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                                                                    EXHIBIT 10.1

                          EMPLOYMENT AGREEMENT BETWEEN
                         CATUITY INC. AND GRAHAM MCSTAY

     This Employment Agreement is made and entered into as of March 15, 2007
between Catuity Inc. (the "Company"), a Delaware corporation, and Graham McStay
(the "Executive").

     1. EMPLOYMENT. Company hereby employs Executive, and Executive hereby
accepts employment with Company, on the terms and conditions hereinafter set
forth.

     2. TERM. The term of this Agreement will commence on March 15, 2007 (the
"Commencement Date") and end on March 14, 2010, unless further extended or
earlier terminated as hereinafter set forth. Commencing on March 15, 2010 and on
March 14 of each year thereafter, the term of Executive's employment shall be
extended for consecutive additional one-year terms unless either party notifies
the other at least six months before termination of the then-current term that
the notifying party does not wish the Agreement to be extended.

     3. DUTIES AND RESPONSIBILITIES. Executive shall serve with the duties of
Chief Executive Officer and President of Loyalty Magic (or in such other
position as may be mutually agreed upon by Executive and the Board) and shall
have such responsibilities, duties and authority as may be assigned to him by
the Board. Executive shall devote substantially all of his working time and
effort to the business and affairs of Company, except that he may as hereinafter
provided serve as a member of the board of directors of other companies,
charities, civic organizations and professional organizations.

     4. SERVICE ON BOARD OF DIRECTORS. The parties do not presently contemplate
that Executive shall serve on the Board of the Company. However, if the Board
determines otherwise during the term of this Agreement, Executive shall serve,
if and when elected, and re-elected, as a member of the Board of Company or of
any of its subsidiaries, affiliates or divisions, and as an officer of any
subsidiary, affiliate or division, if elected. When this Agreement terminates,
Executive will, if requested by the Board of Company, tender his resignation
from any and all such Board positions.

     5. OUTSIDE ACTIVITIES. During the term of this Agreement, Executive may
devote reasonable periods of time to serve as a member of the board of directors
or of a committee of any organization involving no conflict of interest with
Company, and he may engage in charitable, civic and community activities and
manage his personal investments; provided that such activities do not materially
interfere with the regular performance of his duties and responsibilities under
this Agreement.

     6. PLACE OF EMPLOYMENT. Executive shall have his office, and perform his
duties, within 50 Kilometers of the center of Melbourne, Victoria Australia and
he shall not be required to move from the metropolitan Melbourne, Victoria
Australia area; provided that, he shall from

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time to time be required to travel when necessary in carrying out Company's
business. Executive acknowledges that Company maintains offices and employees in
locations in the US and Australia, and that accordingly significant and regular
travel will be required to dispatch his normal duties.

     7. REIMBURSEMENT OF EXPENSES AND FURNISHING OF SERVICES TO EXECUTIVE.
During the term of this Agreement, Executive shall be entitled to, including but
without limitation, an office at the company's Melbourne, Victoria Australia
facility as well as reimbursement, upon proper accounting, of reasonable
expenses and disbursements incurred by him in the course of his duties
(including professional dues). All expense reimbursements will be subject to
compliance with Australian Tax authorities so as to be deductible as ordinary
and necessary business expenses, and in compliance with Company's normal
policies and practices.

     8. BASE SALARY COMPENSATION. During the term of Executive's employment, he
shall be paid a minimum base salary of One Hundred Eighty Thousand dollars AUD
($180,000) per year (inclusive of 9% Superannuation). The CEO and the Board
shall review Executive's salary at least annually, and may increase Executive's
salary from time to time in their discretion, and if so increased, such salary
shall not be decreased thereafter during the term of this Agreement. Annual
leave will be accrued at the rate of 4 weeks per annum. Sick leave entitlements
will be based upon accrual of 8 days per annum. All existing accrued leave
(annual, sick and long service leave) will be rolled over. Standard long service
leave and other legislated entitlements will stand.

     9. OTHER BENEFITS. Executive shall be entitled to participate in all bonus
or incentive plans and stock purchase plans in such manner as such plans apply
to officers and senior executives of the Company generally, and in all employee
benefits, including disability insurance coverage, medical and fringe benefit
plans currently maintained, or hereafter adopted, by the Company for Loyalty
Magic, as such plans may be amended or terminated from time to time in
accordance with their terms, in the same manner as such plans apply to officers
and senior executives of Company of comparable or lesser position generally.

