**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB/A**


(Mark
      One)


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




For
                the quarterly period ended:
            June
                30, 2005




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 x NO
o




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




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




**Applicable
      Only to Corporate Issuers**




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




10,587,433
                shares of common stock, $0.001 par value, as of August 15,
                2005




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









**TABLE
      OF CONTENTS**




Page**PART
                I –****FINANCIAL
                INFORMATION**
            1Item
                1.
            Financial
                Statements.
            2Condensed
                Consolidated Balance Sheets (Unaudited)
            2Condensed
                Consolidated Statements of Operations (Unaudited)
            3Condensed
                Consolidated Statements of Cash Flows (Unaudited)
            4Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            5Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            8Item
                3.
            Controls
                and Procedures
            16**PART
                II – OTHER INFORMATION**
            **17**Item
                1.
            Legal
                Proceedings.
            17Item
                2.
            Changes
                in Securities and Use of Proceeds.
            17Item
                3.
            Defaults
                Upon Senior Securities.
            17Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            17Item
                5.
            Other
                Information.
            17Item
                6.
            Exhibits
                and Reports on Form 8-K.
            17**SIGNATURE**
            **18**








-2-


**PART
                    I - FINANCIAL INFORMATION**Item
                    1. Financial Statements.**eROOMSYSTEM
                    TECHNOLOGIES, INC. AND SUBSIDIARIES****CONDENSED
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)****June
                    30,**
                
                **December
                    31,****2005**
                
                **2004****ASSETS****CURRENT
                    ASSETS**Cash
                
                $
                834,154
                
                $
                646,386Cash
                    held in escrow
                
                
                -
                
                
                225,000Accounts
                    receivable, net of allowance for doubtful accounts of $35,287
                    and$29,045
                    at June 30, 2005 and December 31, 2004, respectively
                
                
                218,712
                
                
                164,586Prepaid
                    expenses
                
                
                20,668
                
                
                16,317**Total
                    Current Assets**
                
                
                1,073,534
                
                
                1,052,289**REFRESHMENT
                    CENTERS IN SERVICE**,
                    net of accumulated depreciation of$2,034,710
                    and $1,777,378 at June 30, 2005 and December 31, 2004,
                    respectively
                
                
                1,612,810
                
                
                1,870,143**PROPERTY
                    AND EQUIPMENT**Production
                    equipment
                
                
                22,210
                
                
                22,210Computer
                    equipment
                
                
                77,069
                
                
                76,031Vehicles
                    and other
                
                
                44,153
                
                
                44,153143,432
                
                
                142,394Less
                    accumulated depreciation and amortization
                
                
                (132,267
                )
                
                (129,481
                )**Net
                    Property and Equipment**
                
                
                11,165
                
                
                12,913**INVESTMENT
                    IN MARKETABLE SECURITIES**
                
                
                14,075
                
                
                -**NOTE
                    RECEIVABLE,**net
                    of unamortized discount of $3,831 and $0 at June 30, 2005 andDecember
                    31, 2004, respectively
                
                
                146,169
                
                
                -**DEPOSITS**
                
                
                75,300
                
                
                95,300**Total
                    Assets**
                
                $
                2,933,053
                
                $
                3,030,645**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES**Notes
                    payable and current portion of long-term debt
                
                $
                238,177
                
                $
                228,337Accounts
                    payable
                
                
                71,135
                
                
                109,089Accrued
                    liabilities
                
                
                72,997
                
                
                137,492Accrued
                    interest
                
                
                105,319
                
                
                81,615Customer
                    deposits
                
                
                11,758
                
                
                11,758Deferred
                    maintenance revenue
                
                
                32,420
                
                
                38,516**Total
                    Current Liabilities**
                
                
                531,806
                
                
                606,807**LONG-TERM
                    DEBT, net of current portion**
                
                
                989,028
                
                
                1,111,181**Total
                    Liabilities**
                
                
                1,520,834
                
                
                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; 10,587,433
                    sharesand
                    10,465,433 shares outstanding at June 30, 2005 and December 31,
                    2004,
                    respectively
                
                
                10,587
                
                
                10,465Additional
                    paid-in capital
                
                
                32,113,394
                
                
                32,074,454Warrants
                    and options outstanding
                
                
                1,094,824
                
                
                1,109,930Note
                    receivable from shareholder
                
                
                (76,388
                )
                
                (74,759
                )Accumulated
                    deficit
                
                
                (31,730,198
                )
                
