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: March 31, 2005
                                      ----------------------------------------
                                       OR

|_|   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                           (I.R.S. Employer
of incorporation or organization)                       Identification No.)

                      1072 Madison Ave., Lakewood, NJ 08701
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (732) 730-0116
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

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 |_| NO |_|

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:

     10,565,133 shares of common stock, $0.001 par value, as of May 19, 2005
--------------------------------------------------------------------------------

Transitional Small Business Disclosure Format (check one):        YES |_| NO |X|

<PAGE>

                                   FORM 10-QSB

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                  PAGE
                                                                                                                  ----
PART I - FINANCIAL INFORMATION
<S>                                                                                                               <C>
         ITEM 1.  FINANCIAL STATEMENTS............................................................................1
                  Condensed Consolidated Balance Sheets (Unaudited)...............................................1
                  Condensed Consolidated Statements of Operations (Unaudited).....................................2
                  Condensed Consolidated Statements of Cash Flows (Unaudited).....................................3
                  Notes to Condensed Consolidated Financial Statements (Unaudited)................................4
         ITEM 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND  RESULTS  OF
                  OPERATIONS......................................................................................8

PART II - OTHER INFORMATION
         ITEM 1.  LEGAL PROCEEDINGS..............................................................................15
         ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS......................................................15
         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES................................................................15
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................15
         ITEM 5.  OTHER INFORMATION..............................................................................15
         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K...............................................................15
</TABLE>

                                      -i-

<PAGE>

PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.


                 eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          March 31,     December 31,
                                                                                            2005            2004
                                                                                        ------------    ------------
<S>                                                                                     <C>             <C>
                                     ASSETS
CURRENT ASSETS
     Cash ...........................................................................   $    820,042    $    646,386
     Cash held in Escrow ............................................................             --         225,000
     Accounts receivable, net of allowance for doubtful accounts of $29,045 and
        $29,045 at March 31, 2005 and December 31, 2004, respectively ...............        202,348         164,586
     Prepaid expenses ...............................................................         27,043          16,317
     Subscription receivable ........................................................         10,000              --
     Miscellaneous receivables ......................................................          6,334              --
                                                                                        ------------    ------------
          Total Current Assets ......................................................      1,065,767       1,052,289
                                                                                        ------------    ------------
REFRESHMENT CENTERS IN SERVICE, net of accumulated depreciation of
     $1,906,044 and $1,777,378 at March 31, 2005 and December 31, 2004, respectively       1,741,477       1,870,143
                                                                                        ------------    ------------
PROPERTY AND EQUIPMENT
     Production equipment ...........................................................         22,210          22,210
     Computer equipment .............................................................         77,069          76,031
     Vehicles and other .............................................................         44,153          44,153
                                                                                        ------------    ------------
                                                                                             143,432         142,394
     Less accumulated depreciation and amortization .................................       (130,928)       (129,481)
                                                                                        ------------    ------------
          Net Property and Equipment ................................................         12,504          12,913
                                                                                        ------------    ------------
DEPOSITS ............................................................................         75,300          95,300
                                                                                        ------------    ------------

Total Assets ........................................................................   $  2,895,048    $  3,030,645
                                                                                        ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Notes payable and current portion of long-term debt ............................   $    233,015    $    228,337
     Accounts payable ...............................................................         76,059         109,089
     Accrued liabilities ............................................................         70,046         137,492
     Accrued interest ...............................................................         93,402          81,615
     Customer deposits ..............................................................         11,758          11,758
     Deferred maintenance revenue ...................................................         32,324          38,516
                                                                                        ------------    ------------
          Total Current Liabilities .................................................        516,604         606,807

LONG-TERM DEBT, net of current portion ..............................................      1,050,981       1,111,181
                                                                                        ------------    ------------

