**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, 2006




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 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 NO




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


YES 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:




23,898,165
                shares of common stock, $0.001 par value, as of May 15,
                2006




**Transitional
      Small Business Disclosure Format (check one):**


YES NO







**FORM
      10-QSB**





**TABLE
      OF CONTENTS**











**PART I - FINANCIAL
              INFORMATION**
            
            **Page**Item
                1.
            
            Financial Statements.
            
            1Condensed Consolidated Balance
              Sheets (Unaudited)
            
            1Condensed Consolidated Statements
              of Operations (Unaudited)
            
            2Condensed Consolidated Statements
              of Cash Flows (Unaudited)
            
            3Notes to Condensed Consolidated
              Financial Statements (Unaudited)
            
            4Item 2.
            
            Management’s Discussion and
              Analysis of Financial Condition and Results of Operations.
            
            8Item 3.
            
            Controls and Procedures.
            
            14**PART II - OTHER
              INFORMATION**Item 1.
            
            Legal Proceedings.
            
            16Item 2.
            
            Changes in Securities and
              Use of
              Proceeds.
            
            16Item 3.
            
            Defaults Upon Senior
              Securities.
            
            16Item 4.
            
            Submission of Matters to
              a Vote of
              Security Holders.
            
            16Item 5.
            
            Other Information.
            
            16Item 6.
            
            Exhibits and Reports on
              Form
              8-K.
            
            16**SIGNATURE**
            
            **17**











**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements.** ****




**eROOMSYSTEM
                  TECHNOLOGIES, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED BALANCE SHEETS (UNAUDITED)**
  **March
                  31,**
              
              **December
                  31,****2006**
              
              **2005****ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              1,394,374
              
              $
              1,316,515Accounts
                  receivable, net of allowance for doubtful accounts of $47,017 and
                  $49,294
                  at March 31, 2006 and December 31, 2005, respectively
              
              
              266,426
              
              
              263,392Notes
                  receivable
              
              
              53,356
              
              
              111,231Prepaid
                  expenses
              
              
              10,098
              
              
              11,519**Total
                  Current Assets**
              
              
              1,724,254
              
              
              1,702,657**REFRESHMENT
                    CENTERS IN SERVICE**,
                    net of accumulated depreciation of$2,295,033 and $2,289,694 at
                    March 31, 2006 and December 31, 2005, respectively
              
              
              1,188,632
              
              
              1,357,827**PROPERTY
                  AND EQUIPMENT**Computer
                  equipment
              
              
              5,620
              
              
              4,666Less
                  accumulated depreciation and amortization
              
              
              (2,330
              )
              
              (1,861
              )**Net
                  Property and Equipment**
              
              
              3,290
              
              
              2,805**INVESTMENT
                  IN MARKETABLE SECURITIES**
              
              
              64,075
              
              
              14,075**NOTE
                  RECEIVABLE,**net
                  of unamortized discount of $2,364 and $2,853 at March 31, 2006
                  andDecember
                  31, 2005, respectively
              
              
              147,636
              
              
              147,147**DEPOSITS**
              
              
              79,273
              
              
              85,300**Total
                  Assets**
              
              $
              3,207,160
              
              $
              3,309,811**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Notes
                  payable and current portion of long-term debt
              
              $
              309,636
              
              $
              301,696Accounts
                  payable
              
              
              45,492
              
              
              56,837Accrued
                  liabilities
              
              
              48,227
              
              
              109,778Customer
                  deposits
              
              
              11,758
              
              
              11,758Deferred
                  maintenance revenue
              
              
              18,891
              
              
              10,632**Total
                  Current Liabilities**
              
              
              434,004
              
              
              490,701**LONG-TERM
                  DEBT, net of current portion**
              
              
              269,962
              
              
              349,380**Total
                  Liabilities**
              
              
              703,966
              
              
              840,081**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -
              
              
              -**STOCKHOLDERS'
                  EQUITY**Preferred
                  stock, $0.001 par value; 5,000,000 shares authorized; none outstanding
              
