EROOM SYSTEM TECHNOLOGIES INC, SB-2/A, 2000-07-14

EROOM SYSTEM TECHNOLOGIES INC
SB-2/A, 2000-07-14
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE>

As filed with the Securities and Exchange Commission on July 14, 2000.
Registration No. 333-34882
================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------------

PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

eRoomSystem Technologies, Inc.
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(Exact name of registrant as specified in its charter)

Nevada 3610 87-0540713
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

3770 Howard Hughes Parkway, Suite 175, Las Vegas, Nevada 89109, (800) 316-3070
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(Address and telephone number of principal executive offices)

Gregory L. Hrncir, General Counsel and Secretary
3770 Howard Hughes Parkway, Suite 175, Las Vegas, Nevada 89109, (800) 316-3070
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(Name, address and telephone number of agent for service)

Copies to:
Michael J. Bonner Michael D. DiGiovanna
John C. Jeppsen Parker Duryee Rosoff & Haft
Robert C. Kim 529 Fifth Avenue
Kummer Kaempfer Bonner & Renshaw New York, New York 10017
3800 Howard Hughes Parkway, 7th Floor (212) 878-1700
Las Vegas, Nevada 89109
(702) 792-7000
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after the
effective date of this Registration Statement.

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If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. / /

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The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act in 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission acting pursuant
to such Section 8(a) may determine.
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus:

(i) one to be used in connection with an offering by eRoomSystem
Technologies, Inc. of 1,800,000 shares of common stock
(2,070,000 shares if the underwriters elect to exercise their
over-allotment option) (the "Prospectus"); and

(ii) one to be used in connection with the sale of 200,000 shares
of common stock currently outstanding and issued to certain
selling stockholders (the "Selling Stockholder Prospectus").

The Prospectus and the Selling Stockholder Prospectus will be substantially
similar except for the cover page, information with respect to the selling
stockholders and other updating information, all of which will be provided
through a post-effective amendment to the Registration Statement on Form SB-2.
An alternative cover page has been included herein and labeled "Alternative Page
for Selling Stockholder Prospectus."

The selling stockholders are restricted from selling their shares of
common stock until 180 days after the closing of the Registrant's initial public
offering, or for a longer period as required by the National Association of
Securities Dealers, Inc. or the Nasdaq Stock Market not to exceed one year.

<PAGE>

The information in this preliminary prospectus is not complete and may be
changed. eRoomSystem Technologies, Inc. may not sell these securities until
the registration statement filed with the Securities and Exchange Commission
is effective. This preliminary prospectus is not an offer to sell these
securities, and it is not seeking an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.

<PAGE>

SUBJECT TO COMPLETION, DATED JULY 14, 2000

PROSPECTUS

1,800,000 SHARES OF COMMON STOCK

[eROOMSYSTEM LOGO]

eROOMSYSTEM TECHNOLOGIES, INC.

This is an initial public offering of 1,800,000 shares of common stock
of eRoomSystem Technologies, Inc. There is currently no public market for our
common stock. In addition to the shares of common stock offered by us, we will
be registering 200,000 shares of our common stock on behalf of selling
stockholders that will be offered through a separate prospectus. These selling
stockholders are subject to a minimum lock-up of 180 days from the closing of
this initial public offering.

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We have applied for quotation of the common stock on the Nasdaq
SmallCap Market under the symbol "ERMS." We currently estimate that the initial
public offering price per share will be between $8.00 and $10.00.

-----------

<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Initial public offering price..................................... $ $
Underwriting discounts and commissions....................... $ $
Proceeds to eRoomSystem Technologies, before expenses............. $ $
</TABLE>

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eRoomSystem Technologies has granted the underwriters an option for a
period of 30 days to purchase up to 270,000 additional shares of common stock.

The securities being sold by us are being offered on a "firm
commitment" basis by Donald & Co. Securities Inc. as representative of the
underwriters. Donald & Co. Securities Inc. expects to deliver the shares against
payment on or about , 2000.

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THESE SECURITIES ARE SPECULATIVE. INVESTING IN OUR COMMON STOCK
INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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DONALD & CO. SECURITIES INC.

______________, 2000
<PAGE>

[INSIDE FRONT COVER]

The inside front cover is entitled "Total Intelligent In-Room Solution
eRoomSystem" and contains graphics of the Registrant's current and future
products and services using a hub and spoke format. The products and services
depicted are: eRoomServ Refreshment Center-TM-, eRoomSafe-TM-,
eRoomMaintenance-TM-(*), eRoomEnergy Management-TM-(*), eRoomManagement-TM-(*),
eRoomHousekeeping-TM-(*), eRoomData Management-TM-(*), and eRoomInternet
Connectivity-TM-(*), with a statement that the asterisks (*) denote products and
services that are under development.

<PAGE>

PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING
"RISK FACTORS" AND OUR FINANCIAL STATEMENTS BEFORE MAKING AN INVESTMENT
DECISION.

OUR BUSINESS

The core business of eRoomSystem Technologies 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 include,
or will include, information management services, in-room energy management
capabilities, credit card/smart card capabilities for direct billing, network
access solutions, 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, 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, Doubletree Hotels and Bass Hotels. We believe
that our hotel relationships will continue to provide us with the opportunity to
install our eRoomSystem and related products worldwide.

One of the byproducts of our technology is the information we have
collected since our first product installation. To date, we have collected over
eleven 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 will be able 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 include Refreshment Centers,
eRoomSafes, direct dial long distance, on-demand movies, Internet access and
other products and services commonly found in a hotel room. Similar
opportunities exist in the time-share industry because many time-share
facilities do not have a front desk or a property management system to bill for
in-room services. By offering a direct credit card billing system, a healthcare
or time-share facility can offer similar services available in hotels.

OUR OFFICES

We maintain offices at 3770 Howard Hughes Parkway, Suite 175, Las
Vegas, Nevada 89109 and 390 North 3050 East, St. George, Utah 84790. Our
telephone number is (800) 316-3070.

1
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THE OFFERING

<TABLE>
<S> <C>
Common stock offered by eRoomSystem Technologies: 1,800,000 shares

Common stock to be outstanding after the offering: 6,221,699 shares

Use of proceeds: We intend to use the net proceeds from this offering
for funding the production and installation of
eRoomSystems, Refreshment Centers and eRoomSafes,
repayment of a substantial portion of our outstanding
indebtedness and related accrued interest, payment of
cash dividends on our Series A and Series C convertible
preferred stock, advertising and promotional expenses,
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.

Proposed Nasdaq SmallCap Market symbol: "ERMS"
</TABLE>

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The number of shares of common stock to be outstanding after the
offering is based on the number of shares outstanding as of June 30, 2000 and
does not include 2,502,963 shares of common stock issuable upon exercise of
outstanding stock options and warrants as of June 30, 2000, with a weighted
average exercise price of $5.77 per share.

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Unless otherwise noted, all information contained in this prospectus
assumes that:

- all outstanding convertible preferred stock will be converted into
2,070,776 shares of common stock upon the closing of this
offering, including 128,791 shares of common stock to be issued
upon the conversion of Series C convertible preferred stock;

- all outstanding convertible notes issued in conjunction with our
Series C convertible preferred stock will not be converted into
shares of common stock and will be paid in full from the proceeds
of this offering;

- the underwriters will not exercise their option to purchase
additional shares of common stock to cover over-allotments, if
any; and

- the public offering price will be $9.00 per share.

2
<PAGE>

SUMMARY FINANCIAL INFORMATION

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following tables summarize the financial information for our
business. The summary financial information set forth below should be read in
conjunction with the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999 2000
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<S> <C> <C> <C> <C> <C> <C> <C>
Revenue........................... $ 356 $ 710 $ 4,666 $ 1,011 $ 541 $ 114 $ 49
Cost of revenue................... 301 804 3,339 793 363 45 14
Gross margin (deficit)............ 55 (94) 1,327 218 178 69 35
Loss from operations.............. (805) (1,804) (219) (2,128) (2,586) (426) (1,027)
Net loss.......................... (877) (2,219) (1,000) (4,145) (3,672) (700) (1,240)
Dividends related to convertible
preferred stock................. - - - (19) (607) (36) (415)
Loss attributable to common
stockholders.................... (877) (2,219) (1,000) (4,164) (4,279) (736) (1,655)
Basic and diluted loss per common
share (1)....................... (1.56) (2.61) (0.76) (1.37) (1.33) (0.21) (0.75)
Basic and diluted weighted
average common shares
outstanding (1)................. 560 850 1,314 3,029 3,221 3,545 2,197
Basic and diluted supplemental
pro forma loss per common share
(1)............................. (1.84) (1.65)
Basic and diluted supplemental
pro forma weighted average
common shares outstanding (1)... 5,163 4,245
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
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PRO FORMA
ACTUAL PRO FORMA (2) AS ADJUSTED (3)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................... $ 15 $ 15 $ 11,595
Working capital (deficit).............................. (3,272) (3,272) 9,864
Total assets........................................... 5,042 5,042 16,650
Long-term liabilities.................................. 994 994 69
Total stockholders' equity (deficit)................... (290) (290) 13,777
</TABLE>

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(1) See Note 2 of Notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing
per share data.

(2) The pro forma amounts reflect the conversion, upon the closing of this
offering, of our outstanding Series A, Series B and Series C convertible
preferred stock into 400,000 shares, 1,541,985 and 106,061 shares of our
common stock, respectively.

(3) Pro forma as adjusted amounts reflect the pro forma adjustments at note (2)
above, as well as the sale of 1,800,000 shares of common stock in this
offering at an assumed initial public offering price of $9.00 per share,
after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, the conversion of the remaining
shares of our Series C convertible preferred stock into an additional
22,730 shares of common stock, the issuance of 200,000 shares of common
stock in connection with the bridge loan, the issuance of 41,640 shares of
common stock for accrued interest and dividends between April 1, 2000 and
June 30, 2000, and the issuance of 777 shares of common stock to an
employee as a result of a prior error in the calculation of shares issuable
to the employee.

3
<PAGE>

RISK FACTORS

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY
CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES, BEFORE YOU
PURCHASE ANY SHARES OF OUR COMMON STOCK. THE FOLLOWING RISKS, IF THEY OCCUR,
COULD MATERIALLY HARM OUR BUSINESS, FINANCIAL CONDITION OR FUTURE RESULTS OF
OPERATIONS. IF THAT OCCURS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE,
AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.

RISKS RELATED TO eROOMSYSTEM TECHNOLOGIES

WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE CONTINUED
OPERATING LOSSES, AND WE MAY BE UNABLE TO ACHIEVE PROFITABILITY

We have a history of operating losses. For the years ended December 31,
1998 and 1999 and the three months ended March 31, 2000, we have incurred losses
applicable to common stockholders of $4,164,037, $4,279,444 and $1,654,718,
respectively, and our operations have used $2,931,871, $2,304,807 and $708,129
of cash, respectively. As of December 31, 1998 and 1999 and March 31, 2000, we
had accumulated deficits of $9,404,597, $13,684,041 and $15,338,759,
respectively, working capital deficits of $3,358,343, $2,650,616 and $3,271,963,
and stockholders' deficits of $2,428,105, $23,852 and $289,813, respectively. In
addition, we are in default under a portion of our promissory notes in the
aggregate amount of $1,138,820, including accrued interest.

If our revenues decline or grow at a slower rate than we anticipate, or
if our spending levels exceed our expectations or cannot be adjusted to reflect
slower revenue growth, our business would be severely harmed. We cannot assure
you that revenues will grow in the future or that we will generate sufficient
revenues for profitability, or that profitability, if achieved, can be sustained
on an ongoing basis.

GIVEN OUR RECURRING LOSSES, ACCUMULATED DEFICITS AND DEFAULTS UNDER
MANY OF OUR DEBT AGREEMENTS, WE MAY BE UNABLE TO CONTINUE AS A GOING CONCERN

Our independent auditors issued a report on their audit of our
consolidated financial statements for the years ended December 31, 1998 and
1999. Their report contains an explanatory paragraph in which they state that
our history of recurring losses, our working capital and stockholders' deficits
and our defaults under many of our debt agreements raise substantial doubt
regarding our ability to continue as a going concern.

We are attempting to raise additional equity capital through this
offering and to arrange additional debt financing for our products. Subsequent
to December 31, 1999, we received gross proceeds of $2,212,500 in debt financing
and $637,500 in additional preferred equity financing through private offerings.
If we fail to complete this offering, we cannot assure you that we will have
sufficient capital to fund operations or that we will be able to arrange
additional financing for our products.

DUE TO THE CAPITAL INTENSIVE NATURE OF OUR BUSINESS, WE WILL BE UNABLE
TO INCREASE OUR REVENUES OR ACHIEVE PROFITABILITY IF WE DO NOT OBTAIN FUNDING
PURSUANT TO OUR EXISTING FINANCING ARRANGEMENT OR OTHERWISE

The emphasis of our business model on a revenue sharing program
significantly increases our need for long-term financing in addition to the
proceeds from this offering because we offer our products at little or no
upfront cost to our customers. In order to address our long-term capital needs,
we have entered into an exclusive post-installation financing arrangement with
Amresco Leasing Corporation. Under the financing arrangement, Amresco will
finance up to 150% of our costs for the Refreshment Centers and eRoomSafes upon
the completion of a 90-day seasoning period after installation and the
satisfaction of pre-funding requirements.

Prior to Amresco funding, properties must satisfy minimum performance,
occupancy and liquidity requirements. If our customers fail to meet Amresco's
requirements or if Amresco were to delay or refuse to provide our required
financing, we cannot assure you that other long-term financing will be available
in sufficient amounts or on terms acceptable to us, or at all. Our inability to
obtain long-term financing will prevent us from placing additional products
under our revenue sharing program or manufacturing products for sale. In
addition to

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<PAGE>

our long-term financing arrangement and the proceeds of this offering, we may
require additional short-term financing to cover the costs of the production
and installation of our products until the completion of the 90-day seasoning
period.

IF WE FAIL TO SHIFT SUCCESSFULLY OUR BUSINESS MODEL FROM SALES TO A
REVENUE SHARING PROGRAM, WE MAY BE UNABLE TO INCREASE OUR REVENUES OR ACHIEVE
PROFITABILITY

We have traditionally relied upon the sale of our products. Recently,
we shifted the focus of our business model from product sales to our revenue
sharing program. Our business model is new and our ability to generate revenues
or profits is unproven. Under our revenue sharing program, we offer our products
at little or no upfront cost to our customers and share the revenue generated by
our products over a seven-year period. Our success under our revenue sharing
program is dependent upon the participating hotel's compliance with covenants
regarding the placement of our Refreshment Centers, the location in the hotel
and quantity of competing vending machines that sell goods similar to those in
our Refreshment Centers, and the price of goods sold through the vending
machines. We cannot assure you that our portion of the revenues generated will
be sufficient to cover the costs to produce, install, maintain and finance our
products.

THE INTEREST RATE FOR OUR LONG-TERM FINANCING WILL RESULT IN A HIGHER
INTEREST RATE THAN WE MAY HAVE BEEN ABLE TO NEGOTIATE IF WE WERE STRONGER
FINANCIALLY WHICH WILL RESULT IN REDUCED OPERATING AND PROFIT MARGINS

The financing arrangement we negotiated with Amresco will result in an
interest rate higher than the interest rate we may have been able to negotiate
if we were stronger financially. Due to the exclusive nature of this financing
arrangement in the domestic lodging industry, our ability to obtain financing
for revenue sharing agreements at more advantageous interest rates during the
seven-year term of the financing arrangement will be contractually restricted.

OUR FAILURE TO MAINTAIN OUR CURRENT RELATIONSHIPS WITH HOTEL CHAINS, TO
ENTER INTO DEFINITIVE AGREEMENTS WITH OTHER HOTEL CHAINS AND TO ENTER INTO
AGREEMENTS WITH THE FRANCHISEES OF THESE HOTEL CHAINS MAY RESULT IN OUR
INABILITY TO INCREASE REVENUES OR ACHIEVE PROFITABILITY

Although we are the exclusive or preferred vendor of interactive
computerized Refreshment Centers for a number of premier hotel chains, these
arrangements may not generate any sales or placements of our products. Due to
the franchisor-franchisee relationship between many hotel chains and their hotel
properties, we must not only establish exclusive or preferred vendor
relationships with the hotel chains, but must also enter into definitive
agreements with the franchisees of these hotel chains for the sale or placement
of our products into the actual hotel properties. Further, all but one of our
relationships with the hotel chains are not binding agreements, but are merely
open-ended arrangements that are subject to change. The failure to maintain our
current relationships with hotel chains, secure additional relationship with
hotel chains and enter into definitive agreements with franchisees of these
hotel chains will harm our ability to install additional products and services
and may result in our inability to increase revenues or achieve profitability.

OUR ABILITY TO ESTABLISH TWO OR MORE THIRD PARTY TURNKEY MANUFACTURING
SOURCES TO MEET OUR PROJECTED DEMAND IS DEPENDENT UPON OUR LIMITED EXPERIENCE IN
DEALING WITH TURNKEY MANUFACTURERS AND MAY AFFECT THE NUMBER OF INSTALLATIONS
UNDER OUR REVENUE SHARING PROGRAM

Our Refreshment Centers require a limited amount of assembly at our St.
George, Utah facility. Since our existing facility is not sufficient to meet our
projected growth, we will either have to establish two or more third party
turnkey manufacturing sources, expand our assembly facility or hold orders for
our products unfulfilled. We presently intend to establish third party turnkey
manufacturing sources to meet our projected demand.

If our installations increase significantly, our ability to establish
sufficient turnkey manufacturing sources is critical to our future success. The
selection of suitable turnkey manufacturers is subject to our limited experience
in dealing with turnkey manufacturers and is dependent upon our ability to
identify turnkey manufacturers who can assemble our products on a timely basis
and in a quality manner. We have had preliminary discussions with several third
parties to establish turnkey manufacturing arrangements, but we have not agreed
to any of the terms of such

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<PAGE>

arrangements. We cannot assure you that we will be able to locate
satisfactory turnkey manufacturing sources and, if located, that the
additional costs of such turnkey manufacturing sources will not erode our
ability to achieve profitability.

WE WILL BE UNABLE TO DELIVER AND INSTALL OUR PRODUCTS TO MEET OUR
PROJECTED GROWTH UNLESS WE EXPAND OUR EXISTING INFRASTRUCTURE ON A TIMELY BASIS

Using the net proceeds from this offering and our financing arrangement
with Amresco, we intend to expand our customer base for our current products and
to develop and market new products and services. If we are successful, our
business will require the implementation of expanded operational and financial
systems, procedures and controls, billing functions, the training of a larger
employee base, and increased coordination among our software, hardware,
accounting, finance, marketing, sales and field service staffs. We will be
unable to deliver and install our products to meet our projected growth unless
we expand our existing infrastructure on a timely basis.

Our assembly and service and installation departments are presently
insufficient to assemble, install, manage and service our projected growth.
While we are actively recruiting personnel for our assembly and service and
installation departments to meet our future needs, St. George, Utah has a
relatively small population base from which to hire qualified employees. If we
cannot recruit additional personnel to meet our projected growth, we will not be
able to deliver and install our products on a timely basis.

WE MAY EXPERIENCE REDUCED OPERATING MARGINS AND LOSS OF MARKET SHARE
DUE TO THE INTENSE COMPETITION FROM COMPANIES WITH LONGER OPERATING HISTORIES,
GREATER RESOURCES AND MORE ESTABLISHED BRAND NAMES THAT MARKET IN-ROOM AMENITIES
TO THE LODGING INDUSTRY

The market for in-room amenities in the lodging industry is
competitive, and we expect competition to intensify in the future. Our
competitors vary in size and in the scope and breadth of the products and
services they offer. Our competitors, such as Dometic, Bartech, Inc., MiniBar
America, Inc. and ElSafe, Inc., have longer operating histories, larger customer
bases, greater brand recognition, and substantially greater capital, research
and development, manufacturing, marketing, service, support, technical and other
resources than we do. As a result, our competitors may be able to devote greater
resources to marketing campaigns, adopt more aggressive pricing policies or
devote substantially more resources to customer and business development than we
can.

We also anticipate additional competition from new entrants into the
room management and related aspects of our business. In addition, we may from
time to time make pricing, service or marketing decisions or acquisitions as a
strategic response to changes in the competitive environment. Our response to
this increased competition may result in reduced operating margins and loss of
market share.

WE MAY NOT BE SUCCESSFUL IN THE EXPANSION OF OUR BUSINESS TO THE
HEALTHCARE AND TIME-SHARE INDUSTRIES AS WE HAVE HISTORICALLY OPERATED IN THE
LODGING INDUSTRY

We have traditionally focused our marketing efforts on the lodging
industry. We are proposing to expand the marketing of our eRoomSystem,
Refreshment Centers and eRoomSafes to the healthcare and time-share industries.
As we have little or no experience in these new industries, we may not be
successful in marketing our products and services outside of the lodging
industry. As a result, we will be confronted with challenges and competition
that we have never faced before. We cannot assure you that we will be able to
meet the new challenges and competitors associated with these new industries.

WE MAY NOT BE SUCCESSFUL IN THE EXPANSION OF OUR BUSINESS AS WE HAVE
LITTLE OR NO EXPERIENCE WITH RESPECT TO OUR PROPOSED NEW PRODUCTS AND SERVICES,
SUCH AS IN-ROOM ENERGY MANAGEMENT, COORDINATION OF HOUSEKEEPING AND ENGINEERING
ACTIVITIES, INTERNET ACCESS, VIDEOCONFERENCING AND OTHER COMMUNICATIONS

Part of our growth strategy consists of expanding our offerings to
include products and services we have not provided in the past. For example, we
plan to offer new products and services, such as in-room energy management,
coordination of housekeeping and engineering activities, Internet access,
videoconferencing and other communications. As we have little or no experience
with respect to these new products and services, we may not be

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<PAGE>

successful in expanding our product offerings. As a result, we cannot assure
you that we will be successful in expanding our products and services or that
we will be able to meet the new challenges and competitors associated with
the expansion of our products and services.

IF WE ARE UNABLE TO OBTAIN ALL OF THE TRADEMARKS, SERVICE MARKS AND
PATENTS FOR WHICH WE HAVE MADE APPLICATIONS, OUR ABILITY TO ESTABLISH BRAND NAME
RECOGNITION OF OUR eROOMSYSTEM, PRODUCTS AND SERVICES MAY BE HARMED

We have made trademark or service mark applications for eRoomSystem,
eRoomServ Refreshment Center, eRoomSafe, eRoomManagement, eRoomEnergy
Management, eRoomData Management, eRoomInternet Connectivity, eRoomMaintenance
and eRoomHousekeeping. In addition, we have submitted two patent applications
with respect to our Refreshment Center. If we are unable to obtain all of the
trademarks, service marks and patents for which we have made applications, we
may not be able to establish brand name recognition of our eRoomSystem, products
and services.

IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY INFORMATION, SUCH AS THE
SOFTWARE AND THE HARDWARE FOR OUR eROOMSYSTEM AND THE INFORMATION COLLECTED BY
OUR eROOMSYSTEM, AGAINST UNAUTHORIZED USE BY OTHERS, OUR COMPETITIVE POSITION
COULD BE HARMED

We believe our proprietary information, including the software and the
hardware for our eRoomSystem and the information collected by our eRoomSystem,
is important to our competitive position and is a significant aspect of the
products and services we provide. If we are unable to protect our proprietary
information against unauthorized use by others, our competitive position could
be harmed. We generally enter into confidentiality or non-compete agreements
with most of our employees and consultants, and control access to and
distribution of our documentation and other proprietary information. Despite
these precautions, we cannot assure you that these strategies will be adequate
to prevent misappropriation of our proprietary information. We could be required
to expend significant amounts to defend our rights to proprietary information.

OUR ABILITY TO MARKET SUCCESSFULLY TO THE INTERNATIONAL LODGING
INDUSTRY IS SUBJECT TO OUR INEXPERIENCE WITH, AND LACK OF KNOWLEDGE OF, THE
LAWS, POLITICAL AND ECONOMIC ENVIRONMENT, LANGUAGE AND CULTURAL DIFFERENCES, AND
BUYING PATTERNS OF CUSTOMERS IN THOSE MARKETS

Part of our growth strategy is to expand into the international lodging
market. Our ability to initiate and maintain successful operations in
international markets include, among others, compliance with foreign laws and
regulations, fluctuations in foreign currency, general political and economic
trends, and language and cultural differences. As the international lodging
market represents only a small portion of our current business, we will have to
allocate significant resources in order to promote our products internationally.
Revenues from our current operations, let alone revenues from our proposed
international operations, may not offset the expense of establishing and
maintaining these international operations.

We do not have sufficiently experienced management or sales personnel
with relationships in international markets or a knowledge of the respective
laws, political and economic environment, language and cultural differences or
buying patterns of customers in those markets to effectively market and sell our
products in international markets. We may be required to enter into
distributorship or other similar agreements for particular geographic areas. If
so, we cannot assure you that we will be successful in soliciting the best
distributors, or that if distributors are selected, that the additional costs of
such distributors will not erode our ability to achieve profitable sales or
revenue sharing arrangements for the placement of our products.

-7-

<PAGE>

RISKS RELATED TO OUR INDUSTRY

DUE TO THE HEIGHTENED REGULATORY ENVIRONMENT IN WHICH HOTEL-CASINOS
OPERATE AND OUR INTENT TO MARKET TO THESE PROPERTIES, WE MAY BE SUBJECT TO
INCREASED SCRUTINY, REQUIRED TO EXPEND ADDITIONAL RESOURCES OR FOREGO SUCH
BUSINESS

Due to the heightened regulatory environment in which hotel-casinos
operate, and our intent to market to these properties, our operations may be
subject to review by a hotel-casino's compliance committee to verify that its
involvement with us would not jeopardize its gaming license. If our history or
operations present problems for regulated customers or potential customers, such
as hotel-casinos, we would either have to expend resources to address or
eliminate the concerns or forego the business. Under either scenario, our
ability to increase our revenues or achieve profitability may be negatively
impacted.

RISKS RELATED TO THIS OFFERING

OUR EXECUTIVE OFFICERS AND MEMBERS OF OUR BOARD OF DIRECTORS, INCLUDING
DIRECTOR DESIGNEES, WILL EXERCISE SIGNIFICANT CONTROL OVER eROOMSYSTEM
TECHNOLOGIES AND COULD LIMIT THE ABILITY OF OUR OTHER STOCKHOLDERS TO INFLUENCE
THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER TRANSACTIONS SUBMITTED TO A VOTE OF
STOCKHOLDERS

Immediately following this offering, our executive officers and members
of our board of directors, including director designees, will beneficially own
1,869,467 shares of common stock, or approximately 25.8% of the outstanding
shares of our common stock. If the underwriters' over-allotment option is
exercised in full, our executive officers and members of our board of directors,
including director designees, will beneficially own approximately 24.8% of the
outstanding shares of our common stock. These stockholders will have the power
to influence all matters requiring approval by our stockholders, including the
election of directors and approval of mergers and other significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of eRoomSystem Technologies.

THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE
NEAR FUTURE MAY CAUSE OUR STOCK PRICE TO FALL

Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price for our common stock
to decline. Upon completion of this offering, and based upon assumptions set
forth in this prospectus, there will be 6,221,699 outstanding shares of common
stock, of which 1,800,000 shares, or approximately 28.9% of our outstanding
shares of common stock, will be sold in this offering plus shares issued upon
exercise of the underwriter's over-allotment option, if any. All of the shares
sold in this offering will be immediately available for resale.

In addition, in connection with the bridge loan of $1,500,000 we
received, we are registering 200,000 shares of common stock under the
registration statement relating to this prospectus. These shares may be sold no
earlier than 180 days following the completion of this offering by seven selling
stockholders. In light of existing lock-up arrangements, up to 1,044,251 shares,
or approximately 16.8% of our outstanding shares of common stock, will be
immediately available for resale in accordance with Rule 144(k) under the
Securities Act, and 95,430 shares will be available for sale 90 days after the
date of this prospectus subject to restrictions set forth in Rule 144 under the
Securities Act. These shares, along with the shares of common stock sold in this
offering, represent approximately 48.9% of our outstanding shares of common
stock.

Further, we have options and warrants outstanding to purchase 2,502,963
shares of our common stock, of which options and warrants to purchase 2,442,630
shares are immediately exercisable. The underlying shares of common stock will
be available for sale one year after the date of exercise subject to the
restrictions set forth in Rule 144 under the Securities Act.

The sale of a substantial number of shares of our common stock within a
short period of time after the closing of this offering could cause our stock
price to fall. In addition, the sale of these shares could impair our abilities
to raise capital through the sale of additional common stock.

-8-

<PAGE>

AS A RESULT OF OUR PRO FORMA NET TANGIBLE BOOK DEFICIT PER SHARE,
INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
AND DISPARITY IN STOCK PURCHASE PRICE

The initial public offering price is expected to be substantially
higher than our pro forma net tangible book deficit of $0.24 per share at March
31, 2000. Accordingly, investors in this offering will experience immediate and
substantial dilution of approximately $6.90 in net tangible book value per
share, or approximately 76.7% of the assumed offering price of $9.00 per share.
In contrast, stockholders as of March 31, 2000 paid an average price of $3.25
per share. Investors will incur additional dilution upon the exercise of
outstanding stock options and warrants.

DUE TO THE OUTSTANDING OPTIONS AND WARRANTS TO PURCHASE A SIGNIFICANT
NUMBER OF SHARES OF COMMON STOCK, INCLUDING A SUBSTANTIAL NUMBER OF OPTIONS
GRANTED IN 2000 TO OUR EXECUTIVE OFFICERS, INVESTORS IN THIS OFFERING MAY
EXPERIENCE ADDITIONAL DILUTION WITH RESPECT TO THE STOCK PURCHASE PRICE AND THE
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING

We have outstanding options and warrants to purchase 2,502,963 shares
of common stock at exercise prices ranging from $1.00 to $16.00 per share. Of
this amount, during the six months ended June 30, 2000, we issued to our
executive officers options to purchase 707,266 shares of common stock at
exercise prices ranging from $4.00 to $9.60. To the extent that all or a portion
of those options and warrants are exercised, the investors in this offering will
experience additional dilution with respect to the stock purchase price and the
number of shares of common stock outstanding.

Even though the investors in this offering risk additional dilution,
all of our executive officers are subject to lock-up agreements which prohibit,
without the underwriter's consent, the offer or sale of any common stock within
the first 18 months after the closing of this offering, the offer or sale of
more than 10% of our outstanding common stock in any of the two calendar
quarters immediately following the initial 18-month period, and, in any of the
next four calendar quarters thereafter, the offer or sale of more than the
lesser of 25% of our outstanding common stock or the amount subject to the
volume limitation prescribed by Rule 144 under the Securities Act.

-9-

<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Some of the information in this prospectus contains forward-looking
statements within the meaning of the federal securities laws. These statements
include, among others, the following:

- the use of proceeds of this offering;

- those pertaining to the implementation of our operating and
growth strategy; and

- our projected capital expenditures.

These statements may be found under "Prospectus Summary," "Risk
Factors," "Dividend Policy," "Capitalization," "Dilution," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." Forward-looking statements typically are identified by use of terms
such as "may," "will," "would," "expect," "anticipate," "estimate" and similar
words, although some forward-looking statements are expressed differently. You
should be aware that our actual results could differ materially from those
contained in forward-looking statements due to a number of factors, including:

- our ability to achieve corporate contracts with large hotel
chains and definitive agreements with franchisees;

- our successful management of new product development;

- our ability to outsource the manufacture and assembly of our
products effectively;

- our ability to finance our products effectively and
profitably;

- our ability to maintain and expand our revenue sharing
program;

- our ability to compete effectively in the lodging industry;

- our ability to successfully diversify into the international,
healthcare, cruise ship and time-share markets;

- our ability to manage expansion effectively; and

- general economic and business conditions in our markets and
industry.

You should also consider carefully the statements under "Risk Factors"
and other sections of this prospectus, which address additional factors that
could cause our actual results to differ from those set forth in the
forward-looking statements.

-10-

<PAGE>

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the shares of common
stock we are offering will be approximately $14.0 million, or approximately
$16.2 million if the underwriters' over-allotment option is exercised in full.
"Net proceeds" are what we expect to receive after paying the underwriting
discount and related offering expenses. Assuming the underwriter does not
exercise the over-allotment option, we expect to pay an underwriting discount
and non-accountable expense allowance of $1,417,500 and expenses related to this
offering of approximately $820,000. For the purpose of estimating net proceeds,
we are assuming that the public offering price will be $9.00 per share.

We intend to use the net proceeds from the sale of the shares for the
following purposes and in the following amounts and percentages:

PROPOSED USE AMOUNT PERCENTAGE
------------ ------ ----------
<S> <C> <C>
Funding for production and installation of eRoomSystems, Refreshment
Centers and eRoomSafes................................................ $ 5,320,000 38.1%
Repayment of a substantial portion of our outstanding indebtedness and
related accrued interest.............................................. 3,990,000 28.6%
Payment of cash dividends on our Series A convertible preferred stock.... 235,000 1.7%
Payment of cash dividends on our Series C convertible preferred stock.... 11,000 0.1%
Advertising and promotional expenses..................................... 1,693,000 12.1%
Research and development to improve our existing products and services
and to develop our future products and services....................... 800,000 5.7%
General corporate purposes and working capital........................... 1,911,000 13.7%
----------- ------
TOTAL $13,960,000 100.0%
----------- ------
----------- ------

</TABLE>

The proceeds allocated to the production and installation of
Refreshment Centers and eRoomSafes will be used to purchase the components for
the assembly of our Refreshment Centers and eRoomSafes and the materials for the
installation of our Refreshment Centers and eRoomSafes.

The proceeds allocated to the repayment of our outstanding indebtedness
and related accrued interest have been calculated as of June 30, 2000. This
outstanding indebtedness consists of the following:

- Promissory notes bearing interest rates ranging from 10% to
15% per annum issued from 1996 to 1999 and related accrued
interest in the aggregate amount of approximately $1,138,820,
all of which are currently in default;

- Promissory note bearing an interest rate of 10% per annum
issued to RSG Investments, LLC, an entity in which John J.
Prehn, one of our director designees, is a member, and related
accrued interest in the amount of $818,750;

- Promissory note issued to Ash Capital, LLC, an entity
controlled by Dr. Alan C. Ashton, one of our director
designees, and related accrued interest in the amount of
$287,405;

- Repayment of bridge loan bearing an interest rate of 9% per
annum and related accrued interest in the amount of
$1,528,125; and

- Convertible subordinated promissory notes bearing an interest
rate of 7% per annum issued in conjunction with our Series C
convertible preferred stock and related accrued interest in
the amount of $216,262.

-11-

<PAGE>

On September 28, 1999, we entered into an Equipment Transfer Agreement
with RSG Investments whereby we executed in favor of RSG Investments a
promissory note in the original principal amount of $750,000. This promissory
note bears an interest rate of 10% per annum and is payable on August 1, 2000.
Since this promissory note was issued in conjunction with the satisfaction of
our prior obligations to RSG Investments, we did not receive any proceeds from
the issuance of this promissory note.

On February 15, 2000, Ash Capital loaned us $500,000 in the form of a
promissory note bearing an interest rate of 10% per annum and payable on July
31, 2000. We used the proceeds from this loan for the production and
installation of eRoomSystems and Refreshment Centers and general and
administrative expenses. We have made payments of $230,000 on this promissory
note as of June 30, 2000.

On April 12, 2000, we closed our private placement of units, each unit
consisting of 7% Series C convertible preferred stock, a convertible
subordinated promissory note and warrants to purchase common stock. We used the
gross proceeds of $850,000 from this private placement for the production and
installation of eRoomSystems, Refreshment Centers and eRoomSafes and general and
administrative expenses.

On April 13, 2000, we issued a subordinated promissory note in the
original principal amount of $1,500,000, bearing interest at the rate of 9% per
annum, or the bridge loan, and 200,000 shares of common stock in conjunction
with the bridge loan. We used the proceeds from the bridge loan to fund the
production and installation of eRoomSystems, Refreshment Centers and eRoomSafes
and general and administrative expenses.

The above discussion represents our present intentions for the use of
the proceeds of this offering based on our currently contemplated operations,
business plan and the prevailing economic and industry conditions. Changes in
the use of proceeds of this offering may be made in response to changes in our
financial condition, business plans or growth strategy and changes in general
industry conditions.

-12-

<PAGE>

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock.
Our board presently, and for the foreseeable future, intends to retain all of
our earnings, if any, for the development of our business. The declaration and
payment of cash dividends in the future will be at the discretion of our board
and will depend upon a number of factors, including, among others, our future
earnings, operations, funding requirements, restrictions under our credit
facility, our general financial condition and any other factors that our board
considers important. Investors should not purchase our common stock with the
expectation of receiving cash dividends.

The terms of our outstanding shares of Series A convertible preferred
stock, Series B convertible preferred stock and Series C convertible preferred
stock provide for annual cumulative dividends of 8%, 6% and 7%, respectively.

Although no cash dividends have been paid to date to holders of our
Series A convertible preferred stock, holders of such preferred stock have
accrued cash dividends of $234,452 as of June 30, 2000.

As for our Series B convertible preferred stock, we have issued
dividends of $303,027 in the form of 81,392 shares of common stock as of June
30, 2000.

With respect to our Series C convertible preferred stock, holders of
such preferred stock have accrued cash dividends of $10,125 as of June 30, 2000.

We intend to pay all accrued dividends to holders of Series A
convertible preferred stock and holders of Series C convertible preferred stock
from the net proceeds of this offering. Upon the closing of this offering, no
shares of Series A, Series B or Series C convertible preferred stock will be
outstanding and, as a result, no further dividends will accrue.

-13-

<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2000:

- on an actual basis;

- on a pro forma basis to reflect the conversion of our outstanding
shares of Series A, Series B and Series C convertible preferred
stock at March 31, 2000 into 2,048,046 shares of our common stock
and recognition of beneficial conversion features, as adjusted; and

- on a pro forma as adjusted basis to reflect:

- the conversion of our currently outstanding shares of Series
A, Series B and Series C convertible preferred stock into
2,070,776 shares of our common stock and recognition of
beneficial conversion features, as adjusted;

- the immediate amortization of our $1,385 debt discount and the
issuance of 7,500 warrants valued at $9,148 related to the
Series C convertible preferred stock;

- the issuance of the bridge loan, including the issuance of
200,000 shares of common stock, of which $1,051,402 was
allocated to debt and $440,374 to common stock;

- the issuance of 1,800,000 shares of common stock by us in this
offering at an assumed initial public offering price of $9.00
per share, after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us,
as well as the payment of $3,583,919 in notes payable and
$405,967 in accrued interest; and

- the issuance of 41,640 shares of common stock valued at
$135,734 for accrued interest and dividends between April 1,
2000 and June 30, 2000, and the issuance of 777 shares of
common stock to an employee.

<TABLE>
<CAPTION>
As of March 31, 2000
------------------------------------------------------
Pro Forma As
Actual Pro Forma Adjusted
-------------- -------------- --------------
<S> <C> <C> <C>
Notes payable and current portion of long-term debt and
capital lease obligations................................. $ 2,139,048 $ 2,139,048 $ 1,017,629
-------------- --------------- ---------------
Long-term debt and capital lease obligations, net of current
portion................................................... $ 994,413 $ 994,413 $ 69,413
-------------- --------------- ---------------
Stockholders' equity (deficit):
Series A convertible preferred stock, $0.001 par
value; 500,000 shares authorized, 360,000 shares
outstanding (actual), none outstanding (pro forma
and pro forma as adjusted)......................... 1,332,953 - -
Series B convertible preferred stock, $0.001 par
value; 2,500,000 shares authorized, 2,081,680
shares outstanding (actual), none outstanding (pro
forma and pro forma as adjusted)................... 6,482,592 - -
Series C convertible preferred stock, $0.001 par
value; 2,000,000 shares authorized, 161,535 shares
outstanding (actual), none outstanding (pro forma
and pro forma as adjusted)......................... 456,407 - -
Undesignated preferred stock, $0.001 par value;
5,000,000 shares authorized; no shares outstanding
(actual, pro forma and pro forma as adjusted)...... - -
Common stock, $0.001 par value; 50,000,000 shares
authorized, 2,108,506 shares outstanding (actual),
4,156,552 (pro forma) and 6,221,699 (pro forma as
adjusted).......................................... 2,109 4,157 6,222
Additional paid-in capital............................... 5,935,576 19,119,738 33,761,139
Warrants and options outstanding......................... 1,454,309 1,454,309 1,463,457
Notes receivable from stockholders....................... (615,000) (615,000) (615,000)
Accumulated deficit...................................... (15,338,759) (20,253,017) (20,838,734)
-------------- ------------- --------------
Total stockholders' equity (deficit)................. (289,813) (289,813) 13,777,084
-------------- ------------- --------------
Total capitalization.............................. $ 704,600 $ 704,600 $ 13,846,497
============== ============= ==============
</TABLE>

-14-
<PAGE>

DILUTION

Our pro forma net tangible book value (deficit) as of March 31, 2000
was approximately $(989,000), or $(0.24) per share of common stock. Pro forma
net tangible book value (deficit) per share is determined by dividing the amount
of our pro forma tangible assets less total liabilities by the pro forma number
of shares of common stock outstanding at that date. Dilution in net tangible
book value per share represents the difference between the amount per share paid
by purchasers of shares of common stock in this offering and the pro forma as
adjusted net tangible book value per share of common stock immediately after the
completion of this offering.