Total Liabilities ...................................................................      1,567,585       1,717,988
                                                                                        ------------    ------------
COMMITMENTS AND CONTINGENCIES .......................................................             --              --
STOCKHOLDERS' EQUITY
     Preferred stock, $0.001 par value; 5,000,000 shares authorized; none outstanding             --              --
     Common stock, $0.001 par value; 50,000,000 shares authorized; 10,565,133 shares
        and 10,465,133 shares outstanding at March 31, 2005
        and December 31, 2004, respectively .........................................         10,565          10,465
     Additional paid-in capital .....................................................     32,108,596      32,074,454
     Warrants and options outstanding ...............................................      1,083,990       1,109,930
     Note receivable from shareholder ...............................................        (75,578)        (74,759)
     Accumulated deficit ............................................................    (31,800,110)    (31,807,433)
                                                                                        ------------    ------------
          Total Stockholder's Equity ................................................      1,327,463       1,312,657
                                                                                        ------------    ------------

Total Liabilities and Stockholders' Equity ..........................................   $  2,895,048    $  3,030,645
                                                                                        ============    ============
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements


                                      -1-
<PAGE>

                 eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
For the Three Months Ended March 31,                                                      2005         2004
--------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>          <C>
REVENUE
    Revenue-sharing arrangements ....................................................   $ 271,039    $ 271,017
    Maintenance fees ................................................................      85,733       86,984
    Product sales ...................................................................       2,607          308
                                                                                        ---------    ---------
       Total Revenue ................................................................     359,379      358,309
                                                                                        ---------    ---------
COST OF REVENUE
    Revenue-sharing arrangements ....................................................     128,666      128,666
    Maintenance .....................................................................      14,285       16,749
    Product sales ...................................................................           7           --
                                                                                        ---------    ---------
       Total Cost of Revenue ........................................................     142,958      145,415
                                                                                        ---------    ---------
GROSS MARGIN ........................................................................     216,421      212,894
                                                                                        ---------    ---------

OPERATING EXPENSES
    Selling, general and administrative expense, including non-cash compensation
      of $(1,698) and $27,534, respectively .........................................     163,164      256,753
    Research and development expense ................................................       1,576           --
    Interest expense ................................................................      48,426       54,194
    Interest and other income .......................................................      (4,068)      (1,708)
                                                                                        ---------    ---------
       Net Operating Expenses .......................................................     209,098      309,239
                                                                                        ---------    ---------
Income (Loss) from Operations .......................................................       7,323      (96,345)
Gain on forgiveness of liabilities and debt .........................................          --      503,475
                                                                                        ---------    ---------
Net Income ..........................................................................   $   7,323    $ 407,130
                                                                                        =========    =========
Basic Earnings Per Common Share .....................................................   $    0.00    $    0.04
                                                                                        =========    =========
Diluted Earnings Per Common Share ...................................................   $    0.00    $    0.02
                                                                                        =========    =========
</TABLE>

 See accompanying notes to unaudited condensed consolidated financial statements


                                      -2-
<PAGE>

                 eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
For the Three Months Ended March 31,                                                            2005         2004
-------------------------------------------------------------------------------------------------------    ----------
<S>                                                                                          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income ...........................................................................   $    7,323    $  407,130
    Adjustments to reconcile net income to net cash provided by operating activities:
       Depreciation ......................................................................      130,113       133,038
       Gain on forgiveness of debt and liabilities .......................................           --      (503,475)
       Interest income from shareholder receivables ......................................         (819)           --
       Accretion of debt discount ........................................................       16,685        16,684
       Non-cash compensation expense .....................................................       (1,698)       27,534
    Changes in operating assets and liabilities:
          Cash released from escrow ......................................................      225,000            --
          Accounts receivable ............................................................      (37,762)      (10,600)
          Prepaid expenses ...............................................................      (10,726)          436
          Miscellaneous receivables ......................................................       (6,334)           --
          Accounts payable ...............................................................      (33,030)      (13,182)
          Accrued liabilities ............................................................      (55,659)        4,850
          Customer deposits and deferred maintenance revenue .............................       (6,192)        1,054
                                                                                             ----------    ----------
          Net Cash Provided By Operating Activities ......................................      226,901        63,469
                                                                                             ----------    ----------
CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of fixed assets .............................................................       (1,038)           --
    Change in long term deposits and restricted funds ....................................       20,000       (19,000)
                                                                                             ----------    ----------
          Net Cash Provided by (Used In) Investing Activities ............................       18,962       (19,000)
                                                                                             ----------    ----------
CASH FLOWS FROM FINANCING ACTIVITIES
    Principal payments on long-term debt .................................................      (72,207)     (241,426)
                                                                                             ----------    ----------
          Net Cash Used in Financing Activities ..........................................      (72,207)     (241,426)
                                                                                             ----------    ----------