                (31,807,433
                )**Total
                    Stockholders' Equity**
                
                
                1,412,219
                
                
                1,312,657**Total
                    Liabilities and Stockholders' Equity**
                
                $
                2,933,053
                
                $
                3,030,645
  See
                    accompanying notes to unaudited condensed consolidated financial
                    statements





-3-


**eROOMSYSTEM
                  TECHNOLOGIES, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)****For
                  the Three Months Ended June 30,**
              
              **For
                  the Six Months Ended June 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****REVENUE**Revenue-sharing
                  arrangements
              
              $
              306,407
              
              $
              268,160
              
              $
              577,446
              
              $
              539,177Maintenance
                  fees
              
              
              81,756
              
              
              91,105
              
              
              167,489
              
              
              178,089Product
                  sales
              
              
              2,336
              
              
              7,390
              
              
              4,943
              
              
              7,698**Total
                  Revenue**
              
              
              390,499
              
              
              366,655
              
              
              749,878
              
              
              724,964**COST
                  OF REVENUE**Revenue-sharing
                  arrangements
              
              
              128,667
              
              
              129,126
              
              
              257,333
              
              
              257,792Maintenance
              
              
              17,533
              
              
              20,076
              
              
              31,818
              
              
              36,825Product
                  sales
              
              
              1,254
              
              
              2,940
              
              
              1,261
              
              
              2,940**Total
                  Cost of Revenue**
              
              
              147,454
              
              
              152,142
              
              
              290,412
              
              
              297,557**GROSS
                  MARGIN**
              
              
              243,045
              
              
              214,513
              
              
              459,466
              
              
              427,407**OPERATING
                  EXPENSES**Selling,
                  general and administrative expense, including non-cash compensationof
                  $11,034, $1,067, $9,366 and $28,601, respectively
              
              
              135,392
              
              
              192,306
              
              
              298,556
              
              
              449,059Research
                  and development expense
              
              
              383
              
              
              10,500
              
              
              1,959
              
              
              10,500Interest
                  expense
              
              
              47,289
              
              
              55,851
              
              
              95,715
              
              
              110,045Gain
                  on collection of previously written off receivable
              
              
              -
              
              
              (200,000
              )
              
              -
              
              
              (200,000
              )Interest
                  and other income
              
              
              (9,931
              )
              
              (1,263
              )
              
              (13,999
              )
              
              (2,971
              )**Net
                  Operating Expenses**
              
              
              173,133
              
              
              57,394
              
              
              382,231
              
              
              366,633**Income
                  from Operations**
              
              
              69,912
              
              
              157,119
              
              
              77,235
              
              
              60,774Gain
                  on forgiveness of liabilities and debt
              
              
              -
              
              
              91,990
              
              
              -
              
              
              595,465**Net
                  Income**
              
              $
              69,912
              
              $
              249,109
              
              $
              77,235
              
              $
              656,239**Basic
                  Earnings Per Common Share**
              
              $
              0.01
              
              $
              0.02
              
              $
              0.01
              
              $
              0.06**Diluted
                  Earnings Per Common Share**
              
              $
              0.00
              
              $
              0.01
              
              $
              0.01
              
              $
              0.03
 
 See
        accompanying notes to unaudited condensed consolidated financial
        statements


-4-




**eROOMSYSTEM
                    TECHNOLOGIES, INC. AND SUBSIDIARIES****CONDENSED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)*****For
                    the Six Months Ended June 30,***
                
                **2005**
                
                **2004****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    income
                
                $
                77,235
                
                $
                656,239Adjustments
                    to reconcile net income to net cash provided by operating
                    activities:Depreciation
                
                
                260,119
                
                
                263,859Gain
                    on forgiveness of debt and liabilities
                
                
                -
                
                
                (595,465
                )Interest
                    income from shareholder receivables
                
                
                (1,629
                )
                
                (1,621
                )Accretion
                    of debt discount
                
                
                33,553
                
                
                33,553Amortization
                    of discount on note receivable
                
                
                (244
                )
                
                -Non-cash
                    compensation expense
                
                
                9,336
                
                
                28,601Changes
                    in operating assets and liabilities:Cash
                    held in escrow
                
                
                225,000
                
                
                (200,000
                )Accounts
                    receivable
                
                
                (54,126
                )
                
                20,536Prepaid
                    expenses
                
                
                (4,351
                )
                
                1,278Accounts
                    payable
                
                
                (37,954
                )
                
                (41,620
                )Accrued
                    liabilities
                
                
                (40,791
                )
                
                16,186Customer
                    deposits and deferred maintenance revenue
                
                
                (6,096
                )
                
