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 1934For the
  quarterly period ended:March
  31, 2001OR ̈
  TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934For the
  transition period from:________________________________        to        ________________________________Commission
  file number:          000-31037eRoomSystem 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.)3770 Howard Hughes Parkway, Suite 175,
  Las Vegas, Nevada 89109(Address
  of principal executive offices)(800) 316-3070(Issuers
  telephone number)Not applicable(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.    YESxNO ̈ Applicable
Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five
YearsCheck 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 IssuersState the
number of shares outstanding of each of the issuers classes of common equity,
as of the latest practicable date: 7,066,019  shares of common stock, $0.001 par value,
  as of April 6, 2001 Transitional Small Business Disclosure Format (check one):YES ̈NOx   FORM 10-QSB

TABLE OF CONTENTS



PART I  FINANCIAL
  INFORMATIONITEM 1.  FINANCIAL STATEMENTS.Condensed
  Consolidated Balance Sheets (Unaudited)Condensed
  Consolidated Statements of Operations (Unaudited)Condensed
  Consolidated Statements of Cash Flows (Unaudited)Notes
  to Condensed Consolidated Financial Statements (Unaudited)ITEM
  2.  MANAGEMENTS DISCUSSION AND
  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.PART II  OTHER INFORMATIONITEM 1.  LEGAL PROCEEDINGS.ITEM
  2.  CHANGES IN SECURITIES AND USE OF
  PROCEEDS.ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.ITEM
  4.  SUBMISSION OF MATTERS TO A VOTE OF
  SECURITY HOLDERS.ITEM 5.  OTHER INFORMATION.ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

PART I  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL
STATEMENTS.

eROOMSYSTEM TECHNOLOGIES, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED)

ASSETS

December 31,
  2000
  March 31,
  2001CURRENT ASSETSCash
  $2,811,023
  $2,162,980Accounts receivable, net of allowance for doubtful accounts of 
  $24,000 and  $24,000, respectively
  773,715
  262,984Inventories
  946,318
  1,541,574Prepaid expenses and other
  45,056
  86,184Total Current Assets
  4,576,112
  4,053,722REFRESHMENT CENTERS IN SERVICE,
  net of accumulated depreciation of 
  $120,343 and $179,253, respectively
  1,762,245
  1,793,351PROPERTY AND EQUIPMENTProduction equipment
  225,110
  251,158Computer equipment
  216,482
  233,481Vehicles and other
  67,316
  78,585508,908
  563,224Less accumulated depreciation and amortization
  (323,044)
  (345,690)Net Property and Equipment
  185,864
  217,534INVESTMENT IN WHOLLY OWNED, UNCONSOLIDATEDSUBSIDIARY
  936,182
  764,506OTHER ASSETSPatents and license rights, net of accumulated amortization of 
  $290,208 and $307,083, respectively
  182,282
  165,407Deposits and other
  172,464
  218,705Total
  Other Assets
  354,746
  384,112Total Assets
  $7,815,149
  $7,213,225See accompanying notes to unaudited condensed consolidated financial statements

eROOMSYSTEM TECHNOLOGIES, INC. AND
SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE
SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDERS'
EQUITY (UNAUDITED)

December 31,
  2000
  March 31,
  2001CURRENT LIABILITIESNotes payable and current portion of long-term debt
  $56,710
  $30,787Current portion of capital
  lease obligations
  28,091
  12,721Accounts payable
  1,071,333
  927,684Accrued liabilities
  406,191
  338,626Accrued interest
  12,906
  Accrued restructuring costs
  418,606
  285,096Customer deposits
  89,258
  669,718Deferred maintenance revenue
  72,764
  73,547Preferred stock dividends payable
  31,894
  17,742Total
  Current Liabilities
  2,187,753
  2,355,921LONG-TERM LIABILITIESLong-term debt, net of current portion
  2,269
  261,102Capital lease obligations, net of current portion
  25,656
  14,934Total
  Long-Term Liabilities
  27,925
  276,036COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS' EQUITYCommon stock, $0.001 par value; 50,000,000 shares authorized;
  7,051,019 shares and 7,066,019 shares outstanding at December 31, 2000 and
  March 31, 2001, respectively
  7,051
  7,066Additional paid-in capital
  28,546,432
  28,562,317Warrants and options outstanding
  2,036,324
  2,036,324Accumulated deficit
  (24,990,336)
  (26,024,439)Total
  Stockholders Equity
  5,599,471
  4,581,268Total Liabilities and Stockholders' Equity
  $7,815,149
  $7,213,225