After giving effect to the issuance and sale of the shares of common
stock offered by us at an assumed initial public offering price of $9.00 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, and the application of the estimated
net proceeds from this offering, our pro forma as adjusted net tangible book
value as of March 31, 2000 would have been approximately $13,078,345, or $2.10
per share. This represents an immediate increase in pro forma net tangible book
value to our existing stockholders of $2.34 per share and an immediate dilution
to purchasers in this offering of $6.90 per share, or 76.7% of the assumed
initial public offering price of $9.00 per share. If the initial public offering
price is higher or lower, the dilution to purchasers in this offering will be
greater or less, respectively.

The following table illustrates the dilution on a per share basis:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $9.00
Pro forma net tangible book deficit per share at March 31, 2000......... $(0.24)
Increase in pro forma net tangible book value per share attributable to
this offering........................................................ 2.34
--------
Pro forma as adjusted net tangible book value per share after this
offering................................................................ 2.10
Dilution per share to new investors....................................... $6.90
-------
</TABLE>

Assuming the exercise in full of the underwriters' over-allotment
option, our pro forma as adjusted net tangible book value at March 31, 2000
would have been approximately $2.36 per share, representing an immediate
increase in pro forma net tangible book value of $2.60 per share to our existing
stockholders and an immediate dilution in pro forma net tangible book value of
$6.64 per share to purchasers in this offering.

The following table summarizes, on a pro forma basis as of March 31,
2000, the differences between the number of shares of common stock purchased
from us, the aggregate effective cash consideration paid to us and the average
price per share paid by existing stockholders and new investors purchasing
shares of common stock in this offering. The calculation below is based on an
assumed initial public offering price of $9.00 per share, before deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 4,421,699 71% $ 14,381,278 47% $ 3.25
New investors.................... 1,800,000 29% 16,200,000 53% $ 9.00
----------- --------- ------------- ----------
Total....................... 6,221,699 100% $ 30,581,278 100%
=========== ========= ============= ==========
</TABLE>

This discussion and table assumes no exercise of any stock options and
warrants outstanding as of March 31, 2000, and includes the conversion of Series
A, Series B and Series C convertible preferred stock into common stock. As of
March 31, 2000, there were options and warrants outstanding to purchase a total
of 2,490,317 shares of common stock with a weighted average exercise price of
$5.77 per share. To the extent that any of these options and warrants are
exercised, there will be further dilution to new investors.

-15-
<PAGE>

SELECTED FINANCIAL DATA

This section presents selected historical financial data of eRoomSystem
Technologies. You should read carefully the financial statements included in
this prospectus, including the notes to the financial statements. The selected
information in this section is not intended to replace the financial statements.

We derived the selected consolidated statement of operations data
presented below for each of our 1998 and 1999 fiscal years and the balance sheet
data at December 31, 1998 and 1999 from our audited consolidated financial
statements appearing elsewhere in this prospectus.

We derived the selected consolidated statement of operations data
presented below for each of our 1995, 1996 and 1997 fiscal years and the balance
sheet data at December 31, 1995, 1996 and 1997 from our audited financial
statements not appearing in this prospectus.

We derived the selected consolidated statement of operations date below
for each of our March 31, 1999 and 2000 three month periods provided and the
balance sheet data at March 31, 2000 from our unaudited interim consolidated
financial statements.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product sales..................... $ 169 $ 360 $ 4,431 $ 917 $ 144 $ - $ -
Revenue sharing arrangements...... 129 269 133 46 213 64 9
Maintenance fees.................. 58 81 102 48 183 50 40
-------- -------- --------- ------- -------- -------- --------
Total revenue.................. 356 710 4,666 1,011 540 114 49
-------- -------- --------- ------- -------- -------- --------
Cost of revenue:
Product sales..................... 221 625 3,203 711 118 - -
Revenue sharing arrangements...... 50 110 55 21 166 40 7
Maintenance fees.................. 30 69 81 61 78 5 7
-------- -------- --------- ------- -------- -------- --------
Total cost of revenue.......... 301 804 3,339 793 362 45 14
-------- -------- --------- ------- -------- -------- --------
Gross margin (deficit).............. 55 (94) 1,327 218 178 69 35
-------- -------- --------- ------- -------- -------- --------
Operating expenses:
Selling general and administrative
(exclusive of non cash
compensation).................... 771 1,439 1,231 2,058 2,388 422 520
Research and development (exclusive
of non cash compensation)........ 89 271 216 284 271 73 50
Non cash compensation expense..... - - 99 4 105 - 492
-------- -------- --------- -------- -------- -------- --------
Total operating expenses....... 860 1,710 1,546 2,346 2,764 495 1,062
-------- -------- --------- -------- -------- -------- --------
Loss from operations................ (805) (1,804) (219) (2,128) (2,586) (426) (1,027)
-------- -------- --------- -------- -------- -------- --------
Other income (expense):
Interest expense.................. (73) (430) (809) (1,923) (1,445) (341) (303)
Equity in income of unconsolidated,
wholly owned subsidiary.......... - - - - 148 - 88
Interest and other income......... 1 15 28 313 211 67 2
-------- -------- --------- -------- -------- -------- --------
Other income (expense), net.... (72) (415) (781) (1,610) (1,086) (274) (213)
-------- -------- --------- -------- -------- -------- --------
Loss before extraordinary loss...... (877) (2,219) (1,000) (3,738) (3,672) (700) (1,240)
Extraordinary loss, net of income
taxes............................. - - - (407) - - -
-------- -------- --------- -------- -------- --------- --------
Net loss............................ $ (877) $(2,219) $(1,000) $(4,145) $(3,672) $ (700) $(1,240)
======== ======== ========= ======== ======== ========= ========
Dividends related to convertible
preferred stock................... $ - $ - $ - $ (19) $ (607) $ (36) $ (415)
======== ======== ========= ======== ======== ========= ========
</TABLE>

-16-
<PAGE>

BALANCE SHEET DATA:
Cash................................ 236 188 330 2 113 15
Working capital deficit............. (666) (2,191) (3,702) (3,358) (2,651) (3,272)
Total assets........................ 1,316 2,911 2,429 2,520 4,351 5,042
Long-term liabilities............... 1,270 2,340 83 63 867 994
Total stockholders' deficit......... (986) (2,666) (2,441) (2,428) (24) (290)
</TABLE>

-----------

(1) See Note 2 of the notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing
per share data.

-17-
<PAGE>

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 prospectus. 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, including those set forth under "Risk Factors," "Special Note Regarding
Forward-Looking Information" and elsewhere in this prospectus.

OVERVIEW

We design, assemble and market our eRoomSystem, an intelligent, in-room
computer platform and communications network. The eRoomSystem supports our line
of fully-automated and interactive Refreshment Centers and electronic
eRoomSafes, and other proposed applications for use in the lodging and other
industries. Historically, we have installed our principal products, our
Refreshment Centers and eRoomSafes, in hotels. Our proprietary eRoomSystem uses
our patented credit card technology that integrates with our file server located
at the hotel, or the eRoomSystem file server.

DESCRIPTION OF REVENUES

In the past, we have received substantially all of our revenues from
the sale or placement under a revenue sharing program of our products in hotels
in the lodging industry, and 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 their guests, makes us 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
typically 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.

Historically, we have been restricted in our ability to market our
products due to limited working capital. Prior to 1998, our marketing efforts
focused primarily on selling our products. In 1998, as a result of the lodging
industry's general lack of available financing or capital for the purchase of
equipment, we modified our business model to emphasize our revenue sharing
program as our primary product placement program. As a result of our shift in
focus to our revenue sharing program, our gross revenues decreased in 1998 and
1999 and significantly greater capital requirements were added to our business
model. However, our revenue sharing program provides us with an ongoing
seven-year revenue stream under each revenue sharing agreement. Because many of
our customers in the lodging industry traditionally have limited capacity to
finance the purchase of our products, we designed our revenue sharing program to
require little or no upfront cost to our customers.

Through our revenue sharing plan, we install our products at little or
no cost to our customers and share in the recurring revenues generated from
sales of goods and services related to our products. Ownership of the
eRoomSystems, Refreshment Centers and eRoomSafes is retained by us throughout
the term of the revenue sharing agreements. We retain the right to re-deploy any
systems returned to us upon the expiration or earlier termination of the revenue
sharing agreements. We believe that our revenue sharing program will increase
future placements of our products; however, we cannot assure you that we will be
successful in this effort.

We have experienced substantial fluctuations in revenues from
period-to-period as a result of limited working capital to fund the 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 expect that for the foreseeable future, the majority of our revenues
will result from the placement of our products pursuant to our revenue sharing
program, followed by sales and, to a lesser extent, from maintenance

18
<PAGE>

agreements. We project that we will receive approximately 60% of the
recurring revenues from the sale of goods generated by the eRoomSystems,
Refreshment Centers and eRoomSafes placed under the revenue sharing
agreements. Our customers receive the remainder of the recurring revenues.
Amresco will be paid from our portion of the revenues. Over the term of a
revenue sharing agreement, we estimate that the revenues over the initial
years are sufficient for us to recover our costs.

We have installed more than 11,500 Refreshment Centers and 4,000
eRoomSafes primarily in the United States, as well as in Brazil and the Bahamas.
We intend to continue to offer our products domestically and internationally to
the lodging industry, and tailor our products and services for introduction into
the healthcare, time-share and cruise line industries. We anticipate that a
significant portion of our future revenues will be derived from these markets;
however, we cannot assure you that we will be successful in this effort.

We also plan to increase our revenues in the foreseeable future by
bundling additional products and services with our current products, such as our
in-room energy management system, a thin client network which consists of a
centrally-managed network of computers configured with only essential equipment
and without CD-ROM drives, diskette drives and peripheral expansion slots, a
high-speed wired and wireless communications network allowing for Internet and
intranet access, and information management services. We anticipate that as the
installation base of our products increases, the marketability and value of the
information we collect and manage will increase. We also expect to generate
revenue from the packaging and marketing of our information-based data as our
installation base expands.

REVENUE RECOGNITION

Revenues from sales of our products are recognized upon completion of
installation and acceptance by the customer.

Revenues from the placement of our 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 approximately 40% on either the sale, or placement through
our revenue sharing program, of Refreshment Centers and eRoomSafes.

We 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.

We anticipate profit margins will increase as a result of greater
placement of our products pursuant to our revenue share program. We also expect
to 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 proposed in-room energy management system, high-speed wired and wireless
communication network for use with the Internet and the intranet 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. Our
installation, maintenance and license agreements stipulate that we collect a
maintenance fee per Refreshment Center per day to be paid monthly. We expect to
generate gross profit margins of 50% from our maintenance-related revenues. We
base this expectation on our historical cost of maintenance of less than $0.04
per unit per day and, pursuant to our maintenance agreements, our projected
receipt of $0.08 per unit per day. Historically, our maintenance revenues have
represented 5% of total revenues.

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 Refreshment Centers and

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<PAGE>

eRoomSafes placed under revenue sharing agreements. Cost of maintenance fee
revenues primarily consists of expenses related to customer support and
maintenance.

Selling, general and administrative expenses include selling expenses
consisting primarily of advertising, promotional activities, trade shows 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

The following table sets forth selected statement of operations data as
a percentage of total revenues for the years and three month periods indicated:

<TABLE>
<CAPTION>
Year ended December 31, Three months ended March 31,
1998 1999 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Product sales.......................................... 90.6% 26.7 0.0% 0.0%
Revenue share arrangements............................. 4.6 39.5 56.5 18.7
Maintenance fees....................................... 4.8 33.8 43.5 81.3
------------- ------------- ------------- -------------
Total revenue....................................... 100.0 100.0 100.0 100.0
------------- ------------- ------------- -------------
Cost of revenue:
Product sales.......................................... 70.3 21.8 -- --
Revenue share arrangements............................. 2.1 30.7 34.6 14.4
Maintenance............................................ 6.0 14.6 4.6 14.3
------------- ------------- ------------- -------------
Total cost of revenue............................... 78.4 67.1 39.2 28.7
------------- ------------- ------------- -------------
Gross margin.............................................. 21.6 32.9 60.8 71.3
------------- ------------- ------------- -------------

Operating expenses:
Selling, general and administrative (exclusive of
non-cash compensation)................................ 203.5 441.8 370.9 1,059.8
Research and development (exclusive of non-cash
compensation) 28.1 50.2 64.3 101.4
Non cash compensation expense (income)................. 0.4 19.4 -- 1,001.7
------------- ------------- ------------- -------------
Total operating expenses............................ 232.0 511.4 435.2 2,162.9
------------- ------------- ------------- -------------
Loss from operations...................................... (210.4) (478.5) (374.4) (2,091.6)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense....................................... (190.1) (267.2) (299.7) (618.4)
Equity in income of unconsolidated, wholly owned
subsidiary -- 27.3 -- 179.8
Interest and other income.............................. 30.9 39.0 59.1 4.8
Other expense, net.................................. (159.2) (200.9) (240.6) (433.8)
Loss before income taxes and extraordinary loss........... (369.6) (679.4) (615.0) (2,525.4)
Loss before extraordinary loss............................ (369.6) (679.4) (615.0) (2,525.4)
Extraordinary loss, net of income taxes................... (40.3) -- -- --
------------- ------------- ------------- -------------
Net loss.................................................. (409.9)% (679.4)% (615.0)% (2,525.4)%
------------- ------------- ------------- -------------
Dividends related to convertible preferred stock.......... (1.8) (112.3) (31.2) (844.7)
------------- ------------- ------------- -------------
Loss attributable to common stockholders.................. (411.7)% (791.7)% (646.2)% (3,370.1)%
------------- ------------- ------------- -------------
</TABLE>

20
<PAGE>

THREE MONTHS ENDED MARCH 31, 2000 AND 1999

REVENUES

Product Sales -- We did not recognize revenue from product sales in the
three months ended March 31, 1999 or March 31, 2000. The lack of revenue from
product sales is consistent with our continued emphasis to place our products
pursuant to our revenue sharing arrangement.

Revenue Sharing Arrangements -- Our revenue from revenue sharing
arrangements was $64,341 for the three months ended March 31, 1999 and $9,162
for the three months ended March 31, 2000, representing a decrease of $55,179,
or 86%. In September 1999, we transferred approximately 2,000 Refreshment
Centers under revenue share arrangements to RSi BRE, an unconsolidated, wholly
owned subsidiary. Because RSi BRE is not consolidated, the related revenues are
not included in our financial statements. Rather, we record our equity in RSi
BRE's income for each respective period. The revenue sharing revenue for these
units was recognized as revenue sharing income during the three months ended
March 31, 1999. Subsequent to the transfer of the revenue sharing units in
September 1999, we produced and installed approximately 800 additional
Refreshment Centers and approximately 800 eRoomSafes through the three months
ended March 31, 2000 which have been transferred to RSi BRE.

Maintenance Fee Revenues -- Our maintenance fee revenues were $49,567
for the three months ended March 31, 1999 and $39,937 for the three months ended
March 31, 2000, representing a decrease of $9,630, or 19%, from the three months
ended March 31, 1999 to the three months ended March 31, 2000. The decrease from
the three months ended March 31, 1999 to the three months ended March 31, 2000
was due primarily to the expiration of maintenance contracts representing 753
units.

COST OF REVENUE

Cost of Product Sales Revenue -- We did not realize any cost of product
sales revenue during the three months ended March 31, 1999 or during the three
months ended March 31, 2000.

Cost of Revenue Sharing Revenue -- Our cost of revenue sharing revenue
was $39,409 during the three months ended March 31, 1999 and $7,073 during the
three months ended March 31, 2000, representing a decrease of $32,336, or 82%.
The gross margin percentage on revenue sharing revenue was 39% in the three
months ended March 31, 1999 and 23% in the three months ended March 31, 2000.
The decrease in gross margin percentage on revenue sharing revenue from the
three months ended March 31, 1999 to the three months ended March 31, 2000
resulted from the impact of placing more expensive Refreshment Centers, which
included eRoomSafes, without a corresponding increase in the related revenues.
We have adjusted the percentage of revenues allocated to us to provide for a
higher percentage of revenues for units including eRoomSafes.

Cost of Maintenance Revenue -- Our cost of maintenance revenue was
$5,260 in the three months ended March 31, 1999 and $7,020 in the three months
ended March 31, 2000 representing an increase of $1,760, or 33%. The gross
margin percentage on maintenance revenues was 89% in the three months ended
March 31, 1999 and 82% in the three months ended March 31, 2000. The decrease in
gross margin percentage from the three months ended March 31, 1999 to the three
months ended March 31, 2000 was mainly due to the expiration of contracts
representing 753 units and our reduced revenue to cover fixed costs associated
with the cost of maintenance revenue.

OPERATING EXPENSES

Selling, General and Administrative -- Selling, general and
administrative expenses, exclusive of non-cash compensation expense (income),
were $422,442 in the three months ended March 31, 1999 and $520,344 in the three
months ended March 31, 2000, representing an increase of $97,902, or 23%.
Selling, general and administrative expenses represented 371% of our total
revenues in the three months ended March 31, 1999 and 1060% of our total
revenues in the three months ended March 31, 2000. The increase from the three
months ended

21
<PAGE>

March 31, 1999 to the three months ended March 31, 2000 was primarily due to
the increase of staffing in anticipation of increased product placement
activity in subsequent quarters.

Research and Development Expenses -- Research and development expenses
were $73,231 in the three months ended March 31, 1999 and $49,788 in the three
months ended March 31, 2000, representing a decrease of $23,443, or 32%.
Research and development expenses represented 64% of our total revenue in the
three months ended March 31, 1999 and 101% of our total revenue in 1999. The
decrease in research and development expenses resulted from the reorganization
of the research and development department in an effort to maximize the
efficiency of its operation.

Non-Cash Compensation Expense -- Non-cash compensation expense was $0
in the three months ended March 31, 1999 and $491,825 in the three months ended
March 31, 2000. The non-cash compensation expense recorded in the three months
ended March 31, 2000 resulted from payments in the form of options to purchase
common stock and payments in the form of common stock to consultants of the
company.

Other Income (Expense), Net -- Other expense was $274,093 in the three
months ended March 31, 1999 and $213,018 in the three months ended March 31,
2000, representing a decrease of $61,075, or 22%. The decrease is due primarily
to the recognition of $88,296 in equity income from a wholly owned subsidiary,
RSi BRE and reduced interest expense related to the amortization of deferred
financing costs.

Income Taxes -- As of March 31, 2000, we had net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $10 million that expire at various dates from 2008 to 2020. We had
net deferred tax assets, including our net operating loss carryforwards and
other temporary differences between book and tax deductions, that total
approximately $3.9 million as of March 31, 2000. A valuation allowance in the
amount of $3.9 million has been recorded as of March 31, 2000 as a result of
uncertainties regarding the realizability of the net deferred tax assets.

YEARS ENDED DECEMBER 31, 1999 AND 1998

REVENUES

Product Sales -- Our product sales revenue was $916,650 in 1998 and
$144,282 in 1999, representing a decrease of $772,368, or 84%, from 1998 to
1999. During 1998, we shifted our focus from selling products to placing
products pursuant to our revenue sharing program. Additionally, during 1998, we
produced and placed approximately 2,000 refreshment centers under revenue share
arrangements which subsequently have been transferred to RSi BRE, an
unconsolidated, wholly owned subsidiary. Because RSi BRE is not consolidated,
the related revenues are not included in our financial statements. Rather, we
record our equity in RSi BRE's income for each respective period. The decrease
from 1998 to 1999 was due to our transition from product sales to placement of
our products pursuant to our revenue sharing program, a lack of sufficient
working capital and an additional 436 refreshment centers which were produced
and installed in 1999, but which have been transferred to RSi BRE.

Revenue Sharing Arrangements -- Our revenue from revenue sharing
arrangements was $46,524 in 1998 and $213,654 in 1999, representing an increase
of $167,130, or 359%, from 1998 to 1999. During 1998, we began placing products
under revenue sharing arrangements after we shifted our focus from sales of
products. The increase from 1998 to 1999 was due to our continuing transition
from product sales to placement of our products pursuant to our revenue sharing
program.

Maintenance Fee Revenues -- Our maintenance fee revenues were $48,288
in 1998 and $182,581 in 1999, representing an increase of $134,293, or 278%,
from 1998 to 1999. The increase from 1998 to 1999 was due primarily to
maintenance revenues we earn related to the Refreshment Centers owned by RSi
BRE. We perform the maintenance of the RSi BRE units and accordingly receive the
maintenance revenues. The increase is also due to our placement of additional
products pursuant to our revenue sharing program.

22
<PAGE>

COST OF REVENUE

Cost of Product Sales Revenue -- Our cost of product sales revenue was
$711,355 in 1998 and $118,010 in 1999, representing a decrease of $593,345, or
83%, from 1998 to 1999. The gross margin percentage on product sales was 22% in
1998 and 18% in 1999. The decrease in gross margin percentage on product sales
from 1998 to 1999 primarily resulted from further reductions in production and
corresponding increases in the cost per unit, and fixed costs from unapplied
overhead costs.

Cost of Revenue Sharing Revenue -- Our cost of revenue sharing revenue
was $21,104 in 1998 and $165,995 in 1999, representing an increase of $144,891,
or 687%, from 1998 to 1999. The gross margin percentage on revenue sharing
revenue was 55% in 1998 and 22% in 1999. The decrease in gross margin percentage
on revenue sharing revenue from 1998 to 1999 resulted from the impact of placing
more expensive Refreshment Centers, which included eRoomSafes, without a
corresponding increase in the related revenues. When we initially began
including eRoomSafes with Refreshment Centers, our intent was that a separate
charge would be paid by the hotel guest for use of the safe. However, separate
charges were not consistently implemented by the hotels. Subsequently, we have
adjusted the percentage of revenues allocated to us when eRoomSafes are
included.

Cost of Maintenance Revenue -- Our cost of maintenance revenue was
$60,797 in 1998 and $78,518 in 1999 representing an increase of $17,721, or 29%,
from 1998 to 1999. The gross margin percentage on maintenance revenues was (26%)
in 1998 and 57% in 1999. The increase in gross margin percentage from 1998 to
1999 was mainly due to the placement of additional units which enabled us to
cover our fixed overhead costs.

OPERATING EXPENSES

Selling, General and Administrative -- Selling, general and
administrative expenses, exclusive of non-cash compensation expense, were
$2,058,150 in 1998 and $2,387,811 in 1999, representing an increase of $329,661,
or 16%, from 1998 to 1999. Selling, general and administrative expenses
represented 204% of our total revenues in 1998 and 442% of our total revenues in
1999. The increase from 1998 to 1999 was primarily due to the creation of an
allowance for bad debts on notes receivable to purchase shares of preferred
stock.

Research and Development Expenses -- Research and development expenses
were $284,532 in 1998 and $271,230 in 1999, representing a decrease of $13,302,
or 5%, from 1998 to 1999. Research and development expenses represented 28% of
our total revenue in 1998 and 50% of our total revenue in 1999.

Non-Cash Compensation Expense -- Non-cash compensation expense was
$3,955 in 1998 and $105,005 in 1999. The compensation expense recorded in 1998
related to the issuance of 908 options to a consultant for services rendered.
During the year ended December 31, 1999, the non-cash compensation expense was
due to the issuance of options to non-employees for services rendered and the
issuance of 3,134 shares of common stock for services rendered.

Other Income (Expense), Net -- Interest expense was $1,922,638 in 1998
and $1,444,532 in 1999, representing a decrease of $478,106, or 25%, from 1998
to 1999. The decrease is due primarily to the conversion of $2.3 million of
borrowings to equity during 1998 and the corresponding decrease in related
interest expense and amortization of deferred financing costs.

Income Taxes -- As of December 31, 1999, we had net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $10.3 million that expire at various dates from 2008 to 2019. We
had net deferred tax assets, including our net operating loss carryforwards and
other temporary differences between book and tax deductions, total approximately
$3.7 million as of December 31, 1999. A valuation allowance in the amount of
$3.7 million has been recorded as of December 31, 1999 as a result of
uncertainties regarding the realizability of the net deferred tax assets.

23
<PAGE>

DIVIDENDS RELATED TO CONVERTIBLE PREFERRED STOCK

During 1998, we obtained equity capital through the issuance of Series
A convertible preferred stock which provides for annual cumulative dividends of
8%. The dividends on Series A convertible preferred stock represented $18,541 in
1998, $144,000 in 1999 and $35,901 in the three months ended March 31, 2000.
Series A convertible preferred stock will convert to common stock upon the
closing of this offering. In connection with the Series A convertible preferred
stock, we will record an additional dividend of $1.8 million upon conversion
which represents the contingent beneficial conversion feature, a conversion
feature that provides for conversion at a ratio greater than one-to-one, that
will accrue to the Series A convertible preferred stockholders at the date of
conversion.

During 1999, we obtained equity capital through the issuance of Series
B convertible preferred stock which provides for annual cumulative dividends of
6%. The dividends on the Series B convertible preferred stock are payable in
shares of common stock and represented $141,899 in 1999 and $67,452 in the three
months ended March 31,2000. Series B convertible preferred stock will convert to
common stock upon the closing of this offering. In addition, the holders of
Series B convertible preferred stock received a $1,249,008 beneficial conversion
feature at the date of issuance and an additional $2,498,016 beneficial
conversion feature on March 29, 2000 in connection with our three-for-four
reverse stock split. In addition, the amendment and restatement of the
Certificate of Designation for Series B convertible preferred stock on April 12,
2000 which modified the conversion rate required the recognition of an
additional beneficial conversion feature. The beneficial conversion feature, as
modified, is being accrued as a dividend between the date of issuance of the
Series B convertible preferred stock and September 28, 2000, the date which the
holders of Series B convertible preferred stock have the right to convert their
shares of Series B convertible preferred stock into shares of common stock on a
1.5-for-1 basis.

During March and April 2000, we obtained equity capital through the
issuance of Series C convertible preferred stock which provides for annual
cumulative dividends of 7%. As of March 31, 2000, there were no dividends
accrued on the Series C convertible preferred stock. As of June 30, 2000,
dividends of $10,125 have accrued. Since the Series C convertible preferred
stock will be automatically converted into common stock upon the close of this
offering, no additional dividends will accrue after the close of this offering.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2000, we had cash of $14,575 and a working capital
deficit of $3,271,963 compared to cash of $113,252 and a working capital deficit
of $2,650,616 at December 31, 1999. The decreases in cash and working capital
were the result of cash being used in operations, investment in RSi BRE,
increases in inventories and increases 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 net cash used in operating activities for the three months ended
March 31, 2000 was $708,129. Cash used in operating activities was primarily
attributable to a net loss of $748,144, excluding non-cash compensation expense
of $491,825. Our net cash used in operating activities for the year ended
December 31, 1999 was $2,304,807. Cash used in operating activities was
primarily attributed to a net loss. Our net cash used in operating activities
for the year ended December 31, 1998 was $2,931,871, mostly due to a net loss of
$4,145,496. This loss was partially attributable to a non-cash loss on debt
extinguishment of $407,000, non-cash interest expense of $777,666, amortization
debt offering and financing costs of $560,921 and was partially offset by
interest accrued on notes receivable from stockholders of $274,691.

Our primary investing activities have historically consisted of
expenditures relating to our revenue sharing program and for property and
equipment. Investing activities for the three months ended March 31, 2000
consisted of purchases for equipment and additional investments in RSi BRE.
Additionally in 1999, we invested $572,544 in RSi BRE. The expenditures in 1999
for Refreshment Centers were $1,711,105 compared to $246,161 for 1998. We expect
our investing activity to increase significantly in the third and fourth quarter
of 2000 due to an increased placement of our products under our revenue sharing
program. Additionally, we anticipate that we will experience an increase in our
capital expenditures and lease commitments for property and equipment consistent
with anticipated growth in operations, infrastructure and personnel.

24
<PAGE>

Our financing activities provided $656,373 of cash for the three months
ended March 31, 2000. For the three months ended March 31, 2000, cash provided
from financing activities consisted of $357,177 received from the sale of
preferred stock and $583,304 from borrowings on promissory notes. Our financing
activities provided $2,900,872 and $4,712,097 for the years ended December 31,
1998 and 1999, respectively. In 1999, cash provided by financing activities
consisted of $4,439,775 from the sale of preferred stock and warrants, $477,669
from borrowings, and $299,195 from notes payable to officers and stockholders.
In 1999, cash used for financing activities consisted of $400,789 of payments on
borrowings, $15,753 of payments on capital lease obligations, and $88,000 of
deferred offering costs. In 1998, cash provided by financing activities
consisted of $2,265,058 from borrowings and $390,043 and $600,275 from the sale
of common and preferred stock, respectively. In 1998, cash used for financing
activities consisted of $127,971 of payments on borrowings, $12,500 of payments
on notes payable to a stockholder and officer, $9,190 of payments on capital
lease obligations and $204,843 of offering costs.

In 1999, we entered into the Amended and Restated Program Agreement
with Amresco which represented an exclusive post-installation financing
arrangement for the funding of units placed with domestic hotel customers under
our revenue sharing agreements. On May 11, 2000, we replaced this agreement with
a Master Business Lease Financing Agreement. Under the terms of this agreement,
we can finance up to 150% of the cost of purchase and up to $350 million of our
products over the seven-year term of the agreement. Although the interest rate
is variable at the seven-year treasury rate plus an additional variable
incremental rate, we estimate that the majority of funding will bear an interest
rate of the seven-year treasury rate plus 7.5%. The interest rate varies due to
the changes in the incremental rate based upon the total amount outstanding
under the financing arrangement. The timing of the funding depends upon when the
units at each property qualify for funding. As part of the financing, we have
formed a new entity, eRoomSystem SPE, Inc., a Nevada corporation and wholly
owned subsidiary. eRoomSystem SPE will own all the products funded by Amresco
under revenue sharing agreements. Amresco will take a senior security interest
in the products, and all proceeds generated by and derived from the products,
financed under the financing agreement.

The funding under this financing arrangement occurs, at the earliest,
90 days after our units are installed at the property if the units meet minimum
performance criteria during the 90-day period. A property will satisfy the
minimum performance criteria if the property retains an average of 20% of the
gross daily revenue generated on a per unit per day basis during the 90-day
period. Although we modify the basic structure of our revenue sharing program to
reflect the particular demographics of each property, our basic revenue sharing
program provides that we collect an average of 90% of the initial $0.78
generated by each unit per day and 15% of all revenue generated by each unit per
day over the initial $0.78 generated. The revenue generated by each unit per day
is calculated by dividing the gross revenues generated by all units in the
property on a monthly basis by the number of days in the month and the total
number of units installed at the property.

Under our basic revenue sharing program, a property must have average
revenues of $0.90 per unit per day to satisfy the performance criteria of
Amresco and to qualify for funding under this financing arrangement. If a
property were to generate revenues of $0.90 per unit per day, we would receive
$0.72 per unit per day and the property would receive $0.18 per unit per day.
Due to the historical performance of our units, we believe that the units placed
pursuant to our basic revenue sharing program will meet the performance criteria
of Amresco and qualify for funding under our financing arrangement with Amresco.

As of March 31, 2000, our debt, secured by our assets, consisted of
$130,000 in notes issued in a 1996 private debt offering, $431,750 in notes
issued in a 1997 private debt/equity offering, $35,115 in notes issued in a 1999
private debt offering, a $1,555,554 obligation payable to RSG Investments, a
$100,000 note payable to an individual and a $500,000 note payable to a company.
This obligation payable to RSG Investments consists of a $750,000 promissory
note. As of March 31, 2000, our unsecured debt consisted of a $158,354 note
payable to a corporation for services performed, $9,372 in notes payable to a
bank and secured by vehicles, a $6,062 note an individual, a convertible
promissory note $135,198, as well as $71,704 of capital lease obligations. As of
March 31, 2000, we had an accumulated deficit of $15,338,759, and we were in
default under a significant portion of our debt obligations. Additionally, we
were past due with several of our accounts payable vendors which could affect
our ability to procure inventory and services for our operations. We need to
obtain additional financing to fund payment of past due and current debt
obligations and to provide working capital for operations.

25
<PAGE>

With respect to our material commitments, we have entered into
operating leases for our facilities and equipment and have entered into
employment agreements with certain officers and key employees. We operate our
facilities and equipment under non-cancellable operating leases with future
minimum rental payments of $132,886, $119,836 and $104,030 for the years ending
December 31, 2000, 2001 and 2002, respectively. The future minimum lease
payments on capitalized leases are calculated to be $35,728, $35,728 and $27,776
for the years ending December 31, 2000, 2001 and 2002, respectively. Under our
current agreements with our officers and key employees, we will pay base
salaries of $964,400, $995,625 and $1,089,300 for the years ending December 31,
2000, 2001 and 2002, respectively.

We believe that our current cash on hand, after receiving approximately
$777,750 of net proceeds from the sale of units consisting of Series C
convertible preferred stock, convertible promissory notes and warrants to
purchase common stock, the $500,000 loan dated February 15, 2000 from Ash
Capital, the $1.5 million bridge loan dated April 13, 2000 from a group of
investors, together with the net proceeds from this offering and the funds from
our long-term equipment financing arrangement will be sufficient to meet our
capital expenditures and working capital requirements, including those from our
planned expansion, for at least the next twelve months. However, we may need to
raise additional funds to support more rapid expansion, respond to competitive
pressures, invest in our new technology offerings and other product offerings or
respond to unanticipated requirements. We cannot assure you that additional
funding will be available to us in amounts or on terms acceptable to us. If
sufficient funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of additional product development
opportunities, develop or enhance our products or services, or otherwise respond
to competitive pressures would be significantly limited.

PRIOR PRIVATE PLACEMENTS AND FINANCINGS

Since our incorporation, we have funded our operations primarily
through loans and through sales of our common and preferred stock.

From July 1996 through March 1997, we raised gross proceeds of
$1,470,000 from a private placement of promissory notes secured by our assets.
Each $20,000 promissory note had a term of one year and was accompanied by a
warrant to purchase 3,300 shares of common stock at $2.67 per share exercisable
for the lesser of five years or three years from the close of this offering. We
issued warrants to purchase a total of 242,550 shares of common stock to
investors and warrants to purchase 86,250 shares of common stock to our
placement agent. The promissory notes were all in default as of January 1998. In
order to avoid foreclosure on our assets, we issued to the holders of these
promissory notes warrants to purchase an aggregate of 61,629 shares of common
stock at $2.67 per share and an aggregate of 13,781 shares of common stock.

Subsequently, in 1998, holders of promissory notes in the aggregate
original principal amount of $1,040,000 converted their promissory notes into
208,000 shares of Series A convertible preferred stock and, in 1999, holders of
promissory notes in the aggregate original principal amount of $300,000
converted their promissory notes and accrued interest into 119,374 shares of
Series B convertible preferred stock. We issued 13,125 shares of common stock to
the placement agent for assisting in the conversion of promissory notes into
Series A convertible preferred stock. As of March 31, 2000, the outstanding
promissory notes consisted of $130,000 in principal and $38,959 of accrued
interest and were accruing, collectively, warrants to purchase 644 shares of
common stock per month until paid in full. Although all of the outstanding
promissory notes are in default, we intend to pay off these promissory notes
from the proceeds of this offering.

From April 1997 through December 1997, we realized gross proceeds of
$1,986,000 from a private placement of units where each $10,000 unit consisted
of 938 shares of common stock and a 15% secured promissory note in the principal
amount of $5,000. We issued our placement agent 24,018 shares of common stock
and our merchant banker 139,846 shares of common stock in exchange for services
related to this private placement. In September 1998, holders of promissory
notes in the aggregate original principal amount of $115,000 converted their
promissory notes and accrued interest into 11,665 shares of common stock. Then,
in May 1999, holders of promissory notes in the aggregate original principal
amount of $425,051 converted their promissory notes and accrued interest into
173,976 shares of Series B convertible preferred stock. As of March 31, 2000,
outstanding promissory notes consisted of $431,750 in principal and $159,480 of
accrued interest. Although all of the

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<PAGE>

outstanding promissory notes are in default, we intend to pay off these
promissory notes from the proceeds of this offering.

In May 1997, we received a loan in the original principal amount of
$100,000 from an individual bearing interest at the rate of 15% per annum with a
one year term. We issued 7,125 shares of common stock in connection with this
note. As of March 31, 2000, our obligation was $130,417 including accrued
interest. We intend to pay off this promissory note from the proceeds of this
offering.

From January 1998 through March 1998, we received gross proceeds of
$760,000 from the sale of Series A convertible preferred stock. In addition,
$1,040,000 of outstanding promissory notes were converted into 208,000 shares of
our Series A convertible preferred stock. We issued warrants to purchase 6,840
shares of common stock exercisable at $16.00 per share, and 13,125 shares of
common stock valued at $10.67 per share, to our placement agent. Pursuant to the
terms of our Series A convertible preferred stock, dividends of 8% per annum
began to accrue on November 14, 1998. As of March 31, 2000, holders of Series A
convertible preferred stock were owed dividends of $198,444, collectively. We
intend to pay such dividends from the proceeds of this offering.

From January 1998 through March 1998, we realized gross proceeds of
$379,000 from a private placement of our common stock at $10.67 per share. We
issued 35,532 shares of common stock to investors and warrants to purchase 4,264
shares of common stock at $12.80 per share to our placement agent.

In April 1998, we issued a $100,000 short-term promissory note to an
investor which was subsequently converted into 9,375 shares of common stock at a
price of $10.67 per share. In addition, this investor was granted an additional
1,500 shares of common stock as an inducement to convert the promissory note,
which was valued at $10.67 per share and recorded as additional interest expense
in 1998.

From May 1998 through August 1998, we received gross proceeds of
$561,520 from a private placement of 60-day promissory notes convertible into
shares of common stock at maturity at $10.67 per share. These promissory notes
and accrued interest were converted into 54,296 shares of common stock. We
issued 7,875 shares of common stock as a finder's fee.

On July 19, 1998, we received a loan of $1,500,000 from RSG
Investments. Although we were obligated to repay the funds by January 30, 1999,
we defaulted and remained in default until we entered into the Equipment
Transfer Agreement with RSG Investments on September 28, 1999. After the
repayment of a portion of the obligation and the conversion of a portion of the
obligation into shares of Series B convertible preferred stock, we remain
obligated to RSG Investments in the principal amount of $750,000. As of March
31, 2000, we owed RSG Investments $750,000 in principal plus accrued interest
which we intend to payoff from the proceeds of this offering.

From February 1999 through May 1999, we received gross proceeds of
$350,000 from the private placement of 90-day promissory notes. These promissory
notes have an interest rate of 15% per annum and accrue common stock at a rate
of 38 shares every 30 days for every $1,000 of principal outstanding.
Subsequently, promissory notes in the aggregate original principal amount of
$134,885 have been repaid and promissory notes in the aggregate original
principal amount of $180,000 plus interest have been converted into 81,909
shares of Series B convertible preferred stock. As of March 31, 2000, we have
issued 49,401 shares of common stock as interest and have $35,115 in outstanding
principal and $7,947 of accrued interest. The promissory notes are in default.
We intend to pay off these promissory notes with the proceeds realized from this
offering.