                (7
                )**Net
                    Cash Provided By Operating Activities**
                
                
                460,052
                
                
                181,539**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Change
                    in long term deposits and restricted funds
                
                
                20,000
                
                
                (19,000
                )Purchase
                    of fixed assets
                
                
                (1,038
                )
                
                -Purchase
                    of investment and note receivable
                
                
                (160,000
                )
                
                -**Net
                    Cash Used in Investing Activities**
                
                
                (141,038
                )
                
                (19,000
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceeds
                    from exercise of options
                
                
                14,620
                
                
                -Principal
                    payments on long-term debt
                
                
                (145,866
                )
                
                (309,440
                )**Net
                    Cash Used in Financing Activities**
                
                
                (131,246
                )
                
                (309,440
                )**Net
                    Increase (Decrease) in Cash**
                
                
                187,768
                
                
                (146,901
                )**Cash
                    at Beginning of Period**
                
                
                646,386
                
                
                381,985**Cash
                    at End of Period**
                
                $
                834,154
                
                $
                235,084**Supplemental
                    Cash Flows Information**Cash
                    paid for interest
                
                $
                38,457
                
                $
                54,400**Supplemental
                    Disclosure of Noncash Investing and Financing
                    Activities**Stock
                    options issued in settlement of accounts payable
                
                $
                -
                
                $
                31,688
 
 See
          accompanying notes to unaudited condensed consolidated financial
          statements


-5-


**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
      and six months ended June 30, 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 transferred into the Company’s
      checking account.




***Stock-Based
      Compensation*** - At
      June 30, 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 six months ended June 30, 2005 and 2004,
      the
      Company recognized $9,336 and $18,401, 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:




-6-




***For
                    the Three Months***
                  ***Ended
                    June 30,***
                
                
                ***For
                    the Six Months***
                  ***Ended
                    June 30,*****2005**
                
                
                **2004**
                
                
                **2005**
                
                
                **2004**Net
                    income, as reported
                
                $
                69,912
                
                $
                249,109
                
                $
                77,235
                
                $
                656,239Add:
                    Stock-based employee and consultant compensationexpenses
                    included in net income
                
                
                11,034
                
                
                1,067
                
                
                9,336
                
                
                28,601Deduct:
                    Total stock-based employee and consultantcompensation
                    expense determined under fair value based methodfor
                    all awards
                
                
                (12,768
                )
                
                (29,696
                )
                
                (12,025
                )
                
                (48,965
                )Pro
                    forma net earnings
                
                $
                68,178
                
                $
                220,480
                
                $
                74,546
                
                $
                635,875Earnings
                    per common share:Basic
                    as reported
                
                $
                0.01
                
                $
                0.02
                
                $
                0.01
                
                $
                0.06Basic
                    pro forma
                
                $
                0.01
                
                $
                0.02
                
                $
                0.01
                
                $
                0.06Diluted
                    as reported
                
                $
                0.00
                
                $
                0.01
                
                $
                0.01
                
                $
                0.03Diluted
                    pro forma
                
                $
                0.00
                
                $
                0.01
                
                $
                0.01
                
                $
                0.03





***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 and six months ended June 30, 2005 and 2004:




***For
                  The Three Months***
                ***Ended
                  June 30,***
              
              ***For
                  The Six Months***
                ***Ended
                  June 30,*****2005**
              
              **2004**
              
              **2005**
              
              **2004**Basic
                  net income
              
              $
              69,912
              
              $
              249,109
              
              $
              77,235
              
              $
              656,239Interest
                  expense from convertible debt
              
              
              24,515
              
              
              24,515
              
              
              48,608
              
              
              48,608Diluted
                  net income
              
              $
              94,427
              
              $
              273,624
              
              $
              125,843
              
              $
              704,847Basic
                  weighted-average common shares outstanding
              
              
              10,565,899
              
              
              10,443,933
              
              
              10,517,889
              
              
              10,414,922Effect
                  of dilutive securitiesStock
                  options and warrants
              
              
              4,851,404
              
              
              4,725,761
              
              
              4,851,113
              
              
              4,503,367Convertible
                  debt
              
              
              7,316,667
              
              
              7,316,667
              
              
              7,316,667
              
              
              7,316,667Diluted
                  weighted-average common shares outstanding
              
              
              22,733,970
              
              
              22,486,361
              
              
              22,685,669
              
              
              22,234,956Basic
                  earnings per share
              
              $
              0.01
              
              $
              0.02
              
              $
              0.01
              
              $
              0.06Diluted
                  earnings per share
              
              $
              0.00
              
              $
              0.01
              
              $
              0.01
              
              $
              0.03




-7-




At
      June
      30, 2005 and 2004, there were potential common stock equivalents from options,
      warrants and convertible debt of 3,762,733 and 4,190,804, respectively, which
      were not included in the computation of diluted earnings per share because
      their
      effect would have been anti-dilutive.