See
accompanying notes to unaudited condensed consolidated financial statements

eROOMSYSTEM TECHNOLOGIES, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)

For the Three Months Ended
  March 31,2000
  2001REVENUEProduct sales
  $
  $27,265Revenue sharing arrangements
  9,162
  134,067Maintenance fees
  39,937
  56,403Total
  Revenue
  49,099
  217,735COST OF REVENUEProduct sales
  
  15,650Revenue sharing arrangements
  7,073
  58,909Maintenance
  7,020
  140,329Total
  Cost of Revenue
  14,093
  214,888GROSS MARGIN
  35,006
  2,847OPERATING EXPENSESSelling general and administrative (including non-cash compensation
  expense of $491,825 and $0, respectively)
  1,012,169
  917,871Research and development
  49,788
  113,020Total
  Operating Expenses
  1,061,957
  1,030,891LOSS FROM OPERATIONS
  (1,026,951)
  (1,028,044)OTHER INCOME (EXPENSE)Interest expense
  (303,650)
  (7,077)Equity in income (loss) from unconsolidated, wholly owned subsidiary
  88,296
  (62,398)Interest and other income
  2,336
  63,416Other
  Expense, Net
  (213,018)
  (6,059)Net Loss
  (1,239,969)
  (1,034,103)Dividends Related to Convertible Preferred Stock
  (440,757)
  Loss Attributed to Common Stockholders
  $(1,680,726)
  $(1,034,103)Basic and Diluted Loss Per Common Share
  $(0.76)
  $(0.15)Basic and Diluted Weighted Average Common Share Outstanding
  $2,197,290
  $7,054,186

See
accompanying notes to unaudited condensed consolidated financial statements

eROOMSYSTEM TECHNOLOGIES, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For
  the Three Months Ended
  March 31,2000
  2001CASH FLOWS FROM OPERATING ACTIVITIESNet loss
  $(1,239,969)
  $(1,034,103)Adjustments to reconcile net loss to net cash used in operating
  activities:Depreciation and amortization
  39,979
  98,431Common stock issued as part of lawsuit settlement
  
  15,900Interest expense paid by issuance of common stock,
  warrants, and stock options
  77,649
  Non-cash compensation expense
  491,825
  Distributions in excess of equity in income from
  unconsolidated subsidiary
  8,419
  171,676Changes in operating assets and liabilities, net of transfers to
  unconsolidated subsidiaryAccounts receivable
  26,926
  510,731Inventories
  (294,404)
  (595,256)Prepaid expenses, deposits and other
  (125,281)
  (74,091)Accounts payable
  24,392
  (143,649)Accrued liabilities
  267,155
  (69,925)Accrued restructuring costs
  
  (133,510)Customer deposits and unearned revenue
  15,180
  581,243Net Cash Used In Operating Activities
  (708,129)
  (672,553)CASH FLOWS FROM 
  INVESTING ACTIVITIESAdditions to refreshment centers in service
  
  (90,016)Purchase of property and equipment
  (2,259)
  (37,318)Cash investment in wholly owned, unconsolidated subsidiary
  (44,862)
  Net Cash Used In Investing Activities
  (47,121)
  (127,334)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from borrowings
  583,304
  268,065Principal payments on notes payable
  (1,984)
  (58,979)Principal payments on capital lease obligations
  (5,454)
  (43,090)Other offering and financing costs paid
  (276,470)
  Proceeds from issuance of preferred stock and warrants
  357,177
  Payment of accrued preferred dividends
  
  (14,152)Net Cash Provided by Financing Activities
  656,573
  151,844Net Decrease in Cash
  (98,677)
  (648,043)Cash at Beginning of Period
  113,252
  2,811,023Cash at End of Period
  $14,575
  $2,162,980

See
accompanying notes to unaudited condensed consolidated financial statements

eROOMSYSTEM TECHNOLOGIES, INC.
AND SUBSIDIARY

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

For the Three Months Ended
  March 31,2000
  2001Supplemental Cash Flows InformationCash paid for interest
  $3,649
  $13,493Non-Cash Investing And Financing ActivitiesAccrual of preferred stock dividends
  440,757
  Property and equipment acquired by capital lease
  