Net Increase (Decrease) in Cash ..........................................................      173,656      (196,957)
                                                                                             ----------    ----------
Cash at Beginning of Period ..............................................................      646,386       381,985
                                                                                             ----------    ----------

Cash at End of Period ....................................................................   $  820,042    $  185,028
                                                                                             ==========    ==========

Supplemental Cash Flows Information
    Cash paid for interest ...............................................................   $   19,955    $   33,839
                                                                                             ==========    ==========
Supplemental Disclosure of Noncash Investing and Financing Activities
    Stock options issued in settlement of accounts payable ...............................   $       --    $    8,855
                                                                                             ==========    ==========
    Exercise of stock options ............................................................   $   10,000    $       --
                                                                                             ==========    ==========

See accompanying notes to unaudited condensed consolidated financial statements
</TABLE>


                                      -3-
<PAGE>

                 eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Condensed   Financial   Statements  -  The  accompanying   unaudited   condensed
consolidated   financial   statements   include  the  accounts  of   eRoomSystem
Technologies,  Inc.  and  its  subsidiaries  (the  "Company").  These  financial
statements are condensed and, therefore, do not include all disclosures normally
required by generally accepted accounting principles. These statements should be
read in conjunction with the Company's annual financial  statements  included in
the Company's December 31, 2004 Annual Report on Form 10-KSB. In particular, the
Company's   organization,   nature  of  operations  and  significant  accounting
principles were presented in Note 1 to the consolidated  financial statements in
that report. In the opinion of management,  all adjustments necessary for a fair
presentation  have  been  included  in  the  accompanying   unaudited  condensed
consolidated   financial   statements  and  consist  of  only  normal  recurring
adjustments.  The results of operations presented in the accompanying  unaudited
condensed consolidated financial statements for the three months ended March 31,
2005 are not necessarily  indicative of the results that may be expected for the
full year ending December 31, 2005.

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

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

Stock-Based  Compensation - At March 31, 2005,  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 three
months  ended  March 31,  2005 and 2004,  the Company  recognized  $(1,698)  and
17,334,  respectively,  of  compensation  expense  relating to stock options and
warrants and recognized $0 and $10,200,  respectively,  of compensation  expense
relating to stock awards.  The  following  table  illustrates  the effect on net
income and basic and  diluted  earnings  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:


                                      -4-
<PAGE>

                 eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

<TABLE>
<CAPTION>
For the Three Months Ended March 31,                              2005          2004
---------------------------------------------------------------------------------------
<S>                                                             <C>          <C>
Net income, as reported                                         $   7,323    $ 407,130

Add: Stock-based employee and consultant compensation
expenses included in net income                                    (1,698)      27,534

Deduct: Total stock-based employee and consultant
compensation expense determined under fair value based method
for all awards                                                        703      (41,790)

---------------------------------------------------------------------------------------
Pro forma net earnings                                          $   6,328    $ 392,874
---------------------------------------------------------------------------------------

Earnings per common share:
Basic as reported                                               $    0.00    $    0.04
Basic pro forma                                                 $    0.00    $    0.04
Diluted as reported                                             $    0.00    $    0.02
Diluted pro forma                                               $    0.00    $    0.02
---------------------------------------------------------------------------------------
</TABLE>

Net Earnings  Per Common Share - Basic  earnings per common share is computed by
dividing net income by the weighted-average number of common shares outstanding.
Unvested  common  shares are  considered  to be stock  options  for  purposes of
computing  earnings per share.  Diluted earnings per common share is computed by
dividing net income by the weighted-average number of common shares and dilutive
potential  common  share   equivalents   outstanding.   Potential  common  share
equivalents  consist of shares  issuable  upon the exercise of stock options and
warrants, and shares issuable upon the conversion of debt.

