10-K 1 a5591667.txt GLOBAL PAYMENT TECHNOLOGIES, INC. 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Mark One [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended September 30, 2007 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 0-25148 GLOBAL PAYMENT TECHNOLOGIES, INC. ---------------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2974651 -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 170 Wilbur Place, Bohemia, New York 11716 ------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 631-563-2500 ------------ Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of class) 1 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One): Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X] Indicate by check mark whether the registrant is shell company (as defined in rule 12b-2 of the Act). Yes [ ] No [X] The aggregate market value of the Common Stock of the registrant held by non-affiliates of the registrant, based on the average bid and asked prices on March 31, 2007, was approximately $6,450,225. As of December 31, 2007, the registrant had a total of 6,497,185 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portion of the Company's Proxy Statement for its 2008 Annual Meeting are incorporated by reference into Part III of this Report 2 PART I Item 1. Business ------- -------- General Global Payment Technologies, Inc. (the "Company") is a Delaware corporation established in 1988. We design and manufacture currency validation systems, including paper currency validators and related paper currency stackers, and sell our products in the United States and numerous international markets. Validators receive and authenticate paper currencies in a variety of automated machines, including gaming and gaming related equipment, beverage and vending machines and retail equipment that dispense products, services, coinage and other currencies. Note stackers are sold with most validators and are designed to store validated paper currency and, in some cases, record and store information on contents, usually in secure removable cassettes. Although we know of no commercially available validator that is counterfeit-currency-proof, our validators and stackers offer significant protection against tampering and counterfeit currencies and provide tamper-evident storage of validated currency. Our validators are adaptable to a wide variety of original equipment manufacturer ("OEM") applications and have been engineered into the design of most major gaming and numerous beverage and vending machines sold worldwide. Our products offer a highly competitive level of performance and are designed to provide ease of maintenance and repair. Fiscal 2007 has been a turbulent year for us as we continued to struggle with operating losses and cash flow deficiencies. Our senior loan with Laurus Master Funds, which originally came due in March 2007 was extended until June 2007, and extended again until November 2007. In exchange for the extensions, we paid $25,000 in cash and issued 275,000 shares of fully paid and nonassessable restricted common stock along with warrants immediately exercisable to purchase 75,000 shares of common stock at $0.01 per share. The extensions did not provide us with any additional liquidity. On June 1, Stephen Nevitt resigned as President and CEO and William McMahon was named interim President and CEO along with his duties as Chief Financial Officer. In July 2007 we relocated to a smaller manufacturing facility which is more appropriate to the size of our business. While we continued the development of our new products, our cash constraints slowed the process and we were not able to launch as originally planned. In addition, we had delays in receiving raw materials from our vendors which delayed our ability to ship product on a timely basis. Throughout this time period, we continued to negotiate for additional funding. On January 15, 2008, the Company entered into a series of transactions with entities affiliated with Andre Soussa, Chief Executive of Global Payment Technologies Australia ("GPTA"), the Company's largest customer. GPTA has advanced $440,000 pursuant to a Secured Term Note ("Secured Note") which matures on January 15, 2009. Interest only is payable monthly at prime plus 3%, subject to a minimum of 9% per annum. The loan is secured by substantially all the assets of the Company. Under the terms of the Secured Note, the Company is required to notify GPTA in writing of any outstanding expense or payment to be paid by the Company in excess of $1,000 and the Company is prohibited from making any such payment or payments in the aggregate of more than $5,000 without GPTA's prior written approval. 3 In addition, an affiliate controlled by Andre Soussa will make an additional $400,000 investment after the filing by the Company of its Annual Report on Form 10-K. At the close of the transactions, Mr. Soussa and his affiliates will be the largest shareholders of the Company. Mr. Soussa will become Chairman of the Board and Chief Executive Officer as part of an overall restructuring of the Company. In addition, four of the five members of the existing Board of Directors will be replaced. Mr. Richard Gerzof will remain as a director but will relinquish his role as Chairman. Mr. William McMahon, previously interim President and CEO, and CFO will remain with the Company as President and Chief Financial Officer. For additional information about these transactions, see "Business Item 1. Recent Developments". Until the fourth quarter of fiscal 2006 we had a 50% non-controlling interest in GPTA. This entity is responsible for sales and service of the Company's products in Australia and New Zealand on an exclusive basis. On September 2, 2006, we sold our entire interest for a total of approximately $1,791,000, of which $1,511,000 was received in cash at closing and $280,000 was placed in escrow which was released on the one year anniversary of the transaction. The purchaser was ACN 121 187 068 Pty Limited ("ACN"), a corporation organized under the laws of New South Wales, Australia and is related to Exfair Pty Limited, the registered holder of the remaining 50% of the issued and outstanding shares of GPTA. In addition we entered into a 5 year exclusive distributor agreement with GPTA. The distributor agreement provides GPTA the exclusive distribution rights in Australia, Asia, New Zealand, and the Pacific Rim as well as exclusive rights to distribute Aristocrat worldwide. GPTA will be responsible for providing sales, technical support, installation, service and repair functions as well as maintaining sufficient inventory stock to provide for the territories. In June 2002, the Company and two other shareholders formed eCash Holdings Pty. Ltd. ("eCash"), an Australian based company. This entity was formed to market, distribute, service and support Automated Teller Machines across Australia and New Zealand. We owned 1,050 shares which represented a 35% interest in this entity. On August 25, 2006, we sold four hundred and fifty (450) shares to ACN for a total purchase price of $123,138 and six hundred (600) shares to ACN 121 187 157 Pty Limited, a corporation organized under the laws of New South Wales, Australia, for a total purchase price of $162,723. The purchase price for each sale was based on our equity in the respective business units as of April 30, 2006. We own 100% of Global Payment Technologies (Europe) Limited ("GPT-Europe"). This entity is based in the United Kingdom and is responsible for sales and service of the Company's products in Europe and the Middle East. In April 1999, we acquired a 25% equity interest in Abacus Financial Management Systems, Ltd. ("Abacus-UK"), a UK-based software company. Abacus-UK has developed a cash management system, of which our validators are a key component, primarily intended to serve the retail market. In February 2005, we exchanged our 25% equity interest for a 12.5% ownership interest in Evolve Corporation PLC ("Evolve-UK"). The exchange of ownership did not require us to make an additional investment. Evolve-UK owns 100% of Abacus-UK and Evolve 100, which provides integrated and stand-alone cash management systems to the retail industry for coin currency handling. In addition, the Company and a principal of Evolve-UK had formed Abacus Financial Management, Inc. USA ("Abacus-USA"), which is 80% owned by us and has non-exclusive rights to distribute Evolve-UK's product in the USA. To date, Abacus-USA has not had material operations. 4 In fiscal 2004, we registered a branch in Moscow, Russia ("GPT-Russia") to provide local service for our products. Background and History In the 1980s, a general trend developed with respect to an increase in the incorporation of paper currency validators in a large number of beverage, food and novelty vending machines that offered primarily low-priced items. During the 1990s, subsequent technological improvements in the sensory capabilities of validators created the ability to process high volumes of larger denomination notes, which led to the extensive use of validators in many new applications including casino gaming machines, lottery ticket dispensing devices and postage, transportation, parking and high-value vending machines. This trend accelerated during the 1990s as a result of the realization that currency validators positively impacted sales revenues and the overall growth in the worldwide gaming and beverage and vending industries. Our net sales grew from approximately $35,000 in fiscal 1989 (our first year of operations) to our high of $43.9 million in fiscal 1999. In fiscal 2000, sales declined to $22.5 million as a result of a slowdown in the worldwide gaming market and delays in key projects, which resulted in increased inventory at our affiliates. During fiscal 2000 we significantly reduced inventory at our affiliates, matching demand in those regions, which resulted in the resumption of production and shipments in August 2000. In fiscal 2001, sales increased 43% to $32.2 million primarily as a result of increased demand for our products in both Australia and Russia, as well as the addition of several new customers during the year. In fiscal 2002, sales decreased 14% to $27.7 million as a result of customers lowering their inventory and taking advantage of our shorter lead-times on our Argus gaming validator, certain product issues which have since been resolved, as well as softer worldwide economic conditions. In fiscal 2003, sales decreased 5.9% to $26.1 million as a result of reduced sales in Eastern Europe which were hindered by initial product issues, which have since been resolved, offset in part by sales of our new vending product which commenced in January 2003. With the launching of our new beverage and vending product in fiscal 2003, we achieved an increase in our beverage and vending sales to $5.7 million as compared to $2.2 million in fiscal 2002. Beverage and vending products represented 21.7% of our sales in fiscal 2003 as compared with 8% in fiscal 2002. 5 In fiscal 2004, sales decreased 6.5% to $24.4 million primarily due to $4.3 million in lower sales of our gaming products to our Australian affiliate offset, in part, by a $1.7 million increase in sales of our Aurora product to both the vending and gaming markets and a $637,000 increase in sales to the South African gaming market. Gaming sales for fiscal 2004 were $19.304 million, or 79.2% of sales, as compared with $20.417 million, or 78.3% of sales, in fiscal 2003. Beverage and vending sales for fiscal 2004 were $5.077 million, or 20.8% of sales, as compared with $5.659 million, or 21.7% of sales in fiscal 2003. Net sales for fiscal 2005 increased by 6.2% to $25.886 million. This increase was due to increased sales of $3.821 million to the gaming market, primarily the result of increased demand from our Australian affiliate and in Russia, offset by decreased sales of $2.316 million to the beverage and vending market, as a result of significant cigarette tax increases in Germany. Gaming sales for fiscal 2005 were $23.150 million, or 89.4% of sales, as compared with $19.304 million, or 79.2% of sales, in fiscal 2004. Beverage and vending sales for fiscal 2005 were $2.736 million, or 10.6% of sales, as compared with $5.077 million, or 20.8% of sales, in fiscal 2004. Net sales for fiscal 2006 decreased 45% to $14.3 million. The decrease in sales was mainly due to the restrictions put on gaming in Russia and a slow down in the market in Australia. Gaming sales were $11.3 million in fiscal 2006, or 79% of sales, as compared to $23.150 million or 89.4% in fiscal 2005. Beverage and vending sales were $3.0 million, or 21% of sales, in fiscal 2006 as compared to $2.736 million or 10.6% of total sales in fiscal 2005. Net sales for fiscal 2007 decreased 18% to $11.6 million. The largest decrease in sales was in the Russian market which continues to be adversely affected by the restrictions put on gaming by the Russian government. Gaming sales were $10.0 million in fiscal 2007 or, 86% of sales, as compared to $11.3 million, or 79% of sales, in fiscal 2006. Beverage and vending sales were $1.6 million, or 14% of sales, in fiscal 2007 as compared to $3.0 million, or 21% of sales, in fiscal 2006. Our international sales amounted to 91%, 90% and 93%, of net sales in fiscal 2007, 2006 and 2005, respectively. Marketing Strategy We have continued to focus our marketing efforts on those segments of the marketplace which require a relatively high degree of security and substantial custom design work that is not adequately served by larger competitors which have tended to focus primarily on the broader, higher-volume market using standardized product configurations. GPT's approach in the worldwide gaming market was initially a "niche" strategy that allowed us to develop a strong international customer base that originally started with manufacturers too small to attract the larger competitors. With development completed and the commencement of sales of our Argus(TM) and Aurora products in January 2001 and January 2003, respectively, and the launch of our new "SA-4" product in fiscal 2005, this strategy has continued with particular attention paid to markets which have the largest opportunity for growth. We have both gained new customers and retained existing customers based on our strength internationally and our reputation for working closely to adapt to customers' needs. We will continue to attempt to strengthen and grow our relationships with the OEMs through joint marketing and advertising efforts and by creating country-specific currency databases and customization, which will allow OEMs an opportunity to seek new potential markets worldwide. Today we have 96 country-specific databases and 15 multi-country databases, which we believe is one of the largest database libraries in the industry. Further, we plan to continue to build a large library of databases for our newest products, as well as adding to existing Argus and Aurora databases. 6 After the launch of our Aurora product in fiscal 2003, we experienced an increase in Aurora revenue from $5.3 million in fiscal 2003, to $7.0 million in fiscal 2004, to $8.1 million in fiscal 2005. In fiscal 2003 we signed a four year supply contract, valued in excess of $10,000,000, with Tobaccoland Automaten GmbH & Co, a German based cigarette-vending operator with over 200,000 machines or approximately 25% of the German market share. However, since the last quarter of fiscal 2004 the overall German tobacco vending industry has faced significant volume shortfalls due to government increases in cigarette taxes. In fiscal 2005, we successfully penetrated sales into the Russian gaming market with our Aurora product, originally dubbed the "beverage and vending" product. However, in fiscal 2006, as a result of restrictions placed on new casinos in the Russian market, sales of the Aurora product declined to $3.4 million. In fiscal 2007 Aurora sales continued to decline to $1.8 million. In 2007 we introduced a faster version of the Aurora called the Falcon, which uses a Digital Signal Processor (DSP) chip. This product is targeted to low end casinos, kiosks, payment systems and amusement games. We will continue to search for new growth opportunities both domestically and internationally for all our products. Further, we launched SA-4 in fiscal 2005 and believe it will provide an opportunity for penetration in the domestic gaming market as well as other international markets. The SA-4 model is targeted to the global casino market and incorporates the features of Argus with a faster Digital Signal Processing (DSP) chip which allows for currency validating in less than one second. In fiscal 2006, we had sales of $4.3 million for our SA-4 validator. In the gaming venue, we market our products principally to the OEMs as well as the end-users (i.e., casino operators) who purchase slot machines from the OEMs to help ensure that our validator products will be specified as the product of choice in new orders. We have also provided direct operator technical training and participation in seminars with our OEM customers. By marketing directly to the end-users in conjunction with the OEMs, we expect our products will gain acceptance as our customers' gaming machines gain entry into major casinos or regions previously dominated by currency validators of our competition. Since 1999, we have offered programs and plans designed to elevate the level of our customers' product knowledge. Such programs and plans included the development of formally documented maintenance schedules and similar programs, which are proposed to customers. These maintenance programs are being offered in coordination with our OEM customers, and are intended to broaden awareness of the Company and our products within the gaming industry and as a result increase sales. Additionally, we are focusing our marketing efforts on explaining the technical features and customer support programs of current and future products in order to further differentiate ourselves from the competition. This overall strategy allows our products to continue to demonstrate the high level of performance and quality achieved in many markets throughout the world. 7 Our marketing strategy for the significantly larger worldwide beverage and vending industry is very similar to that of our gaming strategy. During fiscal 2002, we initiated sales of the Aurora product. During fiscal 2003, with sales of our new Aurora product commencing in January 2003, we achieved a significant $3.5 million increase in beverage and vending sales to $5.7 million. Throughout fiscal 2004, 2005, 2006 and 2007, we marketed our Aurora product through our already existing distribution channels, as well as through the creation of additional alliances and sales channels to further penetrate this market. The beverage and vending industry's requirement for currency validation equipment is more than $375 million per annum, or three times that of the gaming market. In addition, further penetration into the beverage and vending market, as well as the gaming market, will allow us to achieve further diversification and, if successful, could reduce our reliance on any one market as well as expand our customer base. Our overall sales and marketing strategy in the worldwide gaming and beverage and vending industries is to deliver a high quality product supported by local sales and service in order to make our products the market standard for currency validation products. We successfully pursued this strategy in Australia, South Africa, Latin America and Russia where our products are accepted in the gaming market. In order to provide service and support, we have sales and service offices in London and Moscow as well as distributors in Australia, Russia, Italy, Southeast Asia, Latin America, the Middle East and South Africa. To date, our continuing sales have been dependent upon the use of paper or simulated paper currency in automated payment systems for gaming and vending applications. A substantial diminution of the use of paper currency as a means of payment through a return to extensive use of high-value, metal-based coinage or the widespread adoption of electronic funds transfer systems based on credit, debit or "smart-cards" could materially and adversely affect our future growth until and unless we develop other products that are not solely dependent on the use of paper or simulated paper currency. We are currently investigating, and will continue to investigate, such opportunities and endeavor to develop new product applications where markets for such products may exist. However, no assurance can be given that we will be able to successfully develop and market such new products and systems. Products Since inception, we have endeavored, through research and development and manufacturing efforts, to provide products that meet the specific performance requirements of our customers. These requirements are continually evolving as the markets for currency validators continue to grow and as technological advances are incorporated into the products' design. We spent approximately $713,000, $333,000 and $55,000 during fiscal 2007, 2006 and 2005, respectively, on research and development. Our research and development consists primarily of efforts to develop new currency validators, expand our product lines into new applications, as well as to achieve improvements in technology. 8 Our product development efforts have been focused on the design of our latest generation of validator products, the first of which was Argus(TM), our gaming validator. We began selling Argus(TM) in January 2001. Sales of this product represented 19%, 63%, 54%, 51% and 50% of unit validator sales in fiscal 2001, 2002, 2003, 2004 and 2005, respectively. We launched the SA-4 in late fiscal 2005. The SA-4, an improved Argus validator with a faster processor chip, achieved unit sales representing 36% and 56% of unit validator sales in fiscal 2006 and 2007, respectively. In the summer of 2002, the Company completed the development of its new product designed specifically to address the requirements of the vending industry. Following successful field trials during the summer and fall of 2002, we commenced a sales and marketing campaign which led to sales commencing in January 2003 on our new product called "Aurora". Sales of this product represented 43%, 48%, 47% and 33% of unit validator sales in fiscal 2004, 2005 2006 and 2007, respectively. For Argus(TM) and Aurora products, we have, since achieving technological feasibility through a detailed program design, capitalized the cost of software coding and development, and reflect the amortization of these costs in cost of sales. Our principal products in fiscal 2007 included the SA-4, Argus(TM) and Aurora and a wide range of comprehensive currency databases and note stacker configurations. In fiscal 1997, we planned for a shift in demand toward our Generation II product line and such sales amounted to 58% of unit sales. During fiscal 2000, 2001 and 2002, this shift continued and Generation II and Argus(TM) product line sales accounted for 76%, 89% and 92% of unit sales, respectively. The Argus product had been designed to be a drop-in replacement for Generation II products and this focused toward bringing new technological features to the marketplace. During fiscal 2002 and fiscal 2003, sales substantially shifted from our Generation II product line to our Argus(TM) product line, which represented 63% and 80% of gaming validator sales. This shift increased further in the fourth quarter of fiscal 2003 and represented 96% of gaming sales which coupled with our increased marketing efforts on Argus, rather than our Generation II product line, resulted in an increased inventory reserve in the fourth quarter of 2003. During fiscal 2004, we commenced a phase out program on this product, however; we will maintain field service and support for warranty repairs for several more years. We believe we have adequately reserved for inventory obsolescence for the shift in demand from our Generation I products and Generation II products to our Generation III products. Argus(TM) is a worldwide gaming note validator, which can process multi-country databases, with a substantially greater number of notes (between 2.44 inches to 3.35 inches in width), in all 4 directions. Argus is designed to be a one size fits all validator that uses essentially the same hardware for every currency throughout the world. Argus is equipped with a standard bar code reader, which has the added capability of reading coupons and currency at the same time. The Argus sensor system has our patented Red, Green, Blue and Infrared (RGBI) optical array, which generates 56 channels of high-resolution data. It is arranged in a unique layout that allows for the analysis of a note's signature (fingerprint) without any gaps between optical sensors. The optical information provided by Argus is reflective (off the note), transmissive (through the note) and a combined RGBI pattern of reflective data to create a color signature of the note being evaluated. The Argus validator also has a high-sensitivity magnetic sensor and high-resolution Side-Looking Sensors(TM). The Generation III product line offers a "soft drop analyzer" ("SDA") option. This patented SDA feature allows the note stacker cassette to maintain and track specific information such as currency or coupons in the cassette by quantity and denomination; the specific machine or game that the cassette was removed from; the acceptance rate of the validator; and time-in/time-out of the cassette from the gaming machine. This information can be easily downloaded, via a docking station provided by us, to a personal computer allowing instant feedback/tracking for the machine operator. 9 Aurora is our first validator specifically designed for the worldwide beverage and vending industries. Aurora is an injection-molded modular design that can be used in the up-stack or down-stack orientation and uses state of the art optics in its internal sensor system with our patented RGBI optical array. With field trials completed in the fall of 2002 and sales commencing in January 2003, this product quickly replaced most sales of our M-125 and M-150 products. This product originally targeted for the beverage and vending industry has also been aggressively marketed in the un-regulated gaming market in 2004 and 2005 with substantial penetration. We continued marketing efforts in both venues during fiscal 2006. As with Argus, Aurora is designed to be a one size fits all validator that essentially uses the same hardware for every currency in the world. In fiscal 2005 we launched the SA-4. SA-4 is a worldwide note validator that can handle bills up to 3.35 inches in width while holding a database of up to 128 different bank notes in four directions, which enables SA-4 to securely validate multiple currencies without the need to re-program. The DSP chip enables the use of advanced algorithms, which significantly improve security and performance. The SA-4 sensor system has our patented Red, Green, Blue and Infrared (RGBI) optical array and an industry standard bar-code reader that is compatible with the various Ticket-In Ticket-Out (TITO) systems currently found on many casino floors worldwide. Many countries use magnetic ink to increase the security of their currency. The SA-4 currency validator contains a new high-sensitivity magnetic circuit that doubles the sensitivity to detect these inks. SA-4 contains front and rear sensors, which guarantee the detection of critical bill position information. SA-4 supports the various industry-standard communication protocols commonly used for vending, gaming, and video lottery machines. In fiscal 2007, we launched our Falcon currency validator which uses Digital Signal Processor (DSP) technology to achieve fast reliable note recognition. With our proven patented RGBI Optical Technology, Falcon can validate currency for most countries. Falcon was designed as a faster version of the Aurora validator and is targeted for low end casinos, kiosks, payment systems and amusement games. Product Performance and Warranties 10 Our validator and note stacker products are generally covered by a one-year warranty against defects in materials or workmanship. This warranty has essentially doubled with our Generation III validators (Argus, Aurora, Advantage and SA-4). The Company or our authorized service agents will repair or replace any units that require warranty service. We do not warrant that our validators will reject all counterfeit currencies and believe that there is no commercially available validator that is counterfeit-currency-proof or warranted as such. To support our increasing international market presence, we have expanded our warranty and non-warranty support coverage to provide in-country capability in key worldwide markets (e.g. Australia, Russia, Latin America, South Africa, Europe and Southeast Asia). In these markets, the local sales and service joint venture partners and distributors provide warranty labor while our primary product support in these markets is in the form of warranty parts. Over the last three years, our cost of warranting our products has varied primarily as a direct result of the increase or decrease in the unit sales, as well as product performance. Warranty liability as of September 30, 2007 and 2006 was $108,000 and $309,000, respectively, which represents actual costs incurred and an estimate of future costs to be incurred. Marketing and Sales An "in-house" sales force consisting of sales representatives, sales/product technicians and customer service support personnel, as well as strategic joint ventures and distributors, conducts our primary sales and marketing efforts in both the domestic and international markets. We have company-owned sales and service offices in London, Moscow and Lima, Peru and exclusive distributors for the key markets of Australia, New Zealand and the Pacific Rim. In addition, we have distributors in Russia, Italy, Southeast Asia, Latin America, the Middle East and South Africa. The overall sales and service network provides effective international coverage for our products and customers and reflects our commitment to providing superior service worldwide. Customer Concentration During fiscal 2007, our largest customer, GPTA, accounted for approximately 41% of net sales. A significant portion of GPTA's sales is to Aristocrat Technologies Australia Pty Ltd. Net sales to the gaming industry accounted for approximately 86% of our revenues, with the remaining 14% primarily from product applications in the beverage and vending industry. We sell to a small group of OEMs in the gaming and beverage and vending industries. The Company must achieve significantly less dependence on several important customers by expanding into new countries, expanding our customer base and developing new products to increase the market size we can market to, such as domestic gaming and the mass market vending applications. Until such initiatives are achieved, we are at risk that lower demand for any one product or market, or a loss of a significant customer, can substantially impact our revenues and net income. 