  16,998Retirement of common stock
  450,000
  Issuance of warrants for advertising agreement
  135,152
  Note receivable for Series C preferred offering
  225,000
  Accrued interest, accounts payable, warrants and payable to
  stockholder 
  converted to notes payable
  56,063
  Sale of assets for settlement of accounts payable  to related parties
  12,935
  

See
accompanying notes to unaudited condensed consolidated financial statements

eROOMSYSTEM TECHNOLOGIES, INC.
AND SUBSIDIARY

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1  ORGANIZATION AND NATURE OF OPERATIONS

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, 2000 Annual Report on Form 10-KSB.  In particular, the Companys significant accounting principles
were presented as Note 2 to the consolidated financial statements in that
report. In the opinion of management, all adjustments necessary for a fair
presentation have been included in the accompanying condensed consolidated
financial statements and consist of only normal recurring adjustments.  The results of operations presented in the
accompanying condensed consolidated financial statements for the three months
ended March 31, 2001 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2001.

NOTE 2  BUSINESS CONDITION

Since inception, the Company has suffered
recurring net losses. During the year ended December 31, 2000 and the three
months ended March 31, 2001, the Company had net losses of  $5,702,365 and $1,034,103, respectively.
During the year ended December 31, 2000 and the three months ended March 31,
2001, the Company's operations used $4,285,183 and $672,553 of cash,
respectively. These matters raise substantial doubt about the Companys ability
to continue as a going concern. In the future, the Company may need to obtain
additional financing to provide working capital for operations.

During March 2001, the Company received its
first funding in the amount of $294,220 related to the agreement with a
financing company to provide funding for its Refreshment Centers which the
Company placed with hotel customers under revenue sharing agreements.  It is anticipated that additional fundings
of approximately $600,000 and $1,000,000 will be completed by the end of the
second and third quarters of 2001, respectively; provided, however, that the
minimum performance standards required by the financing company must be met by
the Companys respective hotel clients during the 90-day seasoning period for
such funding to occur.  In addition,
management is attempting to arrange debt financing for the placement of the Companys
products during the 90-day seasoning period of its revenue sharing program.

The 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 WHOLLY OWNED, UNCONSOLIDATED
SUBSIDIARY

The board of directors of RSi BRE, Inc., a
Nevada corporation and wholly-owned subsidiary (RSi BRE), is comprised of one
appointee from the Company, one appointee from RSG Investments, LLC and one
independent appointee. All operating decisions, including disbursements, of RSi
BRE require unanimous consent of RSi BRE's board of directors. As a result, the
Company does not control RSi BRE. In accordance with EITF 96-16,
"Investor's Accounting for an Investee When the Investor has a Majority of
the Voting Interest But the Minority Shareholder or Shareholders Have Certain
Approval or Veto Rights," the Company has determined that RSi BRE does not
qualify for consolidation in the Company's financial statements.  The Company's investment in RSi BRE is
reflected as an "Investment in Wholly Owned, Unconsolidated Subsidiary"
in the accompanying consolidated balance sheet and is being accounted for under
the equity method of accounting.

At December 31, 2000 and March 31, 2001, the
assets and liabilities of RSi BRE consisted of the following:

December 31,

  March 31,2000

  2001Cash

  $170,288

  $72,651Accounts receivable,
  net of $36,175 allowance for doubtful accounts

  137,406

  123,460Refreshment centers in
  service

  2,090,118

  2,090,118Accumulated
  depreciation

  (492,510)

  (562,111)Accrued liabilities

  (54,505)

  (54,503)Notes payable

  (914,615)

  (905,109)Net Assets

  $936,182

  $764,506On August 15, 2000, 750 units valued at
$737,337 held by RSi BRE were transferred to the Company, and an obligation of
$914,615 was transferred to and assumed by RSi BRE.  Accordingly, depreciation expense was less and interest expense
was higher for the three months ended March 31, 2000 compared to the three
months ended March 31, 2001.

For the three months ended March 31, 2000 and
2001, the revenues and expenses of RSi BRE consisted of the following:

March 31,2000

  2001Revenue
  sharing agreement revenues

  $181,115

  $87,711Depreciation

  (81,080)

  (69,601)Other
  operating expenses

  (13,030)

  (19,113)Interest
  expense

  

  (62,832)Interest
  income

  1,291

  1,437Net
  Income/(Loss)

  $88,296

  $(62,398)NOTE 4  FINANCING AGREEMENT

During 1999, the Company entered into a program
agreement with a finance company to provide funding for Refreshment Centers,
which the Company places with hotel customers under revenue sharing
agreements.   On May 11, 2000, the
Company replaced this agreement with a master business lease financing
agreement.  Then, on February 23,
2001, the master business lease financing agreement was amended and restated
with the following terms.