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

------------------------------------------------------------------------------
For the Three Months Ended March 31,                      2005         2004
------------------------------------------------------------------------------
Basic net income                                     $     7,323   $   407,130
------------------------------------------------------------------------------
Interest expense from convertible debt                    24,115        24,093
------------------------------------------------------------------------------
Diluted net income                                   $    31,438   $   431,223
==============================================================================
Basic weighted-average common shares outstanding      10,468,466    10,385,911
------------------------------------------------------------------------------
Effect of dilutive securities
------------------------------------------------------------------------------
   Stock options and warrants                          4,622,479     4,195,810
------------------------------------------------------------------------------
   Convertible debt                                    7,316,667     7,316,667
------------------------------------------------------------------------------
Diluted weighted-average common shares outstanding    22,407,612    21,898,388
==============================================================================
Basic earnings per share                             $      0.00   $      0.04
------------------------------------------------------------------------------
Diluted earnings per share                           $      0.00   $      0.02
==============================================================================

At March 31, 2005 and 2004, there were potential  common stock  equivalents from
options, warrants and convertible debt of 4,003,367 and 4,546,209, respectively,
which were not included in the computation of diluted earnings per share because
their effect would have been anti-dilutive.


                                      -5-
<PAGE>

                 eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 - BUSINESS CONDITION

During the year ended  December  31, 2004 and the three  months  ended March 31,
2005,  the  Company  realized a net gain of $900,072  and $7,323,  respectively.
During the year ended  December  31, 2004 and the three  months  ended March 31,
2005,  the  Company's   operations  provided  $730,322  and  $226,901  of  cash,
respectively.  The Company had a cash  balance of $820,042 as of March 31, 2005.
Up until the year ended  December  31,  2004,  the  Company  suffered  recurring
losses.  Although  the  Company  realized  a  significant  profit in 2004 it was
primarily  from  non-recurring  items,   specifically  gains  on  collection  of
previously  written off receivables and gain on forgiveness of debt. This raises
substantial  doubt about the Company's  ability to continue as a going  concern.
Management  is  attempting  to obtain debt and equity  financing  for use in its
operations.  Realization of profitable operations or proceeds from the financing
is not assured.  Management is also  attempting to find an entity  interested in
purchasing or merging with the Company.
 Completion of a sale or merger of the Company is not assured.  The accompanying
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of asset carrying amounts or the amount and
classification  of liabilities that might result should the Company be unable to
continue as a going concern.

NOTE 3 - NET INVESTMENT IN SALES-TYPE LEASE

During June 2004,  the Company  entered into an agreement  with a hotel property
owner  that  amended  a  previous  revenue  sharing  lease  agreement  that  had
previously been non-performing.  Under the terms of that agreement,  the Company
recovered a receivable that had been written off in the previous year.

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

      Total minimum lease payments to be received   $ 324,000

      Less:  Allowance for uncollectibles            (272,486)
                                                    ---------

      Net minimum lease payments receivable            51,514

      Less:  Unearned income                          (51,514)
                                                    ---------

      Net investment in sales-type lease            $      --
                                                    =========

The Company  recorded revenue sharing and maintenance fee revenue in the amounts
of $21,600 for the three months ended March 31, 2005.

Minimum lease  payments for the nine months ended  December 31, 2004 and each of
the four  succeeding  fiscal  years  through  the end of the  lease  term are as
follows: $64,800 in 2005, $86,400 in 2006, $86,400 in 2007, and $86,400 in 2008.


                                      -6-
<PAGE>

                 eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4 - STOCKHOLDERS' EQUITY

During the three  months ended March 31, 2005,  the Company  granted  options to
purchase  5,000  shares of common  stock to an employee.  These  options,  which
vested  immediately,  have an  exercise  price of $0.24 per share and  expire on
February 24, 2008. The Company recognized $0 of compensation expense,  which was
the intrinsic value of the options on the date granted.

During the three  months ended March 31,  2005,  options to purchase  100,000 of
common stock were exercised. The exercise price was $0.10 per share. The Company
recorded a  subscription  receivable  of $10,000  for the  options.  The Company
received the funds in April 2005.


                                      -7-
<PAGE>

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 24, 2005.