     10. INCENTIVE COMPENSATION.

     (a) Company shall compute the volume weighted average trading price of
Company's common stock on the Nasdaq Small Cap Market during the thirty calendar
days preceding (and ending on) March 15, 2007. This price is referred to
hereafter as the "Initial Market Price".

     (b) Company hereby grants to Executive non-qualified options to acquire
10,000 shares of Company stock, expiring ten years after the Commencement Date
at a strike price equal to the Initial Market Price. The 10,000 options will
vest on the following schedule: 25% on March 15, 2007; 25% on March 15, 2008;
25% on March 15, 2009 and the remaining 25% on March 15, 2010. These options are
to be taken up at the discretion of the Executive.

     (c) The Company will award 15,000 shares of restricted stock to Executive
on March 15, 2007. One-half of these restricted shares will vest based on
achieving the Board approved 2007 budgeted Earnings Before Interest and Taxes
(EBIT) for Loyalty Magic, subject to audit. The other half will vest based on
achieving the Board approved 2008 budgeted Earnings Before Interest and Taxes
(EBIT) for Loyalty Magic, subject to audit.


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     (d) The Executive will be eligible for an annual bonus plan for each full
year of this Agreement where Loyalty Magic achieves EBIT levels compared to a
Board-approved annual business plan (including the effect of bonuses subject to
audit), he will receive a bonus payable in shares of Company common stock
("Bonus Shares") valued at the 30-day VWAP for December 1 through 31 of the year
for which the bonus is computed. The base bonus will be equal to 25 percent of
"eligible salary", according to "eligible salary" and bonus parameters to be
designated by the Board prior to the beginning of the bonus year. The base bonus
will be adjusted up or down in accordance with the base bonus multiplier below.
There will be no bonus paid for achievement of less than 90% of EBIT. Company
shall compute and pay the bonus on or before April 15 of each year for the prior
year. For 2007, this is based on an EBIT target of $83,000 AUD.

<TABLE>
<CAPTION>
% of EBIT target achieved   Base Bonus Multiplier
-------------------------   ---------------------
<S>                         <C>
<90%                                  -0-
90% but < 100%                         .75
100% but <120%                        1.0
120% but <140%                        1.25
140% and over                         1.50
</TABLE>

     (e) If the Company has at least nine months operating positive cash flow at
the time of the award, Executive may elect to receive 50% of the bonus amount in
cash and reduce the Bonus Shares proportionally.

     (f) All equity grants or options will carry customary provisions to adjust
the share amounts and/or exercise or trigger prices to appropriately and
equitably respond to capital changes such as stock splits, dividends,
recapitalizations and the like.

     (g) Company shall reasonably cooperate with Executive in handling
withholding tax obligations in respect of the foregoing incentive/equity
compensation items, so as to minimize the adverse effects on Executive of any
requisite withholding tax obligations. These means and methods may include
cooperation in ensuring legal resale capabilities for shares, use of shares to
satisfy withholding obligations (if share sales by Executive are impermissible,
and if such a device is then permitted, and with due regard given to Company's
liquidity position).

     11. NON DISPARAGEMENT OF EXECUTIVE. Company shall not disparage Executive's
reputation or good name during or after the term of this Agreement.

     12. TERMINATION.

     (a) Executive may voluntarily terminate his employment hereunder at any
time, on 90 days' notice without cause or "Good Reason" (as defined below), or
with Good Reason as provided in Section 13(b) below.


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     (b) Company may terminate this Agreement and the employment of Executive at
any time, with or without "Cause" (as defined below), on 90 days' notice.

     (c) Either Company or Executive may terminate this Agreement after the
"Disability" (as defined below) of Executive, on 90 days' notice.

     (d) This Agreement will terminate on Executive's death.