11 Manufacturing From 1995 through June 30, 2007, our operations had been conducted from a 44,000 square foot leased facility, which housed the manufacturing and administrative functions in Hauppauge, New York. As of July 2, 2007 our operations have been conducted from a leased facility, currently 25,550 square feet, which housed the manufacturing and administrative functions in Bohemia, New York. Annual savings as a result of the move is estimated to be $250,000. Our manufacturing operations consist primarily of mechanical and electro-optical assembly and the provision of wiring harnesses between components and between the validator and the OEM machine in which the finished product is to be used. We routinely test all components and have extensive "burn-in" procedures for the final assembled product. Direct control over fabrication, via our key suppliers, and testing permits us to shorten our production cycle and protect patented and proprietary technology. During fiscal 2000, we transitioned a portion of our manufacturing to demand flow technology. In addition, we have evaluated and will continue to evaluate our suppliers in an effort to reduce our total cost of manufacturing, a process that may include vendor consolidation and outsourcing. As we began our transition to the Argus product line in fiscal 2001, we incurred increased costs related to lower volumes on the two product lines. As this transition was substantially completed during fiscal 2002, Argus was expected to be produced in a more efficient manner at a lower cost, and at the same time allowing increased flexibility to meet customers' demand. In the fourth quarter of 2002 these improvements were more than offset by the significant reduction in sales and production. During fiscal 2003, our introduction of our new Aurora product with higher initial purchase costs and increased initial manufacturing costs, coupled with overall lower sales volume than fiscal 2002, resulted in lower net margins for the year. We did, however, take action to significantly reduce our purchased component costs on Aurora and Argus by the end of fiscal 2003 by manufacturing and selling off, on a first-in first-out basis, our higher priced purchased components. In fiscal 2004, we continued our efforts to further reduce costs and to improve the margin on our Aurora product, and while improvements in purchasing costs and manufacturing efficiencies had been achieved by the end of fiscal 2004, the benefits were substantially realized during fiscal 2005. During fiscal 2006 and 2007, we continued our efforts to reduce product costs, including potential outsourcing, but the most significant factor affecting our gross profit percentage was the unit sales levels achieved and their relationship to manufacturing costs, as well as any impact from sales and marketing efforts to achieve additional market share and/or reduce our current inventory levels. We depend on a limited number of suppliers for various stamped or formed housings, gears, cogs and wheels and electronic assemblies or components, including certain microprocessor chips. We believe that concentrating our purchases from our existing suppliers provides, in certain cases, better prices, better quality and consistency and more reliable deliveries. We maintain on-going communications with our suppliers to prevent interruptions in supply and, to date, generally have been able to obtain adequate supplies in a timely manner. Many of the electronic components we use, including our microprocessors, are widely used in many applications and are available from a number of sources. However, the short wave length light source that forms a critical part of our optical scanning device is now commercially available from only a very limited number of suppliers. We believe that if such supply were to become unavailable, our units could be redesigned to use other light sources and still remain competitive in the marketplace. However, any interruption in the supply of key components that cannot be quickly remedied could have a materially adverse effect on our results of operations. 12 Competition The market for our products is very competitive and the number of competitors and their product offerings has increased due to the growing worldwide marketplace. A number of competitors have significantly greater financial, technical, sales and marketing resources than the Company. Additionally, certain of these companies have acquired competitors with synergistic product lines in an effort to offer a more complete product line. In 1998, Coin Controls Limited ("Coin Controls") acquired Ardac, Inc. ("Ardac"), a domestic currency validator manufacturer. Coin Controls had primarily focused on the validation of coins worldwide for the gaming and amusement industries. With the acquisition of Ardac, Coin Controls changed its name to Money Controls PLC ("MCP") and the two companies together had the ability to package its coin mechanism with a currency validator for both the gaming and beverage and vending industries. In November 1999 MCP announced, and subsequently completed, its agreement to be acquired by Coin Acceptors, Inc. ("Coinco"), a St. Louis-based supplier of primarily vending products. This resulted in Coinco being a competitor that has an integrated gaming and beverage and vending product line, as well as relationships in both industries. Similar competitors are Japan Cash Machines Co., Ltd. ("JCM") and Mars Electronics International ("MEI"), entities that have products able to serve both the gaming and the beverage and vending marketplaces. In the domestic market, certain competitors are divisions or affiliates of manufacturers of vending machines. For example, Royal Vendors, Inc. is an affiliate of Coinco. Such validator manufacturers enjoy a competitive advantage in providing for the significant validator requirements of their affiliates. For validators sold for use in the beverage, food, snack and lower-priced goods or amusement markets, Coinco dominates the domestic market. MEI, JCM, Ardac, International Currency Technologies, Sanyo, Conlux, Coegis and Cashcode Company, Inc. ("Cashcode") compete with us in the international beverage and vending market. The largest supplier of validators used in the domestic gaming and lottery markets is JCM. Internationally, we compete for gaming machine business with JCM, MEI, Ardac and Cashcode. In the secondary low-value gaming markets, Innovative Technology, Ltd. maintains a significant market share due to this market's price sensitivity and its low-cost approach to this market. We have focused our marketing efforts on the higher-priced domestic and international gaming validator business and compete on the basis of service, quality, durability and performance while maintaining a high level of protection against tampering and counterfeit currencies. 13 Historically we have been more willing to address smaller markets than our larger competitors and expect to encounter increased competition as the markets addressed by our products continue to grow. Also, we have been willing to adapt our products to a variety of OEMs, which has allowed us to be flexible to expand when new markets open up to sales. We believe that performance, quality and protection against tampering and counterfeit currency are as important as price as competitive factors in the worldwide gaming marketplace. Intellectual Property We rely on certain proprietary know-how and trade secrets to protect our technology. Important components of this proprietary information are our library of distinguishing characteristics of the currencies, which our validators scan and validate, and our proprietary algorithms. We have entered into non-disclosure and secrecy agreements with all of our employees having access to this technology. We hold ten U.S. patents as follows: design for "Escrow Box for Coin Operated Machines," U.S. Patent No. D283,518 issued April 22, 1986; "Paper Currency Acceptor and Method of Handling Paper Currency for Vending Machines and the Like," U.S. Patent No. 4,884,671 issued December 5, 1989; "Anti-fraud Currency Acceptor," U.S. Patent No. 5,259,490 issued November 9, 1993; "Bill Accumulating and Stacking Device," U.S. Patent No. 5,322,275 issued June 21, 1994; "Soft Count Tracking System," U.S. Patent No. 5,630,755 issued May 20, 1997; "Paper Currency Validator (Side-Looking Sensors)," U.S. Patent No. 5,806,649 issued September 15, 1998; "Electrical Switch Connectors," U.S. Patent No. 5,842,879 issued December 1, 1998; "Stacker Mechanism for Stacking Bank Notes" U.S. Patent No. 5,899,452 issued May 4, 1999; "Apparatus and Method for Detecting a Security Feature in a Currency Note," U.S. Patent No. 6,104,036 issued August 15, 2000; and "Bank Note Validator (RGBI)" U.S. Patent No. 6,223,876 issued May 1, 2001. Certain patents cover technology used in our first, second and third generation validator product lines and the remaining patents cover technology used in certain special models. In addition, on September 30, 1999 we filed a reissue application with the U.S. Patent and Trademark Office to amend and broaden the claims of U.S. Patent No. 5,630,755. In addition to our U.S. patents and pending application, we have also applied for patent protection in a large number of international markets. If corresponding foreign patents are obtained, we believe that these patents could provide important protection for certain technological advantages our validators possess in international markets. However, we do not believe that we will be materially adversely affected if these patents are not issued. No assurances can be given that any patent applications will result in the issuance of additional patents. We have obtained patents in Australia, New Zealand and South Africa under the Eurasian Patent Convention corresponding to U.S. Patent No. 6,223,876 covering the use of short wave length light in a validator to discern the color and other characteristics of bills being scanned. In addition we have obtained a patent in New Zealand corresponding to U.S. Patent No. 5,630,755 covering a system for monitoring and tracking money collected from a gaming machine and the like. 14 In September 2006, we announced that we had filed for patents on revolutionary new optical technology expected to be unveiled in a new product launch during fiscal 2008. We have licensed certain patented proprietary technology covered by U.S. Patent No. 5,630,755 to Ardac, Inc. in 1999. Such license settled a patent infringement suit initiated by the Company and provides for the payment of license fees based on unit sales of certain of Ardac's products. In March 2004, we entered into a Cross-License Agreement with JCM whereby we granted JCM a non-exclusive, royalty-free license for U.S. Patent No. 5,630,755 and JCM granted us a non-exclusive, royalty-free license to use and install the ID-003 software in bill validators manufactured by or on behalf of the Company and sold by us. Although we have not received any bona fide claims asserting infringement of the proprietary rights of third parties, there can be no assurances that third parties will not assert such claims against us in the future or that any such assertion may not require us to enter into royalty arrangements or result in protracted or costly litigation. Government Regulation As a supplier of paper currency validators to customers subject to gaming regulations and postal regulations, we are indirectly subject to such regulations that are reflected in customer purchase orders or customer specifications. We believe that we are in full compliance with such regulations. Any failure to comply with such regulations, however, could have a materially adverse effect on our results of operations. Employees On December 31, 2007 in our Bohemia, NY location, we had 71 employees, consisting of 2 executives; 4 sales and customer service representatives; 19 engineers and software developers, and technical support representatives; 6 materials, quality control and quality assurance personnel; 6 administrative and clerical personnel; and 34 assembly/manufacturing personnel. In addition we have 6 employees in the UK and 2 technicians in Moscow. We believe our relationship with our employees is good. Recent Developments On January 15, 2008, Global Payment Technologies, Inc. (the "Company") entered into a Securities Purchase Agreement (the "Purchase Agreement") with Exfair Pty Ltd, an Australian company ("Exfair") and GPTA. The transactions contemplated thereunder are expected to be consummated at two closings (as discussed below). First Closing 15 At the first closing on January 15, 2008 (the "First Closing"), the Company issued to GPTA a one-year secured term note in the principal amount of $440,000 (the "Secured Note") that bears interest at a rate equal to the prime rate plus 3.0% (provided, that the interest rate shall not be less than 9.0%) and is secured by all the assets of the Company pursuant to a Security Agreement (the "Security Agreement"). Additionally, the Company entered into a Voting Agreement with Exfair and certain director-stockholders of the Company, wherein such stockholders agreed to vote in favor of (i) the election of certain persons to the Board of Directors of the Company and (ii) an amendment to Company's Certificate of Incorporation establishing a class of Preferred Stock (as discussed below). Additionally, the Company entered into a Technology License Agreement with GPTA, pursuant to which the Company has agreed to grant a license to GP Australia to utilize certain databases and proprietary operating systems if the Company is unable or willing to continue to provide support for such databases and operating systems of the Company, and the parties thereto further agreed that if the Company commences bankruptcy proceedings, then the Company would permit GPTA to duplicate any of the Company's intellectual property as of the commencement of such bankruptcy proceedings. GPTA and the Company also agreed to make certain technical amendments to the Distribution Agreement dated September 1, 2006. Second Closing At the second closing, which will only occur upon the Company filing its Annual Report on Form 10-K with the Securities and Exchange Commission (the "SEC") by the date set forth in the Purchase Agreement (the "Second Closing"), the Company will issue (i) a Convertible Note (the "Convertible Note") in the principal amount of $400,000 to Exfair, which note may be converted into two million shares of Series A Convertible Preferred Stock, par value US$0.01 per share, of the Company (the "Preferred Stock") and (ii) a four-year Common Stock Purchase Warrant (the "Warrant") to purchase 5,784,849 shares of Common Stock of the Company at an exercise price of $0.28 per share. The Convertible Note matures in June 2009. The Company's failure to file its Annual Report on Form 10-K with the SEC by the date set forth in the Secured Note constitutes an event of default thereunder which would allow GPTA to accelerate the Secured Note and declare all indebtedness, including principal, accrued interest and all other payments under the Secured Note to be immediately due and payable. Effective as of the consummation of the Second Closing, all current Company directors except Richard Gerzof will resign and new directors appointed. In addition, the Company will enter into an Employment Agreement with Mr. Soussa, pursuant to which he will be employed as the Company's Chief Executive Officer for a two-year term commencing on the date of the Second Closing at an annual base salary of $300,000. Mr. Soussa will also be awarded options to purchase 500,000 shares of the Company's Common Stock in accordance with the Company's stock option plan. In connection with the transactions contemplated by the Purchase Agreement, effective as of the Second Closing, William McMahon will resign as a director of the Company and as its Chief Executive Officer. William McMahon will remain at the Company as its President and Chief Financial Officer and enter into a new Employment Agreement with the Company for a two-year term with an annual base salary of $200,000. Mr. McMahon will also be awarded options to purchase 250,000 shares of the Company's Common Stock in accordance with the Company's stock option plan. 16 The Company has agreed to seek the approval of the stockholders of the Company to amend the Certificate of Incorporation to authorize a class of Preferred Stock. Upon the approval of such amendment and the filing thereof with the Secretary of State of the State of Delaware, the Convertible Note will automatically be converted into 2,000,000 shares of Series A Convertible Preferred Stock, par value US$0.01 per share, with such rights and preferences, including, but not limited to: (a) Voting Rights. During the first 18 months after the designation of the Series A Preferred Stock, each holder of shares of the Series A Preferred Stock shall be entitled to five (5) times the number of votes equal to the number of shares of Common Stock into which such Holder's shares of Series A Preferred Stock could be converted and after such first 18 month period, each holder of shares of the Series A Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such Holder's shares of Series A Preferred Stock could be converted. During the first 18 months after the designation of the Series A Preferred Stock, so long as any shares of Series A Preferred Stock are outstanding, the holders of Series A Preferred Stock shall be entitled to designate three (3) members of the Board of Directors. During the first 18 months after the Series A Preferred Stock has been designated, if the number of members of the Board of Directors is increased to more than five (5), the number of directors designated by the holders of Series A Preferred Stock shall increase such that the Series A Preferred Stock shall designate a majority of the number of authorized Board of Director members. (b) Dividends. The Series A Preferred Stock will, with respect to payment of dividends and rights upon liquidation, dissolution or winding-up of the affairs of the Company, rank senior and prior to the Common Stock of the Company, and any additional series of preferred stock which may in the future be issued by the Company and are designated in the amendment to the Certificate of Incorporation or the certificate of designation establishing such additional preferred stock as ranking junior to the Series A Preferred Stock. The holders of the Series A Preferred Stock will be entitled to receive dividends if, when and as declared by the Board of Directors from time to time, and in amounts determined by the Board of Directors; provided, however, no dividends shall be paid on any share of Common Stock unless a dividend is paid with respect to all outstanding shares of Series A Preferred Stock in an amount for each such share of Series A Preferred Stock equal to or greater than the aggregate amount of such dividends for all shares of Common Stock into which each such share of Series A Preferred Stock could then be converted. (c) Liquidation Value. The liquidation value per share of Series A Preferred Stock, in case of the voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Company, will be an amount equal to $0.20, subject to adjustment in the event of a stock split, stock dividend or similar event applicable to the Series A Preferred Stock. 17 (d) Additional Issuances of Securities. Except for certain issuances by the Company, If, at any time while the Series A Preferred Stock is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice its securities, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the then applicable conversion price, then the conversion price shall be reduced to such lower price. (e) Modification of Series A Preferred Stock. So long as any shares of Series A Preferred Stock remain outstanding, the Company, shall not, without the vote or written consent by the holders of more than fifty percent (50.0%) of the outstanding Series A Preferred Stock, voting together as a single class, and unless approved by the Board of Directors: (i) redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking or other analogous fund for such purpose) any share or shares of its Capital Stock, except for conversion into or exchange for stock junior to the Series A Preferred Stock; (ii) alter, modify or amend the terms of the Series A Preferred Stock in any way; or (iii) create or issue any Capital Stock of the Company ranking pari passu with or senior to the Series A Preferred Stock either as to the payment of dividends or rights in liquidation, dissolution or winding-up of the affairs of the Company; increase the authorized number of shares of the Series A Preferred Stock; re-issue any Series A Preferred Stock which have been converted or otherwise acquired by the Company in accordance with the terms hereof. The Board of Directors awarded Richard Gerzof, Chairman of the Board of the Company, immediately exercisable options to purchase 250,000 shares of Common Stock of the Company at an exercise price of $0.20 per share, the fair market value as of the date of grant. The Board of Directors also awarded Elliott Goldberg, Matthew Dollinger and William Wood, directors, immediately exercisable options to purchase 100,000, 18,500 and 3,500 shares of Common Stock, respectively, at the exercise price of $0.20 per share, the fair market value as of the date of grant. The Board of Directors also amended the Company's 2006 Stock Option Plan to eliminate the requirement that options must be exercised, to the extent they were exercisable, within a three month period following the date of termination of employment or directorship, even if by disability or death. Special Note Regarding Forward-Looking Statements A number of statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. These risks and uncertainties include, but are not limited to: the Company's dependence on a limited base of customers for a significant portion of sales; the Company's dependence on the paper currency validator market and its potential vulnerability to technological obsolescence; the possible impact of competitive products and pricing; the risks that its current and future products may contain errors or defects that would be difficult and costly to detect and correct; potential manufacturing difficulties; possible risks of product inventory obsolescence; uncertainties with respect to the Company's business strategy; general economic conditions in the domestic and international market in which the Company operates; potential shortages of key parts and/or raw materials; potential difficulties in managing growth; dependence on key personnel; the relative strength of the United States currency; and other risks described in the Company's Securities and Exchange Commission filings. 18 Item 1A. Risk Factors -------- ------------ We have not been profitable for the past few years. --------------------------------------------------- We have had a large decline in sales this year and we have not been profitable for the past few years. Our new product initiatives may not be enough to allow us to regain profitability. We are dependent on the paper currency validator and gaming market. ------------------------------------------------------------------- In fiscal 2007, 86% of our sales were to the gaming market. Any significant technological advances to increased use of smart cards could cause a reduction in our revenues. Any changes in government regulations, as we experienced in Russia, could have an adverse effect on our revenue. We are dependent on a small number of customers. ------------------------------------------------ In fiscal 2007, one customer accounted for 41% of our sales. The loss of this customer could have a significant adverse effect on our revenue. Some product components have a long lead time. ---------------------------------------------- Some of our product components may take in excess of 12 weeks to obtain and a shortage of those parts may have a negative effect on our revenue. Some components are single sourced. ----------------------------------- Some of our products can only be produced by one vendor. The loss of this vendor could have a negative effect on our revenue. Some of our inventory may become obsolete. ------------------------------------------ We hold inventory for warranty and repairs and replacements. We also anticipate sales volumes from our customers due to lead times required to build inventory. There is a risk that orders may be less than anticipated for certain product models and that we may have excess inventory or inventory which becomes obsolete. 19 We may have difficulty competing with larger companies that offer similar -------------------------------------------------------------------------------- products which may result in decreased revenue ---------------------------------------------- We believe that we have a very competitive product; however, many of our competitors have greater resources than we have and can invest more in product development and marketing or develop pricing strategies which may adversely affect our revenues. We are dependent on management and our engineers and a loss of key employees -------------------------------------------------------------------------------- could disrupt our business and our financial performance could suffer. ---------------------------------------------------------------------- Our business is largely dependent upon our senior executive officer, William McMahon, our interim President, chief executive officer and chief financial officer. Our business may be adversely affected if any key management personnel or other key employees left our employ. Item 1B. Unresolved Staff Comments -------- ------------------------- Not applicable. Item 2. Properties ------- ---------- On July 2, 2007, the Company moved to a new leased facility located in Bohemia, New York. The facility has 25,550 square feet and houses the manufacturing and administrative functions. Future minimum rentals, which aggregate $1,754,499, are as follows: During the first lease year, the annual rent will be $214,620, second lease year $221,059, third lease year $227,690, fourth lease year $234,521, fifth lease year $241,557, sixth lease year $248,803, seventh lease year $256,268, eighth lease year (five months) $109,981. Item 3. Legal Proceedings ------- ----------------- The company is a defendant in matters which arose in the ordinary course of business. In the opinion of management, the ultimate resolution of this matter would not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. Item 4. Submission of Matters to a Vote of Security Holders ------- --------------------------------------------------- Not applicable. PART II 20 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters ------- ------------------------------------------------------------------ and Issuer Purchases of Equity Securities ----------------------------------------- a) Market Information The Company's Common Stock is listed and trades on the Over the Counter Bulletin Board under the symbol GPTX.OB. The following table sets forth, on a per share basis, the high and low sale prices for the Company's Common Stock for each quarter of fiscal 2006 and 2007. During such period the Common Stock was traded on the NASDAQ National Market System. 21 Quarter Ended High Low ----------------------------------- --------------- December 31, 2005 3.58 2.09 March 31, 2006 2.80 2.03 June 30, 2006 2.49 1.10 September 30, 2006 1.99 1.25 December 31, 2006 2.20 .94 March 31, 2007 1.72 .83 June 30, 2007 1.32 .34 September 30, 2007 .71 .21 b) Holders The approximate number of beneficial holders and holders of record of the Company's Common Stock as of March 31, 2007 were 1,246 and 34, respectively. c) Dividends The holders of Common Stock are entitled to receive such dividends as may be declared by the Company's Board of Directors. The Company has not declared or paid any cash dividends and does not expect to declare or pay any cash dividends in the foreseeable future. d) Securities Authorized for Issuance Under Equity Compensation Plans The table below sets forth certain information as of the Company's fiscal year ended September 30, 2007 regarding the shares of the Company's common stock available for grant or granted under stock option plans that (i) were adopted by the Company's stockholders and (ii) were not adopted by the Company's stockholders. Number of securities remaining available Weighted-average for future issuance Number of securities exercise price under equity to be issued upon of outstanding compensation plans exercise of options, (excluding securities outstanding options, warrants and in the first column warrants and rights rights of this table) ------------------- ------ -------------- Equity 711,360 $3.18 1,448,485 compensation plans approved by security holders Equity Not Applicable Not Applicable Not Applicable compensation plans not approved by security holders 22 Item 6. Selected Financial Data ------- ----------------------- FINANCIAL HIGHLIGHTS -------------------- (In thousands, except earnings per share) -----------------------------------------