OVERVIEW

      eRoomSystem  Technologies,  Inc. is a Nevada  corporation  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,  eRoomEnergy products, and the eRoomTray.  Future products
and services may 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 internationally.

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

ACCOUNTING POLICIES

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires our  management to make estimates and


                                      -8-
<PAGE>

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,  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.

DESCRIPTION OF REVENUES

      Historically,  we have  received  most of our  revenues  from  the sale or
placement under a  revenue-sharing  program of our products in hotels. We expect
that these revenues will account for a substantial  majority of our revenues for
the foreseeable  future.  We also generate revenues from maintenance and support
services. Our dependence on the lodging industry, including its guests, makes us
extremely  vulnerable to downturns in the lodging industry caused by the general
economic  environment.  Such a downturn could result in some hotels  delaying or
declining to purchase or place our products or failing to renew our  maintenance
agreements,  or it could result in fewer  purchases by hotel guests of goods and
services from our products  installed in hotels.  Time spent by  individuals  on
travel and leisure is often  discretionary for consumers and may be particularly
affected by adverse trends in the general economy. The success of our operations
depends,  in part, upon discretionary  consumer spending and economic conditions
affecting  disposable  consumer  income such as employment,  wages and salaries,
business conditions, interest rates, availability of credit and taxation.

      Through our revenue-sharing plan, we have installed our products at little
or no  upfront  cost  to our  customers  and  share  in the  recurring  revenues
generated  from sales of goods and services  related to our products.  We retain
the ownership of the eRoomServ refreshment centers and eRoomSafes throughout the
term of the  revenue-sharing  agreements  and the right to re-deploy any systems
returned to us upon the expiration or earlier termination of the revenue-sharing
agreements.  Since  the  third  quarter  of 2002,  we have  failed  to place any
products,  either on a revenue  sharing or sale basis,  and we cannot assure you
that we will be successful in this effort in 2005.

      We have experienced some  fluctuations in revenues in recent periods,  but
much less than in the past.  The reason is that our  revenue  sources are fairly
constant,  relating to existing revenue sharing placements,  maintenance and the
sale of parts  relating  to  refreshment  centers  previously  sold to our hotel
clients.  We anticipate  that over the next several years our revenues will be a
blend of our existing products placed pursuant to our  revenue-sharing  program,
and, to a lesser extent, from maintenance agreements and parts sales. 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  and
eRoomSafes  currently  placed  pursuant  to  revenue-sharing   agreements.   Our
customers receive the remainder of the recurring revenues.  AMRESCO is paid from
our portion of the revenues  pursuant to our financing  agreement  with AMRESCO,
relating solely to those units for which it previously provided financing.

REVENUE RECOGNITION

      Sales  revenue  from  our  products  is  recognized   upon  completion  of
installation and acceptance by the customer. Sales revenue from the placement of
our  eRoomServ  refreshment  centers and  eRoomSafes  under our  revenue-sharing
program are  accounted  for similar to an  operating  lease,  with the  revenues
recognized  as earned over the term of the  agreement.  In some  instances,  our
revenue-sharing agreements provide for a guaranteed minimum daily payment by the


                                      -9-
<PAGE>

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 40% on the sale and placement through our  revenue-sharing  program of
eRoomServ refreshment centers, eRoomSafes, eRoomTrays and eRoomEnergy management
products.  We  typically  enter  into  installation,   maintenance  and  license
agreements with our 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.

      Profit  margins  may  increase  as a result of  greater  placement  of our
products pursuant to our revenue share program as well as further  reductions in
manufacturing  costs and staff. We may also improve our future profit margins if
we are  successful  in  obtaining  revenues  through the sale of  higher-priced,
higher-margin, value added products such as our in-room energy management system
and our  information  management  services.  We,  however,  have not  placed new
products in over two and one-half years.

