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 December 31, 2008


OR





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


For the
transition period from ___________ to ___________





000-17874


(Commission
file number)










GLOBAL
AXCESS CORP


(Exact
name of registrant as specified in its charter)





NEVADA
              88-0199674(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)7800
      BELFORT PARKWAY, Suite 165JACKSONVILLE,
      FLORIDA
              32256(Address
      of principal executive offices)
              (Zip
      Code)





(904)
280-3950


(Registrant's
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Act: None


Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par
value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  ̈ Yes  x No





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  x No





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. xYes   ̈ No





Indicate
by check mark if disclosure of deliquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of 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.   ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated Filer  ̈
              Accelerated
      Filer  ̈Non-accelerated
      Filer  ̈ (Do
      not check if smaller reporting company)
              Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of Exchange Act).    ̈ Yes  x No


As of
June 30, 2008, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $5,255,447.





As of
March 02, 2009, the registrant had 20,973,924 shares outstanding of the common
stock ($0.001 par value).





TABLE
OF CONTENTS





Page No.PART I
                                                                                                                                            4Item 1.
                                                                                                                                            Business
                                                                                                                                            4Item 1A.
                                                                                                                                            Risk Factors
                                                                                                                                            14Item 1B.
                                                                                                                                            Unresolved Staff Comments
                                                                                                                                            21Item 2.
                                                                                                                                            Properties
                                                                                                                                            22Item 3.
                                                                                                                                            Legal Proceedings
                                                                                                                                            23Item 4.
                                                                                                                                            Submission of Matters to a Vote of Security
      Holders
                                                                                                                                            23PART II
                                                                                                                                            23Item 5.
                                                                                                                                            Market for Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                                                                                                                                            23Item 6.
                                                                                                                                            Selected Financial Data
                                                                                                                                            26Item 7.
                                                                                                                                            Management's Discussion and Analysis of Financial
      Condition and Results of Operations
                                                                                                                                            27Item 7A.
                                                                                                                                            Quantitative and Qualitative Disclosures about
      Market Risk
                                                                                                                                            36Item 8.
                                                                                                                                            Financial Statements and Supplementary
      Data
                                                                                                                                            37Item 9.
                                                                                                                                            Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure
                                                                                                                                            37Item 9A.
                                                                                                                                            Controls and Procedures
                                                                                                                                            37Item 9A(T).
                                                                                                                                            Controls and Procedures
                                                                                                                                            37Item 9B.
                                                                                                                                            Other Information
                                                                                                                                            38PART III
                                                                                                                                            38Item 10.
                                                                                                                                            Directors, Executive Officers and Corporate
      Governance
                                                                                                                                            38Item 11.
                                                                                                                                            Executive Compensation
                                                                                                                                            42Item 12.
                                                                                                                                            Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters
                                                                                                                                            46Item 13.
                                                                                                                                            Certain Relationships and Related Transactions,
      and Director Independence
                                                                                                                                            48Item 14.
                                                                                                                                            Principal Accounting Fees and
      Services
                                                                                                                                            48PART IV
                                                                                                                                            50Item 15.
                                                                                                                                            Exhibit, Financial Statement
      Schedules
                                                                                                                                            50SIGNATURES
                                                                                                                                            53


Page 2


Forward-Looking
Statements





Unless
the context indicates otherwise, all references in this document to “we,” “us”
and “our” refer to Global Axcess Corp and its subsidiaries.





In
addition to historical information, this Annual Report on Form 10-K contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially. Factors that might cause or contribute to
such differences include, but are not limited to, those discussed in the
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and “Risk Factors.” You should carefully review the
risks described in other documents we file from time to time with the Securities
and Exchange Commission (the “SEC”), including the Quarterly Reports on Form
10-Q to be filed in 2009. When used in this report, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "targets," "estimates,"
and similar expressions are generally intended to identify forward-looking
statements. You should not place undue reliance on the forward-looking
statements, which speak only as of the date of this Annual Report on Form 10-K.
We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.   Estimates of future financial results are
inherently unreliable.





From
time to time, representatives of Global Axcess Corp (the “Company”) may make
public predictions or forecasts regarding the Company's future results,
including estimates regarding future revenues, expense levels, earnings or
earnings from operations. Any forecast regarding the Company's future
performance reflects various assumptions. These assumptions are subject to
significant uncertainties, and, as a matter of course, many of them will prove
to be incorrect. Further, the achievement of any forecast depends on numerous
factors (including those described in this discussion), many of which are beyond
the Company's control. As a result, there can be no assurance that the Company's
performance will be consistent with any of management’s forecasts or that the
variation from such forecasts will not be material and adverse. Investors are
cautioned not to base their entire analysis of the Company's business and
prospects upon isolated predictions, but instead are encouraged to utilize the
entire available mix of historical and forward-looking information made
available by the Company, and other information affecting the Company and its
products, when evaluating the Company's prospective results of
operations.





In
addition, representatives of the Company may occasionally comment publicly on
the perceived reasonableness of published reports by independent analysts
regarding the Company's projected future performance. Such comments should not
be interpreted as an endorsement or adoption of any given estimate or range of
estimates or the assumptions and methodologies upon which such estimates are
based. Undue reliance should not be placed on any comments regarding the
conformity, or lack thereof, of any independent estimates with the Company's own
present expectations regarding its future results of operations. The
methodologies employed by the Company in arriving at its own internal
projections and the approaches taken by independent analysts in making their
estimates are likely different in many significant respects. Although the
Company may presently perceive a given estimate to be reasonable, changes in the
Company's business, market conditions or the general economic climate may have
varying effects on the results obtained through the use of differing analyses
and assumptions. The Company expressly disclaims any continuing responsibility
to advise analysts or the public markets of its view regarding the current
accuracy of the published estimates of outside analysts. Persons relying on such
estimates should pursue their own independent investigation and analysis of
their accuracy and the reasonableness of the assumptions on which they are
based.


Page 3





PART
I





ITEM
      1.
            BUSINESS





History





Headquartered
in Jacksonville, Florida, Global Axcess Corp (referred to herein as the
“Company,” “we,” “our” or “us”) is a Nevada corporation organized in 1984.
Unless the context otherwise requires, all references to the Company include the
Company’s subsidiary corporations.





Global
Axcess Corp was reorganized in 2001 by principals with backgrounds in
network-based electronic commerce and financial transaction processing, with a
mission to emerge as the leading independent provider of Automated Teller
Machine ("ATM") services in the United States.  The Company’s
objective is to expand through internal growth and through the offering of
enhanced ATM products or services.  The Company presently does not
have definitive acquisition plans.





Business
Description





The
Company operates one of the United States’ largest networks of ATMs. Our network
currently includes approximately 4,236 ATMs, principally in regional chains and
individual merchant locations. Approximately 1,423 of the ATMs we operate are
Company-owned (full placement), 2,699 are merchant-owned and 114 are under a
service-only agreement. Our high-traffic retail locations and national footprint
make us an attractive partner for regional and national financial institutions
that are seeking to increase their market penetration. We provide proprietary
ATM branding and processing services for over 59 financial institutions that
have approximately 548 branded sites under contract with the Company
nationwide.  We provide network processing for an average of
approximately 1.5 million financial transactions per month.





Nationwide Money Services,
Inc.





Nationwide
Money Services, Inc., a wholly owned subsidiary of the Company, is engaged in
the business of operating a network of ATMs. The ATMs provide debit and credit
cardholders with access to cash, account information and other services at
locations and times convenient to the cardholder. Debit and credit cards are
principally issued by banks and credit card companies.





To
promote usage of ATMs in our network, we have relationships with national and
regional card organizations (also referred to as networks) which enable the
holder of a card issued by one network to use another network’s ATM to process a
transaction.  These relationships are provided through processing
providers: Elan Financial Services (“Elan”), formerly Genpass Technologies, LLC,
First Data Retail ATM Services (“First Data”), and Columbus Data Services
(“Columbus Data”).





ATMs.We deploy and
operate ATMs primarily under the following two programs:





·
            Full placement
      program.  Under a full placement arrangement, the Company
      owns or leases the ATM and is responsible for controlling substantially
      all aspects of its operation including maintenance, cash management and
      loading, supplies, signage and telecommunications services. The Company is
      generally responsible for almost all of the expenses related to the
      operation of the ATM with the exception of power and, on occasion,
      telecommunications. The Company typically uses this program for major
      national and regional merchants, as well as, for its Financial Institution
      Outsourcing service.




·
            Merchant-owned
      program.  Under a merchant-owned arrangement, the
      merchant (or, for a merchant using lease financing, its lease finance
      provider) typically buys the ATM from the Company and the merchant is
      responsible for most of the operating expenses such as maintenance, cash
      management and loading, supplies and telecommunication services. The
      Company typically provides all transaction processing services, and the
      merchants use the Company’s maintenance services from time to
      time.




Most of
our new ATMs feature advanced functionality, diagnostics and ease of use
including color displays, personal computer-based operating systems, thermal
printing, dial-up and remote monitoring capabilities, and upgrade and
capacity-expansion capability. All machines can perform basic cash dispensing
and balance inquiry transactions, transmit on-screen marketing, dispense coupons
and conduct marketing surveys. Most of our equipment is modular in design, which
allows us to be flexible and accommodating to the needs of our clients as
technology advances.


Page 4


ATM
Relationships.We purchase our
ATMs from Triton Systems, Tranax Corporation and  Hyosung (America),
Inc. We believe that the large quantity of ATMs we purchase from these
manufacturers enables us to receive favorable pricing. In addition, we maintain
close working relationships with these manufacturers in the course of our
business, allowing us to stay informed regarding product updates and to minimize
technical problems with purchased equipment.





Merchant
Customers.We have
contracts with national and regional merchants and with numerous independent
store operators. The terms of our merchant contracts vary as a result of
negotiations at the time of execution. In the case of our full placement
programs, the contract terms for contracts currently in place typically
include:





·
            an
      initial term of at least five-seven
years;




·
            ATM
      exclusivity at locations where we install an ATM and, in many cases, a
      right of first refusal for all other
locations;




·
            a
      requirement that the merchant provide a highly visible space for the ATM
      and signage;




·
            protection
      for us against underperforming locations by permitting us to increase the
      withdrawal fee or remove ATMs; and




·
            provisions
      making the merchant’s fee variable depending on the number of ATM
      transactions and milestones.