Under the terms of the financing agreement, the
finance company will fund the Company's product costs for each Refreshment
Center that has been in service for 90 days, subject to the hotel customer
meeting certain requirements and other conditions during that period. Financing
of up to $340 million is available to the Company under the financing
agreement. The Company is obligated to repay each funding pursuant to the
financing agreement over seven years, with a formula-based variable interest
rate.  As part of the financing
agreement, the Company formed a new entity, eRoomSystem SPE, Inc., a Nevada
corporation.  eRoomSystem SPE, Inc. will
own all of the Refreshment Centers funded by the finance company as well as the
related revenue sharing agreements. The finance company will take a senior
security interest in the Refreshment Centers financed under the financing
agreement.

During March 2001, the Company received its
first funding relating to the Refreshment Centers placed by the Company with
hotel customers under qualified revenue sharing agreements. This funding was in
the amount of $294,220 and accrues interest at the seven-year treasury rate
plus 12.5%, or 17.57% per annum.

NOTE 5  COMMITMENTS AND CONTINGENCIES

Capital Leases

In January 2001, the Company entered into a
capital lease agreement to purchase two computer servers with an aggregate
value of  $16,998.  The lease has a term of two years.  The lease payments are $300 per month for
the first twelve months of the lease and $743 per month for the final twelve
months of the lease.

During January 2001, the Company also paid the
remaining obligation of $36,288 relating to its capital lease of various office
and computer equipment.

Legal Matters



On March 12, 2001, the Company reached a
settlement of a lawsuit filed by a former supplier during March 1999.  Under the terms of this settlement, the
Company issued 15,000 restricted common shares, with a value of $1.06 per
share, and $85,000 in cash to the former supplier.

On March 28, 2001, the Company received a
letter from counsel for the Companys former chairman and chief executive
officer, in which counsel claims that the former chairman and chief executive
officer is due certain severance and other payments pursuant to the terms of
his terminated employment agreement. 
The matter is being submitted to binding arbitration per the terms of the
terminated employment agreement of the former chairman and chief executive
officer.  There is no assurance that the
results of the binding arbitration will be favorable to the Company.  The estimated settlement amount has been
accrued in the accompanying financial statements. Resolution of the claim is
not expected to have a material effect on the Companys financial position or
future results of operations.

NOTE 6  STOCK OPTIONS

On January 23, 2001, the Company issued options
pursuant to its 2000 Stock Option and Incentive Plan to purchase a total of
307,200 shares of common stock. Fifty percent of these options vest on June 30,
2001 and the remaining fifty percent vest on December 31, 2001. These options
are exercisable at $1.91 per share and expire three years from the date of
issuance, or January 23, 2004. The granting of the options had no financial
effect due to the exercise price being equal to the market value of the common
stock on the date of grant.  The fair
market value of the options was $.088 per share based on the Black-Scholes
option pricing model with the following assumptions: risk free interest rate of
5.7 percent, volatility of 62.5 percent, expected dividend yield of 0 percent
and an expected life of three years.

During the three months ended March 31, 2001,
23,111 options were forfeited.  After
taking into account the above option activity, the Company had 3,260,649
options outstanding at March 31, 2001.

NOTE 7  SUBSEQUENT EVENT

Pursuant to the terms of the Companys 2000
Stock Option and Incentive Plan, vested options held by terminated employees,
that are unexercised 90 days after the date of termination, will be
cancelled.  As of April 24, 2001, with
respect to the Companys restructuring during the first quarter of 2001,
115,845 unexercised options held by terminated employees have been
cancelled.  These options had no
intrinsic value at the date of issuance; therefore, no expense was recognized
in relation to the cancellation of these options.

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 plans for future
expansion, capital spending, future operations, 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 Registration Statement on
Form SB-2, as filed with the Securities and Exchange Commission on
April 25, 2000 (Commission File No. 333-59492).

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, or Refreshment Centers,
electronic room safes, or eRoomSafes, and other proposed applications.  These other applications will include
information management services, in-room energy management capabilities, credit
card/smart card capabilities for direct billing and remote engineering and
maintenance services.