     13. TERMINATION DEFINITIONS.

     (a) "Cause" means (i) the Executive's commission of acts or omissions
constituting active and deliberate dishonesty as determined by the Board of
Directors, (ii) Executive's actual receipt of an improper benefit or profit in
money, property or services, or (iii) if the Executive continuously fails to
perform his duties under this Agreement in any material manner after receipt of
notice of such failure from the Company specifying how he has so failed to
perform. The Company may at its option terminate this Agreement for Cause by
giving written notice of termination to the Executive without prejudice to any
other remedy to which the Company may be entitled at law, in equity, or under
this Agreement. The notice of termination required by this Section shall specify
the grounds for the termination and shall be supported by a statement of all
relevant facts. In the event of termination of this Agreement for Cause, the
Executive shall be entitled to no further compensation or other benefits under
this Agreement, except as to that portion of any unpaid salary and other
benefits accrued and earned by him hereunder up to and including the effective
date of such termination.

     (b) "Good Reason" will exist if after written notice setting forth the
alleged Good Reason by Executive to the Company, and the expiration of a 90-day
cure period, there continues to be: (i) a reduction in the Executive's Base
Salary and/or in the aggregate benefits provided for hereunder; (ii) the
relocation of the Executive's office to a location outside of a 50 Kilometer-
radius from the Company's present Melbourne CBD, Victoria Australia location;
(iii) a material breach by the Company of the terms of this Agreement; or (iv)
the failure by the Company to obtain an agreement from any successor to the
Company to assure that such successor guarantees the Company's performance of
this Agreement or assumes and undertakes to perform the Company's obligations
hereunder; provided, however, in the event of a "Change in Control" as defined
in paragraph 13(c) hereof, then the Company shall cease to have a 90-day period
within which to cure the alleged good reason.

     (c) For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred:

          (i) if any person or group of persons acting together (other than (a)
     the Company or any person (I) who as of the date hereof was a director or
     officer of the Company, or (II) whose shares of Common Stock of the Company
     are treated as "beneficially owned" by any such director or officer, or (b)
     any institutional investor (filing reports under Section 13(g) rather than
     13(d) of the Securities Exchange Act of 1934, as amended, including any
     employee benefit plan or employee benefit trust sponsored by the Company)),
     becomes a beneficial owner, directly or indirectly, of


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     securities of the Company representing fifty percent (50%) or more of
     either the then-outstanding Common Stock of the Company or the combined
     voting power of the Company's then-outstanding voting securities (other
     than as a result of an acquisition of securities directly from the
     Company);

          (ii) if the Company sells all or substantially all of the Company's
     assets to any person (other than a wholly-owned subsidiary of the Company
     formed for the purpose of changing the Company's corporate domicile);

          (iii) if the Company merges or consolidates with another person as a
     result of which the shareholders of the Company immediately prior to such
     merger or consolidation would beneficially own (directly or indirectly),
     immediately after such merger or consolidation, securities of the surviving
     entity representing less than fifty percent (50%) of the then outstanding
     voting securities of the surviving entity; or

          (iv) if the new directors appointed to the Board during any
     twelve-month period constitute a majority of the members of the Board,
     unless (I) the directors who were in office for at least twelve (12) months
     prior to such twelve-month period (the "Incumbent Directors") plus (II) the
     new directors who were recommended or appointed by a majority of the
     Incumbent Directors constitutes a majority of the members of the Board.

          (v) For purposes of this paragraph a "person" includes an individual,
     a partnership, a corporation, an association, an unincorporated
     organization, a trust or any other entity.

     (d) "Disability" means the inability of Executive due to accident or
illness to perform the essential functions of his job despite reasonable
accommodations by Company, where such inability is reasonably expected to last
longer than 90 days. If Executive is covered by a Company provided long-term
disability insurance policy, then "Disability" shall mean the long term
disability of Executive (or comparable term) as defined in the applicable
long-term disability insurance policy.

     14. COMPENSATION AFTER TERMINATION.

     (a) If (I) either Company terminates this Agreement without Cause or the
Executive resigns for Good Reason, and (II) there has not been a Change in
Control prior to the termination date where the consideration to Company's
shareholders is greater than $10 per share (adjusted appropriately for stock
dividends, splits and the like occurring after the Commencement Date),
Executive's compensation shall be as follows:

          (i) Company shall pay Executive an amount equal to 12 months' salary
     at his then-current salary rate inclusive of accrued annual leave.


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          (ii) Vesting of Executive's stock options and restricted shares will
     be frozen as of the termination date. Options vested as of the termination
     date shall be exerciseable for a six-month period following the date of
     termination.

