****UNITED STATES**

****SECURITIES AND EXCHANGE COMMISSION**

****Washington**,**D.C.** **20549**

*** *

****FORM 10-QSB**

****(Mark One)**

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

| ****For the quarterly period ended:** | ****September 30, 2003** |
|---------------------------------------|--------------------------|
|                                       |                          |

****OR**

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

| ****For the transition period from:** | *** * | ****to** | *** * |
|---------------------------------------|------------|----------|------------|
|                                       |            |          |            |

*** *

| ****Commission file number:** | ****000-31037** |
|-------------------------------|-----------------|
|                               |                 |

*** *

| *****eRoomSystem Technologies, Inc.*** |
|----------------------------------------|

****(Exact name of small business issuer as**specified in its charter)**

| ****Nevada**                                                                             | *** * | ****87-0540713**                            |
|------------------------------------------------------------------------------------------|------------|---------------------------------------------|
| ****(State or other jurisdiction**of incorporation or organization)**                    | *** * | ****(I.R.S. Employer**Identification No.)** |
| *** *                                                                               |
| ****1072 Madison Avenue**,**Lakewood**,**NJ** **08701** **                     |
| ****(Address of principal executive offices)**                                           |
| *** *                                                                               |
| ****(800) 316-3070**                                                                     |
| ****(Issuer’s telephone number)**                                                  |
| *** *                                                                               |
| ****106 East 13200 South, Draper, UT 84020-8954**                                        |
| ****(Former name, former address and former fiscal year, if changed since last report)** |
|                                                                                          |            |                                             |

*** *

****Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES**x** NO**o**

****Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years**

****Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court.  YES**o** NO**o**

****Applicable Only to Corporate Issuers**

****State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:**

| ****10,383,933 shares of common stock, $0.001 par value, as of November 1, 2003** |
|-----------------------------------------------------------------------------------|
|                                                                                   |

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

*** *

| **** ** |
|--------------|

*** *

*** *

| ****FORM 10-QSB**

*** *

****TABLE OF CONTENTS**

*** *                                                    |
|-----------------------------------------------------------------------------------------------------------------------|
| *** *                                                                                                            | ****Page** |
| ****PART I – FINANCIAL INFORMATION**                                                                            | ****3** |
| ****Item 1.  Financial Statements**                                                                         | ****3** |
| ****Condensed Consolidated Balance Sheets (Unaudited)**                                                               | ****3** |
| ****Condensed Consolidated Statements of Operations (Unaudited)**                                                     | ****5** |
| ****Condensed Consolidated Statements of Cash Flows (Unaudited)**                                                     | ****6** |
| ****Notes to Condensed Consolidated Financial Statements (Unaudited)**                                                | ****7** |
| ****Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of**Operations** | ****12** |
| ****PART II – OTHER INFORMATION**                                                                               | ****24** |
| ****Item 1.  Legal Proceedings**                                                                            | ****24** |
| ****Item 2.  Changes in Securities and Use of Proceeds**                                                    | ****24** |
| ****Item 3.  Defaults Upon Senior Securities**                                                              | ****24** |
| ****Item 4.  Submission of Matters to a Vote of Security Holders**                                          | ****24** |
| ****Item 5.  Other Information**                                                                            | ****24** |
| ****Item 6.  Exhibits and Reports on Form 8-K**                                                             | ****24** |
|                                                                                                                       |  |

*** *

*** *

| **** ** |
|--------------|

*** *

*** *

*** *

****PART I – FINANCIAL INFORMATION**

****Item 1.  Financial Statements**

****eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES**

****CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)**

*** *

****ASSETS**

*** *

*** *

| *** *                                                                                                                                                                              | *** * | ****September 30,**

****2003** | *** * | ****December 31,**

****2002** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|
| ****CURRENT ASSETS**                                                                                                                                                                    | *** * | *** *                      | *** * | *** *                     |
| ****Cash**                                                                                                                                                                              | *** * | ****$76,647 **             | *** * | ****$144,359 **           |
| ****Accounts receivable, net of allowance for doubtful accounts of $271,949**

****     at**September 30, 2003** and $169,943 at**December 31, 2002**     | *** * | ****214,796 **             | *** * | ****335,763 **            |
| ****Inventory**                                                                                                                                                                         | *** * | ****250,402 **             | *** * | ****253,561 **            |
| ****Prepaid expenses**                                                                                                                                                                  | *** * | ****1,849 **               | *** * | ****107,085 **            |
| ****Total Current Assets**                                                                                                                                                              | *** * | ****543,694 **             | *** * | ****840,768 **            |
| *** *                                                                                                                                                                              | *** * | *** *                      | *** * | *** *                     |
| ****REFRESHMENT CENTERS IN SERVICE**, net of accumulated depreciation**

****    of $2,242,270 at**September 30, 2003** and $1,717,753 at**December 31, 2002** | *** * | *** *                      | *** * | *** *                     |
| **** **                                                                                                                                                                            | *** * | ****3,026,183 **           | *** * | ****3,598,154 **          |
| *** *                                                                                                                                                                              | *** * | *** *                      | *** * | *** *                     |
| ****PROPERTY AND EQUIPMENT**                                                                                                                                                            | *** * | *** *                      | *** * | *** *                     |
| ****Production equipment**                                                                                                                                                              | *** * | ****22,210 **              | *** * | ****93,460 **             |
| ****Computer equipment**                                                                                                                                                                | *** * | ****74,203 **              | *** * | ****74,203 **             |
| ****Vehicles and other**                                                                                                                                                                | *** * | ****43,559 **              | *** * | ****65,795 **             |
| *** *                                                                                                                                                                              | *** * | ****139,972 **             | *** * | ****233,458 **            |
| ****Less accumulated depreciation and amortization**                                                                                                                                    | *** * | ****(113,689)**                 | *** * | ****(112,357)**                |
| ****Net Property and Equipment**                                                                                                                                                        | *** * | ****26,283 **              | *** * | ****121,101 **            |
| *** *                                                                                                                                                                              | *** * | *** *                      | *** * | *** *                     |
| ****DEPOSITS**                                                                                                                                                                          | *** * | ****73,688 **              | *** * | ****75,688 **             |
| *** *                                                                                                                                                                              | *** * | *** *                      | *** * | *** *                     |
| ****Total Assets**                                                                                                                                                                      | *** * | ****$3,669,848 **          | *** * | ****$4,635,71 **          |
|                                                                                                                                                                                         |            |                                 |            |                                |

*** *

****See accompanying notes to unaudited condensed consolidated financial statements.**

* *

| *****3*** |
|-----------|

*** *

* *

****eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY**

****CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)**

****LIABILITIES AND STOCKHOLDERS’ EQUITY (UNAUDITED)**

*** *

| *** *                                       | *** *                                                                                                                                                                                                                                                              | *** *                       | ****September 30,**

****2003** | *** *             | ****December 31,**

****2002** |
|--------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|---------------------------------|------------------------|--------------------------------|
| *** *                                       | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      |
| *** *                                       | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      | *** *             | *** *                     |
| ****CURRENT LIABILITIES**                        | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      |
| *** *                                       | ****Notes payable and current portion of long-term debt**                                                                                                                                                                                                               | ****$761,381 **             | *** *                      | ****$407,117 **   |
| *** *                                       | ****Current portion of capital lease obligations**                                                                                                                                                                                                                      | ****1,341 **                | *** *                      | ****5,666 **      |
| *** *                                       | ****Accounts payable**                                                                                                                                                                                                                                                  | ****534,669 **              | *** *                      | ****562,277 **    |
| *** *                                       | ****Accrued liabilities**                                                                                                                                                                                                                                               | ****456,831 **              | *** *                      | ****219,423 **    |
| *** *                                       | ****Accrued interest**                                                                                                                                                                                                                                                  | ****21,657 **               | *** *                      | ****23,092 **     |
| *** *                                       | ****Customer deposits**                                                                                                                                                                                                                                                 | ****11,758 **               | *** *                      | ****11,758 **     |
| *** *                                       | ****Deferred maintenance revenue**                                                                                                                                                                                                                                      | ****102,204 **              | *** *                      | ****93,585 **     |
| *** *                                       | *** *                                                                                                                                                                                                                                                              | ****Total Current Liabilities**  | ****1,889,841 **           | *** *             | ****1,322,918 **          |
| *** *                                       | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      | *** *             | *** *                     |
| ****Long-Term Liabilities**                      | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      |
| *** *                                       | ****Long-term debt, net of current portion**                                                                                                                                                                                                                            | ****1,750,325 **            | *** *                      | ****1,920,264 **  |
| *** *                                       | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      | *** *             | *** *                     |
| ****COMMITMENTS AND CONTINGENCIES**              | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      |
| *** *                                       | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      | *** *             | *** *                     |
| ****STOCKHOLDERS' EQUITY**                       | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      |
| *** *                                       | ****Preferred stock, $0.001 par value; 5,000,000 shares authorized;**