              
              -
              
              
              -Common
                  stock, $0.001 par value; 50,000,000 shares authorized; 23,898,165
                  and
                  24,228,902 shares outstanding at March 31, 2006 and December 31,
                  2005,
                  respectively
              
              
              23,898
              
              
              24,229Additional
                  paid-in capital
              
              
              33,687,873
              
              
              33,754,361Warrants
                  and options outstanding
              
              
              420,659
              
              
              416,071Note
                  receivable from shareholder
              
              
              -
              
              
              (78,000
              )Accumulated
                  deficit
              
              
              (31,629,236
              )
              
              (31,646,931
              )**Total
                  Stockholder's Equity**
              
              
              2,503,194
              
              
              2,469,730**Total
                  Liabilities and Stockholders' Equity**
              
              $
              3,207,160
              
              $
              3,309,811




See
        accompanying notes to unaudited condensed consolidated financial
        statements




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


***For
                    the Three Months Ended March 31,***
                
                **2006**
                
                **2005****REVENUE**Revenue-sharing
                    arrangements
                
                $
                274,278
                
                $
                271,039Maintenance
                    fees
                
                
                81,087
                
                
                85,733Product
                    sales
                
                
                53,425
                
                
                2,607**Total
                    Revenue**
                
                
                408,790
                
                
                359,379**COST
                    OF REVENUE**Revenue-sharing
                    arrangements
                
                
                111,573
                
                
                128,666Maintenance
                
                
                13,932
                
                
                14,285Product
                    sales
                
                
                57,623
                
                
                7**Total
                    Cost of Revenue**
                
                
                183,128
                
                
                142,958**GROSS
                    MARGIN**
                
                
                225,662
                
                
                216,421**OPERATING
                    EXPENSES**Selling,
                    general and administrative expense, including non-cash compensation
                    of
                    $16,588 and $(1,698), respectively
                
                
                169,175
                
                
                163,164Research
                    and development expense
                
                
                -
                
                
                1,576Sales
                    tax settlement
                
                
                32,466
                
                
                -Interest
                    expense
                
                
                22,912
                
                
                48,426Interest
                    and other income
                
                
                (16,586
                )
                
                (4,068
                )**Net
                    Operating Expenses**
                
                
                207,967
                
                
                209,098**Income
                    from Operations**
                
                
                17,695
                
                
                7,323**Net
                    Income**
                
                $
                17,695
                
                $
                7,323**Basic
                    Earnings Per Common Share**
                
                $
                0.00
                
                $
                0.00**Diluted
                    Earnings Per Common Share**
                
                $
                0.00
                
                $
                0.00
  See
                    accompanying notes to unaudited condensed consolidated financial
                    statements











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


***For
                  the Three Months Ended March 31,***
              
              **2006**
              
              **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              17,695
              
              $
              7,323Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              112,042
              
              
              130,113Loss
                  on disposal of refreshment centers
              
              
              7,820
              
              
              -Gain
                  on sale of refreshment centers
              
              
              (198
              )
              
              -Interest
                  income from shareholder receivables
              
              
              (819
              )
              
              (819
              )Interest
                  income from other receivable
              
              
              (1,210
              )
              
              -Accretion
                  of debt discount
              
              
              4,356
              
              
              16,685Non-cash
                  compensation expense
              
              
              16,588
              
              
              (1,698
              )Amortization
                  of discount on note receivable
              
              
              (489
              )
              
              -Changes
                  in operating assets and liabilities:Cash
                  released from escrow
              
              
              -
              
              
              225,000Accounts
                  receivable
              
              
              (3,034
              )
              
              (37,762
              )Prepaid
                  expenses
              
              
              1,421
              
              
              (10,726
              )Miscellaneous
                  receivables
              
              
              -
              
              
              (6,334
              )Accounts
                  payable
              
              
              (11,345
              )
              