**NOTE
      2 - BUSINESS CONDITION**




During
      the year ended December 31, 2004 and the six months ended June 30, 2005, the
      Company realized a net gain of $900,072 and $77,235, respectively. During the
      year ended December 31, 2004 and the six months ended June 30, 2005, the
      Company's operations provided $730,322 and $460,052 of cash, respectively.
      The
      Company had a cash balance of $834,154 as of June 30, 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. 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.




**NOTE
      3 - INVESTMENT IN IDENTICA**




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




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




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




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




The
      amended revenue sharing 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 list details the components of the net investment in the sales-type
      lease as of June 30, 2005:




-8-
 
  Total
                      minimum lease payments to be received
                  
                  $
                  302,400Less:
                      Allowance for uncollectibles
                  
                  
                  (254,320
                  )Net
                      minimum lease payments receivable
                  
                  
                  48,080Less:
                      Unearned income
                  
                  
                  (48,080
                  )Net
                      investment in sales-type lease
                  
                  $
                  --




The
      Company recorded revenue sharing and maintenance fee revenue in the amounts
      of
      $21,600 and $43,200 for the three and six months ended June 30, 2005,
      respectively.




Minimum
      lease payments for the six months ended December 31, 2005, and each of the
      three
      final fiscal years of the lease term, are as follows: $43,200 in 2005, $86,400
      in 2006, $86,400 in 2007, and $86,400 in 2008.




**NOTE
      5 - STOCKHOLDERS' EQUITY**




During
      the six months ended June 30, 2005, the Company granted options to purchase
      15,000 shares of common stock to employees. These options, which vested
      immediately, have an exercise price ranging from $0.22 to $0.24 per share and
      are exercisable through May 5, 2008. The Company recognized $0 of compensation
      expense, which represented the intrinsic value of the options on the dates
      granted.




During
      the six months ended June 30, 2005, options to purchase 122,000 shares of common
      stock were exercised for cash proceeds of $14,620. The exercise price ranged
      from $0.10 - $0.26 per share.




-9-





**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 30, 2004.




**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.
      Following the establishment of our core business, we also intend to market
      this
      information to suppliers of goods sold in our eRoomServ refreshment centers
      and
      to other users desiring information on the buying patterns of hotel guests
      for
      goods and services.




In
      addition to our core competencies noted above, on May 20, 2005 we invested
      $10,000 in Identica Corporation, an Ontario, Canada based entity, by purchasing
      1,666,667 shares of common stock, or $0.006 per share. Identica Corporation,
      or
      Identica is a distributor and integrator of next-generation biometric security
      solutions, including the TechSphere hand vascular pattern biometric technology.
      This technology, unlike other biometric products, offers superior performance
      by
      eliminating degradation typically found with other solutions as a result of
      dryness, scars and contamination of the hand. Identica’s products and services
      have been designed to eliminate the threat of security breaches by protecting
      companies against unauthorized access and fraudulent activities. The identity
      security solutions offered by Identica have been developed by leading biometric
      security vendors and are exclusively distributed by Identica in North America.
      Our $10,000 investment in Identica represents 10% of Identica’s outstanding
      capital stock on a fully-diluted basis. 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 privately-held and publicly
      traded emerging growth stage companies in the future.




-10-


**Accounting
      Policies**




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires our management to make estimates and assumptions
      that affect reported amounts and disclosures, some of which may require revision
      in future periods. The most sensitive estimates affecting our financial
      statements include future volatility used in valuing equity instruments,
      allowance for bad debts, depreciable lives of refreshment centers in service
      and
      property and equipment, 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 install our products at little or no upfront cost
      to our customers and share in the recurring revenues generated from sales of
      goods and services related to our products. We retain the ownership of the
      eRoomServ refreshment centers 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.
      In
      2004 and the first half of 2005, we 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 going forward. The reason for the foregoing was the
      lack of available capital, including the termination of the AMRESCO financing
      line in 2002.