****     no shares outstanding**                                                                                                                                        | ****—* *              | *** *                      | ****—* *    |
| **** **                                     | ****Common stock, $0.001 par value; 50,000,000 shares authorized;**

****     10,983,933 shares and 10,897,931 shares outstanding at**

****     **September 30, 2003** and**December 31, 2002**, respectively** | ****10,984 **               | *** *                      | ****10,898 **     |
| *** *                                       | ****Additional paid-in capital**                                                                                                                                                                                                                                        | ****32,161,150 **           | *** *                      | ****31,570,454 ** |
| *** *                                       | ****Warrants and options outstanding**                                                                                                                                                                                                                                  | ****577,617 **              | *** *                      | ****1,028,897 **  |
| *** *                                       | ****Notes receivable from shareholders**                                                                                                                                                                                                                                | ****(240,315)**                  | *** *                      | ****(232,050)**        |
| *** *                                       | ****Accumulated deficit**                                                                                                                                                                                                                                               | ****(32,479,754)**               | *** *                      | ****(30,985,670)**     |
| *** *                                       | *** *                                                                                                                                                                                                                                                              | ****Total Stockholder's Equity** | ****29,682 **              | *** *             | ****1,392,529 **          |
| *** *                                       | *** *                                                                                                                                                                                                                                                              | *** *                       | *** *                      | *** *             | *** *                     |
| ****Total Liabilities and Stockholders' Equity** | **$3,669,848 **                                                                                                                                                                                                                                                    | * *                         | **$4,635,71 **             |
| * *                                         | * *                                                                                                                                                                                                                                                                | * *                         | * *                        | * *               | * *                       |
|                                                  |                                                                                                                                                                                                                                                                         |                                  |                                 |                        |                                |

****See accompanying notes to unaudited condensed consolidated financial statements.**

* *

| **4** |
|-------|

*** *

****eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY**

****CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**(UNAUDITED)**

*** *

| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | ****For the Three Months Ended**

****September 30,** | *** *          | ****For the Nine Months Ended**

****September 30,** |
|---------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|---------------------|-------------------------------------------------------|---------------------|------------------------------------------------------|
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            |
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | ****2003**                                            | *** *          | ****2002**                                           | *** * | ****2003** | *** * | ****2002** |
| ****REVENUE**                                                                                                 | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * |
| *** *                                                                                                    | ****Product sales**                                                                                                                                              | *** *                          | ****$4,947 **  | *** *                                            | ****$38,468 ** | *** *                                           | ****$16,881 ** | *** * | ****$896,160 ** |
| *** *                                                                                                    | ****Revenue-sharing arrangements**                                                                                                                               | *** *                          | ****247,460 ** | *** *                                            | ****280,525 ** | *** *                                           | ****828,664 ** | *** * | ****895,735 ** |
| *** *                                                                                                    | ****Maintenance fees**                                                                                                                                           | *** *                          | ****81,757 **  | *** *                                            | ****119,211 ** | *** *                                           | ****237,571 ** | *** * | ****238,459 ** |
| *** *                                                                                                    | *** *                                                                                                                                                       | ****Total Revenue**                 | *** *          | ****334,164 **                                   | *** *          | ****438,204 **                                  | *** * | ****1,083,116 ** | *** * | ****2,030,354 ** |
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * | *** * | *** * |
| ****COST OF REVENUE**                                                                                         | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * |
| *** *                                                                                                    | ****Product sales**                                                                                                                                              | *** *                          | ****853 **     | *** *                                            | ****192,097 ** | *** *                                           | ****40,663 ** | *** * | ****838,349 ** |
| *** *                                                                                                    | ****Revenue-sharing arrangements**                                                                                                                               | *** *                          | ****178,853 ** | *** *                                            | ****164,707 ** | *** *                                           | ****537,095 ** | *** * | ****493,646 ** |
| *** *                                                                                                    | ****Maintenance**                                                                                                                                                | *** *                          | ****33,800 **  | *** *                                            | ****185,668 ** | *** *                                           | ****120,114 ** | *** * | ****387,440 ** |
| *** *                                                                                                    | *** *                                                                                                                                                       | ****Total Cost of Revenue**         | *** *          | ****213,506 **                                   | *** *          | ****542,472 **                                  | *** * | ****697,872 ** | *** * | ****1,719,435 ** |
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * | *** * | *** * |
| ****Gross Margin**                                                                                            | *** *                                                                                                                                                       | ****120,658 **                 | *** *          | ****(104,268)**                                       | *** *          | ****385,244 **                                  | *** * | ****310,919 ** |
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * | *** * | *** * |
| ****OPERATING EXPENSES**                                                                                      | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * |
| *** *                                                                                                    | ****Selling, general and administrative**

****     (exclusive of non-cash**

****     compensation expense)** | ****446,848 **                 | *** *          | ****615,134 **                                   | *** *          | ****1,199,421 **                                | *** * | ****1,672,005 ** |
| *** *                                                                                                    | ****Research and development**                                                                                                                                   | *** *                          | ****1,251 **   | *** *                                            | ****71,992 **  | *** *                                           | ****21,974 ** | *** * | ****202,945 ** |
| *** *                                                                                                    | ****Loss on disposal of refreshment**

****     centers**                                                                               | ****—* *                 | *** *          | ****—* *                                   | *** *          | ****941 **                                      | *** * | ****90,156 ** |
| *** *                                                                                                    | ****Non-cash compensation**                                                                                                                                      | *** *                          | ****—* * | *** *                                            | ****(53,440)**      | *** *                                           | ****19,000 ** | *** * | ****3,579 ** |
| *** *                                                                                                    | *** *                                                                                                                                                       | ****Total Operating Expenses**      | ****448,099 ** | *** *                                            | ****633,686 ** | *** *                                           | ****1,241,336 ** | *** * | ****1,968,685 ** |
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * | *** * | *** * |
| ****Loss From Operations**                                                                                    | *** *                                                                                                                                                       | ****(327,441)**                     | *** *          | ****(737,954)**                                       | *** *          | ****(856,092)**                                      | *** * | ****(1,657,766)** |
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * | *** * | *** * |
| ****OTHER INCOME (EXPENSE)**                                                                                  | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * |
| *** *                                                                                                    | ****Interest expense**                                                                                                                                           | *** *                          | ****(242,319)**     | *** *                                            | ****(122,229)**     | *** *                                           | ****(648,130)** | *** * | ****(358,498)** |
| *** *                                                                                                    | ****Interest and other income**                                                                                                                                  | *** *                          | ****3,068 **   | *** *                                            | ****60,303 **  | *** *                                           | ****10,139 ** | *** * | ****73,489 ** |
| *** *                                                                                                    | *** *                                                                                                                                                       | ****Other Income and Expense, Net** | ****(239,251)**     | *** *                                            | ****(61,926)**      | *** *                                           | ****(637,991)** | *** * | ****(285,009)** |
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * | *** * | *** * |
| ****Net Loss**                                                                                                | *** *                                                                                                                                                       | ****$(566,692)**                    | *** *          | ****$(799,880)**                                      | *** *          | ****$(1,494,083)**                                   | *** * | ****$(1,942,775)** |
| *** *                                                                                                    | *** *                                                                                                                                                       | *** *                          | *** *          | *** *                                            | *** *          | *** *                                           | *** * | *** * | *** * | *** * |
| ****Basic and Diluted Loss Per**

****     Common Share**                            | ****$(0.05)**                                                                                                                                                    | *** *                          | ****$(0.08)**       | *** *                                            | ****$(0.14)**       | *** *                                           | ****$(0.20)** |
| ****Basic and Diluted Weighted-Average**

****      Common Shares Outstanding** | *** *                                                                                                                                                       | ****10,983,933 **              | *** *          | ****10,554,158 **                                | *** *          | ****10,965,346 **                               | *** * | ****9,848,00 ** |
|                                                                                                               |                                                                                                                                                                  |                                     |                     |                                                       |                     |                                                      |  |  |  |  |

*** *

****See accompanying notes to unaudited condensed consolidated financial statements.**

| **5** |
|-------|

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* *

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****eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY**

****CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

*** *

| *** *                                                                                                       | *** *                                                                                                             | *** *           | *** *          | ****For the Nine Months Ended**

****September 30,** |
|------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|----------------------|---------------------|------------------------------------------------------|
| *** *                                                                                                       | *** *                                                                                                             | *** *           | *** *          |
| *** *                                                                                                       | *** *                                                                                                             | *** *           | *** *          | ****2003**                                           | *** * | ****2002** |
| ****CASH FLOWS FROM OPERATING ACTIVITIES**                                                                       | *** *                                                                                                             | *** *           | *** *          |
| *** *                                                                                                       | ****Net loss**                                                                                                         | *** *           | *** *          | ****$(1,494,083)**                                   | *** * | ****$(1,942,775)** |
| *** *                                                                                                       | ****Adjustments to reconcile net loss to net cash used in**