New
contracts under our merchant-owned or rental arrangements typically include
seven year terms with other terms similar to our full placement contracts, as
well as the following additional terms:





·
            provisions
      imposing an obligation on the merchant to ensure the ATM is operational at
      all times its store is open to the public;
and




·
            provisions
      that require a merchant to use its best efforts to have any purchaser of
      the merchant’s store assume our
contract.




EFT Integration,
Inc.





EFT
Integration, Inc. (“EFTI”), a wholly owned subsidiary of the Company, is engaged
in the business of ATM transaction processing.





Outsource
of processing.
In late 2005 the Company outsourced payment processing to Elan Financial
Services ("Elan") formerly Genpass Technologies, LLC.  Elan is a
subsidiary of U.S. Bank, N.A. Pursuant to the agreement, Nationwide Money
Services, Inc. ("Nationwide"), a wholly-owned subsidiary of the Company, agreed
to engage Elan to be the exclusive provider of certain electronic funds transfer
services, which includes a seven year term for the processing of ATM
transactions for Nationwide.





As a
result of this, on July 31, 2006 the Company shut down its EFTI transaction
processing switch in Ponte Vedra Beach, Florida.





Cash Axcess Corporation
(Proprietary) Limited





Cash
Axcess Corporation (Proprietary) Limited (“Cash Axcess”) was a wholly owned
subsidiary of the Company which provided the same services as those of
Nationwide and operated in South Africa. It began operations in early
2005.  Cash Axcess was sold during 2006.





Revenue
Sources





Transaction
Fees.  Our revenue is recurring in nature and is principally
derived from two types of fees, which we charge for processing transactions on
our ATM network. We receive an interchange fee from the issuer of the credit or
debit card for processing a transaction when a cardholder uses an ATM in our
network. In addition, in many cases, we receive a surcharge/convenience fee from
the cardholder when the cardholder makes a cash withdrawal from an ATM in our
network. See “Overview” section in Item 7 “Management's Discussion and Analysis
of Financial Condition and Results of Operations”.


Page 5


Surcharge/Convenience
Fees.  In April 1996, national debit and credit card
organizations changed the rules applicable to their members, including us, to
permit the imposition of surcharge/convenience fees on cash withdrawals from
ATMs. Our business is substantially dependent upon our ability to impose
surcharge/convenience fees. Any changes in laws or card association rules
materially limiting our ability to impose surcharge/convenience fees would have
a material adverse effect on our financial results. See "Regulatory Matters -
Surcharge Regulation." Since April 1996, we have expanded the number of ATMs in
our network and have expanded our practice of imposing surcharge/convenience
fees on cash withdrawals from ATMs.





ATM
Network Management Services.  In addition to revenues derived
from interchange and surcharge/convenience fees, we also derive revenues from
providing ATM network management services to banks and other third-party owners
of ATMs included in our ATM network. These services include 24-hour transaction
processing, monitoring and notification of ATM status and cash condition,
notification of ATM service interruptions, in some cases dispatch of field
service personnel for necessary service calls, and cash settlement and reporting
services. Banks may choose whether to limit transactions on their ATMs to cards
issued by the bank or to permit acceptance of all cards accepted on our
network.  See “Overview” section in Item 7 “Management's Discussion
and Analysis of Financial Condition and Results of Operations”.





Seasonality.  In
our ATM operations, we traditionally experience higher transaction volumes per
machine in the second and third quarters than in the first and fourth quarters.
The increased volumes in the summer months coincide with increased vacation
travel in the United States.  Additionally, we have seen spikes in
transactions during the tax refund months of February and March.





Our
Strategy





Our
strategy is to enhance our position as a leading independent provider of ATM
services in the United States and to position the Company as a preferred service
provider to financial institutions.  We are currently a
“return-and-profit” driven company whose current primary focus is on the
achievement of increased profitability and increased positive cash flow. Key
objectives of our strategy include:





Expanding
our existing customer base.  We believe our experience combined
with our dedication to enhance our existing customer relationships will enable
us to expand our customer base.  We believe in creating loyal
customers by providing a superior experience at a great value. We are committed
to providing “hassle-free” consistent products and services based on
standards-based technology and processes, and outperforming the competition with
value and with a superior customer experience, particularly in the financial
services markets.





Expanding
our existing product offerings.  We believe we can achieve
distribution leverage by acquiring distribution rights to complimentary products
and services which can be sold to our existing customers.





Attaining
operational excellence.  We believe we can attain operational
excellence along with a corresponding market identity by standardizing product
offerings and delivery processes.





Increasing
and expanding our geographic presences.  We believe we can
achieve economies of scale by increasing and expanding our geographic market
concentration.  By achieving economies of scale, we can reduce our
cost basis on expenses such as maintenance, vault cash, telecommunications,
replenishment, ATMs and ATM supplies.





Our
Strengths





Leading
Market Position.  We operate one of the largest network of ATMs
in the United States. Our network currently includes approximately 4,236 ATMs
located throughout the United States. Our size and diversity of products and
services give us significant economies of scale and the ability to provide
attractive and efficient solutions to national, regional and local financial
institutions and retailers.





Diverse
Network of Retail Merchants Under Multi-Year Contracts.  We
have developed significant relationships with regional and local merchants
within the United States.  These merchants typically operate
high-traffic locations, which we have found to result in increased ATM activity
and profitability. Our contracts with our merchant customers are typically
multi-year arrangements with initial terms of five to seven years. These
long-term relationships can provide opportunities to deploy additional ATMs in
new locations.


Page 6


Recurring
and Stable Revenue and Operating Cash Flow.  The long-term
contracts that we enter into with our merchant customers provide us with access
to customer traffic and relatively stable, recurring revenue. Our recurring and
stable revenue base, relatively low and predictable maintenance capital
expenditure requirements, and minimal working capital requirements allow us to
generate relatively predictable and consistent operating cash
flows.





Low-Cost
Provider.  We believe the size of our network combined with our
operating infrastructure allows us to be among the low-cost providers in our
industry. We believe our operating costs per ATM are significantly lower than
the operating costs incurred by bank ATM operators. Our scale provides us with a
competitive advantage both in operating our ATM fleet and the potential to offer
cost effective outsourcing services to financial institutions.





Fiscal Year 2008 and Recent
Developments in Our Company





To
improve our revenues and cost structure, during 2008 we:





·
            Increased
      the surcharge at the majority of the Company’s owned
  ATMs;




·
            Implemented
      a company-wide profit based employee bonus
plan;




·
            Continued
      to renegotiate local phone line contracts to reduce communication costs
      for the Company’s ATMs;




·
            Reduced
      headcount;




·
            Refinanced
      equipment leases;




·
            Continued
      to aggressively collect account receivables and to reduce allowances for
      bad debt;




·
            Implemented
      a more efficient ATM parts requisition process, thus decreasing parts
      order and shipment times, improving ATM uptime rates and increasing our
      billings for parts;




·
            Implemented
      SQL Reporting Services and Microsoft CRM to more effectively track sales
      and marketing activities, ATM installations and numerous other management
      metrics;




·
            Optimized
      our Second Line Maintenance (“SLM”) in-house tech territories by swapping
      sites currently serviced in-house for sites currently serviced by
      Elan;




·
            Renegotiated
      our lease on our South Carolina warehouse while downsizing the total
      square footage that we lease in this
location;




·
            Moved
      93 ATMs from Pendum First Line Maintenance (“FLM”) to in-house
      FLM;




·
            Began
      implementing an ATM monitoring program on merchant-owned machines which
      allows us to more quickly identify when a terminal produces a fault
      condition or stops transacting, thus improving ATM uptime;
    and




·
            Improved
      ATM uptime rates on company-owned machines to an average of
      98.4%.




Breach of
contracts





Although
our merchant-owned ATM customers have multi-year contracts with us for
transaction processing services, due to competition, some of these customers may
leave us for our competitors prior to the expiration of their contracts, or may
not renew their contracts upon their expiration. Additionally, some merchants
may sell or close their stores or are unable to load cash into their ATMs
because of cash flow issues.  When these events occur, we pursue these
customers to continue to utilize our processing services or alternatively, in
the event they terminate their relationship with us prior to the expiration of
their contacts, we seek payment of damages under a breach of contract clause in
our contracts.  The Company lost 166 ATM locations during 2008 as a
result of these events. These ATM locations accounted for 3.9% of the Company’s
total locations as of the end of fiscal 2008. The Company recognizes revenue on
breached contracts when cash is received.


Page 7


Our ATM
Network





General.  Our
network ATMs are located primarily in the south and on the east coast, and our
concentration as of December 31, 2008 in the 10 states is listed
below:





STATE
                
                NUMBER OF ATMsGA
                
                808NY
                
                618TX
                
                618VA
                
                598FL
                
                370NC
                
                245NM
                
                208MD
                
                151SC
                
                88TN
                
                59





The
operation of the network involves the performance of many complementary tasks
and services, including principally:





·
            acquiring
      ATMs to be utilized by us and our
customers;




·
            selecting
      ATM locations and entering into leases for access to those
      locations;




·
            in
      the case of third party merchants, establishing relationships with these
      merchants for processing transactions on their
  ATMs;




·
            the
      sale of our Branded Cash services to local and regional banks or credit
      unions;




·
            establishing
      relationships with national and regional card organizations and credit
      card issuers to promote usage of our network
  ATMs;




·
            processing
      ATM transactions;




·
            supplying
      ATMs with cash and monitoring cash levels for
  re-supply;




·
            monitoring
      ATM operations and managing the service needs of ATMs;
  and




·
            managing
      the collection of fees generated by our network
  operations.




ATM
Locations.  We believe that the profitable operation of any ATM
is largely dependent upon the ATM’s location. Thus, we devote significant effort
to selecting locations that we believe will generate high cardholder
utilization. Additionally, we believe the availability of attractive sites is a
principal factor affecting our ability to achieve further market penetration. We
attempt to identify locations where pedestrian traffic is high, people need
quick access to cash, and use of the ATM is convenient and secure. In addition,
we believe such locations also provide a convenience to the retailer who may
wish to avoid the financial exposure and added overhead of offering
check-cashing services to their customers. Key target locations for our ATMs
include the following:





·
            grocery
      stores,




·
            convenience
      stores and combination convenience stores and gas
  stations,




·
            major
      regional and national
retailers,


Page 8


·
            hotels,




·
            shopping
      malls,




·
            airports,




·
            colleges,




·
            amusement
      parks,




·
            sports
      arenas,




·
            bars/clubs,




·
            theaters,
      and




·
            bowling
      alleys.