              (33,030
              )Accrued
                  liabilities
              
              
              (61,551
              )
              
              (55,659
              )Customer
                  deposits and deferred maintenance revenue
              
              
              8,259
              
              
              (6,192
              )**Net
                  Cash Provided By Operating Activities**
              
              
              89,535
              
              
              226,901**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of fixed assets
              
              
              (954
              )
              
              (1,038
              )Proceeds
                  from sale of refreshment centers
              
              
              50,000
              
              
              -Purchase
                  of investment
              
              
              (50,000
              )
              
              -Proceeds
                  from note receivable
              
              
              59,085
              
              
              -Change
                  in long term deposits and restricted funds
              
              
              6,027
              
              
              20,000**Net
                  Cash Provided by Investing Activities**
              
              
              64,158
              
              
              18,962**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Principal
                  payments on long-term debt
              
              
              (75,834
              )
              
              (72,207
              )**Net
                  Cash Used in Financing Activities**
              
              
              (75,834
              )
              
              (72,207
              )**Net
                  Increase in Cash**
              
              
              77,859
              
              
              173,656**Cash
                  at Beginning of Period**
              
              
              1,316,515
              
              
              646,386**Cash
                  at End of Period**
              
              $
              1,394,374
              
              $
              820,042**Supplemental
                  Cash Flows Information**Cash
                  paid for interest
              
              $
              18,556
              
              $
              19,955**Supplemental
                  Disclosure of Noncash Investing and Financing
                  Activities**Shares
                  of common stock cancelled in settlement of notes receivable
              
              $
              78,819
              
              $
              -Exercise
                  of stock options
              
              $
              -
              
              $
              10,000
  See
                  accompanying notes to unaudited condensed consolidated financial
                  statements
 
 **eROOMSYSTEM
            TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            (UNAUDITED)**




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




***Condensed
      Financial Statements*** - The
      accompanying unaudited condensed consolidated financial statements include
      the
      accounts of eRoomSystem Technologies, Inc. and its subsidiaries (the "Company").
      These financial statements are condensed and, therefore, do not include all
      disclosures normally required by generally accepted accounting principles.
      These
      statements should be read in conjunction with the Company's audited financial
      statements for the fiscal year ended December 31, 2005 included in the Company's
      Annual Report on Form 10-KSB. In particular, the Company's organization, nature
      of operations and significant accounting principles were presented in Note
      1 to
      the consolidated financial statements in that 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, 2006 are not necessarily
      indicative of the results that may be expected for the full year ending December
      31, 2006.




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




***Stock-Based
      Compensation*** - At
      March 31, 2006, the Company had one stock-based employee compensation plan.
      Prior to January 1, 2006, the Company accounted for the plan under the
      recognition and measurement provisions of Accounting Principles Board Opinion
      No. 25, Accounting for Stock Issued to Employees, (“APB 25”) and
      related Interpretations, as permitted by SFAS No. 123, Accounting for
      Stock-Based Compensation (“SFAS 123”). No stock-based compensation was
      recognized under the fair value recognition provisions for stock options in
      the
      statements of operations for the year ended December 31, 2005, as all
      grants under the plans had an exercise price equal to the market value of the
      underlying common stock on the date of grant. Effective January 1, 2006,
      the Company adopted the fair value recognition provisions of
      SFAS No. 123 (Revised 2004), Share-Based Payment, (“SFAS 123(R)”)
      using the modified prospective transition method. Accordingly, the Company
      will
      record expense for (i) the unvested portion of grants issued during 2005
      and (ii) new grant issuances, both of which will be expensed over the
      requisite service (i.e., vesting) periods.




As
      a
      result of adopting SFAS 123(R), the Company’s results of operations for the
      three months ended March 31, 2006 included compensation expense of $4,138,
      representing $0.00 impact to both basic and diluted earnings per
      share.