(1) Based on the Company's continued losses, and related uncertainty as to the Company's ability to generate sufficient taxable income to realize the full value of its deferred income tax asset, the Company recorded a full valuation allowance and related income tax expense in the fourth quarter of fiscal 2003. (2) Includes a gain of $78,000 from the sale of the remaining portion of the Company's unconsolidated South African affiliate. (3) The weighted average shares outstanding used in the calculation of diluted loss per share did not include potential shares outstanding because they were anti-dilutive. (4) Includes gain on sale of investments in unconsolidated affiliates of $307,000. 23 QUARTERLY INFORMATION --------------------- (In thousands, except earnings per share) -----------------------------------------

(1) The weighted average shares outstanding used in the calculation of diluted loss per share, for periods in which the Company had a net loss, did not include potential shares outstanding because they were anti-dilutive. Item 7. Management's Discussion and Analysis of Financial ------- ------------------------------------------------- Condition and Results of Operations ----------------------------------- Results of Operations --------------------- Fiscal year ended September 30, 2007 compared with September 30, 2006 Sales Net sales for fiscal 2007 decreased by 18.9% to $11,602 million as compared with $14,303 million in fiscal 2006. The largest decrease in sales was in the Russian market which continues to be adversely affected by the restrictions put on gaming by the Russian government. Last year's sales included special incentives to customers in order to reduce inventory levels in the Company's Aurora product. Gaming sales were $10.0 million in fiscal 2007 or 86% of sales, as compared to $11.3 million, or 79% of sales, in fiscal 2006. Beverage and vending sales were $1.6 million, or 14% of sales, in fiscal 2007 as compared to $3.0 million, or 21% of sales, in fiscal 2006. Net sales to international customers accounted for 91 % and 90% of net sales in fiscal 2007 and 2006, respectively. 24 Gross Profit Gross profit decreased to $1,390 million, or 11% of sales, as compared with $1,775 million, or 12% of sales, in the prior-year period. The decrease in gross profit was affected by a 18.9% sales decline from fiscal 2006 while manufacturing expenses were virtually unchanged. This resulted in significant under absorption of overhead. The most significant factor affecting the Company's gross profit percentage will be the unit sales levels achieved and their relationship to manufacturing costs, as well as any impact from sales and marketing efforts to achieve additional market share and/or reduce inventory levels. Operating Expenses Operating expenses decreased to $6,975 million, or 60% of sales, in fiscal 2007 from $7,429 million, or 51% of sales, in fiscal 2006. This decrease of $454,000 is primarily the result of lower payroll and travel-partially offset by increased expenses resulting from the development and testing of the Company's new products-Falcon and Eagle-and an increase due to moving costs. Other (Expense) Income During fiscal 2006, the Company sold its interests in its affiliated customers. Prior to such dispositions, the Company recognized revenue upon shipment and passage of title to its affiliated customers, but deferred its proportionate share of the related gross profit on product sales until sales were made by the affiliated customers to third-party end users (customers). Included in the results of operations for fiscal 2006 were the Company's net share of profits through August 31, 2006, the effective date of sale, of $648,000. Interest Expense Interest expense increased to $61,000 for fiscal 2007 as compared to $8,000 in fiscal 2006. The increase was as a result of the costs of borrowing under the Line of Credit. Income Taxes With respect to the provision for income taxes, the effective rate was a benefit of .6% in fiscal 2007 as compared to a tax benefit of 0.0% in fiscal 2006. This change in the effective tax rate is primarily the result of fiscal 2007 operating losses for which no benefit has been recognized. The Company provided a full valuation allowance against its deferred income tax assets in the fourth quarter of fiscal 2003 and continues to provide a full valuation allowance at September 30, 2007. The valuation allowance is subject to adjustment based upon the Company's ongoing assessment of its future taxable income and may be wholly or partially reversed in the future. Net Loss 25 The net loss for fiscal 2007 was ($5,591,000), or ($0.89) per share, as compared with ($4,143,000), or ($0.67) per share, in fiscal 2006. Fiscal year ended September 30, 2006 compared with September 30, 2005 Sales Net sales for fiscal 2006 decreased by 44.7% to $14.303 million as compared with $25.886 million in fiscal 2005. This decrease was due to lower sales to the gaming market, in which sales declined 51% from $23.1 million in fiscal 2005 to $11.3 million in fiscal 2006. Gaming sales to the Australian market declined 50% as the Company's distributor reduced its short term inventory requirements to better manage current market conditions in its territory. Sales into the Russian market declined by over 30% as a result of government regulations which temporarily prohibit the placement of new gaming devices. These declines were partially offset by increased sales into the Asian and South African markets, which reflected some growth in the Macau gaming area of China as well as increased sales efforts by the Company's distributor in South Africa. Beverage and vending sales for fiscal 2006 were $3.0 million, or 21% of sales, as compared to $2.7 million or 10.6% of sales, an increase of 10%, primarily in the beverage sector. Net sales to international customers accounted for 90.6% and 92.7% of net sales in fiscal 2006 and 2005, respectively. Gross Profit Gross profit decreased to $1.775 million, or 12.4% of net sales, as compared with $6.867 million or 26.5% of net sales in the prior-year period. The decrease in gross profit was primarily the result of sales incentives to reduce Aurora inventory levels as well as attempting to increase the Company's market share with the Aurora product, and the effect of a 45% sales decline from fiscal 2005 while manufacturing expenses were virtually unchanged. This resulted in significant under absorption of overhead. In addition, the Company increased the inventory reserve by $432,000 in fiscal 2006 to provide for obsolescence in its Advantage product line. 26 Operating Expenses Operating expenses increased to $7.429 million or 51.9% of net sales in fiscal 2006 from $7.051 million or 27.2% of net sales in fiscal 2005, an increase of $378 thousand or 5.4%. This increase was due, in part, to a severance payment made to a former officer of $150,000, research and development cost increases related to the new products planned to be introduced in fiscal 2008 and an increase in rent expense related to a short term extension of the lease until June 2007. Equity in income of unconsolidated affiliates and Gain on sale of investments in unconsolidated affiliates During fiscal 2006, the Company sold its interests in its affiliated customers. Prior to such dispositions, the Company accounted for its results of operations using the equity method. Included in the Company's results of operations are the Company's net share of profits through August 31, 2006, the effective date of sale, of $648,000. For fiscal 2006, the Company increased its equity in income of unconsolidated subsidiaries by $535,000 as compared to a reduction in fiscal 2005 of $33,000, which amounts represent the effect of the Company's share of the gross profit on sales of the Company's products to these affiliates, which were unsold by the affiliates as of the Company's fiscal year end. The accompanying consolidated results of operations include a gain of approximately $307,000 relating to the sale of the Company's interests in its unconsolidated affiliates in fiscal 2006. Interest Expense Included in interest expense for fiscal 2005 was $568,000 as a result of the amortization of debt discount. During fiscal 2005 the term loan was fully repaid and the debt discount was fully amortized. Income Taxes With respect to the provision for income taxes, the effective rate was 0.0% in fiscal 2006 as compared to a tax benefit of 3.5% in fiscal 2005. This change in the effective tax rate is primarily the result of fiscal 2006 operating losses for which no benefit has been recognized. The Company provided a full valuation allowance against its deferred income tax assets in the fourth quarter of fiscal 2003 and continues to provide a full valuation allowance at September 30, 2006. The valuation allowance is subject to adjustment based upon the Company's ongoing assessment of its future taxable income and may be wholly or partially reversed in the future. Net Loss The net loss for fiscal 2006 was ($4,143,000), or ($0.67) per share, as compared with ($573,000), or ($0.10) per share, in fiscal 2005. Liquidity and Capital Resources 27 The Company's capital requirements consist primarily of those necessary to continue to expand and improve product development and manufacturing capabilities, sales and marketing operations, fund inventory purchase commitments, and service principal and interest payments on the Company's indebtedness. At September 30, 2007, the Company's cash and cash equivalents were $879,000 as compared with $2,352,000 at September 30, 2006. A significant portion of the Company's cash balance in the amount of $498,000 and $741,000, as of September 30, 2007 and 2006, respectively, consists of currency used to test the Company's products. The Company had $280,000 of cash held in escrow as a result of its sale on September 2, 2006 of the Company's 50% interest in GPTA. The escrow was released on the one year anniversary of the transaction. On March 16, 2004, the Company received aggregate proceeds of $1,500,000 from the sale to Laurus Master Fund Ltd. ("Laurus") of a $1,500,000 principal amount secured convertible term note due in March 2007 (the "CTN"), pursuant to a Securities Purchase Agreement. The CTN was convertible into common stock of the Company at any time at the rate of $4.26 of principal for one share of common stock and was collateralized by substantially all assets of the Company. Interest was payable monthly at the prime rate plus 1.5%, with a minimum rate of 6%. In addition, Laurus received 7 year warrants to purchase an aggregate of 200,000 shares of the Company's common stock at prices of $4.87, $5.28 and $5.68 for 100,000, 60,000 and 40,000 warrants, respectively. The Company utilized approximately $1,200,000 of the proceeds to repay amounts outstanding under a previous credit agreement. At September 30, 2004, $1,425,000 was outstanding under the CTN. During the year ended September 30, 2005, the Company repaid $50,000 and Laurus converted the remaining $1,375,000 of the CTN into 323,000 shares of common stock, resulting in the full repayment of the CTN. The value allocated to the warrants resulted in a debt discount of $506,000 which was being recognized as interest expense over the term of the CTN. Additionally, by allocating value to the warrants, Laurus received a beneficial conversion feature in the amount of $304,000 that resulted in additional debt discount that was being recognized as interest expense over the term of the CTN. Interest expense was computed utilizing the interest method, which resulted in an effective yield over the term of the CTN. Amortization for the year ended September 30, 2005 was $568,000. During fiscal 2005, the entire amount of debt discount had been recognized as interest expense and charged to operations. On March 16, 2004, the Company also entered into a Security Agreement with Laurus which provides for a credit facility of $2,500,000 consisting of a secured revolving note of $1,750,000 (the "RN") and a secured convertible minimum borrowing note of $750,000 (the "MBN"), both due in March 2007 (the RN and the MBN collectively referred to as the "LOC"). At closing, the Company borrowed $750,000 under the MBN. Funds available under the LOC are determined by a borrowing base equal to 85% and 70% of eligible domestic and foreign accounts receivable, respectively, and 50% of eligible inventory. Outstanding amounts under the RN and MBN are convertible into common stock of the Company at any time at the rate of $4.26 of principal for one share of common stock and are collateralized by substantially all assets of the Company. Interest is payable monthly at the prime rate plus 1.5%, with a minimum rate of 6%. During the year ended September 30, 2005, Laurus converted $750,000 of the MBN into 176,000 shares of common stock. At September 30, 2007, $353,000 was outstanding under the MBN or the RN. 28 The agreements provided that Laurus would not convert debt or exercise warrants to the extent that such conversion or exercise would result in Laurus, together with its affiliates, beneficially owning more than 4.99% of the outstanding shares, including warrants, of the Company's common stock at the time of conversion or exercise. The Company's credit facility with Laurus was paid in full on the maturity date of November 15, 2007. The Company is in discussion to provide alternative financing. The Company believes, but has no assurance, that it will replace the line. Net cash used in operating activities was $1,853,000 in fiscal 2007. This amount was due to a net loss for the period, adjusted for non-cash items, of $1,363,,000, decreased accounts receivable of $1,026,000, decreased prepaid expenses and other current assets of $103,000, decreased accrued expenses and other liabilities of $310,000, decreased inventory of $1,172,000, and increased accounts payable of $420,000. Net cash used in operating activities was $2,330,000 in fiscal 2006. This amount was due to a net loss for the period, adjusted for non-cash items, of $1,054,000, decreased accounts receivable of $1,676,000, decreased income taxes receivable of $25,000, increased accrued expenses and other liabilities of $115,000 reduced by increased inventory of $530,000, and decreased accounts payable of $513,000. Net cash used in operating activities was $434,000 in fiscal 2005. This amount was due to a net loss for the period, adjusted for non-cash items, of $1,767,000, decreased prepaid expenses and other assets of $42,000, decreased accounts receivable of $824,000, and decreased income taxes receivable of $90,000, reduced by increased inventory of $2,830,000, primarily the result of an increase in the Company's Aurora product due to lower Russian orders and the slowdown in the German cigarette vending market, due to significant German tax increases, coupled with the Company's commitment to receive inventory from its vendors, decreased accounts payable of $181,000 and decreased accrued expense and other current liabilities of $146,000. The Company sells its products primarily to international markets on terms generally greater than 30 days. The Company granted 90 day payment terms to its Australian distributor. Based upon history, and the Company's current review of its accounts receivable, it believes it is adequately reserved for potentially uncollectible accounts. However, given the Company's sales and accounts receivable are concentrated to a small group of customers and in certain markets, any changes in conditions could cause a material impact to its net income (loss) and cash flow. Additionally, the timing and size of the Company's future Aurora sales orders, coupled with the continued commitments to receive certain component parts, as well as the potential impact of current and future sales programs, could have an impact on cash from operations and on gross profit percentages. 29 Net cash provided by investing activities amounted to $112,000 in fiscal 2007 as compared with net cash provided by investing activities of $1,622,000 in fiscal 2006 and net cash used in investing activities of $340,000 in fiscal 2005. In fiscal 2006 the Company received $1,798,000 from the sale of its interests in Global Payment Technologies Australia Pty Ltd and eCash Pty Ltd. Further, the Company received $574,000 in dividend distributions, primarily from its Australian affiliate, during fiscal 2006. There were no dividend distributions in fiscal 2005 or 2007. The remaining investing activities of $168,000 in fiscal 2007, $176,000 in fiscal 2006, and $340,000 in fiscal 2005 were for the purchase of property and equipment primarily for the Company's manufacturing operations. Net cash used in financing activities consisted of net repayments of bank borrowings of $60,000 in fiscal 2007 as compared with $(48,000) in fiscal 2006 and $63,000 in fiscal 2005. The Company had net borrowings on its Line of Credit of $353,000 in fiscal 2007. The remaining cash provided by financing activities of $492,000 in fiscal 2005 was from the issuance of stock upon the exercise of common stock options and warrants. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has suffered recurring losses and deficiencies in cash flows from operations. Accordingly, the Company will be required to identify additional revenue resources, raise additional capital and/or significantly reduce its expenses in order to pay its obligations as they become due. As discussed in Note 12 to the Company's consolidated financial statements, the Company entered into a debt financing agreement and is undertaking a corporate restructuring to attempt to improve operating results and develop new products, however, there can be no assurance that such plans will be successful. These uncertainties raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of the carrying amount of assets or the amount of liabilities that might result from the outcome of these uncertainties. Commitments: At September 30, 2007, future minimum payments under non-cancelable leases and principal payments to be made for long-term debt maturing over the next five years and thereafter are as follows in ($000): 30 Operating Lease Debt Repayments ------------------------------------- Fiscal year ended September 30, 2008 $ 321 $ 393 2009 242 2010 249 2011 255 2012 263 Thereafter 591 --------------- ------------------ Total $ 1,921 $ 393 --------------- ------------------ In addition to the chart above, and in the normal course of business, purchase orders are generated which obligate the Company for future inventory requirements. As of September 30, 2007, purchase order commitments approximated $4.0 million and will be used for production requirements during fiscal 2008 and beyond. 31 Critical Accounting Policies ---------------------------- This management discussion and analysis is based on our consolidated financial statements which are prepared using certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. While we believe that these accounting policies, and management's judgments and estimates, are reasonable, actual future events can and often do result in outcomes that can be materially different from management's current judgments and estimates. We believe that the accounting policies and related matters described in the paragraphs below are those that depend most heavily on management's judgments and estimates. Inventory: Inventory is stated at the lower of cost (first-in, first-out method) or net realizable value. The Company analyzes the net realizable value of its inventory on an ongoing basis. In determining whether the carrying amount of its inventory is impaired, the Company considers historical sales performance and expected future product sales, market conditions in which the Company distributes its products, changes in product strategy and the potential for the introduction of new technology or products by the Company and its competitors. These items, as well as the introduction of new technology on products, could result in future inventory obsolescence. Capitalized Software Costs: Based upon achieving technological feasibility through a detailed program design for Argus(TM) and Aurora products, the Company has capitalized the cost of software coding and development of these products, and reflects the amortization of these costs in cost of sales. The annual amortization is calculated using the greater of (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. The estimation of both future sales of products as well as the life of the product are critical estimates that are affected by both internal and external factors that might affect the Company's estimates. If the useful life is reduced, or sales projections fall short of the estimation, amortization expense will increase. Revenue Recognition: The Company recognizes revenue upon shipment of products to its customers and the passage of title, including shipments to its unconsolidated affiliates, or at the time services are completed with respect to repairs not covered by warranty agreements. Prior to the sale of the Company's interest in Australian unconsolidated affiliates, the Company deferred its pro rata share of gross profit on sales for the inventory of the affiliates until such time as its affiliates sold to a third party customer. Warranty Policy: The Company provides for the estimated cost of product warranty at the time related sales revenue is recognized. Furthermore, the Company warrants that its products are free from defects in material and workmanship for a period of one year, or almost two years in the case of its Argus, Aurora, SA-4, and Advantage products, from the date of initial purchase. The warranty does not cover any losses or damages that occur as a result of improper installation, misuse or neglect and repair or modification by anyone other than the Company and its appointed service centers. Repair costs beyond the warranty period are charged to the Company's customers. 32 Reserve for Uncollectible Accounts Receivable: At September 30, 2007, our accounts receivable balance was $1 million. Our accounting policy is to reserve for the accounts receivable of specific customers based on our assessment of certain customers' financial condition. We make these assessments using our knowledge of the industry coupled with current circumstances or known events and our past experiences. This policy is based on our past collection experience. To the extent that our experience changes or our customers experience financial difficulty our reserve may need to increase. Investments in Unconsolidated Affiliates: During fiscal 2006, the Company sold its interest in its affiliated entities. Prior to such disposition, the Company applied the equity method of accounting to its investments (including advances) in entities where the Company had non-controlling ownership interests of 50% or less and exercised a significant influence on that entity. The Company's share of these affiliates' earnings or losses is included in the consolidated statements of operations through the date of sale. Prior to the sale of its affiliates, the Company eliminated its pro rata share of gross profit on sales to such affiliates for inventory on hand at the affiliates. Effective February, 2005, when the Company exchanged its 25% interest in Abacus-UK for a 12.5% interest in Evolve-UK, it accounted for this investment on a cost basis. For investments in which no public market exists, the Company reviews the operating performance, financing and forecasts for such entities in assessing the net realizable values of these investments. Long-Lived Assets: The Company accounts for long-lived assets in accordance with the provisions of Statement of Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. As a result of its review, the Company does not believe that any impairment exists in the recoverability of its long-lived assets as of September 30, 2007. Income Taxes: The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires an asset and liability approach for financial reporting for income taxes. Under SFAS No. 109, deferred taxes are provided for temporary differences between the carrying values of assets and liabilities for financial reporting and tax purposes at the enacted rates at which these differences are expected to reverse. The effective tax rate for the Company is affected by the income mix derived from the core business and from its share of income from foreign affiliates that may have different tax rates. Realization of deferred tax assets is primarily dependent upon the Company's future profitability, and the Company has, consequently, provided a full valuation allowance against its deferred income tax assets due to the impact of the fiscal 2007, 2006 and 2005 losses and uncertainty as to the ability to generate future taxable income to sufficiently realize those assets. To the extent the Company's profitability improves, the valuation allowance may be wholly or partially reversed. At such time that the Company believes that it will realize sufficient taxable income; the valuation allowance will be reassessed. 33 Debt Discounts: Pursuant to the Securities Purchase Agreement with Laurus the Company received proceeds of $1,500,000 from the issuance of the CTN in the principal amount of $1,500,000 and 7 year warrants to purchase 200,000 shares of the Company's common stock. The value allocated to the warrants resulted in a debt discount of $506,000 that was being recognized as interest expense over the term of the CTN. Additionally, by allocating value to the warrants, Laurus received a beneficial conversion feature in the amount of $304,000 that resulted in additional debt discount that was being recognized as interest expense over the term of the CTN. Interest expense was computed utilizing the interest method, which results in an effective yield over the term of the CTN. During the year ended September 30, 2005, the Company repaid $50,000 and Laurus converted $1,375,000 of the CTN into 323,000 shares of common stock, resulting in the full repayment of the CTN. As a result of the conversion of the balance of the CTN, the entire amount of debt discount has been recognized as interest expense and charged to operations. Share-Based Compensation: Effective October 1, 2005, the Company adopted SFAS No. 123 (Revised 2004), Share Based Payment ("SFAS No. 123R"), which requires a public entity to measure the cost of employee, officer and director services received in exchange for an award of equity instruments based on the grant date fair value of the award. SFAS No. 123R supersedes the Company's previous accounting under SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), which permitted the Company to account for such compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"). Pursuant to APB No. 25, and related interpretations, no compensation cost had been recognized in connection with the issuance of stock options, as all options granted under the Company's stock option plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of the grant. In advance of implementing the requirements of SFAS No. 123R, the Company, in September 2005, accelerated the vesting of all unvested stock options previously awarded to employees, officers and directors in order to avoid the recognition of compensation expense under SFAS No.123R, with respect to these options. Any option grants since then have resulted in compensation expense. The Company adopted SFAS No. 123R using the modified prospective transition method, which requires that compensation cost be recorded as earned for all unvested stock options outstanding at the beginning of the first fiscal year of adoption of SFAS No. 123R based upon the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and for all share-based payments granted subsequent to the adoption, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. In accordance with the modified prospective transition method, the Company's consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123R. 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk -------- ---------------------------------------------------------- Fiscal 2007 saw continued moderation in the level of inflation. In order to offset the resultant rise in the costs of operations, the Company has assessed, and will continue to assess, ways to gain efficiencies and reduce operating and manufacturing costs, thereby increasing profit margins and improving its operations. While the Company operates in many international markets, it does so principally through the sale of its products with invoices denominated in the United States currency. Additionally, the Company operates without the use of derivative or hedging instruments. The Company is subject to the effects caused by the strengthening or weakening of the United States currency, and as such may consider the use of currency instruments in the future. During fiscal 2006, the Company sold its interests in its privately held unconsolidated foreign companies which it used for the purposes of conducting its business overseas and attaining its strategic objectives. For investments in which no public market exists, our policy is to regularly review the operating performance, recent financing transactions and forecasts for such companies in assessing the net realizable values of the investments in these companies. Impairment losses on equity investments are recorded when events and circumstances indicate that such assets are impaired and the decline in value is other than temporary. Item 8. Financial Statements and Supplementary Data ------- ------------------------------------------- The financial statements of the Company required by this item are set forth beginning on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting -------------------------------------------------------------------------------- and Financial Disclosure ------------------------- None. 35 Item 9A. Controls and Procedures -------- ----------------------- Disclosure Controls The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management in a timely manner. The Company's Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this annual report and believe that the system is operating effectively to ensure appropriate disclosure. Changes in Internal Control Over Financial Reporting The Chief Executive Officer and the Chief Financial Officer conducted an evaluation of our internal control over financial reporting (as defined in Securities Exchange Act Rule 13a-15 (f)) ("Internal Control") to determine whether any changes in Internal Control occurred during the fiscal year ended September 30, 2007, that have materially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, no such occurred during such period. The Company is not an "accelerated filer" (i.e. the Company's public float is less than $75 million) for the fiscal year 2007; hence, the internal controls certification and attestation requirements of Section 404 of the Sarbanes-Oxley act will not be applicable to the Company until the fiscal year ending September 30, 2008. Notwithstanding the fact that these internal control requirements are not applicable to the Company at this time, the Company has been reviewing its internal control procedures. Based upon the evaluation conducted by management in connection with the audit of the Company's financial statements for the year ended September 30, 2007, the Company identified material weaknesses in our internal control over financial reporting. A material weakness is "a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected by the Company in a timely manner." Management is currently taking steps to correct these material weaknesses through changes in procedures and evaluation of personnel. Item 9B. Other Information -------- ----------------- None. 36 Rider 34 PART III The information called for by Part III (Items 10, 11, 12, 13 and 14) of Form 10-K will be included in the Company's Proxy Statement for the Company's 2008 Annual Meeting of Shareholders, which is hereby incorporated by reference to such Proxy Statement, except that the information as to the Company's equity compensation plans contained in the last paragraph of Item 5 in this Report are incorporated by reference into Items 10 and 12, respectively, of this Report. 37 PART IV Item 15. Exhibits and Financial Statement Schedules -------- ------------------------------------------ The following documents are filed as part of this report: 1. Global Payment Technologies, Inc. Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm (page 45) Consolidated Balance Sheets as of September 30, 2007 and 2006 (page F-2) Consolidated Statements of Operations for each of the years in the three-year period ended September 30, 2007 (page F-3) Consolidated Statements of Shareholders' Equity and Comprehensive Loss for each of the years in the three-year period ended September 30, 2007 (page F-4) Consolidated Statements of Cash Flows for each of the years in the three-year period ended September 30, 2007 (page F-5) Notes to Consolidated Financial Statements (pages 46 - 68) 2. Global Payment Technologies Australia Pty Limited Financial Statements: Report of Independent Registered Public Accounting Firms (page 69) Balance Sheets as of August 31, 2006 and June 30, 2006 (page 70) Statement of Operations for the period ended August 31, 2006 and year ended June 30, 2006 (page 71) Statements of Stockholders' Equity for period ended August 31, 2006 and year ended June 30, 2006 (page 72) Statements of Cash Flows for period ended August 31, 2006 and year ended June 30, 2006 (page 73) Notes to Financial Statements (pages 74-82) Report of Independent Registered Public Accounting Firms (page 83) 38 Balance Sheets as of June 30, 2006 and 2005 (page 84) Statements of Operations for each of the years in the three-year period ended June 30, 2006 (page 85) Statements of Stockholders' Equity for each of the years in the three-year period ended June 30, 2006 (page 86) Statements of Cash Flows for each of the years in the three-year period ended June 30, 2006 (page 87) Notes to Financial Statements (pages 88-96) 3. Global Payment Technologies eCash Holdings Pty Limited Financial Statements: Report of Independent Registered Public Accounting Firms (page 97) Consolidated Balance Sheets as of June 30, 2006 and 2005 (page 98) Consolidated Statements of Operations for each of the years in the three-year period ended June 30, 2006 (page 99) Consolidated Statements of Stockholder's Equity for each of the years in the three-year period ended June 30, 2006 (page 100) Consolidated Statements of Cash Flows for each of the years in the three-year period ended June 30, 2006 (page 101) Notes to Consolidated Financial Statements (pages 102-109) Report of Independent Registered Public Accounting Firms (page 110) Consolidated Balance Sheets as of August 31, 2006 and June 30, 2006 (page 111) Consolidated Statements of Operations for the period ended August 31, 2006 and June 30, 2006 (page 112) Consolidated Statements of Stockholder's Equity for the period ended August 31, 2006 and June 30, 2006 (page 113) Consolidated Statements of Cash Flows for the period ended August 31, 2006 and June 30, 2006 (page 114) Notes to Consolidated Financial Statements (pages 115-122) 39 4. Financial statement schedules required to be filed by Item 8 of this Form: Schedule II - Valuation and Qualifying Accounts (page 125) 5. Exhibits:

-------------------------------------------------------------------- (1) Filed as an exhibit to the Company's Registration Statement on Form S-8 (File #333-30829). (2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended September 30, 1997. (3) Filed as an exhibit to the Company's Proxy Statement for the fiscal year ended September 30, 1999. (4) Filed as an exhibit to the Company's Current Report on Form 8-K dated March 16, 2004, filed with the SEC on March 18, 2004. (5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004. (6) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2004. (7) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006. (8) Filed herewith. (9) Filed as an exhibit to the Company's Current Report on Form 8-K dated January 22, 2008, filed with the SEC on January 22, 2008. * Management contract or compensatory plan or arrangement 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Global Payment Technologies, Inc. By: s/William McMahon ----------------- William McMahon President, Chief Executive Officer and Chief Financial Officer Date: January 22, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date -------------------- ----------------------------------------- ----------------- s/William McMahon President, Chief Executive Officer January 22, 2008 -------------------- William McMahon Chief Financial Officer and Principal Accounting Officer and Director s/Richard Gerzof Director, Chairman of the Board January 22, 2008 Richard Gerzof s/William H. Wood Director January 22, 2008 William H. Wood s/Elliot Goldberg Director January 22, 2008 Elliot Goldberg s/Matthew Dollinger Director January 22, 2008 Matthew Dollinger 42 GLOBAL PAYMENT TECHNOLOGIES, INC. Index to Consolidated Financial Statements

44 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Global Payment Technologies, Inc. We have audited the accompanying consolidated balance sheets of Global Payment Technologies, Inc. and subsidiaries as of September 30, 2007 and 2006, and the related consolidated statements of operations, shareholders' equity and comprehensive loss and cash flows for each of the three years in the period ended September 30, 2007. Our audits also included financial statement Schedule II, listed in the index at Item 15(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the financial statements of Global Payment Technologies Australia Pty Limited (GPTA) and eCash Holdings Pty Limited (eCash), 50% and 35%, respectively, owned investee companies which the Company sold effective August 31, 2006. The Company's equity in earnings (loss) of GPTA and eCash was $593,000 and $590,000, respectively, for the year ended September 30, 2006 and $253,000 and ($50,000), respectively, for the year ended September 30, 2005. The financial statements of GPTA and eCash were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for GPTA and eCash, is based solely on the reports of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Global Payment Technologies, Inc. and subsidiaries as of September 30, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement Schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. 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 consolidated financial statements, the Company has suffered recurring losses and deficiencies in cash flows from operations. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 2(o) to the consolidated financial statements, effective October 1, 2005, the Company changed its method of accounting for share-based compensation. /s/ Eisner LLP New York, New York January 22, 2008 45 GLOBAL PAYMENT TECHNOLOGIES, INC. Consolidated Balance Sheets September 30, 2007 and 2006 (Dollar amounts in thousands, except per share data)