****     operating activities:** | *** *           | *** *          | *** *                                           |
| *** *                                                                                                       | ****Depreciation and amortization**                                                                                    | ****582,951 **  | *** *          | ****620,108 **                                  |
| *** *                                                                                                       | ****Interest income from shareholder receivables**                                                                     | ****(8,265)**        | *** *          | ****(8,265)**                                        |
| *** *                                                                                                       | ****Loss on disposal of assets and unrealized residuals**                                                              | ****83,838 **   | *** *          | ****90,156 **                                   |
| *** *                                                                                                       | ****Amortization of deferred offering costs and**

****    accretion of debt discount**            | ****266,951 **  | *** *          | ****2,262 **                                    |
| *** *                                                                                                       | ****Non-cash compensation expense**                                                                                    | *** *           | ****19,000 **  | *** *                                           | ****3,578 ** |
| *** *                                                                                                       | ****Changes in operating assets and liabilities::**                                                                    | *** *           | *** *          | *** *                                           | *** * |
| *** *                                                                                                       | ****   Accounts receivable**                                                                            | *** *           | ****120,967 ** | *** *                                           | ****118,025 ** |
| *** *                                                                                                       | ****   Inventory**                                                                                      | *** *           | ****3,159 **   | *** *                                           | ****(18,857)** |
| *** *                                                                                                       | ****   Prepaid expenses**                                                                               | *** *           | ****107,236 ** | *** *                                           | ****(17,258)** |
| *** *                                                                                                       | ****   Accounts payable**                                                                               | *** *           | ****(2,609)**       | *** *                                           | ****114,431 ** |
| *** *                                                                                                       | ****   Accrued liabilities**                                                                            | *** *           | ****235,973 ** | *** *                                           | ****(303,617)** |
| *** *                                                                                                       | ****   Customer deposits and deferred maintenance revenue**                                             | ****8,619 **    | *** *          | ****(231,907)**                                      |
| *** *                                                                                                       | ****Net Cash Used In Operating Activities**                                                                            | ****(76,263)**       | *** *          | ****(1,574,119)**                                    |
| *** *                                                                                                       | *** *                                                                                                             | *** *           | *** *          | *** *                                           | *** * | *** * |
| ****CASH FLOWS FROM INVESTING ACTIVITIES**                                                                       | *** *                                                                                                             | *** *           | *** *          |
| *** *                                                                                                       | ****Additions to refreshment centers placed in service**                                                               | ****—* *  | *** *          | ****(504,655)**                                      |
| *** *                                                                                                       | ****Purchase of property and equipment**                                                                               | *** *           | ****—* * | *** *                                           | ****(76,557)** |
| *** *                                                                                                       | ****Net Cash Used In Investing Activities**                                                                            | *** *           | ****—* * | *** *                                           | ****(581,212)** |
| *** *                                                                                                       | *** *                                                                                                             | *** *           | *** *          | *** *                                           | *** * | *** * |
| ****CASH FLOWS FROM FINANCING ACTIVITIES**                                                                       | *** *                                                                                                             | *** *           | *** *          |
| *** *                                                                                                       | ****Proceeds from borrowings**                                                                                         | *** *           | ****289,572 ** | *** *                                           | ****317,221 ** |
| *** *                                                                                                       | ****Principal payments on notes payable**                                                                              | *** *           | ****(276,696)**     | *** *                                           | ****(324,926)** |
| *** *                                                                                                       | ****Principal payments on capital lease obligations**                                                                  | *** *           | ****(4,325)**       | *** *                                           | ****(11,689)** |
| *** *                                                                                                       | ****Proceeds from issuance of common stock and warrants**                                                              | *** *           | ****—* * | *** *                                           | ****1,297,605 ** |
| *** *                                                                                                       | ****Proceeds from exercise of stock options**                                                                          | *** *           | ****—* * | *** *                                           | ****15,150 ** |
| *** *                                                                                                       | ****Proceeds from collection of notes receivable from shareholder**                                                    | ****—* *  | *** *          | ****26,000 **                                   |
| *** *                                                                                                       | ****Net Cash Provided by Financing Activities**                                                                        | ****8,551 **    | *** *          | ****1,319,361 **                                |
| *** *                                                                                                       | *** *                                                                                                             | *** *           | *** *          | *** *                                           | *** * | *** * |
| ****Net Decrease in Cash**                                                                                       | *** *                                                                                                             | ****(67,712)**       | *** *          | ****(835,970)**                                      |
| ****Cash at Beginning of Period**                                                                                | *** *                                                                                                             | ****144,359 **  | *** *          | ****1,070,974 **                                |
| *** *                                                                                                       | *** *                                                                                                             | *** *           | *** *          | *** *                                           | *** * | *** * |
| ****Cash at End of Period**                                                                                      | *** *                                                                                                             | ****$76,647**        | *** *          | ****$235,004**                                       |
| *** *                                                                                                       | *** *                                                                                                             | *** *           | *** *          | *** *                                           | *** * | *** * |
| ****Supplemental Cash Flows Information**                                                                        | *** *                                                                                                             | *** *           | *** *          | *** *                                           |
| *** *                                                                                                       | ****Cash paid for interest**                                                                                           | *** *           | ****$190,364**      | *** *                                           | ****$179,007** |
| ****Supplemental Disclosure of Noncash Investing**

****     and Financing Activities** | *** *                                                                                                             | *** *           | *** *          | *** *                                           |
| *** *                                                                                                       | ****Conversion of accounts payable into common stock**                                                                 | ****$—* * | *** *          | ****$66,429**                                        |
| *** *                                                                                                       | ****Conversion of accounts payable into note payable**                                                                 | ****25,000 **   | *** *          | ****—* *                                  |
|                                                                                                                  |                                                                                                                        |                      |                     |                                                      |  |  |  |  |  |

*** *

*** *

****See accompanying notes to unaudited condensed consolidated financial statements.**

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| **6** |
|-------|

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****NOTE 1 --**Organization and Nature of Operations**

****Condensed Financial Statements**

****The accompanying unaudited condensed consolidated financial statements of eRoomSystem Technologies, Inc. and subsidiaries (the “Company”) are condensed and, therefore, do not include all disclosures normally required by generally accepted accounting principles.  These statements should be read in conjunction with the Company’s annual financial statements included in the Company’s*December 31, 2002* Annual Report on Form 10-KSB.  In particular, the Company’s organization and nature of operations were presented in Note 1 and its significant accounting principles were presented as Note 2 to the consolidated financial statements in that report. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements and consist of only normal recurring adjustments.  The results of operations presented in the accompanying condensed consolidated financial statements for the nine months ended*September 30, 2003* are not necessarily indicative of the results that may be expected for the full year ending*December 31, 2003*.**

****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.**

****RSI BRE is a special purpose entity in which the Company does not have operating control but owns 100 percent of the outstanding capital stock.  In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”).  FIN 46 defined variable interest entities and modified the requirements for their consolidation from ownership of a controlling voting interest to holding a majority variable interest and being the primary beneficiary of the variable interest entity.  The Company elected to adopt FIN 46 at*December 31, 2002*; accordingly, the investment in RSI BRE is presented on a consolidated basis in the accompanying financial statements at*September 30, 2003*,*December 31, 2002* and for the three and nine months ended*September 30, 2003*.  Under the guidance of FIN 46, the accompanying financial statements for the three and nine months ended*September 30, 2002* have been restated to account for the investment in RSI BRE on a consolidated basis.  There was no effect on net loss for the three and nine months ended*September 30, 2003* or 2002 as a result of adopting FIN 46 as 100 percent of the loss from RSI BRE was previously recognized under the equity method of accounting.**

****Stock-Based Compensation**

****            **At*September 30, 2003*, the Company has one stock-based employee compensation plan.  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 nine months ended*September 30, 2003* and 2002, the Company recognized $19,000 and $3,579, respectively, of compensation expense relating to stock options and warrants.  **

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****The following table illustrates the effect on net loss and basic and diluted loss 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 compensation:**

| *** *                                                                                                                                                                                                         | *** *     | ****Three Months Ended**

****September 30,** | *** *      | ****Nine Months Ended**

****September 30,** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|-----------------------------------------------|-----------------|----------------------------------------------|
| *** *                                                                                                                                                                                                         | *** *     | ****2003**                                    | *** *      | ****2002**                                   | *** * | ****2003** | *** * | ****2002** |
| ****Net loss, as reported**                                                                                                                                                                                        | *** *     | ****$(566,692)**                              | *** *      | ****$(799,880)**                             | *** * | ****$(1,494,083)** | *** * | ****$(1,942,775)** |
| ****Add: Stock-based employee**

****    compensation expense**

****     (benefit) included in net loss**                                                            | ****-- ** | *** *                                    | ****(53,440)**  | *** *                                   | ****19,000 ** | *** * | ****3,579 ** |
| ****Deduct: Total stock-based employee**