Our interactive Refreshment Centers
provide hotel guests with a selection of up to 33 different beverages and
snacks and offer the lodging industry an opportunity to capture additional
in-room revenues and reduce operating costs. 
Our eRoomSafes have sufficient storage space for large items such as
laptop computers, personal video cameras and briefcases and generate additional
revenue.  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, Doubletree Hotels, Carlson Hospitality Worldwide and Bass
Hotels.  We believe that our hotel
relationships will continue to provide us with the opportunity to install our
eRoomSystem and related products in premier hotels.

One of the byproducts of our
technology is the information we have collected since our first product
installation.  To date, we have
collected over fourteen 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.  We also intend to market this information to suppliers of goods
sold in our Refreshment Centers and to other users desiring information on the
buying patterns of hotel guests for goods and services.

We believe that our eRoomSystem and
developing technologies will provide a foundation for expansion into the
healthcare and time-share industries. 
We propose to provide healthcare facilities with a comprehensive room
information and management system that will allow these facilities to provide
patients with a wide array of in-room amenities not available to them in the
past.  These amenities will include
Refreshment Centers, eRoomSafes, direct dial long distance, on-demand movies
and other products and services commonly found in a hotel room.  Similar opportunities exist in the
time-share industry.  By offering a
direct credit card billing system, a healthcare or time-share facility can
offer similar services available in hotels.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS
ENDED MARCH 31, 2000 AND 2001

Revenues

Product Sales   Revenues from product sales were $27,265 for
the three months ended March 31, 2001 compared to $0 for the three months
ended March 31, 2000, representing an increase of $27,265.  The increase in revenues from product sales
was due to miscellaneous material sales and the absence of product sales for
the three months ended March 31, 2000.

Revenue Sharing Arrangements  Our
revenue from revenue sharing arrangements was $9,162 for the three months ended
March 31, 2000 and $134,067 for the three months ended March 31,
2001, representing an increase of $124,905. 
The increase in revenue from revenue sharing arrangements was due
primarily to the placement of 1,409 Refreshment Centers and 2,103 eRoomSafes
pursuant to our revenue sharing program during the twelve months ended
March 31, 2001.

Maintenance Fee Revenues  Our
maintenance fee revenues were $39,937 for the three months ended March 31, 2000
and $56,403 for the three months ended March 31, 2001, representing an increase
of $16,466, or 41%.  The increase was
due primarily to seven maintenance contracts entered into by us during the
twelve months ended March 31, 2001.

Cost of Revenue

Cost of Product Sales Revenue  Our
cost of product sales revenue for the three months ended March 31, 2000 was $0
compared to $15,650 for the three months ended March 31, 2001, an increase of
$15,650.  The increase was due to the
cost associated with miscellaneous material sales during the three months ended
March 31, 2001 compared to no sales for the three months ended March 31,
2000.  The gross margin percentage on
revenue from product sales revenue was 43% for the three months ended March 31,
2001.

Cost of Revenue Sharing Revenue 
Our cost of revenue sharing revenue was $7,073 for the three months ended March
31, 2000 and $58,909 during the three months ended March 31, 2001, representing
an increase of $51,836.  The increase in
the cost of revenue sharing revenue was due to increased placement of units
pursuant to our revenue sharing program. 
The gross margin percentage on revenue sharing revenue was 23% for the
three months ended March 31, 2000 and 56% for the three months ended March 31,
2001. The increase in gross margin percentage on revenue sharing revenue from
the three months ended March 31, 2000 to the three months ended March 31, 2001
resulted from increased revenue yields from units placed pursuant to our
revenue sharing program.

Cost of Maintenance Revenue  Our
cost of maintenance revenue was $7,020 for the three months ended March 31,
2000 and $140,329 for the three months ended March 31, 2001 representing an
increase of $133,309.  The gross margin
percentage on maintenance revenues was 82% for the three months ended March 31,
2000 and (149%) for the three months ended March 31, 2001.  The increase in our cost of maintenance
revenue and the decrease in gross margin percentages from the three months
ended March 31, 2000 to the three months ended March 31, 2001 was primarily due
to the expense associated with the repair of a third party manufacturing
defect, which expense may be recoverable.