      Maintenance fees are expected to constitute a greater  percentage of total
revenues  in  the  future  due to our  focus  on  revenues  generated  from  our
revenue-sharing  program,  which requires maintenance agreements and realization
of reduced fixed  overhead  expenses in connection  with the  maintenance of our
revenue sharing products. However, the foregoing will not occur if we again fail
to place  additional  equipment  on a  revenue  sharing  basis in 2005 to offset
revenue  sharing  contracts  that  will  expire  over  the next  several  fiscal
quarters. Our installation, maintenance and license agreements stipulate that we
collect a maintenance fee per eRoomServ refreshment center per day, payable on a
monthly   basis.   Our  objective  is  to  generate   gross  profit  margins  of
approximately  40%  from  our   maintenance-related   revenues.   We  base  this
expectation on our projected cost of maintenance of approximately $0.05 per unit
per day and,  pursuant to our maintenance  agreements,  our projected receipt of
not less than $0.08 per unit per day.

DESCRIPTION OF EXPENSES

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

      Selling,  general and  administrative  expenses  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 personnel.

      Research and development expenses consist of payroll and related costs for
hardware and  software  engineers,  quality  assurance  specialists,  management
personnel, and the costs of materials used by 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.


                                      -10-
<PAGE>

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MARCH 31, 2005 AND 2004

      Revenues

      Revenue   Sharing   Arrangements  --  Our  revenue  from  revenue  sharing
arrangements was $271,039 for the three months ended March 31, 2005, compared to
$271,017 for the three months ended March 31, 2004,  representing an increase of
$22, or less than 0.1%. The increase in revenue was immaterial.

      Maintenance  Fee Revenues -- Our maintenance fee revenues were $85,733 for
the three months ended March 31, 2005,  compared to $86,984 for the three months
ended March 31, 2004,  representing a decrease of $1,251,  or 1.4%. The decrease
was not material.

      Product  Sales --  Revenue  from  product  sales was  $2,607 for the three
months ended March 31,  2005,  compared to $308 for the three months ended March
31,  2004,  representing  an  increase  of $2,299,  or 746.4%.  The  increase in
revenues, while significant from a percentage perspective,  was minimal in terms
of the Company's overall financial results.

      Cost of Revenue

      Cost of Revenue Sharing Revenue -- Our cost of revenue sharing revenue was
$128,666 for the three months ended March 31, 2005,  compared to the same amount
during the three  months ended March 31, 2004.  The gross margin  percentage  on
revenue  sharing  revenue was 52.5% for the three months ended March 31, 2005 as
well as for the three months ended March 31, 2004.  The  consistency  in cost of
revenue sharing  revenue and gross margin reflects a consistent  number of units
placed on a revenue sharing basis year-over-year.

      Cost of Maintenance Fee Revenue -- Our cost of maintenance fee revenue was
$14,285 for the three months  ended March 31, 2005,  compared to $16,749 for the
three months ended March 31, 2004,  representing a decrease of $2,464, or 14.7%.
The gross margin  percentage on maintenance fee revenues was 83.3% for the three
months ended March 31, 2005 and 80.7% for the three months ended March 31, 2004.
The  decrease in our cost of  maintenance  fee revenue and the increase in gross
margin percentages for the three months ended March 31, 2005, as compared to the
same  period  in  2004,  reflects  the  Company's   continuing   improvement  in
maintaining  its products placed in the field and the decrease in fixed overhead
relating to the field operations department.

      Cost of Product Sales Revenue -- Our cost of product sales revenue for the
three  months  ended  March 31,  2005 was $7 as  compared  to none for the three
months  ended March 31,  2004,  an increase of $7, or 100.0%.  The gross  margin
percentage  on revenue from product sales revenue was 99.7% for the three months
ended March 31, 2005 as  compared to 100% for the three  months  ended March 31,
2004.