          (iii) The bonus and Bonus Shares under Section 10(d) for the year
     prior to the year of termination, if unpaid as of the termination date,
     shall be computed and paid as provided under Section 10(d). The bonus and
     Bonus Shares under Section 10(d) for the year in which termination occurs
     shall be zero.

     (b) If (I) either Company terminates this Agreement without Cause or the
Executive resigns for Good Reason, and (II) there has been a Change in Control
prior to the termination date where the consideration to Company's shareholders
is greater than $10 per share (adjusted appropriately for stock dividends,
splits and the like occurring after the Commencement Date), Executive's
compensation shall be as follows:

          (i) Company shall pay Executive an amount equal to salary at his
     then-current rate for the greater of 12 months or the balance of the term
     of this Agreement inclusive of accrued annual leave.

          (ii) Executive's stock options and restricted shares will immediately
     vest in full. Options as so vested shall be exerciseable for a six-month
     period following the date of termination.

          (iii) The bonus and Bonus Shares under Section 10(d) for the year
     prior to the year of termination, if unpaid as of the termination date,
     shall be computed and paid as provided under Section 10(d). The bonus and
     Bonus Shares under Section 10(d) for the year in which termination occurs
     shall be computed after the end of the year of termination, and pro rated
     and paid for the portion of the termination year prior to the termination
     date.

     (c) If this Agreement is terminated due to Executive's death or Disability,
Executive's compensation shall be as follows:

          (i) Company shall pay Executive an amount equal to 12 months' salary
     at his then-current salary rate.

          (ii) Executive's stock options and restricted shares will immediately
     vest in full, and options shall be exercisable for a one-year period
     following the date of termination.

          (iii) The bonus and Bonus Shares under Section 10(d) for the year
     prior to the year of termination, if unpaid as of the termination date,
     shall be computed and paid as provided under Section 10(d). The bonus and
     Bonus Shares under Section 10(d) for the year in which termination occurs
     shall be computed after the end of the year of termination, and pro rated
     and paid for the portion of the termination year prior to the termination
     date.


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     (d) If Company terminates this Agreement with Cause, Executive's
compensation shall be as follows:

          (i) Company shall pay Executive only for cash compensation earned up
     to the date of termination.

          (ii) All options that were not exercised prior to the date of
     termination will be terminated, and unvested restricted shares shall be
     forfeited.

          (iii) The bonus and Bonus Shares under Section 10(d) for the year
     prior to the year of termination, if unpaid as of the termination date,
     shall be computed and paid as provided under Section 10(d). The bonus and
     Bonus Shares under Section 10(d) for the year in which termination occurs
     shall be zero.

     (e) If Executive resigns without Good Reason, Executive's compensation
shall be as follows:

          (i) Company shall pay Executive only for cash compensation earned up
     to the date of termination.

          (ii) All options and restricted shares that are unvested as of the
     termination date shall be forfeited. Options that are vested as of the
     termination date shall be exercisable for a six-month period following the
     date of termination

          (iii) The bonus and Bonus Shares under Section 10(d) for the year
     prior to the year of termination, if unpaid as of the termination date,
     shall be computed and paid as provided under Section 10(d). The bonus and
     Bonus Shares under Section 10(d) for the year in which termination occurs
     shall be zero.

     (f) If this Agreement ends at the normal expiration of a term, then:

          (i) Company shall pay Executive only for cash compensation earned up
     to the date of termination.

          (ii) Vesting of options and restricted shares will be frozen as of the
     termination date. Options vested as of the termination date shall be
     exercisable for a six-month period following the date of termination.

          (iii) The bonus and Bonus Shares under Section 10(d) for the year of
     termination, shall be computed and paid after termination as provided under
     Section 10(d).

     (g) Notwithstanding anything to the contrary contained herein, in the event
it shall be determined that any compensation payment or distribution by the
Company to or for the benefit of the Executive would be subject to the excise
tax imposed by Section 4999 of the Internal


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Revenue Code of 1986, as amended (the "Code"), the Change in Control severance
payment will be reduced to the extent necessary so that no excise tax will be
imposed, but only if to do so would result in the Executive retaining a larger
amount, on an after-tax basis, taking into account the excise and income taxes
imposed on all payments made to the Executive hereunder.