From March 1999 through October 1999, we conducted a private placement
of our Series B convertible preferred stock at $3.00 per share. Through this
private placement, we issued 1,355,047 shares of Series B convertible preferred
stock in exchange for cash subscriptions of $4,065,141 and 726,633 shares of
Series B convertible preferred stock in exchange for outstanding promissory
notes, unpaid salaries to officers and $500,000 due to RSG Investments.

On February 15, 2000, we received a $500,000 loan from Ash Capital. Dr.
Alan C. Ashton is a director designee of eRoomSystem Technologies and owns 100%
of Ash Capital. The Ash Capital loan is evidenced by a

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<PAGE>

promissory note bearing simple interest at the rate of 10% per annum, payable
on May 31, 2000, subsequently extended to July 31, 2000, and secured by our
assets. Ash Capital was issued a warrant to purchase 18,750 shares of common
stock exercisable at $4.80 per share through the second anniversary date of
the close of this offering. The Ash Capital loan will be repaid partially
from the sale of selected Refreshment Centers and partially from the net
proceeds of this offering.

From March 2000 through April 12, 2000, we conducted a private
placement of $100,000 units consisting of a 7% convertible promissory note in
the original principal amount of $25,000, 23,077 shares of Series C convertible
preferred stock and a warrant to purchase 5,000 shares of common stock at an
exercise price of $6.60 per share. Through this private placement, we raised
gross proceeds of $850,000, issued promissory notes in the original principal
amount of $212,500, issued 196,150 shares of Series C convertible preferred
stock and issued warrants to purchase 42,500 shares of common stock.

On April 13, 2000, we received the bridge loan in the principal amount
of $1,500,000. The bridge loan is evidenced by a promissory note, or the Bridge
Note, and bears interest at the rate of nine percent per annum. The bridge loan
matures on the earlier of the closing of this offering or October 12, 2000. In
addition, we issued 200,000 shares of our common stock as part of the bridge
loan transaction.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," or SFAS 133. SFAS 133 establishes new
accounting and reporting standards for companies to report information about
derivative instruments, including derivative instruments embedded in other
contracts, or collectively referred to as derivatives, and for hedging
activities. This statement is effective for financial statements issued for all
fiscal quarters of fiscal years beginning after June 15, 2000. We do not expect
this statement to have a material impact on our results of operations, financial
position or liquidity.

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 the Euro.

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<PAGE>

BUSINESS

OVERVIEW

eRoomSystem Technologies has developed and introduced to the lodging
industry an intelligent, in-room computerized platform and communications
network, or the eRoomSystem. The eRoomSystem is a computerized platform and
processor-based system designed to collect and control data that supports our
Refreshment Centers, eRoomSafes and other applications. These other applications
include in-room management capabilities, information management services, direct
credit card billing and network access solutions.

Our eRoomSystem delivers in-room solutions that reduce operating costs,
enhance hotel guest satisfaction and provide higher operating profits to our
customers. The solutions offered by our eRoomSystem and related products have
allowed us to establish relationships with premier hotel chains.

We have installed more than 11,500 Refreshment Centers and 4,000
eRoomSafes. These include installations in many of the Marriott International
flagship properties, such as the New York Marriott Marquis, the J.W. Marriott in
Washington D.C., the Marriott Camelback Inn and others. We have an exclusive
contract with the purchasing subsidiary of Promus Hotel Corporation, operator of
Doubletree Hotels, Embassy Suites and Hampton Inn, which was recently purchased
by Hilton Hotels Corporation. We are negotiating with Bass Hotels, operator of
Holiday Inn, Crowne Plaza and the Hotel Inter-Continental, and Carlson
Hospitality Worldwide, operator of Radisson Hotels Worldwide, Regent
International Hotels and Country Inn and Suites, to become their exclusive or
preferred vendor. We have also installed our products in the Hilton, Best
Western, Ramada and other established hotel chains. We believe that these
relationships provide us with the opportunity to install our eRoomSystem
worldwide, while our enabling technologies will provide for a natural expansion
of our products and services into the healthcare, time-share and cruise line
industries.

Our business model focuses on our revenue sharing program that allows
us to partner with our customers with respect to our products. Through our
revenue sharing program, we install our products at little or no upfront cost to
our customers and share in the recurring revenues generated from sales of goods
and services related to our products.

LODGING MARKET

According to the 1999 HORWATH WORLDWIDE HOTEL INDUSTRY STUDY, the
worldwide hotel marketplace consists of approximately 11.7 million hotel rooms.
The regions below contain the following number of hotel rooms:

<TABLE>
<CAPTION>
REGION HOTEL ROOMS
------------------------------------------ ----------------
<S> <C>
Europe 4.7 million
United States 3.5 million
Central and South America 1.5 million
Asia 1.5 million
Other regions 0.5 million
----------------
TOTAL 11.7 MILLION
================
</TABLE>

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<PAGE>

Of these 11.7 million hotel rooms, approximately three million hotel
rooms are owned, managed or franchised by the ten largest hotel chains, as
follows:

<TABLE>
<CAPTION>
ROOMS
ROOMS UNITED INTER-
HOTEL CHAIN TOTAL ROOMS STATES NATIONAL REPRESENTATIVE BRANDS
---------------------- ----------- ------------ -------------- ---------------------------------------
<S> <C> <C> <C> <C>
Cendant 529,000 482,000 47,000 Ramada, Days Inn and Howard Johnson
Bass Hotels 461,000 341,000 120,000 Holiday Inn, Crowne Plaza and the Hotel
Inter-Continental
Marriott International 328,000 258,000 70,000 Ritz-Carlton, Marriott, Renaissance and
Residence Inn
Accor 326,000 87,000 239,000 Sofitel, Novatel and Red Roof Inns
Choice Hotels 305,000 252,000 53,000 Comfort Inns & Suites, Clarion and
Econolodge
Best Western 302,000 187,000 115,000 Best Western
International
Hilton Hotels 277,000 270,000 7,000 Hilton, Doubletree Hotels, Embassy
Corporation Suites and Hampton Inn
Starwood Hotels 225,000 146,000 79,000 Sheraton, Westin and St. Regis
Carlson Hospitality 106,000 66,000 40,000 Radisson Hotels Worldwide, Regent
Worldwide International Hotels and Country Inns
and Suites
Hyatt Hotels 80,000 55,000 25,000 Hyatt and Hyatt Regency
--------- --------- -------
TOTAL 2,939,000 2,144,000 795,000
========= ========= =======
</TABLE>

SOURCES: 1999 DIRECTORY OF HOTEL & MOTEL COMPANIES; HOTELS MAGAZINE CORPORATE
300 RANKING, JULY 1999; TRAVEL RESEARCH INTERNATIONAL LIMITED; LODGING
HOSPITALITY MAGAZINE - THE BRANDS REPORT, AUGUST 1999.

Of the hotel chains listed above, we have installed more than 10,000
Refreshment Centers and 3,500 eRoomSafes in hotels operated by Marriott
International, Best Western International, Cendant, Bass Hotels and Hilton
Hotels Corporation.

Many hotel properties are rated through either Automobile Association
of America's diamond rating or Mobil's star rating. In order to obtain a four-
or five-diamond rating from Automobile Association of America, the hotel
properties are required to have minibars in all of their hotel rooms. Under
Mobil's star-rating, the presence of minibars in a property's hotel rooms
provides points that can be used toward a four- or five-star rating. Therefore,
we believe that we can market our products to the lodging industry as an in-room
amenity to enhance a hotel's ability to receive a four- or five-diamond rating
or a four- or five-star rating.

OUR PRODUCTS AND SERVICES

eROOMSYSTEM

Since our inception, it has been our objective to innovate the in-room
amenities offered by the lodging industry. Our proprietary technologies create
an intelligent, in-room computerized platform and communications network that
comprise our eRoomSystem. At the core of our eRoomSystem is our proprietary
hardware and software that operate as a multi-tasking imbedded operating system.
Our hardware and software can operate multiple devices and provide an
interactive environment. The interactive environment provided through our

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<PAGE>

eRoomSystem allows the hotel guest to input and receive information. Interactive
features for the hotel guest include locking and unlocking our products,
receiving pricing information from the liquid crystal display as well as other
functions.

The eRoomSystem provides the communication link between the hotel
guest, our products, the eRoomSystem file server, and the file server located at
our headquarters, or the eRoomSystem master file server. Our software is
remotely upgradable from our facilities. We can also remotely adjust prices,
change messages on the liquid crystal display and change the input touchpad
layout. From our facilities, we can lock our products in the event a
participating hotel fails to pay any fees or otherwise violates the terms of its
agreement, as well as determine whether our products are active and working
properly.

The eRoomSystem consists of a microprocessor, memory, input/output
ports, communications transceiver, liquid crystal display, touchpad, power
supply and our proprietary software. The proprietary architecture of our circuit
boards has been designed to minimize the need for hardware upgrades. The
eRoomSystem includes an embedded system processor that handles simple
instructions and routes all billing functions and processor-intensive
instructions to the eRoomSystem file server.

The eRoomSystem provides a platform that collects information relating
to the usage of our products. The eRoomSystem is capable of supporting other
functions such as the management of in-room energy, including heating, air
conditioning, lighting and television and the establishment of a
trouble-shooting system to manage in-room repairs and maintenance. Another
extension of the eRoomSystem is a direct credit card billing process for the
healthcare and time-share industries.

eROOMSERV REFRESHMENT CENTERS

Historically, our primary source of revenue has been from the sale or
revenue sharing of our Refreshment Centers. We currently have orders on-hand for
4,428 Refreshment Centers, 2,668 of which include eRoomSafes. Approximately 50%
of these orders are subject to cancellation. Sales orders account for 536
Refreshment Centers. Products to be placed under revenue sharing agreements
include 3,892 Refreshment Centers, 2,688 of which include eRoomSafes.

Refreshment Centers are modular in design and consist of our
eRoomSystem, a small compression or thermoelectric refrigeration unit and our
unique multi-vending rack. Our multi-vending rack displays up to 33 different
beverages and/or snacks and maintains a full appearance through a gravity-based
design. Upon removal of a product from the Refreshment Center, the gravity-based
design uses the weight of the remaining products to cause such products to roll
or slide forward toward the front of the multi-vending rack. The repair or
replacement of any component of our Refreshment Center is relatively simple and
is provided at no additional charge to the property. The Refreshment Center
communicates through the eRoomSystem, which uses the hotel's existing telephone
lines, cable television lines or electrical power outlets.

Our Refreshment Centers operate as follows:

- A hotel guest selects a beverage or snack from our Refreshment
Center;

- The purchase is immediately confirmed on the liquid crystal
display and acknowledged by an audible beep;

- The transaction information, such as product type, price and
time of purchase, is simultaneously transferred to the
eRoomSystem file server;

- The eRoomSystem file server communicates on a real-time basis
with the hotel's property management system and periodically
with our eRoomSystem master file server; and

- The hotel's property management system posts the purchase to
the hotel guest's room account.

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<PAGE>

The sales data from the eRoomSystem is transmitted to the eRoomSystem
file server from which hotel employees can access periodic sales activities,
inventory levels for restocking purposes and demographic data.

eROOMSAFE

Our eRoomSafes are electronic in-room safes offered in conjunction with
our eRoomSystem. The eRoomSafes include an encrypted combination that can be
changed by the hotel guest. The eRoomSafes have storage space large enough for
laptop computers, video cameras and briefcases. The eRoomSafes utilize the
eRoomSystem to interface with the eRoomSystem file server which, in turn,
communicates with the hotel's property management system.

A common problem with in-room safes occurs at checkout when a guest may
leave the safe locked or forget to remove his or her valuables. With our
competitors' room safes, the locked safe would typically go unnoticed until a
subsequent hotel guest attempts to use the safe. Through the eRoomSystem, our
eRoomSafe automatically notifies the hotel at checkout that the safe door is
locked, providing the guest with an opportunity to remove any valuables before
leaving the hotel.

THE FOLLOWING DIAGRAM REPRESENTS THE STRUCTURE AND COMMUNICATIONS
NETWORK OF OUR eROOMSYSTEM, THE eROOMSYSTEM FILE SERVER, THE HOTEL
PROPERTY MANAGEMENT SYSTEM, AND THE eROOMSYSTEM MASTER FILE SERVER:

[GRAPHIC]

eROOMDATA MANAGEMENT

One of the byproducts of our technology is the information we have
collected since our first product installation. To date, we have collected over
eleven million room-nights of data. The eRoomSystem file server collects
information regarding the usage of our Refreshment Centers on a real-time basis.
We use this information to help our customers increase their operational
efficiencies. The information we obtain is unique because we categorize the
information according to specific consumer buying patterns and demographics.

The information we collect has value in several key areas. First, we
currently offer our customers, as part of our service and maintenance agreement,
specific information about their guests' buying patterns and provide
non-confidential information about other hotels in similar geographic regions.
Second, as we continue to increase our installed room base, we believe that the
information we collect will have value to the suppliers of goods sold in our
Refreshment Centers, such as Coca-Cola, PepsiCo, Anheuser-Busch, Miller Brewing,
Frito-Lay, Mars and others. Third, we are developing information services to
categorize purchases in response to specific in-room advertising programs by
such suppliers.

Our lodging customers benefit in various ways from the information we
provide. The hotels are responsible for restocking the goods sold from our
Refreshment Centers. The real-time sales data generated by our

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<PAGE>

Refreshment Centers helps the hotel to maximize personnel efficiencies. The
transfer of sales data to the hotel prevents guest pilferage and minimizes
disputes over refreshment center usage, both of which are prevalent in the
lodging industry. Finally, the ability to track product sales performance
allows the hotel to stock the Refreshment Centers with more popular items,
which generally leads to increased sales of product from the Refreshment
Centers. Our system can provide reports on daily restocking requirements,
product sales statistics showing daily, monthly and annual statistics,
overnight audits, inventory control and a variety of customized reports.

The chart below is an example of the type of information we can collect
from a property where our products are installed:

[CHART]

As indicated above, a supplier of goods will be able to determine its
market share by property and geographic region. We are developing an
Internet-based system where suppliers will be able to track product movement,
market share and other information by country, region, state, city or property
type.

We intend to develop strategic relationships with companies in the
information services industry in order to maximize our proprietary information.
S. Leslie Flegel will join our board upon the closing of this offering to assist
us in packaging and marketing our proprietary information. Mr. Flegel is the
chief executive officer and Chairman of the Board of The Source Information
Management Company, a leading provider of information and management services in
the United States and Canada. In addition, we will consider utilizing one or
more other companies to assist us in the roll-out of our information services
products.

FUTURE PRODUCTS AND SERVICES

Our research and development and marketing departments are analyzing
additional value added products and services to be delivered to our customers
using the platform of our eRoomSystem. We believe that such additional products
and services can be bundled with our eRoomSystem or separately marketed to
lodging industry customers to provide additional revenue sources for us.
Although the development and delivery schedules vary for each new product and
service, we believe that each of the following will be ready for marketing
within the next twelve months:

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<PAGE>

eROOMINTERNET CONNECTIVITY. We intend to offer a high-speed wireless
communications network that is designed to allow guests the option of using
their laptop computers to roam throughout a property while connected to the
property's network for Internet or intranet use. The high-speed wireless
communications network will be able to operate at 11 mega bits per second, or
mbps.

We have signed a letter of intent with a wireless network provider for
the exclusive use of its product in the lodging, healthcare, time-share and
cruise line industries. This network consists of a master antenna with a range
of up to 150 feet in any direction. In larger properties, these master antennas
can be linked together to create a wireless communications network similar to a
cellular telephone network on a smaller scale. To obtain wireless network
access, guests can rent a PCMCIA card for their laptop computers from the
hotel's front desk. PCMCIA cards provide wireless connectivity through a
built-in transceiver and are compatible with PC and Macintosh computers.

We also intend to increase the speed of our existing communications
network to 10 mbps. With a high-speed network in place, we could offer our
customers a low-cost in-room networked computer configured with only essential
equipment and without CD-ROM drives, diskette drives or expansion slots, or the
thin client platform. Each computer in the thin client platform will consist of
a monitor, keyboard and an interpreter which will allow for access to the
Internet or an intranet. In addition, the high-speed network could be used as an
Ethernet port for laptop users to access the Internet or an intranet.

eROOMENERGY MANAGEMENT. We are developing a technology by which our
eRoomSystem will detect in-room movement through heat and/or motion sensors. Our
eRoomSystem will control other devices in the room through an infrared
communications portal. This technology is being developed for the lodging
industry as a means of offering an energy management system. When a room is
occupied, our eRoomSystem will give the guest complete control of the heating
and air conditioning, lighting, television and other facilities in the room.
When the room is unoccupied, the eRoomSystem will control each of these systems
and adjust each according to the most energy efficient settings. When a guest
opens the door to re-enter the room, our eRoomSystem will adjust all devices to
their original settings. By adjusting the heating and air conditioning either up
or down, typically 5 to 10 degrees, depending on the time of year, and turning
off the television and lights when a room is unoccupied, a hotel or other
facility can realize energy cost savings.

eROOMMAINTENANCE. Through the eRoomSystem, we also intend to offer
remote engineering and maintenance services. The eRoomSystem links each room to
other areas of the property. By connecting each room to the front desk and to
the engineering departments, we will create a management tool and communication
link. When an in-room maintenance problem is discovered by engineering or
housekeeping, the hotel employee can enter a code on the touchpad of our
eRoomSystem, which will transmit the information to engineering and inform the
front desk of a problem. If the problem is of a material nature, the front desk
can hold the room until the repairs have been made. As soon as the problem is
resolved, engineering or housekeeping will enter a code that notifies the front
desk that the room has been repaired and is available for a guest.

eROOMHOUSEKEEPING. We intend to design our eRoomSystem to dispatch
housekeeping in the most efficient manner while prioritizing the rooms that need
to be cleaned. eRoomHousekeeping will permit housekeepers to enter a room and
input their personal codes on the eRoomSystem touchpad. eRoomHousekeeping then
proceeds to time how long it takes housekeeping to prepare the room. When
completed, housekeeping inputs their codes again. The system then informs them
which room needs to be cleaned next. If occupancy is high, eRoomHousekeeping can
direct housekeeping personnel to an unoccupied room that is scheduled for
check-out. If occupancy is low and additional clean rooms are currently
available, eRoomHousekeeping can direct housekeepers to rooms that are
temporarily unoccupied by guests who have elected to stay another night. This
process optimizes housekeeping operations, minimizes guest disturbances and in
turn saves both time and money.

eROOMMANAGEMENT. Our eRoomSystem has the capability to support standard
credit card and smart card readers for direct billing to a customer's credit
card, as well as other point of sale and automated teller-type functions. When
we enter the healthcare and time-share industries, we will offer a direct credit
card billing process. By placing a credit card reader adjacent to a hospital bed
or in a time-share room, we can offer a billing solution previously unavailable.
This billing process will allow healthcare and time-share properties to offer
services and products similar to those found in hotel rooms, such as Refreshment
Centers, eRoomSafes, on-demand movies,

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<PAGE>

direct dial long distance, Internet access and video games. We hold three
patents for a credit card point of sale terminal technology that supplies
billing solutions for these services.

SALES AND MARKETING

Historically, we have derived our revenues from the lodging industry.
To date, we have installed more than 11,500 Refreshment Centers and 4,000
eRoomSafes. We have established relationships with Marriott International,
Promus Hotel Corporation and Carlson Worldwide Hospitality and are negotiating
to become the exclusive vendor for Bass Hotels. All of these relationships are
open-ended with the exception of the arrangement with Promus Hotel Corporation
that terminates on April 6, 2003 or upon prior written notice of 90 days.
Further, although we are the exclusive or preferred vendor of interactive
computerized Refreshment Centers for a number of premier hotel chains, these
arrangements may not generate any sales or placements of our products. Due the
franchisor-franchisee relationship between many hotel chains and their hotel
properties, we must not only establish exclusive or preferred vendor
relationships with the hotel chains, but must also enter into definitive
agreements with the franchisees of these hotel chains for the sale or placement
of our products into the actual hotel properties.

With respect to past sales, in 1999, the J.W. Marriott in Washington
D.C. and the Doubletree Denver accounted for 26.7% and 16.0% of our revenues.
This concentration of revenues is not expected to continue as the revenues were
the result of one-time product sales. We are currently shifting our business
model to a revenue sharing program where we generate revenues over the
seven-year term of each revenue sharing agreement.

Our sales and marketing program consists of the following strategic
initiatives:

RETENTION OF SENIOR MARKETING EXECUTIVES. We are currently attempting
to fill the position of executive vice president of sales and marketing of
eRoomSystem Technologies, to oversee the implementation of our sales and
marketing program. To this end, we have engaged an executive search firm to
assist us in this process.

DEPLOYMENT OF AN EXPANDED REGIONAL SALES FORCE. Our initial strategy is
to hire four additional full-time employees as regional sales managers in the
United States. We currently employ two regional sales managers and retain four
independent sales representatives.

DEVELOPMENT OF AN IN-HOUSE SALES DEPARTMENT. We intend to develop an
in-house sales department whose primary objective will be to focus on the
limited-service hotel sector. Each inside sales person will have a specific
geographic responsibility and will work in concert with his or her regional
sales manager. This approach should allow eRoomSystem Technologies to increase
its market penetration by targeting mid-scale through luxury-class properties
throughout highly concentrated hotel markets within the United States.

CONTINUED MARKETING OF THE REVENUE SHARING PROGRAM. Emphasis on our
revenue sharing program is a critical part of our sales and marketing strategy.
Historically, the lodging industry has been resistant to purchase our products
because of the initial capital expenditure required. In addition to product
sales, we now offer our products through a revenue sharing program. Our revenue
sharing program allows us to become partners with our hotel clients by
installing our products at little or no upfront cost to the hotel and sharing
the revenues generated from goods sold from, and usage of, our products. Amresco
will finance up to 150% of our costs of our products placed under our revenue
sharing program, subject to satisfaction of funding requirements. Our products
will secure the financing of Amresco, which is payable over seven years.

CONTINUED IMPLEMENTATION OF THE CORPORATE ACCOUNT STRATEGY. Our
corporate account strategy involves the research, documentation and
implementation of plans associated with hotel chains, brands, management
companies and real estate investment trusts. Through this strategy, we propose
to enter into a corporate agreement that defines the relationship between
eRoomSystem Technologies and the respective corporate entity. Although the
franchisees of these corporate hotel chains may not be required to purchase our
products or have them placed on a revenue sharing basis, the corporate entity
would recommend to its franchisees the use of our products. We anticipate that
by the end of 2001, the majority of all sales and revenue sharing agreements
will be generated indirectly as a result of our corporate account strategy.

35
<PAGE>

We have an exclusive vendor relationship with the purchasing subsidiary
for Promus Hotel Corporation. Promus has agreed to use its best efforts to cause
our eRoomSystem and related products to be installed in up to 71,000 of its
corporate-owned and franchised hotel rooms. We have also installed our
eRoomSystem in a number of flagship properties for Marriott International,
including the New York Marriott Marquis, the J.W. Marriott in Washington, D.C.,
the J.W. Marriott Lennox in Atlanta, the Marriott Camelback Inn and others. In
the third quarter of 2000, we are scheduled to install our products into another
Marriott flagship property, the new J.W. Marriott in Miami. Through our
relationship with Marriott, we have been designated as Marriott's automated
system of choice.

We were recently selected as a recommended vendor for Carlson Worldwide
Hospitality, representing Radisson Hotels Worldwide, Regent International and
Country Inn and Suites. In addition, we have installed, on a trial-basis, our
eRoomSystem and related products in The Bellagio -The Resort, the flagship
hotel-casino of Mirage Resorts, Inc., which was recently acquired by MGM Grand,
Inc. We are currently in negotiations with other major hotel-casinos for
placement of our products and services. We are targeting Las Vegas, Nevada since
its approximately 115,000 rooms are the most hotel rooms of any city in the
world.

CREATION AND ENHANCEMENT OF STRATEGIC MARKETING ALLIANCES. In
conjunction with our corporate account strategy, our objective is to enter into
a number of marketing alliance plans. A marketing alliance plan is a strategic
relationship with a third-party whereby a finder's fee is paid to the party for
its efforts in closing a sale or revenue sharing transaction.

IMPLEMENTATION OF A COMPREHENSIVE DOMESTIC AND INTERNATIONAL MARKETING
PLAN. We are implementing a comprehensive marketing strategy. We have entered
into an agreement with Hall Communications, Inc. of Las Vegas, Nevada to provide
us with brochures, corporate name and logo development, an interactive website,
signage, a trade show booth, corporate video and compact disk presentations,
media advertisements and other services relative to product design and corporate
communications.

We intend to implement our international marketing strategy utilizing
the core marketing structure that we are developing domestically, including
website, support materials, trade show materials and industry specific
advertisements, to support our global growth strategy. eRoomSystem Technologies
has a signed letter of intent with a Caribbean-based company authorizing it to
serve as a limited distributor of our products in the Caribbean. We are also
negotiating with potential distributors in Europe.

We intend to hire a marketing coordinator who will oversee our
advertising and promotional efforts by primarily utilizing hospitality trade
publications. Our objective is to establish an international presence through
partnering with various trade publications. In addition, we plan to attend trade
shows and pursue promotional activities through a strong public-relations
program.

EXPANSION INTO THE HEALTHCARE, TIME-SHARE AND CRUISE LINE INDUSTRIES

We believe that the healthcare industry is a natural extension for our
eRoomSystem, our related products and our patented credit card technology. We
will be able to provide healthcare facilities with a comprehensive room
information and management system that will allow them to provide patients with
a wide array of in-room amenities not available in the past. These amenities
include Refreshment Centers, eRoomSafes, direct dial long distance, on-demand
movies, Internet access and other products and services commonly found in a
hotel room. We have completed a beta-test at the Miami Heart Institute, a
facility managed by Columbia HCA, and have an agreement with Miami Heart
Institute to install our eRoomSystem, Refreshment Centers and eRoomSafes and to
provide the billing process for direct dial long distance and on-demand movies
through third-party suppliers. Our installation at the Miami Heart Institute
should occur in the second half of 2000.

We also believe the same opportunities exist in the time-share industry
because most time-share facilities do not have a front desk or a property
management system to bill for in-room services. By offering a direct credit card
billing system a time-share facility can offer the same services available in
hotels.

We are also currently exploring the design and engineering parameters
necessary to offer our products and services to the cruise line industry.

36
<PAGE>

SUPPLIERS AND ASSEMBLY

We purchase various electrical and mechanical components, injection
molded parts and basic cube refrigerators from various manufacturers and
electronics firms. For example, we purchase our basic cube refrigerators from
Absocold, Sanyo Corporation, Avanti or Indel-B. Although we propose to establish
a turnkey manufacturing source, we currently obtain our components on a purchase
order basis. Historically, our suppliers have been dependable and able to meet
delivery schedules on time. We believe that, in the event we cannot obtain our
components from our current suppliers, alternate suppliers can be located
without incurring significant costs or delays. We do not rely on any one
supplier, the loss of which would inhibit our ability to assemble our products
on a timely basis.

Our eRoomSystems, Refreshment Centers and eRoomSafes require a limited
amount of assembly. This assembly involves electronic assembly, wiring and
testing. At our St. George, Utah facility, we are able to assemble up to 2,000
units monthly. Since our existing facility is not sufficient to meet our
projected growth, we will either have to establish a turnkey manufacturing
source, expand our assembly facility or hold orders for our products
unfulfilled. In the event that our current facility is insufficient to meet our
projected growth, we propose to establish two or more third party turnkey
manufacturing sources with contract manufacturers.

COMPETITION

eROOMSYSTEM. Although we are not aware of another company that provides
in-room services through the hotel room's in-room refrigerator, there are
several companies that provide in-room video entertainment and information
services, such as cable television, pay-per-view movies, the Internet, video
games and guest services. In addition, we may face competition from
communications companies, such as cable companies, telecommunications companies,
Internet and high-speed connectivity companies, and direct broadcast satellite
companies, who may be able to modify their existing infrastructure to provide
in-room entertainment and/or information services. Many of these companies have
longer operating histories, larger customer bases, greater brand recognition and
greater financial, research and development, manufacturing, marketing and
technical resources. Further, as technology is subject to rapid change, new
technological advancements in components used for in-room services could
adversely affect our growth strategy.

eROOMSERV REFRESHMENT CENTERS. We face competition from suppliers of
semi-automated minibars, such as Dometic, MiniBar America, Inc. and Bartech
Inc., and suppliers of honor bars, such as Dometic and MiniBar America, Inc.
Semi-automated minibars are minibars that permit sales to be automatically
posted to a hotel guest's room account. Honor bars are small refrigerators where
sales are manually posted to a hotel guest's room account by housekeeping
services. Our fully-automated Refreshment Centers differ from semi-automated
minibars and honors bars in that our Refreshment Centers permit automatic
posting to a hotel guest's room account, notify the hotel guest when a purchase
has been made on our flat panel display, provide the hotel with real-time
transaction information for stocking and product placement purposes and, with
the eRoomSystem, serve as a platform for additional in-room services.

Although Dometic possesses a significant share of the honor bar market,
Dometic is principally a refrigerator manufacturer. MiniBar America is
principally a manufacturer of honor bars. Bartech is a French-based company that
uses Indel-B refrigerators in its semi-automated minibar product. Although
Bartech has generated most of its sales from Europe, it has recently established
an office in the United States.

These companies may have stronger relationships in the lodging
industry, longer operating histories, larger customer bases, greater brand
recognition and greater financial, research and development, manufacturing,
marketing and technical resources. Although these competitors do not offer
fully-automated minibars, these competitors compete with us for the placement of
units in hotel rooms. Further, we compete with these companies on the basis of
price, service, technology and financing options.

eROOMSAFES. The in-room safe industry is a very competitive market with
competitors throughout the world. ElSafe Inc. is the market leader with almost
400,000 room safes installed worldwide with installations in over 45 countries.
CISA Worldwide is another competitor which maintains offices in the United
States, Asia, the

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<PAGE>

Middle East, Africa and Latin America. The principal products of ElSafe and
CISA Worldwide are electronic safes, which allow the hotel guest to enter a
combination to lock and unlock the safe instead of a key. Although these
competitors offer stand-alone electronic safes, our fully electronic safes
work in conjunction with our eRoomSystem. We compete with these companies on
the basis of price, service, technology and financing options.

eROOMDATA MANAGEMENT. Many companies currently providing information
management services may have longer operating histories, larger customer bases
and greater financial resources. However, we believe that we are the only
company currently gathering and disseminating information to properties with
respect to the in-room use of Refreshment Centers.

WIRELESS COMMUNICATION NETWORK. There are an increasing number of
competitors in the wireless telecommunications industry in the United States and
throughout the world. Although implementation of advanced wireless communication
networks is still in the early stages in the lodging and guest-related
industries, we believe that competition for these properties will intensify as
other businesses realize the profit potential of designing and implementing
wireless communication network services within such facilities. Even though we
intend to employ relatively new technologies, there may be a continuing
competitive threat from even newer technologies. We also expect that the price
we will charge for designing, implementing and maintaining such wireless
communication networks may decline over time as new competitors enter the
market.

INTELLECTUAL PROPERTY

We rely on a combination of trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
customers and business partners to protect our proprietary rights in our
products, services, know-how and information. We currently hold three patents,
Patent Nos. 4,857,714, 4,883,948 and 4,939,352, filed under the name "Credit
Card Storage System," all of which protect the use of our credit card
technology. These three patents expire on August 14, 2006, November 27, 2006 and
July 2, 2007, respectively. These patents have not been highly utilized in the
lodging industry, but we believe they are important to our future product
offerings in the healthcare and time-share industries. In addition, we applied
for trademarks and service marks for eRoomSystem, eRoomServ Refreshment Center,
eRoomSafe, eRoomManagement, eRoomEnergy Management, eRoomData Management,
eRoomInternet Connectivity, eRoomMaintenance and eRoomHousekeeping. We have also
registered our logo as presented on the cover of this prospectus and have
submitted two patent applications with respect to our Refreshment Centers.

Our proprietary software consists of three modules and provides the
operating system for our eRoomSystem. The first module is a multi-tasking
operating system that permits messages to be scrolled on the flat panel display
of our eRoomSystem and allows hotel guests to interface with our products. The
second module is a Windows-Registered Trademark- based program that provides a
communication link between our eRoomSystem, our eRoomSystem hotel file server
and the hotel's property management system. The third module is a
Windows-Registered Trademark- based program that collects data from our
eRoomSystem hotel file server and provides a variety of management and
operational reports to eRoomSystem Technologies and our customers.

We do not know if our patent application or any future patent
application will be issued with the full scope of claims we seek, if at all, or
whether any patents we receive will be challenged or invalidated. Our means of
protecting our proprietary rights in the United States or abroad may not be
adequate and competitors may independently develop similar technology. We cannot
be certain that our services do not infringe on patents or other intellectual
property rights that may relate to our services. Like other technology-based
businesses, we face the risk that we will be unable to protect our intellectual
property and other proprietary rights, and the risk that we will be found to
have infringed on the proprietary rights of others.

RESEARCH AND DEVELOPMENT

We currently have two software developers and one hardware engineer on
our staff. Our research and development department focuses on upgrading our
proprietary software and hardware that make up our eRoomSystem. As we expand our
business, we will need to increase the size of our research and development
department in order to integrate additional services into our eRoomSystem and
modify our eRoomSystem as needed to serve other markets.

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HISTORICAL SUMMARY

We were originally incorporated under the laws of the State of North
Carolina on March 17, 1993 as InnSyst! Corporation. On September 28, 1993,
InnSyst! merged with and into RoomSystems, Inc., a Virginia corporation,
incorporated on August 12, 1993, or RoomSystems Virginia, whereby RoomSystems
Virginia was the surviving entity. On April 29, 1996, RoomSystems Virginia
merged with and into RoomSystems, Inc., a Nevada corporation, or RoomSystems.
Through an agreement and plan of reorganization approved by a majority of our
stockholders dated December 31, 1999, RoomSystems became the wholly owned
subsidiary of RoomSystems International Corporation. Pursuant to this agreement
and plan of reorganization, all shares of RoomSystems common stock, including
all shares of common stock underlying outstanding options and warrants, Series A
convertible preferred stock and Series B convertible preferred stock were
exchanged for the identical number and in the same form of securities of
RoomSystems International Corporation. On February 1, 2000, we changed our name
from RoomSystems International Corporation to RoomSystems Technologies, Inc.
Subsequently, on March 29, 2000, with the approval of our stockholders, we
changed our name to eRoomSystem Technologies, Inc.

We have three wholly owned subsidiaries, RoomSystems, RSi BRE and
eRoomSystem SPE. RoomSystems is our service and maintenance subsidiary that
installs all of our products, provides electronic software upgrades to our
customers, provides customer service and maintenance for our products and trains
hotel personnel on the use and maintenance of our products. The outstanding
shares of RoomSystems common stock have been pledged to Amresco.

RSi BRE was formed as part of the Equipment Transfer Agreement we
entered into with RSG Investments. RSi BRE currently holds approximately 3,100
Refreshment Centers and approximately 1,800 eRoomSafes. RSG Investments was
granted the right to receive a maximum of $0.57 per Refreshment Center per day
of the revenue realized from the Refreshment Centers held by RSi BRE. We have
pledged the outstanding shares of RSi BRE common stock to RSG Investments and do
not have control over RSi BRE. The board of directors of RSi BRE consists of a
majority of outside directors. RSi BRE may not make cash distributions without
the unanimous approval of its board of directors. We will gain control over RSi
BRE when we satisfy our obligations to RSG Investments, including the $750,000
promissory note and their rights in the revenue stream from the Refreshment
Centers held by RSi BRE. Once we make all such payments or once RSG Investments
accepts our offer of a lump-sum discounted present value of the payments, the
ownership of the Refreshment Centers that are subject to the Equipment Transfer
Agreement will be transferred from RSi BRE to us. We anticipate that RSi BRE
would then be dissolved.

eRoomSystem SPE was formed as part of our long-term financing with
Amresco. eRoomSystem SPE will own all the products funded by Amresco under our
revenue sharing program. Amresco will take a senior security interest in all of
the assets of eRoomSystem SPE. Unlike RSi BRE, we will control eRoomSystem SPE
and its financial results will be consolidated with those of eRoomSystem
Technologies and RoomSystems.

GOVERNMENT REGULATION

We are subject to laws and regulations applicable to businesses
generally, as well as to laws and regulations directly applicable to the lodging
industry. These laws and regulations relate to qualifying to do business in the
various states and in foreign nations in which we currently have, or propose to
have, our products.

Apart from laws and regulations applicable to us, some of our existing
and potential customers are subject to additional laws or regulations, such as
laws and regulations related to liquor and gaming, which may have an adverse
effect on our operations. Due to the licensing requirements relating to the sale
of alcohol, the inability of our revenue-sharing partners to obtain or maintain
their liquor licenses will result in the loss of revenues for our
revenue-sharing partners and us. In addition, due to the heightened hotel-casino
regulatory environment, and our intent to market to hotel-casinos, our
operations may be subject to review by a hotel-casino's compliance committee to
verify that its involvement with us would not jeopardize its gaming license. If
our history or operations present problems for a hotel-casino, we would either
have to expend resources to address or eliminate the concerns or forego the
business.

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PROPERTY AND EMPLOYEES

We maintain an office at 3770 Howard Hughes Parkway, Suite 175, Las
Vegas, Nevada. We lease office space at the rate of $1,590 per month. The office
lease commenced on October 15, 1997 and expires on October 15, 2000. We also
have offices and a research and development and assembly facility located at 390
North 3050 East, St. George, Utah. This lease commenced on November 1, 1997 and
expires on October 31, 2002. The monthly lease rate is $9,000.

We currently employ thirty-five full-time and five part-time employees
in our St. George, Utah facility and two full-time employees in our Las Vegas
office. We anticipate the largest growth in employees will occur in the area of
field operations. None of our employees is subject to a collective bargaining
agreement.

We currently have nine employees engaged in product assembly.
Currently, our in-house staff installs our products at our customers'
properties. Our in-house staff, which currently consists of six employees, also
performs physical maintenance of our products under our maintenance agreements.
Eventually, we will outsource a portion of the installation and maintenance of
our products.

LEGAL PROCEEDINGS

We are from time to time parties to various legal proceedings arising
out of our business. Apart from the following discussion, 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, results of operations or liquidity.

In December 1997, Royal W. Minson II, our former president and chief
operating officer, received 121,875 shares of our common stock upon the exercise
of options and executed demand promissory notes in the aggregate original
principal amount of $568,750 to pay for the shares. On September 27, 1999, Mr.
Minson filed for protection in the United States Bankruptcy Court for the
Northern District of California, Case No. 99-47533-TD-7, under Chapter 7 of the
United States Bankruptcy Code. The bankruptcy schedules list Mr. Minson's shares
as an asset and the demand promissory notes as liabilities. On January 5, 2000,
the Bankruptcy Court entered a discharge order. We have filed a proof of claim
for the demand promissory notes executed by Mr. Minson, plus accrued interest on
such notes. In addition, our proof of claim sets forth offsets to Mr. Minson's
asset claim of $130,000 of unpaid salary owed to him by us. We have offered to
purchase Mr. Minson's shares for $140,000 plus debt extinguishment of
$723,667.29, representing the value of the outstanding demand promissory notes
and accrued interest. Our offer is expressly contingent upon the approval of the
bankruptcy court and the closing of the transaction by June 30, 2000,
subsequently extended by us to July 31, 2000. We are awaiting a response from
the trustee of the bankruptcy estate.