                                      -11-
<PAGE>

      The changes and percent  changes with respect to our revenues and our cost
of revenue for the three months ended March 31, 2005 and 2004 are  summarized as
follows:

<TABLE>
<CAPTION>
                                                           For the Three Months
                                                              Ended March 31,
                                                        -------------------------
                                                                                                            Percent
                                                           2005             2004           Change           Change
                                                        ----------       ----------       ----------       ----------
<S>                                                     <C>              <C>              <C>
REVENUE
          Revenue-sharing arrangements ...........      $  271,039       $  271,017       $       22               --
          Maintenance fees .......................          85,733           86,984           (1,251)
          Product sales ..........................           2,607              308            2,299            746.4%
                                                        ----------       ----------       ----------       ----------
                Total Revenue ....................      $  359,379       $  358,309       $    1,070
                                                        ----------       ----------       ----------       ----------

      COST OF REVENUE
          Revenue-sharing arrangements ...........         128,666          128,666               --               --
          Maintenance ............................          14,285           16,749           (2,464)            14.7%
          Product sales ..........................               7               --                7
                                                        ----------       ----------       ----------       ----------
                Total Cost of Revenue ............      $  142,958       $  145,415       $   (2,457)
                                                        ----------       ----------       ----------       ----------

      GROSS MARGIN PERCENTAGE
          Revenue-sharing arrangements ...........            52.5%            52.5%
          Maintenance ............................            83.3%            80.7%
          Product sales ..........................            99.7%           100.0%
                Total Gross Margin Percentage ....            60.2%            59.4%
</TABLE>

      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 March 31, 2005 and 2004, the trends  contained  therein are limited
and should not be viewed as a definitive indication of our future results.

      Operating Expenses

      Selling, General and Administrative -- Selling, general and administrative
expenses,  including non-cash  compensation expense, were $163,164 for the three
months  ended March 31,  2005,  compared to $256,753  for the three months ended
March 31, 2004,  representing a decrease of $93,589,  or 36.5%.  The decrease in
our selling,  general and  administrative  expenses  from the three months ended
March 31, 2005 to the three  months  ended March 31, 2004  reflects  our ongoing
commitment to further reduce fixed overhead expenses.

      Research and  Development  Expenses -- Research and  development  expenses
were $1,576 for the three months ended March 31, 2005,  compared to none for the
three  months  ended March 31,  2004,  representing  an  increase of $1,576,  or
100.0%.  Research and development expenses represented 0.4% of our total revenue
for the three months ended March 31, 2005, and zero percent of our total revenue
for the three  months  ended  March 31,  2004.  The  increase  in  research  and
development  expenses  related to a minimal  amount of research and  development
undertaken during the three months ended March 31, 2005.

      Interest  expense was $48,426 for the three months ended March 31, 2005 as
compared to $54,194 for the three  months  ended March 31,  2004,  a decrease of
$5,768,  or 10.6%.  The decrease in interest  expense  related  primarily to the
material  reduction in the interest rate relating to the AMRESCO loan  fundings.
In the  fiscal  quarter  ended  March  31,  2005,  we did not  realize a gain on
forgiveness  of  liabilities  and debt, as compared to a gain of $503,475 in the
fiscal quarter ended March 31, 2004.


                                      -12-
<PAGE>

      Net Income (Loss) Attributable to Common Stockholders

      We realized  net income of $7,323  during the three months ended March 31,
2005 as compared to net income of $407,130  during the three  months ended March
31, 2004.  The $399,807  decrease was due  primarily to the material gain on the
forgiveness  of debt and  liabilities  which  occurred in the three months ended
March 31,  2004,  offset,  in part,  by a  reduction  in  selling,  general  and
administrative expenses which occurred in the three months ended March 31, 2005.
We may incur losses in the future.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 2005,  our  principal  sources of  liquidity  consisted of
$820,042 of cash and  working  capital of  $549,163,  as compared to $646,386 of
cash and working  capital of $445,482 at December  31, 2004.  In  addition,  our
      stockholders'  equity  was  $1,327,463  at March  31,  2005,  compared  to
stockholders'
equity of $1,312,657 at December 31, 2004, an increase of $14,806.  The increase
in cash reflects the increase in working capital and stockholders' equity.

      Our accumulated deficit decreased from $31,807,433 at December 31, 2004 to
$31,800,110  at March 31,  2005.  The $7,323  decrease  in  accumulated  deficit
resulted  directly from the net income realized for the three months ended March
31, 2005. Our accumulated deficit may increase in the future.