F-2 GLOBAL PAYMENT TECHNOLOGIES, INC. Consolidated Statements of Operations Years ended September 30, 2007, 2006, and 2005 (Dollar amounts in thousands, except per share data)

See accompanying notes to consolidated financial statements. F-3 GLOBAL PAYMENT TECHNOLOGIES, INC. Consolidated Statements of Shareholders' Equity and Comprehensive Loss Years ended September 30, 2007, 2006, and 2005 (Dollar amounts in thousands, except share data)

See accompanying notes to consolidated financial statements. F-4 GLOBAL PAYMENT TECHNOLOGIES, INC. Consolidated Statements of Cash Flows Years ended September 30, 2007, 2006, and 2005 (Dollar amounts in thousands)

See accompanying notes to consolidated financial statements. F-5 (1) Organization, Nature of Business and Basis of Presentation (a) Description of Business Global Payment Technologies, Inc. (the Company) designs, manufactures, and markets paper currency validating equipment used in gaming and vending machines in the United States and other countries. Substantially all of the Company's revenues are derived from the sale of paper currency validators and related bill stackers, specifically the Company's SA-4, Argus, Aurora and Falcon validator models. A few key customers account for a large portion of the Company's revenues. Additionally, the Company depends on a single or limited number of suppliers, some of which are foreign, for certain housings, parts and components, including certain microprocessor chips and short wave length light sources. In addition, certain of such suppliers hold inventory on behalf of the Company. (b) Organization and Development of Business The Company has a wholly owned subsidiary, Global Payment Technologies (Europe) Limited (GPT-Europe), which is based in the United Kingdom and is responsible for sales and service of the Company's products in Europe. See note 2(d) and note 3 for a description of the Company's investments in unconsolidated affiliates, which it sold in fiscal 2006. (c) Significant Customers The Company's largest customers for 2007, 2006, and 2005 represent the following percentages of net sales and accounts receivable, respectively: 2007 2006 2005 --------- ---------- ----------- Net sales: Customer A 41% 28% 40% Customer B N/A N/A 16% Accounts receivable: Customer A 71% 80% 58% There were no other customers that represented 10% or more of net sales or accounts receivable, respectively, in any of the fiscal years presented. Customer A was the Company's unconsolidated affiliate in Australia, which interest was sold in the fourth quarter of fiscal 2006 (see note 3). 46 (d) Geographic Areas The Company generated revenues both domestically and internationally. The following summarizes the geographic dispersion of the Company's revenues by destination:

All of the Company's long-lived assets are domiciled in the United States, except for an immaterial amount at its subsidiary in the United Kingdom. (e) Basis of Presentation The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has suffered recurring losses and deficiencies in cash flows from operations. Accordingly, the Company will be required to identify additional revenue resources, raise additional capital and/or significantly reduce its expenses in order to pay its obligations as they become due. As discussed in Note 12, the Company entered into a debt financing agreement and is undertaking a corporate restructuring to attempt to improve operating results and develop new products, however, there can be no assurance that such plans will be successful. These uncertainties raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of the carrying amount of assets or the amount of liabilities that might result from the outcome of these uncertainties. (2) Summary of Significant Accounting and Reporting Policies (a) Principles of Consolidation The consolidated financial statements include the accounts of Global Payment Technologies, Inc., and its wholly owned subsidiary GPT-Europe. All intercompany balances and transactions have been eliminated in consolidation. (b) Revenue Recognition Non-affiliates 47 The Company recognizes revenue upon shipment of products and passage of title to its non-affiliated customers, or at the time services are completed with respect to repairs not covered by warranty agreements. Affiliates During fiscal 2006, the Company sold its interests in its affiliated customers. Prior to such dispositions, the Company recognized revenue upon shipment and passage of title, to its affiliated customers, but deferred its proportionate share of the related gross profit on product sales until sales were made by the affiliated customers to their third-party end users (customers), in accordance with Accounting Principles Board ("APB") Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock ("APB No. 18") (see (d)). (c) Shipping and Handling Costs The Company records shipping and handling costs billed to customers in net sales and classifies the shipping and handling costs associated with outbound freight in cost of sales. (d) Investments in Unconsolidated Affiliates The Company applies the equity method of accounting to its investments in entities where the Company has non-controlling, but influential, ownership interests. The Company's share of these affiliates' earnings or losses is included in the consolidated statements of operations. The Company eliminates its pro rata share of gross profit on sales to its affiliates for inventory on hand at the affiliates as of September 30. Entities in which the Company's respective ownership interest is less than 20%, and in which there is a resulting inability to exercise significant influence, are accounted for using the cost method of accounting. A description of the Company's unconsolidated affiliates and the related transactions between the Company and these affiliates is discussed in note 3. (e) Foreign Currency Translation The financial position and results of operations of GPT-Europe and unconsolidated affiliates are measured using local currency as the functional currency. Assets and liabilities of such entities are translated into US dollars at exchange rates in effect at year-end, while revenues and expenses are translated at average exchange rates prevailing during the year. The resulting translation gains and losses are recorded directly to accumulated other comprehensive income (loss), a separate component of shareholders' equity, and are not included in net income (loss) until realized through sale or liquidation of the investment. Exchange gains and losses incurred on foreign currency transactions including foreign currency used for test purposes referred to in (f), which were not material during fiscal 2007, 2006, and 2005, are included in net loss. (f) Cash and Cash Equivalent Cash equivalents are stated at cost, which approximates market value. Highly liquid investments with maturities of three months or less at the purchase date are considered cash equivalents for purposes of the consolidated balance sheets and consolidated statements of cash flows. A significant portion of the Company's cash balance in the amount of $498,000 and $741,000, as of September 30, 2007 and 2006, respectively consists of currency used to test the Company's products. 48 (g) Inventory Inventory is stated at the lower of cost (first-in, first-out method) or net realizable value. The Company analyzes the net realizable value of its inventory on an ongoing basis. In determining whether the carrying amount of its inventory is impaired, the Company considers historical sales performance and expected future product sales, market conditions in which the Company distributes its products, changes in product strategy and the potential for the introduction of new technology or products by the Company and its competitors. These items could result in future inventory obsolescence. (h) Property and Equipment Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets (note 6) or, in the case of leasehold improvements, the life of the related lease, whichever is shorter. Maintenance and repair costs are charged to expense as incurred. Expenditures, which significantly increase value or extend useful asset lives, are capitalized and depreciated. (i) Capitalized Software Costs In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed ("SFAS No. 86"), internally-generated software development costs associated with new products and significant software enhancements to existing products are expensed as incurred until technological feasibility has been established. Pursuant to SFAS No. 86, the Company deems technological feasibility as having been met upon completion of a detail program design. No internally- generated software development costs were capitalized during fiscal years 2007, 2006, and 2005. The Company recorded amortization in accordance with SFAS No. 86 of $472,000, $472,000, and $579,000 for the fiscal years ended September 30, 2007, 2006 and 2005, respectively, which is included in cost of sales in the accompanying Consolidated Statements of Operations. Unamortized internally-generated software development costs included in the accompanying consolidated balance sheets as of September 30, 2007 and 2006 were $89,000 and $561,000, respectively. (j) Long-Lived Assets The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. (k) Research and Development Research and development costs incurred by the Company are included in operating expenses in the year incurred. Such costs amounted to $713,000, $333,000, and $55,000 in fiscal 2007, 2006 and 2005, respectively. 49 (l) Warranty Policy The Company warrants that its products are free from defects in material and workmanship for a period of one or two years, depending on the particular product, from the date of initial purchase. The warranty does not cover any losses or damages that occur as a result of improper installation, misuse or neglect and repair or modification by anyone other than the Company and its appointed service centers. Repair costs beyond the warranty period are charged to the Company's customers (see (b)). The Company recognizes, and historically has recognized, the estimated cost associated with its standard warranty on products at the time of sale. The estimate is based on historical failure rates and current claim cost experience. A summary of the changes in the Company's accrued warranty obligation (which is included in accrued expenses) is included in the Company's Schedule of Valuation and Qualifying Accounts. (m) Income Taxes The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires an asset and liability approach for financial reporting for income taxes. Under SFAS No. 109, deferred taxes are provided for net operating loss carryforwards and for temporary differences between the carrying values of assets and liabilities for financial reporting purposes and their tax bases at the enacted rates at which these differences are expected to reverse. See note 10. (n) Per Share Data Net income (loss) per common share amounts (basic EPS) are computed by dividing net earnings (loss) by the weighted average number of common shares outstanding, excluding any potential dilution. Net income (loss) per common share amounts assuming dilution (diluted EPS) are computed by reflecting potential dilution from the exercise of stock options and warrants, and the conversion into common stock of convertible loans. Diluted EPS for fiscal years 2007, 2006 and 2005 are the same as basic EPS, as the inclusion of the impact of any common stock equivalents outstanding during those periods would be anti-dilutive. Common stock equivalents not included in EPS are as follows:[GRAPHIC Year ended September 30 -------------------------------------------------- 2007 2006 2005 --------------- ---------------- ----------------- Stock options 711,360 1,290,550 859,999 Stock warrants 275,000 200,000 200,000 Convertible Debt 0 0 197,740 --------------- ---------------- ----------------- Total 986,360 1,490,550 1,257,739 =============== ================ ================= 50 A reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:

(o) Stock-Based Compensation Effective October 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share Based Payment ("SFAS No. 123R"), which requires a public entity to measure the cost of employee, officer and director services received in exchange for an award of equity instruments based on the grant date fair value of the award. SFAS No. 123R supersedes the Company's previous accounting under SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), which permitted the Company to account for such compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"). Pursuant to APB No. 25, and related interpretations, no compensation cost had been recognized in connection with the issuance of stock options, as all options granted under the Company's stock option plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of the grant. In advance of implementing the requirements of SFAS No. 123R, the Company, in September 2005, accelerated the vesting of all unvested stock options previously awarded to employees, officers and directors in order to avoid the recognition of compensation expense under SFAS No.123R, with respect to these options as the market price of the Company's common stock on the date the vesting was accelerated was less than the exercise price of the modified stock option, no compensation expense was recognized under APB No.25 as a result of the modification of the vesting terms of the options. The Company adopted SFAS No. 123R using the modified prospective transition method, which requires that compensation cost be recorded as earned for all unvested stock options outstanding at the beginning of the first fiscal year of adoption of SFAS No. 123R based upon the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and for all share-based payments granted subsequent to the adoption, based on the grant date fair value. In accordance with the modified prospective transition method, the Company's consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123R. In the fiscal years ended September 30, 2007 and 2006, respectively as a result of adoption of SFAS No.123R, the Company recorded share-based compensation for options attributable to employees, officers and directors of $100,000 and $163,000, respectively. 51 The following table illustrates the effect on net loss and loss per common share as if the fair value method ("FMV") had been applied to all outstanding awards in 2005. 2005 ----------------- (In thousands, except per share data) Net loss: As reported $ (573) Deduct: Compensation expense determined under FMV (1,156) (a) ----------------- Pro forma (1,729) Net loss per common share - basic and diluted: As reported $ (0.10) Pro forma (0.29) (a) Includes $652,000 from acceleration of vesting of outstanding options. (p) Comprehensive Income (Loss) SFAS No. 130, Reporting Comprehensive Income requires companies to report all changes in equity during a period, except those resulting from investments by owners and distributions to owners, for the period in which they are recognized. Comprehensive income (loss) is the total of net income (loss) and all other nonowner changes in equity (or other comprehensive income (loss)) such as unrealized gains/losses on securities classified as available-for-sale, foreign currency translation adjustments and minimum pension liability adjustments. As of September 30, 2007 and 2006, due to currency fluctuations, the cumulative currency translation adjustment related to the Company's investments in foreign affiliates was $13,000 and $95,000, respectively, which is reflected in shareholders' equity in the accompanying consolidated balance sheets. In 2006, cumulative translation gains of $506,000 were transferred from accumulated other comprehensive income to operations in connection with the sale of the foreign affiliates. (q) Fair Value of Financial Instruments The carrying value of all monetary assets and liabilities reflected in the accompanying consolidated balance sheets approximated fair value as a result of the short-term nature of such assets and liabilities or with respect to long-term debt as a result of variable interest rates, subject to a minimum rate based on the Company's credit rating. (r) Segment Reporting The Company follows the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Pursuant to this pronouncement, the reportable operating segments are determined based on the Company's management approach. The management approach, as defined by SFAS No. 131, is based on the way that the chief operating decision-maker organizes the segments within an enterprise for making operating decisions and assessing performance. The Company's results of operations are reviewed by the chief operating decision-maker on a consolidated basis and the Company operates in only one segment. Geographical sales segment data is presented in note 1 (d). 52 (s) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Among the more significant estimates included in the consolidated financial statements are the allowance for doubtful accounts, recoverability of inventory, deferred income taxes, capitalized software and provisions for warranties. Actual results could differ from those estimates. (t) Recently Issued Accounting Pronouncements In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes," which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement SFAS No. 109, Accounting for Income Taxes. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of this standard on the Consolidated Financial Statements. In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption of SFAS No. 157 will have on its consolidated financial position and results of operations. In February 2007, the FASB issued FAS No. 159, "The Fair Value for Financial Assets and Financial Liabilities" ("FAS No. 159"). FAS No. 159 permits entities to choose to measure financial assets and liabilities, with certain exceptions, at fair value at specified election dates. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. FAS No. 159 is effective for the Company in fiscal years beginning October 1, 2008. The Company is currently evaluating the impact of FAS No. 159 on its consolidated financial position and results of operations. In December 2007, the FASB issued FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51" ("FAS No. 160"). FAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS No. 160 is effective for the Company in fiscal years beginning October 1, 2009. The Company is currently evaluating the impact of FAS No. 160 on its consolidated financial position and results of operations. 53 In December 2007, the FASB issued FAS No. 141 R "Business Combinations" ("FAS No. 141R"). FAS No. 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. FAS No. 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS No. 141R is effective for the Company in fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that FAS No. 141R will have on its consolidated financial position and results of operations, the Company will be required to expense costs related to any acquisitions after September 30, 2009. (u) Reclassification Certain reclassifications have been made to prior period financial information to conform to current period presentation. (3) Unconsolidated Affiliates Net sales to unconsolidated Australia affiliates for fiscal year 2006 and 2005 amounted to $3,552,000 and $10,339,000, respectively. (a) Australia In fiscal 1997, the Company acquired a 50% non-controlling interest in an Australian affiliate, Global Payment Technologies Australia Pty Ltd (GPTA). On September 2, 2006, the Company sold its 50% non controlling interest for a total of approximately $1,791,000 of which $1,511,000 was received in cash at closing and $280,000 was placed in escrow and was released on the one year anniversary of the transaction. The purchaser is related to the registered holder of the remaining 50% of the issued and outstanding shares of GPTA. The Company also entered into a 5 year exclusive distributor agreement with GPTA which is responsible for sales and service of the Company's products in Australia, New Zealand and the Pacific Rim. In June 2002, the Company and two other shareholders formed eCash Holdings Pty. Ltd (eCash), an Australian based company to market, distribute, service and support automated teller machines across Australia and New Zealand. The Company owned a 35% interest in this entity. On August 25, 2006, the Company sold its total interest for a cash consideration of $286,908. The accompanying consolidated results of operations include a gain of approximately $307,000 in 2006 relating to the sale of the Company's interests in GPTA and eCash. The accompanying consolidated results of operations include the Company's equity in the results of operations of these affiliates in the amounts of $648,000 and $236,000 in fiscal 2006 and 2005, respectively. The 2006 amount includes $625,000, representing the Company's share of a gain recognized by eCash on the sale of its automatic teller machine rental business. For fiscal 2006 and 2005 the Company increased (reduced) its equity in income of unconsolidated affiliates by $535,000 and $(33,000), respectively, which amounts represent the effect of the Company's share of the gross profit on sales of the Company's products to these affiliates, which were unsold by the affiliate as of the Company's fiscal year-end. The Company also received cash dividends of $574,000 and $0 from these affiliates for fiscal 2006 and 2005, respectively. Subsequent to the sale of its interests in GPTA and eCash, the Company no longer defers gross profit on sales to such affiliates. 54 (b) Evolve - UK In fiscal 1999, the Company acquired a non-controlling 25% interest in Abacus-UK. Abacus-UK is a software company based in the United Kingdom that has developed a cash management system, of which the Company's validators are a key component, which offers the retail market a mechanism for counting, storing and transporting its cash receipts. In fiscal 2007 and 2006, the Company did not make any additional investment. In fiscal 2002, the Company recorded a non-cash charge to operations related to the impairment of its equity-method investment in Abacus-UK, pursuant to APB No. 18, The Equity Method of Accounting for Investments in Common Stock. The impairment charge reduced the investment to zero. This impairment loss, which was considered other than temporary, was due to the deterioration of the financial condition of this entity. The Company's consolidated results of operations for the years ended September 30, 2007 and 2006 do not include the Company's equity in the loss of this affiliate as the equity investment was previously reduced to zero. In February 2005, the Company exchanged its 25% ownership interest in Abacus-UK for a 12.5% ownership interest in Evolve-UK. The exchange of ownership did not require the Company to make an additional investment. Evolve-UK owns 100% of Abacus-UK and Evolve 100, which provides integrated and stand-alone cash management systems to the retail industry for coin currency handling. At the time of the exchange, Evolve-UK had incurred recurring losses, had an accumulated deficit and required additional funding to further its research and development. Therefore, the Company believes that its investment in Evolve-UK has nominal value. Accordingly, no gain was recorded by the Company on the exchange and, as the Company does not have the ability to exercise significant influence over Evolve-UK's operating and financial policies, its investment in Evolve-UK has been accounted for at cost with a carrying value of zero. 55 (4) Summary Financial Information Financial information with respect to the Company's Australian affiliates is included in the accompanying financial statements based on the affiliates' fiscal year ended June 30, except for fiscal 2006. Due to the sale of the Company's interests in GPTA and eCash, operating results are included through August 31, 2006, the effective date of the sale of the entities. The following summary financial information reflects the combined operating results for their fiscal years ended June 30, 2006 and 2005, and for the two months ended August 31, 2006. (in thousands)

(5) Inventory The following is a summary of the composition of inventory: September 30 ------------------------------------- 2007 2006 ---------------- ------------------ (In thousands) Raw materials $ 2,457 $ 4,104 Work-in-progress 544 358 Finished goods 767 578 ---------------- ------------------ $ 3,768 $ 5,040 ================ ================== 56 (6) Property and Equipment, Net Major classifications of property and equipment are as follows:

Depreciation and amortization expense was $595,000, $646,000, and $916,000 for the fiscal years ended September 30, 2007, 2006 and 2005, respectively. (7) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: 2007 2006 ----------- -------------- Accrued legal and accounting $ 177 $ 132 Warranty costs 108 309 Accrued commissions - 4 Customer Deposits 184 110 Administrative and other 467 $ 694 ----------- -------------- Total $ 936 $ 1,249 =========== ============== 57 (8) Debt On March 16, 2004, the Company received aggregate proceeds of $1,500,000 from the sale to Laurus Master Fund Ltd. ("Laurus") of a $1,500,000 principal amount secured convertible term note due in March 2007 (the "CTN"), pursuant to a Securities Purchase Agreement. The CTN was convertible into common stock of the Company at any time at the rate of $4.26 of principal for one share of common stock and was collateralized by substantially all assets of the Company. Interest was payable monthly at the prime rate plus 1.5%, with a minimum rate of 6%. In addition, Laurus received 7 year warrants to purchase an aggregate of 200,000 shares of the Company's common stock at per share prices of $4.87, $5.28 and $5.68 for 100,000, 60,000 and 40,000 warrants, respectively. Under the agreement, the Company was restricted from paying dividends or purchasing treasury stock. The Company utilized approximately $1,200,000 of the proceeds to repay amounts outstanding under a previous credit agreement. At September 30, 2004, $1,425,000 was outstanding under the CTN. During the year ended September 30, 2005, the Company repaid $50,000 and Laurus converted the remaining $1,375,000 of the CTN into 323,000 shares of common stock, resulting in the full repayment of the CTN. As a result of the CTN being fully repaid, $29,000 of unamortized closing costs related to the CTN were charged to operations in the year ended September 30, 2005. The value allocated to the warrants resulted in a debt discount of $506,000 that was being recognized as interest expense over the term of the CTN. Additionally, by allocating value to the warrants, Laurus received a beneficial conversion feature in the amount of $304,000 that resulted in additional debt discount that was being recognized as interest expense over the term of the CTN. Interest expense was computed utilizing the interest method, which results in an effective yield over the term of the CTN. As the CTN was converted, the unamortized discount related to the amount converted was immediately recognized as interest expense and charged to operations. Amortization for the year ended September 30, 2005 was $568,000. On March 16, 2004, the Company also entered into a Security Agreement with Laurus which provides for a credit facility of $2,500,000 consisting of a secured revolving note of $1,750,000 (the "RN") and a secured convertible minimum borrowing note of $750,000 (the "MBN"), both of which were originally due in March 2007 and which were extended through November 15, 2007 (the RN and the MBN notes collectively referred to as the "LOC"). At closing, the Company borrowed $750,000 under the MBN. Funds available under the LOC are determined by a borrowing base equal to 85% and 70% of eligible domestic and foreign accounts receivable, respectively, and 50% of eligible inventory. Outstanding amounts under the RN and MBN are convertible into common stock of the Company at any time at the rate of $4.26 of principal for one share of common stock and are collateralized by substantially all assets of the Company. Interest is payable monthly at the prime rate plus 1.5%, with a minimum rate of 6%. During the year ended September 30, 2005, Laurus converted $750,000 of the MBN into 176,000 shares of common stock. At September 30, 2007 and 2006, $353,000 and 0 were outstanding under the LOC. The agreements, as amended on June 18, 2007, provide that Laurus would not convert debt or exercise warrants to the extent that such conversion or exercise would result in Laurus, together with its affiliates, beneficially owning more than 9.99% of the number of outstanding shares, including warrants, of the Company's common stock at the time of conversion or exercise. The June 18, 2007 amendment provides Laurus with 275,000 shares of fully paid and nonassessable restricted shares of the common stock of the Company and a Common Stock Purchase Warrant immediately exercisable for 75,000 shares of Common Stock of the Company at $0.01 per share which does not have an expiration date. The Company valued the shares and warrant at $206,000 ($.59 per share), the market value of the Company's common stock at the date of the amendment. Such amount has been recorded as deferred debt costs with a corresponding credit to additional paid-in capital and is being amortized through November 15, 2007, the maturity date. Amortization for 2007 amounted to $143,000. The Company also paid Laurus $25,000 in connection with a prior amendment that had extended the due date to May 16, 2007, which was charged to operations in 2007. 58 The Company's credit facility with Laurus was paid in full on the maturity date of November 15, 2007. The facility was terminated. Registration rights agreements were entered into with Laurus which require the Company to file registration statements for the resale of the common stock issuable upon conversion of the notes and upon the exercise of the warrants and to use commercially reasonable efforts to have the registration statements declared effective by the end of a specified grace period. In addition, the Company is required to use commercially reasonable efforts to maintain the effectiveness of the registration statements until all such common stock has been sold or may be sold without volume restrictions pursuant to Rule 144(k) of the Securities Act. If the Company fails to have the registration statements declared effective within the grace period or if effectiveness is not maintained, the agreements require cash payments of liquidated damages by the Company to Laurus at 1.0% per month, with respect to the CTN or the warrants, and 2.0% per month, with respect to the MBN, of the respective original principal amounts until the failure is cured. The registration statement was filed and declared effective within the specified grace period. The Company accounts for the registration rights agreements as separate free-standing financial instruments and accounts for the liquidated damages provisions therein as a derivative liability subject to the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). Accordingly, the liability is recorded at estimated fair value based on an estimate of the probability and costs of potential cash penalties and is revalued at each balance sheet date with changes in value recorded in other income. As of September 30, 2007 no liability was recorded as the Company deemed the fair value of any potential cash settlement relating to maintaining effectiveness of the registration statements to be nominal. In May, 2005, the Company entered into a capital lease agreement for machinery in the amount of $130,000. The note is to be repaid in monthly installments of $4,040 over a three year period. Interest is being charged at a rate of 7.44% per annum. The balance at September 30, 2007 and 2006 was $31,000 and $76,000, respectively. In March, 2006, the Company entered into a capital lease agreement for machinery in the amount of $31,000. The note is to be repaid in monthly installments of $1,381 over a two year period. Interest is being charged at a rate of 7.25% per annum. The balance at September 30, 2007 and 2006 was $9, 000 and $24,000 respectively. Outstanding debt with respect to the capital lease as of September 30, 2007 and 2006 is as follows: (In thousands) 2007 2006 ------------- ------------ Total debt $ 41 $ 106 Less amount representing interest (1) (6) ------------- ------------ Net 40 100 Less current portion (40) (60) ------------- ------------ Long term debt $ - $ 40 ============= ============ 59 (9) Share-Based Payments Options The Company has several stock option plans in effect covering in the aggregate 2,300,000 of the Company's common shares pursuant to which officers, directors and key employees of the Company and consultants to the Company are eligible to receive incentive and/or nonqualified stock options. The 1994 and 1996 stock option plans expired on October 17, 2004 and March 18, 2006, respectively, and the 2000 and 2006 stock option plans expire on January 25, 2010 and March 7, 2016, respectively, after which no more option grants may be issued under such plans. The stock option plans are all administered by the Compensation Committee of the Board of Directors. The selection of participants, grant of options, determination of price and other conditions relating to the exercise of options are determined by the Compensation Committee of the Board of Directors and administered in accordance with the stock option plans as approved by the shareholders. Incentive stock options granted under these various plans are exercisable for a period of up to 10 years from the date of grant at an exercise price which is not less than the fair market value of the common shares on the date of the grant, except that the term of an incentive stock option granted under each of the plans to a shareholder owning more than 10% of the outstanding common shares may not exceed five years and its exercise price may not be less than 110% of the fair market value of the common shares on the date of the grant. Options granted under these various plans generally vest over three or four years and expire seven or ten years from the date of grant, while certain options vest over one and one-half years and expire seven years from the date of grant. The Company expects to issue new shares upon stock option exercises, but has treasury shares that could be used for this purpose. During fiscal 2005, a total of 32,500 incentive stock options and 127,000 nonqualified options were granted. All options granted in 2005 were to become exercisable over varying terms up to four years. On September 8, 2005, prior to the adoption of SFAS 123R, the Company accelerated the vesting of unvested stock options previously awarded to employees, officers and directors of the Company (see note 2(o). During fiscal 2006, a total of 830,000 nonqualified options were granted. All options granted in 2006 were to become exercisable over varying terms up to four years. There were no options granted in fiscal 2007. 60 A summary of the Company's stock option plans activity as of September 30, 2007, and changes during the twelve months then ended is as follows:

In connection with the adoption of SFAS No. 123R, the Company reassessed its valuation technique and related assumptions. The Company estimates the fair value of stock options using a Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the expected term until exercise of the option, expected volatility of the Company's stock, the risk free interest rate, option forfeiture rates, and dividends, if any. The expected term of the options is calculated using the midpoint of the vesting date and the expected life of the grant consistent with the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 107. The expected volatility is derived from the historical volatility of the Company's stock for a period that matches the expected life of the option. The risk-free interest rate is the yield from a treasury bond or note that is comparable in term to the expected life of the option. Option forfeiture rates are based on the Company's historical forfeiture rates. Expected dividends are based on the Company's history and the likelihood of future dividends. Compensation costs for stock options with graded vesting are recognized ratably over the vesting period. As of September 30, 2007 and 2006, there was $109,000 and $504,000, respectively of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.7 years and 2.2 years, respectively. The weighted-average grant-date fair value of options granted for the twelve months ended September 30, 2006 and 2005 was $0.81 and $3.16, respectively. The total intrinsic value of stock options exercised during the twelve months ended September 30, 2005 was $238,000. 61 The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 2006 2005 ----------------- ----------------- Expected volatility 39% - 50% 43% - 62% Weighted-average volatility 40.3% 49.0% Expected dividends 0.0% 0.0% Expected term (in years) 3.6 4.1 Risk-free interest rates 4.82% 4.18% Warrants As of September 30, 2007, there are 275,000 fully vested warrants outstanding to purchase the Company's common stock as follows: 100,000, 60,000 and 40,000 warrants with exercise prices of $4.87, $5.28 and $5.68, respectively, which expire in March 2011 and 75,000 warrants exercisable at $.01 with no expiration date (See Note 8). (10) Income Taxes For financial reporting purposes, (loss)/income before income taxes includes the following components: Fiscal years ended September 30 -------------------------------------------------- 2007 2006 2005 --------------- --------------- ---------------- (In thousands) Pretax (loss)/income: United States $ (5,100) $ (4,344) $ (541) Foreign (523) 203 (53) --------------- --------------- ---------------- $ (5,623) $ (4,141) $ (594) =============== =============== ================ The provision for (benefit from) income taxes consists of the following: 62 Fiscal years ended September 30 -------------------------------------------------- 2007 2006 2005 --------------- --------------- ---------------- (In thousands) Current: Federal $ (32) $ -- $ -- State and local 2 (21) --------------- --------------- ---------------- (32) 2 (21) --------------- --------------- ---------------- Deferred: Federal -- -- -- State and local -- -- -- --------------- --------------- ---------------- -- -- -- --------------- --------------- ---------------- Total $ (32) $ 2 $ (21) =============== =============== ================ 63 Significant components of deferred tax assets and liabilities are as follows: September 30 -------------------------------- 2007 2006 --------------- --------------- (In thousands) Deferred tax assets: Accounts receivable $ 20 $ 41 Inventory 436 609 Accrued expenses and other, net 44 127 GPT-Europe losses and cumulative translations adjustments 512 271 Stock option expenses 93 -- Tax NOL carryforwards 5,212 3,425 --------------- --------------- Deferred tax asset 6,317 4,473 Less: Valuation allowance (a) (6,225) (4,202) --------------- --------------- 92 271 Deferred tax liability: Property, plant and equipment (92) (271) --------------- --------------- Net deferred taxes $ -- $ -- =============== =============== (a) The Company has incurred significant operating losses in the fiscal years 2007, 2006, and 2005. Due to the recurring losses and because of the uncertainty as to the Company's ability to generate sufficient taxable income to realize the value of its deferred tax asset the Company provided a full valuation allowance to offset its deferred tax asset. This valuation allowance will be periodically assessed and may be partially or wholly reversed in the future. As of September 30, 2007, the Company has a net operating loss carryforward of $14,278,557 which expires between 2023 through 2027. Reconciliation of the statutory Federal income tax rate to the Company's effective tax rate is as follows:

64 (11) Commitments and Contingency (a) Minimum Lease Commitments The operations of the Company are conducted in leased premises. At September 30, 2007, the approximate minimum annual rentals under these leases, which expire through fiscal year 2014, were as follows: Fiscal Year ---------------- 2008 $ 321 2009 242 2010 249 2011 255 2012 263 Thereafter 591 --------------- Total $ 1,921 --------------- Total rent expense for all operating leases was $473,000, $516,000, and $460,000 in fiscal 2007, 2006, and 2005, respectively. (b) Purchase Commitment At September 30, 2007 the Company had entered into purchase order commitments of approximately $4.0 million which will be used for production requirements during fiscal 2008 and beyond. (c) Litigation The Company is a defendant in matters which arose in the ordinary course of business. In the opinion of management, the ultimate resolution of this matter would not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. The Company believes that an adequate provision has been made in the consolidated financial statements. (12) Subsequent Events On January 15, 2008, Global Payment Technologies, Inc. (the "Company") entered into a Securities Purchase Agreement (the "Purchase Agreement") with Exfair Pty Ltd, an Australian company ("Exfair") and GPTA. The transactions contemplated thereunder are expected to be consummated at two closings (as discussed below). First Closing 65 At the first closing on January 15, 2008 (the "First Closing"), the Company issued to GPTA a one-year secured term note in the principal amount of $440,000 (the "Secured Note") that bears interest at a rate equal to the prime rate plus 3.0% (provided, that the interest rate shall not be less than 9.0%) and is secured by all the assets of the Company pursuant to a Security Agreement (the "Security Agreement"). Additionally, the Company entered into a Voting Agreement with Exfair and certain director-stockholders of the Company, wherein such stockholders agreed to vote in favor of (i) the election of certain persons to the Board of Directors of the Company and (ii) an amendment to Company's Certificate of Incorporation establishing a class of Preferred Stock (as discussed below). Additionally, the Company entered into a Technology License Agreement with GP Australia, pursuant to which the Company has agreed to grant a license to GP Australia to utilize certain databases and proprietary operating systems if the Company is unable or willing to continue to provide support for such databases and operating systems of the Company, and the parties thereto further agreed that if the Company commences bankruptcy proceedings, then the Company would permit GPTA to duplicate any of the Company's intellectual property as of the commencement of such bankruptcy proceedings. GPTA and the Company also agreed to make certain technical amendments to the Distribution Agreement dated September 1, 2006. Second Closing At the second closing, which will only occur upon the Company filing its Annual Report on Form 10-K with the Securities and Exchange Commission (the "SEC") by the date set forth in the Purchase Agreement (the "Second Closing"), the Company will issue (i) a Convertible Note (the "Convertible Note") in the principal amount of $400,000 to Exfair, which note may be converted into two million shares of Series A Convertible Preferred Stock, par value US$0.01 per share, of the Company (the "Preferred Stock") and (ii) a four-year Common Stock Purchase Warrant (the "Warrant") to purchase 5,784,849 shares of Common Stock of the Company at an exercise price of $0.28 per share. The Convertible Note matures in June 2009. The Company's failure to file its Annual Report on Form 10-K with the SEC by the date set forth in the Secured Note constitutes an event of default thereunder which would allow GPTA to accelerate the Secured Note and declare all indebtedness, including principal, accrued interest and all other payments under the Secured Note to be immediately due and payable. Effective as of the consummation of the Second Closing, all current Company directors except Richard Gerzof will resign and new directors appointed. In addition, the Company will enter into an Employment Agreement with Mr. Soussa, pursuant to which he will be employed as the Company's Chief Executive Officer for a two-year term commencing on the date of the Second Closing at an annual base salary of $300,000. Mr. Soussa will also be awarded options to purchase 500,000 shares of the Company's Common Stock in accordance with the Company's stock option plan. In connection with the transactions contemplated by the Purchase Agreement, effective as of the Second Closing, William McMahon will resign as a director of the Company and as its Chief Executive Officer. William McMahon will remain at the Company as its President and Chief Financial Officer and enter into a new Employment Agreement with the Company for a two-year term with an annual base salary of $200,000. Mr. McMahon will also be awarded options to purchase 250,000 shares of the Company's Common Stock in accordance with the Company's stock option plan. 66 The Company has agreed to seek the approval of the stockholders of the Company to amend the Certificate of Incorporation to authorize a class of Preferred Stock. Upon the approval of such amendment and the filing thereof with the Secretary of State of the State of Delaware, the Convertible Note will automatically be converted into 2,000,000 shares of Series A Convertible Preferred Stock, par value US$0.01 per share, with such rights and preferences, including, but not limited to: (a) Voting Rights. During the first 18 months after the designation of the Series A Preferred Stock, each holder of shares of the Series A Preferred Stock shall be entitled to five (5) times the number of votes equal to the number of shares of Common Stock into which such Holder's shares of Series A Preferred Stock could be converted and after such first 18 month period, each holder of shares of the Series A Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such Holder's shares of Series A Preferred Stock could be converted. During the first 18 months after the designation of the Series A Preferred Stock, so long as any shares of Series A Preferred Stock are outstanding, the holders of Series A Preferred Stock shall be entitled to designate three (3) members of the Board of Directors. During the first 18 months after the Series A Preferred Stock has been designated, if the number of members of the Board of Directors is increased to more than five (5), the number of directors designated by the holders of Series A Preferred Stock shall increase such that the Series A Preferred Stock shall designate a majority of the number of authorized Board of Director members. (b) Dividends. The Series A Preferred Stock will, with respect to payment of dividends and rights upon liquidation, dissolution or winding-up of the affairs of the Company, rank senior and prior to the Common Stock of the Company, and any additional series of preferred stock which may in the future be issued by the Company and are designated in the amendment to the Certificate of Incorporation or the certificate of designation establishing such additional preferred stock as ranking junior to the Series A Preferred Stock. The holders of the Series A Preferred Stock will be entitled to receive dividends if, when and as declared by the Board of Directors from time to time, and in amounts determined by the Board of Directors; provided, however, no dividends shall be paid on any share of Common Stock unless a dividend is paid with respect to all outstanding shares of Series A Preferred Stock in an amount for each such share of Series A Preferred Stock equal to or greater than the aggregate amount of such dividends for all shares of Common Stock into which each such share of Series A Preferred Stock could then be converted. (c) Liquidation Value. The liquidation value per share of Series A Preferred Stock, in case of the voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Company, will be an amount equal to $0.20, subject to adjustment in the event of a stock split, stock dividend or similar event applicable to the Series A Preferred Stock. (d) Additional Issuances of Securities. Except for certain issuances by the Company, If, at any time while the Series A Preferred Stock is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice its securities, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the then applicable conversion price, then the conversion price shall be reduced to such lower price. 67 (e) Modification of Series A Preferred Stock. So long as any shares of Series A Preferred Stock remain outstanding, the Company, shall not, without the vote or written consent by the holders of more than fifty percent (50.0%) of the outstanding Series A Preferred Stock, voting together as a single class, and unless approved by the Board of Directors: (i) redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking or other analogous fund for such purpose) any share or shares of its Capital Stock, except for conversion into or exchange for stock junior to the Series A Preferred Stock; (ii) alter, modify or amend the terms of the Series A Preferred Stock in any way; or (iii) create or issue any Capital Stock of the Company ranking pari passu with or senior to the Series A Preferred Stock either as to the payment of dividends or rights in liquidation, dissolution or winding-up of the affairs of the Company; increase the authorized number of shares of the Series A Preferred Stock; re-issue any Series A Preferred Stock which have been converted or otherwise acquired by the Company in accordance with the terms hereof. The Board of Directors awarded Richard Gerzof, Chairman of the Board of the Company, immediately exercisable options to purchase 250,000 shares of Common Stock of the Company at an exercise price of $0.20 per share, the fair market value as of the date of grant. The Board of Directors also awarded Elliott Goldberg, Matthew Dollinger and William Wood, directors, immediately exercisable options to purchase 100,000, 18,500 and 3,500 shares of Common Stock, respectively, at the exercise price of $0.20 per share, the fair market value as of the date of grant. The Board of Directors also amended the Company's 2006 Stock Option Plan to eliminate the requirement that options must be exercised, to the extent they were exercisable, within a three month period following the date of termination of employment or directorship, even if by disability or death. 68 Report of Independent Registered Public Accounting Firm The Board of Directors Global Payment Technologies, Inc We have audited the accompanying balance sheets of Global Payment Technologies Australia Pty Ltd as of August 31, 2006 and June 30, 2006 and the related statement of operations, stockholders' equity, and cash flows for the period ended August 31, 2006 and year ended June 30, 2006. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in all material respects, the financial position of the Global Payment Technologies Australia Pty Ltd as of August 31, 2006 and June 30, 2006, and the results of its operations and its cash flows for the period ended August 31, 2006 and year ended June 30, 2006 in conformity with US generally accepted accounting principles. /s/ Pitcher Partners, Sydney, Australia 11th January 2007 69 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Balance Sheets August 31, 2006 and June 30, 2006