****    compensation expense determined**

****    under fair value based method**

****    for all awards** | ****-- ** | *** *                                    | ****(556,551)** | *** *                                   | ****(19,000)** | *** * | ****(570,387)** |
| ****Pro forma net loss**                                                                                                                                                                                           | *** *     | ****$(566,692)**                              | *** *      | ****$(1,409,871)**                           | *** * | ****$(1,494,083)** | *** * | ****$(2,509,583)** |
| ****Basic and diluted loss per common**

****    share as reported**                                                                                                                           | ****$(0.05)**  | *** *                                    | ****$(0.08)**   | *** *                                   | ****$(0.14)** | *** * | ****$(0.20)** |
| ****Basic and diluted loss per common**

****    share pro forma**                                                                                                                             | ****$(0.05)**  | *** *                                    | ****$(0.13)**   | *** *                                   | ****$(0.14)** | *** * | ****$(0.25)** |
|                                                                                                                                                                                                                    |                |                                               |                 |                                              |  |  |  |  |

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****Net Loss per Common Share**

****Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding.  Unvested common shares are considered to be stock options for purposes of computing loss per share and are not included in the weighted-average number of common shares outstanding.  Diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents outstanding.  As of*September 30, 2003*, there were options and warrants outstanding to purchase 2,262,046 common shares that were not included in the computation of diluted loss per common share as their effect would have been anti**‐dilutive, thereby decreasing the loss per common share.  As of*September 30, 2002*, there were options and warrants outstanding to purchase 3,059,180 common shares and 79,995 unvested common shares that were not included in the computation of diluted loss per common share as their effect would have been anti-dilutive, thereby decreasing the loss per common share**

****During the three months ended*September 30, 2003*, options and warrants to purchase 686,287 shares of common stock with exercise prices ranging from $4.00 to $12.80 expired.  During the nine months ended*September 30, 2003*, options and warrants to purchase 802,614 shares of common stock with exercise prices ranging from $0.20 to $12.80 expired.**

****NOTE 2 – BUSINESS CONDITION**

****Since inception, the Company has suffered recurring losses. During the year ended*December 31, 2002* and the nine months ended*September 30, 2003*, the Company had net losses of  $3,550,923 and $**1,494,083**, respectively. During the year ended*December 31, 2002* and the nine months ended*September 30, 2003*, the Company's operations used $1,626,305 and $76,263 of cash, respectively. The Company had a cash balance of $76,647 as of*September 30, 2003* of which $62,255 was restricted for the purpose of paying certain long-term obligations.  At*September 30, 2003*, the Company had a working capital deficit of $1,346,147.  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.  There is still substantial doubt about the Company’s ability to continue as a going concern. 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.  In the event the Company is unable to obtain additional financing in the near term, management is prepared to seek bankruptcy protection from creditors.**

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****NOTE 3 –**NOTES PAYABLE AND LONG-TERM DEBT**

****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 other 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.**

****            On*September 18, 2002*, management was notified by the finance company of its intention to cease funding loans to the Company.  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.  If a new financing relationship is not procured, the financial condition and results of operation of the Company will likely be adversely affected.  During 2003, the finance company assigned the rights to provide financing for SPE under the financing agreement to Boise Capital Group, LLC.  No borrowing arrangements have been made with Boise Capital Group.**

****            At*September 30, 2003*, SPE had an obligation for $1,346,075 outstanding under the financing arrangement, which is secured by the eRoomServ refreshment centers placed by the Company with hotel customers under qualified revenue-sharing agreements.  The outstanding notes payable at*September 30, 2003*, had accrued interest at the seven-year treasury rate plus 12.5% per annum, which was 17.19% at*September 30, 2003*. On*October 1, 2003*, due to new management’s negotiations with the finance company, the interest rate has been lowered to 8% for the next two years and then 10% for the remainder of each note.  The notes payable are collateralized by eRoomServ refreshment centers with a carrying value of $1,485,648 at*September 30, 2003*.  SPE holds payments from hotel customers in several restricted bank accounts for payment to the finance company and to the Company.  As of*September 30, 2003*, the Company had $62,255 of restricted cash and non-current deposits of $73,688 that were designated for this purpose.**

****            The Company has entered into an additional agreement with the finance company that is discussed in Note 5.**        **

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****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%.  The principal and interest are due on November 8, 2003.  All past due amounts and accrued interest thereon bear interest at 18%.  During the nine months ended*September 30, 2003*, the Company borrowed $120,500 under the terms of the promissory note and transferred $25,000 from an accounts payable due to Ash Capital, which increased the principal amount of the promissory note to $347,500.  The maturity date has been extended to the earlier of November 8, 2007 or the maturity of $250,000 of convertible notes payable due to Gestetner Group, LLC (see Note 5).**

****            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.  If the conversion date is after November 8, 2003, the promissory note can be converted into 17.8% of the lesser of the authorized capital stock or the outstanding capital stock of the Company.  The Company has 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 has allocated all of the $120,500 of proceeds received during the nine months ended*September 30, 2003* to the beneficial conversion option that resulted in an offsetting discount to the note payable.  The discount on the note payable, including the unamortized discount at*December 31, 2002*, is being 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 $264,229 of accretion of the discount during the nine months ended*September 30, 2003*.  The unamortized discount on the note was $39,853 at*September 30, 2003*.  **

****            The Company has entered into additional agreements with Ash Capital LLC that are discussed further in Note 5.**   **

****NOTE 4 –**Commitments and Contingencies**

****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 was granted to the former landlord.  As a result, the Company is indebted to the former landlord in the amount of $41,000, plus attorney’s fees to be determined by the court.**

****NOTE 5 –**SUBSEQUENT EVENTS**

****On*October 1, 2003*, the Company entered into a series of agreements with third parties in conjunction with debt financing and restructuring as follows.  **

****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 “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, 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 Noteholders, 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 Noteholders holding, in the aggregate and on a fully-diluted basis, more than 49% of the outstanding common stock of the Company.  In addition, the Noteholders 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 $36,286 allocated to the Notes and $213,714 allocated to the warrants. In addition, the Noteholders received a beneficial conversion option of $36,286. The resulting $250,000 discount to the Notes will be amortized over the expected five-year term of the Notes as interest expense.**

****As a requirement of the*October 1, 2003*, Gestetner Group, LLC funding arrangement, the Company entered into an agreement with AMRESCO Leasing Corporation that states 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 $116,705 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.**

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****On*October 1, 2003*, 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 issued to the Noteholders and (ii) include as an additional event of default any default of the Company under the Notes. 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 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 the Company’s 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 the other lenders that purchased the $250,000 secured convertible promissory note on*October 1, 2003*, (ii) B equals 10,000,000 and (iii) C equals .07. If and when the contingent warrants are exercisable, the Company will 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 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 Notes should a default occur by the Company under the terms of such agreements.**In addition, for the term of the 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 Noteholders and (ii) against any increase in the size of the Board of Directors of the Company above four members.**

****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 past compensation by Mr. Harkness, the Company issued to him an option to purchase 300,000 shares of common stock at $0.26 per share. 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 subsidiaries thereof.**

****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 past compensation by Mr. Hrncir, the Company issued to him an option to purchase 225,000 shares of common stock at $0.26 per share. 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 subsidiaries thereof. In addition, on*October 1, 2003*, the Company entered into a three-month Consulting Agreement with Mr. Hrncir that provides for the issuance of an option to purchase 100,000 shares of common stock at $0.10 per share and the payment of a monthly consulting fee of $6,000.**

****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, the Company issued to him an option to purchase 75,000 shares of common stock at $0.26 per share. 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 up to seven, subsequent months subject to the occurrence of certain events.**

****The Company will record the forgiveness of the notes receivable from stockholders and relinquishment of the related 600,000 shares of common stock by reversing the notes receivable to common stock and additional paid-in capital.**

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****The Company accounted for the settlement of $211,446 of accrued compensation due to officers and the issuance of 600,000 five-year stock options to officers with a fair value of $171,741 (assuming volatility of 173%, a risk-free interest rate of 2.84%, an estimated life of five years and a 0% dividend rate), resulting in a gain on forgiveness of debt of $39,706.**

****On*October 1, 2003*, the Company entered into an employment agreement with David Gestetner to become Chief Executive Officer and President of eRoomSystem Technologies, Inc.** The terms of the employment contract provide for a salary of $100,000 per annum and a term of two years, with automatic one-year extensions.**

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

****The following discussion should be read in conjunction with our financial statements and notes to our financial statements, included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.**

****Certain information included herein contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, such as statements relating to our anticipated revenues, gross margin and operating results, future performance and operations, plans for future expansion, capital spending, sources of liquidity and financing sources.  Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein.  These risks and uncertainties include, but are not limited to, those relating to our liquidity requirements, the continued growth of the lodging industry, the success of our product-development, marketing and sales activities, vigorous competition in the lodging industry, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions, the inherent uncertainty and costs of prolonged arbitration or litigation, and changes in federal or state tax laws or the administration of such laws.  A complete discussion of these risks and uncertainties are contained in our Annual Report on Form 10-KSB, as filed with the Securities and Exchange Commission on*March 31, 2003*.**

