production of approximately
      2,270 eRoomServ refreshment centers. As an inducement, we issued to the
      principals of RSG Investments warrants to purchase 46,875 shares of common
      stock
      and agreed to pay interest at the rate of 15% per annum. Our obligation was
      secured by the eRoomServ refreshment centers, our other assets and by shares
      of
      our common stock held by our officers, directors and consultants. Due to the
      inability to satisfy our obligations under the loan, we entered into a
      settlement with RSG Investments in the form of an equipment transfer agreement
      dated September 28, 1999.




Pursuant
      to the equipment transfer agreement, we formed a bankruptcy-remote entity,
      RSi
      BRE, Inc., transferred ownership of 2,270 eRoomServ refreshment centers to
      RSi
      BRE, Inc., and granted RSG Investments the right to receive $0.57 per eRoomServ
      refreshment center per day of the revenue realized from 2,270 of the eRoomServ
      refreshment centers. As part of the settlement, the RSi BRE, Inc. board of
      directors was to consist of three individuals, a representative of eRoomSystem
      Technologies, a representative of RSG Investments and a third independent
      director. In addition, we paid $250,000 to RSG Investments, converted $500,000
      of our obligation to RSG Investments into 166,667 shares of our Series B
      convertible preferred stock and executed a promissory note in the principal
      amount of $750,000 bearing an interest rate of 10% per annum. Pursuant to this
      settlement, RSG Investments terminated the security interest granted under
      the
      original obligation and received a security interest in all of the assets of
      RSi
      BRE, Inc.




Pursuant
      to the terms of this promissory note, we transferred 829 additional refreshment
      centers to RSi BRE, Inc. We were obligated to satisfy this promissory note
      in
      full on May 1, 2000, which was extended to August 15, 2000. On
      August 15, 2000, the promissory note was satisfied and paid in full. As a
      result, 829 units were transferred from RSi BRE, Inc. to us and the remaining
      obligations owed to RSG Investments were assumed by RSi BRE, Inc.




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          54 -







On
      February 29, 2004, we entered into a global agreement, or Settlement and Release
      Agreement, with RSG Investments, LLC, or RSG. The Settlement and Release
      Agreement provided for the payment of $152,823 by the Company to RSG as a full
      and final cancellation of the Equipment Transfer Agreement and subsequent
      settlement agreement dated September 1999. As a result, the Company has
      commenced recognizing all revenue generated from the four revenue sharing lease
      agreements relating to the 1,717 eRoomServ refreshment centers and 1,304
      eRoomSafes. We have liquidated RSi BRE into eRoomSystem Technologies, Inc.




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




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




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




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




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




On
      October 1, 2003, Gregory L. Hrncir entered into a Termination and Release
      Agreement that provides for the surrender by the Company of a promissory note,
      previously issued by Mr. Hrncir in the original principal amount of $58,500,
      in
      exchange for the surrender by Mr. Hrncir of 225,000 shares of common stock.
      In
      conjunction with the surrender of accrued compensation owed to Mr. Hrncir for
      the period April 1, 2003 to October 1, 2003, the Company issued Mr. Hrncir
      an
      option to purchase 225,000 shares of common stock at $0.26 per share pursuant
      to
      the 2000 Plan. Under the terms of the Termination and Release Agreement, Mr.
      Hrncir resigned as Chief Operating Officer, General Counsel and Secretary of
      the
      Company, as well as all officer and director positions held in the Company’s
      subsidiaries. In addition, on October 1, 2003, the Company entered into a
      consulting agreement with Mr. Hrncir that provides for the issuance of an option
      to purchase 100,000 shares of common stock, exercisable at $0.10 per share
      for a
      period of five years. Mr. Hrncir continues to serve as a consultant to the
      Company.




-
          55 -







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




**ITEM
      13.**  **EXHIBITS
      AND REPORTS ON FORM 8-K.**




(a)
            Exhibits




See
      exhibits listed on the Exhibit Index following the signature page of this Annual
      Report on Form 10-KSB which is incorporated herein by reference.




(b)
            Reports
                on Form 8-K




Current
      Report on Form 8-K, dated November 14, 2005 and filed with the Securities and
      Exchange Commission on November 15, 2005, reporting the Company’s financial
      results for the fiscal quarter ended September 30, 2005.