On March 2, 1999, Willow Creek Systems, Inc., a former supplier of
circuit boards, brought an action against us that is currently pending in Salt
Lake County Third District Court, State of Utah, Civil No. 99-0902417. In its
complaint, Willow Creek alleges breach of contract and seeks payment in the
amount of approximately $125,000 from us for materials delivered pursuant to
purchase orders. In our answer to Willow Creek's amended complaint and our
Responses to Willow Creek's First Set of Interrogatories, Requests for
Admissions and Request for Production of Documents, we allege that the materials
delivered by Willow Creek were defective, lacked quality control and were below
acceptable standards in the industry. In addition, we allege that the costs of
repairing and replacing the defective materials, the costs during down time for
such repair and replacement and other related costs are in excess of $120,000,
which we believe should be offset against Willow Creek's claim for damages.
Although we believe that our documentation on this matter is sufficient to
support our claims, we are unable at this time to predict the exact outcome of
the matter. The case is in the final stages of discovery. Willow Creek is no
longer an operating entity.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our current directors, executive officers and director designees are as
follows:

<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Steven L. Sunyich 46 President, Chief Executive Officer and Chairman of the Board
Derek K. Ellis 31 Chief Financial Officer and Treasurer
Stephen M. Nelson 51 Chief Operating Officer
Gregory L. Hrncir 33 General Counsel and Secretary
Lawrence S. Schroeder 51 Director
Dr. Alan C. Ashton 58 Director Designee
S. Leslie Flegel 61 Director Designee
John J. Prehn 39 Director Designee
</TABLE>

Upon the completion of this offering, our board will consist of five
members, each of whom will serve in that capacity for a one-year term or until a
successor has been elected and qualified, subject to earlier resignation,
removal or death. The number of directors comprising our board may be increased
or decreased by resolution adopted by the affirmative vote of a majority of the
board. Messrs. Ashton, Flegel and Prehn have agreed to join the board at the
first meeting of the board following completion of this offering. We presently
expect that Messrs. Ashton and Flegel will be appointed to the compensation and
audit committees upon joining the board.

Each of the executive officers is a full-time employee of eRoomSystem
Technologies. Non-employee directors of eRoomSystem Technologies devote such
time to the affairs of eRoomSystem Technologies as is necessary and appropriate.
Set forth below are descriptions of the backgrounds of the executive officers,
directors, director designees and key employees of eRoom:

STEVEN L. SUNYICH has served as our president, chief executive officer
and chairman since August 1999. Mr. Sunyich has also served as our president,
chief executive officer and chairman of RoomSystems and its predecessors since
1993, as president and chief executive officer of RSi BRE since its inception in
September 1999, and as our president, chief executive officer and chairman of
eRoomSystem SPE since its inception in May 2000. Since 1983, Mr. Sunyich has
been involved with the credit card and lodging industries as a developer,
inventor and engineer of high-tech products. Mr. Sunyich developed and patented
our automated credit card draft capture technology.

DEREK K. ELLIS has served as our chief financial officer and treasurer
since August 1999. Mr. Ellis has also served as chief financial officer and
treasurer of RoomSystems since 1997, as chief financial officer, treasurer and
as a director of RSi BRE since its inception in September 1999, and chief
financial officer, treasurer and as a director of eRoomSystem SPE since its
inception in May 2000. From 1995 to 1997, Mr. Ellis served as the Director of
Finance for IVY International Communications, Inc., Provo, Utah, formerly a
division of Novell/Word Perfect. Mr. Ellis received his Bachelor of Science in
Finance from the University of Utah.

STEPHEN M. NELSON has served as chief operating officer of eRoomSystem
Technologies and RoomSystems since March 2000. Prior to joining us, Mr. Nelson
spent nine years with TELS Corporation where he served as its president and
chief operating officer from 1996 to 1999, its executive vice president from
1994 to 1996, and its chief financial officer from 1990 to 1994. Mr. Nelson also
served as a member of its board of directors from 1991 to 2000. He received his
Bachelor of Science in Accounting from the University of Utah in 1974. Mr.
Nelson is a certified public accountant and a member of the AICPA, UACPA,
Institute of Management Accountants and American Management Association.

GREGORY L. HRNCIR has served as our general counsel and secretary since
September 1999. Mr. Hrncir has also served as general counsel and secretary of
RoomSystems and RSi BRE since September 1999 and as general

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counsel and secretary of eRoomSystem SPE since May 2000. In 1999, Mr. Hrncir
served as general counsel for PayStation America, Inc., an e-commerce company
located in Los Angeles, California. From 1994 to 1998, Mr. Hrncir served in
private practice in Los Angeles, California specializing in corporate and
securities matters, and represented us from 1996 to 1998. Mr. Hrncir received
his Bachelor of Science from Arizona State University and his Juris Doctor
from Whittier College School of Law. He is a member of the Arizona and
California State bars.

LAWRENCE S. SCHROEDER has served as a director of eRoomSystem
Technologies since August 1999. Mr. Schroeder has also served as a director of
RoomSystems since 1998. Since 1992, Mr. Schroeder has been a private consultant
to the hospitality, sports and other related industries. Mr. Schroeder is also a
Director of River Valley Productions, Kansas City, Missouri, and a Director of
Responsive Marketing & Communications, Chicago, Illinois. Mr. Schroeder received
his Bachelor of Science in Business Administration from Huron College.

S. LESLIE FLEGEL has agreed to serve as a director of eRoomSystem
Technologies following completion of this offering. Mr. Flegel has been the
Chairman of the board of directors and chief executive officer of The Source
Information Management Company, St. Louis, Missouri, since its inception in
March 1995. For more than 14 years, Mr. Flegel was the principal owner and chief
executive officer of Display Information Systems Company, a predecessor of The
Source. Mr. Flegel received his Bachelor of Arts from the University of Missouri
at Columbia.

DR. ALAN C. ASHTON has agreed to serve as a director of eRoomSystem
Technologies following completion of this offering. Dr. Ashton is the co-founder
of WordPerfect Corporation, Orem, Utah. Dr. Ashton received a Bachelor's Degree
in Mathematics and a Ph.D. in Computer Science from the University of Utah. Dr.
Ashton is a former professor of Computer Science at the University of Utah and
Brigham Young University. Dr. Ashton has served on the board of directors of
Novell, Inc., Geneva Steel and Utah Valley State College.

JOHN J. PREHN has agreed to serve as a director of eRoomSystem
Technologies following completion of this offering. Since 1997, Mr. Prehn has
served as managing director of Amresco, Inc. Prior to 1997, Mr. Prehn co-founded
and managed Commercial Lending Corporation, the company he sold to Amresco, Inc.
From 1989 to 1996, Mr. Prehn co-founded Peteco, Inc., a company that purchased,
packaged and sold securitized assets. Mr. Prehn received his Bachelor of Science
in Business Administration from the University of California at Berkeley.

OTHER KEY EMPLOYEES

RONALD C. WARD has served as vice president of research and development
of RoomSystems and its predecessors since 1993. Mr. Ward has spent the last 35
years in analog and digital circuitry design. From 1991 to 1995, Mr. Ward served
as Senior Staff Engineer with Dynatec Video Group. Mr. Ward has developed over
40 products in the analog and digital industry and currently holds three
patents.

DOUGLAS SEASTRAND has served as vice president of software development
of RoomSystems since October 1999. Prior to joining us, Mr. Seastrand was an
Engineering Specialist with Bechtel Nevada, Las Vegas, Nevada. From 1997 to
1999, Mr. Seastrand served as lead technical engineer for EG&G/Special Projects,
Las Vegas, Nevada. From 1995 to 1997, Mr. Seastrand served as president of Prime
Services, Inc., Las Vegas, Nevada. Mr. Seastrand received his Bachelor of
Science in Computer Science from the University of Nevada at Las Vegas and is
currently a University Regent of the University and Community College System of
Nevada.

SHAWN S. SUNYICH has served as vice president of field operations of
RoomSystems and its predecessors since 1993. Mr. Sunyich is experienced in the
design and implementation of our products and is responsible for the
installation and maintenance of our products at each property, as well as
support and data management. Mr. Sunyich received his Associates Degree in
Computer Science from Certified Careers Institute. Mr. Sunyich is the son of
Steven L. Sunyich.

STEVEN A. MOULTON has served as vice president of manufacturing of
RoomSystems and its predecessors since 1994. Previously, Mr. Moulton worked with
Rogers Corporation and ComTel, Inc. overseeing product development and
manufacturing. Mr. Moulton received a Bachelor of Arts from Weber State College
and a Master of Business Administration from Brigham Young University.

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<PAGE>

G. DOUGLAS SCOLLIN has served as vice president of corporate accounts
of RoomSystems since October 1999. Mr. Scollin is a founder and, from 1994 to
1999, served as president of Lodgstix, Wichita, Kansas, a vendor of hotel
property management systems. Mr. Scollin received his Bachelor of Science in
Business Administration from the University of Florida.

FRANK L. HICKS, JR. has served as general manager of RoomSystems since
1996. Prior to 1996, Mr. Hicks spent 17 years with Evans & Sutherland as a
contracts negotiator and financial administrator. Mr. Hicks received a Bachelor
of Arts degree from the Ohio Christian College, a Masters in Business
Administration from Florida State Christian College and a Juris Doctor from the
Blackstone School of Law.

COMPOSITION OF OUR BOARD

Our Bylaws authorize not less than two and no more than nine directors.
Directors hold office for a term of one year. Executive officers are elected by
and serve at the discretion of our board. After this offering, we will maintain
at least two independent directors on our board at all times.

COMMITTEES OF OUR BOARD

The board has approved an audit committee and a compensation committee
to be formed immediately upon the completion of this offering. The audit
committee will have the responsibility of recommending the firm that will serve
as our independent public accountants, reviewing the scope and results of the
audit and services provided by our independent public accountants and meeting
with our financial staff to review accounting procedures and policies. The
compensation committee will have the responsibility of reviewing our financial
records to determine overall compensation and benefits for executive officers
and to establish and administer the policies which govern employee salaries and
benefit plans.

DIRECTOR COMPENSATION

Non-employee directors of eRoomSystem Technologies will receive an
attendance fee of $500 per meeting attended. Pursuant to the 2000 Stock Option
and Incentive Plan, to the extent not previously granted under a separate plan
or option, non-employee directors of eRoomSystem Technologies will receive stock
options to purchase 5,000 shares of common stock following the completion of
this offering. In addition, non-employee directors will receive additional stock
options to purchase 5,000 shares of common stock at each annual meeting
conducted after 2000. Dr. Ashton was issued his options pursuant to a stock
option agreement, Mr. Flegel was issued his options pursuant to our stock option
plan and Mr. Prehn will be issued his options pursuant to our stock option plan.
Directors who are employees of eRoomSystem Technologies or our subsidiaries do
not receive compensation for their services as directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the completion of this offering, compensation of executive
officers was established by Steven L. Sunyich, chief executive officer,
president and Chairman of the Board. Following this offering, compensation of
executive officers will be established by the board pursuant to recommendations
from the board's compensation committee. No member of our compensation committee
will serve as a member of a board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of our board
or compensation committee.

There are no family relationships among any of our directors, executive
officers or key employees other than between Steven L. Sunyich and Shawn S.
Sunyich, who are father and son.

2000 STOCK OPTION AND INCENTIVE PLAN

Our stock option plan was adopted by the board on February 3, 2000,
approved by the stockholders on March 29, 2000 and amended and restated by the
board on June 6, 2000. The stock option plan became effective on

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<PAGE>

February 3, 2000. The plan provides us with the vehicle to grant to
employees, officers, directors and consultants stock options and bonuses in
the form of stock and options.

Under the plan, we can grant awards for the purchase of up to two
million shares of common stock in the aggregate, including "incentive stock
options" within the meaning of Section 422 of the United States Internal Revenue
Code of 1986 and non-qualified stock options. To date, we have issued options to
purchase 1,417,250 shares of common stock under our stock option plan. The
compensation committee of our board has authority to determine the persons to
whom awards will be granted, the nature of the awards, the number of shares to
be covered by each grant, the terms of the grant and with respect to options,
whether the options granted are intended to be incentive stock options, the
duration and rate of exercise of each option, the option price per share, the
manner of exercise and the time, manner and form of payment upon exercise of an
option.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION INFORMATION

The following table sets forth summary information concerning the total
remuneration paid or accrued by eRoomSystem Technologies, to or on behalf of our
chief executive officer whose total salary, bonus and other compensation
exceeded $100,000 during the fiscal year ended December 31, 1999. In accordance
with the rules of the Securities and Exchange Commission, or the Commission, the
compensation described in this table does not include perquisites and other
personal benefits received by the executive officer named in the table below
which does not exceed the lesser of $50,000 or 10% of the total salary and bonus
reported for this executive officer.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ALL OTHER COMPENSATION
--------------------------- ---- ------ ----- ----------------------
<S> <C> <C> <C> <C>
Steven L. Sunyich, 1999 $156,058 -- --
President, chief executive 1998 $ 73,308 -- $ 4,000
officer and chairman 1997 $ 28,517 -- $ 49,000
</TABLE>

The amounts paid to Mr. Sunyich other than salary were pursuant to a consulting
agreement. Pursuant to this consulting agreement, Mr. Sunyich received $49,000
in 1997 and $4,000 in 1998.

OPTION GRANTS TO EXECUTIVE OFFICERS DURING THE YEAR ENDED DECEMBER 31,
1999 AND SUBSEQUENT TO DECEMBER 31, 1999

We did not grant any options to our executive officers during the
fiscal year ended December 31, 1999. Subsequently, we granted to Mr. Sunyich
options to purchase 169,879 shares of common stock at $4.00 per share, 68,878
shares of common stock at $8.80 and 123,700 shares of common stock at $9.60 per
share. We have also granted to our other executive officers an aggregate of
options to purchase 144,776 shares of common stock at $4.00, 25,000 shares of
common stock at $6.00, 85,270 shares of common stock at $8.80 and 89,763 shares
of common stock at $9.60 per share. The exercise price for all of the options
may, in some cases, be paid by delivery of other shares. The deemed fair value
for the date of grant has been adjusted solely for financial accounting
purposes.

EMPLOYMENT AGREEMENTS

On July 12, 2000, we entered into amended and restated executive
employment agreements with Steven L. Sunyich, Derek K. Ellis and Gregory L.
Hrncir. In addition, on July 12, 2000, we entered in an executive employment
agreement with Stephen M. Nelson. The terms of the executive employment
agreements for Messrs. Sunyich, Ellis, Nelson and Hrncir will terminate on
December 31, 2001, December 31, 2001, June 30, 2002 and September 26, 2002,
respectively, and may extended through the mutual agreement of the parties.

The base salaries for Messrs. Sunyich, Ellis, Nelson and Hrncir are
$155,000, $109,250, $110,000 and $108,000, respectively. Upon a merger with a
third party, a change of control, the creation of debt facility of at least

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<PAGE>

$6 million or an initial public offering, the base salaries of Messrs.
Sunyich, Ellis and Hrncir will increase by $30,000, $13,250, $15,000 and
$12,000, respectively, for the remainder of the term of the Agreement. All of
our executive officers are eligible for annual bonuses and provided with
benefits customarily granted to executive officers.

All of our executive employment agreements provide that the executive
officer shall not, directly or indirectly, be an owner, partner, director,
manager, officer or executive, or otherwise render services to or be associated
with any business that competes with us during the term of employment and for a
one-year period following the termination of such employment. In addition, all
of our executive employment agreements with our executive officers provide for
the confidentiality of our non-public information during the term of employment
and for the three-year period following the termination of such employment.

In the event that the employment of one of our executive officers is
terminated for reasons other than for cause, permanent disability or death, the
executive officer would be entitled to receive the aggregate exercise price on
all of the stock options exercised by the executive officer and cash
compensation equal to the greater of the remainder of the salary due under the
executive officer's agreement or the then existing base salary of the executive
officer for a period of 36 months. If the executive officer is terminated for
cause, the executive officer would be entitled to receive cash compensation
equal to the greater of the remainder of the salary due under the executive
officer's agreement or the then existing base salary of the executive officer
for a period of 12 months. Under either scenario, we have agreed to make payment
on a bi-monthly basis. Further, in the event of termination with cause, we have
agreed to purchase the shares of the executive officer acquired during the
executive officer's employment at a purchase price per share equal to 120% of
the fair market value of the shares.

INSURANCE

We maintain directors and officers liability insurance of $2,000,000 on
behalf of our officers and directors insuring them against liability that they
may incur in such capacities or arising out of such status. In addition, we have
purchased a key man insurance policy for Steven L. Sunyich in the amount of
$2,000,000.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Sections 78.7502 and 78.751 of the Nevada Revised Statutes provide for
the indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities, including reimbursement for expenses incurred, arising under the
Securities Act. Article XII of our articles of incorporation provides for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by Sections 78.7502 and 78.751 of
the Nevada Revised Statutes.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the provisions contained in our articles of incorporation, bylaws, Nevada law
or otherwise, we have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities, other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful defense of any
action, suit, or proceeding, is asserted by such director, officer or
controlling person, we will, unless in the opinion of our counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of this issue.

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<PAGE>

Prehn each possess the right to indemnification if, in civil proceedings,
they acted in good faith and in a manner that they reasonably believed to be
in or not opposed to the best interests of eRoomSystem Technologies, and, in
criminal proceedings, they had no reasonable cause to believe that his
conduct was unlawful. In addition, eRoomSystem Technologies may elect to not
indemnify Messrs. Ashton and Prehn if either a majority of the directors not
involved in the relevant proceeding or independent legal counsel, in a
written opinion, determine that they have not met the relevant standards for
indemnification.

On September 28, 1999, we entered into an indemnification agreement
with Donnelly Prehn which indemnifies Mr. Prehn for actions which may be taken
by him as a director on behalf of RSi BRE. Pursuant to this indemnification
agreement, eRoomSystem Technologies and RSi BRE, jointly and severally, agreed
to hold harmless and indemnify Mr. Prehn against any and all expenses incurred
by him as a result of his position as a director of RSi BRE. In addition, we
agreed to advance expenses incurred by Mr. Prehn upon receipt of a written
request for such advancement containing an unsecured undertaking by Mr. Prehn to
repay such amounts to the extent that Mr. Prehn is held not to be entitled to
indemnification from eRoomSystem Technologies. Mr. Prehn's rights to
indemnification are only available if damages have not already been paid
directly to Mr. Prehn by an insurance carrier maintained by either eRoomSystem
Technologies or RSi BRE. Mr. Prehn is not entitled to indemnification if he is
adjudged by a court of competent jurisdiction to have engaged in intentional
misconduct or a knowing violation of the law, if he received an improper
personal benefit, or if a court of competent jurisdiction renders a final
decision that such indemnification is unlawful.

There is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought, nor are we
aware of any pending or threatened litigation that may result in claims for
indemnification by any director of officer.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS INVOLVING ASH CAPITAL

On August 17, 1999, eRoomSystem Technologies and Ash Capital entered
into an Agreement of Understanding with respect to the purchase by Ash Capital
of 333,334 shares of Series B convertible preferred stock at a price of $3.00
per share. This agreement provides Ash Capital with representation on our board
and options to purchase 70,313 shares of common stock at $4.80 per share and
56,250 shares of common stock at $8.80 per share. The Agreement of Understanding
was later amended by an agreement which provided additional obligations of
eRoomSystem Technologies with respect to the purchase of an aggregate of 683,336
shares of Series B convertible preferred stock as follows: Ash Capital - 333,334
shares; C&W/RSI Partners - 133,334 shares; SKM Investments, LLC - 133,334
shares; and Thunder Mountain Properties LC - 83,334 shares. Pursuant to this
amendment, eRoomSystem Technologies agreed to deliver monthly and annual
financial statements, make adjustments for business combinations and
capital-related transactions, and issue additional shares of preferred stock to
the extent that eRoomSystem Technologies sells shares of common stock, or its
equivalents, for less than $3.00 per share. In addition, the shares of Series B
convertible preferred stock purchased by these investors possess the same rights
as other shares of Series B convertible preferred stock.

In addition to the Agreement of Understanding, we entered into a
Stockholders' Agreement and Proxy dated August 17, 1999 with Ash Capital in
which rights were granted to Ash Capital. As a result, Ash Capital possesses the
right to vote a nominee onto our board of directors, the right of first refusal
with respect to the proposed sale of shares of our capital stock by our
executive officers and their respective affiliates and the right to participate
in the proposed sale of shares of our capital stock in an amount equal to one
quarter of the number of shares proposed to be sold. In the event that there is
a transfer by our executive officers and their respective affiliates that
violates this agreement, Ash Capital possesses the right to sell to our
executive officers and their respective affiliates the number of shares of
capital stock Ash Capital would have been able to sell pursuant to its
participation rights. In addition, with the exception of transfers for estate
planning purposes, our executive officers and their respective affiliates agreed
to transfer no more than 10,000 shares of our capital stock per year. This
agreement terminates upon the earlier of the tenth anniversary of the agreement
or upon the consummation of a firmly underwritten public offering with gross
proceeds of at least $12 million. We believe that this agreement will terminate
upon the closing of this offering.

-46-

<PAGE>

On February 15, 2000, we received a $500,000 loan from Ash Capital. Dr.
Alan C. Ashton is a director designee of eRoomSystem Technologies and owns 100%
of Ash Capital. This loan is evidenced by a promissory note bearing simple
interest at the rate of 10% per annum, payable on July 31, 2000 and secured by
our assets. Ash Capital was issued a warrant to purchase 18,750 shares of common
stock exercisable at $4.80 per share through the second anniversary date of the
close of this offering. The primary purpose of this loan was to fund
approximately 900 Refreshment Centers to be installed in several hotel
properties in the United States. The Ash Capital loan has been repaid in part
from the sale of these Refreshment Centers and will be paid in full from the net
proceeds of this offering.

TRANSACTIONS INVOLVING RSG INVESTMENTS

On July 17, 1998, eRoomSystem Technologies entered into an agreement
with RSG Investments through which RSG Investments loaned us $1.5 million. RSG
Investments is a privately-held company in which John J. Prehn, one of our
director designees, is a member. Mr. Prehn is also the managing director of
Amresco. At the time of these agreements, neither RSG Investments nor Amresco
were affiliated with us.

The purpose of the $1.5 million loan was to fund the production of
approximately 2,270 Refreshment Centers. As an inducement, we issued the
principals of RSG Investments warrants to purchase 46,875 shares of common stock
and agreed to pay interest at the rate of 15% per annum. Our obligation was
secured by Refreshment Centers, our other assets and shares of common stock held
by the officers, directors and consultants. Under this agreement, we were to
"repurchase" the Refreshment Centers within 75 days, or by September 30, 1998.
If we failed to "repurchase" the Refreshment Centers by such date, warrants to
purchase 9,375 shares of common stock would accrue every 30 days through January
30, 1999. We failed to "repurchase" the Refreshment Centers by September 30,
1998 and remained in default through January 30, 1999, although we obtained
several extensions from RSG Investments. As our obligation remained unsatisfied,
we entered into a settlement with RSG Investments in the form of an Equipment
Transfer Agreement dated September 28, 1999.

Pursuant to the Equipment Transfer Agreement, we formed a
bankruptcy-remote entity, RSi BRE, placed a representative of RSG Investments on
the board of directors of RSi BRE, transferred ownership of 2,270 Refreshment
Centers to RSi BRE, and granted RSG Investments the right to receive $0.57 per
Refreshment Center per day of the revenue realized from the 2,270 Refreshment
Centers. As part of the settlement, the RSi BRE board of directors was to
consist of three individuals, a representative of eRoomSystem Technologies, a
representative of RSG Investments and a third independent director. In addition,
we paid $250,000 to RSG Investments, converted $500,000 of our obligation into
166,667 shares of Series B convertible preferred stock and executed a promissory
note in the principal amount of $750,000 bearing an interest rate of 10% per
annum. Pursuant to this settlement, RSG Investments terminated the security
interest granted under the original obligation and received a security interest
in all of the assets of RSi BRE. In addition, RSG Investments surrendered all
warrants to purchase shares of common stock eRoomSystem Technologies previously
issued to it.

Pursuant to the terms of this promissory note, we transferred
approximately 800 additional Refreshment Centers to RSi BRE. We are obligated to
satisfy this promissory note in full on May 1, 2000, which has been extended to
August 1, 2000. In the event we do not repay this promissory note in full by
August 1, 2000, RSG Investments will be entitled to receive all revenues
realized from the additional Refreshment Centers after the first $0.11 per room
per day, which is reserved for taxes and service and maintenance. Upon payment
of the promissory note in full, the additional Refreshment Centers will be
returned to eRoomSystem Technologies. In the event that we do not repay the
promissory note by the earlier of December 31, 2000 or 30 days after the
effective date of the registration statement for this offering, we will be in
default under the promissory note and a penalty interest of 18% per annum will
apply.

OTHER TRANSACTIONS WITH RELATED PARTIES

In October 1996, in consideration for the sale of patents to
eRoomSystem Technologies, we agreed to pay $125,000 and issue 65,625 shares of
common stock to Steven L. Sunyich. In fiscal year 1999, Mr. Sunyich converted
the remaining principal balance of $70,750 into 23,583 shares of Series B
convertible preferred stock.

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<PAGE>

In 1997, Kelley Family Trust and Toleman Family Trust, both of which
are controlled by Steven L. Sunyich, our president, chief executive officer and
chairman, purchased 84,375 and 118,125 shares of common stock, respectively, at
a price of $4.67 per share, evidenced by demand promissory notes bearing simple
interest at the rate of 7% per annum. On October 1, 1999, the board called the
demand promissory notes of Kelley Family Trust and Toleman Family Trust. The
demand promissory notes were defaulted upon and the shares of common stock were
returned to us and retired.

In 1997, Derek K. Ellis, our chief financial officer, purchased 120,375
shares of common stock at a price of $4.67 per share, evidenced by a demand
promissory note bearing simple interest at the rate of 7% per annum. On October
1, 1999, the board called the demand promissory note of Mr. Ellis. The demand
promissory note was defaulted upon and the shares of common stock were returned
to us and retired.

In 1997, Gregory L. Hrncir, our general counsel and secretary,
purchased 50,625 shares of common stock through DM Trust at a price of $4.67 per
share, evidenced by a demand promissory note bearing simple interest at the rate
of 7% per annum. On October 1, 1999, the board called the demand promissory
notes of DM Trust. The demand promissory note was defaulted upon and the shares
of common stock were returned to us and retired.

In 1998, Derek K. Ellis, our chief financial officer, loaned $10,545 to
us evidenced by a promissory note. On September 1, 1999, we entered into an
agreement with Mr. Ellis whereby we agreed to convert the outstanding
indebtedness due on this promissory note into shares of Series B convertible
preferred stock. As a result, we issued 3,742 shares of Series B convertible
preferred stock and 2,990 shares of our common stock to Mr. Ellis.

Steven L. Sunyich, our president, chief executive officer and chairman,
loaned the sum of $205,209 to us, as evidenced by a promissory note dated
January 1, 1999. In addition, William R. Shupe, a former executive officer and
former consultant, loaned the sum of $83,411 to us, as evidenced by a promissory
note dated January 1, 1999. On September 1, 1999, we entered into agreements
whereby we agreed to convert the outstanding indebtedness due on these
promissory notes. As a result, we issued 72,434 shares of Series B convertible
preferred stock and 51,979 shares of our common stock to Mr. Sunyich and 29,808
shares of Series B convertible preferred stock and 25,374 shares of our common
stock to Mr. Shupe.

The funds loaned by Mr. Sunyich and Mr. Shupe were originally loaned to
them by Riggs Family Partnership, an entity owned and controlled by Mr. Shupe.
Upon inquiry, we were advised that the loans by Riggs Family Partnership had
been obtained from the proceeds of what may have been an unregistered offering
of our common stock by Riggs Family Partnership and Mr. Shupe. Through this
offering, Riggs Family Partnership sold shares of our common stock held by two
of our stockholders. We have been advised that, from April 1998 through March
1999, Riggs Family Partnership sold approximately 112,500 shares of our common
stock to approximately 36 investors in exchange for approximately $1.3 million.

Further, in December 1999, Riggs Family Partnership notified us of its
intention to transfer to these investors approximately 60,000 additional shares
of our common stock held by Riggs Family Partnership to offset the effect of our
one-for-two reverse stock split. We have not been able to determine whether this
unregistered offering was conducted by Riggs Family Partnership with the benefit
of a state or federal exemption from registration. As a result, Riggs Family
Partnership and Mr. Shupe may be subject to an examination by administrative
agencies with respect to its offers and sales of our common stock or may be
subject to demand for rescission by the purchasers of our common stock. Despite
the possible exposure of Riggs Family Partnership and Mr. Shupe to liability, we
did not have any control over Riggs Family Partnership or Mr. Shupe and did not
participate in the actual offer and sale of our common stock to these
purchasers.

On May 30, 1999, the SBD Limited Partnership, an entity controlled by
Mr. Sunyich, executed a promissory note in favor of eRoomSystem Technologies in
the original principal amount of $1,590,000 in consideration for the issuance of
198,750 shares of our common stock. The purpose of the issuance was to assist
eRoomSystem Technologies in complying with the stock pledge requirements
mandated by the terms of the $1,500,000 loan from RSG Investments. On September
30, 1999, as a result of a settlement agreement with RSG Investments, the
198,750 shares of common stock were returned to the SBD Limited Partnership.
Immediately thereafter, the SBD Limited Partnership surrendered the 198,750
shares of common stock to eRoomSystem

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<PAGE>

Technologies in exchange for the cancellation of the promissory note. The
shares of common stock were booked as treasury stock and have been retired.

On December 7, 1999 and February 14, 2000, Mr. Sunyich formally
assigned to eRoomSystem Technologies Patent No. 4,939,352 and Patent Nos.
4,857,714 and 4,883,948, respectively. These patents relate to credit card point
of sale technology. Each of the patent assignments have been filed with the
United States Patent and Trademark Office. The assignments finalized the sale of
such patents by Mr. Sunyich to us. In exchange, we issued 65,625 shares and a
promissory note in the principal amount of $125,000 to Mr. Sunyich. After paying
down the promissory note to approximately $70,000, we converted the remaining
outstanding principal and interest into 23,524 shares of Series B convertible
preferred stock.

The terms of each of the affiliate transactions were as favorable to
the issuer or its affiliates as those generally available from unaffiliated
third parties. We lacked sufficient disinterested independent directors to
ratify the affiliate transactions at the time the transactions were initiated.
All future material affiliated transactions and loans will be made or entered
into on terms that are no less favorable to us than those that can be obtained
from unaffiliated third parties. All future material affiliated transactions and
loans, and any forgiveness of loans, must be approved by a majority of our
independent directors who do not have an interest in the transactions and who
had access, at our expense, to our legal counsel or independent legal counsel.

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common
stock as of June 30, 2000 and as adjusted to reflect the sale of the shares of
common stock in this offering by:

- each person or entity known by us to own beneficially more
than five percent of our common stock;

- our chief executive officer, our directors and our director
designees, individually; and

- all of our executive officers, directors and director
designees, as a group.

The beneficial ownership is calculated based on 2,350,923 shares of our
common stock outstanding as of June 30, 2000 and 6,221,699 shares outstanding
immediately following the completion of this offering. The shares of common
stock outstanding immediately following the completion of this offering reflect
the 1,800,000 shares of common stock to be sold, and 400,000, 1,541,985 and
128,791 shares of common stock as a result of the conversion of Series A, Series
B and Series C convertible preferred stock, respectively, upon the completion of
this offering. The conversion of preferred stock into common stock was
calculated upon the assumption that the initial public offering price will be
$9.00 per share.

Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Below, the column titled "Number of Shares Beneficially Owned"
includes all shares listed in the column titled "Shares Issuable Upon Exercise
of Stock Options or Warrants." Unless otherwise indicated, each person or entity
named in the table has sole voting power and investment power, or shares voting
and investment power with his or her spouse, with respect to all shares of
capital stock listed as owned by such person. Shares issuable upon the exercise
of options that are currently exercisable or become exercisable within sixty
days of June 30, 2000 are considered outstanding for the purpose of calculating
the percentage of outstanding shares of our common stock held by the individual,
but not for the purpose of calculating the percentage of outstanding shares of
our common stock held by another individual.

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<PAGE>

Unless otherwise indicated, the address of the following stockholders
is c/o eRoomSystem Technologies, Inc., 3770 Howard Hughes Parkway, Suite 175,
Las Vegas, Nevada 89109.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES ------------------
NAME OF EXECUTIVE OFFICER, DIRECTOR BENEFICIALLY PRIOR TO THE AFTER THE
AND DIRECTOR DESIGNEES OWNED OFFERING(1) OFFERING
---------------------- ----- -------- --------

<S> <C> <C> <C>
Steven L. Sunyich(2) 808,094 25.7% 12.3%

Derek K. Ellis(3) 171,588 6.6% 2.7%

Gregory L. Hrncir(4) 126,822 5.1% 2.0%

Lawrence S. Schroeder(5) 58,598 2.4% 0.9%

Dr. Alan C. Ashton(6) 404,734 6.3% 6.4%

S. Leslie Flegel(7) 122,576 4.7% 1.9%

John J. Prehn(8) 123,457 0.0% 2.0%

All of our executive officers, directors and director 1,869,467 40.7% 25.8%
designees as a group (8 persons)

GREATER THAN FIVE PERCENT STOCKHOLDER
----------------- -----------
Pacific Acquisition Group II, LLC(9)
23501 Park Sorrento, Suite 213-B 149,333 6.4% 2.4%
Calabasas, California 91302

</TABLE>

---------------

(1) The percentage of shares beneficially owned prior to the
offering has been calculated by using each person's beneficial ownership less
shares issuable upon conversion of our convertible preferred stock. We have
excluded these shares since these shares are only issuable upon the
consummation of our offering.

(2) Reflects beneficial ownership of 58,585 shares of common stock,
270,563 shares of common stock held by trusts for which Mr. Sunyich acts as
trustee and his family members are beneficiaries, 107,747 shares of common
stock as a result of the conversion of Series B convertible preferred stock
upon the completion of this offering, and options to purchase an aggregate of
371,199 shares of common stock. The options held by Mr. Sunyich are
immediately exercisable.

(3) Reflects beneficial ownership of 4,108 shares of common stock,
5,569 shares of common stock as a result of the conversion of Series B
convertible preferred stock upon the completion of this offering, and options
to purchase an aggregate of 161,911 shares of common stock. The options held
by Mr. Ellis are immediately exercisable.

(4) Reflects beneficial ownership of 1,875 shares of common stock
and options to purchase an aggregate of 124,947 shares of common stock. The
options held by Mr. Hrncir are immediately exercisable.

(5) Reflects beneficial ownership of options to purchase 58,598
shares of common stock. The options held by Mr. Schroeder are immediately
exercisable.

(6) Ash Capital, controlled by Dr. Ashton, owns 12,507 shares of
common stock, options to purchase 145,313 shares of common stock and 246,914
shares of common stock as a result of the conversion of Series B convertible
preferred stock upon the completion of this offering. The options held by Ash
Capital are immediately exercisable.

(7) Mr. Flegel's beneficial ownership consists of options to
purchase 112,500 shares of common stock, a warrant to purchase 2,500 shares
of common stock and 7,576 shares of common stock as a result of the
conversion of Series C convertible preferred stock upon the completion of
this offering. The options and warrants held by Mr. Flegel are immediately
exercisable.

(8) Mr. Prehn's beneficial ownership consists of 123,457 shares of
common stock held in the name of RSG Investments as a result of the
conversion of 166,667 shares of Series B convertible preferred stock upon
completion of this offering. Mr. Prehn is a member of RSG Investments.

(9) Pacific Acquisition Group II, LLC is solely controlled and
beneficially owned by James E. Hock, Jr.

-50-
<PAGE>

DESCRIPTION OF CAPITAL STOCK

eRoomSystem's authorized capital stock consists of 50,000,000 shares of
common stock, $0.001 par value; 5,000,000 shares of preferred stock, $0.001 par
value; 500,000 shares of Series A convertible preferred stock, $0.001 par value;
2,500,000 shares of Series B convertible preferred stock, $0.001 par value; and
2,000,000 shares of Series C convertible preferred stock, $0.001 par value. Our
current authorized capital was effected through an amendment and restatement of
our articles of incorporation on March 29, 2000.

On September 28, 1999, our stockholders approved a reverse split of our
common stock, including all common stock underlying our outstanding options and
warrants, at the rate of one share for every two shares outstanding. Due to
contractual anti-dilution rights which have since been terminated, 1,471,000
shares of our common stock were excluded from the one-for-two reverse stock
split. This reverse stock split did not affect our Series A or Series B
convertible preferred stock and has been retroactively reflected in this
prospectus.

On March 29, 2000, our stockholders approved a reverse split of our
common stock, including all common stock underlying our outstanding options and
warrants, at a rate of three shares for each four shares outstanding. Our
three-for-four reverse stock split did not affect our Series A, Series B or
Series C convertible preferred stock and has been retroactively reflected in
this prospectus.

As of June 30, 2000, and after giving effect to the one-for-two reverse
stock split and the three-for-four reverse stock split of our common stock,
there were outstanding 2,350,923 shares of common stock, 360,000 shares of
Series A convertible preferred stock, 2,081,680 shares of Series B convertible
preferred stock and 196,150 shares of Series C convertible preferred stock. As
set forth below, there are outstanding options and warrants to purchase
2,502,963 shares of common stock as of June 30, 2000. We have reserved 2,000,000
shares of common stock for issuance pursuant to our stock option plan.

COMMON STOCK

As of June 30, 2000, our outstanding shares of common stock were held
by approximately 400 stockholders. Holders of common stock are entitled to one
vote per share on all matters submitted to a vote of the shareholders. We do not
allow cumulative voting of any kind, and are not required to do so under Nevada
law. Subject to preferences that may be applicable to any then outstanding
preferred stock, the holders of common stock will be entitled to receive
dividends, if any, as may be declared from time to time by the board out of
legally available funds. Upon liquidation, dissolution, or winding up of
eRoomSystem Technologies, the holders of common stock will be entitled to a pro
rata share of our assets that are legally available for distribution after
payment of all debts and other liabilities and subject to the prior rights of
any preferred stock then outstanding. Holders of our common stock have no
preemptive, subscription, redemption, or conversion rights.

We have made an application for listing of our common stock on the
Nasdaq SmallCap Market. Assuming that we are listed initially, we must meet
minimum criteria for continued listing in order to maintain the listing of our
common stock on the Nasdaq SmallCap Market. As we have a history of operating
losses and as there has not been a public market for our common stock, we may
not be able to meet the requirements for continued listing on the Nasdaq
SmallCap Market. In the event that our common stock no longer meets the listing
requirements of the Nasdaq SmallCap Market, our common stock will most likely be
traded on the OTC Bulletin Board or the National Quotation Bureau Pink Sheets.
If our common stock is no longer traded on the Nasdaq SmallCap Market, the
visibility of our common stock to the market will most likely be reduced.

PREFERRED STOCK

We are authorized to issue 5,000,000 shares of undesignated preferred
stock. None of the undesignated preferred stock is issued or outstanding, and we
have no present plans to issue shares of undesignated preferred stock. Although
our board is empowered to issue one or more series of undesignated preferred
stock with such rights, preferences, restrictions and privileges as may be fixed
by our board, without further action by our stockholders, we will not offer any
preferred stock to any officer, director or 5% stockholder except on the same
terms it is offered to all other existing or new stockholders, or unless the
issuance of any preferred stock is approved

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<PAGE>

by a majority of our independent directors who did not have an interest in
the transactions and who have access, at our expense, to our legal counsel or
independent legal counsel. The issuance of the undesignated preferred stock
could adversely affect the rights, including voting rights, of the holders of
our common stock and could impede an attempted takeover of us.

SERIES A CONVERTIBLE PREFERRED STOCK

The rights of holders of common stock are subject to, and are adversely
affected by, the rights of holders of Series A convertible preferred stock. We
have 360,000 shares of Series A convertible preferred stock issued and
outstanding out of 500,000 shares authorized. Series A convertible preferred
stock is held by approximately 60 persons. Series A convertible preferred stock
is subject to the following rights and preferences:

CONVERSION RIGHTS. Shares of Series A convertible preferred stock
automatically convert into eRoomSystem Technologies common stock immediately
following the close of this offering. The Series A convertible preferred stock
shall be converted into common stock on a 1:1 basis, provided that the price per
share of the common stock in this offering is $10.00. If the price per share is
less than $10.00, the conversion rate shall be $10.00 divided by the actual
price per share.

DIVIDENDS. Holders of Series A convertible preferred stock are
cumulating an 8% annual dividend from November 14, 1998, payable quarterly in
arrears out of legally available funds, subject to our ability to pay such
dividends as limited by Nevada corporate law. To date, we have not paid
dividends to holders of Series A convertible preferred stock.