Operating Expenses

Selling, General and Administrative
 Selling, general and administrative expenses, exclusive of non-cash
compensation expense, were $520,344 for the three months ended March 31, 2000
and $917,871 for the three months ended March 31, 2001, representing an
increase of $397,527, or 76%.  The
increase in our selling, general and administrative expenses from the three
months ended March 31, 2000 to the three months ended March 31, 2001 was
primarily due to the increased payroll and advertising expense in anticipation
of increased sales activities.  In addition,
we experienced an increase in accounting, investor relations and legal expenses
for the three months ended March 31, 2001.

Research and Development Expenses  Research and development expenses
were $49,788 for the three months ended March 31, 2000 and $113,020 for the
three months ended March 31, 2001, representing an increase of $63,232, or
127%.  Research and development expenses
represented 101% of our total revenue for the three months ended March 31, 2000
and 52% of our total revenue for the three months ended March 31, 2001.  The increase in research and development
expenses was primarily due to an increase in efforts related to the development
of a new windows-based platform.

Non-Cash Compensation Expense  
Non-cash compensation expense was $491,825 for the three months ended March 31,
2000 and $0 for the three months ended March 31, 2001.  The non-cash compensation expense recorded
for the three months ended March 31, 2000 resulted from options and warrants
issued to employees and key consultants during that period.

Other Expense, Net

Other expense was $213,018 for the
three months ended March 31, 2000 and $6,059 for the three months ended March
31, 2001, representing a decrease of $206,959, or 97%.  The decrease is due primarily to the
reduction of interest expense as we have paid off a substantial portion of our
loans and an increase in interest and other income.

Loss Attributable to Common Stockholders

We incurred losses attributable to
common stockholders of $1,654,718 and $1,034,103 during the three months ended
March 31, 2000 and 2001, respectively. 
The $620,615 decrease in the loss attributable to common stockholders
was due primarily to increased revenues, decreased interest expense, increased
interest and other income, and the absence of any dividends related to
convertible preferred stock.  We have
continued to incur losses subsequent to March 31, 2001 and, as a result, have
experienced an increase in accumulated deficit.  We believe that we will continue to incur losses for a period of
time.

LIQUIDITY AND CAPITAL RESOURCES

On August 9, 2000, we consummated
our initial public offering for 1,800,000 shares of common stock.  We received gross proceeds of $11.7 million
and, after deducting the underwriting discounts and commissions and the
offering expenses, net proceeds of approximately $9.86 million.  The net offering proceeds have been and will
be used for funding the production and installation of our products and
services, the repayment of a substantial portion of our outstanding
indebtedness and related accrued interest, the payment of cash dividends on our
Series A and Series C convertible preferred stock, our advertising
and promotional expenses, additional research and development to improve our
existing products and services and to develop our future products and services,
and general corporate purposes and working capital.

As of March 31, 2001, we had cash
of $2,162,980 and working capital of $1,697,801 compared to cash of $14,575 and
a working capital deficit of $3,271,963 at March 31, 2000.  The increases in cash and working capital
were the result of cash provided by our initial public offering, net of cash
being used in operations, investment in RSi BRE, increases in inventories and
decreases in deferred offering and financing costs.  These uses of cash were offset, in part, by the proceeds from our
Series C convertible preferred stock offering and the proceeds from the
issuance of promissory notes.  Our
stockholders equity improved from a deficit of $289,813 at March 31, 2000 to
stockholders equity of $4,581,286 at March 31, 2001.  The improvement in stockholders equity primarily resulted from
proceeds of our initial public offering. 
Our accumulated deficit increased from $15,364,767 at March 31, 2000 to
$26,024,439 at March 31, 2001.  The
increase in accumulated deficit resulted primarily from the triggering of a
beneficial conversion feature related to our convertible preferred stock at the
time of our initial public offering and the net loss from operations for the
year ended December 31, 2000 and for the three months ended March 31,
2001.  We anticipate that our
accumulated deficit will continue to increase for a period of time.

At of March 31, 2001, we had cash
of 2,162,980 compared to cash of $2,811,023 at December 31, 2000.  We used cash of $708,129 in operating
activities during the three months ended March 31, 2000 compared to $672,553
used by operating activities during the three months ended March 31, 2001. The
decrease in the use of cash for operating activities primarily resulted from an
increase in the loss before non-cash expenses offset by $171,676 of
distributions from RSi BRE in excess of its losses and by decreases in the use
of cash for current assets and liabilities of $69,360.