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




The
      information required by this item is as follows:




Hansen,
      Barnett & Maxwell, or HB&M, has served as our independent registered
      public accounting firm since 2000, and specifically for the fiscal years ended
      December 31, 2005 and 2004. HB&M was selected by our board of directors
      as our independent registered public accounting firm for the fiscal year ended
      December 31, 2005, and by our board of directors and a majority of our
      common stockholders for the fiscal year ended December 31, 2004.




Our
      board
      is responsible for pre-approving all audit and permissible non-audit services
      provided by HB&M, with certain limited exceptions. Our board of directors
      has concluded that the non-audit services provided by HB&M are compatible
      with maintaining auditor independence. In 2005, no fees were paid to HB&M
      pursuant to the “de minimus” exception to the pre-approval policy permitted
      under the Exchange Act.




For
      the
      fiscal years ended December 31, 2005 and 2004, the fees for services provided
      by
      HB&M were as follows:




**2005**
            
            **2004**Audit
                fees(1)
            
            $
            37,500
            
            $
            35,285Audit-related
                fees (2)
            
            
            -
            
            
            -Tax
                fees (3)
            
            
            -
            
            
            -All
                other fees
            
            
            -
            
            
            -$
            37,500
            
            $
            35,285





-
          56 -





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


(2)
              Audit-related
                  fees: Fees for assurance and related services that are reasonably
                  related
                  to the performance of the audit or review of our financial
                  statements.
 (3)
              Tax
                fees: Fees for professional services rendered with respect to tax
                compliance, tax advice and tax planning. This includes preparation
                of tax
                returns, claims for refunds, payment planning and tax law interpretation.










-
          57 -


**SIGNATURES**







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




**e****RoomSystem
                Technologies, Inc.**By:
            /s/
                David A. GestetnerDavid
                A. GestetnerIts:
            President,
                Chief Executive Officer, Secretary and Chairman of the
                BoardDate:
            March
                31, 2006





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




**Signature**
            
            **Title**
            
            **Date**/s/
                David A. Gestetner
            
            President,
                Chief Executive Officer, Secretary and Chairman of the Board
            
            March
                31, 2006David
                A. Gestetner
            
            (Principal
                Executive Officer and Principal
              Financial
                and Accounting Officer)/s/
                Herbert A. Hardt
            
            Director
            
            March
                31, 2006Herbert
                A. Hardt/s/
                James C. Savas
            
            Director
            
            March
                31, 2006James
                C. Savas/s/
                Lawrence K. Wein
            
            Director
            
            March
                31, 2006




-
          58 -


**eROOMSYSTEM
      TECHNOLOGIES, INC.**




**CERTIFICATION
      PURSUANT TO**




**SECTION
      302 OF THE SARBANES-OXLEY ACT OF 2002**




I,
      David
      A. Gestetner, Chief Executive Officer, President, Secretary and Chairman of
      eRoomSystem Technologies, Inc., and serving in the capacity of principal
      executive officer and principal financial and accounting officer, hereby certify
      that:




1.  I
      have
      reviewed this annual report on Form 10-KSB of eRoomSystem Technologies, Inc.;




2.  Based
      on
      my knowledge, this annual report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the statements
      made, in light of the circumstances under which such statements were made,
      not
      misleading with respect to the period covered by this annual report;




3.  Based
      on
      my knowledge, the financial statements, and other financial information included
      in this annual report, fairly present in all material respects the financial
      condition, results of operations and cash flows of the registrant as of, and
      for, the periods presented in this annual report;




4.  I
      am
      responsible for establishing and maintaining disclosure controls and procedures
      (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
      and
      15d-15(f)) for the registrant and have:




a.  designed
      such disclosure controls and procedures, or caused such internal control over
      financial reporting to be designed under my supervision, to ensure that material
      information relating to the registrant, including its consolidated subsidiaries,
      is made known to us by others within those entities, particularly during this
      period in which the annual report is being prepared;




b.  designed
      such internal control over financial reporting, or caused such internal control
      over financial reporting to be designed under my supervision, to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles;




c.  evaluated
      the effectiveness of the registrant's disclosure controls and procedures and
      presented in this annual report our conclusions about the effectiveness of
      the
      disclosure controls and procedures, as of the end of the period covered by
      this
      annual report based on such evaluation (the "Evaluation Date"); and




d.  disclosed
      in this annual report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect, the registrant’s internal control over financial reporting; and




5.  I
      have
      disclosed, based on my most recent evaluation, to the registrant's auditors
      and
      the audit committee of registrant's board of directors (or persons performing
      the equivalent function):




a.  all
      significant deficiencies in the design or operation of internal controls which
      are reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and




b.  any
      fraud, whether or not material, that involves management or other employees
      who
      have a significant role in the registrant's internal controls over financial
      reporting; and




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          59 -







6.  I
      have
      indicated in this annual report whether or not there were significant changes
      in
      internal controls or in other factors that could significantly affect internal
      controls subsequent to the date of my most recent evaluation, including any
      corrective actions with regard to significant deficiencies and material
      weaknesses.