LIQUIDATION RIGHTS. In the event of a liquidation, dissolution or
winding up of eRoomSystem Technologies, holders of Series A convertible
preferred stock will be entitled to receive, out of legally available assets, a
liquidation preference of $10.00 per share, plus an amount equal to any unpaid
dividends to the payment date, before any payment or distribution is made to the
holders of common stock or any series or class of our stock hereafter issued
that ranks junior as to liquidation rights of the Series A convertible preferred
stock.

VOTING RIGHTS. Holders of Series A convertible preferred stock may not
vote on any matter, excluding matters affecting the rights of such shareholders
or as required by law. In connection with any such vote, each outstanding share
of Series A convertible preferred stock will be entitled to one vote.

SERIES B CONVERTIBLE PREFERRED STOCK

We have issued and outstanding 2,081,680 shares of Series B convertible
preferred stock out of 2,500,000 shares authorized. Series B convertible
preferred stock is held by approximately 100 persons. On April 12, 2000, the
Series B convertible preferred stockholders approved an amendment to the Series
B Certificate designating the rights, preferences and privileges thereof as
follows:

CONVERSION RIGHTS. Series B convertible preferred stock is
automatically convertible upon the close of this offering into our common stock.
The number of shares of common stock resulting from the conversion is determined
through the following formula:

<TABLE>
<S> <C> <C>
2,081,680 shares of Series B X $3.00 = Shares of common
convertible preferred stock ----------------- ----------- stock
45% of initial public offering price
</TABLE>

For example, if the initial public offering price is $9.00 per share, the
outstanding shares of Series B convertible preferred stock shall be converted
into 1,541,985 shares of common stock upon consummation of this offering.

In the event we do not close this offering by September 28, 2000,
holders of Series B convertible preferred stock shall have the option to convert
each share of their Series B convertible preferred stock into 1.5 shares of
common stock. Holders of Series B convertible preferred stock are subject to a
"lock-up" restricting resale of the underlying shares of common stock for a
period of nine months following closing of this offering.

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<PAGE>

DIVIDENDS. Holders of Series B convertible preferred stock are entitled
to an annual cumulative dividend of 6%, payable in the form of common stock at
the rate of $3.00 per share, and subject to our ability to pay such dividends as
limited by Nevada corporate law.

LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of eRoomSystem Technologies, holders of Series B convertible
preferred stock will be entitled to receive, out of legally available assets, a
liquidation preference of $10.00 per share, plus an amount equal to any unpaid
dividends to the payment date, before any payment or distribution is made to the
holders of common stock or any series or class of the our stock hereafter issued
that ranks junior to the liquidation rights of Series B convertible preferred
stock.

VOTING RIGHTS. Holders of Series B convertible preferred stock may not
vote on any matter, excluding matters affecting the rights of such shareholders
or as required by law. In connection with any such vote, each outstanding share
of Series B convertible preferred stock will be entitled to one vote. In
addition, if we have not completed this offering by September 28, 2000, holders
of Series B convertible preferred stock shall be accorded voting rights. Each
share of Series B convertible preferred stock shall be entitled to one vote.

SERIES C CONVERTIBLE PREFERRED STOCK

We have issued and outstanding 196,150 shares of Series C convertible
preferred stock out of 2,000,000 shares authorized. Series C convertible
preferred stock is held by 12 persons. The shares of Series C convertible
preferred stock are subject to the following rights and preferences:

CONVERSION RIGHTS. Series C convertible preferred stock is
automatically convertible upon the close of this offering into our common stock.
The number of shares of common stock resulting from the conversion is determined
through the following formula:

<TABLE>

<S> <C> <C>
196,150 shares of Series C X $3.25 = Shares of common
convertible preferred stock ----------------- ----------- stock
55% of initial public offering price

</TABLE>

For example, if the initial public offering price is $9.00 per share, the
outstanding shares of Series C convertible preferred stock shall be converted
into 128,791 shares of common stock upon consummation of this offering.

In the event we do not close this offering by January 31, 2001, shares
of Series C convertible preferred stock shall be converted into shares of common
stock at a rate of $3.30 per share instead of 55% of the initial public offering
price.

LOCK-UP. Series C convertible preferred stock is subject to a "lock-up"
restricting the resale of the shares of common stock, issuable upon conversion,
for a period of one year following the close of this offering, or for an
additional period if mandated by Nasdaq.

DIVIDENDS. Series C convertible preferred stock includes a 7%
cumulative annual dividend, payable in cash, and is subject to our ability to
pay such dividends as limited by Nevada law and payable when declared by our
board.

LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of eRoomSystem Technologies, holders of Series C convertible
preferred stock will be entitled to receive, out of legally available assets, a
liquidation preference of $10.00 per share, plus an amount equal to any unpaid
dividends to the payment date, before any payment or distribution is made to the
holders of common stock or any series or class of our capital stock hereafter
issued that ranks junior to the liquidation rights of the Series C convertible
preferred stock.

VOTING RIGHTS. Holders of Series C convertible preferred stock may not
vote on any matter, excluding matters affecting the rights of such stockholders
or as required by law. In connection with any such vote, each outstanding share
of Series C convertible preferred stock shall be entitled to one vote.

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<PAGE>
OPTIONS AND WARRANTS

As of June 30, 2000, there are options and warrants outstanding to
purchase 2,502,963 shares of common stock at exercise prices ranging from $1.00
to $16.00 per share with a weighted average exercise price per share of $5.77.
These options and warrants are exercisable at various times through the third
anniversary date of this offering. We will not grant any options or warrants to
purchase common stock at an exercise price of less than 85% of the fair market
value of our common stock on the date of grant.

REGISTRATION RIGHTS

In conjunction with the offering of Series B convertible preferred
stock, we granted registration and participation rights with respect to our
common stock pursuant to an agreement with Ash Capital and three other investors
dated September 30, 1999. These stockholders may make a demand to have the
shares of common stock underlying their shares of Series B convertible preferred
stock, or the Registrable Shares, or to participate in the registration of
shares of common stock. The right to demand or participate in the registration
of shares of common stock is suspended if such registration is prior to March
31, 2001, is prior to nine months following the last closing of our initial
public offering, or is after eRoomSystem Technologies has effected two prior
registrations pursuant to the registration rights granted hereunder where each
registration has remained effective for at least 90 days. The costs related to
registration expenses, such as filing fees, legal expenses and printing
expenses, will be paid by us and the costs related to selling expenses, such as
underwriting discounts, selling commissions and stock transfer taxes, will be
paid by the holders of Registrable Shares.

In the context of an underwritten offering, the holders of Registrable
Shares acknowledge that the managing underwriter may limit the number of shares
to be underwritten and require the pro rata reduction in the shares to be
registered. Further, the holders of Registrable Shares agree that such shares
will not be resold during a period beginning 15 days before the effective date
of the registration statement and continuing until the earlier of the
abandonment of the proposed public offering or 90 days after the last closing in
the public offering period.

In conjunction with our July 1996 through March 1997 notes offering, we
distributed offering documents that contained a statement that made reference to
demand and piggy-back registration rights for the shares of common stock
underlying the warrants granted in the offering. These purported registration
rights apply to 242,550 shares of common stock. We have not solicited or
obtained waivers from the holders of these registration rights with respect to
our initial public offering since we believe that sufficient grounds exist to
deny such rights.

Pursuant to our April 1997 through December 1997 units offering, we
granted registration rights to the purchasers of units where such purchasers
possessed the right to demand registration and piggy-back registration for the
shares of common stock purchased. These registration rights apply to 372,375
shares of common stock. We have not solicited or obtained waivers from the
holders of these registration rights with respect to our initial public offering
since the shares were purchased over two years ago and are freely tradable
pursuant to Rule 144(k) of the Securities Act.

Pursuant to our January 1998 through March 1998 common stock offering,
we granted purchasers of common stock the right to piggy-back the registration
of their shares onto a future registration statement of eRoomSystem Technologies
for a public offering. The determination of whether the shares of common stock
purchased by these investors will be included in a future registration statement
will be dependent upon the underwriter or underwriters for the public offering,
as the underwriter or underwriters would have final discretion as to which
shares of common stock will be registered. We have not solicited or obtained
waivers from the holders of these registration rights with respect to our
initial public offering since the shares were purchased over two years ago and
are freely tradable pursuant to Rule 144(k) of the Securities Act.

Pursuant to an offshore subscription agreement dated as of April 13,
2000, we granted registration rights for the 200,000 shares of common stock
issued to the selling stockholders in connection with the bridge loan. In
accordance with these registration rights, these shares of common stock have
been registered in conjunction with this initial public offering. In
addition, we have agreed to have a registration statement for these shares
declared effective within 180 days of the closing of the bridge loan. The
selling stockholders are prohibited from selling their shares of common stock
until 180 days after the closing of this offering, or for a longer period as
required by the

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<PAGE>

National Association of Securities Dealers, Inc. or the Nasdaq Stock Market
not to exceed one year. Due to this lock-up restriction, the 200,000 shares of
common stock issued to the selling stockholders have been registered pursuant to
the registration statement for this offering, but have not been included as part
of this prospectus.

2000 REVERSE STOCK SPLIT

On March 29, 2000, our board and a majority of our stockholders
approved by written consent our three-for-four reverse stock split. This reverse
stock split affects all shares of common stock outstanding and underlying our
options and warrants, but does not affect the Series A, Series B and Series C
convertible preferred stock.

NEVADA LAW, OUR ARTICLES OF INCORPORATION AND BYLAWS

Some of the provisions of our articles of incorporation and bylaws may
have the effect of discouraging some types of transactions that involve an
actual or threatened change of control of eRoomSystem Technologies, which in
turn could limit your ability to sell your shares at a premium. Some of these
provisions are summarized below.

SIZE OF BOARD AND ELECTION OF DIRECTORS. Our articles of incorporation
and bylaws, when read together, provide for a minimum of two and a maximum of
nine persons to serve on the board. However, the number of directors may be
increased or decreased by a resolution adopted by the affirmative vote of a
majority of the board. Removal of a director requires two-thirds vote of the
outstanding shares of our common stock.

STOCKHOLDER NOMINATIONS AND PROPOSALS. Our bylaws provide for advance
notice requirements for stockholder nominations and proposals at annual meetings
of our stockholders. Stockholders may nominate directors or submit other
proposals only upon written notice to eRoomSystem Technologies not less than 120
days nor more than 150 days prior to the anniversary of the date of the notice
to stockholders of the previous year's annual meeting. A stockholder's notice
also must contain additional information, as specified in the bylaws. The board
may reject proposals that are not made in accordance with the procedures
contained in the bylaws or that are not properly the subject of stockholder
action.

CALLING SPECIAL STOCKHOLDER MEETINGS; STOCKHOLDER ACTION WITHOUT A
MEETING. Matters to be acted upon by the stockholders at special meetings are
limited to those specified in the notice of the meeting. A special meeting of
stockholders may be called by the board, the Chairman or the president of
eRoomSystem Technologies by resolution of the board or at the request in writing
of stockholders holding at least 10% of the outstanding shares entitled to vote
at the special meeting. As allowed by Nevada law, the bylaws provide that any
action by written consent of stockholders in lieu of a meeting must be signed by
the holders of at least a majority of the voting power.

PREFERRED STOCK. We are authorized to issue 5,000,000 shares of
undesignated preferred stock, commonly referred to as "blank check" preferred
stock. None of the undesignated preferred stock is issued or outstanding, and we
have no present plans to issue shares of undesignated preferred stock. Our board
is empowered to issue one or more series of undesignated preferred stock with
such rights, preferences, restrictions and privileges as may be fixed by our
board, without further action by our stockholders. The issuance of the
undesignated preferred stock could adversely affect the rights, including voting
rights, of the holders of our common stock and could impede an attempted
takeover of us.

NEVADA ANTI-TAKEOVER STATUTES. Nevada law provides that an acquiring
person who acquires a controlling interest in a Nevada corporation may only
exercise voting rights on any control shares if those voting rights are
conferred by a majority vote of the corporation's disinterested stockholders at
a special meeting held upon the request of the acquiring person. If the
acquiring person is accorded full voting rights and acquires control shares with
at least a majority of all the voting power, any of our stockholders, who did
not vote in favor of authorizing voting rights for the control shares, are
entitled to payment for the fair value of his shares. A "controlling interest"
is an interest that is sufficient to enable the acquiring person to exercise at
least one-fifth of the voting power of the corporation in the election of
directors. "Control shares" are outstanding voting shares that an acquiring
person or associated persons acquire or offer to acquire in an acquisition and
those shares acquired during the 90-day period before the person involved became
an acquiring person.

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<PAGE>

In addition, Nevada law restricts the ability of a corporation to
engage in any combination with an interested stockholder for three years from
when the interested stockholder acquires shares that cause the stockholder to
become an interested stockholder, unless the combination or the purchase of
shares by the interested stockholder is approved by the board before the
stockholder became an interested stockholder. If the combination was not
previously approved, the interested stockholder may only effect a combination
after the three-year period if the stockholder receives approval from a majority
of the disinterested shares or the offer meets the fair price criteria.

An "interested stockholder" is a person who is:

- the beneficial owner, directly or indirectly, of 10% or more of
the voting power of the outstanding voting shares of a
corporation; or

- an affiliate or associate of a corporation and, at any time within
three years immediately before the date in question, was the
beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding shares of a corporation.

These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the board and in the policies formulated by
the board and to discourage some types of transactions that may involve actual
or threatened change of control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited proposal for a takeover that does not
contemplate the acquisition of all of our outstanding shares or an unsolicited
proposal for the potential restructuring or sale of all or a part of our
company. However, these provisions could discourage potential acquisition
proposals and could delay or prevent a change in control of our company. These
provisions may also have the effect of preventing changes in our management.

As a result of the potential adverse effects of these provisions on our
stockholders, on July 11, 2000, our board approved the second amendment and
restatement of our articles of incorporation whereby eRoomSystem Technologies
elected not to be governed by the Nevada laws relating to an acquisition of a
controlling interest in a Nevada corporation and a business combination with an
interested stockholder. On July 12, 2000, our stockholders approved this second
amendment and restatement of our articles of incorporation. Under Nevada law,
the amendment to our articles of incorporation is not effective until 18 months
after July 12, 2000 and will not apply to any combination of eRoomSystem
Technologies with an interested stockholder whose date of acquiring our shares
is on or before July 12, 2000.

TRANSFER AGENT

Our transfer agent is American Stock Transfer and Trust Company. Its
address is 40 Wall Street, New York, New York 10005, and its telephone number is
(718) 921-8360.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this offering
because of contractual restrictions on resale. Sales of substantial amounts of
our common stock in the public market after the restrictions lapse or are
released could adversely affect the prevailing market price and impair our
ability to raise equity capital in the future.

Upon completion of the offering, we will have 6,221,699 shares of
common stock outstanding. Of these shares, the 1,800,000 shares sold in the
offering, plus any shares issued upon exercise of the underwriter's
over-allotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act. In general, affiliates include officers,
directors and/or 10% stockholders.

Of the remaining 4,421,699 shares outstanding, 200,000 shares of common
stock issued in conjunction with our bridge loan will be registered in
conjunction with this offering. Since these selling stockholders are subject to
a lock-up of their shares of 180 days, or such additional period as required by
the National Association of Securities Dealers, Inc. or the Nasdaq Stock Market
not to exceed one year, the shares have not been included as part of this
prospectus.

The balance of 4,221,699 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144 or 144(k) promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.

Our directors, officers and selected stockholders will enter into
lock-up agreements in connection with this offering generally providing that,
without first obtaining the written consent of the underwriter representative:

- they will not offer or sell any of our common stock owned by them
during the first 18 months following the closing of this offering;

- they will not offer or sell more than 10% of our common stock
owned by them in any of the next two consecutive calendar quarters
after the initial 18-month period; and

- they will not offer or sell more than the lesser of 25% of our
outstanding common stock or the amount subject to the volume
limitation prescribed by Rule 144 under the Securities Act in any
of the next four calendar quarters thereafter.

Any public sale of our common stock by such stockholders effected during the
period commencing on the third anniversary and concluding on the fifth
anniversary of the closing of this offering will be effected through the
facilities of the underwriter and such sellers will comply with the volume
limitations of Rule 144(e) even though Rule 144(k) may be available to sellers.
The underwriter representative may elect to release such stockholders from their
respective lock-up agreements if, in the sole discretion of the underwriter
representative, the sales of common stock will not disrupt an orderly market for
our common stock.

Taking into account the lock-up agreements, and assuming the
underwriter representative does not release stockholders from these agreements,
the following shares will be eligible for sale in the public market at the
following times:

- Beginning on the date of this prospectus, all shares sold in this
offering and up to 1,044,351 shares pursuant to Rule 144(k) will
be immediately available for sale in the public market, excluding
shares subject to lock-up arrangements.

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<PAGE>

- Beginning 90 days after the date of this prospectus, 95,430 shares
will be eligible for sale subject to volume limitations, as
explained below, pursuant to Rule 144.

In general, under Rule 144 as currently in effect, after the expiration
of the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:

- one percent of the number of shares of common stock then
outstanding which will equal approximately 62,217 shares
immediately after the offering; or

- the average weekly trading volume of the common stock during the
four calendar weeks preceding the sale.

Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice, and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell these
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written compensatory
plan or contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell these shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.

In addition, we intend to file a registration statement on Form S-8
under the Securities Act within 90 days following the date of this prospectus to
register shares to be issued pursuant to our employee benefit plans. As a
result, any options or rights exercised under our stock option plan will also be
freely tradable in the public market. However, shares held by affiliates will be
subject to lock-up agreements and the volume limitation, manner of sale, notice
and public information requirements of Rule 144 unless otherwise resaleable
under Rule 701. As of June 30, 2000, there were outstanding options and warrants
for the purchase of 2,502,963 shares of common stock, of which 2,442,630 shares
were vested and exercisable.

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<PAGE>

UNDERWRITING

We have entered into an underwriting agreement with the underwriters
named below. Donald & Co. Securities Inc., or Donald, is acting as the
representative of the underwriters. The underwriting agreement provides for the
purchase of a specific number of shares of common stock by each of the
underwriters. The underwriters' obligations are several, which means that each
underwriter is required to purchase a specified number of shares, but is not
responsible for the commitment of any other underwriter to purchase shares.
Subject to the terms and conditions of the underwriting agreement, each
underwriter has severally agreed to purchase the number of shares of common
stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Donald & Co. Securities Inc. ........................
Monness, Crespi, Hardt & Co., Inc. ..................
L.H. Friend, Weinress, Frankson & Presson, LLC ......
Huntleigh Securities Corp. ..........................
Smith Moore & Co. ...................................
Ramirez & Co., Inc. .................................
TOTAL 1,800,000
================
</TABLE>

This is a firm commitment underwriting. This means that the
underwriters have agreed to purchase all of the shares offered by this
prospectus if any shares are purchased, other than those shares covered by the
over-allotment option described below. Under the underwriting agreement, if an
underwriter defaults in its commitment to purchase shares, the commitments of
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated, depending on the circumstances.

The initial public offering price was determined through negotiations
between the underwriters and us and may not be representative of the price that
will prevail in the open market. Since there has not been a public market for
our common stock prior to this offering, the price of our common stock may be
highly volatile as a result of its response to a variety of factors. Some of
these factors include actual or anticipated fluctuations in our annual and
quarterly operating results, our ability to execute our business plan and meet
our projected growth, additions or departures of key personnel, changes in
financial estimates by securities analysts, and general economic, industry and
market conditions.

The representative has advised us that the underwriters propose to
offer the shares directly to the public at the public offering price that
appears on the cover page of this prospectus. In addition, the representatives
may offer some of the shares to securities dealers at such price less a
concession of $________ per share. The underwriters may also allow, and such
dealers may reallow, a concession not in excess of $_______ per share to other
dealers. The representatives will not change the offering price and other
selling terms to public purchasers prior to the completion of this offering.

We have granted the representatives an over-allotment option. This
option, which is exercisable for up to 30 days after the date of this
prospectus, permits the representatives to purchase a maximum of 270,000
additional shares from us to cover over-allotments. If the underwriters exercise
all or part of this option, they will purchase shares covered by the option at
the public offering price that appears on the cover page of this prospectus,
less the underwriting discount. If this option is exercised in full, the total
price to the public will be $18,630,000, the total proceeds to us will be
$16,999,875 and our net proceeds, after paying the underwriting discount and
other expenses related to this offering will be approximately $16.2 million.

-59-
<PAGE>

The following table provides information regarding the amount of the
discount to be received by the underwriters.

<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- ------------------------- ---------------------------
<S> <C> <C>
$ $ $
</TABLE>

We will pay all of the total expenses of the offering, which we
estimate will be approximately $__________, or $__________ if the over-allotment
is exercised. In addition, we will pay to Donald $162,000 for its expenses,
$186,300 if the over-allotment is exercised, of which we have paid $25,000.

We have agreed to indemnify the underwriters against specific
liabilities, including liabilities under the Securities Act.

Our officers and directors have agreed that they will not, without the
prior written consent of Donald, directly or indirectly:

- they will not offer or sell any of our common stock owned by them
during the first 18 months following the closing of this offering;

- they will not offer or sell more than 10% of our common stock
owned by them in any of the next two consecutive calendar quarters
after the initial 18-month period; and

Any public sale of our securities by these stockholders effected during the
period commencing on the third anniversary and concluding on the fifth
anniversary of the closing of this offering will be effected through the
facilities of Donald and will comply with the volume limitations of Rule 144(c)
even though Rule 144(k) may be available to the stockholders.

In addition, for a two year period we will not sell securities to raise
money or issue any options or warrants below the then current market price
without Donald's consent.

We and Donald will enter into a financial consulting agreement
providing for Donald, or its designee, to act as financial consultant to us for
a 12 month period for a fee of $72,000, payable at a rate of $6,000 per month.

We have granted Donald for a period ending on the third anniversary of
the closing of this offering, the right to have Donald's designee present at
meetings of the board and each of its committees subject to our right to exclude
such designee under limited circumstances. The designee will be entitled to the
same notices and communications sent by us as we gave to our directors and will
attend directors' and committees' meetings, but will not be entitled to vote at
such meetings. Such designee will also be entitled to receive the same
compensation payable to directors as members of the board and its committees and
all reasonable expenses in attending such meetings. As of the date of this
prospectus no designee has been selected.

In connection with this offering, we have agreed to sell to Donald, for
nominal consideration, warrants to purchase up to an aggregate of 180,000 shares
of common stock exercisable initially at 120% of the initial public offering
price per share for a period of four years beginning one year from the date
hereof. These warrants contain antidilution provisions providing for adjustment
of the exercise price upon:

- the issuance of common stock, or securities exercisable or
convertible into common stock, at a price less than the exercise
price; and

-60-
<PAGE>

- any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction.

In addition, the warrants grant to the holders rights commencing one year from
the date of this prospectus to have common stock issued upon exercise of the
warrants registered under the Securities Act. These rights include the right to
require us to register these shares for a four year period and the right to
include these shares for a six year period in a registration statement filed by
us.

Subject to the underwriters' discretion, a limited number of shares of
common stock may be purchased by our full-time employees. We have made
arrangements that any full-time employees may pay for such shares through
payroll deduction.

Rules of the Commission may limit the ability of the underwriters to
bid for or purchase shares before the distribution of the shares is completed.
However, the underwriters may engage in the following activities in accordance
with the following rules:

- Stabilizing transactions -- The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the
price of shares, so long as stabilizing bids do not exceed a
specified maximum.

- Over-allotments and syndicate covering transactions -- The
underwriters may create a short position in the shares by selling
more shares than are set forth on the cover page of this
prospectus. If a short position is created in connection with the
offering, the representatives may engage in syndicate covering
transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.

- Penalty bids -- If the representative purchases shares in the open
market in a stabilizing transaction or syndicate covering
transaction, they may reclaim a selling concession from the
underwriters and selling group members who sold those shares as
part of this offering.

Stabilization and syndicate covering transactions may cause the price
of the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.

Neither we nor the underwriters make any representation or prediction
as to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq SmallCap Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.

Donald received a fee as a placement agent with respect to a portion of
shares of Series B convertible preferred stock sold from March 1999 through
October 1999. In March and April 2000, Donald received a fee for acting as our
private placement agent with respect to the sale of units consisting of Series C
convertible preferred stock, convertible subordinated promissory notes and
warrants to purchase common stock. In addition, Donald received a finder's fee
of $27,500 for facilitating the bridge loan.

-61-
<PAGE>

LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus
will be passed upon for us by Kummer Kaempfer Bonner & Renshaw, Las Vegas,
Nevada. Certain legal matters in connection with the offering will be passed
upon for the underwriters by Parker Duryee Rosoff & Haft, New York, New York.

EXPERTS

The consolidated balance sheets as of December 31, 1998 and 1999, and
the consolidated statements of operations, stockholders' deficit, and cash flows
for the years then ended have been included in this prospectus in reliance on
the report of Hansen, Barnett & Maxwell, Salt Lake City, Utah, independent
certified public accountants, given on the authority of that firm as experts in
accounting and auditing.

CHANGE IN ACCOUNTANTS

In September 1999, we engaged the firm of Arthur Andersen LLP to audit
our financial statements for the fiscal years ended December 31, 1998 and 1999.
On March 31, 2000, we received a letter in which Arthur Andersen resigned as our
independent auditors due to its determination that its independence had been
impaired. Arthur Andersen did not issue a report for our financial statements
for the last two fiscal years. The resignation of Arthur Andersen was not based
upon a disagreement on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure while Arthur
Andersen was engaged by us. On April 4, 2000, our board approved the retention
of Hansen, Barnett & Maxwell as our independent auditors.

AVAILABLE INFORMATION

We have filed with the Commission a registration statement on Form SB-2
under the Securities Act with respect to the common stock offered in this
prospectus. This prospectus, filed as part of the registration statement, does
not contain all of the information set forth in the registration statement and
its exhibits, portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information about us and the common
stock, we refer you to the registration statement and to its exhibits.
Statements in this prospectus about the contents of any contract, agreement or
other document are not necessarily complete and, in each instance, we refer you
to the copy of such contract, agreement or document filed as an exhibit to the
registration statement, and each such statement being qualified in all respects
by reference to the document to which it refers. Anyone may inspect the
registration statement and its exhibits without charge at the public reference
facilities the Commission maintains at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois, 60661. You may obtain copies of all or any part of
these materials from the Commission upon the payment of the fees prescribed by
the Commission. You may also inspect these reports and other information without
charge at a website maintained by the Commission. The address of this site is
http://www.sec.gov. You may also obtain information on the operation of the
public reference facilities of the Commission at 1-800-732-0330.

Upon completion of this offering, we will become subject to the
informational requirements of the Securities Exchange Act of 1934 and will be
required to file reports, proxy statements and other information with the
Commission. You will be able to inspect and copy these reports, proxy statements
and other information at the public reference facilities maintained by the
Commission and at the Commission's regional offices at the addresses noted
above. You also will be able to obtain copies of this material from the Public
Reference Section of the Commission as described above, or inspect them without
charge at the Commission's website. We have applied for quotation of our common
stock on the Nasdaq SmallCap Market. If we receive approval for quotation on the
Nasdaq SmallCap Market, then you will be able to inspect reports, proxy and
information statements and other information concerning us at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006.

-62-
<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

<S> <C>
Report of Independent Certified Public Accountants..............................................F-2

Consolidated Balance Sheets.....................................................................F-3

Consolidated Statements of Operations...........................................................F-5

Consolidated Statements of Stockholders' Deficit................................................F-6

Consolidated Statements of Cash Flows..........................................................F-11

Notes to Consolidated Financial Statements.....................................................F-13
</TABLE>

F-1
<PAGE>

[LETTERHEAD]

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and the Stockholders
eRoomSystem Technologies, Inc.

We have audited the accompanying consolidated balance sheets of eRoomSystem
Technologies, Inc. (a Nevada corporation) and subsidiary as of December 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of eRoomSystem
Technologies, Inc. and subsidiary as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
(excluding non-cash compensation expense (income)) and as of December 31, 1999
had a working capital deficit of $2,650,616, a stockholders' deficit of $23,852,
and was in default under certain debt agreements. During the years ended
December 31, 1998 and 1999, the Company's operations used $2,931,871 and
$2,304,807 of cash, respectively. These matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. 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.

HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
April 13, 2000, except for the third paragraph
of Note 1, as to which the date is June 2, 2000

F-2
<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

December 31,
--------------------------------
March 31,
1998 1999 2000
------------ ------------- --------------
(Unaudited)

<S> <C> <C> <C>
CURRENT ASSETS:
Cash..................................................... $ 1,850 $ 113,252 $ 14,575
Accounts receivable, net of allowance for doubtful
accounts of $3,900, $15,000 and $15,000 (unaudited),
respectively........................................... 35,655 40,213 13,287
Inventories.............................................. 1,488,354 697,033 999,000
Prepaid expenses and other............................... 1,250 6,250 38,698
-------------- ------------- --------------

Total Current Assets........................ 1,527,109 856,748 1,065,560
-------------- ------------- --------------
Refreshment Centers in Service, net of accumulated
depreciation of $3,895, $3,858 and $5,031 (unaudited),
respectively............................................. 362,266 169,791 132,579
-------------- ------------- --------------

PROPERTY AND EQUIPMENT:
Production equipment..................................... 138,908 138,908 167,384
Computer equipment....................................... 130,951 171,666 173,925
Vehicles and other....................................... 76,857 76,857 46,379
-------------- ------------- --------------
346,716 387,431 387,688

-------------- ------------- --------------
Less accumulated depreciation and amortization........... (203,381) (264,946) (269,334)
-------------- ------------- --------------

Net Property and Equipment.................. 143,335 122,485 118,354

INVESTMENT IN WHOLLY OWNED, UNCONSOLIDATED SUBSIDIARY....... -- 2,535,976 2,572,419
-------------- ------------- --------------
OTHER ASSETS:
Patents and license rights, net of accumulated
amortization of $155,211, $222,710 and $239,585
(unaudited), respectively............................ 317,279 249,780 232,905
Deferred offering and financing costs, net of
accumulated amortization of $749,457, $0 and $0
(unaudited), respectively............................ 884 88,000 465,834
Deposits and other..................................... 169,416 327,851 454,472
-------------- ------------- --------------

Total Other Assets.......................... 487,579 665,631 1,153,211
-------------- ------------- --------------
Total Assets................................................ $ 2,520,289 $ 4,350,631 $ 5,042,123
============== ============= ==============

</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' DEFICIT

March 31, 2000
Pro
Forma
December 31, Stockholders'
-------------------------------- Deficit
1998 1999 March 31, 2000 (Note 2)
-------------- -------------- ---------------- ----------------
(Unaudited) (Unaudited)

<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Notes payable and current portion of long-term
debt, net of discount of $0, $0 and $30,490,
respectively................................. $ 2,872,570 $ 1,560,458 $ 2,114,542
Current portion of capital lease obligations... 13,212 22,061 24,506
Accounts payable............................... 1,186,995 987,013 942,407
Accrued liabilities............................ 240,475 332,835 464,243
Accrued interest............................... 293,024 290,117 425,864
Customer deposits.............................. 51,010 93,470 136,858
Deferred revenue............................... 63,875 58,868 30,660
Notes payable to stockholder................... 145,750 --
Preferred stock dividends payable.............. 18,541 162,542 198,443
-------------- -------------- ----------------
Total Current Liabilities.................. 4,885,452 3,507,364 4,337,523
-------------- -------------- ----------------
LONG-TERM DEBT, net of current portion............ 11,719 812,022 947,215
-------------- -------------- ----------------
CAPITAL LEASE OBLIGATIONS, net of current portion. 51,223 55,097 47,198
-------------- -------------- ----------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 4, 5
and 9)
STOCKHOLDERS' DEFICIT:
Series A convertible preferred stock, $0.001
par value; 500,000 shares authorized;
360,000 shares outstanding at December 31,
1998 and 1999 and March 31, 2000 and none
pro forma; liquidation preference $3,798,443
at December 31, 1999 and March 31, 2000 and
none pro forma............................... 1,332,953 1,332,953 1,332,953 --
Series B convertible preferred stock, $0.001
par value; 2,500,000 shares authorized,
2,081,680 shares outstanding at December 31,
1999 and March 31, 2000 and none pro forma;
liquidation preference $20,816,800 at
December 31, 2000 and March 31, 2000 and
none pro forma............................... -- 6,171,196 6,482,592 --
Series C convertible preferred stock, $0.001
par value; 2,000,000 shares authorized,
161,535 shares outstanding at March 31,
2000; liquidation preference of $1,615,350
at March 31, 2000 and none pro forma......... -- 456,407
Undesignated preferred stock, $0.001 par
value; 5,000,000 shares authorized; no
shares outstanding and none pro forma........ -- -- --
Common stock, $0.001 par value; 50,000,000
shares authorized; 3,531,311, 2,217,291 and
2,108,506 shares outstanding, respectively,
and 4,156,552 shares pro forma............... 3,532 2,218 2,109 4,157
Additional paid-in capital..................... 8,670,586 6,265,284 5,935,576 19,119,738
Warrants and options outstanding............... 1,043,362 728,538 1,454,309 1,454,309
Notes receivable from stockholders............. (4,073,941) (840,000) (615,000) (615,000)
Accumulated deficit............................ (9,404,597) (13,684,041) (15,338,759) (20,253,017)
-------------- -------------- ---------------- ----------------

Total Stockholders' Deficit................ (2,428,105) (23,852) (289,813) (289,813)
-------------- -------------- ---------------- ================
Total Liabilities and Stockholders' Deficit $ 2,520,289 $ 4,350,631 $ 5,042,123
============== ============== ================

</TABLE>

See accompanying notes to consolidated financial statements.
F-4

<PAGE>

EROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
------------------------------ ---------------------------------
1998 1999 1999 2000
------------- -------------- --------------- -------------
(Unaudited)
<S>
REVENUE <C> <C> <C> <C>
Product sales.................................. $ 916,650 $ 144,282 $ -- $ --
Revenue sharing arrangements................... 46,524 213,654 64,341 9,162
Maintenance fees............................... 48,288 182,581 49,567 39,937
---- --------------- ------------- ----------------
Total Revenue.............................. 1,011,462 540,517 113,908 49,099
--------------- --------------- ------------- ----------------
COST OF REVENUE:
Product sales.................................. 711,355 118,010 -- --
Revenue sharing arrangements................... 21,104 165,995 39,409 7,073
Maintenance.................................... 60,797 78,518 5,260 7,020
------ --------------- ------------- ----------------
Total Cost of Revenue...................... 793,256 362,523 44,669 14,093
--------------- --------------- ------------- ----------------
GROSS MARGIN...................................... 218,206 177,994 69,239 35,006
--------------- --------------- ------------- ----------------
OPERATING EXPENSES:
Selling, general and administrative (exclusive
of non-cash compensation expense of $3,955
and $(105,004), $0 and $491,825,
respectively)................................ 2,058,150 2,387,811 422,442 520,344
Research and development....................... 284,532 271,230 73,231 49,788
Non-cash compensation expense.................. 3,955 105,005 -- 491,825
--------------- --------------- ------------- ----------------
Total Operating Expenses................... 2,346,637 2,764,046 495,673 1,061,957
--------------- --------------- ------------- ----------------
LOSS FROM OPERATIONS.............................. (2,128,431) (2,586,052) (426,434) (1,026,951)
--------------- --------------- ------------- ----------------
OTHER INCOME (EXPENSE):
Interest expense............................... (1,922,638) (1,444,532) (341,429) (303,650)
Equity in income of unconsolidated, wholly
owned subsidiary............................. -- 147,615 -- 88,296
Interest and other income...................... 312,573 210,794 67,336 2,336
--------------- --------------- ------------- ----------------
Other Expense, Net......................... (1,610,065) (1,086,123) (274,093) (213,018)
Loss Before Extraordinary Loss on Extinguishment --------------- --------------- ------------- ----------------
of Debt........................................ (3,738,496) (3,672,175) (700,527) (1,239,969)
--------------- --------------- ------------- ----------------
Extraordinary Loss on Extinguishment of Debt, net
of income tax benefit of $0.................... (407,000) -- -- --
--------------- --------------- ------------- ----------------
Net Loss.......................................... (4,145,496) (3,672,175) (700,527) (1,239,969)
Dividends Related to Convertible Preferred Stock.. (18,541) (607,269) (35,507) (414,749)
--------------- --------------- ------------- ----------------
Loss Attributable to Common Stockholders.......... $ (4,164,037) $ (4,279,444) $ (736,034) $ (1,654,718)
=============== =============== ============= ================
Basis and Diluted Extraordinary Loss Per Common
Share.......................................... $ (0.13) $ -- $ -- $ --
=============== =============== ============= ================
Basic and Diluted Loss Per Common Share........... $ (1.37) $ (1.33) $ (0.21) $ (0.75)
=============== =============== ============= ================
Basic and Diluted Weighted Average Common Shares
Outstanding.................................... 3,028,982 3,220,709 3,545,103 2,196,996
=============== =============== ============= =================
Basic and Diluted Supplemental Pro Forma Loss Per
Common Share (Unaudited)....................... $ (1.84) $ (1.65)
=============== =================
Basic and Diluted Supplemental Pro Forma Weighted
Average Common Shares Outstanding (Unaudited).. 5,162,695 4,245,043
=============== ============= =================
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

EROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

<TABLE>
<CAPTION>
Series A Convertible
Preferred Stock Common Stock Additional
------------------------------------------------- Paid-in
Shares Amount Shares Amount Capital
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997.............. -- $ -- 3,285,733 $3,286 $6,910,699

Issuance of Series A convertible
preferred stock upon conversion of
1996 Notes at $5.00 per share, net
and issuance of common stock and
warrants to placement agent........... 360,000 1,332,953 13,125 13 139,987

Issuance of common stock in connection
with conversion of 1996 Notes into
Series A convertible preferred stock.. -- -- 38,156 38 406,962

Issuance of common stock for cash at
$10.67 per share, net and issuance of
warrants to placement agent -- -- 40,688 41 371,644

Issuance of common stock in connection
with conversion of 60-day convertible
notes and1996 notes................... -- -- 84,661 85 841,179

Stock dividend issued to placement
agent in connection with
anti-dilution rights.................. -- -- 68,948 69 115

Issuance of warrants in connection with
financing transactions................ -- -- -- -- --

Issuance of stock options to a
consultant for services............... -- -- -- -- --

Accrual of interest on notes receivable
from stockholders..................... -- -- -- -- --

Series A convertible preferred stock
dividend accrual...................... -- -- -- -- --

Net loss................................ -- -- -- -- --
-------------------------------------------------------------------
Balance, December 31, 1998.............. 360,000 $1,332,953 3,531,311 $3,532 $8,670,586
===================================================================

<CAPTION>
Warrants And Notes
Options Receivable From Accumulated
Outstanding Shareholders Deficit Total
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997.............. $225,904 $(3,799,250) $(5,240,376) $(1,899,737)

Issuance of Series A convertible
preferred stock upon conversion of
1996 Notes at $5.00 per share, net
and issuance of common stock and
warrants to placement agent........... 17,479 -- -- 1,490,432

Issuance of common stock in connection
with conversion of 1996 Notes into
Series A convertible preferred stock.. -- -- -- 407,000

Issuance of common stock for cash at
$10.67 per share, net and issuance of
warrants to placement agent 18,358 -- -- 390,043

Issuance of common stock in connection
with conversion of 60-day convertible
notes and1996 notes................... -- -- -- 841,264

Stock dividend issued to placement
agent in connection with
anti-dilution rights.................. -- -- (184) --

Issuance of warrants in connection with
financing transactions................ 777,666 -- -- 777,666

Issuance of stock options to a
consultant for services............... 3,955 -- -- 3,955

Accrual of interest on notes receivable
from stockholders..................... -- (274,691) -- (274,691)

Series A convertible preferred stock
dividend accrual...................... -- -- (18,541) (18,541)

Net loss................................ -- -- (4,145,496) (4,145,496))
-----------------------------------------------------------------
Balance, December 31, 1998.............. $1,043,362 $(4,073,941) $(9,404,597) $(2,428,105)
=================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) (CONTINUED)

Series A Convertible Series B Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998............. 360,000 $1,332,953 -- $-- 3,531,311 $3,532

Issuance of Series B convertible
preferred stock for cash and
conversion of notes at $3.00 per
share, net........................... -- -- 2,081,680 5,849,826 -- --

Issuance of common stock to entity
controlled by the Company's
president in exchange for note
receivable........................... -- -- -- -- 198,750 199

Return of common stock from entity
controlled by the Company's president -- -- -- -- (198,750) (199)

Issuance of common stock for interest
in connection with conversion of
notes payable to stockholders at
$3.20 per share...................... -- -- -- -- 83,500 84

Issuance of common stock for interest
in connection with 90-day
convertible notes at $3.20 per share. -- -- -- -- 41,410 41

Issuance of common stock for services
at $3.20 per share and issuance of
stock options........................ -- -- -- -- 3,134 3

Issuance of warrants in connection
with financing transactions.......... -- -- -- -- -- --

Return of warrants in connection with
troubled debt restructuring.......... -- -- -- -- -- --

Accrual of interest on notes
receivable from stockholders......... -- -- -- -- -- --

Series A convertible preferred stock
dividend accrual..................... -- -- -- -- -- --

Series B convertible preferred stock
dividend accrual payable in the form
of common stock...................... -- -- -- -- 28,936 29

Series B convertible preferred stock
beneficial conversion dividend....... -- -- -- 321,370 -- --

</TABLE>

Warrants Notes
Additional And Receivable
Paid-in Options From Accumulated
Capital Outstanding Shareholders Deficit Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998............. $8,670,586 $1,043,362 $(4,073,941) $(9,404,597) $(2,428,105)

Issuance of Series B convertible
preferred stock for cash and
conversion of notes at $3.00 per
share, net........................... -- -- -- -- 5,849,826

Issuance of common stock to entity
controlled by the Company's
president in exchange for note
receivable........................... 1,589,801 -- (1,590,000) -- --

Return of common stock from entity
controlled by the Company's president (1,589,801) -- 1,590,000 -- --

Issuance of common stock for interest
in connection with conversion of
notes payable to stockholders at
$3.20 per share...................... 264,398 -- -- -- 264,482

Issuance of common stock for interest
in connection with 90-day
convertible notes at $3.20 per share. 121,566 -- -- -- 121,607

Issuance of common stock for services
at $3.20 per share and issuance of
stock options........................ 5,962 99,040 -- -- 105,005

Issuance of warrants in connection
with financing transactions.......... -- 92,830 -- -- 92,830

Return of warrants in connection with
troubled debt restructuring.......... -- (506,694) -- -- (506,694)

Accrual of interest on notes
receivable from stockholders......... -- -- (235,951) -- (235,951)

Series A convertible preferred stock
dividend accrual..................... -- -- -- (144,000) (144,000)

Series B convertible preferred stock
dividend accrual payable in the form
of common stock...................... 141,870 -- -- (141,899) --

Series B convertible preferred stock
beneficial conversion dividend....... -- -- -- (321,370) --

</TABLE>

See accompanying notes to consolidated financial statements.