Investing activities for the three
months ended March 31, 2000 used $47,121 of cash compared to $127,334 used
during the three months ended March 31, 2001. 
During 2001, our use of cash for investing activities included $90,016
for additions to Refreshment Centers in service and $37,318 for additions to
property and equipment.

Financing activities provided
$656,573 during the three months ended March 31, 2000 compared to $151,844
provided during the three months ended March 31, 2001. The primary source of
cash during the thee months ended March 31, 2001 was our borrowings from
AMRESCO under the terms of our long-term equipment financing agreement, as
discussed below.

The placement of products per
revenue sharing arrangements is capital intensive.  We estimate that we must place approximately 16,000 units
pursuant to our revenue sharing program in order to become profitable.  The first funding pursuant to our long-term
equipment financing arrangement with AMRESCO Leasing Corporation, or AMRESCO,
was in the principal amount of $294,220, before finance costs, and occurred on
March 22, 2001.  We anticipate that
additional fundings of approximately $600,000 and $1,000,000 will be completed
by the end of the second and third quarters of 2001, respectively; provided,
however, the minimum performance standards of AMRESCO must be met by our
respective hotel clients during the 90-day seasoning period for such funding to
occur.

Although we are proposing to
finance our planned expansion through the proceeds our financing arrangement
with AMRESCO, we will need to have sufficient capital to fund our operations
during the 90-day seasoning period.  In
this regard, we may have insufficient cash on hand to finance our planned
expansion and meet our capital expenditure and working capital requirements.  There is no assurance that we will be able
to obtain additional capital in order to fund our operations during the 90-day
seasoning period or that our customers will meet the minimum performance
criteria established by AMRESCO as a pre-requisite to receiving any funding
from AMRESCO.  If we do have sufficient
capital to fund operations during the 90-day seasoning period or if we do not
receive sufficient financing from AMRESCO, we may have to shift more placements
of our units from revenue sharing arrangements to sales.  No assurance can be given that we will be
able to shift the placement of a sufficient number of our units from revenue
sharing arrangements to sales in order to provide adequate liquidity.  These matters raise doubt about our ability
to continue as a going concern.

On January 26, 2001, we terminated
the employment of seventeen employees in an effort to maximize operational
efficiencies and reduce monthly expenses. 
In addition, we expanded the responsibilities of other positions to account
for the terminations.  We have taken a
one-time restructuring charge of $418,606 in the fourth quarter of 2000, but
estimate that the restructuring will result in a $1.1 million reduction in
annual overhead.

QUALITATIVE AND QUANTITATIVE
DISCLOSURES ABOUT MARKET RISK

Our products require a limited
amount of assembly at our facility in the United States.  We purchase refrigerators from suppliers in
Mexico, Italy and China on a purchase order basis in U.S. Dollars.  All other components for our products are
purchased from suppliers based in the United States.  Our products are primarily marketed in the United States, the
Bahamas and Brazil, and we intend to further expand our marketing to the
international lodging market and to other industries domestically and
internationally.  As a result, our
financial results could be affected by weak economic conditions in foreign
markets.  Because all of our revenues
will be denominated in U.S. Dollars, a strengthening of the dollar could make
our products less competitive in foreign markets.

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

PART II
 OTHER INFORMATION

ITEM 1.  LEGAL
PROCEEDINGS.

On March 28, 2001, we received
a letter from counsel for our former chairman and chief executive officer,
Steven L. Sunyich, in which counsel claims that Mr. Sunyich is due
certain severance and other payments pursuant to the terms of his terminated
employment agreement.  The matter is
being submitted to binding arbitration per the terms of Mr. Sunyichs
terminated employment agreement.  There
is no assurance that the results of the binding arbitration will favorable to
us.

ITEM 2.  CHANGES IN
SECURITIES AND USE OF PROCEEDS.

Unregistered
Issuance of Securities.On March 12, 2001, we
issued 15,000 shares of our common stock as part of a settlement agreement
relating to certain claims made against us by a former supplier.  This issuance of securities was exempt from
registration in reliance on Section 4(2) of the Securities Act.

Use of
Proceeds.On August 9, 2000, we completed
the initial public offering of our common stock.  The managing underwriter in the offering was Donald & Co.
Securities Inc.  Our shares of common
stock sold in the offering were registered under the Securities Act in a
Registration Statement on Form SB-2, as amended (File No. 333-34882), or the
Registration Statement.  The Securities
and Exchange Commission, or the Commission, declared the Registration Statement
effective on August 2, 2000.