Our goal
is to secure key locations in advance of our competitors as we believe
cardholders generally establish a pattern of continued usage of a particular
ATM.  Further, we believe such patterned usage will continue unless
there are frequent problems with the location, such as a machine being out of
service.





We enter
into leases for our ATM locations, which generally provide for payment to the
lessor of either a portion of the fees generated by use of the ATM or a fixed
monthly rent. Most of our leases have initial five to seven year terms and
include various renewable time periods (typically the site owner renews under
the lease). We generally have the right to terminate a lease if the ATM does not
meet certain performance standards. The lessor generally has the right to
terminate a lease before the end of the lease term if we breach the lease
agreement or become the debtor in a bankruptcy proceeding.





Typical
ATM Transaction.  In a typical ATM transaction in our network,
a debit or credit cardholder inserts a credit or debit card into an ATM to
withdraw funds or obtain a balance inquiry. The transaction is routed from the
ATM to a processing center at Elan, First Data or Columbus Data by dedicated
dial-up communication links. The processing center computers identify the card
issuer by the bank identification number contained within the card's magnetic
strip. The transaction is then switched to the local issuing bank or card
organization (or its designated processor) for authorization. Once the
authorization is received, the authorization message is routed back to the ATM
and the transaction is completed.





Authorization
of ATM transactions.  Transactions processed on our network
ATMs are the responsibility of the card issuer. We are not liable in the event
of an error in dispensing cash if we receive a proper authorization message from
a card issuer.





Transaction
Volumes. We monitor the number of transactions that are made by
cardholders on ATMs in our network. The transaction volumes processed on any
given ATM are affected by a number of factors, including location of the ATM,
the amount of time the ATM has been installed at that location, seasonality and
market demographics. Our experience is that transaction volume on a newly
installed ATM is initially very low and increases for a period of three to six
months as consumers become familiar with the machine location. We processed a
total of approximately 17,936,000 transactions in fiscal 2008 and 18,682,000
transactions on our network in fiscal 2007.





ATM
transactions. During 2008, compared to 2007, the Company experienced an
approximate 1% decrease in the average number of transactions and withdrawals
per ATM.  The decrease in the average number of transactions from 2008
to 2007 is mainly due to the 4% decrease in the number of ATM transactions year
over year offset by low volume ATMs removed from the Company’s
network.





Acquisition
Strategy





During
the period from February 2004 through December 2005, the Company completed four
acquisitions which added more than 3,200 ATM contract locations to its network.
While the Company will always evaluate the attractiveness of possible
acquisitions, its current strategy is not to grow via acquisitions, but rather,
via organic growth.


Page 9


Business Continuity
Plan





The
Company’s business continuity plan includes the following two main
components:





·
            a
      plan to ensure the continuous operation of the Company’s core information
      technology infrastructure; and




·
            a
      plan to minimize disruption of the remainder of its business
      functions.




Information Technology
Infrastructure





The
Company hosts the IT infrastructure at Peak 10, the largest independent data
center operator and managed services provider in the United States, to utilize
Peak 10’s managed collocation, communications, and security services out of its
Jacksonville, Florida data center facility.  The Company and Peak 10
maintain Universal Power Systems and diesel generators for back-up power in the
event of temporary and extended power outages.  In the event of a
longer-term business interruption, our Business Continuity Plan directs the
process in which all core IT infrastructure needs are re-routed to the Company’s
back-up site at SunGard Availability Services (“SunGard”), an international
leader in business continuity services.  The Company’s back-up site is
located in Carlstadt, New Jersey.





Intellectual
Property





Our
success depends in part on our proprietary rights and technology. We rely on a
combination of patent, copyright, trademark and trade secret laws, employee and
third-party non-disclosure agreements and other methods to protect our
proprietary rights.





Other Business
Functions





The
Company has a Business Continuity Plan for the remainder of its business
functions consisting of 4 elements:  Prevention, Event Management,
Event Mitigation, and Event Recovery.  The plan addresses events such
as vendor service interruption, natural disasters, and issues with our internal
systems.  In the event of a catastrophic event, the Company also
maintains alternate sites for office operations through an arrangement with
SunGard.  These alternate sites, which are located in Lake Mary,
Florida and Atlanta, Georgia, provide immediate access to the technical and
office facilities required for failover. We have also converted our desktop
environment to a mobile environment; therefore, when an emergency occurs, users
can take their laptops and reach our network from either the alternate site or a
safe location with power and internet. In addition, we maintain copies of our
software and critical business information off-site.





Competition





Individuals
seeking ATM-related services have a variety of choices at banking locations and
within retail establishments. The convenience cash delivery and balance inquiry
market is, and we expect it to remain, highly competitive due to the fact that
there are few barriers to entry into the business. Our principal competition
arises from other independent sales organizations, or ISOs, similar to the
Company including Innovus, TRM Corporation, IMS and Cardtronics, Inc. We also
compete with numerous national and regional banks that operate ATMs at their
branches and at other non-branch locations. In addition, we believe that there
will be continued consolidation in the ATM industry in the United States.
Accordingly, new competitors may emerge and quickly acquire significant market
share.





Competitive
factors in our business include network availability and response time, price to
both the card issuer and to our customers, and ATM locations. Our principal
competitors are national ATM companies that have a dominant share of the market.
These companies have greater sales, financial, production, distribution and
marketing resources than ours.





We have
identified the following categories of ATM network operators:





·
            Financial
      Institutions.  Banks have been traditional deployers of
      ATMs, which have customarily been located at their banking facilities. In
      addition, the present trend is for many banks to place ATMs in retail
      environments when the bank has an existing relationship with the retailer.
      This practice presents both a threat and an opportunity.  It is
      a threat if the financial institution chooses to manage this program on
      its own, whereby it would limit the ATM locations available to the
      Company.  On the other hand, it may be an opportunity if the
      financial institution chooses to outsource the management of this type of
      program to companies such as us.




Page 10


·
            Credit Card
      Processors.  Several credit card processors have
      diversified their business by taking advantage of existing relationships
      with merchants to place ATMs at sites with those
  merchants.




·
            Third Party
      Operators.  This category includes data processing
      companies that have historically provided ATM services to financial
      institutions.




·
            Companies that have
      the capability to provide both back-office services and ATM management
      services.




·
            Consolidator
      networks.  Consolidator networks such as TRM and
      Cardtronics, whose United States operations consist of approximately
      11,800 ATMs and 28,600 ATMs,
respectively.




Management
believes that many of the above providers, with the exception of Cardtronics and
TRM, deploy ATMs to diversify their operations and that the operation of the ATM
network provides a secondary income source to a primary business.





In April
1996, national debit and credit card organizations changed the rules applicable
to their members to permit the imposition of surcharge/convenience
fees.  Since that time, we have experienced increased competition,
both from existing ATM network operators and from new companies entering the
industry. There can be no assurance that we will compete successfully with
national ATM companies. A continued increase in competition could adversely
affect our margins and may have a material adverse effect on our financial
condition and results of operations.





ATM Network
Technology





Most of
the ATMs in our network are manufactured by Triton and
Tranax/Hyosung.  In addition, we own several other ATM brands such as
Wincor, WRG, Greenlink, NCR EasyPoint (formerly Tidel), and others. Due to the
wide range of advanced technology available, we are able to supply our customers
with state-of-the-art ATMs providing electronic features and reliability through
sophisticated diagnostics and self-testing routines. The various machine types
perform functions ranging from the basic routines, which include dispensing
cash, displaying account information, and providing a receipt to the user, to
more sophisticated routines such as dispensing stamps or coupons and providing
advertising revenue through the use of monochrome or color monitor graphics.
Many of our ATMs are modular and upgradeable so we may adapt them to provide
additional services in response to changing technology and consumer demand. Our
field services staff tests each ATM prior to placing it in service.





Vault
Cash





Currently,
we rent cash (“vault cash”) for 1,009 of our ATMs through agreements with
various banks, which are located throughout the United States.  The
vault cash is replenished periodically based upon cash
withdrawals.  In addition, our branded cash partners provide cash for
548 ATMs covered under our Branded Cash program.  For the remaining
2,771 ATMs in our network, such as merchant-owned ATMs, ATMs owned by other
third party owners and ATMs that are only processed under our contract with
Elan, we do not supply the vault cash. See “Liquidity and Capital Resources”
section of Item 7 “Management's Discussion and Analysis of Financial Condition
and Results of Operations”.





Significant
Relationships





We have
agreements with Food Lion and Kash n’ Karry Stores for whom approximately 627
and 109 ATMs, respectively, have been installed at their locations as of
December 31, 2008. Each of these agreements were extended in September 2003 to
run through April 2011 and set to automatically renew, unless terminated 60 days
prior to their termination dates. In addition, the site owner has the right to
terminate the lease before the end of the lease term under certain
circumstances. Currently, there is no such breach or
circumstance.  The aggregate revenues from Food Lion and Kash n’ Karry
Stores accounted for approximately 24.1% and 4.2% of our revenues from
continuing operations in fiscal year 2008, respectively.


Page 11


Government and Industry
Regulation





Our
business is generally not subject to significant government regulation, though
we are subject to certain industry regulations. Our failure to comply with
applicable regulations could result in restrictions on our ability to provide
our services.