      Our operations provided net cash of $226,901 during the three months ended
March 31, 2005, as compared to $63,469 of net cash during the three months ended
March 31, 2004. The $163,432  increase in the net cash provided by our operating
activities  primarily  resulted from the cash released from escrow in the amount
of $225,000  during the three months ended March 31, 2005, and the $503,475 gain
on forgiveness of debt and  liabilities  which occurred  during the three months
ended  March  31,  2004,  offset,  in part,  by the  decrease  in net  income of
$399,807, among other items.

      Investing  activities  for the three months ended March 31, 2005  provided
$18,962 of net cash,  as  compared  to $19,000 of net cash used during the three
months ended March 31, 2004. The increase in net cash provided related primarily
to the $20,000  decrease in long-term  deposits and restricted  funds during the
three months  ended March 31, 2005 and the  increase in  long-term  deposits and
restricted funds during the three months ended March 31, 2004.

      Financing  activities used $72,207 during the three months ended March 31,
2005  compared to providing  net cash of $241,426  during the three months ended
March  31,  2004.  The  decrease  of  $169,219  of net  cash  used in  financing
activities primarily resulted from the payment made to RSG Investments,  LLC, or
RSG, relating to our final settlement of an outstanding loan with RSG during the
three months ended March 31, 2004.

      The placement of products under  revenue-sharing  arrangements  is capital
intensive.  We estimate that we must maintain approximately 6,500 units pursuant
to our revenue-sharing  program in order to provide adequate cash to sustain our
operations.  As of March 31,  2005,  we had 6,630 units  placed  pursuant to our
revenue-sharing  program.  We will  require  additional  cash to finance  future
product placements.

      On September 18, 2002, we were notified by AMRESCO Leasing  Corporation of
its  intention  to  cease  funding  loans  to us.  We  believe  a new  financing
relationship  is an absolute  requirement  to compete in our sector and to offer
hotel clients a revenue sharing  alternative.  There can be no assurance that we
will be successful in procuring a new financing line, and if successful that the


                                      -13-
<PAGE>

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 as existing  revenue sharing  contracts reach
maturity.

      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 provide (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 have made significant  progress in reducing our fixed overhead expenses
and we have realized several consecutive  profitable quarters.  However, we will
require additional capital to place new equipment.  Further, as existing revenue
sharing contracts expire, the cash flow necessary to support our operations will
not be sufficient without utilizing our existing cash reserves.

CONTRACTUAL CASH OBLIGATIONS AND COMMERCIAL COMMITMENTS

      The  following  table  presents  our  contractual   cash  obligations  and
commercial  commitments  as of March  31,  2005.  We have no  other  significant
contractual obligations or commercial commitments either on or off balance sheet
as of this date.

<TABLE>
<CAPTION>
CONTRACTUAL CASH                                                   PAYMENTS DUE BY PERIOD
OBLIGATIONS
                                           TOTAL       < 1 YEAR         1-3 YEARS          4-5 YEARS        > 5 YEARS
----------------------------------    -------------    ------------    ---------------    --------------    -------------
<S>                                      <C>               <C>                <C>               <C>
Long-term Debt                           1,691,531         371,621            951,190           368,720                --
----------------------------------    -------------    ------------    ---------------    --------------    -------------
Capital Lease Obligations                    1,341           1,341                 --                --                --
----------------------------------    -------------    ------------    ---------------    --------------    -------------
TOTAL                                    1,692,872         372,962            951,190           368,720                --
</TABLE>


                                      -14-
<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

      We are, from time to time, parties to legal proceedings arising out of our
business. We believe that there are no proceedings pending or threatened against
us which, if determined  adversely,  would have a material adverse effect on our
business, financial condition, and results of operations or liquidity.

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.
            ---------
            31    Certifications  Pursuant to Section 302 of the  Sarbanes-Oxley
                  Act of 2002.

            32    Certification   of  President  and  Chief  Financial   Officer
                  Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (18
                  U.S.C. Section 1350).

      (b)   Reports on Form 8-K.

            None.


                                      -15-
<PAGE>

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.

                                      eROOMSYSTEM TECHNOLOGIES, INC.
                                      (Registrant)

Date: May 20, 2005                    By:  /s/ David A. Gestetner
                                          --------------------------------------
                                           David A. Gestetner
                                      Its: Chief Executive Officer and President


                                      -16-