The initial public offering price
was $6.50 per share for an aggregate sales price of $11.7 million.  We paid underwriting discounts and
commissions of $906,750 and a non-accountable expense allowance of $117,000 to
our underwriter and offering expenses of approximately $820,000.  None of the expenses related to the initial
public offering were paid directly or indirectly to any of our directors,
officers, general partners or their associates, or to any persons owning 10% or
more of any class of our equity securities, or to any of our affiliates.  We received net proceeds from the initial
public offering of approximately $9.86 million after deducting the underwriting
discounts and commissions and the offering expenses.

From the effective date of the
Registration Statement through the three months ended March 31, 2001, we
have used approximately $7.99 million of the $9.86 million of net proceeds from
the initial public offering as follows:

USE
  OF PROCEEDS TO DATE
  AMOUNTFunding
  for production and installation of eRoomSystems, 
  Refreshment Centers and eRoomSafes
  $1,629,235Repayment
  of a substantial portion of our outstanding indebtedness
  and related accrued interest
  3,794,000Payment
  of cash dividends on our Series A convertible
  preferred stock
  218,580Payment
  of cash dividends on our Series C convertible
  preferred stock
  9,677Advertising
  and promotional expenses
  236,488Research
  and development to improve our existing products and
  services and to develop our future products and services
  235,905General
  corporate purposes and working capital
  1,861,906TOTAL
  $7,985,791ITEM 3.  DEFAULTS UPON
SENIOR SECURITIES.

None.

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

On May 7, 2001, we held our annual
meeting of stockholders at Thanksgiving Point, 3003 North Thanksgiving Way,
Lehi, Utah 84043.  We submitted two
proposals to our stockholders, the election of David S. Harkness,
Lawrence S. Schroeder, Dr. Alan C. Ashton, S. Leslie Flegel
and John J. Prehn as our directors and the approval of an amendment to the
eRoomSystem Technologies 2000 Stock Option and Incentive Plan to increase the
number of shares of our common stock authorized for issuance under the plan
from 2,000,000 shares to 2,400,000 shares.

The record date of our annual
meeting was April 4, 2001 on which we had a total of 7,066,019 shares of common
stock outstanding.  A total of 4,248,543
shares, or 60.1% of the total number of outstanding shares of our common stock,
were voted, representing a sufficient number of shares to constitute a quorum.  The results of our annual meeting are as
follows:

Proposal One: 
  Election of DirectorsName
  Votes For
  Votes AgainstDavid S.
  Harkness
  4,137,986
  shares
  110,557
  sharesLawrence S.
  Schroeder
  4,135,660
  shares
  112,883
  sharesDr. Alan C.
  Ashton
  4,137,986
  shares
  110,557
  sharesS. Leslie
  Flegel
  4,137,986
  shares
  110,557
  sharesJohn J.
  Prehn
  4,137,986
  shares
  110,557
  sharesProposal Two: 
  Amendment to the 2000 Stock Option and Incentive PlanVotes For
  Votes Against
  Abstentions2,423,287
  shares
  167,765
  shares
  7,056
  sharesAs a result of the votes cast by
our stockholders at our annual meeting, the two proposal submitted to our
stockholders were passed.

ITEM 5.  OTHER
INFORMATION.

The following officers have adopted
plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended,
for the purchase of shares of our common stock:  David S. Harkness, Derek K. Ellis, Stephen M. Nelson and Gregory
L. Hrncir.  In general, the plans for
these officers provide for the purchase of shares of our common stock on a
monthly basis in the aggregate amount of up to $2,000 per month.

ITEM 6.  EXHIBITS AND
REPORTS ON FORM 8-K

(a)         Exhibits.
             None.

(b)        Reports
on Form 8-K.

We filed a Form 8-K dated March 6,
2001, under Item 5, Other Events, reporting the acceptance by our board
of directors of the resignation of Steven L. Sunyich as chairman of our board
of directors.

SIGNATURE

In accordance with the requirements
of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

eRoomSystem Technologies, Inc.(Registrant)Date:
  May
  15 , 2001
  By:
  /s/
  David S. HarknessDavid
  S. HarknessIts:
  Chief
  Executive Officer and Chairman