/s/
                David A. Gestetner
            
            President,
                Chief Executive Officer, Secretary and Chairman of the
                Board
            
            March
                31, 2006David
                A. Gestetner
            
            (Principal
                Executive Officer and Principal
              Financial
                and Accounting Officer)







-
          60 -


**EXHIBIT
      INDEX**




**Exhibit****Number**
            **Document
                  Name**
            **Page**1.01
            Form
                of Underwriting Agreement relating to the registrant’s initial public
                offering that closed on August 9, 2000
            (3)2.01
            Agreement
                and Plan of Reorganization by and between RoomSystems International
                Corporation and RoomSystems, Inc. dated December 31, 1999
            (1)2.02
            Transfer
                Pricing Agreement by and between RoomSystems International Corporation
                and
                RoomSystems, Inc. dated December 31, 1999
            (1)3.01
            Amendment
                and Restatement of Articles of Incorporation
            (1)3.02
            Certificate
                of Correction dated May 30, 2000
            (2)3.03
            Amended
                and Restated Certificate of Designation, Preferences, Rights and
                Limitation of Series A convertible preferred stock
            (1)3.04
            Amended
                and Restated Certificate of Designation, Preferences, Rights and
                Limitation of Series B convertible preferred stock
            (1)3.05
            Certificate
                of Designation, Preferences, Rights and Limitation of Series C convertible
                preferred stock
            (1)3.06
            Amended
                and Restated Bylaws
            (2)3.07
            Second
                Amendment and Restatement of Articles of Incorporation
            (3)3.08
            Second
                Amended and Restated Bylaws
            (3)4.01
            Form
                of Common Stock Certificate
            (1)4.02
            Form
                of Certificate for Series A convertible preferred stock
            (1)4.03
            Form
                of Certificate for Series B convertible preferred stock
            (1)4.04
            Form
                of Certificate for Series C convertible preferred stock
            (1)10.01
            Amended
                and Restated 2000 Stock Option and Incentive Plan
            (2)10.02
            Lease
                Agreement by and between RoomSystems Finance Corporation and 3770
                Howard
                Hughes Parkway Associates Limited Partnership dated October 8, 1997
            (1)10.02A
            Exhibits
                to Lease Agreement by and between RoomSystems Finance Corporation
                and 3770
                Howard Hughes Parkway Associates Limited Partnership dated October 8,
                1997
            (2)10.03
            Lease
                Agreement by and between RoomSystems, Inc. and Pam Joy Realty, Inc.
                dated
                October 10, 1997
            (2)10.04
            Master
                Corporate Agreement by and between Innco Corporation and RoomSystems,
                Inc.
                dated April 6, 1998
            (1)10.04A
            Exhibits
                to Master Corporate Agreement by and between Innco Corporation and
                RoomSystems, Inc. dated April 6, 1998
            (2)10.05
            Indemnification
                Agreement by and between RoomSystems, Inc. and Alan C. Ashton dated
                August 17, 1999
            (1)10.06
            Agreement
                of Understanding by and between RoomSystems, Inc. and Ash Capital,
                LLC,
                C&W/RSI Partners, LLC, SKM Investment, LLC and Thunder Mountain
                Investments, LC dated August 17, 1999
            (1)10.06A
            Exhibits
                to Agreement of Understanding by and between RoomSystems, Inc. and
                Ash
                Capital, LLC, C&W/RSI Partners, LLC, SKM Investment, LLC and Thunder
                Mountain Investments, LC dated August 17, 1999
            (2)