Surcharge
Regulation.  The imposition of surcharge fees is not currently
subject to federal regulation.  However, several states in which we
currently have no operations have banned companies from imposing such fees,
generally as a result of activities of consumer advocacy groups that believe
that transaction fees are unfair to users. There have been, however, various
state and local efforts in the United States to ban or limit transaction fees.
We are not aware of any existing bans or limits on transaction fees applicable
to us in any of the jurisdictions in which we currently do business. However,
some states, particularly Tennessee, Nebraska, Connecticut, Delaware, New
Mexico, West Virginia, Wyoming, and Iowa, require us to obtain a bank sponsor in
order to charge withdrawal fees. As a result, in these states we must make
arrangements with a local bank to act as a sponsor of our ATMs, which typically
involves additional documentation costs and payment of a fee to the bank.
Additionally, states such as Illinois and New Jersey limit or ban withdrawal
fees on electronic benefit card usage, which has had virtually no impact on our
financial statements. Nevertheless, we cannot guarantee that transaction fees
will not be banned or limited in the jurisdictions in the United States in which
we operate. Such a ban or limit could materially limit or reduce our ATM
revenues.





Our ATM
business is subject to government and industry regulations, which we describe
below. This regulatory environment is subject to change and various proposals
have been made which, if finalized, could affect our ATM operations. Our failure
to comply with existing or future laws and regulations pertaining to our ATM
business could result in restrictions on our ability to provide our products and
services, as well as the imposition of civil fines.




Electronic
Funds Transfer Act.The United
States Electronic Funds Transfer Act, commonly known as “Regulation E”, while
directed principally at banks and other financial institutions, also has
provisions that apply to us. In particular, the act requires ATM operators who
impose withdrawal fees to notify a customer of the withdrawal fee before the
customer completes a withdrawal and incurs the fee. Notification must be made
through signs placed at or on the ATM and by notification either on the ATM
screen or through a print-out from the ATM. All of our ATMs provide both types
of notification.




Americans
with Disabilities Act.The Americans
with Disabilities Act (“ADA”) currently includes provisions regulating the
amount of clear floor space required in front of each ATM, prescribing the
maximum height and reach depth of each ATM and mandating that instructions and
all information for use of the ATM be made accessible to and independently
usable by persons with vision impairments. The United States Department of
Justice may adopt new accessibility guidelines under the ADA that will include
provisions addressing ATMs and how to make them more accessible to the disabled.
Under the proposed guidelines that have been published for comment but not yet
adopted, ATM height and reach requirements would be shortened, keypads would be
required to be laid out in the manner of telephone keypads, and ATMs would be
required to possess speech capabilities, among other modifications. If adopted,
these new guidelines would affect the manufacture of ATM equipment going forward
and could require us to retrofit ATMs in our network as those ATMs are
refurbished or updated for other purposes. Additionally, proposed Accessibility
Guidelines under the ADA would require voice-enabling technology for
newly-installed ATMs and for ATMs that are otherwise retrofitted or
substantially modified. We are committed to ensuring that all of our ATMs comply
with all applicable ADA regulations.  No guidelines have yet been
promulgated. Should the guidelines proposed become final, we anticipate an
18-month phase-in before new equipment in new locations must comply with new
accessibility requirements.





Rehabilitation
Act.On
December 1, 2006, a United States District Court judge ruled that the United
States’ currencies (as currently designed) violate the Rehabilitation Act, a law
that prohibits discrimination in government programs on the basis of disability,
as the paper currencies issued by the United States are identical in size and
color, regardless of denomination. Under the current ruling, the United States
Treasury Department has been ordered to develop ways in which to differentiate
paper currencies such that an individual who is visually-impaired would be able
to distinguish between the different denominations. In response to the November
26, 2006 ruling, the Department of Justice filed an appeal with the United
States Court of Appeals for the District of Columbia Circuit requesting that the
decision be overturned on the grounds that varying the size of denominations
could cause significant burdens on the vending machine industry and cost the
Bureau of Engraving and Printing an initial investment of $178.0 million and up
to $50.0 million in new printing plates. While it is still uncertain at this
time what the outcome of the appeals process will be, in the event the current
ruling is not overturned, we, along with other participants in the ATM industry,
may be forced to incur significant costs to upgrade current machines’ hardware
and software components.


Page 12


Anti-fraud
Initiatives.Because of reported
instances of fraudulent use of ATMs, legislation was passed  that
required state or federal licensing and background checks of ATM operators. We
completed the U.S. Patriot Act-mandated merchant underwriting process on all of
our ATMs. Additionally, there are proposals pending in some jurisdictions,
including New York and New Jersey, which would require merchants that are not
financial institutions to be licensed in order to maintain an ATM on their
premises; other jurisdictions currently require such licensing. New licensing
requirements could increase our cost of doing business in those
markets.





Electronic
Financial Transactions Network Regulations.Electronic Financial
Transactions Networks (“EFTN”) has adopted extensive regulations that are
applicable to various aspects of our operations and the operations of other ATM
operators. These regulations include the encryption standards described more
fully below and limitations on the maximum amount of cash that can be withdrawn
from each machine. As described in “Triple DES” section below, we needed to
convert our ATMs to the new encryption standards by their compliance dates. With
respect to all other EFTN regulations, we believe that we are in compliance with
the regulations that are currently in effect and, if any deficiencies were
discovered, we would be able to correct them before they had a material adverse
impact on our business.





Encrypting
Pin Pad and Triple-Data Encryption Standards.Data encryption
makes ATMs more tamper-resistant. Two of the more recently developed advanced
data encryption methods are commonly referred to as Encrypting Pin Pad (“EPP”)
and the Triple Data Encryption Standard (“Triple-DES”).  As of
December 31, 2007, the Company had completed its project to upgrade all of its
ATMs to comply with the Triple-DES requirement. All but 112 ATMs were upgraded
at the completion of the project.  These machines went offline as of
January 1, 2008.  All new ATMs that we have purchased are Triple DES
compliant. Also, as of December 31, 2008, all of our Company-owned machines were
EPP compliant.





Network
Regulations.  National and regional networks are subject to
extensive regulations that are applicable to various aspects of our operations
and the operations of other ATM network operators. We believe that we are in
material compliance with all such regulations.





Employees





At
December 31, 2008, the Company had 45 full time employees working in the
following entities:





Global
      Axcess Corp
                    
                    
                    3Nationwide
      Money Services, Inc.
                    
                    
                    4245





Our
business is highly automated and we outsource specialized, repetitive functions
such as cash delivery and security. As a result, our labor requirements for
operation of the network are relatively modest and are centered on monitoring
activities to ensure service quality and cash reconciliation and control. None
of our employees are represented by a labor union or covered by a collective
bargaining agreement. We have not experienced work stoppages and consider our
employee relations to be good.


Page 13





ITEM
      1A.
            RISK
      FACTORS





We
operate in a rapidly changing business environment that involves substantial
risk and uncertainty. The following discussion addresses some of the risks and
uncertainties that could cause, or contribute to cause, actual results to differ
materially from expectations. We caution all readers to pay particular attention
to the descriptions of risks and uncertainties described below and in other
sections of this report, and our other filings with the SEC.





If any of
the following risks actually occur, our business, financial condition or results
of operations could be materially and adversely affected. In such case, the
trading price of our common stock could decline and we may be forced to consider
strategic alternatives with regards to current operations.





This
Annual Report on Form 10-K contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this Annual Report on Form
10-K.





Risks Relating to Our
Business and Operations





·
            Default
      Under our Credit Agreements.We renegotiated our
      covenants from our senior lender during the third quarter of
      2007.  There is no assurance that we will be in compliance with
      those covenants in the future nor is there assurance that we would receive
      waivers should we not meet our covenant requirements. See Financial
      Footnote # 11 “Senior Lenders’ Notes Payable” for a detail of these
      covenants.




·
            Our sales
      depend on transaction fees from our network of ATMs. A decline in
      either transaction volume or the level of transaction fees could reduce
      our sales and harm our operating results.




·
            Transaction
      fees for our network of ATMs produce substantially all of our
      sales. Consequently, our future operating results will depend on
      both transaction volume and the amount of the transaction fees we receive.
      Our transaction volume and fees will depend principally
    upon:




·
            our
      ability to find replacement sites in the event of merchant
      turnover;




·
            competition,
      which can result in over-served markets, pressure both to reduce existing
      fee structures and increase sales discounts to merchants and reduced
      opportunities to secure merchant or other placements of our
      machines;




·
            our
      ability to service, maintain and repair ATMs in our network promptly and
      efficiently;




·
            continued
      market acceptance of our services;
and




·
            government
      regulation and network adjustment of our
fees.




·
            Changes in
      payment technologies and customer preferences could reduce the use of ATMs
      and, as a result, reduce our sales.  New technology such
      as Radio Frequency Identification (“RFID”) and other contact-less payment
      systems that eliminate the need for ATMs may result in the existing
      machines in our networks becoming obsolete, requiring us, or the merchants
      in our networks who own their machines, to either replace or upgrade our
      existing machines. Any replacement or upgrade program to machines that we
      own or that we must upgrade or replace under contracts with merchant
      owners would involve substantial expense. A failure to either replace or
      upgrade obsolete machines could result in customers using other
      alternative payment methods, thereby reducing our sales and reducing or
      eliminating any future operating
margins.




The use
of debit cards by consumers has been growing. Consumers use debit cards to make
purchases from merchants, with the amount of the purchase automatically deducted
from the consumers' checking accounts. An increasing number of merchants are
accepting debit cards as a method of payment and are also permitting consumers
to use the debit cards to obtain cash. The increasing use of debit cards to
obtain cash may reduce the number of cash withdrawals from our ATMs and may
adversely affect our revenues from surcharge/convenience fees. A continued
increase in the use and acceptance of debit cards could have a material adverse
effect on our business, results of operations and financial
condition.


Page 14


Additionally,
the growth of surcharge free ATM networks by consumers may reduce the number of
cash withdrawals from our ATMs and may adversely affect our revenues from
surcharge/convenience fees. A continued increase in surcharge free ATM networks
could have a material adverse effect on our business, results of operations and
financial condition.





·
            We depend
      on Elan and Pendum to provide many services on which we
      rely.  Our ATM business requires close coordination of
      merchant relationships, service company relationships, cash management
      activities and telecommunication services. In an effort to reduce costs
      and improve our service levels, we entered into agreements with Elan and
      Pendum pursuant to which Elan and Pendum will provide many of these
      services to us. Elan also provides us with transaction processing
      services. As a result, we depend on Elan and Pendum to provide many
      services that are necessary to the operations of our ATM business. At some
      point, Elan and Pendum may be unable or unwilling to provide all of these
      services at a level that we consider necessary. In that event, if we are
      unable to terminate our relationship with Elan and Pendum or are unable to
      obtain replacement services in a timely manner, our transaction volume
      could be reduced and our relationships with our merchants or financial
      institutions could deteriorate.