-11-


We
      have
      experienced substantial fluctuations in revenues from period-to-period as a
      result of limited working capital to fund the development, assembly of our
      products and to maintain sufficient component inventories. In addition to
      limited working capital, fluctuations in revenues have partially resulted from
      the transition to our revenue-sharing program under which revenues are
      recognized over the seven-year life of the contract instead of immediately
      upon
      installation of the product. We anticipate that over the next several years
      our
      revenues will be a blend of the placement of our products pursuant to our
      revenue-sharing program, along with outright sales and, to a lesser extent,
      from
      maintenance agreements. We project that we will receive approximately 60% of
      the
      recurring revenues from the sale of goods and services generated by our
      eRoomServ refreshment centers, eRoomSafes and eRoomTray solutions placed under
      the 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 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.




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 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 $0.04 to $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.




-12-


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.




**Results
      of Operations**




**Comparison
      of Three Months Ended June 30, 2005 and 2004**




**Revenues**




Revenue
      Sharing Arrangements — Our revenue from revenue sharing arrangements was
      $306,407 for the three months ended June 30, 2005, compared to $268,160 for
      the
      three months ended June 30, 2004, representing an increase of $38,247, or 14.3%.
      The increase in revenue from revenue sharing arrangements was due primarily
      to
      realization of better revenue production from revenue sharing units during
      the
      three months ended June 30, 2005 as compared to the three months ended June
      30,
      2004.




Maintenance
      Fee Revenues — Our maintenance fee revenues were $81,756 for the three months
      ended June 30, 2005, compared to $91,105 for the three months ended June 30,
      2004, representing a decrease of $9,349, or 10.3%. The decrease was due to
      a
      decreased number of units under maintenance contract.




Product
      Sales — Revenues from product sales were $2,336 for the three months ended June
      30, 2005, compared to $7,390 for the three months ended June 30, 2004,
      representing a decrease of $5,054, or 68.4%. The decrease, while significant
      in
      percentage terms, is not otherwise material given the extremely limited sales
      volume.




**Cost
      of Revenue**




Cost
      of
      Revenue Sharing Revenue — Our cost of revenue sharing revenue was $128,667 for
      the three months ended June 30, 2004, compared to $129,126 during the three
      months ended June 30, 2004, representing a decrease of $459, or 0.4%. The
      decrease in cost of revenue sharing revenue was immaterial. The gross margin
      percentage on revenue sharing revenue was 58.0% for the three months ended
      June
      30, 2005 and 51.8% for the three months ended June 30, 2004. The increase in
      gross margin percentage was primarily due to an increase in revenue as noted
      above.




Cost
      of
      Maintenance Fee Revenue — Our cost of maintenance fee revenue was $17,533 for
      the three months ended June 30, 2005, compared to $20,076 for the three months
      ended June 30, 2004, representing a decrease of $2,543, or 12.7%. The gross
      margin percentage on maintenance fee revenues was 78.6% for the three months
      ended June 30, 2005 and 78.0% for the three months ended June 30, 2004. The
      decrease in our cost of maintenance fee revenue was offset by proportionately
      lower maintenance fee revenue thereby resulting in a similar gross margin for
      maintenance fee revenue in the two periods.




-13-


Cost
      of
      Product Sales Revenue — Our cost of product sales revenue for the three months
      ended June 30, 2005 was $1,254, as compared to $2,940 for the three months
      ended
      June 30, 2004, a decrease of $1,686, or 57.3%. The gross margin percentage
      on
      revenue from product sales revenue was 46.3% for the three months ended June
      30,
      2005 as compared to 60.2% for the three months ended June 30, 2004. While the
      percentage change in cost of product sales revenue is material, given the
      extremely limited product sales in the two periods, the change from period
      to
      period is immaterial.




The
      changes and percent changes with respect to our revenues and our cost of revenue
      for the three months ended June 30, 2005 and 2004 are summarized as
      follows:




**For
                  the Three Months**
                **Ended
                  June 30,****2005**
              
              **2004**
              
              **Change**
              
              **Percent
                  Change****REVENUE**Revenue-sharing
                  arrangements
              
              $
              306,407
              
              $
              268,160
              
              $
              38,247
              
              
              14.3
              %Maintenance
                  fees
              
              
              81,756
              
              
              91,105
              
              
              9,349
              
              
              (10.3
              )%Product
                  sales
              
              
              2,336
              
              
              7,390
              
              
              5,054
              
              
              (68.4
              )%**Total
                  Revenue**
              
              $
              390,499
              
              $
              366,655
              
              $
              23,844
              
              
              6.5
              %**COST
                  OF REVENUE**Revenue-sharing
                  arrangements
              