     15. INDEMNIFICATION. In addition to any indemnification provided by the
By-Laws of Company or otherwise, Company shall indemnify and provide reasonable
advances for expenses to Executive, to the fullest extent permitted by the laws
of the State of Delaware, if Executive is made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that Executive is or was
an officer, director or employee of Company or any subsidiary or affiliate
thereof, in which capacity Executive is or was serving at Company's request,
against expenses, judgments, fines and amounts paid in settlement incurred by
him in connection with such action, suit or proceeding. Company shall exercise
its reasonable commercial efforts to maintain directors' and officers' insurance
coverage as well as all other appropriate malpractice and professional liability
coverage on behalf of Executive during the term of this Agreement at Company's
expense, in a manner and coverage substantially similar to the D&O insurance
currently in effect. Subject to requirements of any applicable insurance
coverage, Executive shall have the absolute right to engage counsel reasonably
acceptable to Company and at legal rates deemed reasonably acceptable to
Company, for the above-referenced actions. Executive shall give prompt notice to
Company of any claims made against him for which he will seek indemnification.

     16. AMENDMENT OR MODIFICATION WAIVER. No provision of this Agreement may be
amended, modified or waived, unless such amendment, modification or waiver shall
be authorized by the Board or any authorized committee of the Board, and shall
be agreed to in writing, signed by Executive and by an officer of Company
thereunto duly authorized. Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a subsequent breach of such condition or
provision or a waiver of a similar or dissimilar provision or condition at the
same or any prior or subsequent time.

     17. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions and portions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent provided by law.

     18. SUCCESSORS. This Agreement shall be binding upon any successor of
Company and such successor shall be deemed substituted for Company under the
terms of this Agreement; but any such substitution shall not relieve Company of
any of its obligations hereunder. As used in this Agreement, the term
"successor" shall include any person, firm, corporation or like business entity
which at any time, whether by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company. This Agreement may not
be otherwise assigned by Company without Executive's written consent.


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<PAGE>

     19. CONFIDENTIAL INFORMATION. Executive agrees not to disclose, either
while in Company's employ or at any time thereafter, to any person not employed
by Company or not engaged to render services to Company any confidential
agreement obtained by him while in the employ of Company, including, without
limitation, any of Company's inventions, processes, methods of distribution,
customers or trade secrets; provided, however, that this provision shall not
preclude Executive from use or disclosure of information known generally to the
public or of information not considered confidential by persons engaged in the
business conducted by Company or from disclosure required by law or court order.

     20. WITHHOLDING. Anything to the contrary notwithstanding, all payments
required to be made by Company hereunder to Executive or his estate or
beneficiary shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as Company may reasonably determine
it should withhold pursuant to any applicable law or regulation. In lieu of
withholding such amounts, Company may accept other provisions to the end that it
has sufficient funds to pay all taxes required by law to be withheld in respect
to any of such payments.

     21. NOTICES. For the purpose of this Agreement, notices, demands or other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or (unless other specified) mailed by United
States Certified Mail, return receipt requested, postage prepaid, addressed as
follows:

               to Executive: Graham Mcstay
                             503/700 Chapel St
                             South Yarra Vic 3141

               to Company:   Catuity Inc.
                             300 Preston Ave Ste 302
                             Charlottesville, VA 22902

or to such other address as any party may have furnished to the other in writing
in accordance therewith, except that notices of change of address shall be
effective only upon receipt.

     22. CONSTRUCTION WITH DELAWARE LAW. The validity, interpretation,
construction and performance of this agreement shall be governed by the laws of
the state of Delaware.

     23. ENTIRE AGREEMENT OF PARTIES. This Agreement contains the entire
agreement of the parties and no party shall be liable and bound except as
provided herein, but this instrument does not replace, rescind or abrogate any
other agreement or plan between the parties which may now be or may hereinafter
become effective.


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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                     CATUITY INC.


                                     By: /s/ Alfred (John) Racine
                                         ---------------------------------------
                                         Alfred (John) Racine, President and CEO


                                     "Company"

                                        /s/ Graham McStay
                                     -------------------------------------------
                                     Graham McStay

                                     "Executive"


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