·
            Changes in
      laws or card association rules affecting our ability to impose
      surcharge/convenience fees and continued customer willingness to pay
      surcharge/convenience fees;




·
            Our ability
      to form new strategic relationships and maintain existing relationships
      with issuers of credit cards and national and regional card
      organizations;




·
            Our ability
      to expand our ATM based
business;




·
            The
      availability of financing at reasonable rates for vault cash and for other
      corporate purposes, including funding our ATM expansion
      plans;




·
            Our ability
      to maintain our existing relationships with Food Lion and Kash n’
      Karry;




·
            Our ability
      to keep our ATMs at other existing locations and to place additional ATMs
      in preferred locations at reasonable rental
  rates;




·
            The extent
      and nature of competition from financial institutions, credit card
      processors and third party operators, many of whom have substantially
      greater resources;




·
            Our ability
      to maintain our ATMs and information systems technology without
      significant system failures or
  breakdowns;




·
            Our ability
      to develop new products and enhance existing products to be offered
      through ATMs, and our ability to successfully market these
      products;




·
            Our ability
      to retain senior management and other key
  personnel;




·
            The current
      global economic downturn could adversely impact our
      business;




Our sales
are dependent upon the availability and access to cash for ATM
users.  The current global economic downturn may have a negative
impact on availability and accessibility to or the affordability of fees imposed
by our ATMs.  Accordingly, a pronounced and sustained economic
downturn could have a material, adverse effect on our business, financial
condition and results of operations.  Additionally, the current global
economic downturn may have a negative impact on the merchants with which we do
business, thus leading to increased store closures or lack of cash to replenish
their ATMs.





·
            Changes in
      general economic conditions.




The ATM markets
are highly competitive, which could limit our growth or reduce our
sales.While our principal
competition comes from national and regional banks, we are also experiencing
increased competition from independent ATM companies. All of these competitors
offer services similar to or substantially the same as those services offered by
us. We expect that competition will intensify as consolidation within the
financial services industry continues.  In addition, the majority of
these competitors are larger, more established and have greater financial,
technical, and marketing resources, greater name recognition, and a larger
installed customer base than the Company. Such competition could prevent us from
obtaining or maintaining desirable locations for our machines or could cause us
to reduce user fees generated by our ATMs, which could cause our profits to
decline.


Page 15


In
addition to our current competitors, we expect substantial competition from new
companies. We cannot assure that the Company will be able to compete effectively
against current and future competitors. Increased competition could result in
price reductions, reduced gross profits or loss of market share.





Our failure to
achieve and maintain adequate internal controls, in an industry that is
relatively new and complex, could result in a loss of investor confidence
regarding our financial reports and have an adverse effect on our business,
financial condition, results of operations and stock price. Pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a
report of management’s assessment of the design and effectiveness of our
internal control over financial reporting as part of our Annual Report on Form
10-K filed with the SEC. Our independent auditors are not required to attest to,
and report on, management’s assessment and the effectiveness of internal control
over financial reporting until fiscal 2009. Our management is also required to
report on the effectiveness of our disclosure controls and
procedures.  As disclosed in our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2005, our management identified a material
weakness in internal control over financial reporting and, accordingly,
determined that internal control over financial reporting was not effective at
December 31, 2005. Even though these material weaknesses were remediated during
fiscal year 2006, such material weakness and deficiencies in the effectiveness
of internal control over financial reporting could result in inaccurate
financial statements or other disclosures or fail to prevent fraud, which could
have an adverse effect on our business, financial condition or results of
operations. Further, if we do not remediate any material weakness, we could be
subject to sanctions or investigation by regulatory authorities, such as the
SEC, we could fail to timely meet our regulatory reporting obligations, or
investor perceptions could be negatively affected; each of these potential
consequences could have an adverse effect on our business, financial condition
or results of operations.





If merchant-owned
ATM customers terminate their relationships with us prior to the termination of
their contracts or do not renew their contracts upon their expiration, it could
reduce our ATM sales. Although our merchant-owned ATM customers have
multi-year contracts with us for transaction processing services, due to
competition, some of these customers may leave us for our competitors prior to
the expiration of their contracts, or may not renew their contracts upon their
expiration. When these contracts expire, we pursue these customers to remain
processing with us. In the event they terminate their relationship with us prior
to the expiration of their contacts, we seek payment of damages under a breach
of contract clause in our contracts. If a substantial number of merchant-owned
ATM customers end their relationships with us, it could cause a reduction in our
ATM sales.





Increases in
interest rates will increase our expenses.We have credit and
vault cash facilities that carry variable interest rates. Consequently, a rise
in interest rates would increase our operating costs and expenses.





Our ATM business
operates in a changing and unpredictable regulatory environment. ATM
withdrawal transactions involve the electronic transfer of funds through
Electronic Financial Transactions Networks (EFTNs). The United States Electronic
Funds Transfer Act provides the basic framework establishing the rights,
liabilities and responsibilities of participants in EFTNs. In addition, there
have been various state and local efforts to ban, limit or otherwise regulate
ATM transaction fees, which make up a large portion of our sales for our full
placement ATMs and the principal source of ATM revenues for merchants with
merchant-owned ATMs in our network. For example, in Tennessee, Nebraska,
Connecticut, Delaware, New Mexico, West Virginia, Wyoming, and Iowa only
bank-sponsored ATMs can impose withdrawal fees. As a result, in these states we
must make arrangements with a local bank to act as a sponsor of ATMs in our
networks, which typically involves additional documentation costs and payment of
a fee to the bank.





Because
of reported instances of fraudulent use of ATMs, legislation is pending that
would require state or federal licensing and background checks of ATM operators.
There are proposals pending in some jurisdictions, including New York and New
Jersey, which would require merchants that are not financial institutions to be
licensed in order to maintain an ATM on their premises; other jurisdictions
currently require such licensing. New licensing requirements could increase our
cost of doing business in those markets.


Page 16


New government
and industry standards will increase our costs and, if we cannot meet compliance
deadlines, could require us to remove non-compliant machines from service.The Americans with Disabilities Act (“ADA”) currently includes provisions
regulating the amount of clear floor space required in front of each ATM,
prescribing the maximum height and reach depth of each ATM and mandating that
instructions and all information for use of the ATM be made accessible to and
independently usable by persons with vision impairments. The United States
Department of Justice may adopt new accessibility guidelines under the ADA that
will include provisions addressing ATMs and how to make them more accessible to
the disabled. Under the proposed guidelines that have been published for comment
but not yet adopted, ATM height and reach requirements would be shortened,
keypads would be required to be laid out in the manner of telephone keypads, and
ATMs would be required to possess speech capabilities, among other
modifications. If adopted, these new guidelines would affect the manufacture of
ATM equipment going forward and could require us to retrofit ATMs in our network
as those ATMs are refurbished or updated for other purposes. Additionally,
proposed Accessibility Guidelines under the ADA would require voice-enabling
technology for newly-installed ATMs and for ATMs that are otherwise retrofitted
or substantially modified. We are committed to ensuring that all of our ATMs
comply with all applicable ADA regulations.  No guidelines have yet
been promulgated. Should the guidelines proposed become final, we anticipate an
18-month phase-in before new equipment in new locations must comply with new
accessibility requirements.





If ATMs
in our network are not compliant with any applicable ADA guidelines by the
respective deadlines and we cannot obtain compliance waivers, we may have to
remove the non-compliant ATMs from service and, as a result, our ATM revenues
could be materially reduced during the period of time necessary to become
compliant.





If we,
our transaction processors, our EFTNs or our other service providers experience
system failures, the ATM products and services we provide could be delayed or
interrupted, which would harm our business. Our ability to provide reliable
service largely depends on the efficient and uninterrupted operations of our
transaction processors, EFTNs and other service providers. Any significant
interruptions could severely harm our business and reputation and result in a
loss of sales. Additionally, if we cause any such interruption, we could lose
the affected merchants or damage our relationships with them. Our systems and
operations, and those of our transaction processors, EFTNs and other service
providers, could be exposed to damage or interruption from fire, natural
disaster, unlawful acts, terrorist attacks, power loss, telecommunications
failure, unauthorized entry and computer viruses. We cannot be certain that any
measures we and our service providers have taken to prevent system failures will
be successful or that we will not experience service interruptions.





We rely on EFTNs
and transaction processors; if we cannot renew our agreements with them, if they
are unable to perform their services effectively or if they decrease the level
of the transaction fees we receive, it could harm our business. We rely
on several EFTNs and transaction processors to provide card authorization, data
capture and settlement services to us and our merchant customers. Any inability
on our part to renew our agreements with these or similar service providers or
their failure to provide their services efficiently and effectively may damage
our relationships with our merchants and may permit those merchants to terminate
their agreements with us.





Our ATM
revenues depend to a significant extent upon the transaction fees we receive
through EFTNs. If one or more of the EFTNs in which we participate reduces the
transaction fees it pays us, and we are unable to route transactions to other
EFTNs to replace them, our ATM revenues would be reduced. Our ATMs do not meet
all of the requirements for first tier status. As a means of mitigating the
impact of the lower interchange rates paid by Visa/Plus we have had our
processing agents adjust priority routing tables to, whenever possible, move
transactions through EFTNs whose interchange rates are higher than those paid by
the Visa/Plus EFTN.





Risks
Relating to Our Common Stock





The price of our
common stock has been highly volatile due to factors that will continue to
affect the price of our stock. Since January 2001, our common stock has
traded as high as $13.75 and as low as $0.13 per share (after giving effect to
the 1-for-5 reverse stock split of our common stock that occurred on April 28,
2005). Historically, the over-the-counter markets for securities such as our
common stock have experienced extreme price fluctuations. Some of the factors
leading to this volatility include:





·
            fluctuations
      in our quarterly revenues and operating
results;


Page 17


·
            litigation
      against the Company;




·
            announcements
      of product releases or new services by us or our
    competitors;




·
            announcements
      of acquisitions and/or partnerships by us or our competitors;
      and




·
            increases
      in outstanding shares of our common stock upon exercise or conversion of
      convertible notes pursuant to our private placement
      transactions.