SFAS
      123R
      requires the Company presentation pro forma information for the comparative
      period prior to the adoption as if the Company had accounted for all stock
      options under the fair value method of the original SFAS 123. The following
      table illustrates the effect on net income and earnings per share if the Company
      had applied the fair value recognition provisions of SFAS 123 to stock-based
      employee compensation in the prior-year period:











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





*For
                the Three Months Ended March 31,*
            
            **2005**Net
                income, as reported
            
            $
            7,323Add:
                  Stock-based employee and consultant compensationexpenses included
                  in net income
            
            
            (1,698
            )Deduct:
                  Total stock-based employee and consultantcompensation expense
                  determined under fair value based method for all awards
            
            
            703Pro
                forma net earnings
            
            $
            6,328Earnings
                per common share:Basic
                as reported
            
            $
            0.00Basic
                pro forma
            
            $
            0.00Diluted
                as reported
            
            $
            0.00Diluted
                pro forma
            
            $
            0.00




***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 are 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, 2006 and 2005:




*For
                  the Three Months Ended March 31,*
              
              **2006**
              
              **2005**Basic
                  net income
              
              $
              17,695
              
              $
              7,323Interest
                  expense from convertible debt
              
              
              -
              
              
              24,115Diluted
                  net income
              
              $
              17,695
              
              $
              31,438Basic
                  weighted-average common shares outstanding
              
              
              24,229,777
              
              
              10,468,466Effect
                  of dilutive securitiesStock
                  options and warrants
              
              
              382,331
              
              
              4,622,479Convertible
                  debt
              
              
              -
              
              
              7,316,667Diluted
                  weighted-average common shares outstanding
              
              
              24,612,108
              
              
              22,407,612Basic
                  earnings per share
              
              $
              0.00
              
              $
              0.00Diluted
                  earnings per share
              
              $
              0.00
              
              $
              0.00




At
      March
      31, 2006 and 2005, there were potential common stock equivalents from options,
      warrants and convertible debt of 3,145,290 and 4,003,367, respectively, which
      were not included in the computation of diluted earnings per share because
      their
      effect would have been anti-dilutive.







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






**NOTE
      2 - BUSINESS CONDITION**




During
      the year ended December 31, 2005 and the three months ended March 31, 2006,
      the
      Company realized a net gain of $160,502 and $17,695, respectively. During the
      year ended December 31, 2005 and the three months ended March 31, 2006, the
      Company's operations provided $901,677 and $89,535 of cash, respectively. The
      Company had a cash balance of $1,394,374 as of March 31, 2006. Up until the
      year
      ended December 31, 2004, the Company suffered recurring losses. Although the
      Company realized net income in fiscal year 2005, it was primarily relating
      to
      non-recurring items consisting of a sale of assets and proceeds from insurance.
      This raises substantial doubt about the Company's ability to continue as a
      going
      concern. Realization of continued profitable operations is not assured. The
      accompanying financial statements do not include any adjustments relating to
      the
      recoverability and classification of asset carrying amounts or the amount and
      classification of liabilities that might result should the Company be unable
      to
      continue as a going concern.  Management would like to acquire an existing
      operating company to enable the Company to increase revenues and long-term
      viability, and is continuously performing due diligence on third party companies
      for this purpose. The Company has also been performing research regarding
      potential further investments in either privately-held or publicly traded
      emerging growth stage companies.




**NOTE
      3 - NET INVESTMENT IN SALES-TYPE LEASE**




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




The
      new
      lease agreement terminates on December 31, 2008 at which time the hotel property
      owner takes ownership of the refreshment centers. The property 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, 2006:




Total
                  minimum lease payments to be received
              
              $
              237,600Less:
                  Allowance for uncollectibles
              
              
              (199,823
              )Net
                  minimum lease payments receivable
              
              
              37,777Less:
                  Unearned income
              
              
              (37,777
              )Net
                  investment in sales-type lease
              
              $
              -




The
      Company recorded revenue sharing and maintenance fee revenue, relating to this
      property, in the amount of $21,600 for the three months ended March 31, 2006.