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          61 -









**Exhibit
Number**
            **Document
              Name**
            **Page**10.07
            First
                Amendment to Agreement of Understanding by and between RoomSystems,
                Inc.
                and Ash Capital, LLC, C&W/RSI Partners, LLC, SKM Investment, LLC and
                Thunder Mountain Investments, LC dated September 30, 1999
            (1)10.08
            Promissory
                Note Repurchase Agreement by and between Steven L. Sunyich and
                RoomSystems, Inc. dated September 1, 1999
            (1)10.09
            Indemnification
                Agreement by and between RSi BRE, Inc. and Donnelly Prehn dated
                September 27, 1999
            (1)10.10
            Equipment
                Transfer Agreement by and between RoomSystems, Inc., RoomSystems
                International Corporation, RSi BRE, Inc. and RSG Investments, LLC
                dated
                September 28, 1999
            (1)10.10A
            Exhibits
                to Equipment Transfer Agreement by and between RoomSystems, Inc.,
                RoomSystems International Corporation, RSi BRE, Inc. and RSG Investments,
                LLC dated September 28, 1999
            (2)10.11
            Amendment
                to Equipment Transfer Agreement by and between RoomSystems, Inc.,
                RoomSystems International Corporation, RSi BRE, Inc. and RSG Investments,
                LLC dated November 23, 1999
            (1)10.12
            Conversion
                Agreement by and between Steven L. Sunyich and RoomSystems, Inc.
                dated
                December 30, 1999
            (1)10.13
            Loan
                and Security Agreement by and between RoomSystem Technologies, Inc.
                and
                Ash Capital, LLC dated February 15, 2000
            (1)10.13A
            Exhibits
                to Loan and Security Agreement by and between RoomSystem Technologies,
                Inc. and Ash Capital, LLC dated February 15, 2000
            (2)10.14
            Letter
                Agreement by and between eRoomSystem Technologies, Inc. and Hall
                Communications, Inc. dated March 30, 2000
            (1)10.15
            Form
                of Hotel Revenue-Sharing Lease Agreement
            (2)10.16
            Form
                of Noncompetition and Nondisclosure Agreement (Sales)
            (1)10.17
            Form
                of Consulting Agreement
            (1)10.18
            Form
                of Sales Representation Agreement
            (1)10.19
            Form
                of Executive Employment Agreement
            (1)10.20
            Form
                of Offshore Loan Subscription Agreement dated as of April 13, 2000
            (1)10.21
            Form
                of Secured Subordinated Promissory Note dated as of April 13, 2000
            (1)10.22
            Form
                of Installation, Co-Maintenance and Software Licensing and Upgrade
                Agreement
            (2)10.23
            +
                Master Business Lease Financing Agreement by and among AMRESCO Leasing
                Corporation, eRoomSystem SPE, Inc., RoomSystems, Inc. and eRoomSystem
                Technologies, Inc. dated May 11, 2000
            (4)10.24
            Indemnification
                Agreement by and between eRoomSystem Technologies, Inc. and John
                J. Prehn
                dated May 31, 2000
            (2)10.25
            Amended
                and Restated Executive Employment Agreement of Steven L. Sunyich
                dated
                June 6, 2000
            (2)10.26
            Second
                Amended and Restated Executive Employment Agreement of Steven L.
                Sunyich
                dated July 12, 2000
            (3)10.27
            Amended
                and Restated Executive Employment Agreement of Derek K. Ellis dated
                July 12, 2000
            (3)