There is
no assurance that the price of our common stock will not continue to be volatile
in the future.





A significant
portion of our total outstanding shares of common stock may be sold in the
market in the near future. This could cause the market price of our
common stock to drop significantly, even if our business is doing well. Sales of
a substantial number of shares of our common stock in the public market could
occur at any time. These sales, or the perception in the market of such sales,
may have a material adverse effect on the market price of our common stock. As
of February 13, 2009, approximately 12.1 million or 57.8% of registered
securities are beneficially owned by 5 persons or groups. Sales of substantial
amounts of these securities, when sold, could reduce the market price of our
common stock.





We do not plan to
declare dividends on our common stock.We do not plan to
declare dividends on our common stock for the foreseeable future and, in any
event, under the terms of our credit facility with Wachovia Bank, are prohibited
from doing so.





Risks Relating to Private
Placement





Private Placement
entered with CAMOFI Master LDC greatly hampers our ability to raise equity and
debt financing without significant equity dilution.On October 27, 2005, to
obtain funding for the acquisition of merchant contracts and equipment from
Amer-E-Com Digital Corporation, we entered into a Securities Purchase Agreement
(the "Purchase Agreement") with CAMOFI Master LDC (the "Investor") on October
27, 2005 for the sale of (i) a $3,500,000, 9% Senior Subordinated Secured
Convertible Note (the "Note") and (ii) stock purchase warrants (the "Warrant")
to purchase 910,000 shares of our common stock. The obligations under the Note
are subordinated to Wachovia Bank. We closed the financing pursuant to the
Purchase Agreement on October 27, 2005.





The Note
bears interest at 9%, matures on October 27, 2010 and is convertible into our
common stock, at the Investor's option, at a conversion price of
$1.45.  We may prepay all or part of the Note in cash at 110% of the
principal amount plus accrued interest. The full principal amount of the Note is
due upon default under the terms of the Note. In addition, we granted the
Investor a security interest in substantially all of our assets and intellectual
property as well as registration rights.  In the event we issue common
stock or a common stock equivalent at a price below the conversion price, the
conversion price of the Note will be decreased to equal the price of the new
common stock.





The
Warrant is exercisable until five years from the date of issuance at an exercise
price of $1.75 per share. In the event we issue common stock or a common stock
equivalent at a price below the exercise price, the exercise price of the
Warrant will be decreased to equal the price of the new common stock and the
number of Warrants will be increased such that the aggregate exercise value of
the Warrants will be equal to the aggregate exercise value of the Warrants prior
to the issuance of the new common stock.





Information
regarding legal proceedings related to this private placement is contained in
Financial Footnote #14 ”Legal Proceedings” to the consolidated financial
statements contained in this report.





Risk Relating to Our
Operating Results





Our
business is subject to numerous factors affecting our operating results. In
addition to the risk factors discussed above, our operating results may be
affected by:





We have an
operating history which may not be an indicator of our future
results. As a
result of our operating history, our plan for growth, and the increasingly
competitive nature of the markets in which we operate, the historical financial
data may not be a good indicator of our future revenues and operating expenses.
Our planned expense levels will be based in part on expectations concerning
future revenues, which is difficult to forecast accurately based on current
plans of expansion and growth. We may be unable to adjust spending in a timely
manner to compensate for any unexpected shortfall in revenues.


Page 18


If we incur
operating losses, we may be unable to continue our current
operations.We incurred significant
operating losses during the two fiscal years of 2005 and 2006. Even though we
reported net income during fiscal 2007 and fiscal 2008, we have reported an
accumulated deficit of $9.2 million as of December 31, 2008. If we incur
operating losses in the future, we may be unable to continue our current
operations. Our future profitability depends on our ability to retain current
customers, obtain new customers, respond to competition, introduce new products
and services, and successfully market and support our products. We cannot assure
that this will be achieved.





If we cannot
raise adequate lease financing in the future, we may be unable to continue to
expand our ATM portfolio.In the future, we will
need to raise lease financing to fund new purchases of ATMs. Funding from lease
financing sources may not be available when needed or on favorable terms. If we
cannot raise adequate lease financing to satisfy our capital requirements, we
may have to limit, delay, scale-back or eliminate future growth.





The termination
of our contract with our major customers could negatively impact our results of
operations and may result in a significant impact to revenues.In November 2001, we
entered into new contracts with Food Lion and an affiliated company, Kash n’
Karry.  Such contracts replaced a prior agreement we had with Food
Lion that had expired in September 2001. The new contracts were for a five-year
term and included approximately 550 sites then operating plus an additional 400
sites that we began servicing in September 2001. During fiscal year 2003, we
renegotiated these contracts to extend the term to April 2011 and as of December
31, 2008 have in service approximately 736 ATM sites. The sites maintained by
Food Lion and Kash n’ Karry constitute approximately 17.3% of our total sites
and approximately 28.3% of our total revenues. Historically, these sites have
generated average revenue per site in excess of other sites. The loss of or any
further reduction in business from this major customer could have a material
adverse impact on our working capital and future results of
operations.





The continued
growth and acceptance of debit cards as a means of payment could negatively
impact our results of operations.The use of debit cards by
consumers has been growing. Consumers use debit cards to make purchases from
merchants, with the amount of the purchase automatically deducted from the
consumers' checking accounts. An increasing number of merchants are accepting
debit cards as a method of payment and are also permitting consumers to use the
debit cards to obtain cash. The increasing use of debit cards to obtain cash may
reduce the number of cash withdrawals from our ATMs and may adversely affect our
revenues from surcharge/convenience fees. A continued increase in the use and
acceptance of debit cards could have a material adverse effect on our business,
results of operations and financial condition.





Any regulation or
elimination of surcharge/convenience or interchange fees could have a material
adverse impact on our results of operations.There have been various
efforts by both consumer groups and various legislators to eliminate
surcharge/convenience fees, which comprised $11.8 million, or 53.1%, of our
revenues from continuing operations in fiscal 2008. In the event that
surcharge/convenience fees are eliminated, the revenues generated from cash
withdrawal transactions would be significantly reduced, which would have a
material adverse impact on our working capital and future results of
operations.  There have also been efforts by various legislators to
eliminate interchange fees. Although this would have an immediate, negative
impact, we believe, although we cannot guarantee, that the industry will respond
by increasing surcharge/convenience fees to make up the loss in interchange
fees. In the event that the loss of interchange fees could not be passed through
via an increase in surcharge/convenience fees, the elimination of interchange
fees would have a material adverse impact on our working capital and future
results of operations.





If banks decrease
the surcharge/convenience fees they charge, we may need to reduce the
surcharge/convenience fees we charge.While we experience
competition from independent ATM companies, our principal competition comes from
national and regional banks.  Should these national and regional banks
decrease the surcharge/convenience fees they charge, in order to remain
competitive, we may need to reduce the surcharge/convenience fees we charge as
well which may adversely affect our revenues.





Mergers,
acquisitions and personnel changes at financial institutions, Electronic Funds
Transfer Networks, and Independent Sales Organizations may adversely affect our
business, financial condition and results of operations.Currently, the banking
industry is consolidating, causing the number of financial institutions and ATM
networks to decline. This consolidation could cause us to lose:





·
            current
      and potential customers;


Page 19


·
            market
      share if the combined entity determines that it is more efficient to
      develop in-house products and services similar to ours or use our
      competitors' products and services;
and




·
            revenues
      if the combined institution is able to negotiate a greater volume discount
      for, or discontinue the use of, our products and
  services.




If our computer
network and data centers were to suffer a significant interruption, our business
and customer reputation could be adversely impacted and result in a loss of
customers. Our ability to provide reliable service largely depends on the
efficient and uninterrupted operations of our computer network systems and third
party data centers. Any significant interruptions could severely harm our
business and reputation and result in a loss of customers. Our systems and
operations could be exposed to damage or interruption from fire, natural
disaster, power loss, telecommunications failure, unauthorized entry and
computer viruses. Although we and they have taken steps to prevent a system
failure, we cannot be certain that the measures will be successful and that we
will not experience system failures. Further, our property and business
interruption insurance may not be adequate to compensate us for all losses or
failures that may occur.





We may be unable
to protect our intellectual property rights, which could have a negative impact
on our results of operations.Despite our efforts to
protect our intellectual property rights, third parties may infringe or
misappropriate our intellectual property rights, or otherwise independently
develop substantially equivalent products and services. The loss of intellectual
property protection or the inability to secure or enforce intellectual property
protection could harm our business and ability to compete. We rely on a
combination of trademark and copyright laws, trade secret protection, and
confidentiality and license agreements to protect our trademarks, software and
know-how. We may find it necessary to spend significant resources to protect our
trade secrets and monitor and police our intellectual property
rights.





Third
parties may assert infringement claims against us in the future. In particular,
there has been a substantial increase in the issuance of patents for
Internet-related business processes, which may have broad implications for all
participants in Internet commerce. Claims for infringement of these patents are
becoming an increasing source of litigation. If we become subject to an
infringement claim, we may be required to modify our products, services and
technologies or obtain a license to permit our continued use of those rights. We
may not be able to do either of these things in a timely manner or upon
reasonable terms and conditions. Failure to do so could seriously harm our
business and operating results. In addition, future litigation relating to
infringement claims could result in substantial costs to us and a diversion of
management resources. Adverse determinations in any litigation or proceeding
could also subject us to significant liabilities and could prevent our use of
certain of our products, services or technologies.





Risk Relating to Litigation
or Threatened Litigation





If there is an
adverse outcome in the lawsuits that have been filed against us, or if
threatened lawsuits are filed and there is an adverse outcome, our business may
be materially harmed.Lawsuits seeking monetary damages have been filed
against us (see Financial Footnote # 14 “Legal Proceedings”). The complaints
seek, among other things, specified and unspecified damages and costs associated
with the litigation.





As with
any litigation proceeding, we cannot predict with certainty the eventual outcome
of any pending lawsuit. Furthermore, we may have to incur expenses in connection
with these lawsuits, which may be substantial. In the event of an adverse
outcome, our business could be materially harmed. Moreover, responding to and
defending the pending litigation could result in a significant diversion of
management’s attention and resources and an increase in professional
fees.