              
              128,667
              
              
              129,126
              
              
              459
              
              
              (0.4
              )%Maintenance
              
              
              17,533
              
              
              20,076
              
              
              2,543
              
              
              (12.7
              )%Product
                  sales
              
              
              1,254
              
              
              2,940
              
              
              1,686
              
              
              (57.3
              )%**Total
                  Cost of Revenue**
              
              $
              147,454
              
              $
              152,142
              
              $
              4,688
              
              
              (3.1
              )%**GROSS
                  MARGIN PERCENTAGE**Revenue-sharing
                  arrangements
              
              
              58.0%
              
              
              51.8%Maintenance
              
              
              78.6%
              
              
              78.0%Product
                  sales
              
              
              46.3%
              
              
              60.2%**Total
                  Gross Margin Percentage**
              
              
              62.2%
              
              
              58.5%





Although
      the preceding table summarizes the net changes and percent changes with respect
      to our revenues and our cost of revenue for the three months ended June 30,
      2005
      and 2004, the trends contained therein are limited and should not be viewed
      as a
      definitive indication of our future results.




**Expenses
      and Other Income**




Selling,
      General and Administrative — Selling, general and administrative expenses were
      $135,392 for the three months ended June 30, 2005, compared to $192,306 for
      the
      three months ended June 30, 2004, representing a decrease of $56,914, or 29.6%.
      The decrease in our selling, general and administrative expenses from the three
      months ended June 30, 2005 to the three months ended June 30, 2004 reflects
      our
      ongoing efforts to further reduce fixed overhead expenses.




-14-


Research  and
      Development Expenses — Research and development expenses were $383 for the three
      months ended June 30, 2005, compared to $10,500 for the three months ended
      June
      30, 2004, representing a decrease of $10,117, or 96.4%. Research and development
      expenses represented 0.1% of our total revenue for the three months ended June
      30, 2005 and 2.9% of our total revenue for the three months ended June 30,
      2004.
      The decrease in research and development expenses was due to no new research
      and
      development projects for the three months ended June 30, 2005.




Interest
      Expense for the three months ended June 30, 2005 was $47,289 as compared to
      $55,851 for the same period in 2004, a decrease of $8,562, or 15.3%. In the
      three months ended June 30, 2004, the Company realized a gain on collection
      of a
      previously written off receivable in the amount of $200,000. No such gains
      were
      recognized in the three months ended June 30, 2005. Income from operations
      was
      $69,912 for the second quarter of 2005 as compared to $157,119 for the same
      period in 2004. The Company also realized a gain on forgiveness of liabilities
      and debt of $91,990 in the three months ended June 30, 2004.




**Net
      Income Attributable to Common Stockholders**




We
      realized net income of $69,912 during the three months ended June 30, 2005
      as
      compared to $249,109 during the three months ended June 30, 2004. The $179,197
      decrease was due primarily to material gains on the forgiveness of debt and
      liabilities and on the collection of a previously written of receivable in
      the
      three months ended June 30, 2004, offset, in part, by slightly better gross
      margins and continued reductions in selling, general and administrative
      expense.




**Comparison
      of Six Months Ended June 30, 2005 and 2004**




**Revenues**




Revenue
      Sharing Arrangements — Our revenue from revenue sharing arrangements was
      $577,446 for the six months ended June 30, 2005, compared to $539,177 for the
      six months ended June 30, 2004, representing an increase of $38,269, or 7.1%.
      The increase in revenue from revenue sharing arrangements was due primarily
      to
      better revenue realization from revenue sharing units in service during the
      six
      months ended June 30, 2005 as compared to the six months ended June 30, 2004.




Maintenance
      Fee Revenues — Our maintenance fee revenues were $167,489 for the six months
      ended June 30, 2005, compared to $178,089 for the six months ended June 30,
      2004, representing a decrease of $10,600, or 6.0%. The decrease was due to
      a
      decrease in units under maintenance contract.




Product
      Sales — Revenues from product sales were $4,943 for the six months ended June
      30, 2005, compared to $7,698 for the six months ended June 30, 2004,
      representing a decrease of $2,755, or 35.8%. The decrease, while significant
      in
      percentage terms, is not otherwise material given the extremely limited sales
      volume.




**Cost
      of Revenue**




Cost
      of
      Revenue Sharing Revenue — Our cost of revenue sharing revenue was $257,333 for
      the six months ended June 30, 2005, as compared to $257,792 for the six months
      ended June 30, 2004, representing a decrease of $459, or 0.2%. The gross margin
      percentage on revenue sharing revenue was 55.4% for the six months ended June
      30, 2005 and 52.2% for the six months ended June 30, 2004.