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          62 -





**Exhibit
Number**
            **Document
              Name**
            **Page**10.28
            Executive
                Employment Agreement of Stephen M. Nelson dated July 12,
                2000
            (4)10.29
            Amended
                and Restated Executive Employment Agreement of Gregory L. Hrncir
                dated
                July 12, 2000
            (3)10.30
            Shareholders’
                Agreement and Proxy by and among Ash Capital, LLC, RoomSystems, Inc.
                and
                certain stockholders of RoomSystems, Inc. dated August 17, 1999
            (1)10.31
            Employment
                Agreement of David S. Harkness dated as of December 20,
                2000
            (6)10.32
            Employment
                Agreement of Stephen M. Nelson dated as of January 29,
                2001
            (7)10.33
            Employment
                Agreement of Derek K. Ellis dated as of January 29, 2001
            (7)10.34
            Employment
                Agreement of Gregory L. Hrncir dated as of January 29,
                2001
            (7)10.35
            +
                Amended and Restated Master Business Lease Financing Agreement by
                and
                among AMRESCO Leasing Corporation, eRoomSystem SPE, Inc., RoomSystems,
                Inc. and eRoomSystem Technologies, Inc. dated February 23,
                2001
            (7)10.36
            Employment
                Agreement of David S. Harkness dated as of December 31,
                2001
            (8)10.37
            Consulting
                Agreement by and between eRoomSystem Technologies, Inc. and Ash Capital,
                LLC dated as of December 31, 2001
            (8)10.38
            Stock
                Purchase Agreement by and between eRoomSystem Technologies, Inc.
                and Ash
              Capital,
                LLC dated November 8, 2002
            (9)10.39
            Secured
                Convertible Promissory Note issued in favor of Ash Capital, LLC dated
                November
              8,
                2002.
            (9)10.40
            Note
                Purchase Agreement between eRoomSystem Technologies, Inc., Gestetner
                Group, LLC and Other Lenders dated October 1, 2003
            (10)10.41
            Amendment
                Agreement between eRoomSystem Technologies, Inc., eRoomSystem Services,
                Inc., eRoomSystem SPE, Inc., RSi BRE, Inc., AMRESCO Commercial Finance,
                Inc., AMRESCO Leasing Corporation and Gestetner Group, LLC dated
                October
                1, 2003
            (10)10.42
            Agency
                Agreement between Gestetner Group, LLC and Other Lenders dated October
                1,
                2003
            (10)10.43
            Warrant
                to Purchase Shares of Common Stock issued in favor of AMRESCO Commercial
                Finance, Inc. dated October 1, 2003
            (10)10.44
            Warrant
                to Purchase Shares of Common Stock issued in favor of Ash Capital,
                LLC
                dated October 1, 2003
            (10)10.45
            Intercreditor
                and Collateral Agency Agreement between Gestetner Group, LLC, Ash
                Capital,
                LLC and eRoomSystem Technologies, Inc. dated October 1, 2003
            (10)10.46
            Investors
                Rights Agreement between eRoomSystem Technologies, Inc., Ash Capital,
                LLC,
                and certain security holders dated October 1, 2003
            (10)10.47
            Termination
                and Release Agreement between eRoomSystem Technologies, Inc. and
                David S.
                Harkness dated October 1, 2003
            (10)10.48
            Termination
                and Release Agreement between eRoomSystem Technologies, Inc. and
                Gregory
                L. Hrncir dated October 1, 2003
            (10)10.49
            Consulting
                Agreement between eRoomSystem Technologies, Inc. and Gregory L. Hrncir
                dated October 1, 2003
            (10)10.50
            Termination
                and Release Agreement between eRoomSystem Technologies, Inc. and
                Derek K.
                Ellis dated October 1, 2003
            (10)


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          63 -





**Exhibit
Number**
            **Document
              Name**
            **Page**10.51
            Consulting
                Agreement between eRoomSystem Technologies, Inc. and DM Family Limited
                Partnership dated October 1, 2003
            (10)10.52
            Secured
                Convertible Promissory Note issued in favor of Adele Schwarty dated
                October 1, 2003
            (10)10.53
            Secured
                Convertible Promissory Note issued in favor of David Heller dated
                October
                1, 2003
            (10)10.54
            Secured
                Convertible Promissory Note issued in favor of Evelyn Gestetner dated
                October 1, 2003
            (10)10.55
            Secured
                Convertible Promissory Note issued in favor of Frieda Wolman dated
                October
                1, 2003
            (10)10.56
            Secured
                Convertible Promissory Note issued in favor of Gestetner Group, LLC
                dated
                October 1, 2003
            (10)10.57
            Secured
                Convertible Promissory Note issued in favor of Hannah Sarah Frenkel
                dated
                October 1, 2003
            (10)10.58
            Secured
                Convertible Promissory Note issued in favor of Helmsbridge Holdings
                Limited dated October 1, 2003
            (10)10.59
            Secured
                Convertible Promissory Note issued in favor of Leah Weinstein dated
                October 1, 2003
            (10)10.60
            Secured
                Convertible Promissory Note issued in favor of Liba Pappenheim dated
                October 1, 2003
            (10)10.61
            Secured
                Convertible Promissory Note issued in favor of Maurice B. Brenig
                dated
                October 1, 2003
            (10)10.62
            Secured
                Convertible Promissory Note issued in favor of Rose Kaminer dated
                October
                1, 2003
            (10)10.63
            Warrant
                to Purchase Shares of Common Stock issued in favor of Adele Schwarty
                dated
                October 1, 2003
            (10)10.64
            Warrant
                to Purchase Shares of Common Stock issued in favor of David Heller
                dated
                October 1, 2003
            (10)10.65
            Warrant
                to Purchase Shares of Common Stock issued in favor of Evelyn Gestetner
                dated October 1, 2003
            (10)10.66
            Warrant
                to Purchase Shares of Common Stock issued in favor of Frieda Wolman
                dated
                October 1, 2003
            (10)10.67
            Warrant
                to Purchase Shares of Common Stock issued in favor of Gestetner Group,
                LLC
                dated October 1, 2003
            (10)10.68
            Warrant
                to Purchase Shares of Common Stock issued in favor of Hannah Sarah
                Frenkel
                dated October 1, 2003
            (10)10.69
            Warrant
                to Purchase Shares of Common Stock issued in favor of Helmsbridge
                Holdings
                Limited dated October 1, 2003
            (10)10.70
            Warrant
                to Purchase Shares of Common Stock issued in favor of Leah Weinstein
                dated
                October 1, 2003
            (10)10.71
            Warrant
                to Purchase Shares of Common Stock issued in favor of Liba Pappenheim
                dated October 1, 2003
            (10)10.72
            Warrant
                to Purchase Shares of Common Stock issued in favor of Maurice B.
                Brenig
                dated October 1, 2003
            (10)10.73
            Warrant
                to Purchase Shares of Common Stock issued in favor of Rose Kaminer
                dated
                October 1, 2003
            (10)