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




**NOTE
      4 - INVESTMENT IN APRECIA**




On
      March
      7, 2006, the Company purchased 2,083,333 shares of common stock of Aprecia,
      LLC
      for $50,000. The shares purchased represent 9.98% of the issued and outstanding
      common stock of Aprecia. Aprecia is a privately held provider of applied
      artificial intelligence solutions for gaming and homeland security
      applications.







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




**NOTE
      5 - STOCKHOLDERS' EQUITY**




During
      the three months ended March 31, 2006, the Company issued a total of 50,000
      shares of common stock to two members of its board of directors in recognition
      of extraordinary services rendered. These shares were valued at $12,000 ($0.24
      per share).




During
      the three months ended March 31, 2006, the Company granted options to purchase
      3,000 shares of common stock to a consultant for services rendered. These
      options, which vested immediately, have an exercise price of $0.17 per share
      and
      expire on January 19, 2011. These options were valued at $450 using the
      Black-Scholes option pricing model with the following assumptions: risk free
      interest rate of 4.31%; dividend yield of 0.0%; volatility of 135%; and expected
      life of 5 years.




During
      the three months ended March 31, 2006, the Company granted options to purchase
      25,000 shares of common stock to a member of the board of directors for services
      rendered. These options, which vested immediately, have an exercise price of
      $0.17 per share and expire on January 17, 2016. In accordance with SFAS 123(R),
      the Company recognized compensation expense for these options in the amount
      of
      $4,138. The options were valued using the Black-Scholes option pricing model
      with the following assumptions: risk free interest rate of 4.34%; dividend
      yield
      of 0.0%; volatility of 135%; and expected life of 10 years.






On
      March
      30, 2006, Ash Capital, an affiliate of the Company and managed by Providence
      Management, LLC, the managing member of which is James C. Savas, a director
      of
      the Company, relinquished 380,737 shares of common stock, or the Share Payment,
      as full and final payment of an outstanding promissory note in the original
      principal amount of $65,000 issued in favor of the Company on December 31,
      2001,
      or the 2001 Ash Capital Note. The 2001 Ash Capital Note was issued in conjunction
      with Ash Capital’s exercise of a stock option to purchase 250,000 shares at an
      exercise price of $0.26 per share on December 31, 2001. The Ash Capital Note
      had
      a term of four years and accrued simple interest at the rate of 5% per annum.
      As
      of the
      date
      of the Share Payment, the Ash Capital Note had accrued interest in the amount
      of
      $13,813, for a total outstanding amount of $78,813, or the Ash Capital Note
      Balance, as of March 30, 2006.










**eROOMSYSTEM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**




**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, 2006.




**OVERVIEW**




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




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




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







**Description
      of Revenues**




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




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




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




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




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







**Revenue
      Recognition**




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




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




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




**Description
      of Expenses** ****




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




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




Research
      and development expenses consist of payroll and related costs for hardware
      and
      software engineers, quality assurance specialists, management personnel, and
      the
      costs of materials used by our consultants in the maintenance of our existing
      installed products. As we have elected not to install new products at hotels,
      our research and development expenses were zero in the three months ended March
      31, 2006, and we do not expect this to change in the future periods.




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







**Results
      of Operations**




**Comparison
      of Three Months Ended March 31, 2006 and 2005**




**Revenues**




Revenue
      Sharing Arrangements — Our revenue from revenue sharing arrangements was
      $274,278 for the three months ended March 31, 2006, compared to $271,039 for
      the
      three months ended March 31, 2005, representing an increase of $3,239, or 1.2%.
      The increase in revenue sharing revenue was immaterial.