Risk Relating to Accounting
Rules





Changes in, or
interpretations of, accounting rules and regulations, such as expensing of stock
options, could result in unfavorable accounting charges. We prepare our consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America. These principles are subject to interpretation
by the SEC and various bodies formed to interpret and create appropriate
accounting policies. A change in these policies can have a significant effect on
our reported results, and may even retroactively affect previously reported
transactions. Our accounting policies that may be affected by changes in the
accounting rules are as follows:





·
            accounting
      for share-based payments;




·
            accounting
      for convertible debt and warrants;
and


Page 20


·
            accounting
      for income taxes.




In
particular, the Financial Accounting Standard Board ("FASB") enacted Statement
of Financial Accounting ("SFAS") No. 123 (revised 2004), "Share-Based Payment"
("SFAS 123R") which we adopted effective January 1, 2006. SFAS 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized as compensation expense in the consolidated financial
statements based upon their fair values. Any material future grants of employee
stock options may have an adverse affect on our future consolidated financial
statements.





In June
2006 the FASB issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes", which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with SFAS No.
109, "Accounting for Income Taxes." The interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. Any material changes in the Company’s tax liabilities or assets may
have an adverse affect on our future consolidated financial
statements.





In June
2008, the Emerging Issues Task Force issued EITF Issue No. 07-5, “Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”
(“EITF 07-5”).  EITF 07-5 supersedes EITF Issue No. 01-6, The Meaning
of Indexed to a Company’s Own Stock, and provides guidance in evaluating whether
certain financial instruments or embedded features can be excluded from the
scope of SFAS No. 133, Accounting for Derivative and Hedging
Activities.  EITF 07-5 sets forth a two-step approach that evaluates
an instrument’s contingent exercise and settlement provisions for the purpose of
determining whether such instruments are indexed to an issuer’s own stock (a
requirement necessary to comply with the scope exception under SFAS
133).  EITF 07-5 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years.  We are currently assessing the impact related to the
adoption of EITF 07-5 on our financial instruments that fall within its
scope.





ITEM
      1B.
            UNRESOLVED STAFF
      COMMENTS





Not
Applicable.


Page 21





ITEM
      2.
            PROPERTIES





We do not
own any real property.  The following table sets forth certain
information about our leased properties as of December 31, 2008.





Location
                  
                  Approximate
                    Square
                    Footage
                  
                  UseJacksonville,
      Florida
                  
                  5,841
      sq. ft.
                  
                  General
      office use; operations, accounting, sales, and related
      administration.West
      Columbia, South Carolina
                  
                  3,600
      sq. ft.
                  
                  General
      warehouse use, equipment storage, and maintenance
    operations.Jacksonville,
      Texas
                  
                  5,000
      sq. ft.
                  
                  General
      office and warehouse use, equipment storage, customer service, and
      maintenance operations.Duluth,
      Georgia
                  
                  250
      sq. ft.
                  
                  General
      office use and administrationProspect,
      Kentucky
                  
                  202
      sq. ft.
                  
                  Sales
      office use and
administration.





In
general, all facilities are leased under operating leases and are in good
condition.


Page 22


ITEM
      3.
            LEGAL
      PROCEEDINGS





Information
regarding legal proceedings is contained in Financial Footnote #14 ”Legal
Proceedings” to the consolidated financial statements contained in this report
and is incorporated herein by reference.





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





Not
Applicable.





PART
II




ITEM
5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES





Price
Range





On April
28, 2005, the Company completed a one-for-five reverse split of its common
shares outstanding as of that date at which time our trading symbol changed from
“GLXS” to “GAXC.”  Our common stock is currently quoted on the
Over-the-Counter Bulletin Board ("OTCBB") under the symbol "GAXC". As of March
2, 2009, there were 21,021,786 shares of the Company’s common stock ($0.001 par
value) issued and 20,973,924 shares outstanding.





We are
currently authorized to issue a total of 45,000,000 shares of common stock
($0.001 par value), and 5,000,000 shares of preferred stock ($0.001 par value).
The Company does not currently have any shares of its preferred stock
outstanding.  The following table sets forth the high and low sales
price per share of our common stock (as adjusted for the one-for-five reverse
split that occurred on April 28, 2005).  The quotations reflect
inter-dealer prices, without mark-up, mark-down or commission, and may not
represent actual transactions.





Price
      RangeHigh
                            
                            
                            LowFiscal
      2009:First
      Quarter through February 27th
                            
                            $
                            0.16
                            
                            
                            
                            0.10Fiscal
      2008:First
      Quarter
                            
                            $
                            0.31
                            
                            
                            
                            0.20Second
      Quarter
                            
                            
                            0.30
                            
                            
                            
                            0.23Third
      Quarter
                            
                            
                            0.30
                            
                            
                            
                            0.24Fourth
      Quarter
                            
                            
                            0.26
                            
                            
                            
                            0.11Fiscal
      Year
                            
                            
                            0.31
                            
                            
                            
                            0.11Fiscal
      2007:First
      Quarter
                            
                            $
                            0.38
                            
                            
                            
                            0.23Second
      Quarter
                            
                            
                            0.32
                            
                            
                            
                            0.25Third
      Quarter
                            
                            
                            0.31
                            
                            
                            
                            0.25Fourth Quarter
                            
                            
                            0.34
                            
                            
                            
                            0.17Fiscal
      Year
                            
                            
                            0.38
                            
                            
                            
                            0.17





Dividends





We have
not historically declared or paid any dividends on our common stock and we
currently plan to retain future earnings to fund the development and growth of
our business.   The declaration of future dividends, whether in
cash or in-kind, is within the discretion of the Board of Directors and will
depend upon business conditions, our results of operations, our financial
condition, and other factors.  In addition, under the terms of our
credit facility we are prohibited from declaring dividends.


Page 23





Shareholders





On March
2, 2009, there were 232 registered holders of record of our common stock.
Because many of such shares are held by brokers and other institutions on behalf
of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.





Securities authorized for
issuance under equity compensation plans





As of
December 31, 2008, we had the following securities authorized for issuance under
the equity compensation plans (as adjusted for the one-for-five reverse split
that occurred on April 28, 2005):





Plan Category
                        
                        Number of
                          securities to
                          beissued
                          upon
                          exercise of
                          outstanding
                          options,
                          warrants and
                          rights
                        
                        
                        Weighted-
                          average
                          exercise
                          price of
                          outstanding
                          options,
                          warrants
                          and rights
                        
                        
                        Number of
                          securities
                          remaining
                          available for
                          future
                          issuance
                          under equity
                          compensation
                          plans
                          (excluding
                          securities
                          reflected in
                          firstcolumn)Equity
      compensation plans approved by security holdersStock
      Options
                        
                        
                        2,197,700
                        
                        
                        $
                        0.50
                        
                        
                        
                        860,428Warrants
                        
                        
                        6,645,004
                        
                        
                        $
                        2.58
                        
                        
                        
                        —Equity
      compensation plans not approved by security holders
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Total
                        
                        
                        8,842,704
                        
                        
                        $
                        2.07
                        
                        
                        
                        860,428





Recent Sales of Unregistered
Securities





None.





Stock Performance
Graph





The
following stock performance graph does not constitute soliciting material, and
should not be deemed filed or incorporated by reference into any other Company
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent the Company specifically incorporates this stock
performance graph by reference therein.





The
following performance graph compares the cumulative total stockholder return on
our common stock to the cumulative total return on the NASDAQ Composite Index
and the weighted average return of our peer group (described below) for the five
years ended December 31, 2008, assuming an initial investment of $100 and the
reinvestment of all dividends.





Our
current peer group consists of the following: Cardtronics Inc. and TRM
Corporation.


Page
24











12/31/2003
                  
                  
                  12/31/2004
                  
                  
                  12/31/2005
                  
                  
                  12/31/2006
                  
                  
                  12/31/2007
                  
                  
                  12/31/2008Global
      Axcess Corp
                  
                  $
                  100.00
                  
                  
                  $
                  100.00
                  
                  
                  $
                  305.56
                  
                  
                  $
                  102.78
                  
                  
                  $
                  94.44
                  
                  
                  $
                  36.11Current
      Peer Group
                  
                  $
                  100.00
                  
                  
                  $
                  278.19
                  
                  
                  $
                  87.34
                  
                  
                  $
                  25.09
                  
                  
                  $
                  5.28
                  
                  
                  $
                  8.88NADSAQ
                  
                  $
                  100.00
                  
                  
                  $
                  108.59
                  
                  
                  $
                  110.08
                  
                  
                  $
                  120.56
                  
                  
                  $
                  132.39
                  
                  
                  $
                  78.72




Page
25





ITEM
      6.
            SELECTED FINANCIAL
      DATA





Summary Statement of Operations Data


For the Year Ended December 31,2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005
                        
                        
                        2004(In
      thousands except per share data)Revenues
                        
                        $
                        22,171
                        
                        
                        $
                        21,751
                        
                        
                        $
                        21,437
                        
                        
                        $
                        19,526
                        
                        
                        $
                        13,900Gross
      profit
                        
                        
                        9,823
                        
                        
                        
                        9,045
                        
                        
                        
                        9,032
                        
                        
                        
                        8,004
                        
                        
                        
                        5,703Operating
      income (loss) from continuing operations
                        
                        
                        2,193
                        
                        
                        
                        1,511
                        
                        
                        
                        (3,510
                        )
                        
                        
                        1,284
                        
                        
                        
                        1,187Net
      Income (loss) from continuing operations
                        
                        $
                        1,170
                        
                        
                        $
                        256
                        
                        
                        $
                        (4,588
                        )
                        
                        $
                        550
                        
                        
                        $
                        1,786Income
      (loss) from discontinued operations
                        
                        $
                        -
                        
                        
                        $
                        175
                        
                        
                        $
                        (276
                        )
                        
                        $
                        (1,273
                        )
                        
                        $
                        (646
                        )Net
      Income (loss)
                        
                        $
                        1,170
                        
                        
                        $
                        431
                        
                        
                        $
                        (4,864
                        )
                        
                        $
                        (723
                        )
                        
                        $
                        1,140Income
      (loss) per common share - basic:Income
      (loss) from continuing operations
                        