F-7

<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

Series A Convertible Series B Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Return of common stock as payment of
shareholder notes receivable ........ -- -- -- -- (1,471,000) (1,471)

Reserve for shareholder notes
receivable........................... -- -- -- -- -- --

Net loss............................... -- -- -- -- -- --
---------------------------------------------------------------------------
Balance, December 31, 1999............. 360,000 $1,332,953 2,081,680 $6,171,196 2,217,291 $2,218
---------------------------------------------------------------------------
---------------------------------------------------------------------------

</TABLE>

Warrants Notes
Additional And Receivable
Paid-in Options From Accumulated
Capital Outstanding Shareholders Deficit Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return of common stock as payment of
shareholder notes receivable ........ (2,939,098) -- 2,940,569 -- --

Reserve for shareholder notes
receivable........................... -- -- 529,323 -- 529,323

Net loss............................... -- -- -- (3,672,175) (3,672,175)
--------------------------------------------------------------
Balance, December 31, 1999............. $6,265,284 $728,538 $(840,000) $(13,684,041) $(23,852)
--------------------------------------------------------------
--------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.

F-7

<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Stock Preferred Stock
------------------------- -------------------------
Shares Amount Shares Amount
-------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1999.............. 360,000 $1,332,953 2,081,680 $6,171,196
Issuance of common stock in connection
with 90-day convertible notes at
$3.20 per share (unaudited).......... -- -- -- --
Issuance of common stock in connection
with shareholder note payable at
$3.20 per share (unaudited).......... -- -- -- --
Series B convertible preferred stock
dividend accrual payable in the form
of common stock, net (unaudited)..... -- -- -- --
Series B convertible preferred stock
beneficial conversion dividend
(unaudited).......................... -- -- -- 311,396
Return of common stock as a result of a
default on a note receivable from
shareholder (unaudited).............. -- -- -- --
Issuance of Series C convertible
preferred stock for cash at $2.83
per share (unaudited)................ -- -- -- --
Issuance of options and warrants to
employees and non employees
(unaudited).......................... -- -- -- --
Issuance of warrants for financing
activities (unaudited)............... -- -- -- --
Issuance of warrants related to
advertising agreement (unaudited).... -- -- -- --
Series A convertible preferred stock
dividend accrual (unaudited)......... -- -- -- --
Net loss (unaudited).................... -- -- -- --
-------- ---------- --------- -----------
Balance, March 31, 2000 (Unaudited)..... 360,000 $1,332,953 2,081,680 $6,482,592
======== ========== ========= ===========

Series C Convertible Preferred
Stock Common Stock
------------------------------- ----------------------------
Shares Amount Shares Amount
---------- ------------------ ----------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1999.............. -- $ -- 2,217,291 $2,218
Issuance of common stock in connection
with 90-day convertible notes at
$3.20 per share (unaudited).......... -- -- 7,991 8
Issuance of common stock in connection
with shareholder note payable at
$3.20 per share (unaudited).......... -- -- 1,365 1
Series B convertible preferred stock
dividend accrual payable in the form
of common stock, net (unaudited)..... -- -- 22,484 22
Series B convertible preferred stock
beneficial conversion dividend
(unaudited).......................... -- -- -- --
Return of common stock as a result of a
default on a note receivable from
shareholder (unaudited).............. -- -- (140,625) (140)
Issuance of Series C convertible
preferred stock for cash at $2.83
per share (unaudited)................ 161,535 456,407 -- --
Issuance of options and warrants to
employees and non employees
(unaudited).......................... -- -- -- --
Issuance of warrants for financing
activities (unaudited)............... -- -- -- --
Issuance of warrants related to
advertising agreement (unaudited).... -- -- -- --
Series A convertible preferred stock
dividend accrual (unaudited)......... -- -- -- --
Net loss (unaudited).................... -- -- -- --
---------- ------------------ ----------- -------
Balance, March 31, 2000 (Unaudited)..... 161,535 $456,407 2,108,506 $2,109
========== ================== =========== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-9

<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
Notes
Additional Warrants and Receivable
Paid- In Options From
Capital Outstanding Shareholders
------------- ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1999...................................... $6,265,284 $728,538 $(840,000)

Issuance of common stock in connection with 90-day convertible
notes at $3.20 per share (unaudited)......................... 25,555 -- --

Issuance of common stock in connection with shareholder note
payable at $3.20 per share (unaudited)....................... 4,373 -- --

Series B convertible preferred stock dividend accrual payable
in the form of common stock, net (unaudited)................. 67,430 -- --

Series B convertible preferred stock beneficial conversion
dividend (unaudited)......................................... -- -- --

Return of common stock as a result of a default on a note
receivable from shareholder (unaudited)...................... (449,860) -- 450,000

Issuance of Series C convertible preferred stock for cash at
$2.83 per share (unaudited).................................. 22,794 51,082 (225,000)

Issuance of options and warrants to employees and non employees
(unaudited).................................................. -- 491,825 --

Issuance of warrants for financing activities (unaudited)....... -- 135,152 --

Issuance of warrants related to advertising agreement
(unaudited).................................................. -- 47,712 --

Series A convertible preferred stock dividend accrual
(unaudited).................................................. -- -- --

Net loss (unaudited)............................................ -- -- --
------------- ------------ ------------
Balance, March 31, 2000 (Unaudited)............................. $5,935,576 $1,454,309 $(615,000)
============= ============ ============

Accumulated
Deficit Total
------------ -----------
<S> <C> <C>
Balance, December 31, 1999...................................... $(13,684,041) $(23,852)

Issuance of common stock in connection with 90-day convertible
notes at $3.20 per share (unaudited)......................... -- 25,563

Issuance of common stock in connection with shareholder note
payable at $3.20 per share (unaudited)....................... -- 4,374

Series B convertible preferred stock dividend accrual payable
in the form of common stock, net (unaudited)................. (67,452) --

Series B convertible preferred stock beneficial conversion
dividend (unaudited)......................................... (311,396) --

Return of common stock as a result of a default on a note
receivable from shareholder (unaudited)...................... -- --

Issuance of Series C convertible preferred stock for cash at
$2.83 per share (unaudited).................................. -- 305,283

Issuance of options and warrants to employees and non employees
(unaudited).................................................. -- 491,825

Issuance of warrants for financing activities (unaudited)....... -- 135,152

Issuance of warrants related to advertising agreement
(unaudited).................................................. -- 47,712

Series A convertible preferred stock dividend accrual
(unaudited).................................................. (35,901) (35,901)

Net loss (unaudited)............................................ (1,239,969) (1,239,969)
------------ -----------
Balance, March 31, 2000 (Unaudited)............................. $(15,338,759) $(289,813)
============ ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
--------------------------- ----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $(4,145,496) $(3,672,175) $ (700,527) $(1,239,969)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization................ 134,617 292,877 63,276 39,979
Amortization of deferred offering and
financing costs and accretion of debt
discount................................... 560,921 35,997 -- --
Interest accrued on notes receivable from
stockholders............................... (274,691) (235,951) (65,576) --
Non-cash compensation expense................ 3,955 105,005 -- 491,825
Extraordinary loss related to debt
extinguishment............................. 407,000 -- -- --
Interest expense paid by issuance of common
stock, warrants, and stock options......... 813,409 478,919 203,111 77,649
Reserve against stockholders notes receivable -- 529,323 -- --
Amortization of deferred compensation........ 41,019 -- 12,431 --
Undistributed equity in income of
unconsolidated subsidiary.................. -- (46,242) -- 8,419
Changes in operating assets and liabilities,
net of transfers to unconsolidated
subsidiary:
Accounts receivable.......................... 182,643 (4,558) (94,698) 26,926
Inventories.................................. (808,192) 613,898 1,144,813 (294,404)
Prepaid expenses, deposits and other......... (108,099) (163,435) (30,818) (125,281)
Accounts payable............................. 241,016 (97,689) 234,165 24,392
Accrued liabilities.......................... 114,984 (178,228) 201,288 267,155
Other liabilities............................ (94,957) 37,452 28,848 15,180
------------ ------------ ------------ ------------
Net Cash Provided By (Used In) Operating
Activities............................... (2,931,871) (2,304,807) 996,313 (708,129)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to refreshment centers in service.... (246,161) (1,711,105) (1,350,679) --
Purchase of property and equipment............. (50,599) (12,239) -- (2,259)
Cash investment in wholly owned,
unconsolidated subsidiary.................... -- (572,544) -- (44,862)
------------ ------------ ------------ ------------
Net Cash Used In Investing Activities...... (296,760) (2,295,888) (1,350,679) (47,121)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings....................... 2,265,058 477,669 362,000 583,304
Principal payments on notes payable............ (127,971) (400,789) (1,804) (1,984)
Proceeds from issuance of notes payable to
officers and stockholders.................... -- 299,195 -- --
Principal payments on notes payable to
stockholder and officer...................... (12,500) -- -- --
Principal payments on capital lease obligations (9,190) (15,753) (3,771) (5,454)
Other offering and financing costs paid........ (204,843) (88,000) -- (276,470)
Proceeds from issuance of common stock......... 390,043 -- -- --
Proceeds from issuance of preferred stock and
warrants..................................... 600,275 4,439,775 -- 357,177
------------ ------------ ------------ ------------
Net Cash Provided By Financing Activities.. 2,900,872 4,712,097 356,425 656,573
------------ ------------ ------------ ------------
Net Increase (Decrease) In Cash................... (327,759) 111,402 2,059 (98,677)

Cash At Beginning of Year......................... 329,609 1,850 1,850 113,252
------------ ------------ ------------ ------------
Cash At End Of Year............................... $ 1,850 $ 113,252 $ 3,909 $ 14,575
============ ============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-11
<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
--------------------------- ----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest......................... 296,935 126,857 4,489 3,649
Non-cash investing and financing activities
Issuance of common stock in payment of debt
offering costs............................. 84,000 -- -- --
Accrual of preferred stock dividends......... 18,542 607,269 35,506 414,749
Issuance of common stock as payment of debt
obligations................................ 1,261,521 386,088 -- --
Issuance of preferred stock as payment of
debt obligations........................... 1,040,000 1,410,051 -- --
Value of warrants converted to debt.......... -- 506,694 98,169 56,063
Cancellation of stockholder notes receivable
and related accrued interest in exchange
for return of 1,471,000 shares of common
stock...................................... -- 2,940,569 -- --

Property and equipment acquired by capital
lease...................................... -- 28,476 -- --
Retirement of common stock................... -- -- -- 450,000
Issuance of warrants for advertising
agreement.................................. -- -- -- 135,152
Note receivable for Series C preferred
offering................................... -- -- -- 225,000
Sale of assets for settlement of accounts
payable to related parties................. -- -- -- 12,935
Accrued interest, accounts payable and
payable to stockholder converted to notes
payable.................................... -- 401,162 98,169 56,063
</TABLE>

See accompanying notes to consolidated financial statements.

F-12
<PAGE>

eROOMSYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND FOR
THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 IS UNAUDITED)

1. ORGANIZATION AND NATURE OF OPERATIONS

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

eRoomSystem Technologies, Inc., a Nevada corporation ("eRoomSystem
Technologies"), is the successor to RoomSystems, Inc. ("RSI"). RSI was
originally incorporated as InnSyst! Corporation, a North Carolina
corporation, on March 17, 1993 and on April 17, 1996, was
reincorporated as a Nevada corporation.

On April 29, 1996, RSI and RoomSystems Finance Corporation ("RSF")
entered into a Reorganization Plan and Merger Agreement whereby RSF
became a wholly owned subsidiary of RSI (see Note 3). On October 15,
1997, the operations of RSF were effectively transferred to RSI and RSF
was dissolved. On August 31, 1999, RoomSystems International
Corporation ("RSIC") was incorporated in Nevada as a wholly owned
subsidiary of RSI.

As of December 31, 1999, RSI, RSIC and their shareholders entered into
an Agreement and Plan of Reorganization wherein RSI became a wholly
owned subsidiary of RSIC. On March 29, 2000 and corrected on May 30,
2000, RSIC changed its name to eRoomSystem Technologies, Inc.

These reorganizations have been accounted for as reorganizations of
entities under common control with the assets and liabilities reflected
at carry-over basis in a manner similar to pooling-of-interests
accounting. The accompanying consolidated financial statements have
been restated to reflect the equivalent eRoomSystem Technologies shares
for all periods presented.

On September 29, 1999, eRoomSystem Technologies formed a new
bankruptcy-remote entity, RSi BRE, Inc. ("RSi BRE"), as a wholly owned
subsidiary (see Note 4).

The accompanying consolidated financial statements include the accounts
of eRoomSystem Technologies, and its wholly owned subsidiary RSI, after
elimination of intercompany accounts and transactions. RSi BRE has not
been consolidated in the accompanying financial statements since the
Company does not have the ability to control RSi BRE's operations.
eRoomSystem Technologies and RSI are collectively referred to as
"eRoomSystem Technologies" or the "Company." RSi BRE has been accounted
for under the equity method of accounting.

NATURE OF OPERATIONS AND RELATED RISKS

The Company designs, assembles and markets a complete line of
fully-automated Refreshment Centers and eRoomSafes traditionally
installed in hotels. The Refreshment Centers and eRoomSafes use
proprietary software and patented credit card technology that integrate
with the data collection computer in each hotel.

The Company has suffered recurring net losses and as of December 31,
1999, had a working capital deficit of $2,650,616, a stockholders'
deficit of $23,852, and was in default under certain debt agreements.
During the years ended December 31, 1998 and 1999, the Company's
operations used $2,931,871 and $2,304,807 of cash, respectively.
Additionally, at December 31, 1999 the Company was past due on accounts
payable with several vendors which could affect the Company's ability
to procure inventory and services for its operations. As of March 31,
2000, the Company had a working capital deficit of $3,271,963 and a
stockholders' deficit of $289,813. During the three months ended March
31, 2000, the Company's operations used $708,129 of cash. These matters
raise substantial doubt about the Company's ability to continue as a
going concern. The Company needs to obtain additional financing to fund
payment of past due and current debt obligations and to provide working
capital for operations. Management is attempting to raise additional
equity capital through a public offering of common stock and a private
offering of preferred stock and debt, and to arrange debt financing for
product sales. 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.

F-13
<PAGE>

The Company is subject to certain risk factors frequently encountered
by companies lacking adequate capital and which are in the early stages
of developing a business line that may impact its ability to become a
profitable enterprise. These risk factors include, among others:

a. The Company's business model is capital intensive and will
require significant additional equity or debt financing. This
additional funding may not be available in sufficient amounts
or on acceptable terms to the Company, or at all.

b. The Company faces competition from companies that have
substantially greater capital resources, research and
development, manufacturing and marketing resources than the
Company.

c. The Company's ability to implement its strategy is dependent
upon its ability to retain key employees, ability to attract
and retain additional qualified personnel and its ability to
manage expansion effectively.

2. SIGNIFICANT ACCOUNTING POLICIES

UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY

The Company's Board of Directors has authorized the filing of a
registration statement with the United States Securities and Exchange
Commission to register shares of its common stock in connection with a
proposed initial public offering ("IPO"). If the IPO is consummated
under the terms presently anticipated, 360,000 outstanding shares of
Series A convertible preferred stock, 2,081,680 outstanding shares of
Series B convertible preferred stock and 161,535 outstanding shares of
Series C convertible preferred stock as of March 31, 2000 will be
automatically converted into 2,048,046 shares of common stock upon the
closing of the IPO. In connection with the Series A preferred stock
conversion, the Company will record a dividend of $1,800,000 related to
the Series A preferred stock contingent beneficial conversion feature
(see Note 10). The Series B convertible preferred stock beneficial
conversion feature totaled $3,747,024, as adjusted (see Note 10), and
is being recognized over the period from the date of issuance and from
the date of modification of the Series B convertible preferred stock
through September 28, 2000, which is the earliest date at which the
Series B convertible preferred stockholders have the unmitigated option
to convert their shares. During the year ended December 31, 1999, the
Company recorded a dividend of $321,370 to the Series B stockholders
related to the beneficial conversion feature. During the three month
period ended March 31, 2000, the Company recorded a dividend of
$311,396 to the Series B stockholders related to the beneficial
conversion feature. The remaining portion of the Series B convertible
preferred stock beneficial conversion feature, as adjusted, will be
recognized as a dividend to the holders of Series B convertible
preferred stock during the period commencing April 1, 2000 and ending
September 28, 2000. The effect of the conversion of the preferred stock
outstanding at March 31, 2000 and the beneficial conversion features,
as adjusted, have been reflected as unaudited pro forma stockholders'
equity in the accompanying consolidated balance sheet.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.

INVENTORIES

Inventories include direct materials, direct labor and manufacturing
overhead costs and are stated at the lower of cost (using the first-in,
first-out method) or market value. Inventories consist of the
following:

F-14
<PAGE>

<TABLE>
<CAPTION>
December 31,
-------------------------------- March 31,
1998 1999 2000
-------------- --------------- --------------
<S> <C> <C> <C>
Finished goods............................. $ 997,248 $ 284,382 $ 323,435
Work-in process............................ 115,561 160,764 141,984
Parts and raw materials.................... 375,545 251,887 533,581
-------------- --------------- --------------
$1,488,354 $ 697,033 $ 999,000
============== =============== ==============
</TABLE>

Provisions, when required, are made to reduce excess and obsolete
inventories to their estimated net realizable values. Due to
competitive pressures and technical innovation, it is possible that
estimates of the net realizable value could change in the near term.

REFRESHMENT CENTERS IN SERVICE AND PROPERTY AND EQUIPMENT

Refreshment Centers (including eRoomSafes, if applicable) and property
and equipment are stated at cost, less accumulated depreciation and
amortization. Major additions and improvements are capitalized, while
minor repairs and maintenance costs are expensed when incurred.
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the related assets, after
taking into consideration residual values for Refreshment Centers,
which are as follows:

<TABLE>
<S> <C>
Refreshment Centers in service................... 7 years
Production equipment............................. 3 - 5 years
Computer and office equipment.................... 3 - 7 years
Vehicles......................................... 7 years
</TABLE>

Depreciation and amortization expense related to Refreshment Centers in
service and property and equipment was $84,028 and $277,030 for the
years ended December 31, 1998 and 1999, respectively, and $23,104 for
the period ended March 31, 2000.

On retirement or disposition of property and equipment, the cost and
related accumulated depreciation and amortization are removed from the
accounts and any resulting gain or loss is recognized in the statement
of operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the accompanying consolidated
financial statements for cash, accounts receivable and accounts payable
approximate fair values because of the immediate or short-term
maturities of these financial instruments. The carrying amounts of the
Company's debt obligations approximate fair value based on current
interest rates available to the Company.

CAPITALIZED SOFTWARE COSTS

In accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("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 for the
years ended December 31, 1998 and 1999 or the period ended March 31,
2000. The Company has charged its software development costs to
research and development expense in the accompanying consolidated
statements of operations.

PATENTS AND LICENSE RIGHTS

Patents and license rights consist of patents and licenses purchased
from a related party (see Note 6). These costs are being amortized on a
straight-line basis over the estimated life of the related patents or
licenses of

F-15
<PAGE>

7 years. Management evaluates the recoverability of these costs on a
periodic basis, based on revenues from the products related to the
technology, existing or expected revenue trends and projected cash
flows.

DEFERRED OFFERING AND FINANCING COSTS

The Company capitalizes direct costs associated with the acquisition of
debt financing. These costs are amortized over the life of the related
debt as additional interest expense. If the underlying debt is repaid
or extinguished prior to the scheduled maturity, the costs are removed
from the accounts and considered in the determination of the gain or
loss from extinguishment. Certain debt has been converted to equity and
the related unamortized debt financing costs have been recorded as
equity offering costs. The Company also capitalizes direct costs
associated with the acquisition of equity financing which are netted
against the actual equity proceeds.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews its long-lived assets, including intangibles, for
impairment when events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. The Company
evaluates, at each balance sheet date, whether events and circumstances
have occurred which indicate possible impairment. The Company uses an
estimate of future undiscounted net cash flows from the related asset
or group of assets over their remaining life in measuring whether the
assets are recoverable. As of December 31, 1999 and March 31, 2000, the
Company does not consider any of its long-lived assets to be impaired.

REVENUE RECOGNITION

The Company generates revenues from either the sale of Refreshment
Centers and eRoomSafes or from leases of Refreshment Centers and
eRoomSafes under revenue sharing agreements. Under the revenue sharing
agreements, the Company receives a portion of the sales generated by
the units and under certain agreements is guaranteed a minimum daily
revenue amount. The Company also generates revenues from maintenance
services.

Revenue from the sale of Refreshment Centers and eRoomSafes is
recognized upon completion of installation and acceptance by the
customer. The revenue sharing agreements are accounted for as operating
leases with revenues being recognized as earned over the lease period.
Maintenance revenues are recognized as the services are performed or
pro rata over the service period. The maintenance services are not
integral to the functionality of the Refreshment Centers and are at the
option of the customer. In connection with the revenue sharing
agreements, a portion of the revenues received by the Company are
classified as maintenance fees based upon vendor-specific objective
evidence of fair value. The Company defers revenue paid in advance
relating to future services and products not yet installed and accepted
by the customer.

INCOME TAXES

The Company recognizes an asset or liability for the deferred tax
consequences of all temporary differences between the tax bases of
assets or liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future
years when the reported amounts of the assets or liabilities are
recovered or settled. These deferred tax assets or liabilities are
measured using the enacted tax rates that will be in effect when the
differences are expected to reverse. Deferred tax assets are reviewed
periodically for recoverability and valuation allowances are provided,
as necessary.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
new accounting and reporting standards for companies to

F-16
<PAGE>

report information about derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. This
statement is effective for financial statements issued for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company
does not expect this statement to have a material impact on the
Company's results of operations, financial position or liquidity.

In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, An Interpretation of
APB Opinion No. 25." Interpretation No. 44 provides definitive guidance
regarding accounting for stock-based compensation to non-employee
directors. Interpretation 44 allows non-employee directors to be
treated as "employees" for purposes of applying APB Opinion No. 25. The
Company has retroactively applied this interpretation for all issuances
to non-employee directors during the year ended December 31, 1999 and
the three months ended March 31, 2000.

NET LOSS PER COMMON SHARE

The Company computes net loss per share in accordance with SFAS No.
128, "Earnings Per Share" ("SFAS 128"), and SEC Staff Accounting
Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB
98, basic net loss per common share ("Basic EPS") is computed by
dividing net loss available to common stockholders by the weighted
average number of common shares and the dilutive potential common share
equivalents then outstanding. Potential common share equivalents
consist of shares issuable upon the exercise of stock options, warrants
and shares issuable upon the conversion of Series A, Series B, and
Series C convertible preferred stock.

As of December 31, 1998 and 1999 and March 31, 2000, there were 360,000
shares of Series A convertible preferred stock outstanding, as of
December 31, 1999 and March 31, 2000 there were 2,081,680 shares of
Series B convertible preferred stock outstanding, respectively, as of
March 31, 2000 there were 161,535 shares of Series C convertible
preferred stock outstanding, and as of December 31, 1998 and 1999 and
March 31, 2000, there were options and warrants outstanding to purchase
598,030, 866,508 and 2,490,317 shares of common stock, respectively,
that were not included in the computation of diluted net loss per
common share as their effect would have been anti-dilutive, thereby
decreasing the net loss per common share.

3. MERGER WITH RSF AND RELATED AGREEMENTS

RSF was incorporated in April 1995 by eRoomSystem Technologies'
president and one of the Company's legal advisors, both of whom are
stockholders of the Company, for the purpose of arranging financing for
the sale or lease of Refreshment Centers. The separate legal entity was
a requirement of PFC Group, Inc. ("PFC"), an unrelated lender under the
Assignment Agreement discussed below.

In May 1995, RSI and RSF entered into a Master Sale and Assignment
Agreement (the "Assignment Agreement") with PFC. Under the Assignment
Agreement, Refreshment Centers were manufactured by RSI and sold to
RSF. RSF entered into revenue sharing agreements with certain hotels
and obtained financing from PFC to purchase the units from RSI. RSI
entered into installation, maintenance and license agreements with the
hotels and provided the related services. Title to the Refreshment
Centers was transferred to PFC; however, RSF had an option to
repurchase the units at the end of the lease for ten percent of the net
book value of the equipment, as defined.

In January 1996, RSF entered into a stock purchase and sale agreement
with PFC in which RSF acquired the residual value of the Refreshment
Centers sold to PFC under the Assignment Agreement in exchange for
shares of RSF's common stock. On April 29, 1996, RSI and RSF entered
into a Reorganization Plan and Merger Agreement whereby RSF became a
wholly owned subsidiary of RSI.

F-17
<PAGE>

4. RSG INVESTMENT TRANSACTIONS AND SETTLEMENT

On July 17, 1998, the Company entered into an Equipment Purchase and
Sale Agreement (the "Equipment Agreement") with RSG Investments, LLC
("RSG"), an unrelated lender. Under the terms of the Equipment
Agreement, RSG paid $1.5 million for the production of approximately
2,270 Refreshment Centers (the "RSG Units") to be installed in six
hotel properties in the United States under revenue sharing agreements.
Pursuant to the Equipment Agreement, title to the RSG units transferred
to RSG and the Company was to repurchase the RSG Units within 75 days,
or by September 30, 1998. The repurchase price was based upon the $1.5
million bearing interest at 15 percent per annum and was secured by
common stock of the Company pledged by certain officers, directors and
consultants to the Company and the assets of the Company. Due to the
Company's obligation to repurchase the RSG Units, this transaction was
treated as a collateralized borrowing in the accompanying December 31,
1998 consolidated balance sheet.

As an inducement for RSG to enter into the Equipment Agreement, the
Company issued to the principals of RSG warrants to purchase 46,875
shares of common stock at $12.80 per share. These warrants were valued
by the Company at the time of issuance at $253,347 using the
Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 5.5 percent, expected dividend yield of 0
percent, volatility of 58.2 percent, and expected life of 4.9 years. In
the event that the Company did not meet the obligation to repurchase
the units, additional warrants to purchase 9,375 shares of the
Company's common stock at $12.80 per share accrued to RSG every thirty
days through January 28, 1999, whereupon the Equipment Agreement would
be in default.

During the years ended December 31, 1998 and 1999, the Company issued
additional warrants to purchase 37,500 and 9,375 shares of common
stock, respectively, in connection with the Equipment Agreement. These
additional warrants were valued by the Company at the time of issuance
at $202,597 and $50,750, respectively, using the Black-Scholes option
pricing model with the following assumptions: risk-free interest rate
of 5.5 percent, expected dividend yield of 0 percent, volatility of
58.2 percent, and expected life of 4.9 years. All of the warrants
issued to RSG were exercisable for a period of three years subsequent
to the Company's IPO.

On January 28, 1999, the Company was unable to meet the terms of the
repurchase obligation and the Equipment Agreement was in default. RSG
granted the Company several extensions to meet the terms under the
Equipment Agreement, the last of which was signed on May 19, 1999. RSG
placed certain conditions on the Company, the failure to meet any of
the conditions would result in RSG`s foreclosure on the pledged common
stock and the assets of the Company.

On September 28, 1999, the Company and RSG entered into a settlement
agreement in the form of the Equipment Transfer Agreement (the
"Transfer Agreement"), which provided for the following:

- eRoomSystem Technologies formed a new
bankruptcy-remote entity, RSi BRE, Inc. ("RSi BRE"),
as a wholly owned subsidiary. The ownership of the
RSG Units and the related revenue sharing agreements
were transferred to RSi BRE. RSG is to receive $0.57
per unit per day of the revenue realized from the
revenue sharing agreements covering 2,270 of the RSG
Units over the remaining life of their seven year
revenue sharing agreements. However, the $0.57 per
unit per day is paid only after $0.11 per unit per
day has been paid to eRoomSystem Technologies to
cover taxes and maintenance. To the extent that at
least $0.68 per unit per day in revenue is not
realized from the RSG Units, the Company has no
obligation to pay the difference to RSG. Rather, RSG
is subject to the risk that revenues generated from
the RSG Units are not at least $0.68 per unit per
day. To the extent that the revenue per unit per day
exceeds $0.68, the incremental amount is paid to
eRoomSystem Technologies.

- RSG converted one-third of the principal amount of
the loan, or $500,000, into 166,667 shares, at $3.00
per share, of Series B convertible preferred stock.

F-18
<PAGE>

- eRoomSystem Technologies paid $250,000 to RSG upon
the execution of the Transfer Agreement and executed
a promissory note in the amount of $750,000 bearing
10 percent interest to be repaid on the earlier of
May 1, 2000 (which has since been extended to August
1, 2000) or 30 days after the completion of the
Company's IPO. This note is secured by the assets of
the Company.

- eRoomSystem Technologies transferred $750,000 of cash
and other assets into RSi BRE to pay for the
manufacture and installation of at least an
additional 750 Refreshment Centers. If eRoomSystem
Technologies fails to pay the $750,000 note to RSG
prior to December 31, 2000, the $750,000 note will be
forgiven and in exchange RSG will receive $0.57 per
unit per day from the additional 750 units over the
remaining term of their seven year revenue sharing
agreements. This obligation is under the same terms
as the $0.57 per unit per day payments discussed
above.

- RSG terminated the pledge of the common stock of the
stockholders and the assets of the Company.

- RSG remitted to the Company all payments received
under the revenue sharing agreements for the RSG
Units.

- RSG forgave the interest due on the repurchase
obligation up to August 1, 1999.

- RSG returned to eRoomSystem Technologies the warrants
to purchase 93,750 shares of the Company's common
stock, and the warrants which accrued during the
period commencing September 30, 1998 through January
28, 1999.

In accordance with SFAS No. 15, "Accounting by Debtors and Creditors
for Troubled Debt Restructurings," the Company has accounted for this
transaction as a troubled debt restructuring. Accordingly, no gain or
loss has been recognized from this transaction. Rather, the Company
combined all liabilities to RSG at the time of the Transfer Agreement
including the principal amount of the repurchase obligation of
$1,500,000, accrued interest of $298,849 and the value of the warrants
of $506,694. The total liability of $2,305,543 was reduced by the
$250,000 of cash paid and the $500,000 of Series B convertible
preferred stock that was issued to RSG. The remaining liability is
being amortized by the Company over the remaining life of the
underlying revenue sharing agreements using an estimated effective
interest rate of approximately 41 percent. This estimated effective
interest rate could fluctuate in future periods depending upon the
level and timing of revenues generated from the RSG units and the
timing of the remaining $750,000 payment due to RSG.

The board of directors of RSi BRE is comprised of one appointee from
the Company, one appointee from RSG 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. Rather, the Company's investment in RSi BRE is reflected as
an "Investment in Wholly Owned, Unconsolidated Subsidiary" in the
accompanying December 31, 1999 consolidated balance sheet and is being
accounted for under the equity method of accounting. At December 31,
1999 and March 31, 2000, the assets and liabilities of RSi BRE
consisted of the following:

F-19
<PAGE>

<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---------------- ---------------
<S> <C> <C>
Cash............................................... $ 189,659 $ 48,946
Accounts receivable................................ 66,507 142,068
Inventory.......................................... 414,860 --
Refreshment centers in service..................... 2,097,363 2,712,727
Accumulated depreciation........................... (217,797) (298,876)
Accrued liabilities................................ (4,616) (15,689)
Customer deposits.................................. (10,000) (16,757)
---------------- ---------------
Net Assets......................................... $2,535,976 $2,572,419
================ ===============
</TABLE>

For the period from its inception (September 29, 1999) to December 31,
1999 and for the three months ended March 31, 2000, the revenues and
expenses of RSi BRE consisted of the following:

<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---------------- ---------------
<S> <C> <C>
Revenue sharing agreement revenues................. $ 212,919 $ 181,115
Depreciation....................................... (53,947) (81,080)
Other operating expenses........................... (16,654) (13,030)
Interest income.................................... 5,297 1,291
---------------- ---------------
Net Income......................................... $ 147,615 $ 88,296
================ ===============
</TABLE>

5. NOTES PAYABLE AND LONG-TERM DEBT

1996 PRIVATE DEBT OFFERING

During the period from September through December 31, 1996, the Company
raised $1,310,000 of debt funding through a best efforts private
placement of promissory notes (the "1996 Notes"). An additional
$160,000 was raised through March 1997. The 1996 Notes bore interest at
12 percent per annum paid quarterly and matured one year from the date
of issuance. In the event the Company did not repay all principal and
accrued interest at the end of the one-year term, the 1996 Notes were
extended for an additional year and the interest rate increased to 15
percent per annum. If the 1996 Notes were extended for the additional
year, all outstanding principal was to be amortized on a monthly basis
over the second year. The 1996 Notes are secured by the assets of the
Company.

The investors in the 1996 Notes were also issued 242,550 warrants to
purchase shares of common stock of eRoomSystem Technologies at $2.67
per share which are exercisable for a period of the earlier of the five
years from the date of issuance or three years subsequent to the
closing of the Company's IPO. The warrants issued in connection with
the debt were valued by the Company at the time of issuance at $148,764
using the Black-Scholes option pricing model with the following
assumptions: risk free interest rate of 5.4 percent, expected dividend
yield of 0 percent, volatility of 22.2 percent, and expected life of
3.3 years. The value of the warrants was recorded as warrants
outstanding and the related debt was recorded net of the value of the
warrants. The difference between the face amount of the debt and the
recorded value was accreted to interest expense over the extended term
of the debt. In addition, the Company agreed to pay the placement agent
a 12 percent selling commission and issued the agent and brokers 86,250
warrants to purchase common stock at $2.67 per share which are
exercisable for a period of the earlier of five years from the date of
issuance or three years subsequent to the Company's IPO. The value of
the these warrants of $52,900 was determined using the Black-Scholes
option pricing model with the assumptions disclosed above. The
commissions paid of $157,200 were recorded as deferred debt offering
costs and were amortized to interest expense over the extended term of
the debt.

F-20
<PAGE>

During late 1997 and early 1998, the Company defaulted on all of the
1996 Notes. To avoid foreclosure on the assets of the Company by the
holders of 1996 Notes, the Company agreed to issue each of the holders
of the 1996 Notes the following:

- On a monthly basis commencing on the maturity date of each
note and continuing until the date of pay off or conversion
into equity securities, a warrant to purchase 99 shares of
common stock at $2.67 per share for every $20,000 of
outstanding principal which are exercisable for a period of
two years subsequent to the closing of the Company's IPO.
During the years ended December 31, 1998 and 1999 and for
the three months ended March 31, 2000, the Company issued
warrants to purchase 38,089, 19,233 and 4,290 shares of
common stock, respectively, which were valued (utilizing the
Black-Sholes option pricing model with the following
weighted average assumptions for the years ended
December 31, 1998 and 1999 and for the three months ended
March 31, 2000, respectively: risk free interest rates at
5.4, 5.7 and 6.7 percent, expected dividend yield of 0
percent, volatility at 49.0, 96.5 and 95.0 percent, and
expected lives at 2.8, 3.0 and 2.3 years, respectively) at
amounts ranging from $8.32 to $8.69, $1.63 to $4.99 and
$1.05 per share, respectively. These amounts were recorded
as additional interest expense on the debt.

- 188 shares of common stock for every $20,000 of outstanding
principal, or a total of 13,781 shares of common stock which
were valued at $10.67 per share at their date of issuance
in 1998.

- An additional 469 shares of common stock for every $20,000
of outstanding principal converted into Series A convertible
preferred stock. During 1998, holders of $1,040,000 of
outstanding principal elected to convert their 1996 Notes
into 208,000 shares of Series A convertible preferred stock
at an agreed upon value of $5.00 per share. In connection
with this conversion, the Company issued 24,375 shares of
common stock which were valued at $10.67 per share.

The total value of $407,000 related to the issuance of the 13,781
common shares issued to avoid foreclosure and the 24,375 common shares
issued to induce the conversion to Series A convertible preferred stock
has been recognized as an extraordinary loss from debt extinguishment
in the accompanying December 31, 1998 statement of operations.

In connection with the above mentioned conversion of the 1996 Notes
into Series A convertible preferred stock, the Company issued 13,125
shares of common stock to the original placement agent for assisting in
the conversion. These shares were valued at $10.67 per share and have
been treated as a cost of the conversion of the 1996 Notes into Series
A convertible preferred.

In May 1999, the remaining holders of the 1996 Notes were offered the
right to convert their notes into Series B convertible preferred stock
at the rate of $3.00 per share. Notes consisting of $300,000 of
outstanding principal and $58,124 of accrued interest were converted
into 119,374 shares of Series B convertible preferred stock.

As of December 31, 1999, the remaining 1996 Notes in the amount of
$130,000 are in default and are continuing to accrue warrants on a
monthly basis.

1997 PRIVATE DEBT AND EQUITY OFFERING

In April 1997, the Company began a private placement offering of
promissory notes (the "1997 Notes") and shares of common stock. The
offering (as amended) consisted of 198.6 units at $10,000 per unit,
each unit consisting of 938 shares of common stock and a $5,000
promissory note. The 1997 Notes bear interest at 15 percent, payable
quarterly, were due in one year and are secured by the assets of the
Company.

In connection with the private placement offerings, the Company agreed
to issue common stock to a placement agent (the "Merchant Banker") such
that the Merchant Banker would own 5.9 percent of the

F-21
<PAGE>

issued and outstanding capital stock of the Company immediately
preceding the filing of a registration statement relating to an IPO of
the Company's securities.