Maintenance
      Fee Revenues — Maintenance fee revenues were $81,087 for the three months ended
      March 31, 2006, compared to $85,733 for the three months ended March 31, 2005,
      representing a decrease of $4,646, or 5.4%. The decrease in maintenance fee
      revenue was not material.




Product
      Sales — Revenue from product sales was $53,425 for the three months ended March
      31, 2006, compared to $2,607 for the three months ended March 31, 2005,
      representing an increase of $50,818, or 1,949.3%. The increase in product sales
      revenues primarily consisted of a sale of some refreshment centers to a hotel
      at
      the completion of its revenue share contract. We expect that future product
      sales revenue will be minimal.




**Cost
      of Revenue**




Cost
      of
      Revenue Sharing Revenue — Cost of revenue sharing revenue was $111,573 for the
      three months ended March 31, 2006, compared to $128,666 for the three months
      ended March 31, 2005 representing a decrease of $17,093 or 13.3%. The gross
      margin percentage on revenue sharing revenue was 59.3% for the three months
      ended March 31, 2006, compared to 52.5% for the three months ended March 31,
      2005. The increase in gross margin relating to revenue sharing revenue is a
      function of lower depreciation expense due to the sale of some refreshment
      centers sold in the three months ended March 31, 2006.




Cost
      of
      Maintenance Fee Revenue — Our cost of maintenance fee revenue was $13,932 for
      the three months ended March 31, 2006, compared to $14,285 for the three months
      ended March 31, 2005, representing a decrease of $353, or 2.5%. The gross margin
      percentage on maintenance fee revenues was 82.8% for the three months ended
      March 31, 2006, compared to 83.3% for the three months ended March 31, 2005.
      The
      slight decrease in our cost of maintenance fee revenue was in-line with the
      slight decrease in our maintenance fee revenue and otherwise
      immaterial.




Cost
      of
      Product Sales Revenue — Our cost of product sales revenue for the three months
      ended March 31, 2006 was $57,623, compared to $7 for the three months ended
      March 31, 2005, an increase of $57,616, or 823,086%. The gross margin percentage
      on revenue from product sales revenue was (7.9%) for the three months ended
      March 31, 2006, compared to 99.7% for the three months ended March 31, 2005.
      The
      significant increase in cost of product sales revenue relates to the remaining
      basis of the refreshment centers sold in the three months ended March 31, 2006.







The
      changes and percent changes with respect to our revenues and our cost of revenue
      for the three months ended March 31, 2006 and 2005 are summarized as
      follows:




**For
                the Three Months**
              **Ended
                March 31,**
            
            **Change**
            
            **Percent
                Change****2006**
            
            **2005****REVENUE**Revenue-sharing
                arrangements
            
            $
            274,278
            
            $
            271,039
            
            $
            3,239
            
            
            1.2
            %Maintenance
                fees
            
            
            81,087
            
            
            85,733
            
            
            (4,646
            )
            
            5.4
            %Product
                sales
            
            
            53,425
            
            
            2,607
            
            
            50,818
            
            
            1,949.3
            %**Total
                Revenue**
            
            $
            408,790
            
            $
            359,379
            
            $
            49,411
            
            
            13.7
            %**COST
                OF REVENUE**Revenue-sharing
                arrangements
            
            $
            111,573
            
            $
            128,666
            
            $
            (17,093
            )
            
            13.3
            %Maintenance
            
            
            13,932
            
            
            14,285
            
            
            (353
            )
            
            2.5
            %Product
                sales
            
            
            57,623
            
            
            7
            
            
            57,616
            
            
            823,086
            %**Total
                Cost of Revenue**
            
            $
            183,128
            
            $
            142,958
            
            $
            40,170
            
            
            28.1
            %**GROSS
                MARGIN PERCENTAGE**Revenue-sharing
                arrangements
            
            
            59.3
            %
            
            52.5
            %Maintenance
            
            
            82.8
            %
            
            83.3
            %Product
                sales
            
            
            (7.9
            %)
            
            99.7
            %**Total
                Gross Margin Percentage**
            
            
            55.2
            %
            
            60.2
            %





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,
      2006 and 2005, 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 $169,175 for the three months
      ended March 31, 2006, compared to $163,164 for the three months ended March
      31,
      2005, representing an increase of $6,011, or 3.7%. The increase in our selling,
      general and administrative expenses for the three months ended March 31, 2006
      to
      the three months ended March 31, 2005 was immaterial.