Cost
      of
      Maintenance Fee Revenue — Our cost of maintenance fee revenue was $31,818 for
      the six months ended June 30, 2005, compared to $36,825 for the six months
      ended
      June 30, 2004, representing a decrease of $5,007, or 13.6%. The gross margin
      percentage on maintenance fee revenues was 81.0% for the six months ended June
      30, 2005 and 79.3% for the six months ended June 30, 2004. The continued
      decrease in our cost of maintenance fee revenue and the increase in gross margin
      percentages for the six months ended June 30, 2005, as compared to the six
      months ended June 30, 2004, was due to slightly improved operational
      efficiencies and reductions in fixed overhead relating to our field operations
      department.




-15-


Cost
      of
      Product Sales Revenue — Our cost of product sales revenue for the six months
      ended June 30, 2005 was $1,261 as compared to $2,940 for the six months ended
      June 30, 2004, a decrease of $1,679, or 57.1%. The gross margin percentage
      on
      revenue from product sales revenue was 74.5% for the six months ended June
      30,
      2005 as compared to 61.8% for the six months ended June 30, 2004. While the
      percentage change in cost of product sales revenue is material, given the
      extremely limited product sales in the two periods, the change from period
      to
      period is immaterial.




The
      changes and percent changes with respect to our revenues and our cost of revenue
      for the six months ended June 30, 2005 and 2004 are summarized as
      follows:




**For
                  the Six Months**
                **Ended
                  June 30,****2005**
              
              **2004**
              
              **Change**
              
              **Percent
                  Change****REVENUE**Revenue-sharing
                  arrangements
              
              $
              577,446
              
              $
              539,177
              
              $
              38,269
              
              
              7.1
              %Maintenance
                  fees
              
              
              167,489
              
              
              178,089
              
              
              10,600
              
              
              (6.0
              )%Product
                  sales
              
              
              4,943
              
              
              7,698
              
              
              2,755
              
              
              (35.8
              )%**Total
                  Revenue**
              
              $
              749,878
              
              $
              724,964
              
              $
              24,914
              
              
              3.4
              %**COST
                  OF REVENUE**Revenue-sharing
                  arrangements
              
              
              257,333
              
              
              257,792
              
              
              459
              
              
              (0.2
              )%Maintenance
              
              
              31,818
              
              
              36,825
              
              
              5,007
              
              
              (13.6
              )%Product
                  sales
              
              
              1,261
              
              
              2,940
              
              
              1,679
              
              
              (57.1
              )%**Total
                  Cost of Revenue**
              
              $
              290,412
              
              $
              297,557
              
              $
              7,145
              
              
              (2.4
              )%**GROSS
                  MARGIN PERCENTAGE**Revenue-sharing
                  arrangements
              
              
              55.4
              %
              
              52.2
              %Maintenance
              
              
              81.0
              %
              
              79.3
              %Product
                  sales
              
              
              74.5
              %
              
              61.8
              %**Total
                  Gross Margin Percentage**
              
              
              61.3
              %
              
              59.0
              %





Although
      the preceding table summarizes the net changes and percent changes with respect
      to our revenues and our cost of revenue for the six months ended June 30, 2005
      and 2004, the trends contained therein are limited and should not be viewed
      as a
      definitive indication of our future results.




**Expenses
      and Other Income**




Selling,
      General and Administrative — Selling, general and administrative expenses were
      $298,556 for the six months ended June 30, 2005, compared to $449,059 for the
      six months ended June 30, 2004, representing a decrease of $150,503, or 33.5%.
      The decrease in our selling, general and administrative expenses from the six
      months ended June 30, 2005 to the six months ended June 30, 2004 reflects our
      continued efforts to further reduce fixed overhead expenses.




Research  and
      Development Expenses — Research and development expenses were $1,959 for the six
      months ended June 30, 2005, compared to $10,500 for the six months ended June
      30, 2004, representing a decrease of $8,541, or 81.3%. Research and development
      expenses represented 0.3% of our total revenue for the six months ended June
      30,
      2005 and 1.4% of our total revenue for the six months ended June 30, 2004.
      The
      decrease in research and development expenses is due to no significant research
      and development projects for the six months ended June 30, 2005.




-16-


Interest
      expense for the six months ended June 30, 2005 was $95,715 as compared to
      $110,045 for the same period in 2004, a decrease of $14,330, or 13.0%. In the
      six months ended June 30, 2004, the Company realized a gain on collection of
      a
      previously written off receivable in the amount of $200,000. No such gains
      were
      realized in the six months ended June 30, 2005. Income from operations was
      $77,235 for the first half of fiscal 2005 as compared to $60,774 for the same
      period in 2004. The Company also realized a gain on forgiveness of liabilities
      and debt of $595,465 for the six months ended June 30, 2004, but did not realize
      any such gain for the same period in 2005.