In May 1998, the Company entered into an agreement with the Merchant
Banker which eliminated its anti-dilution rights in exchange for the
issuance of 68,948 shares of common stock and the forgiveness of
$50,014 in receivables from the Merchant Banker. The additional shares
issued have been reflected as a stock dividend inasmuch as no
additional services were provided by the Merchant Banker.

In September 1998, holders of the 1997 Notes were offered the right to
convert the 1997 notes and accrued interest into common stock at a rate
of $10.67 per share. Note holders consisting of $115,000 in outstanding
principal and $9,428 of accrued interest elected to convert their 1997
Notes into 11,665 shares of common stock at that time. The Company
incurred $11,082 of offering costs associated with this conversion
which was recorded as an offset to additional paid-in capital.

In May 1999, remaining holders of the 1997 Notes were offered the right
to convert the notes and accrued interest into Series B convertible
preferred stock at the rate of $3.00 per share. 1997 Note holders
consisting of $425,051 in outstanding principal and $96,882 of accrued
interest elected to convert their 1997 Notes into 173,976 shares of
Series B convertible preferred stock at that time. In addition, the
Company paid $5,000 in cash to one investor.

As of December 31, 1999, the remaining 1997 Notes in the amount of
$431,750 are in default.

1998 CONVERTIBLE 60 DAY NOTES OFFERING

In May 1998, the Company issued $561,520 of 10 percent convertible
promissory notes, with a term of sixty days. These notes were
convertible at maturity into common stock at a price of $10.67 per
share. These convertible promissory notes were secured by the assets of
the Company. In October 1998, the Company converted $561,520 of
outstanding principal and $17,632 of accrued interest into 54,296
shares of common stock. In connection with this conversion, the Company
agreed to issue 7,875 shares of common stock as a finders fee. These
shares were valued at $10.67 per share and recorded as deferred
offering costs and amortized to interest expense over the term of the
notes. In addition, the Company incurred $45,462 of offering costs
associated with this conversion which was recorded as an offset to
additional paid-in capital.

1998 PROMISSORY NOTE

During 1998, the Company issued a $100,000 short-term promissory note
to an investor which was subsequently converted into 9,375 shares of
common stock at a price of $10.67 per share. In addition, this investor
was granted an additional 1,500 shares of common stock as an inducement
to convert the promissory note, which was valued at $10.67 per share
and recorded as additional interest expense in 1998.

1999 PRIVATE DEBT OFFERING

From February through May 1999, the Company offered 15 percent
promissory notes with a term of ninety days (the "1999 Notes").
Interest was payable at maturity. Additionally, the 1999 Notes provided
for the holders to receive 37.5 shares of common stock every thirty
days for each $1,000 of principal outstanding. The Company received
$350,000 from the issuance of the 1999 Notes. The 1999 Notes are
secured by the assets of the Company. During 1999, the Company paid off
$134,885 of the 1999 Notes with cash and converted $180,000 of the 1999
Notes and 7,479 shares of accrued but unissued common stock (which were
valued at $4.00 per share) into 81,909 shares of Series B convertible
preferred stock. In addition, during 1999 the Company accrued and
issued 41,410 shares of common stock that were not converted into
Series B convertible preferred stock. As of December 31, 1999, $35,115
of these notes remain outstanding and are in default. As of March 31,
2000, the Company had accrued 49,401 shares of common stock on the
Series B convertible preferred stock.

F-22
<PAGE>

2000 NOTE PAYABLE TO STOCKHOLDER

On February 15, 2000, the Company received a $500,000 loan from a
company, wholly owned by a stockholder and nominee to the board of
directors. The loan is evidenced by a promissory note, bears interest
at the rate of 10 percent per annum, matures on May 31, 2000
(subsequently extended to July 31, 2000) and is secured by the assets
of the Company. In addition, the Company issued a warrant for the
purchase of 18,750 shares of common stock, which is exercisable at
$4.80 per share for two years subsequent to the closing of the IPO. The
warrants issued were valued at $25,938 based upon their fair value
measured using the Black-Scholes option pricing model with the
following assumptions: 6.7 risk-free interest rate, 70.45 percent
volatility and a 2.30 year estimated life. The Company charged the
value of the warrants to interest expense.

2000 CONVERTIBLE PROMISSORY NOTES

During March and April 2000, convertible promissory notes were issued
in connection with the Series C convertible preferred stock offering.
See Note 10.

Notes payable and long-term debt consists of the following:

<TABLE>
<CAPTION>
December 31, March 31,
-----------------------------
1998 1999 2000
----------- -- ----------- ------------
<S> <C> <C> <C>
1996 Notes secured by assets of the Company, in
default as of December 31, 1998 and 1999,
interest at 15% per annum and accruing warrants
to purchase common stock on a monthly basis
(see description above).......................... $ 429,725 $ 130,000 $ 130,000
1997 Notes secured by assets of the Company, in
default as of December 31, 1998 and 1999,
interest of 15% per annum (see description
above)........................................... 870,500 431,750 431,750
1999 Notes secured by assets of the Company, in
default as of December 31, 1999, interest at 15%
per annum and accruing shares of common stock
on a monthly basis (see description above)....... -- 35,115 35,115
Note payable to RSG net of discount of $35,136 and
$0 as of December 31, 1998 and 1999,
respectively, secured by assets of the Company,
imputed interest at 41% per annum, (see Note 4).. 1,464,864 1,555,544 1,555,544
Note payable to a corporation for services
performed, in default as of December 31, 1999,
interest at 22% per annum, unsecured............. -- 102,290 158,354
Note payable to an individual, secured by assets
of the Company, in default as of December 31,
1998 and 1999, interest at 15% per annum,
unsecured........................................ 100,000 100,000 100,000
Note payable to a bank, interest at 10 %per annum,
due in monthly installments through June 2002,
secured by vehicle............................... 13,740 10,290 9,372
Note payable to a bank, interest at 9.25% per
annum, due in monthly installments through
April 2000, secured by a vehicle................. 5,460 1,429 362

F-23
<PAGE>

Note payable to an individual, interest at 15%
per annum, unsecured............................ -- 6,062 6,062
Convertible promissory note, bearing interest at
7% per annum, shown net of $30,490 discount and
$9,312 in deferred loan costs as of March 31,
2000 (see description above).................... -- -- 135,198
Note payable to a company, interest at 10% per
annum, matures June 30, 2000, secured by the
assets of the Company, in addition, the Company
issued a warrant for the purchase of 18,750
shares of common stock (see description above).. -- -- 500,000
----------- ----------- -----------

Total notes payable and long-term debt............. 2,884,289 2,372,480 3,061,757

Less: Current portion.............................. (2,872,570) (1,560,458) (2,114,542)
----------- ----------- -----------

$ 11,719 $ 812,022 $ 947,215
=========== =========== ===========
</TABLE>

None of the notes in default have been extended. Moreover, holders of
the notes in default have not taken any action to foreclose on the
notes. In addition, subsequent to March 31, 2000, the Company made a
principal payment of $230,000 on the note in the original principal
amount of $500,000.

Future maturities of notes payable and long-term debt as of December
31, 1999 are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000................................................ $1,560,458
2001................................................ 4,210
2002................................................ 32,043
2003................................................ 109,871
2004................................................ 163,711
Thereafter.............................................. 502,187
----------

Total............................................... $2,372,480
==========
</TABLE>

6. NOTES PAYABLE TO STOCKHOLDERS

In March 1996, the Company's president, who is also a principal
stockholder, agreed to purchase 187,500 shares of RSI's common stock
from a stockholder for $500,000. As payment for the shares, the
president signed a $250,000 note payable obligation to the selling
stockholder, which bore interest at 7 percent and was due on March 14,
1998, and signed another $250,000 promissory note payable to the
selling stockholder, which bore interest at 7 percent and was due on
demand. In October 1996, the Company agreed to assume the president's
rights and obligations under the agreements and repurchased the shares
as treasury shares as per the terms of the original agreement with no
additional compensation or consideration paid to the president. In
March 1998, the Company and the stockholder agreed to rescind and to
return the 187,500 shares of stock to the original stockholder.
Accordingly, no loss was recognized on this transaction.

In October 1996, in connection with the Company's acquisition of
certain patents and license rights from the Company's president, the
Company agreed to pay the president $125,000 as well as issue the
president 65,625 shares of common stock. The $125,000 obligation was
originally due March 1, 1997 without interest. During 1997, 1998 and
1999, the Company paid $41,750, $12,500 and $0, respectively, in cash

F-24
<PAGE>

towards the principal on this obligation. In December, 1999, the
Company's president agreed to convert the remaining principal balance
of $70,750 into 23,583 shares of Series B preferred stock at $3.00 per
share.

During the years ended December 31, 1998 and 1999, the Company's
president loaned the Company $75,000 and $130,209, respectively.
Additionally, during the year ended December 31, 1999, the Company's
chief financial officer, who is a stockholder, and another stockholder
loaned the Company $10,545 and $83,441, respectively. These loans were
evidenced by promissory notes which bore interest at 10 percent. In
addition, the note holders were also to receive 100 shares of common
stock per month for every $1,000 of principal outstanding. In
connection with these agreements, the Company accrued and issued 83,500
shares of common stock which were valued at $3.20 per share. During
September 1999, all amounts outstanding on these notes were converted
into 105,984 shares of Series B convertible preferred stock at a rate
of $3.00 per share.

7. LEASES

CAPITALIZED LEASE OBLIGATIONS

Certain equipment is leased under capital lease agreements. The
following is a summary of assets held under capital lease agreements:

<TABLE>
<CAPTION>
December 31, March 31,
-------------------------------
1998 1999 2000
-------------- ------------- -------------
<S> <C> <C> <C>
Property and equipment.......................... $75,126 $103,602 $28,476
Less: Accumulated amortization.................. (29,320) (62,701) (5,537)
-------------- ------------- -------------

$45,806 $40,901 $22,939
============== ============= =============
</TABLE>

The following is a schedule of future minimum lease payments under
capital lease agreement together with the present value of the net
minimum lease payments at December 31, 1999:

<TABLE>
<S> <C>
Year Ending December 31,
------------------------
2000............................................. $ 35,728
2001............................................. 35,728
2002............................................. 27,776
--------
Total net minimum lease payments....................... 99,232
Less: Amount representing interest.................... (22,074)
--------
Present value of net minimum lease payments............ 77,158
Less: Current portion................................. (22,061)
--------

Total............................................ $ 55,097
========
</TABLE>

OPERATING LEASES AS LESSOR

The Company accounts for its revenue sharing agreements as operating
leases. As of December 31, 1999 and March 31, 2000, the Company had
only one revenue sharing agreement for which the customer was
contractually obligated to pay minimum monthly payments. Agreements
with all other customers provide for an allocation of revenues to the
Company with no minimum monthly payment. Accordingly, the Company is
unable to estimate future amounts to be received under these
agreements.

F-25
<PAGE>

Future minimum payments to be received under the contract that provides
for minimum monthly amounts are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000............................................. $132,457
2001............................................. 132,457
2002............................................. 132,457
2003............................................. 132,457
2004............................................. 132,457
Thereafter........................................... 264,914
--------

Total............................................ $927,199
========
</TABLE>

OPERATING LEASES AS LESSEE

The Company leases its operating facilities and certain equipment under
noncancellable operating leases. Rent expense for the years ended
December 31, 1998 and 1999 and the three months ended March 31, 2000
was $100,098, $115,245 and $30,895, respectively. As of December 31,
1999 minimum rental payments under noncancellable operating leases were
as follows:

Year Ending December 31,
------------------------
<S> <C>
2000................................................ $132,886
2001................................................ 119,836
2002................................................ 104,030
--------

Total............................................... $356,752
========
</TABLE>

8. INCOME TAXES

The Company paid no federal or state income taxes.

The significant components of the Company's deferred income tax assets
as of December 31, 1998 and 1999 are as follows:

<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Deferred Income Tax Assets:
Net operating loss carryforwards.......................... $2,533,815 $3,640,709
Reserves and accrued liabilities.......................... 121,422 82,602
---------- ----------
Total deferred income tax assets.................... 2,655,237 3,723,311
Valuation allowance....................................... (2,611,073) (3,687,977)
---------- ----------
Net deferred tax asset.............................. 44,164 35,334
---------- ----------
Deferred Income Tax Liability:
Tax depreciation in excess of book........................ (44,164) (35,334)
---------- ----------
Total deferred income tax liabilities............... (44,164) (35,334)
---------- ----------

Net deferred income taxes........................... $ -- $ --
========== ==========
</TABLE>

The amount of and ultimate realization of the deferred income tax
assets is dependent, in part, upon the tax laws in effect, the
Company's future earnings, and other future events, the effects of
which cannot be determined. The Company has established a valuation
allowance against its deferred income tax assets. Management believes
that, based on a number of factors, the available objective evidence
creates sufficient uncertainty regarding the realizability of these
deferred income tax assets to warrant the valuation allowance.

F-26
<PAGE>

The following is a reconciliation of the amount of tax benefit that
would result from applying the federal statutory rate to pretax
(loss)/income with the benefit from income taxes:

<TABLE>
<CAPTION>
December 31,
-------------------------------- March 31,
1998 1999 2000
--------------- -------------- ------------
<S> <C> <C> <C>
Benefit at statutory rate (34%)................. $(1,409,469) $(1,248,540) $(421,589)
Non-deductible expenses......................... 414,216 220,108 196,303
Change in valuation allowance................... 1,049,973 1,076,904 241,654
State tax benefit, net of federal tax benefit... (54,720) (48,472) (16,368)
--------------- -------------- ------------
Net Benefit From Income Taxes.............. $ -- $ -- $ --
=============== ============== ============
</TABLE>

The following summarizes the tax net operating loss carryforwards and
their respective expiration dates as of December 31, 1999:

<TABLE>
<S> <C>
2008................................................ $ 44,043
2010................................................ 930,194
2011................................................ 2,188,074
2017................................................ 820,111
2018................................................ 3,191,461
2019................................................ 3,133,899
-------------

Total net operating loss carryforwards.............. $ 10,307,782
=============
</TABLE>

9. COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS

In March 1999, a vendor of the Company filed a lawsuit that alleges
breach of contract and seeks payment in the amount of approximately
$125,000 from the Company related to purchases of materials from the
vendor. The Company has responded to the lawsuit, and management
believes that the materials delivered by the vendor were defective. In
addition, the Company's costs resulting from the defective materials
are in excess of $120,000. Although the Company, after consultation
with legal counsel, believes that their defenses have merit, they are
unable to predict the outcome of this matter.

The Company is the subject of certain legal matters, which it considers
incidental to its business activities. It is the opinion of management,
after discussion with legal counsel, that the ultimate disposition of
these legal matters will not have a material impact on the consolidated
financial condition or results of operations of the Company.

EMPLOYMENT AGREEMENTS

During 1999, the Company entered into employment agreements with
certain of its officers and key employees. The agreements are for
periods of 24 to 36 months with an option to extend the terms for up to
an additional 12 months upon mutual agreement of the Company and the
officer/employee. Upon the successful completion of certain events
(including an IPO of the Company's common stock), the
officers/employees are to receive increases in their base salaries at
percentages ranging up to 28 percent. In the event of termination of
employment without cause, the officer/employee is entitled to cash
compensation equal to their base salary for the lesser of the remainder
of their employment agreement or a period of one to twelve months
(depending on the officer/employee). Additionally, upon termination
(with or without cause), the agreements allow certain of the officers
to require repurchase of the officer's common stock by the Company at a
price equal to 200 percent of its fair market value at the date of
termination. The agreements also prevent the officers/employees from
competing with the Company for up to one year from the date of
termination of their employment.

F-27
<PAGE>

ADVERTISING AGREEMENT

On March 24, 2000, the Company entered into a letter of agreement with
an advertising agency. Under the terms of the agreement, the
advertising agency is to assist the Company in the development and
implementation of the Company's creative design related to its
advertising, marketing and promotion. The agreement lasts for a term of
one year and provides for the agency to be compensated as follows:
months one through four - on March 29, 2000, the Company issued the
agency a warrant to purchase 125,000 shares of common stock at $4.80
per share, and months five through twelve - the Company is to pay the
agency $43,687 per month in cash. In addition, the Company also agreed
to pay all outside expenses incurred by the agency on behalf of the
Company which is estimated to be $450,000. The warrants issued were
valued at $135,152 based upon their fair value measured using the
Black-Scholes option pricing model with the following assumptions: 6.7
percent risk-free interest rate, 0 percent expected dividend yield,
83.41percent volatility, and a 1.76 year estimated life. The Company
changed $101,364 of the value of the warrants to deferred offering
costs relating to the proposed IPO and $33,788 were charged to prepaid
expense.

REGISTRATION RIGHTS

In 1999, in connection with certain of its debt and equity offerings
and the conversion of certain debt to equity, the Company has granted
stockholders of 407,906 shares of common stock, warrants to purchase
242,550 shares of common stock and 683,333 shares of Series B
convertible preferred stock the right, subject to applicable terms and
conditions, to require the Company to register their common shares on a
best efforts basis (or equivalent common shares upon the exercise of
the warrants or conversion of the preferred stock) under the Securities
Act for offer to sell to the public. Additionally, the Company has also
granted certain stock and warrant holders the right to join in any
registration of securities of the Company (subject to certain
exceptions). The Company is obligated to pay all offering expenses
related to offerings requested by the stock and warrant holders under
these agreements. The stockholders are obligated to pay all selling
expenses.

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 customers under revenue sharing agreements. Under
the terms of the program 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 meeting certain requirements.
The Company is obligated to repay the financing over seven years, with
a formula-based variable interest rate. As part of the financing,
eRoomSystem Technologies will form a new entity, eRoomSystem SPE, Inc.
eRoomSystem SPE will be a Nevada corporation as a wholly owned
subsidiary. eRoomSystem SPE will own all of the Refreshment Centers
funded by the finance company as well as the revenue sharing
agreements. The finance company will take a senior security interest in
the Refreshment Centers financed under the program agreement. As of
December 31, 1999, no Refreshment Centers have been funded under the
program agreement.

10. STOCKHOLDERS' EQUITY

AMENDMENT TO ARTICLES OF INCORPORATION

On February 2, 2000, with stockholder approval, the Company filed
articles of amendment to its articles of incorporation. The amended
articles of incorporation authorize the Company to issue 500,000 shares
of $0.001 par value Series A preferred stock, 2,500,000 shares of
$0.001 par Series B preferred stock and 2,000,000 shares of $0.001 par
value Series C preferred stock and 20,000,000 shares of $0.001 par
common stock. The Company's board of directors is authorized, without
stockholder approval, to designate and determine the preferences,
limitations and relative rights granted to or imposed upon each share
of preferred stock which are not fixed by the amended articles of
incorporation.

F-28
<PAGE>

On March 29, 2000, and corrected on May 30, 2000, the Company filed an
amendment and restatement of the Company's Articles of Incorporation,
as amended and restated on February 2, 2000. The amended and restated
articles of incorporation: (i) changed the Company's name to
"eRoomSystem Technologies, Inc."; (ii) increased the Company's
authorized capital stock to 60,000,000 shares; (iii) increased the
authorized number of shares of the Company's common stock from
20,000,000 million shares to 50,000,000 million shares; and (iv)
authorized 5,000,000 million shares of undesignated preferred stock at
$0.001 par value.

REVERSE STOCK SPLITS

On September 28, 1999, the Company's board of directors approved a
one-for-two reverse stock split related to its outstanding common stock
and common stock options and warrants. However, in connection with
their employment agreements, officers which held 996,000 shares of
common stock and a former consultant which held 475,000 shares of
common stock were excluded from the effect of this reverse stock split.
On March 29, 2000, the Company's board of directors approved a
three-for-four shares reverse stock split related to its common stock
and common stock options and warrants. Additionally, in connection with
the sale of the Series A and B convertible preferred stock, the holders
of Series A and B convertible preferred stock were excluded from the
effect of these reverse stock splits. The 1999 and 2000 stock splits
have been retroactively reflected in the accompanying consolidated
financial statements for all periods presented.

STOCK ISSUANCES FOR SERVICES

During the year ended December 31, 1999, the Company issued shares of
common stock to officers, key employees and outside parties for
services provided and as bonuses. The shares issued have been valued by
the Company's Board of Directors at estimated fair values based on
other issuances of shares for cash and on the terms of related
transactions. During 1999, the Company issued 1,864 shares of its
common stock to certain officers and key employees and recorded $5,965
of related compensation expense, respectively. The shares issued in
1999 were valued at $3.20 per share.

1997 STOCK OPTION EXERCISE

During the year ended December 31, 1997, certain option and warrant
holders exercised options and warrants to purchase 1,733,500 shares of
common stock in exchange for partial recourse notes receivable of
$3,799,250. The notes were due on demand, bore interest at 7 percent
per annum and the principal and accrued interest could be paid by
surrendering shares of common stock to the Company. During the years
ended December 31, 1998 and 1999, the Company accrued $274,691 and
$235,951, respectively, of interest related to these notes receivable.

"EITF 95-16, "Accounting for Stock Compensation Arrangements with
Employer Loan Features Under APB No. 25" requires employee notes
received upon exercise of stock options to be accounted for as the
issuance of new stock options with a new measurement date if the notes
are nonrecourse to the employee. The notes received in connection with
the exercise of these options were partial recourse to the
stockholders. Accordingly, they were not nonrecourse notes and were
therefore not considered to be the issuance of new stock options."

In connection with their employment/consulting agreements, certain
stockholders had been exempted from the effects of the reverse stock
split discussed above. During the year ended December 31, 1999, the
Company demanded payment on notes receivable with principal balances
totaling $3,143,000. Holders of 1,471,000 shares of common stock with a
principal obligation totaling $2,574,250 and accrued interest of
$366,319 surrendered their shares to the Company as satisfaction of the
obligation. Since these officers and former consultant immediately
returned all of these shares to the Company, no compensation was
recognized in connection with the exclusion of these shares from the
reverse stock split. However, as of December 31, 1999, a holder of
121,875 shares of common stock with a principal balance of $568,750 and
accrued interest of $50,938 had filed for bankruptcy protection. As a
result, the Company is currently

F-29
<PAGE>

negotiating with the bankruptcy trustee for the return of the
shares. However, the fair value of the shares is less than the
principal and accrued interest on the note receivable. Accordingly,
as of December 31, 1999 the Company has recorded a reserve of
$229,688 against the note receivable to reflect it at the fair value
of the underlying collateral.

As of December 31, 1999, a note receivable from the exercise of 140,625
stock options with a principal balance of $656,250 and accrued interest
of $93,385 remained outstanding for which the Company had not yet
demanded repayment. As a result of the decline in the value of the
underlying collateral and because the Company does not believe it will
receive payment beyond the return of the underlying common stock, the
Company recorded a reserve of $299,635 to reflect the note receivable
at the fair value of the underlying collateral. At March 31, 2000, the
Company cancelled a note receivable from a stockholder which was used
to purchase shares of common stock. The value of the note receivable
was $656,250. As consideration for the cancellation of the note
receivable, 140,625 shares of common stock were returned to the Company
by the stockholder and retired.

1998 STOCK TRANSACTIONS

In January 1998, the Company sold 35,532 shares of common stock in a
private placement at $10.67 per share. The Company received cash
proceeds of $335,042, net of $43,958 in offering costs. The placement
agent of the offering received a cash commission of 12.5 percent and
warrants to purchase 4,264 shares of common stock, exercisable at
$12.80 per share which are exercisable for a period of three years. The
Company has valued these warrants at $4.31 per share using the
Black-Scholes option pricing model with the following assumptions: risk
free rate of 5.4 percent, expected dividend yield of 0 percent,
volatility of 58.2 percent and an expected life of 3.3 years.

During the year ended December 31, 1998, the Company sold an additional
5,156 shares of common stock to an investor at $10.67 per share.

1998 SERIES A CONVERTIBLE PREFERRED STOCK OFFERING

In January 1998, the Company issued 360,000 shares of Series A
convertible preferred stock at a price of $5.00 per share. The Company
received $600,275 in net cash proceeds (net of offering costs of
$159,725) and issued 152,000 shares of Series A convertible preferred
stock. In addition, the Company issued 208,000 shares of Series A
convertible preferred stock relating to the conversion of $1,040,000 of
1996 Notes. The placement agent received a cash commission of 13
percent, due diligence and non-accountable expense allowances (for a
total of $149,843), 13,125 shares of common stock (valued at $10.67 per
share) and warrants to purchase 6,840 shares of common stock
exercisable at $16.00 per share which are exercisable for a period of
two years subsequent to the Company's IPO. The Company has valued these
warrants at $2.56 per share using a Black-Scholes option pricing model
with the following assumptions: risk free rate of 5.6 percent, expected
dividend yield of 0 percent, volatility of 58.2 and an expected life of
2.1 years.

The Series A convertible preferred stock is automatically converted
into shares of common stock upon the consummation of an IPO on a
one-to-one basis if the IPO price is at lease $10.00 per share. If the
initial public offering price is less than $10.00 per share, the
conversion rate for the shares of Series A convertible preferred stock
will be $10.00 divided by the IPO price. On November 14, 1998, holders
of Series A convertible preferred stock commenced cumulating an 8%
annual dividend. The annual dividend requirement applicable to Series A
preferred shares outstanding at December 31, 1999 is $144,000, or $0.40
per share. Due to certain provisions of the Series A convertible
preferred stock, the Company's one-for-two reverse stock split declared
on September 28, 1999 did not affect the number of shares of Series A
convertible preferred stock outstanding. No dividends have been paid to
date to holders of Series A convertible preferred stock. As of December
31, 1998 and 1999, holders of Series A convertible preferred stock were
owed dividends of $18,541 and $162,541, respectively.

F-30
<PAGE>

In accordance with EITF 98-5, "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios" the Company will record (upon conversion of the
Series A convertible preferred stock) a dividend to the Series A
convertible preferred stockholders of $1,800,000. This dividend
represents the contingent beneficial conversion feature of the Series A
convertible preferred stock which accrues to the Series A convertible
preferred stockholders at the date of conversion.

In the event of a liquidation, dissolution or winding up of eRoomSystem
Technologies, holders of the Series A preferred stock will be entitled
to receive, out of legally available assets, a liquidation preference
of $10.00 per share, plus an amount equal to any unpaid dividends to
the payment date, before any payment or distribution is made to holders
of common stock or any series or class of stock there after issued that
rank junior as to the liquidation rights of the Series A preferred
stock. The holders of the Series A shares may not note on any matter,
excluding matters affecting the rights of such stockholders or as
required by law. In connection with such note, each share of Series A
preferred stock will be entitled to one note.

1999 SERIES B CONVERTIBLE PREFERRED STOCK OFFERING

From May through September 1999, the Company issued 2,081,680 shares of
Series B convertible preferred stock at a price of $3.00 per share. The
Company received $3,584,256 in net cash proceeds (net of cash offering
costs of $480,885) and issued 1,355,047 shares of Series B convertible
preferred stock. In addition, the Company issued 726,633 shares of
Series B convertible preferred stock upon the conversion of $2,265,599
of promissory notes and unpaid salaries of certain officers and as part
of the settlement with RSG Investments (Note 4). The placement agent
received a cash commission of 9 percent on shares which they placed and
a non-refundable expense allowance of 2.5 percent.

Effective January 1, 2000 and in connection with the Series B
convertible preferred stock offering, the Company agreed to pay an
individual a finder's fee of $51,250 plus interest at 10 percent, which
is payable from proceeds of the Company's IPO and agreed to issue an
option to purchase 1,125 shares of common stock at an exercise price of
$4.80 per share. In the event the Company does not complete an IPO by
September 28, 2000, the Company is obligated to issue additional
options to purchase 1,125 shares of common stock per month until
September 30, 2000, at which time an additional 1,125 options are to be
issued and the finder's fee and accrued interest are due and payable in
full. The Company has accounted for the finders fee and the fair value
of the initial 1,125 options as a cost of the Series B convertible
preferred stock offering.

Pursuant to the terms of the Series B convertible preferred stock, the
shares are automatically converted into shares of common stock upon the
consummation of an IPO or a business combination where controlling
interest of the Company is acquired. Before the modification as
explained below, the conversion was at the lower of (i) $3.00 per share
or (ii) 50 percent of the IPO price per share. On April 12, 2000, the
certificate of designation for the Series B preferred stock was amended
to modify the conversion rate to be determined by dividing $3.00 by 45
percent of the IPO price per share. In the event the Company does not
close its IPO by September 28, 2000, each holder of Series B preferred
stock shall have the option to convert their Series B stock into the
Company's common stock or remain a Series B preferred stockholder after
that date. Upon election, each Series B share converts into 1.5 shares
of common stock. The holders of the Series B preferred stock are
entitled to an annual cumulative dividend of six percent, payable in
common stock. The annual dividend requirement applicable to Series B
convertible preferred stock outstanding is $374,702, or $0.18 per
share. As of December 31, 1999, and March 31, 2000, the Company had
accrued common stock dividends of 28,936 and 22,484 shares with a value
of $141,899 and $67,452, respectively related to the Series B
convertible preferred stock.

In accordance with EITF 98-5, "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios," the Company determined that the holders of the
Series B convertible preferred stock had received a beneficial
conversion feature at the date of issuance. This beneficial conversion
feature was valued at $1,249,008 and is being accrued as a dividend
between the date of issuance of the Series B convertible preferred
stock and September 28, 2000, the date which the Series B

F-31
<PAGE>

convertible preferred stockholders have the right to convert their
shares. By modifying the terms of the beneficial conversion
feature, when the value of the common stock was $3.20 per share,
the beneficial conversion feature was increased by $2,498,016. The
increase to the beneficial conversion feature is being accrued as a
dividend from April 12, 2000 through September 28, 2000. In the
event of a successful IPO prior to that date, the remaining
unaccrued beneficial conversion feature will be accrued and
recognized at the effective date of the IPO. During the year ended
December 31, 1999 and the three months ended March 31, 2000, the
Company recorded dividends of $321,370 and $311,396 to the Series B
convertible preferred stockholders related to the beneficial
conversion feature.

In the event of any liquidations, dissolution or winding up of the
Company, holders of Series B convertible preferred stock will be
entitled to receive, out of legally available assets, a liquidation
preference of $10.00 per share, plus an amount equal to any unpaid
dividends to the payment date, before any payment or distribution is
made to holders of common stock or any series or class thereafter
issued that ranks junior to the liquidation rights of the Series B
convertible preferred stock. The holders of Series B convertible
preferred stock may not vote on any matter, excluding matters affecting
the rights of such stockholders or as required by law. In connection
with any such vote, each outstanding share of Series B convertible
preferred stock will be entitled to one vote. In addition, if the
Company has not completed an IPO by September 28, 2000, holders of
Series B convertible preferred stock will be accorded voting rights. In
such event, each share of Series B convertible preferred stock will be
entitled to one vote.

1999 COMMON STOCK ISSUANCE

On May 30, 1999, the Company sold 198,750 shares of common stock to an
entity controlled by the Company's president in exchange for a
promissory note in the amount of $1,590,000. The purpose of the stock
sale was to assist the Company in complying with certain stock pledge
requirements set forth in the Equipment Agreement with RSG (see Note
4). On September 28, 1999 as a result of the Transfer Agreement with
RSG, the 198,750 shares of common stock were returned to the Company in
exchange for the cancellation of the promissory note. The shares have
been reflected as issued and retired in the accompanying statement of
stockholders' deficit for the year ended 1999.

2000 SERIES C CONVERTIBLE PREFERRED STOCK OFFERING

During March and April 2000, the Company issued $212,500 of 7% secured,
subordinated, convertible promissory notes, 196,150 shares of 7% Series
C convertible preferred stock and warrants to purchase 42,500 shares of
common stock at $6.60 per share in a private placement offering. The
Company received $777,750 in net proceeds (net of offering costs of
$72,250). The gross proceeds consisted of $650,000 in cash and $200,000
in irrevocable subscription agreements. The 7% Series C convertible
preferred stock was issued at $3.25 per share and will be automatically
converted into common stock upon the close of an initial public
offering at the rate determined by $3.25 divided by 55 percent of the
IPO price per share, provided the IPO closes by January 31, 2001,
otherwise at $3.30 per share. The promissory notes bear interest at 7
percent per annum, payable semi-annually and mature on December 31,
2001. The notes may be converted at the option of the holders into
common stock at 85 percent of the IPO price per share, commencing 30
days following the closing of the IPO. The total proceeds from the
offering were allocated to the financial instruments issued based upon
their relative fair values, and resulted in allocating $164,169 to the
promissory notes before offering costs of $16,664, $31,875 to the
beneficial debt conversion feature, $538,140 to the 7% Series C
convertible preferred stock and $60,230 to the warrants. Based upon the
estimated market value of the common stock of $3.20 per share at the
date of the offering, there was no beneficial conversion feature
associated with the 7% Series C convertible preferred stock.

As of March 31, 2000, the Company had issued $175,000 of 7% secured,
subordinated, convertible promissory notes, 161,535 shares of 7% Series
C convertible preferred stock and warrants to purchase 35,000 shares of
common stock at $6.60 per share in the private placement offering. The
Company received $659,625 in net proceeds (net of offering costs of
$40,375).

F-32
<PAGE>

The proceeds from the offering were allocated to the financial
instruments issued based upon their relative fair values and resulted
in allocating $135,198 to the promissory notes before offering costs of
$9,312, $26,250 to the beneficial debt conversion feature, $456,407 to
the 7% Series C convertible preferred stock and $51,082 to the
warrants.

While the allocated value of the warrants was less than their fair
value of $58,759, the fair value was measured using the Black-Scholes
option pricing model with the following assumptions: risk free interest
rate of 5.0 percent, expected dividend yield of 0 percent, volatility
of 100 percent, and expected lives of 3.25 years. The debt issuance
costs will be amortized through December 31, 2001, the discount on the
promissory notes of $30,490 will be amortized as interest expense
through December 31, 2001.

In the event of any liquidation, holders of the Series C convertible
preferred stock will be entitled to receive, out of legally available
assets, a liquidation preference of $10.00 per share plus an amount
equal to any unpaid dividends to the payment date before any payment or
distribution is made to the holders of common stock or any series or
class of the Company's capital stock that ranks junior to the
liquidation rights of the Series C convertible preferred stock. The
holders of the Series C convertible preferred stock may not vote on any
matter, excluding matters affecting the rights of such stockholders or
as required by law. In connection with any such vote, each outstanding
share of Series C convertible preferred stock shall be entitled to one
vote.

OTHER ISSUANCES OF COMMON STOCK AND WARRANTS

During the first quarter of 2000, the Company also issued 1,365 shares
of common stock to an employee who loaned money to the Company.
Interest on the loan accrued at 10% per annum. The shares were issued
as a payment of interest and the value of the shares issued was $4,374
or $3.20 per share. Additionally, the Company issued 7,991 shares of
common stock to the holders of the 1999 Private Debt offering who are
entitled to receive shares for the payment of interest. The value of
the shares issued as an interest payment was $25,563 or $3.20 per
share.

11. STOCK OPTIONS AND WARRANTS

STOCK-BASED COMPENSATION

The Company accounts for its stock options issued to directors,
officers and employees under Accounting Principles Board Opinion No. 25
and related interpretations ("APB 25"). Under APB 25, compensation
expense is recognized if an option's exercise price on the measurement
date is below the fair value of the Company's common stock. The Company
accounts for options and warrants issued to non-employees in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123)
which requires these options and warrants be accounted for at their
fair value.

NON EMPLOYEE GRANTS

During the years ended December 31, 1998 and 1999 and the three months
ended March 31, 2000, the Company issued options to purchase 938, and
63,711 and 321,000 shares of common stock, respectively. The exercise
price ranged from $12.80, and $4.80 to $9.60, and $4.00 to $9.60 for
the years ended December 31, 1998 and 1999 and for the three months
ended March 31, 2000, respectively. These options were valued in
accordance with SFAS 123 (utilizing the Black-Scholes option pricing
model with the following weighted average assumptions for the years
ended 1998 and 1999 and the three months ended March 31, 2000,
respectively: risk free interest rate of 5.6, 6.2 and 6.7, expected
dividend yield of 0 percent, volatility of 58.2, 100.6 and 86.05
percent, expected lives of 3.2, 2.6 and 3.3 years, respectively) at
amounts ranging from $1.58, $1.37 to $1.63 and $1.15 to $1.98 per
share, respectively.

F-33
<PAGE>

EMPLOYEE GRANTS

During 1998 and 1999 the Company granted options to purchase 9,375 and
269,909 shares of common stock, respectively. The exercise price ranged
from $11.33 and $4.80 to $8.80 per share, respectively. There was no
intrinsic value relating to these options and vested upon grant.

On February 3, 2000, the Board of Directors adopted, and on March 29,
2000, a majority of the shareholders' approved the creation of the 2000
Stock Option Plan ("2000 Plan") with 2,000,000 shares of common stock
reserved for issuance thereunder. The plan provides both the direct
award or sale of shares and for the grant of options to purchase
shares. A committee, designated by the board of directors, will
administer the plan and has the discretion to determine the employees,
directors, independent contractors and advisors who will receive
awards, the type of awards (stock, incentive stock options or
non-qualified stock options) to be granted, the term, vesting and
exercise prices. The exercise price for the options may be paid in
cash, in shares of the Company's common stock valued at fair market
value on the exercise date or through a same-day sale program without
any cash outlay by the optionee. In the event of a change in control
(as defined), all restrictions on all awards or sales of shares issued
under the plan will lapse and vesting on all unexercised options will
accelerate to the date of the change in control.

In February and March 2000, the Company issued options for the purchase
of 1,119,768 shares of common stock to certain officers and employees
of the Company pursuant to the 2000 Plan. With the exception of options
to purchase 74,917 shares of common stock, these options vested
immediately. The exercise prices range from $4.00 to $9.60 per share.
The options are exercisable through the third anniversary of the
closing of this offering.

SFAS 123 requires pro forma information regarding net income (loss) as
if the Company had accounted for its stock options granted to employees
subsequent to December 31, 1994 under the minimum fair value method of
the statement. The minimum fair value of the stock options was
estimated at the grant date by the Company using the Black-Scholes
option pricing model. The following weighted average assumptions were
used in the Black-Scholes model for the years ended 1998 and 1999 and
the three months ended March 31, 2000, respectively: weighted-average
risk-free interest rate of 5.5, 6.3 and 6.7 percent, a weighted average
dividend yield of 0 percent, volatility of 58.2, 100.6 and 85.4
percent, and a weighted-average expected lives of 3.8, 2.7 and 3.3
years, respectively. Following are the pro forma disclosures and the
related impact on the net income (losses):

<TABLE>
<CAPTION>
December 31, March 31,
-------------------------------- ----------------
1998 1999 2000
--------------- -------------- ----------------
<S> <C> <C> <C>
Loss attributable to common stockholders as
reported..................................... $(4,164,037) $(4,279,444) $(1,654,718)
Loss attributable to common stockholders pro
forma........................................ (4,209,596) (4,725,793) (3,205,670)
Basic and diluted loss per common share as
reported..................................... (1.37) (1.33) (0.75)
Basic and diluted loss per common share pro
forma........................................ (1.39) (1.47) (1.47)
</TABLE>

Due to the nature and timing of option grants, the resulting pro forma
compensation cost may not be indicative of future years.