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****Overview**

****eRoomSystem Technologies, Inc. is a*Nevada* corporation that was incorporated on August 31, 1999. 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, and other proposed applications. In addition, we have expanded the products and services offered through the introduction in 2002 of our eRoomEnergy products, the eRoomServ upright multi-vending rack and the eRoomTray (ambient tray for dry goods). Additional products and services will include information management services, additional in**‐room energy management capabilities, credit card/smart card capabilities for direct billing and remote engineering and maintenance services.  **

****Our 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 abroad.**

****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 and increase their operating efficiencies. In the event we are able to solidify our business and procure the requisite third-party equity and debt financing, we also intend to market this information to suppliers of goods sold in our eRoomServ refreshment centers and to other users desiring information on the buying patterns of hotel guests for goods and services.** However, if we do not obtain a significant equity infusion by*April 1, 2004*, or reach agreement on the sale or merger of the Company with a third party, it is highly likely that we will be forced to seek protection under the United States Federal bankruptcy laws.** **

****Accounting Policies**

****The preparation of financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect reported amounts and disclosures, some of which may require revision in future periods. The most sensitive estimates affecting our financial statements include future volatility used in valuing equity instruments, allowance for bad debts, depreciable lives of refreshment centers in service and property and equipment, amortization life of patents, deferred maintenance revenue and accrued liabilities.  By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, terms of existing contracts, our observance of industry trends, information provided by or gathered from our customers and information available from other outside sources, as appropriate. There can be no assurance that actual results will not differ from our estimates.  The following is a summary of what management believes are the critical accounting policies related to our operations.  The application of these policies, in some cases, requires our management to make subjective judgments regarding the effect of matters that are inherently uncertain.  **

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****Description of Revenues**

****Historically, we have received substantially all of our revenues from the sale, or placement under a revenue-sharing program, of our products in hotels.  Assuming we are able to procure sufficient third-party equity and debt financing to continue as a going concern, we anticipate that these revenues will account for a substantial majority of our revenues for the foreseeable future.  We also generate limited revenues from maintenance and support services.  **

****Our dependence on the lodging industry makes us vulnerable to downturns in the lodging industry caused by the general economic environment. Over the past two years, the lodging industry in the*United States* has experienced a decrease in occupancy rates, revenue per available room, or revPAR, as well as a downturn in domestic airline travel. The industry downturn has resulted in many hotels delaying or declining to purchase or place our in-room products as well as failing to renew our maintenance agreements. In addition, we believe the lodging industry downturn has resulted in fewer purchases by hotel guests of goods and services from our products installed in hotels and consequently affected our revenue-sharing revenues.**

****Through our revenue-sharing program, we install 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, eRoomSafes and eRoomTrays throughout the term of the revenue-sharing agreements and the right to re-deploy products returned to us upon the expiration or earlier termination of the revenue-sharing agreements.  We believe that our revenue-sharing program may increase future placements of our products; however, we cannot assure you that we will be successful in this effort given our current cash position, the significant downturn in the lodging and travel industry and the inability to date to procure sufficient third-party financing or enter into a sale or merger with a third party.  **

****We have experienced substantial fluctuations in revenues from period-to-period as a result of limited working capital to fund our sales and marketing efforts, and development and manufacture of our products. In addition to limited working capital, fluctuations in revenues have partially resulted from the transition to our revenue-sharing program under which revenues are recognized over the seven-year life of the contract instead of immediately upon installation of our products. We anticipate that over the next several years the majority of our revenues, assuming we continue as a going concern, will result from the placement of our products pursuant to our revenue-sharing program, followed by sales and, to a lesser extent, from maintenance agreements.  We project that we will receive approximately 60% of the recurring revenues from the sale of goods and services generated by our eRoomServ refreshment centers, eRoomSafes and eRoomTray solutions placed under revenue-sharing agreements.  Our customers receive the remainder of the recurring revenues.**

****AMRESCO Leasing Corporation, or ALC, which previously provided more than $1,600,000 in financing relating to our products placed pursuant to revenue sharing contracts, notified us in writing on September 18, 2002 of its intention to cease funding loans to us.**Shortly following notification from ALC, BCG Asset Management, LLC, a limited liability company comprised of two of AMRESCO’s former principals, purchased the exclusive rights to provide post-installation financing for the funding of eRoomSystem products placed on a revenue sharing basis.** If a new financing relationship and sufficient third-party equity financing is not procured by*April 1, 2004*, we will likely be forced to seek protection under the United States Federal bankruptcy laws.**

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****Revenue Recognition**

****Sales revenue from our products is recognized upon completion of installation and acceptance by the hotel. Sales revenue from the placement of our eRoomServ refreshment centers, eRoomSafes and eRoomTrays 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 negotiate 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 seek a gross profit margin of 30% or more on the sale and placement through our revenue-sharing program of eRoomServ refreshment centers, eRoomSafes and eRoomTrays.**

****We typically enter into installation, maintenance and license agreements with our 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.  **

****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 and eRoomTrays placed under revenue-sharing agreements.  Cost of maintenance fee revenues primarily consists of expenses related to customer support and maintenance and legacy issues related to product installations made prior to January 2001.  **

****Selling, general and administrative expenses include selling expenses consisting primarily of advertising, promotional activities, trade shows, travel and personnel-related expenses and general and administrative expenses consisting primarily of professional fees, salaries and related costs for accounting, administration, finance, human resources, information systems and legal matters.**

****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 these employees in the development of new or enhanced product offerings.  **

****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.**

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****Results of Operations**

****Comparison of Three Months Ended*September 30, 2003* and 2002**

****Revenues**

****Product Sales — Revenues from product sales were $4,947 for the three months ended September 30, 2003, compared to $38,468 for the three months ended September 30, 2002, representing a decrease of $33,521, or 87.1%.  The decrease in revenues from product sales was due to the reduced number of sales of eRoomServ refreshment centers, eRoomSafes and eRoomTrays sold during the three months ending September 30, 2003 as compared to the three months ended September 30, 2002.**

****Revenue Sharing Arrangements — Our revenue from revenue sharing arrangements was $247,460 for the three months ended September 30, 2003, compared to $280,525 for the three months ended September 30, 2002, representing a decrease of $33,065, or 11.8%.  The decrease in revenue from revenue sharing arrangements was due primarily to not receiving any revenue from two properties that are in financial distress during the three months ended September 30, 2003.**

****Maintenance Fee Revenues — Our maintenance fee revenues were $81,757 for the three months ended September 30, 2003, compared to $119,211 for the three months ended September 30, 2002, representing a decrease of $37,454, or 31.4%. The decrease was due primarily to the expiration and/or temporary suspension of certain maintenance agreements outstanding.**

****Cost of Revenue**

****Cost of Product Sales Revenue — Our cost of product sales revenue for the three months ended September 30, 2003 was $853 compared to $192,097 for the three months ended September 30, 2002, a decrease of $191,244, or 99.6%.  The gross margin percentage on revenue from product sales revenue was 82.8% for the three months ended September 30, 2003 compared to (399.4)% for the three months ended September 30, 2002.  The significant decrease in our cost of product sales revenue was due to the lack of new product placements. The significant increase in our gross margin percentage on revenue from product sales revenue was due to a one-time charge of $152,000 incurred in the three months ended*September 30, 2002* relating to a write-down in inventory expressly used for our side-vend design refreshment center units.  Based on the significant feedback from our hotel clients, we transitioned our refreshment center product line to an upright-vend design in 2002, thereby obviating a material percentage of the value of our side-vend design inventory other than as relates to maintenance of existing side-vend units in the field.**

| **16** |
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*** *

****Cost of Revenue Sharing Revenue — Our cost of revenue sharing revenue was $178,853 for the three months ended September 30, 2003, compared to $164,707 during the three months ended September 30, 2002, representing an increase of $14,146, or 8.6%.  The increase in the cost of revenue sharing revenue was due to the increased placement of units pursuant to our revenue sharing program.  The gross margin percentage on revenue sharing revenue was 27.7% for the three months ended September 30, 2003 and 41.3% for the three months ended September 30, 2002.  The decrease in gross margin percentage on revenue sharing revenue for the three months ended September 30, 2003 as compared to the three months ended September 30, 2002 was due to the decrease in revenue compared to a more stable cost of revenue.**

****Cost of Maintenance Fee Revenue — Our cost of maintenance fee revenue was $33,800 for the three months ended September 30, 2003, compared to $185,668 for the three months ended September 30, 2002, representing a decrease of $151,868, or 81.8%.  The gross margin percentage on maintenance fee revenues was 58.7% for the three months ended September 30, 2003 and (55.7%) for the three months ended September 30, 2002.  The marked decrease in our cost of maintenance fee revenue and the increase in gross margin percentages for the three months ended September 30, 2002 as compared to the three months ended September 30, 2002 was due to the Company’s improved efficiencies in maintaining its products placed in the field and the decrease in fixed overhead relating to the field operations department.**