See accompanying notes to financial statements. 70 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Statements of Operations Period ended August 31, 2006 and year ended June 30, 2006 T August 2006 June 2006 ---------------- ----------------- Servicing income 18,728 191,184 Net sales A$ 1,821,998 10,963,570 ---------------- ----------------- Total sales 1,840,726 11,154,754 Cost of goods sold - GPT Inc (1,543,403) (9,070,800) - Other (11,652) (193,266) ---------------- ----------------- Gross profit 285,671 1,890,688 Selling, general and administrative expenses (263,056) (1,834,094) ---------------- ----------------- Operating income 22,615 56,594 Other income (expense): Interest income 19,868 114,593 Other sundry income 5,817 12,000 ---------------- ----------------- Income before income taxes 48,300 183,187 Income taxes (14,489) (61,603) ---------------- ----------------- Net income 33,811 121,584 ================ ================= See accompanying notes to financial statements 71 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Statements of Stockholders' Equity Period ended August 31, 2006 and year ended June 30, 2006 Common Retained Total Stock Earnings Stockholders' Equity ---------------- ----------- ---------------- Balances at June 30, 2006 A$ 20,000 4,977,662 4,997,662 Net income - 33,811 33,811 ---------------- ----------- ---------------- Balances at August 31, 2006 20,000 5,011,473 5,031,473 ================ =========== ================ See accompanying notes to financial statements 72 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Statements of Cash Flows Period ended August 31, 2006 and year ended June 30, 2006 August 2006 June 2006 --------------- ------------ Net income A$ 33,811 121,584 Adjusted to reconcile net income to net cash provided by operating activities: Depreciation and amortisation of property, plant and equipment 7,000 35,226 Write off of obsolete stock - 17,024 (Increase) / decrease in trade accounts receivable (340,152) 1,998,068 (Increase) / decrease in inventories 806,181 2,966,636 (Increase) / decrease in other assets 254 (18,685) (Increase) / decrease in intercompany receivables (15,769) 942,037 Increase / (decrease) in trade accounts payable 142,954 (4,190,257) Increase / (decrease) in accrued liabilities 19,674 7,276 (Increase) / decrease in deferred income taxes - (18,732) Increase / (decrease) in income tax provision (24,620) (2,955) (Increase) / decrease in income tax receivable - - --------------- ------------ Net cash provided by/ (used in) operating activities 629,333 1,857,222 --------------- ------------ Cash flows from investing activities: Capital expenditures, including interest capitalized (10,510) (9,910) --------------- ------------ Net cash used in investing activities (10,510) (9,910) --------------- ------------ Cash flows from financing activities: Dividends paid - (800,000) --------------- ------------ Net cash used in financing activities - (800,000) --------------- ------------ Net decrease in cash and cash equivalents 618,823 1,047,312 Cash and cash equivalents at beginning of year 2,405,739 1,358,427 --------------- ------------ Cash and cash equivalents at end of year A$ 3,024,562 2,405,739 =============== ============ See accompanying notes to financial statements 73 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements August 31, 2006 and June 30, 2006 1. Summary of Significant Accounting Policies and Practices a) Description of Business Global Payment Technologies Australia Pty Limited (the "Company") distributes and services paper currency validating equipment used in gaming and vending machines in Australia and other countries. There were no significant changes in the nature of the Company's principal activity during the fiscal period. b) Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience by industry and national economic data. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Concentration of credit risk The Company's largest customer represented 35.1% (June 2006: 29.1%) of trade accounts receivable as of August 31, 2006 and 63.2% (June 2006: 66.8%) of sales for the fiscal period ended August 31, 2006. Two other customers represented 27% or more of net sales and trade accounts receivable as of and for the period ended August 31, 2006. c) Inventories Inventories are stated at the lower cost or market value. Cost is determined using the first-in, first-out method for all inventories. d) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The depreciation rates range from 7.5% to 33.33% (June 2006: 7.5% to 33.33%). e) Other Current Assets and Other Assets Other assets are comprised of prepaid expenses and other non-trade receivables. f) Income Taxes 74 Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 75 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements August 31, 2006 and June 30, 2006 1) Summary of significant Accounting Policies and Practices (cont) g) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. h) Impairment of Long-Lived Assets Long-Lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases. The Company did not recognize any impairment adjustments in August 2006 (June 2006: nil). i) Revenue Recognition The Company recognizes revenue upon shipment of products and passage of title to its customers, or at the time services are completed with respect to repairs not covered by warranty agreements. j) Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and or remediation can be reasonably estimated. No such amounts were recorded in August 2006 and June 2006. k) Advertising expenses Advertising expenses are recognized in the statement of operations as incurred. l)Cash and cash equivalents 76 Cash and cash equivalents comprise cash on hand, cash at bank and term deposits with banking institutions. The Term Deposits are for a period of 30 days. These have been rolled over since year-end. Cash at bank includes cash denominated in Australian and US dollars. US dollar denominated bank accounts are restated at year-end to spot rates at year-end with the gain recognized in the Statement of Operations. 77 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements August 31, 2006 and June 30, 2006 2) Income Taxes All pre tax income is derived from domestic operations. Total income taxes for the period ended August 31, 2006 and year ended June 30, 2006 consist of: Current Deferred Total ---------- ------------- --------- Period ended August 31, 2006: A$ 14,489 - 14,489 ========== ============= ========= Year ended June 30, 2006: A$ 80,335 (18,732) 61,603 ========== ============= ========= Income tax expense was $14,489 and $61,603 for the period ended August 31, 2006 and year ended June 30, 2006 respectively, and differed from the amounts computed by applying the Australian federal income tax rate of 30% (June 2006: 30%) to pre tax income as a result of the following: August 2006 June 2006 -------------- ----------- Computed "expected" tax A$ 14,489 54,956 expense Other, net - 6,647 -------------- --------- A$ 14,489 61,603 ============== ========= 78 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements August 31, 2006 and June 30, 2006 2) Income Taxes (continued) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at August 31, 2006 and June 30, 2006 are presented below. August 2006 June 2006 At 30 % tax rate At 30% tax rate ----------------- --------------- Deferred tax assets: Accounts receivable principally due to A$ allowance for doubtful accounts 3,000 3,000 Inventory 10,731 10,731 Employee leave entitlements 50,185 50,185 Bonus provision 116,145 116,145 Unrealised foreign exchange movements 8,223 8,223 Other 25,257 25,257 ----------------- --------------- Total gross deferred tax assets 213,541 213,541 ----------------- --------------- Net deferred tax assets 213,541 213,541 ================= =============== In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realised. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods, which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences at August 31, 2006. 79 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements August 31, 2006 and June 30, 2006 3) Pension and Other Post Retirement Benefits The Company contributed to a defined contribution superannuation fund on behalf of its employees. Contributions are based upon Australian statutory minimum percentage of salary plus any additional contributions included in employee's employment agreement. The company contributed A$23,986 and A$93,188 during August 2006 and June 2006 respectively to the fund. There were no contributions outstanding at year-end. The Company does not sponsor any other post employment benefits for its employees. 4) Accrued Liabilities August 2006 June 2006 Goods and services tax payable A$ 78,018 58,207 Accrued expenses 467,845 467,982 Provision for employee leave 167,283 167,283 Warranty provision 75,000 75,000 --------------- ------------ A$ 788,146 768,472 =============== ============ 5) Commitments Non cancellable operating lease commitments Future operating lease commitments August 2006 June 2006 not provided for in the financial statements and payable: Within one year A$ 166,000 181,000 One to two years 188,000 188,000 Two to three years 15,000 15,000 ---------------- ----------- A$ 369,000 384,000 ---------------- ----------- The Company leases property under a non-cancellable 4 year operating lease expiring in July 2006. The company exercised the option in July 2004 to extend the lease for two years. The Company has not entered into any capital leases. 6) Cost of Goods Sold 80 August 2006 June 2006 Opening Inventory (excluding stock inA$ transit) 2,968,716 5,300,666 Add Purchases - GPT Inc 751,346 6,521,841 Purchases - Other 3,300 248,594 Freight and other charges 11,652 161,681 ----------------- -------------- 3,735,014 12,232,782 Less Ending Inventory (excluding stock in transit) (2,179,959) (2,968,716) ----------------- -------------- Cost of Goods Sold A$ 1,555,055 9,264,066 ================= ============== 81 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements August 31, 2006 and June 30, 2006 7) Related parties The company was 50% owned by Global Payment Technologies, Inc, a company incorporated in the United States of America. Global Payment Technologies, Inc disposed of its interest on 4 September 2006 to ACN 121 187 068 Pty Limited, a company domiciled in Australia. The other 50% is owned by a private trust of which the Managing Director of the company is a beneficiary. During the period, the Company purchased inventories from Global Payment Technologies, Inc., which totalled $739,870 (June 2006: $6,521,841). An amount of A$1,702,173 payable to Global Payment Technologies, Inc is included in Trade accounts payable at balance date (June 2006: $1,612,556). As of August 31, 2006 the Company had receivables from eCash Holdings Pty Limited of $82,908, (June 2006: $67,139) which were primarily attributable to payments made by the Company on behalf of eCash Holdings Pty Limited to employees and vendors of eCash Holdings Pty Limited. Interest is charged on the balance at the rate of 7% p.a. This amount has been repaid since balance date. During the period, the Company had sales to eCash Holdings Pty Limited totalling $Nil (June 2006: $1,836). An amount of $Nil is included in Trade accounts receivable at balance date (June 2006: $Nil). For the period ended August 31, 2006 and the year ended 30 June 2006, the Company charged eCash Holdings Pty Limited a management fee for administrative tasks conducted by the Company on behalf of eCash Holdings Pty Limited, which is included in other sundry income in the accompanying statement of operations. eCash Holdings Pty Limited was owned 35% by Global Payment Technologies, Inc., 35% by the private trust of the Managing Director of the Company, and 30% by an unrelated third party. Global Payment Technologies, Inc disposed of its interest on 25 August 2006 to ACN 121 187 068 Pty Limited, a company domiciled in Australia. There were no other transactions with related parties. 82 Report of Independent Registered Public Accounting Firm The Board of Directors Global Payment Technologies, Inc We have audited the accompanying balance sheets of Global Payment Technologies Australia Pty Ltd as of June 30, 2006 and 2005, and the related statement of operations, stockholders' equity, and cash flows for the years ended June 30, 2006 and 2005. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in all material respects, the financial position of the Global Payment Technologies Australia Pty Ltd as of June 30, 2006 and 2005, and the results of its operations and its cash flows for the years ended June 30, 2006, 2005 and 2004 in conformity with US generally accepted accounting principles. /s/ Pitcher Partners, Sydney, Australia 11th January 2007 83 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Balance Sheets June 30, 2006 and 2005

See accompanying notes to financial statements. 84 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Statements of Operations Years ended June 30, 2006, 2005 and 2004

See accompanying notes to financial statements 85 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Statements of Stockholders' Equity Years ended June 30, 2006, 2005 and 2004 Common Retained Total Stock Earnings Stockholders' Equity -------------- -------------- ---------------- Balances at June 30, 2003 A$ 20,000 4,550,706 4,570,706 Net income (unaudited) - 945,426 945,426 Dividends declared - (600,000) (600,000) -------------- -------------- ---------------- Balances at June 30, 2004 A$ 20,000 4,896,132 4,916,132 Net income - 759,946 759,946 Dividends declared - - - -------------- -------------- ---------------- Balances at June 30, 2005 A$ 20,000 5,656,078 5,676,078 Net income - 121,584 121,584 Dividends declared - (800,000) (800,000) -------------- -------------- ---------------- Balances at June 30, 2006 20,000 4,977,662 4,997,662 ============== ============== ================ See accompanying notes to financial statements 86 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Statements of Cash Flows Years ended June 30, 2006, 2005 and 2004

See accompanying notes to financial statements 87 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements June 30, 2006, 2005 and 2004 2. Summary of Significant Accounting Policies and Practices a) Description of Business Global Payment Technologies Australia Pty Limited (the "Company") distributes and services paper currency validating equipment used in gaming and vending machines in Australia and other countries. There were no significant changes in the nature of the Company's principal activity during the fiscal year. b) Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience by industry and national economic data. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Concentration of credit risk The Company's largest customer represented 29% (2005: 33% and 2004: 47%) of trade accounts receivable as of June 30, 2006 and 67% (2005: 54% and 2004: 59%) of sales for the fiscal year ended June 30, 2006. Two other customers represented 29.5% (2005: 12%) or more of net sales and trade accounts receivable as of and for the year ended June 30, 2006. c) Inventories Inventories are stated at the lower cost or market value. Cost is determined using the first-in, first-out method for all inventories. d) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The depreciation rates range from 7.5% to 33.33% (2005: 7.5% to 27%; 2004: 7.5% to 27%). e) Other Current Assets and Other Assets Other assets are comprised of prepaid expenses and other non-trade receivables. 88 g) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 89 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements June 30, 2006, 2005 and 2004 1) Summary of significant Accounting Policies and Practices (cont) l) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. m) Impairment of Long-Lived Assets Long-Lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases. The Company did not recognize any impairment adjustments in fiscal 2006 (2005: nil; 2004: nil). n) Revenue Recognition The Company recognizes revenue upon shipment of products and passage of title to its customers, or at the time services are completed with respect to repairs not covered by warranty agreements. o) Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and or remediation can be reasonably estimated. No such amounts were recorded in fiscal 2006, 2005 or 2004. p) Advertising expenses Advertising expenses are recognized in the statement of operations as incurred. 90 l)Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash at bank and term deposits with banking institutions. The Term Deposits are for a period of 30 days. These have been rolled over since year-end. Cash at bank includes cash denominated in Australian and US dollars. US dollar denominated bank accounts are restated at year-end to spot rates at year-end with the gain recognized in the Statement of Operations. 91 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements June 30, 2006, 2005 and 2004 2) Income Taxes All pre tax income is derived from domestic operations. Total income taxes for the years ended June 30, 2006, 2005 and 2004 consist of: Current Deferred Total ---------------------------------- Year ended June 30, 2006: A$ 80,335 (18,732) 61,603 ================================== Year ended June 30, 2005: A$ 291,251 37,134 328,385 ================================== Year ended June 30, 2004: A$ 115,975 291,214 407,189 ================================== Income tax expense was $61,603, $328,385 and $407,189 for the years ended June 30, 2006, June 30, 2005 and June 30, 2004, respectively, and differed from the amounts computed by applying the Australian federal income tax rate of 30% (2005: 30%; 2004: 30%) to pre tax income as a result of the following: 2006 2005 2004 ----------------------------------- Computed "expected" tax A$ 54,956 326,499 405,785 expense Other, net 6,647 1,886 1,404 ----------------------------------- A$ 61,603 328,385 407,189 =================================== 92 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements June 30, 2006, 2005 and 2004 6) Income Taxes (continued) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2006 and 2005 are presented below. 2006 2005 At 30 % tax At 30% tax rate rate ---------------------------- Deferred tax assets: Accounts receivable principally due to allowance for doubtful A$ 3,000 3,000 accounts Inventory 10,731 5,624 Employee leave entitlements 50,185 44,644 Bonus provision 116,145 94,897 Unrealised foreign exchange 8,223 21,357 movements Other 25,257 25,287 ---------------------------- Total gross deferred tax assets 213,541 194,809 ---------------------------- Net deferred tax assets 213,541 194,809 ============================ In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realised. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods, which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences at June 30, 2006. 93 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements June 30, 2006, 2005 and 2004 7) Pension and Other Post Retirement Benefits The Company contributed to a defined contribution superannuation fund on behalf of its employees. Contributions are based upon Australian statutory minimum percentage of salary plus any additional contributions included in employee's employment agreement. The company contributed A$93,188, A$83,304 and A$81,692 during fiscal years 2006, 2005 and 2004 respectively to the fund. There were no contributions outstanding at year-end. The Company does not sponsor any other post employment benefits for its employees. 8) Accrued Liabilities 2006 2005 Goods and services tax payable A$ 58,207 141,837 Accrued expenses 467,982 395,545 Provision for employee leave 167,283 148,814 Warranty provision 75,000 75,000 ---------------------------- A$ 768,472 761,196 ============================ 9) Commitments Non cancellable operating lease commitments Future operating lease commitments not provided for in the financial statements and payable: 2006 2005 Within one year A$ 181,000 210,000 One to two years 188,000 70,000 Two to three years 15,000 - ---------------------------- A$ 384,000 280,000 ============================ The Company leases property under a non-cancellable 4 year operating lease expiring in July 2006. The company exercised the option in July 2004 to extend the lease for two years. The Company has not entered into any capital leases. 94 6) Cost of Goods Sold 2006 2005 2004 Opening Inventory (excluding A$ stock in transit) 5,300,666 2,580,220 3,228,659 Add Purchases - GPT Inc 6,521,841 16,736,086 13,484,683 Purchases - Other 248,594 219,651 266,904 Freight and other charges 161,681 257,458 290,247 ---------------------------------- ---------------------------------- 12,232,782 19,793,415 17,270,493 Less Ending Inventory (excluding stock in transit) (2,968,716) (5,300,666)(2,580,220) ---------------------------------- Cost of Goods Sold A$ 9,264,066 14,492,749 14,690,273 ================================== 95 GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD Notes to Financial Statements June 30, 2006, 2005 and 2004 8) Related parties The company was 50% owned by Global Payment Technologies, Inc, a company incorporated in the United States of America. Global Payment Technologies, Inc disposed of its interest on 4 September 2006 to ACN 121 187 068 Pty Limited, a company domiciled in Australia. The other 50% is owned by a private trust of which the Managing Director of the company is a beneficiary. During the year, the Company purchased inventories from Global Payment Technologies, Inc., which totalled $6,521,841 (2005: $16,736,086). An amount of A$1,612,556 payable to Global Payment Technologies, Inc is included in Trade accounts payable at balance date (2005: $5,652,566). As of June 30, 2006 the Company had receivables from eCash Holdings Pty Limited of $67,139, (2005: $1,009,172) which were primarily attributable to payments made by the Company on behalf of eCash Holdings Pty Limited to employees and vendors of eCash Holdings Pty Limited. Interest is charged on the balance at the rate of 7% p.a. This amount has been repaid since balance date. During the year, the Company had sales to eCash Holdings Pty Limited totalling $1,836 (2005: $469,391). An amount of A$Nil is included in Trade accounts receivable at balance date (2005: $200,178). For the year ended June 30, 2006, the Company charged eCash Holdings Pty Limited a management fee for administrative tasks conducted by the Company on behalf of eCash Holdings Pty Limited, which is included in other sundry income in the accompanying statement of operations. eCash Holdings Pty Limited was owned 35% by Global Payment Technologies, Inc., 35% by the private trust of the Managing Director of the Company, and 30% by an unrelated third party. Global Payment Technologies, Inc disposed of its interest on 25 August 2006 to ACN 121 187 068 Pty Limited, a company domiciled in Australia. There were no other transactions with related parties. 96 Report of Independent Registered Public Accounting Firm The Board of Directors eCash Holdings Pty Limited We have audited the accompanying consolidated balance sheets of eCash Holdings Pty Limited and subsidiaries as of June 30, 2006 and 2005 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended June 30, 2006, 2005 and 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of eCash Holdings Pty Limited and subsidiaries as of June 30, 2006 and 2005, and the consolidated results of their operations and cash flows for the years ended June 30, 2006, 2005 and 2004, in conformity with US generally accepted accounting principles. /s/ Pitcher Partners, Sydney, Australia 11th January 2007 97 eCash Holdings Pty Limited and subsidiaries Consolidated Balance Sheets June 30, 2006