OUTSTANDING STOCK OPTIONS AND WARRANTS

The Company has from time to time granted stock options and warrants to
employees, directors, consultants and in connection with financing
transactions (see Notes 4, 5 and 10). A summary of stock option and
warrant activity for the years ended December 31, 1998 and 1999 and the
three months ended March 31, 2000 is as follows:

F-34
<PAGE>

<TABLE>
<CAPTION>
Weighted
Options and Average
Warrants Price Range Exercise Price
-------------- --------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1997...................... $ 454,575 2.67- 6.00 3.19
Granted.................................... 143,455 2.67-16.00 10.33
--------------
Balance, December 31, 1998...................... 598,030 2.67-16.00 5.00
Granted.................................... 362,228 1.33- 9.60 5.56
Forfeited.................................. (93,750) 12.80 12.80
--------------
Balance, December 31, 1999...................... 866,508 2.67-16.00 4.39
Granted.................................... 1,623,809 1.00- 9.60 6.53
--------------
Balance, March 31, 2000......................... 2,490,317 $1.00-16.00 5.78
==============
</TABLE>

A summary of stock option and warrant grants with exercise prices less
than, equal to or greater than the estimated market value on the date
of grant during the years ended December 31, 1998 and 1999 and the
three months ended March 31, 2000 is as follows:

<TABLE>
<CAPTION>
Weighted
Average Fair
Options and Weighted Value of
Warrants Average Options and
Granted Exercise Price Warrants
--------------- ---------------- --------------
<S> <C> <C> <C>
Year Ended December 31, 1998:
Grants with exercise price less than
estimated market value..................... 105,416 2.67 8.46
Grants with exercise price greater than
estimated market value..................... 38,039 13.78 4.88
---------------
Year Ended December 31, 1999:
Grants with exercise price less than
estimated market value..................... 19,233 2.40 2.20
Grants with exercise price greater than
estimated market value..................... 342,995 5.66 1.82
---------------
Three Months Ended - March 31, 2000:
Grants with exercise price less than
estimated market value..................... 4,290 1.20 2.46
Grants with exercise price greater than
estimated market value..................... 1,619,519 6.49 1.44
</TABLE>
A summary of the options and warrants outstanding and exercisable as of
December 31, 1999 and March 31, 2000 follows:

December 31, 1999
-----------------

<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.33 - 2.67 398,304 2.5 years $ 2.65 398,304 $ 2.65
2.68 - 5.33 366,914 2.6 years 4.76 366,914 4.76
5.34 -16.00 101,290 2.6 years 9.72 101,290 9.72
--------------- ---------------
866,508 866,508
=============== ===============
</TABLE>

F-35
<PAGE>

March 31, 2000
--------------

<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.00 - 2.67 402,219 2.25 years $ 2.64 402,219 $ 2.64
2.68 - 5.33 1,204,056 2.78 years 4.45 1,204,056 4.45
5.34 -16.00 884,042 3.05 years 9.03 809,125 9.08
-------------- ----------------
2,490,317 2,415,400
============== ================
</TABLE>

12. SEGMENT INFORMATION

In June 1998, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes
disclosures related to components of a company for which separate
financial information is available and evaluated regularly by a
company's chief operating decision makers in deciding how to allocate
resources and in assessing performance. It also requires segment
disclosures about products and services as well as geographic areas.
The Company has determined that it did not have any separately
reportable operating segments as of December 31, 1998 and 1999.
However, the Company does sell Refreshment Centers in geographic
locations outside of the United States. Revenues attributed to
individual countries based on the location of sales to unaffiliated
customers for the years ended December 31, 1998 and 1999 and for the
three months ended March 31, 2000 is as follows:

<TABLE>
<CAPTION>
December 31, March 31,
------------------------------- 2000
1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
United States................................ $ 769,062 $ 540,517 $ 49,099
Other Countries.............................. 242,400 -- --
-------------- -------------- --------------

Total Revenue................................ $ 1,011,462 $ 540,517 $ 49,099
============== ============== ==============
</TABLE>

13. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

The Company's historical revenues and receivables have been derived
solely from the lodging industry. The Company offers credit terms on
the sale of its Refreshment Centers and in connection with its revenue
sharing contracts. The Company performs ongoing credit evaluations of
its customers' financial condition and does not require collateral from
its customers. The Company maintains an allowance for uncollectible
accounts receivable based upon the expected collectibility of all
accounts receivable.

During the year ended December 31, 1998, revenues from three customers
accounted for 40.8, 25.1 and 24 percent of total revenues.

During the year ended December 31, 1999, revenues from two customers
accounted for 26.7 and 16.0 percent of total revenues.

During the three months ended March 31, 2000, no single customer
accounted for a material amount of the Company's revenue. No other
customer accounted for more than 10 percent of total revenues in any
year presented.

F-36
<PAGE>

14. SUBSEQUENT EVENTS

2000 STOCK OPTION PLAN

In February and March 2000, the Company issued options for the purchase
of 1,119,768 shares of common stock to certain officers and employees
of the Company at prices ranging from $4.00 to $9.60 per share

NON-EMPLOYEE STOCK OPTION GRANTS

During the three months ended March 31, 2000, the Company issued
options to purchase 321,000 shares of common stock to various non
employees at prices ranging from $4.00 to $9.60.

NOTE PAYABLE TO STOCKHOLDER

In February 2000, the Company received a $500,000 loan from a company,
wholly owned by a stockholder and nominee to the board of directors.
Also, the Company issued a warrant for the purchase of 18,750 shares of
common stock.

CANCELLATION OF NOTE RECEIVABLE

At March 31, 2000, the Company cancelled a note receivable from a
stockholder which was used to purchase shares of common stock. The
value of the note receivable was $656,250. As consideration for the
cancellation of the note receivable, 140,625 shares of common stock
were returned to the Company by the stockholder and retired.

2000 SERIES C CONVERTIBLE PREFERRED STOCK

ADVERTISING AND MARKETING LETTER OF AGREEMENT

On March 24, 2000, the Company entered into a letter of agreement with
an advertising agency. The Company issued warrants to purchase 125,000
shares of common stock as part of the agreement.

AMENDMENT TO SERIES B CONVERTIBLE PREFERRED STOCK DESIGNATION

The certificate of designation for the Series B convertible preferred
stock was amended on April 12, 2000 to modify the conversion rate to
$3.00 divided by 45 percent of the IPO price per share.

ADDITIONAL WARRANTS ISSUED

During the first quarter of 2000, the Company issued 4,291 warrants to
purchase common stock in connection with the 1996 defaulted notes.

OTHER SUBSEQUENT EVENTS

On March 31, 2000, the Company issued 22,484 shares of common stock to
holders of the Series B convertible preferred stock. During the first
quarter of 2000, the Company issued 1,365 shares of common stock to an
employee who loaned money to the Company. Additionally, the Company
issued 7,991 shares of common stock to the holders of the 1999 Private
Debt offering.

F-37
<PAGE>

During the second quarter of 2000, the Company issued 29,972 shares of
common stock to holders of the Series B convertible preferred stock
(unaudited). The Company also issued 1,818 shares of common stock to an
employee who loaned money to the Company (unaudited). Additionally, the
Company issued 9,850 shares of common stock to holders of the 1999
Private Debt offering (unaudited). Also, the Company issued 777 shares
of common stock to a vendor (unaudited).

2000 BRIDGE LOAN

On April 13, 2000, the Company issued a $1,500,000, 9% secured,
subordinated promissory note and 200,000 shares of common stock for
irrevocable subscription agreements in a private placement offering.
The Company received $1,472,500 (net of offering costs of $27,500) in
net cash proceeds. The promissory note bears interest at nine percent
per annum, payable semi-annually and matures on the earlier of the
closing of the IPO or October 13, 2000.

The proceeds from the offering were allocated to the financial
instruments issued based upon their relative fair values and resulted
in allocating $1,051,769 to the promissory note before offering costs
of $19,643 and $440,374 to the common stock.

F-38

<PAGE>

==================================================
No dealer, salesperson or other person is
authorized to give any information or to represent
anything not contained in this prospectus. You
must not rely on any unauthorized information or
representations. This prospectus is an offer to
sell only the shares offered hereby, but only
under circumstances and in jurisdictions where it
is lawful to do so. The information contained in
this prospectus is current only as of its date.

---------------

TABLE OF CONTENTS

Page
----
<S> <C>
Prospectus Summary...........................1
Risk Factors.................................4
Special Note Regarding Forward-Looking
Information..............................10
Use of Proceeds.............................11
Dividend Policy.............................13
Capitalization..............................14
Dilution....................................15
Selected Financial Data.....................16
Management's Discussion and Analysis of
Financial Condition And Results of
Operations...............................18
Business....................................29
Management..................................41
Certain Relationships and Related
Transactions.............................46
Principal Stockholders......................49
Description of Capital Stock................51
Shares Eligible for Future Sale.............57
Underwriting................................59
Legal Matters...............................62
Experts.....................................62
Change in Accountants.......................62
Available Information.......................62
Index to Consolidated Financial Statements.F-1

</TABLE>

---------------

Through and including _________, 2000,
all dealers effecting transactions in these
securities, whether or not participating in this
offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to
deliver a prospectus when acting as an underwriter
and with respect to an unsold allotment or
subscription.
==================================================

1,800,000 Shares of Common Stock

eROOMSYSTEM TECHNOLOGIES, INC.

[INSERT LOGO]

DONALD & CO. SECURITIES INC.
==================================================

<PAGE>

[Alternative Page for Selling Stockholder Prospectus]

SUBJECT TO COMPLETION, DATED __________, 2000

PROSPECTUS

200,000 SHARES OF COMMON STOCK ON BEHALF OF SELLING STOCKHOLDERS

[eROOMSYSTEM LOGO]

eROOMSYSTEM TECHNOLOGIES, INC.

The stockholders named under the caption "Selling Stockholders" from
time to time may offer to sell up to 200,000 shares of common stock of
eRoomSystem Technologies, Inc.

We are not selling any shares of common stock on behalf of selling
stockholders and will not receive any cash or other proceeds in connection with
the sale of shares by selling stockholders.

------------

eRoomSystem Technologies' common stock is traded on the Nasdaq SmallCap
Market under the symbol "ERMS." On __________, 2000, the last reported sale
price of eRoomSystem Technologies' common stock was __________.

------------

THESE SECURITIES ARE SPECULATIVE. INVESTING IN OUR COMMON STOCK
INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.

------------

_____________, 2000

The information in this preliminary prospectus is not complete and may be
changed. eRoomSystem Technologies, Inc. may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these securities,
and it is not seeking an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted.

<PAGE>

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Sections 78.7502 and 78.751 of the Nevada Revised Statutes provides for
the indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Article XII of our amended and restated articles of
incorporation (Exhibit 3.01 hereto) provides for indemnification of our
directors, officers, employees and other agents to the extent and under the
circumstances permitted by Sections 78.7502 and 78.751 of the Nevada Revised
Statutes.

In addition to the indemnification of officers and directors under the
Nevada Revised Statutes, we entered into indemnification agreements with Dr.
Alan C. Ashton on August 17, 1999 and with John J. Prehn on May 31, 2000.
Pursuant to these indemnification agreements, we agreed to hold harmless and
indemnify each of them against any and all expenses incurred by them as a result
of their positions as directors of eRoomSystem Technologies. In addition, we
agreed to advance expenses incurred by each of them upon receipt of a written
request for such advancement containing an unsecured undertaking by each of them
to repay such amounts to the extent that they are held to not be entitled to
indemnification from eRoomSystem Technologies. The advancement of expenses
specifically excludes amounts for judgments, penalties, fines and settlements.
Messrs. Ashton and Prehn each possess the right to indemnification if, in civil
proceedings, they acted in good faith and in a manner that they reasonably
believed to be in or not opposed to the best interests of eRoomSystem
Technologies, and, in criminal proceedings, they had no reasonable cause to
believe that his conduct was unlawful. In addition, eRoomSystem Technologies may
elect to not indemnify Messrs. Ashton and Prehn if either a majority of the
directors not involved in the relevant proceeding or independent legal counsel,
in a written opinion, determine that they have not met the relevant standards
for indemnification.

On September 28, 1999, we entered into an indemnification agreement
with Donnelly Prehn which indemnifies Mr. Prehn for actions to be taken by him
as a director on behalf of RSi BRE. Pursuant to this indemnification agreement,
eRoomSystem Technologies and RSi BRE, jointly and severally, agreed to hold
harmless and indemnify Mr. Prehn against any and all expenses incurred by him as
a result of his position as a director of eRoomSystem Technologies. In addition,
we agreed to advance expenses incurred by Mr. Prehn upon receipt of a written
request for such advancement containing an unsecured undertaking by Mr. Prehn to
repay such amounts to the extent that Mr. Prehn held to not be entitled to
indemnification from eRoomSystem Technologies. Mr. Prehn's rights to
indemnification are only available if damages have not already been paid
directly to Mr. Prehn by an insurance carrier maintained by either eRoomSystem
Technologies or RSi BRE. Mr. Prehn is not entitled to indemnification if he is
adjudged by a court of competent jurisdiction to have engaged in intentional
misconduct or a knowing violation of the law, if he received an improper
personal benefit, or if a court of competent jurisdiction renders a final
decisions that such indemnification is unlawful.

The Underwriting Agreement (Exhibit 1.01 hereto) provides for
indemnification by ourselves, our underwriters and the directors and officers of
the underwriters, for certain liabilities, including liabilities arising under
the Securities Act, and affords certain rights of contribution with respect
thereto.

Even though indemnification for liabilities arising under the
Securities Act may be provided to certain directors and officers pursuant to the
foregoing provisions, we have been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.

II-1
<PAGE>

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Registrant in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.

<TABLE>

<S> <C>
SEC registration fee $ 5,993
NASD filing fee 5,000
Nasdaq Small Cap listing fee 5,000
Printing and engraving costs 50,000
Legal fees and expenses 260,000
Accounting fees and expenses 420,000
Blue Sky fees and expenses 45,000
Transfer Agent and Registrar fees 10,000
Miscellaneous expenses 19,007
------------------------------------------------------ --------------------
TOTAL $ 820,000

</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

From April 1997 through June 2000, we have granted or issued and sold
the following unregistered securities:

(1) On April 14, 1997, we commenced a private placement of up
to $1,800,000 of units, or the 1997 Units Offering, consisting of
promissory notes and common stock, underwritten on a best-efforts basis
by Spectrum Securities, Inc., or Spectrum. Spectrum had an
over-allotment option of 15% or $270,000. We offered 180 units at price
of $10,000 per unit, or 1997 Units. Each 1997 Unit consisted of 938
shares of common stock and a $5,000 15% secured promissory note, or
1997 Note. We received cash subscriptions of $1,986,000 from the 1997
Units Offering and issued 372,375 shares of common stock and 1997 Notes
in the aggregate principal amount of $993,000. Spectrum received a cash
commission of 15% and 24,018 shares of common stock for serving as
placement agent. In addition, Pacific Acquisition Group II, LLC was
issued 139,846 shares of common stock for serving as our merchant
banker. This offering was exempt from registration in reliance on Rule
506 of Regulation D of the Securities Act. The securities were issued
to independent third parties who were either accredited or
sophisticated non-accredited investors, either alone or with a
purchaser representative. Each of the investors received a private
placement memorandum disclosing information about the securities and
our corporate, business and financial matters.

(2) In May 1997, we received a loan in the original principal
amount of $100,000 from Frank Lyons. To evidence the transaction, we
issued a promissory note bearing an interest rate of 15% per annum and
7,125 shares of common stock to Mr. Lyons. We paid a cash finder's fee
of 15% on the transaction. The note is currently outstanding and in
default with $30,417 in accrued interest as of March 31, 2000. We
intend to repay the note and accrued interest from the net proceeds of
this offering. This issuance of securities was exempt from registration
in reliance on Section 4(2) of the Securities Act. Mr. Lyons was an
accredited investor.

(3) On January 9, 1998, we commenced a private placement, or
Series A convertible preferred stock offering, of up to 1,200,000
shares of Series A convertible preferred stock at a price of $5.00 per
share, underwritten on a best-efforts basis by Capital Bay Securities,
or CBS. We received cash subscriptions of $760,000, and issued 152,000
shares of Series A convertible preferred stock. CBS received 13% in the
form of a commission, due diligence and non-accountable expense
allowances, and warrants to purchase 6,840 shares of common stock
exercisable at $16.00 per share for serving as placement agent.
Pursuant to the terms of the Series A convertible preferred stock, the
shares are automatically converted into shares of common stock upon the
closing of an initial public offering on a one-to-one basis if the
initial public offering price is at least $10.00 per share. If the
initial public offering

II-2
<PAGE>

price is less than $10.00 per share, the conversion rate will be
$10.00 divided by the initial public offering price. On the
six-month anniversary of the close of the Series A convertible
preferred stock offering, or November 14, 1998, holders of Series A
convertible preferred stock started to accrue an 8% annual dividend,
payable in the form of cash. The reverse stock split did not affect
the number of shares of Series A convertible preferred stock
outstanding. No dividends have been paid to date to holders of
Series A convertible preferred stock. As of March 31, 2000, holders
of Series A convertible preferred stock were owed dividends of
$198,444. We intend to pay such dividends from the proceeds of this
offering. This offering was exempt from registration in reliance on
Rule 506 of Regulation D of the Securities Act. The securities were
issued to independent third parties and to existing stockholders,
each of whom were accredited investors. Each of the investors
received a private placement memorandum disclosing information about
the securities and our corporate, business and financial matters.

(4) On January 16, 1998, we commenced a private placement, or
the 1998 Common Stock Offering, of up to 60,938 shares of common stock,
at a price of $10.67 per share. The 1998 Common Stock Offering was
underwritten on a best-efforts basis by Spectrum. We received cash
subscriptions of $379,000, and issued 35,531 shares of common stock.
Spectrum received a cash commission of 12.5% and warrants to purchase
4,264 shares of common stock, exercisable at $12.80 per share, for
serving as placement agent. This offering was exempt from registration
in reliance on Rule 506 of Regulation D of the Securities Act. The
securities were issued to independent third parties and to existing
stockholders, each of who were accredited investors. Each of the
investors received a private placement memorandum disclosing
information about the securities and our corporate, business and
financial matters.

(5) On January 23, 1998, we offered to convert our 1996 12%
secured promissory notes, or the 1996 Notes, into shares of Series A
convertible preferred stock. Pursuant to this offer, $1,040,000 of the
$1,470,000 1996 Notes were converted into 208,000 shares of Series A
convertible preferred stock. This offering was exempt in reliance on
Rule 506 of Regulation D of the Securities Act. The investors were
either accredited or sophisticated non-accredited investors, either
alone or with a purchaser representative. Each of the investors
received a private placement memorandum disclosing information about
the securities and our corporate, business and financial matters.

(6) In January 1998, we issued 13,781 shares of common stock
to holders of the 1996 Notes, at a rate of 188 shares of common stock
per $20,000 in outstanding principal, to prevent the foreclosure of our
assets by holders of the 1996 Notes. This offering was exempt from
registration in reliance upon Section 4(2) of the Securities Act. The
investors were either accredited or sophisticated non-accredited
investors.

(7) In April 1998, we issued a $100,000 short-term promissory
note to an existing stockholder which was subsequently converted into
9,375 shares of common stock at a price of $10.67 per share. In
addition, this investor was granted an additional 1,500 shares of
common stock as an inducement to convert the promissory note, which was
valued at $10.67 per share and recorded as additional interest expense
in 1998. This offering was exempt from registration in reliance upon
Section 3(a)(9) and Section 4(2) of the Securities Act. The investor
was an accredited investor.

(8) In May 1998, we offered 10% unsecured promissory notes, or
the 1998 Notes, with a term of sixty days and automatically convertible
at maturity into common stock at the rate of $10.67 per share. We
received cash subscriptions totaling $561,520 and issued 54,296 shares
of common stock to the holders of the 1998 Notes, which amount included
$17,632 of accrued interest. This offering was exempt from registration
in reliance upon Section 4(2) of the Securities Act. The securities
were issued to independent third parties and to existing stockholders,
each of whom were either accredited or sophisticated non-accredited
investors.

(9) In October 1998, we offered to convert the 1997 Notes into
shares of common stock at a rate of $10.67 per share of common stock.
As a result of the conversion, we converted $115,000 in outstanding
principal and $24,568 in accrued interest into 26,169 shares of common
stock. This offering was exempt in reliance upon Section 3(a)(9) and
Section 4(2) of the Securities Act. The investors were accredited
investors and sophisticated non-accredited investors.

II-3
<PAGE>

(10) From February 1999 through May 1999, we offered 15%
unsecured promissory notes, or the 1999 Notes, with a term of ninety
days and interest accruing at the rate of 37.5 shares of common stock
every thirty days for every $1,000 of outstanding principal. We
received $350,000 from the sale of 1999 Notes. $134,885 of the 1999
Notes have been paid off, and $180,000 of the 1999 Notes have been
converted into 81,909 shares of Series B convertible preferred stock,
which amount includes accrued interest and shares of common stock. All
of the outstanding 1999 Notes are in default. As of March 31, 2000, we
have issued 50,137 shares of common stock as interest and have
outstanding $35,115 in principal and $7,947 of accrued interest on the
1999 Notes. We intend to repay the 1999 Notes from the proceeds of this
offering. This offering was exempt in reliance upon Section 4(2) of the
Securities Act. The securities were issued to independent third parties
who were either accredited or sophisticated non-accredited investors.

(11) From March 1999 through October 1999, we conducted a
private placement, or the 1999 Preferred Stock Offering, of up to
$4,000,000 of Series B convertible preferred stock at $3.00 per share.
The 1999 Preferred Stock Offering was co-underwritten on a best-efforts
basis by Donald & Co. Securities Inc. and CBS. Donald & Co. and CBS
received a commission of 9% and a non-refundable expense allowance of
2.5%. Upon completion of the 1999 Preferred Stock Offering, we issued
1,355,047 shares of Series B convertible preferred stock in exchange
for cash subscriptions of $4,065,133 and 726,633 shares of Series B
convertible preferred stock in exchange for certain outstanding
promissory notes and unpaid salaries to certain officers and as part of
the settlement with RSG Investments. Pursuant to the terms of the
Series B convertible preferred stock, the shares are automatically
converted into common stock upon the closing of an initial public
offering or a business combination where a controlling interest of
eRoomSystem Technologies is acquired. The conversion is at 45% of the
initial public offering price, or, if an initial public offering does
not close by September 28, 2000, at 1.5 shares of common stock per
share of Series B convertible preferred stock. The reverse stock split
did not affect the number of shares of Series B convertible preferred
stock outstanding. This offering was exempt in reliance on Rule 506 of
Regulation D of the Securities Act. The securities were issued to
independent third parties and to existing stockholders who were either
accredited investors or sophisticated non-accredited investors. Each of
the investors received a private placement memorandum disclosing
information about the securities and our corporate, business and
financial matters.

(12) In May 1999, holders of 1997 Notes were offered the right
to convert their 1997 Notes and accrued interest into Series B
convertible preferred stock at the rate of $3.00 per share. Holders of
1997 Notes consisting of $425,051 in outstanding principal, plus
accrued interest, converted into 175,562 shares of Series B convertible
preferred stock. As of March 31, 2000, 1997 Notes outstanding consisted
of $431,750 in principal and $159,480 of accrued interest. All of the
outstanding 1997 Notes are in default. We intend to pay off the 1997
Notes from the net proceeds of this offering. This offering was exempt
from registration in reliance on Section 3(a)(9) and Section 4(2) of
the Securities Act. The investors were either accredited or
sophisticated non-accredited investors. Each of the investors received
a private placement memorandum disclosing information about the
conversion and our corporate, business and financial matters.

(13) On May 30, 1999, we issued 198,750 shares of our common
stock to the SBD Limited Partnership, an entity controlled by Steven L.
Sunyich, our president, chief executive officer and chairman, in
exchange for a promissory note in favor eRoomSystem Technologies in the
original principal amount of $1,590,000.00. The purpose of the issuance
was to assist eRoomSystem Technologies in complying with the stock
pledge requirements mandated by the terms of the $1,500,000 loan from
RSG Investments. On September 30, 1999, we entered into an Equipment
Transfer Agreement with RSG, and the 198,750 shares of common stock
were returned to the SBD Limited Partnership. In turn, the SBD Limited
Partnership surrendered the 198,750 shares of common stock to
eRoomSystem Technologies in exchange for the cancellation of the
promissory note. The shares of common stock were booked as treasury
stock and have been retired. This offering was exempt in reliance on
Section 4(2) of the Securities Act. Mr. Sunyich was an accredited
investor.

(14) On September 1, 1999, we entered into promissory note
purchase agreements with Steven L. Sunyich, our chief executive officer
and Chairman of the Board, Derek Ellis, our chief financial officer,

II-4
<PAGE>

and a former executive officer of and consultant to eRoomSystem
Technologies, in which we agreed to convert the outstanding
indebtedness due on their respective demand promissory notes into
shares of Series B convertible preferred stock. As a result of these
agreements, we issued 72,434 shares of Series B convertible preferred
stock and 51,981 shares of our common stock to Mr. Sunyich, 3,742
shares of Series B convertible preferred stock and 2,990 shares of our
common stock to Mr. Ellis, and 29,808 shares of Series B convertible
preferred stock and 25,376 shares of our common stock to the former
executive officer and consultant. This offering was exempt in reliance
on Section 4(2) of the Securities Act. Messrs. Sunyich and Ellis were
each accredited investors.

(15) On December 7, 1999 and February 14, 2000, Mr. Sunyich
formally assigned to us all of his rights in Patent No. 4,939,352 and
Patent Nos. 4,857,714 and 4,883,948, which relate to credit card point
of sale technology. In exchange, we issued 65,625 shares of common
stock and a promissory note in the principal amount of $125,000 to Mr.
Sunyich. After paying down the promissory note to approximately
$70,000, we converted the remaining outstanding principal and interest
into 23,524 shares of Series B convertible preferred stock. This
offering was exempt in reliance on Section 4(2) of the Securities Act.
Mr. Sunyich was an accredited investor.

(16) On December 30, 1999, we entered into conversion
agreements with Steven L. Sunyich, our chief executive officer and
Chairman of the Board, and Derek Ellis, our chief financial officer, in
which we agreed to convert unpaid salaries in exchange for shares of
Series B convertible preferred stock. As a result of these agreements,
we issued 73,052 shares of Series B convertible preferred stock to Mr.
Sunyich and 3,776 shares of Series B convertible preferred stock to Mr.
Ellis. This offering was exempt in reliance on Section 4(2) of the
Securities Act. Messrs. Sunyich and Ellis were each accredited
investors.

(17) On February 15, 2000, we received a loan in the original
principal amount of $500,000 from Ash Capital, LLC, an entity
controlled by Dr. Alan C. Ashton, a director designee of the Company.
To evidence this transaction, we issued a promissory note bearing an
interest rate of 10% and warrants to purchase 18,750 shares of common
stock to Ash Capital. We intend to repay the note and accrued interest
from the net proceeds of this offering. This issuance of securities was
exempt from registration in reliance on Section 4(2) of the Securities
Act. Dr. Ashton is an accredited investor.

(18) In March and April 2000, we conducted a private
placement, or the 2000 Units Offering, of up to $3,000,000 of units
where each $100,000 unit consisted of a 7% convertible promissory note
in the original principal amount of $25,000, 23,077 shares of Series C
convertible preferred stock and a warrant to purchase 5,000 shares of
common stock at an exercise price of $6.60 per share. The 2000 Units
Offering was underwritten on a best-efforts basis by Donald & Co.
Securities Inc., who received a commission of 8% and a non-accountable
expense allowance of 0.5% As a result of the 2000 Units Offering, we
received cash of $850,000 which resulted in the issuance of 196,150
shares of Series C convertible preferred stock, notes in the original
principal amount of $212,500 and warrants to purchase 42,500 shares of
common stock. Pursuant to the terms of the Series C convertible
preferred stock, the shares are automatically converted into common
stock upon the closing of an initial public offering at 55% of the
initial public offering price if the initial public offering closes by
January 31, 2001. If the initial public offering is not closed by
January 31, 2001, Series C convertible preferred stock shall convert at
$3.30 per share. This offering was exempt from registration in reliance
on Rule 506 of Regulation D of the Securities Act. The securities were
issued to independent third parties and to existing stockholders, each
of who were an accredited investor. Each of the investors received a
private placement memorandum disclosing information about the
securities and our corporate, business and financial matters.

(19) On March 30, 2000, we issued a warrant to purchase
125,000 shares of common stock, exercisable at $4.80 per share through
December 31, 2001, to Hall Communications, Inc. for advertising,
marketing and promotional services. This offering was exempt from
registration in reliance on Section 4(2) of the Securities Act. The
investor was an accredited investor.

(20) On April 13, 2000, we issued 200,000 shares of common
stock in conjunction with the receipt of a $1,500,000 loan evidenced by
a promissory note of the same date. This offering was exempt in
reliance on Regulation S of the Securities Act. The securities were
offered and sold outside of the United

II-5
<PAGE>

States to the following seven independent third party investors:
(i) 566768 Ontario Limited, (ii) B.H. Capital Investments, L.P.,
(iii) Myra Heller, (iv) Rachelle Heller, (v) Plazacorp Investments
Limited, (vi) Queens Centre Corner Limited and (vii) Jay Smith.

(21) As of June 30, 2000, we have issued options pursuant to
our 2000 Stock Option Plan to purchase an aggregate of 1,417,250 shares
of our common stock. The issuances of options and warrants to employees
and consultants of eRoomSystem Technologies under the 2000 Stock Option
Plan were exempt under Section 4(2) and Rule 701 of the Securities Act
as transactions pursuant to a compensatory benefit plan or written
compensation contract. Of the Rule 701 issuances, none of the
securities were issued to consultants. Of the Section 4(2) issuances,
the securities were issued to existing stockholders, officers,
director, consultants or former consultants who were either accredited
or sophisticated non-accredited investors. Each of the sophisticated
non-accredited investors had access to our corporate, business and
financial information.

(22) As of June 30, 2000, with the exception of the options
and warrants discussed in this Item 26, we have issued and outstanding
options and warrants to purchase 883,211 shares of common stock. Of
this amount, we issued warrants to purchase 390,429 shares of common
stock in conjunction with a private placement conducted from July 1996
through March 1997 in reliance on Section 4(2) of the Securities Act.
The remaining options and warrants to purchase 492,782 shares of common
stock were issued to employees, consultants, investors and other
service providers of eRoomSystem Technologies in reliance upon Section
4(2) of the Securities Act.

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

See exhibits listed on the Exhibit Index following the signature page
of the Form SB-2 which is incorporated herein by reference.

(b) Financial Statement Schedules

None.

ITEM 28. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referenced
in Item 24 of this Registration Statement or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act, and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities
being registered hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

II-6

<PAGE>

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of Prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it was
declared effective.

(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Las
Vegas, State of Nevada, on the 14th day of July 2000.

eROOMSYSTEM TECHNOLOGIES, INC.

By: *
----------------------------------------
Steven L. Sunyich
Its: President, Chief Executive Officer
and Chairman of the Board of Directors

In accordance with the requirements of the Securities Act of 1933, this
pre-effective amendment no. 2 to the registration statement was signed by the
following persons in the capacities and on the dates stated:

SIGNATURE TITLE DATE
<S> <C> <C>

* President, Chief Executive Officer and July 14, 2000
------------------------------ Chairman of the Board of Directors
Steven L. Sunyich (Principal Executive Officer)

* Chief Financial Officer and Treasurer July 14, 2000
------------------------------ (Principal Financial and Accounting Officer)
Derek K. Ellis

/s/ GREGORY L. HRNCIR
------------------------------ General Counsel and Secretary July 14, 2000
Gregory L. Hrncir

*
------------------------------ Director July 14, 2000
Lawrence S. Schroeder

*By: /s/ GREGORY L. HRNCIR Attorney-in-Fact July 14, 2000
------------------------------
Gregory L. Hrncir

</TABLE>

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<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DOCUMENT NAME PAGE
-------- ------------- ----
<S> <C> <C>
1.01 Form of Underwriting Agreement 117

2.01 Agreement and Plan of Reorganization by and between RoomSystems International Corporation and *
RoomSystems, Inc. dated December 31, 1999 (incorporated by reference as Exhibit 2.01 to the
Registrant's Registration Statement on Form SB-2, File No. 333-34882, filed on April 14, 2000,
or the Registration Statement)

2.02 Transfer Pricing Agreement by and between RoomSystems International Corporation and RoomSystems, *
Inc. dated December 31, 1999 (incorporated by reference as Exhibit 2.02 to the Registration
Statement)

3.01 Amendment and Restatement of Articles of Incorporation (incorporated by reference as Exhibit *
3.01 to the Registration Statement)

3.02 Certificate of Correction dated May 30, 2000 **

3.03 Amended and Restated Certificate of Designation, Preferences, Rights and Limitation of Series A *
convertible preferred stock (incorporated by reference as Exhibit 3.02 to the Registration
Statement)

3.04 Amended and Restated Certificate of Designation, Preferences, Rights and Limitation of Series B *
convertible preferred stock (incorporated by reference as Exhibit 3.03 to the Registration
Statement)

3.05 Certificate of Designation, Preferences, Rights and Limitation of Series C convertible preferred *
stock (incorporated by reference as Exhibit 3.04 to the Registration Statement)

3.06 Amended and Restated Bylaws **

3.07 Second Amendment and Restatement of Articles of Incorporation 147

3.08 Second Amended and Restated Bylaws 153

4.01 Form of Common Stock Certificate (incorporated by reference as Exhibit 4.01 to the Registration *
Statement)

4.02 Form of Certificate for Series A convertible preferred stock (incorporated by reference as *
Exhibit 4.02 to the Registration Statement)

4.03 Form of Certificate for Series B convertible preferred stock (incorporated by reference as *
Exhibit 4.03 to the Registration Statement)

4.04 Form of Certificate for Series C convertible preferred stock (incorporated by reference as *
Exhibit 4.04 to the Registration Statement)

5.01 Opinion of Kummer Kaempfer Bonner & Renshaw 167

10.01 Amended and Restated 2000 Stock Option and Incentive Plan **

10.02 Lease Agreement by and between RoomSystems Finance Corporation and 3770 Howard Hughes Parkway *
Associates Limited Partnership dated October 8, 1997 (incorporated by reference as
Exhibit 10.02 to the Registration Statement)

10.02A Exhibits to Lease Agreement by and between RoomSystems Finance Corporation and 3770 Howard **
Hughes Parkway Associates Limited Partnership dated October 8, 1997

10.03 Lease Agreement by and between RoomSystems, Inc. and Pam Joy Realty, Inc. dated October 10, 1997 **

10.04 Master Corporate Agreement by and between Innco Corporation and RoomSystems, Inc. dated April 6, *
1998 (incorporated by reference as Exhibit 10.04 to the Registration Statement)

10.04A Exhibits to Master Corporate Agreement by and between Innco Corporation and RoomSystems, Inc. **
dated April 6, 1998

II-8
<PAGE>

EXHIBIT
NUMBER DOCUMENT NAME PAGE
-------- ------------- ----
<S> <C> <C>

10.05 Indemnification Agreement by and between RoomSystems, Inc. and Alan C. Ashton dated August 17, *
1999 (incorporated by reference as Exhibit 10.07 to the Registration Statement)

10.06 Agreement of Understanding by and between RoomSystems, Inc. and Ash Capital, LLC, C&W/RSI *
Partners, LLC, SKM Investment, LLC and Thunder Mountain Investments, LC dated August 17, 1999
(incorporated by reference as Exhibit 10.09 to the Registration Statement)

10.06A Exhibits to Agreement of Understanding by and between RoomSystems, Inc. and Ash Capital, LLC, **
C&W/RSI Partners, LLC, SKM Investment, LLC and Thunder Mountain Investments, LC dated
August 17, 1999

10.07 First Amendment to Agreement of Understanding by and between RoomSystems, Inc. and Ash Capital, *
LLC, C&W/RSI Partners, LLC, SKM Investment, LLC and Thunder Mountain Investments, LC dated
September 30, 1999 (incorporated by reference as Exhibit 10.10 to the Registration Statement)

10.08 Promissory Note Repurchase Agreement by and between Steven L. Sunyich and RoomSystems, Inc. *
dated September 1, 1999 (incorporated by reference as Exhibit 10.11 to the Registration
Statement)

10.09 Indemnification Agreement by and between RSi BRE, Inc. and Donnelly Prehn dated September 27, *
1999 (incorporated by reference as Exhibit 10.12 to the Registration Statement)

10.10 Equipment Transfer Agreement by and between RoomSystems, Inc., RoomSystems International *
Corporation, RSi BRE, Inc. and RSG Investments, LLC dated September 28, 1999 (incorporated by
reference as Exhibit 10.13 to the Registration Statement)

10.10A Exhibits to Equipment Transfer Agreement by and between RoomSystems, Inc., RoomSystems **
International Corporation, RSi BRE, Inc. and RSG Investments, LLC dated September 28, 1999

10.11 Amendment to Equipment Transfer Agreement by and between RoomSystems, Inc., RoomSystems *
International Corporation, RSi BRE, Inc. and RSG Investments, LLC dated November 23, 1999
(incorporated by reference as Exhibit 10.14 to the Registration Statement)

10.12 Conversion Agreement by and between Steven L. Sunyich and RoomSystems, Inc. dated December 30, *
1999 (incorporated by reference as Exhibit 10.15 to the Registration Statement)

10.13 Loan and Security Agreement by and between RoomSystem Technologies, Inc. and Ash Capital, LLC *
dated February 15, 2000 (incorporated by reference as Exhibit 10.16 to the Registration
Statement)

10.13A Exhibits to Loan and Security Agreement by and between RoomSystem Technologies, Inc. and Ash **
Capital, LLC dated February 15, 2000

10.14 Letter Agreement by and between eRoomSystem Technologies, Inc. and Hall Communications, Inc. *
dated March 30, 2000 (incorporated by reference as Exhibit 10.17 to the Registration Statement)

10.15 Form of Hotel Revenue Sharing Lease Agreement **

10.16 Form of Noncompetition and Nondisclosure Agreement (Sales) (incorporated by reference as Exhibit *
10.19 to the Registration Statement)

10.17 Form of Consulting Agreement (incorporated by reference as Exhibit 10.20 to the Registration *
Statement)

10.18 Form of Sales Representation Agreement (incorporated by reference as Exhibit 10.21 to the *
Registration Statement)

10.19 Form of Executive Employment Agreement (incorporated by reference as Exhibit 10.22 to the *
Registration Statement)

10.20 Form of Offshore Loan Subscription Agreement dated as of April 13, 2000 (incorporated by *
reference as Exhibit 10.23 to the Registration Statement)

II-9
<PAGE>

EXHIBIT
NUMBER DOCUMENT NAME PAGE
-------- ------------- ----
<S> <C> <C>

10.21 Form of Secured Subordinated Promissory Note dated as of April 13, 2000 (incorporated by *
reference as Exhibit 10.24 to the Registration Statement)

10.22 Form of Installation, Co-Maintenance and Software Licensing and Upgrade Agreement **

10.23 + Master Business Lease Financing Agreement by and among Amresco Leasing Corporation, 168
eRoomSystem SPE, Inc., RoomSystems, Inc. and eRoomSystem Technologies, Inc. dated May 11, 2000

10.24 Indemnification Agreement by and between eRoomSystem Technologies, Inc. and John J. Prehn dated **
May 31, 2000

10.25 Amended and Restated Executive Employment Agreement of Steven L. Sunyich dated June 6, 2000 **

10.26 Second Amended and Restated Executive Employment Agreement of Steven L. Sunyich dated July 12, 364
2000

10.27 Amended and Restated Executive Employment Agreement of Derek K. Ellis dated July 12, 2000 374

10.28 Executive Employment Agreement of Stephen M. Nelson dated July 12, 2000 384

10.29 Amended and Restated Executive Employment Agreement of Gregory L. Hrncir dated July 12, 2000 394

10.30 Shareholders' Agreement and Proxy by and among Ash Capital, LLC, RoomSystems, Inc. and certain *
stockholders of RoomSystems, Inc. dated August 17, 1999 (incorporated by reference as
Exhibit 10.08 to the Registration Statement)

16.01 Letter regarding Change in Certifying Accountant (incorporated by reference as Exhibit 16.01 to *
the Registration Statement)

21.01 List of Subsidiaries **

23.01 Consent of Hansen, Barnett & Maxwell 405

23.02 Consent of Kummer Kaempfer Bonner & Renshaw (included in Exhibit 5.01) ---

24.01 Power of Attorney **

27.01 Financial Data Schedule 406

99.01 Consent of Dr. Alan C. Ashton (incorporated by reference as Exhibit 99.01 to the Registration *
Statement)

99.02 Consent of S. Leslie Flegel (incorporated by reference as Exhibit 99.02 to the Registration *
Statement)

99.03 Consent of John J. Prehn **

99.04 Request for Withdrawal of Exhibits to the Registration Statement dated June 23, 2000 407

</TABLE>

--------------------------

* Previously filed.

** Previously filed as an exhibit to the registrant's Pre-Effective
Amendment No. 1 to its Registration Statement on Form SB-2, as
filed with the Commission on June 9, 2000.

+ Confidential treatment has been requested with respect to certain
portions of this agreement, including the exhibits thereto, of
which certain portions have been omitted and filed separately
with the Commission.

II-10