****The changes and percent changes with respect to our revenues and our cost of revenue for the three months ended September 30, 2003 and 2002 are as follows:**

*** *

*** *

| *** *                                                                                                    | ****For the Three Months**

****Ended September 30,** | *** * | *** *              | *** * | *** *         |
|---------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|------------|-------------------------|------------|--------------------|
| *** *                                                                                                    | ****2003**                                            | *** * | ****2002**              | *** * | ****Change**       | *** * | ****Percent Change** |
| ****Revenue**                                                                                                 | *** *                                            | *** * | *** *              | *** * | *** *         | *** * | *** * |
| ****         Product sales**                                     | ****$4,947 **                                    | *** * | ****$38,468 **     | *** * | ****$(33,521)**    | *** * | ****(87.1) %** |
| ****         Revenue-sharing arrangements**                      | ****247,460 **                                   | *** * | ****280,525 **     | *** * | ****(33,065)**     | *** * | ****(11.8) %** |
| ****         Maintenance fees**                                  | ****81,757 **                                    | *** * | ****119,211 **     | *** * | ****(37,454)**     | *** * | ****(31.4) %** |
| ****            Total Revenue**                   | ****$334,164 **                                  | *** * | ****$438,204 **    | *** * | ****$(104,040)**   | *** * | ****(23.7) %** |
| *** *                                                                                                    | *** *                                            | *** * | *** *              | *** * | *** *         | *** * | *** * |
| ****Cost of Revenue**                                                                                         | *** *                                            | *** * | *** *              | *** * | *** *         | *** * | *** * |
| ****         Product sales**                                     | ****$853 **                                      | *** * | ****$192,097 **    | *** * | ****$(191,244)**   | *** * | ****(99.6) %** |
| ****         Revenue-sharing arrangements**                      | ****178,853 **                                   | *** * | ****164,707 **     | *** * | ****14,146 ** | *** * | ****8.6  %** |
| ****         Maintenance**                                       | ****33,800 **                                    | *** * | ****185,668 **     | *** * | ****(151,868)**    | *** * | ****(81.8) %** |
| ****            **Total Cost of Revenue**         | ****$213,506 **                                  | *** * | ****$542,472 **    | *** * | ****$(328,966)**   | *** * | ****(60.6) %** |
| *** *                                                                                                    | *** *                                            | *** * | *** *              | *** * | *** *         | *** * | *** * |
| ****Gross Margin PERCENTAGE**                                                                                 | *** *                                            | *** * | *** *              | *** * | *** *         | *** * |
| ****         Product sales**                                     | ****82.8 %**                                     | *** * | ****(399.4) %**    | *** * | *** *         | *** * | *** * |
| ****         Revenue-sharing arrangements**                      | ****27.7 %**                                     | *** * | ****41.3  %** | *** * | *** *         | *** * | *** * |
| ****         Maintenance**                                       | ****58.7 %**                                     | *** * | ****(55.7) %**     | *** * | *** *         | *** * | *** * |
| ****            **Total Gross Margin Percentage** | ****36.1 %**                                     | *** * | ****(23.8) %**     | *** * | *** *         | *** * | *** * |
|                                                                                                               |                                                       |            |                         |            |                    |  |  |

*** *

****Although the preceding table summarizes the net changes and percent changes with respect to our revenues and our cost of revenue for the three months ended September 30, 2003 and 2002, the trends contained therein are limited and should not be viewed as a definitive indication of our future results.**

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****Operating Expenses  **

****Selling, General and Administrative — Selling, general and administrative expenses, exclusive of non-cash compensation expense, were $446,848 for the three months ended September 30, 2003, compared to $615,134 for the three months ended September 30, 2002, representing a decrease of $168,286, or 27.4%.  The decrease in our selling, general and administrative expenses from the three months ended*September 30, 2003* to the three months ended September 30, 2002 reflects our ongoing efforts to further reduce fixed overhead expenses.**

****Research** **and Development Expenses — Research and development expenses were $1,251 for the three months ended September 30, 2003, compared to $71,992 for the three months ended September 30, 2002, representing a decrease of $70,741, or 98.3%.  Research and development expenses represented 0.4% of our total revenue for the three months ended September 30, 2003 and 16.4% of our total revenue for the three months ended September 30, 2002.  The decrease in research and development expenses was primarily due to the completion of our Version 4 windows-based software platform, the upright-vend design refreshment center and the eRoomTray in 2002.  **

****Non-Cash Compensation Expense — Non-cash compensation expense was zero for the three months ended September 30, 2003, compared to ($53,440) for the three months ended September 30, 2002, a decrease of $53,440.  **

****Other Income and Expense, Net**

****Other income and expense, net was $239,251 for the three months ended September 30, 2003, compared to $61,926 for the three months ended September 30, 2002, representing an increase of $177,325. The increase was due primarily to the increase in our interest expense relating to our borrowings from the finance company and other third parties, and a decrease in our interest and other income.  **

****Net Loss**

****We incurred net losses of $566,692 and $799,880 during the three months ended September 30, 2003 and 2002, respectively. The $233,188 decrease in net loss was due primarily to a material decrease in cost of maintenance revenue and total operating expenses. We have continued to incur losses subsequent to September 30, 2003 and, as a result, have experienced an increase in accumulated deficit.  We believe that we will continue to incur losses for a period of time.**

****Comparison of Nine months Ended September 30, 2003 and 2002**

****Revenues**

****Product Sales —  Revenues from product sales were $16,881 for the nine months ended September 30, 2003, compared to $896,160 for the nine months ended September 30, 2002, representing a decrease of $879,279, or 98.1%.  The decrease in revenues from product sales was due to the reduced number of Refreshment Centers, eRoomSafes, and eRoomTrays sold during the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002. The primarily reason for the reduced sales volume was the Company’s weak financial condition and significantly reduced sales force.  **

| **18** |
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****Revenue Sharing Arrangements — Our revenue from revenue sharing arrangements was $828,664 for the nine months ended September 30, 2003, compared to $895,735 for the nine months ended September 30, 2002, representing a decrease of $67,071, or 7.5%.  The decrease in revenue from revenue sharing arrangements was due primarily to the one revenue sharing property purchasing the units installed at its hotel and subject to a revenue sharing agreement with us, along with another property filing for protection under the Federal bankruptcy laws. Regarding the property that filed for bankruptcy protection, we have not received payment under the terms of the revenue sharing agreement with them since early in the first quarter of 2003.**

****Maintenance Fee Revenues — Our maintenance fee revenues were $237,571 for the nine months ended September 30, 2003, compared to $238,459 for the nine months ended September 30, 2002, representing a decrease of $888, or 0.4%.  The decrease was not material.**

****Cost of Revenue**

****Cost of Product Sales Revenue — Our cost of product sales revenue for the nine months ended September 30, 2003 was $40,663, compared to $838,349 for the nine months ended September 30, 2002, a decrease of $797,686, or 95.1%.  The decrease was due to extremely limited product sales during the nine months ended September 30, 2003, as compared to the nine months ended September 30, 2002, resulting from the Company’s weak financial condition and significantly reduced sales force. The gross margin percentage on revenue from product sales revenue was (140.8)% for the nine months ended September 30, 2003 compared to 6.5% for the nine months ended September 30, 2002.  The decrease in gross margin percentage on revenue from product sales revenue was due to the reduced sales volume and the write off of inventory.  **

****Cost of Revenue Sharing Revenue — Our cost of revenue sharing revenue was $537,095 for the nine months ended September 30, 2003, compared to $493,646 during the nine months ended September 30, 2002, representing an increase of $43,449, or 8.8%.  The increase in the cost of revenue sharing revenue was due to the addition of two Revenue Sharing properties in the fourth quarter of 2002.  The gross margin percentage on revenue sharing revenue was 35.2% for the nine months ended September 30, 2003 and 44.9% for the nine months ended September 30, 2002.  The decrease in gross margin percentage on revenue sharing revenue from the nine months ended September 30, 2003 to the nine months ended September 30, 2002 reflects both the decrease in revenue due to two Revenue Sharing properties that aren’t producing revenue, and the increase in cost of revenue due to the installation of two new properties.**

****Cost of Maintenance Fee Revenue — Our cost of maintenance fee revenue was $120,114 for the nine months ended September 30, 2003, compared to $387,440 for the nine months ended September 30, 2002, representing a decrease of $267,326, or 69.0%.  The gross margin percentage on maintenance fee revenues was 49.4% for the nine months ended September 30, 2003 and (62.5)% for the nine months ended September 30, 2002.  The material decrease in our cost of maintenance fee revenue and the increase in gross margin percentages from the nine months ended September 30, 2003 to the nine months ended September 30, 2002 reflects better operating efficiencies and lower fixed overhead in our field operations department and less material maintenance issues with our equipment installed at our hotel client’s property.**