Research  and
      Development Expenses — Research and development expenses were zero for the three
      months ended March 31, 2006, compared to $1,576 for the three months ended
      March
      31, 2005, representing a decrease of $1,576, or 100.0%. Research and development
      expenses represented zero percent of our total revenue for the three months
      ended March 31, 2006, compared to 0.4% of our total revenue for the three months
      ended March 31, 2005. We do not anticipate that research and development
      expenses will be incurred in future periods given that we do not intend to
      place
      new products in hotels.




Sales
        tax
        settlement - during the three months ended March 31, 2006, the Company paid
        $32,466 as final settlement of a sales tax audit - on previous
        years.




Interest
      expense was $22,912 for the three months ended March 31, 2006, compared to
      $48,426 for the three months ended March 31, 2005, a decrease of $25,514, or
      52.7%. The decrease in interest expense related primarily to the early
      conversion of notes payable in third quarter of 2005.












**Net
      Income Attributable to Common Stockholders**




We
      realized net income of $17,695 for the three months ended March 31, 2006,
      compared to $7,323 during the three months ended March 31, 2005. The $10,372
      increase in net income was not material. We may incur losses in the future
      as
      existing revenue sharing agreements with our hotel clients expire.




**Liquidity
      and Capital Resources**




At
      March
      31, 2006, our principal sources of liquidity consisted of $1,394,374 of cash
      and
      working capital of $1,290,250, as compared to $1,316,515 of cash and working
      capital of $1,211,956 at December 31, 2005. In addition, our stockholders’
equity was $2,503,194 at March 31, 2006, compared to stockholders’ equity of
      $2,469,730 at December 31, 2005, an increase of $33,464. The increase in cash
      reflects the increase in working capital and stockholders’ equity.




Our
      accumulated deficit decreased from $31,646,931 at December 31, 2005 to
      $31,629,236 at March 31, 2006. The $17,695 decrease in accumulated deficit
      resulted directly from the net income realized for the three months ended March
      31, 2006. Our accumulated deficit may increase in the future as existing revenue
      sharing agreements with our hotel clients expire.




Our
      operations provided net cash of $89,535 for the three months ended March 31,
      2006, compared to $226,901 during the three months ended March 31, 2005. The
      $137,366 decrease 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, a decrease in depreciation of $18,071, and
      a
      decrease in accretion of debt discount of $12,329, offset, in part, by an
      increase in net income of $10,372, a loss on disposal of refreshment centers
      in
      the amount of $7,820, an increase in non-cash compensation expense of $18,286
      among other items.




Investing
      activities for the three months ended March 31, 2006 provided net cash of
      $64,158, compared to $18,962 of net cash provided for the three months ended
      March 31, 2005. The $45,196 increase in net cash provided consisted primarily
      of
      $59,085 received from Identica Corp. relating to a note receivable.




Financing
      activities used $75,834 during the three months ended March 31, 2006, compared
      to $72,207 during the three months ended March 31, 2005. The increase of $3,627
      of net cash used in financing activities was not material.




We
      may
      require additional capital in the future to remain viable and to achieve our
      long-term business objectives. There can be no assurance that such financing
      will be made available, or if it is made available, on acceptable terms. If
      such
      future financing is procured in the form of equity, the shareholdings of the
      current stockholders of the Company will be diluted.