**Net
      Income Attributable to Common Stockholders**




We
      realized net income of $77,235 during the six months ended June 30, 2005 as
      compared to $656,239 during the six months ended June 30, 2004. The $579,004
      decrease was due to the $595,465 gain realized on the forgiveness of liabilities
      and debt in the six months ended June 30, 2004, offset by a $16,461 increase
      in
      income from operations.




**Liquidity
      and Capital Resources**




At
      June
      30, 2005, our principal sources of liquidity consisted of $834,154 of cash
      and
      working capital of $541,728, as compared to $646,386 of cash and working capital
      of $445,482 at December 31, 2004. In addition, our stockholders’ equity was
      $1,412,219 at June 30, 2005, compared to stockholders’ equity of $1,312,657 at
      December 31, 2004, an increase of $99,562.




Our
      accumulated deficit decreased from $31,807,433 at December 31, 2004 to
      $31,730,198 at June 30, 2005. The decrease in accumulated deficit resulted
      directly from the net income realized for the six months ended June 30, 2005.




Our
      operations provided net cash of $460,052 during the six months ended June 30,
      2005, as compared to $181,539 of net cash provided during the six months ended
      June 30, 2004. The $278,513 increase in net cash provided by operating
      activities in the six months ended June 30, 2005, as compared to the same period
      in 2004, is primarily related to the combined change of cash held in escrow
      of
      $425,000.




Investing
      activities for the six months ended June 30, 2005 used net cash of $141,038,
      as
      compared to $19,000 during the six months ended June 30, 2004. The increase
      in
      net cash used in investing activities related to our $160,000 investment in
      Identica, offset, in part, by the combined change in long-term deposits and
      restricted funds in the amount of $39,000.




Financing
      activities used $131,246 during the six months ended June 30, 2005 as compared
      to $309,440 during the six months ended June 30, 2004. The decrease of $178,194
      of net cash used in financing activities principally related to a decrease
      in
      principal payments on long-term debt. The primary source of cash during the
      six
      months ended June 30, 2005 was the revenue sharing revenue generated by our
      equipment installed pursuant to revenue sharing contracts.




While
      we
      have made significant progress in further reducing our fixed overhead expenses,
      we may require additional capital 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.




-17-


**Contractual
      Cash Obligations and Commercial Commitments**




The
      following table presents our contractual cash obligations and commercial
      commitments as of June 30, 2005. We have no other significant contractual
      obligations or commercial commitments either on or off balance sheet as of
      this
      date.




**Contractual
                  Cash**
                
                
                **Payments
                    Due by Period****Obligations**
                
                
                **Total**
                
                
                **<
                    1 Year**
                
                
                **1-3
                    Years**
                
                
                **4-5
                    Years**
                
                
                **>
                    5 Years**Long-term
                    Debt
                
                $
                1,599,698
                
                $
                373,766
                
                $
                901,826
                
                $
                324,106
                
                
                -Capital
                    Lease Obligations
                
                
                1,341
                
                
                1,341
                
                
                -
                
                
                -
                
                
                -**Total**
                
                $
                1,601,039
                
                $
                375,107
                
                $
                901,826
                
                $
                324,106
                
                
                -




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




**Evaluation
      of Disclosure Controls**




We
      evaluated the effectiveness of our disclosure controls and procedures as of
      June
      30, 2005, the end of the period covered by this Quarterly Report on Form 10-QSB.
      We did not, however, disclose our evaluation in the Form 10-QSB filed on August
      15, 2005.




The
      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.




Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed by us in the reports that
      we
      file pursuant to the Exchange Act, are recorded, processed, summarized and
      reported within the time periods specified in the Securities and Exchange
      Commission’s rules and forms.




**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.




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.




-18-


**Conclusions**




Based
      on
      this evaluation, our chief executive officer and president concluded that,
      subject to the limitations noted above and as of the evaluation date, 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 June 30, 2005, 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).




-19-


(b) Reports
      on Form 8-K .




On
      May
      25, 2005, we filed a current report on Form 8-K which disclosed our investment
      in Identica Corporation on May 23, 2005.




**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:
            December
                19, 2005
            By:
            /s/
                David A. GestetnerDavid
                A. GestetnerIts:
            Chief
                Executive Officer and President







-20-