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****The changes and percent changes with respect to our revenues and our cost of revenue for the nine months ended September 30, 2003 and 2002 are as follows:**

| *** *                                                                                      | ****For the Nine Months**

****Ended September 30,** | *** * | ****Change**           | *** * | ****Percent Change** |
|-------------------------------------------------------------------------------------------------|------------------------------------------------------|------------|------------------------|------------|----------------------|
| *** *                                                                                      | ****2003**                                           | *** * | ****2002**             | *** * |
| ****Revenue**                                                                                   | *** *                                           | *** * | *** *             | *** * | *** *           | *** * | *** * |
| ****   Product sales**                                                           | ****$16,881 **                                  | *** * | ****$896,160 **   | *** * | ****$(879,279)**     | *** * | ****(98.1)%** |
| ****   **Revenue-sharing arrangements**                                          | ****828,664 **                                  | *** * | ****895,735 **    | *** * | ****(67,071)**       | *** * | ****(7.5)%** |
| ****   **Maintenance fees**                                                      | ****237,571 **                                  | *** * | ****238,459 **    | *** * | ****(888)**          | *** * | ****(0.4)%** |
| ****   **   **   Total Revenue**                   | ****$1,083,116 **                               | *** * | ****$2,030,354 ** | *** * | ****$(947,238)**     | *** * | ****(46.7)%** |
| *** *                                                                                      | *** *                                           | *** * | *** *             | *** * | *** *           | *** * | *** * |
| ****Cost of Revenue**                                                                           | *** *                                           | *** * | *** *             | *** * | *** *           | *** * | *** * |
| ****   Product sales**                                                           | ****$40,663 **                                  | *** * | ****$838,349 **   | *** * | ****$(797,686)**     | *** * | ****(95.1)%** |
| ****   **Revenue-sharing arrangements**                                          | ****537,095 **                                  | *** * | ****493,646 **    | *** * | ****43,449 **   | *** * | ****8.8%** |
| ****   **Maintenance**                                                           | ****120,114 **                                  | *** * | ****387,440 **    | *** * | ****(267,326)**      | *** * | ****(69.0)%** |
| ****   **   **   **Total Cost of Revenue**         | ****$697,872 **                                 | *** * | ****$1,719,435 ** | *** * | ****$(1,021,563)**   | *** * | ****(59.4)%** |
| *** *                                                                                      | *** *                                           | *** * | *** *             | *** * | *** *           | *** * | *** * |
| ****Gross Margin PERCENTAGE**                                                                   | *** *                                           | *** * | *** *             | *** * | *** *           | *** * | *** * |
| ****   Product sales**                                                           | ****(140.9)%**                                       | *** * | ****6.5%**             | *** * | *** *           | *** * | *** * |
| ****   **Revenue-sharing arrangements**                                          | ****35.2%**                                          | *** * | ****44.9%**            | *** * | *** *           | *** * | *** * |
| ****   **Maintenance**                                                           | ****49.4%**                                          | *** * | ****(62.5)%**          | *** * | *** *           | *** * | *** * |
| ****   **   **   **Total Gross Margin Percentage** | ****35.6%**                                          | *** * | ****15.3%**            | *** * | *** *           | *** * | *** * |
|                                                                                                 |                                                      |            |                        |            |                      |  |  |

*** *

****Although the preceding table summarizes the net changes and percent changes with respect to our revenues and our cost of revenue for the nine months ended September 30, 2003 and 2002, the trends contained therein are limited and should not be viewed as a definitive indication of our future results.**

****Operating Expenses  **

****Selling, General and Administrative — Selling, general and administrative expenses, exclusive of non-cash compensation expense, were $1,199,421 for the nine months ended September 30, 2003, compared to $1,672,005 for the nine months ended September 30, 2002, representing a decrease of $472,584, or 28.3%.  The decrease in our selling, general and administrative expenses for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002 reflects our ongoing efforts to reduce fixed overhead expenses.  **

****Research** **and Development Expenses — Research and development expenses were $21,974 for the nine months ended September 30, 2003, compared to $202,945 for the nine months ended September 30, 2002, representing a decrease of $180,971, or 89.2%.  Research and development expenses represented 2.0% of our total revenue for the nine months ended September 30, 2003 and 10.0% of our total revenue for the nine months ended September 30, 2002.  The decrease in research and development expenses was primarily due to the completion of the research and development for our new windows-based software platform and finalization of our upright vending solution and eRoomTray in the nine months ended*September 30, 2002*.  **

****Non-Cash Compensation Expense — Non-cash compensation expense was $19,000 for the nine months ended September 30, 2003, compared to $3,579 for the nine months ended September 30, 2002, representing an increase of $15,421, or 430.9%.  The increase in non-cash compensation expense during the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002 resulted from compensation expense relating to stock options and warrants.**

| **20** |
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****Other Income and Expense, Net**

****Other income and expense was $637,991 for the nine months ended September 30, 2003 compared to $285,009 for the nine months ended September 30, 2002, representing an increase of $352,982, or 123.8%. The increase is due primarily to the increase in interest expense related to our borrowings from third parties, offset, in part, by interest and other income.**

****Net Loss**

****We incurred net losses of $1,494,083 and $1,942,775 during the nine months ended September 30, 2003 and 2002, respectively. The $448,692, or 23.1%, decrease in net loss was due primarily to reduced total operating expenses and total cost of revenue, offset in part by increased other expense. We have continued to incur losses subsequent to September 30, 2003 and, as a result, we have experienced an increase in accumulated deficit.  We believe that we will continue to incur losses for a period of time.**

****Liquidity and Capital Resources**

****During the nine months ended*September 30, 2003*, our principal capital resources were $145,500 in fundings from Ash Capital, LLC.  The funds from Ash Capital, LLC have been used to fund working capital and general corporate purposes.  **

****At*September 30, 2003*, our principal sources of liquidity consisted of $76,647 of cash and a working capital deficit of $1,346,147 as compared to $144,359 of cash and a working capital deficit of $482,150 at*December 31, 2002*.  In addition, our stockholders’ equity was $29,682 at*September 30, 2003*, compared to stockholders’ equity of $1,392,529 at*December 31, 2002*, a decrease of $1,362,847.  The decrease in cash, working capital and stockholders’ equity reflects the continued use of cash by our operations and our current inability to generate sufficient revenue to sustain our operations.**

****Our accumulated deficit increased from $30,985,670 at*December 31, 2002* to $32,479,754 at September 30, 2003.  The increase in accumulated deficit resulted from the net loss for the nine months ended*September 30, 2003*.  We anticipate that our accumulated deficit will continue to increase for the foreseeable future.**

****We used net cash of $76,263 in operating activities during the nine months ended September 30, 2003, compared to $1,574,119 of net cash used in operating activities during the nine months ended September 30, 2002.  The $1,497,856 decrease in the use of net cash in operating activities primarily resulted from, in part, the decrease in net loss of $448,692, the $124,494 decrease in prepaid expenses, the $264,689 increase in the amortization of deferred offering costs and accretion of debt discount, the $539,590 decrease in accrued liabilities and the $240,526 increase in customer deposits and deferred maintenance revenue.**

****Investing activities for the nine months ended*September 30, 2003* used net cash of zero, as compared to $581,212 during the nine months ended September 30, 2002.  **

****Financing activities provided $8,551 during the nine months ended*September 30, 2003* compared to net cash of $1,319,361 provided during the nine months ended*September 30, 2002*.  The primary sources of cash during the nine months ended September 30, 2003 was the fundings of Ash Capital, LLC under the terms of the secured convertible promissory notes.**

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****The placement of products under revenue-sharing arrangements is capital intensive.  We estimate that we must place approximately 8,000 units pursuant to our revenue-sharing program, along with the continued sale and placement of our products, in order to provide adequate cash to sustain our operations.  As of*September 30, 2003*, we had 7,097 units placed pursuant to our revenue-sharing program.  We will require additional cash to finance our planned expansion and capital expenditures.  **

****On*September 18, 2002*, we were notified by AMRESCO Leasing Corporation of its intention to cease funding loans to us. We have been working with several financing groups to establish a new financing source for our revenue sharing placements.  We believe a new financing relationship can be established in the next few months, however there can be no assurance that we will be successful in doing so, and if successful that the terms of such new financing will be favorable to us.  If a new financing relationship is not procured, our financial condition and results of operation will likely be adversely affected.**

****In addition to procuring a new financing line, there is a need for additional working capital to fund our business operations. To this end, On*October 1, 2003*, we received a total of $250,000 from Gestetner Group, LLC and other third-party lenders (the “Noteholders”) in consideration for which the Company issued secured convertible promissory notes (“Notes”), in the original principal amount of $250,000, collectively.  The terms of the Notes include, 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 Noteholders, 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.  In addition, the Noteholders 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 interim financing proceeds have been placed in a third party trust account to fund the Company’s ongoing operational expenses, but such account will not be under the Company’s control and therefore will not be subject to execution by the Company’s creditors.**