**Exhibit****Number**
            **Document
                Name**
            **Page**10.74
            Secured
                Promissory Note issued in favor of eRoomSystem Technologies, Inc.
                by
                Identica Corporation dated May 23, 2005
            (11)10.75
            Security
                Agreement by and between eRoomSystem Technologies, Inc. and Identica
                Corporation dated May 23, 2005.
            (11)10.76
            Warrant
                issued in favor of eRoomSystem Technologies, Inc. by Identica Corporation
                dated May 23, 2005.
            (11)10.77
            Asset
                Purchase Agreement between eRoomSystem Technologies, Inc. and Identica
                Corporation dated September 7, 2005
            (12)10.78
            Professional
                Services Agreement between eRoomSystem Technologies, Inc. and Identica
                Corporation dated September 7, 2005
            (12)21.01
            List
                of Subsidiaries
            6699.1
            Certifications
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
                Section 1350)
            67(1)
            Previously
                filed as an exhibit to the registrant’s Registration Statement on Form
                SB-2, as filed withthe
                Commission on April 14, 2000.(2)
            Previously
                filed as an exhibit to the registrant’s Pre-Effective Amendment No. 1 to
                its Registration Statement on Form SB-2, as filed with the Commission
                on
                June 9, 2000.(3)
            Previously
                filed as an exhibit to the registrant's Pre-Effective Amendment No.
                2 to
                its Registration Statement on Form SB-2, as filed with the Commission
                on
                July 14, 2000.(4)
            Previously
                filed as an exhibit to the registrant's Pre-Effective Amendment No.
                3 to
                its Registration Statement on Form SB-2, as filed with the Commission
                on
                July 19, 2000.(5)
            Previously
                filed as an exhibit to the registrant’s Registration Statement on Form
                SB-2, as filed with
              the
                Commission on December 22, 2000.(6)
            Previously
                filed as an exhibit to the registrant’s Pre-Effective Amendment No. 1 to
                its Registration Statement on Form SB-2, as filed with the Commission
                on
                February 5, 2000.(7)
            Previously
                filed as an exhibit to the registrant’s Annual Report on Form 10-KSB, as
                filed with the Commission on April 2, 2001.(8)
            Previously
                filed as an exhibit to the registrant’s Annual Report on Form 10-KSB, as
                filed with the Commission on April 1, 2002.(9)
            Previously
                filed as an exhibit to the registrant’s Quarterly Report on Form 10-QSB,
                as filed with the Commission on November 14, 2002.(10)
            Previously
                filed as an exhibit to the registrant’s Annual Report on Form 10-KSB, as
                filed with the Commission on March 30, 2004.(11)
            Previously
                filed as an exhibit to the registrant’s Current Report on Form 8-K, as
                filed with the Commission on May 25, 2005.(12)
            Previously
                filed as an exhibit to the registrant’s Current Report on Form 8-K, as
                filed with the Commission on September 13, 2005.+
            Confidential
                treatment has been granted with respect to certain portions of this
                agreement, including
              the
                exhibits thereto, of which certain portions have been omitted and
                filed
                separately with the Commission.







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