Commitments and contingencies (Note 1) See accompanying notes to the consolidated financial statements. 98 eCash Holdings Pty Limited and subsidiaries Consolidated Statements of Operations Year ended June 30, 2006

99 eCash Holdings Pty Limited and subsidiaries Consolidated Statements of Stockholders' Equity Year ended June 30, 2006

100 eCash Holdings Pty Limited and subsidiaries Consolidated Statements of Cash Flows Year ended June 30, 2006

101 eCash Holdings Pty Ltd and subsidiaries Notes to the Consolidated Financial Statements (1) Summary of Significant Accounting Policies and Practices (a) Description of Business eCash Holdings Pty Ltd (the "Company") was incorporated on 13 October 1999 and remained dormant until the 2002 financial year. The company operates in the distribution and servicing of automatic teller machines. In 2002, the Company did not trade, rather it allowed a related party to trade on its behalf under an agreed contractual arrangement and in return an agency fee was received. In 2003, the Company commenced trading in its own right. On 17 July 2003 the company changed its name from eCash Pty Limited to eCash Holdings Pty Limited. (b) Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience by industry and national economic data. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Concentration of credit risk The Group's largest ATM sales customer, represented 57.9% (2005: 43.6%) and (2004: 0%) of trade accounts receivable as of June 30, 2006 and 76.5% (2005: 31%) and (2004: 0%) of sales for the fiscal year ended June 30, 2006. The Group's largest ATM rebate customer, represented 0% (2005: 44.6%) of trade accounts receivable as of June 30, 2006 and 100% (2005: 100% and 2004: 100%) of rebate income for the fiscal year ended June 30, 2006. (c) Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method for all inventories. (d) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The depreciation rates range from 7.5% to 21% (2005: 7.5% to 21%) and (2004: 7.5% to 21%). (e) Other Current Assets and Other Assets Other assets are comprised of rental bonds, prepaid expenditure, and other non-trade receivables. 102 eCash Holdings Pty Ltd and subsidiaries Notes to the Consolidated Financial Statements (1) Summary of Significant Accounting Policies and Practices (cont) (f) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Capital gains tax, if applicable, is provided for in establishing period income tax expense when an asset is sold. (g) Use of estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (h) Impairment of Long-Lived Assets Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases. An impairment loss is recognised to the extent that the carrying amount exceeds the asset's fair value. The Company did not recognise any impairment adjustments in fiscal 2006, 2005 and 2004. (i) Revenue Recognition The Company recognises revenue when products are shipped and the customer takes ownership and assumes risk of loss. Interest income is recognised as it accrues. Service revenue is recognised as the services are provided. Rebate income is brought to account at the time the rebate is earned. 103 (j) Commitments and Contingencies Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. (k) Advertising expenses Advertising expenses are recognised in the statement of operations as incurred. 104 eCash Holdings Pty Ltd and subsidiaries Notes to the Consolidated Financial Statements (1) Summary of Significant Accounting Policies and Practices (cont) (l) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash at bank and term deposits with banking institutions. Cash at bank includes cash denominated in Australian and US dollars. US dollar denominated bank accounts are restated at year-end to spot rates at year-end with the gain/loss recognised in the Statement of Operations. (m) Consolidation The consolidated financial statements of the consolidated entity include the financial statements of the Company, being the chief entity, and its controlled entities ("the consolidated entity"). Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased. The balances and effects of transactions, between controlled entities included in the consolidated financial statements have been eliminated. (n) Investments in controlled entities Capital ATM Pty Limited was incorporated on 17 March 2003 with the eCash Holdings Pty Limited investing A$1 share capital at the date of incorporation acquiring a 100% interest. Custom Cash Pty Limited was incorporated on 18 March 2003 with the eCash Holdings Pty Limited investing A$1 share capital at the date of incorporation acquiring a 100% interest. eCash Pty Limited was incorporated on 24 July 2003 with eCash Holdings Pty Ltd investing $1 share capital at the date of incorporation acquiring 100% interest. eCash Management Pty Limited was incorporated on 12 September 2002 with eCash Holdings Pty Limited investing A$1 share capital at the date of incorporation acquiring 100% interest. (2) Income Taxes Total income tax (expense) credit for the years ended June 30, 2006, 2005 and 2004 consist of:

105 eCash Holdings Pty Ltd and subsidiaries Notes to the Consolidated Financial Statements (2) Income Taxes (cont) Income tax expense was A$947,655 for the year ended June 30, 2006 and a credit of A$415,028 for the year ended June 30, 2005 and an expense of $204,804 for the year ended June 30, 2004 and differed from the amounts computed by applying the Australian federal income tax rate of 30% (2005: 30%) and (2004: 30%) to pre tax income as a result of the following:

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at 30 June 2006 are presented below.

In assessing the realisability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realised. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. 106 eCash Holdings Pty Ltd and subsidiaries Notes to Consolidated Financial Statements (3) Pension and Other Post retirement Benefits The Company contributed to a defined contribution superannuation fund on behalf of its employees. Contributions are based upon Australian statutory minimum percentages of salary plus any additional contributions included in employee's employment agreement. The consolidated entity contributed A$35,680 during fiscal year 2006 (2005: A$32,022) and (2004: A$30,973). There were no contributions outstanding at year-end. The Company does not sponsor any other post employment benefits for its employees. (4) Accrued Liabilities

(5) Cost of Goods Sold

(6) Commitments Non cancellable operating lease commitments ------------------------------------------- The consolidated entity has no operating lease commitments. (7) Related parties The company was 35% owned by Global Payments Technology, Inc., is 35% owned by the private trust of the Managing Director of the Global Payment Technology Australia Pty Limited, and is 30% owned by the Marketing Director of Global Payment Technology Australia Pty Limited. Global Payments Technology, Inc. disposed of its interest on 25 August 2006 to ACN 121 187 068 Pty Limited, a company domiciled in Australia. 107 During the year the Group had purchases from Global Payment Technologies Australia Pty Limited totalling A$1,836 (2005: A$469,391) and (2004: A$415,787). An amount of A$0 (2005: A$200,178) and (2004: A$208,872) is included in Trade accounts payable at balance date. In addition the Group owed Global Payment Technologies Australia Pty Ltd A$67,139. (2005: A$1,009,172). Global Payment Technologies Australia Pty Limited, a related party, paid salary, rental and other administrative costs on behalf of the consolidated entity. These costs were recharged through the affiliate loan accounts. The company paid salary, rental and other administrative costs on behalf of its controlled entities. These amounts were recharged through the affiliate accounts. There were no other transactions with related parties. 108 eCash Holdings Pty Ltd and subsidiaries Notes to Consolidated Financial Statements (8) Discontinued Operations During the 30 June 2006 financial year the group disposed of its ATM rental business. The business had the following income and expenditure during the years ended 30 June 2006, 2005 and 2004:

The business had the following assets and liabilities at 30 June 2006 and 2005.

(9) Cash and Cash Equivalents Cash and cash equivalents are reconciled to the consolidated statement of cash flows as follows:

109 Report of Independent Registered Public Accounting Firm The Board of Directors eCash Holdings Pty Limited We have audited the accompanying consolidated balance sheets of eCash Holdings Pty Limited and subsidiaries as of August 31, 2006 and June 30, 2006 and the related consolidated statements of operations, stockholders' equity, and cash flows for the period ended August 31, 2006 and year ended June 30, 2006. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of eCash Holdings Pty Limited and subsidiaries as of August 31, 2006 and June 30, 2006, and the consolidated results of their operations and cash flows for the period ended August 31, 2006 and year ended June 30, 2006 in conformity with US generally accepted accounting principles. /s/ Pitcher Partners, Sydney, Australia 11th January 2007 110 eCash Holdings Pty Limited and subsidiaries Consolidated Balance Sheets August 31, 2006 and June 30, 2006

See accompanying notes to the consolidated financial statements. 111 eCash Holdings Pty Limited and subsidiaries Consolidated Statements of Operations Period ended August 31, 2006 and June 30, 2006

See accompanying notes to the consolidated financial statements. 112 eCash Holdings Pty Limited and subsidiaries Consolidated Statements of Stockholders' Equity Period ended August 31, 2006 and June 30, 2006

See accompanying notes to the consolidated financial statements. 113 eCash Holdings Pty Limited and subsidiaries Consolidated Statements of Cash Flows Period ended August 31, 2006 and June 30, 2006 August 2006 June 2006 --------------------------- Net income/(loss) A$ 46,093 2,211,382 Adjustments to reconcile net income to net cash providing by operating activities: Net profit on disposal of business - (3,335,839) Depreciation and amortisation of property, plant and equipment 100 79,339 Increase/(decrease) in doubtful debts - (Increase)/decrease in trade (110,083) (52,644) accounts receivable (Increase)/decrease in prepayments (15,202) (3,821) (Increase)/decrease in inventories (83,198) 111,522 (Increase)/decrease in other 10,511 (124,254) assets Increase/(decrease) in related party 15,769 (942,033) balances Increase/(decrease) in trade 243,801 (625,081) accounts payable Increase/(decrease) in provisions and other accruals (63,954) (80,598) (Increase)/decrease in income tax 103,569 567,663 balance (Increase)/decrease in deferred tax 356,174 balance --------------------------- Net cash provided by/(used in) operating activities 147,406 (1,838,190) --------------------------- Cash flows from investing activities: Net cash inflow upon disposal of - 3,872,791 business Capital expenditure, including interest capitalised - (122,490) --------------------------- Net cash provided by/(used in) investing activities - 3,750,301 --------------------------- Cash flow from financing activities: Issue of shares - - Dividends paid - (1,100,000) --------------------------- Net cash provided by/(used in) financing activities - (1,100,000) --------------------------- Net increase/(decrease) in cash and cash equivalents 147,406 812,111 Cash and cash equivalents at beginning of 1,102,169 290,058 year --------------------------- Cash and cash equivalents at end of year A$ 1,249,575 1,102,169 =========================== See accompanying notes to consolidated financial statements. 114 Cash Holdings Pty Ltd and subsidiaries Notes to the Consolidated Financial Statements (1) Summary of Significant Accounting Policies and Practices (a) Description of Business eCash Holdings Pty Ltd (the "Company") was incorporated on 13 October 1999 and remained dormant until the 2002 financial year. The company operates in the distribution and servicing of automatic teller machines. In 2002, the Company did not trade, rather it allowed a related party to trade on its behalf under an agreed contractual arrangement and in return an agency fee was received. In 2003, the Company commenced trading in its own right. On 17 July 2003 the company changed its name from eCash Pty Limited to eCash Holdings Pty Limited. (b) Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience by industry and national economic data. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Concentration of credit risk ---------------------------- The Group's largest ATM sales customer, represented 62.4% (June 2006: 57.9%) of trade accounts receivable as of August 31, 2006 and 75.6% (June 2006: 76.5%) of sales for the fiscal period ended August 31, 2006. The Group's largest ATM rebate customer, represented 0% (June 2006: 0%) of trade accounts receivable as of August 31, 2006 and 0% (June 2006: 100%) of rebate income for the fiscal period ended August 31, 2006. (c) Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method for all inventories. (d) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The depreciation rates range from 7.5% to 21% (June 2006: 7.5% to 21%). (e) Other Current Assets and Other Assets Other assets are comprised of rental bonds, prepaid expenditure, and other non-trade receivables. 115 Cash Holdings Pty Ltd and subsidiaries Notes to the Consolidated Financial Statements (2) Summary of Significant Accounting Policies and Practices (cont) (f) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Capital gains tax, if applicable, is provided for in establishing period income tax expense when an asset is sold. (g) Use of estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (h) Impairment of Long-Lived Assets Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases. An impairment loss is recognised to the extent that the carrying amount exceeds the asset's fair value. The Company did not recognise any impairment adjustments in August 2006 (June 2006: nil). (i) Revenue Recognition The Company recognises revenue when products are shipped and the customer takes ownership and assumes risk of loss. Interest income is recognised as it accrues. Service revenue is recognised as the services are provided. Rebate income is brought to account at the time the rebate is earned. (j) Commitments and Contingencies Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties 116 and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. (k) Advertising expenses Advertising expenses are recognized in the statement of operations as incurred. 117 eCash Holdings Pty Ltd and subsidiaries Notes to the Consolidated Financial Statements (1) Summary of Significant Accounting Policies and Practices (cont) (l) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash at bank and term deposits with banking institutions. Cash at bank includes cash denominated in Australian and US dollars. US dollar denominated bank accounts are restated at year-end to spot rates at year-end with the gain/loss recognised in the Statement of Operations. (m) Consolidation The consolidated financial statements of the consolidated entity include the financial statements of the Company, being the chief entity, and its controlled entities ("the consolidated entity"). Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased. The balances and effects of transactions, between controlled entities included in the consolidated financial statements have been eliminated. (n) Investments in controlled entities Capital ATM Pty Limited was incorporated on 17 March 2003 with the eCash Holdings Pty Limited investing A$1 share capital at the date of incorporation acquiring a 100% interest. Custom Cash Pty Limited was incorporated on 18 March 2003 with the eCash Holdings Pty Limited investing A$1 share capital at the date of incorporation acquiring a 100% interest. eCash Pty Limited was incorporated on 24 July 2003 with eCash Holdings Pty Ltd investing $1 share capital at the date of incorporation acquiring 100% interest. eCash Management Pty Limited was incorporated on 12 September 2002 with eCash Holdings Pty Limited investing A$1 share capital at the date of incorporation acquiring 100% interest. (2) Income Taxes Total income tax (expense) credit for the years ended August 31, 2006 and June 30, 2006 consist of:

118 eCash Holdings Pty Ltd and subsidiaries Notes to the Consolidated Financial Statements (2) Income Taxes (cont) Income tax expense was A$19,800 for the period ended August 31, 2006 and A$947,655 for the year ended June 30, 2006 and differed from the amounts computed by applying the Australian federal income tax rate of 30% (June 2006: 30%) to pre tax income as a result of the following: August 2006 June 2006 --------------------------- Computed "expected" tax A$ expense/(credit) 19,800 947,741 Computed "expected" tax expense/(credit) of not - 2,155 deductible --------------------------- Computed "expected" tax expense/(credit) of consolidated tax group - 949,896 Timing differences reversal - (2,241) Tax losses and timing differences (previously not recognized / brought to account) - - Increase (reduction) in income taxes resulting from other net - - misc items --------------------------- A$ 19,800 947,655 =========================== The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at August 31, 2006 and 30 June 2006 are presented below.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. 119 eCash Holdings Pty Ltd and subsidiaries Notes to Consolidated Financial Statements (3) Pension and Other Post retirement Benefits The Company contributed to a defined contribution superannuation fund on behalf of its employees. Contributions are based upon Australian statutory minimum percentages of salary plus any additional contributions included in employee's employment agreement. The consolidated entity contributed A$5,845 during period ended August 31, 2006 (June 2006: A$35,680). There were no contributions outstanding at year-end. The Company does not sponsor any other post employment benefits for its employees. (4) Accrued Liabilities

(6) Commitments Non cancellable operating lease commitments ------------------------------------------- The company and consolidated entity have no operating lease commitments. (7) Related parties The company was 35% owned by Global Payments Technology, Inc., is 35% owned by the private trust of the Managing Director of the Global Payment Technology Australia Pty Limited, and is 30% owned by the Marketing Director of Global Payment Technology Australia Pty Limited. Global Payments Technology, Inc. disposed of its interest on 25 August 2006. During the period the Group had purchases from Global Payment Technologies Australia Pty Limited totalling A$0 (June 2006: A$1,836). An amount of A$0 120 (June 2006: A$0) is included in Trade accounts payable at balance date. In addition the Group owed Global Payment Technologies Australia Pty Ltd A$82,908 (June 2006: A$67,139). Global Payment Technologies Australia Pty Limited, a related party, paid salary, rental and other administrative costs on behalf of the consolidated entity. These costs were recharged through the intercompany loan accounts. The company paid salary, rental and other administrative costs on behalf of its controlled entities. These amounts were recharged through the intercompany accounts. There were no other transactions with related parties. 121 eCash Holdings Pty Ltd and subsidiaries Notes to Consolidated Financial Statements (8) Discontinued Operations During the 30 June 2006 financial year the group disposed of its ATM rental business. The company had the following income and expenditure during the year ended 30 June 2006:

The discontinued business did not have any assets and liabilities at 30 June 2006. 122

(a) Write-off of accounts. (b) Expenses incurred under warranty obligation. S-1

GLOBAL PAYMENT TECHNOLOGIES INC 10-K