****While we have made significant progress in further reducing our fixed overhead expenses, we do not have sufficient cash-on-hand to sustain our routine business operations beyond*April 1, 2004* based upon our cash position of $245,926 as of November 1, 2003.  Thus, we will require additional financing to achieve our long-term business objectives. There can be no assurance that such financing will be made available, or if it is made available, that it will be on acceptable terms. If such future equity financing is procured, the shareholdings of the current stockholders of the Company will be diluted.**

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****Contractual Cash Obligations and Commercial Commitments**

****The following table presents our contractual cash obligations and commercial commitments as of September 30, 2003.  We have no other significant contractual obligations or commercial commitments either on or off balance sheet as of this date.  **

| ****Contractual Cash**Obligations** | *** *              | ****Payments Due by Period** |
|-------------------------------------|-------------------------|------------------------------|
| ****Total**                         | *** *              | ****< 1 Year**            | *** * | ****1-3 Years** | *** * | ****4-5 Years** | *** * | ****> 5 Years** |
| ****Long-term Debt**                | ****$ 2,196,603 ** | *** *                   | ****$  437,329 ** | *** * | ****$ 1,224,820 ** | *** * | ****$  496,823 ** | *** * | ****$   37,631 ** |
| ****Capital Lease Obligations**     | ****1,341 **       | *** *                   | ****1,341 ** | *** * | ****- ** | *** * | ****- ** | *** * | ****- ** |
| ****Operating Leases**              | ****- **           | *** *                   | ****- ** | *** * | ****- ** | *** * | ****- ** | *** * | ****- ** |
| ****Other Long-term Obligations***  | ****1,009,944 **   | *** *                   | ****336,648 ** | *** * | ****673,296 ** | *** * | ****- ** | *** * | ****- ** |
| ****Total**                         | *** *              | ****$ 3,207,888 **      | *** * | ****$  775,318 ** | *** * | ****$ 1,898,116 ** | *** * | ****$  496,823 ** | *** * | ****$   37,631 ** |
|                                     |                         |                              |  |  |  |  |  |  |  |  |

*** *

***** Assumes we receive $0.57 per unit per day of the revenue from the revenue sharing agreements that is applied to the obligation incurred by RSi BRE, Inc., our wholly-owned, consolidated subsidiary.**

****Downturns in the Airline, Travel and Lodging Industries**

****During the last two years, the travel and lodging industries have experienced downturns.  Specifically, the lodging industry has experienced lower hotel occupancy rates due to reduced business and leisure travel.  Since the success of our business is directly linked to the performance of the travel and lodging industries, the layoffs in these industries, the postponement of future hotel renovations and projects, the drop-off in guest occupancy and the reduction in business and leisure travel, including convention traffic, have hurt our ability to finalize contracts with hotel properties.  While the hospitality market has improved significantly over the last 12 months in terms of occupancy rates,****REVPAR and ADR numbers, the market remains weaker than prior to September 11, 2001.  In this regard, there is no assurance that we will be able to close contracts with our current potential customers or that we will be successful in starting discussions with other hotel properties.**

****Qualitative and Quantitative Disclosures About Market Risk**

******All of our products are now manufactured and assembled in*China*.  Our contract manufacturer, International Display Works Ltd., or IDW, purchases all components of our refreshment center and eRoomTray products in*China*.  Our safe manufacturer, Hospitality Safe Corporation, or HSC, manufactures and assembles our eRoomSafes in*China* as well.  We pay IDW and HSC in U.S. dollars.  **

****Our products are primarily marketed in the*United States*, but we eventually intend to further expand our marketing to the international lodging market and to other industries domestically and internationally.  As a result, our financial results could be affected by weak economic conditions in foreign markets.  Because all of our revenues will be denominated in U.S. Dollars, a strengthening of the dollar could make our products less competitive in foreign markets.  **

****As we expand operations internationally, we will continue to evaluate our foreign currency exposures and risks and develop appropriate hedging or other strategies to manage those risks.  We have not revised our current business practices to conform to*Europe*’s conversion to the Euro.**

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****PART II – OTHER INFORMATION**

****Item 1.  Legal Proceedings.**

****On November 7, 2002, we were served with a compliant for eviction and breach of lease by PamJoy Realty, Inc., the landlord of our St. George facility. On*March 6, 2003*, summary judgment was granted to the former landlord.  As a result, the Company is indebted to the former landlord in the amount of $41,000, plus attorney’s fees to be determined by the court.**

****In 2003, we were served with a complaint for breach of contract by Tybera Development Group, Inc. Tybera formerly served a consultant to the company. On*September 3, 2003*, a judgment was entered on behalf of Tybera in the amount of $36,050.**  **

****Item 2.  Changes in Securities and Use of Proceeds.**

****              Not applicable.**

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

****Not applicable.**

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

****Not applicable.  **

****Item 5.  Other Information.**

****Not applicable.  **

****Item 6.  Exhibits and Reports on Form 8-K.**

**(a)*             *****Exhibits**.**

****Not applicable.  **

**(b)*             *****Reports on Form 8-K**.**

****On*August 2, 2003*, we filed a Current Report on Form 8-K regarding the resignation of Alan C. Ashton from the Board of Directors and Compensation Committee of the Company.**

****On*August 5, 2003*, we filed a Current Report on Form 8-K regarding the resignation of John J. Prehn from our Board of Directors and as a chairman of the Company’s Audit and Compensation Committees. In addition, we announced the resignation of Derek K. Ellis as Chief Financial Officer and Treasurer of the Company.**

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****On*October 1, 2003*, we filed a Current Report on Form 8-K regarding the Company’s issuance of secured convertible promissory notes (the 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 Noteholders). The terms of the Notes include, 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 Noteholders, 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. In addition, the Noteholders 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*. We also announced the resignation of Gregory L. Hrncir as Chief Operating Officer, General Counsel and Secretary of the Company, as well as all officer and director positions held in subsidiaries thereof, and the resignation of**David S. Harkness as Chief Executive Officer, President and Chairman of the Board of Directors of the Company, as well as all officer and director positions held in subsidiaries of the Company**. In addition, we announced the appointment of Lawrence Wein to our Board of Directors.**

****SIGNATURE**

****In accordance with the requirements 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.** |
|-------------|-------------------------|----------------------------------------|
| *** *  | *** *              | ****(Registrant)**                     |
| *** *  | *** *              | *** *                             | *** * | *** * |
| ****Date:** | ****November 19, 2003** | ****By:**                              | ****/s/ David A. Gestetner** | *** * |
| *** *  | *** *              | *** *                             | ****David A. Gestetner** | *** * |
| *** *  | *** *              | ****Its:**                             | ****Chief Executive Officer and President** | *** * |
|             |                         |                                        |  |  |

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| **25** |
|--------|

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****eROOMSYSTEM TECHNOLOGI****ES, INC.**

**** CERTIFICATION PURSUANT TO SECTION 302**

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

****I, David A. Gestetner, Chief Financial Officer of eRoomSystem Technologies, Inc., certify:**

****1.**  I have reviewed this quarterly report on Form 10-QSB of eRoomSystem Technologies;**

****2.**  Based on my knowledge, this quarterly 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 quarterly report;**

****3.**  Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;**

****4.**  I am responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:**

****a.**  designed such disclosure controls and procedures 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 quarterly report is being prepared;**

****b.**  evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and**

****c.**  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;**

****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 could 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; and**

****6.**   I have indicated in this quarterly 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 our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.**

| ****By:  /s/ David A. Gestetner** | *** * | ****Chief Financial Officer**                      | *** * | ****November 19, 2003** |
|---------------------------------------------|------------|----------------------------------------------------|------------|-------------------------|
| ****David A. Gestetner**                    | *** * | ****(Principal Financial and Accounting Officer)** | *** * | *** *              |
|                                             |            |                                                    |            |                         |

| **26** |
|--------|

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****EXHIBIT 99.1**

| ****CERTIFICATION PURSUANT TO**                     |
|-----------------------------------------------------|
| ****18 U.S.C. SECTION 1350**                        |
| ****AS ADOPTED PURSUANT TO**                        |
| ****SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002** |
|                                                     |

**** **

****In connection with the Quarterly Report of eRoomSystem Technologies, Inc. (the "Company") on Form 10-QSB for the period ending**June 30, 2003**, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), David A. Gestetner, Chief Executive Officer (Principal Executive Officer), President and Chief Financial Officer (Principal Accounting and Financial Officer) of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:****     **(1) **The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and****     **(2)  **The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.****

| ****By: /s/ David A. Gestetner** | *** * | ****President, Chief Executive Officer and  **

****Chief Financial Officer**    | *** * | ****November 19, 2003** |
|----------------------------------|------------|--------------------------------------------------------------------------------------------|------------|-------------------------|
| ****David A. Gestetner**         | *** * | ****(Principal Executive Officer and Principal**

****Financial and Accounting Officer )** | *** * | *** *              |
|                                  |            |                                                                                            |            |                         |

* *

| **27** |
|--------|

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