**Contractual
      Cash Obligations and Commercial Commitments**




The
      following table presents our contractual cash obligations and commercial
      commitments as of March 31, 2006. We have no other significant contractual
      obligations or commercial commitments either on or off balance sheet as of
      this
      date.




**Payments
                  Due by Period****Contractual
                  Cash****Obligations**
              
              **Total**
              
              **<
                  1 Year**
              
              **1-3
                  Years**
              
              **4-5
                  Years**
              
              **>
                  5 Years**Long-term
                  Debt
              
              $
              722,410
              
              $
              373,172
              
              $
              349,238
              
              $
              -
              
              $
              -**Total**
              
              $
              722,410
              
              $
              373,172
              
              $
              349,238
              
              $
              -
              
              $
              -




**Item
        3.  **Controls
        and Procedures****




**Evaluation
      of Disclosure Controls**




We
      evaluated the effectiveness of our disclosure controls and procedures as of
      March 31, 2006, the end of the period covered by this Quarterly Report on Form
      10-QSB. This evaluation was done with the participation of our chief executive
      officer and president, David A. Gestetner, as well as our accounting personnel
      and legal consultant. Mr. Gestetner serves as our principal executive officer
      and principal financial and accounting officer.




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




**Limitations
      on the Effectiveness of Controls**




Our
      management does not expect that our disclosure controls and procedures or our
      internal controls over financial reporting will prevent all error and all fraud.
      A control system, no matter how well conceived and operated, can provide only
      reasonable, but not absolute, assurance that the objectives of a control system
      are met. Further, any control system reflects limitations on resources, and
      the
      benefits of a control system must be considered relative to its costs. Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that all control issues and instances of fraud,
      if any, have been detected. These inherent limitations include the realities
      that judgments in decision-making can be faulty and that breakdowns can occur
      because of simple error or mistake. Additionally, controls can be circumvented
      by the individual acts of some persons, by collusion of two or more people,
      or
      by management override of a control. The design of a control system is also
      based upon certain assumptions about the likelihood of future events, there
      can
      be no assurance that any design will succeed in achieving its stated goals
      under
      all potential future conditions; over time, controls may become inadequate
      because of changes in conditions, or the degree of compliance with the policies
      or procedures may deteriorate. Although unlikely, due to the inherent
      limitations in a cost-effective control system, misstatements due to error
      or
      fraud may occur and may not be detected.




Further,
      management is aware that there is a lack of segregation of duties at the Company
      due to the small number of employees dealing with general administrative and
      financial matters. However, at this time management has decided that considering
      the employees involved and the control procedures in place, the risks associated
      with such lack of segregation are insignificant and the potential benefits
      of
      adding employees to clearly segregate duties do not justify the expenses
      associated with such increases. Management will periodically reevaluate this
      situation.







**Conclusions**




Based
      on
      this evaluation, our chief executive officer and president concluded that our
      disclosure controls and procedures are effective to ensure that the information
      we are required to disclose in reports that we file pursuant to the Exchange
      Act
      are recorded, processed, summarized, and reported in such reports within the
      time periods specified in the Securities and Exchange Commission’s rules and
      forms.




**Changes
      in Internal Controls**




There
      were no changes in our internal controls over financial reporting that occurred
      during the last fiscal quarter, *i.e.* ,
      the
      three months ended March 31, 2006, that have materially affected, or are
      reasonably likely to materially affect, our internal controls over financial
      reporting.







**PART
      II - OTHER INFORMATION**




**Item
      1. Legal Proceedings.**




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 .




Current
      Report on Form 8-K, dated March 31, 2006 and filed with the Securities and
      Exchange Commission on April 3, 2006, relating to the financial results of
      the
      Company for the fiscal year ended December 31, 2006.







**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: May
              15, 2006
            By:
            /s/ David
              A.
              GestetnerDavid
                A. GestetnerIts:
            Chief
                Executive Officer and President