                        $
                        0.06
                        
                        
                        $
                        0.01
                        
                        
                        $
                        (0.22
                        )
                        
                        $
                        0.03
                        
                        
                        $
                        0.11Income
      (loss) from discontinued operations
                        
                        $
                        -
                        
                        
                        $
                        0.01
                        
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.07
                        )
                        
                        $
                        (0.04
                        )Net
      Income (loss) per common share
                        
                        $
                        0.06
                        
                        
                        $
                        0.02
                        
                        
                        $
                        (0.23
                        )
                        
                        $
                        (0.04
                        )
                        
                        $
                        0.07Income
      (loss) per common share - diluted:Income
      (loss) from continuing operations
                        
                        $
                        0.06
                        
                        
                        $
                        0.01
                        
                        
                        $
                        (0.22
                        )
                        
                        $
                        0.03
                        
                        
                        $
                        0.11Income
      (loss) from discontinued operations
                        
                        $
                        -
                        
                        
                        $
                        0.01
                        
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.07
                        )
                        
                        $
                        (0.04
                        )Net
      Income (loss) per common share
                        
                        $
                        0.06
                        
                        
                        $
                        0.02
                        
                        
                        $
                        (0.23
                        )
                        
                        $
                        (0.04
                        )
                        
                        $
                        0.07Weighted
      average common shares outstanding:
                        
                        (**As adjusted for the one-for-five reverse split that occurred on April 28, 2005)Basic
                        
                        
                        20,973,924
                        
                        
                        
                        20,988,348
                        
                        
                        
                        20,996,013
                        
                        
                        
                        18,858,947
                        
                        
                        
                        15,623,259
                        **Diluted
                        
                        
                        20,973,924
                        
                        
                        
                        20,988,348
                        
                        
                        
                        20,996,013
                        
                        
                        
                        19,416,107
                        
                        
                        
                        16,489,183
                        **





Summary Balance Sheet
Data


At December 31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004(In
      thousands)Total
      current assets
                    
                    $
                    3,466
                    
                    
                    $
                    1,842
                    
                    
                    $
                    2,797
                    
                    
                    $
                    5,081
                    
                    
                    $
                    2,751Total
      assets
                    
                    
                    23,648
                    
                    
                    
                    24,001
                    
                    
                    
                    26,091
                    
                    
                    
                    31,638
                    
                    
                    
                    20,835Total
      current liabilities
                    
                    
                    3,938
                    
                    
                    
                    4,968
                    
                    
                    
                    6,343
                    
                    
                    
                    6,049
                    
                    
                    
                    3,850Total
      liabilities
                    
                    
                    10,184
                    
                    
                    
                    11,866
                    
                    
                    
                    14,462
                    
                    
                    
                    15,068
                    
                    
                    
                    7,617Working
      Capital
                    
                    
                    (472
                    )
                    
                    
                    (3,127
                    )
                    
                    
                    (3,546
                    )
                    
                    
                    (969
                    )
                    
                    
                    (1,099
                    )Total
      stockholders' equity
                    
                    
                    13,464
                    
                    
                    
                    12,134
                    
                    
                    
                    11,629
                    
                    
                    
                    16,570
                    
                    
                    
                    13,218




Page
26


ITEM
7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.





In
addition to historical information, this Annual Report on Form 10-K contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially. Factors that might cause or contribute to
such differences include, but are not limited to, those discussed below. You
should carefully review the risks described in other documents we file from time
to time with the SEC, including the Quarterly Reports on Form 10-Q to be filed
in 2009. When used in this report, the words "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "targets," "estimates," "looks for,"
"looks to," and similar expressions are generally intended to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this document.





Overview





Global
Axcess Corp, through its wholly owned subsidiaries, owns or leases, operates or
manages Automated Teller Machines ("ATM"s) with locations primarily in the
eastern and southwestern United States of America. Our revenues are principally
derived from two types of fees, which we charge for processing transactions on
our ATM network. We receive an interchange fee from the issuer of the credit or
debit card for processing a transaction when a cardholder uses an ATM in our
network. In addition, in most cases we receive a surcharge/convenience fee from
the cardholder when the cardholder makes a cash withdrawal from an ATM in our
network.





Interchange
fees are processing fees that are paid by the issuer of the credit or debit card
used in a transaction. Interchange fees vary for cash withdrawals, balance
inquiries, account transfers or uncompleted transactions, which are the primary
types of transactions that are currently processed on ATMs in our network. The
maximum amount of the interchange fees is established by the national and
regional card organizations and credit card issuers with whom we have a
relationship. We receive interchange fees for transactions on ATMs that we own,
but sometimes we rebate a portion of the fee to the owner of the ATM location
under the applicable lease for the ATM site. We also receive the interchange fee
for transactions on ATMs owned by third party vendors included within our
network, but we rebate all or a portion of each fee to the third party vendor
based upon negotiations between us. The interchange fees received by us vary
from network to network and to some extent from issuer to issuer, but generally
range from $0.15 to $0.55 per cash withdrawal. Interchange fees for balance
inquiries, account transfers and denied transactions are generally substantially
less than fees for cash withdrawals. The interchange fees received by us from
the card issuer are independent of the service fees charged by the card issuer
to the cardholder in connection with ATM transactions. Service fees charged by
card issuers to cardholders in connection with transactions through our network
range from zero to $2.50 per transaction. We do not receive any portion of these
service fees.





In most
markets we impose a surcharge/convenience fee for cash withdrawals.
Surcharge/convenience fees are a substantial additional source of revenue for us
and other ATM network operators. The surcharge/convenience fee for most of the
ATMs in our network ranges between $1.50 and $2.75 per withdrawal. The
surcharge/convenience fee for other ATMs in our network ranges between $0.50 and
$7.50 per withdrawal. We receive the full surcharge/convenience fee for cash
withdrawal transactions on ATMs that we own, but often we rebate a portion of
the fee to the owner of the ATM location under the applicable lease for the ATM
site. We also receive the full surcharge/convenience fee for cash withdrawal
transactions on ATMs owned by third party vendors included within our network,
but we rebate all or a portion of each fee to the third party vendor based upon
a variety of factors, including transaction volume and the party responsible for
supplying vault cash to the ATM and only record earned revenues based upon the
Company’s contracts with the third party vendors.





In
addition to revenues derived from interchange and surcharge/convenience fees, we
also derive revenues from providing network management services to third parties
owning ATMs included in our ATM network. These services include 24 hour
transaction processing, monitoring and notification of ATM status and cash
condition, notification of ATM service interruptions, in some cases dispatch of
field service personnel for necessary service calls and cash settlement and
reporting services. The fees for these services are paid by the owners of the
ATMs.





Interchange
fees are credited to us by networks and credit card issuers on a monthly basis
and are paid to us in the following month between the 5th and 15th business day.
Surcharge/convenience fees are charged to the cardholder and credited to us by
networks and credit card issuers on a daily basis. We rebate the portion of
these fees to ATM owners and owners of ATM locations as commission payments as
per their contractual terms. Fees for network management services are generally
paid to us on a monthly basis.




Page
27




We
compete in a fragmented industry, in which no one firm has a significant market
share and can strongly influence the industry outcome.  Our industry
is populated by a large number of financial institutions and Independent Sales
Organizations (“ISOs”) which deploy ATMs.  The industry we compete in
is also characterized by essentially undifferentiated services.





There are
underlying economic causes as to why our industry is fragmented.  For
example:





·
            Low
      overall entry barriers;




·
            Absence
      of national economies of scale;




·
            Seasonal
      and geographic volume fluctuations;




·
            The
      need for local presence in some market segments;
  and




·
            The
      need for low overhead.




Additionally,
the industry in which we compete is showing increasing signs of being an
industry in decline.  Reasons for this market decline
include:





·
            Emergence
      of debit cards, “pay pass” machines and RFID as substitutes for cash in
      making purchases;





·
            Increasing
      acceptance of debit cards by younger demographics;
  and




·
            Market
      saturation of prime ATM locations in the United
  States.




The
demand for our ATM services is primarily a function of population growth and new
business creation to serve that population growth.  In addition,
opportunities exist:





·
            As
      our competitors seek to exit the
business;




·
            As
      our competitors encounter financial and regulatory difficulties;
      and




·
            As
      financial institutions seek to reduce their costs of managing an ATM
      channel during a period of decreasing ATM
usage.





Opportunities
may also exist to leverage our existing customer base by selling additional
products and services to them.


Page
28


Results of Continuing
Operations





The
following tables set forth certain consolidated statement of continuing
operations data as a percentage of revenues for the periods
indicated.  Percentages may not add due to rounding.





For the yearended
                      
                      
                      For the yearendedDecember 31,2008
                      
                      
                      December 31,2007Revenues
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %Cost
      of revenues
                      
                      
                      55.7
                      %
                      
                      
                      58.4
                      %Gross
      profit
                      
                      
                      44.3
                      %
                      
                      
                      41.6
                      %Depreciation
      expense
                      
                      
                      6.4
                      %
                      
                      
                      7.1
                      %Amortization
      of intangible merchant contracts
                      
                      
                      3.5
                      %
                      
                      
                      3.3
                      %Selling,
      general and administrative
                      
                      
                      23.9
                      %
                      
                      
                      24.3
                      %Impairment
      of notes receivable
                      
                      
                      0.0
                      %
                      
                      
                      0.0
                      %Recovery
      of bad debts
                      
                      
                      0.0
                      %
                      
                      
                      (0.5
                      )
      %Stock
      compensation expense
                      
                      
                      0.7
                      %
                      
                      
                      0.4
                      %Total
      operating expenses
                      
                      
                      34.5
                      %
                      
                      
                      34.6
                      %Operating
      income from continuing operations before items shown below
                      
                      
                      9.8
                      %
                      
                      
                      7.0
                      %Interest
      expense, net
                      
                      
                      (4.7
                      )
      %
                      
                      
                      (5.7
                      )
      %Gain
      on disposal of assets
                      
                      
                      0.1
                      %
                      
                      
                      (0.1
                      )
      %Income
      from continuing operations before provision for income
    taxes
                      
                      
                      5.2
                      %
                      
                      
                      1.2
                      %Income
      from continuing operations
                      
                      
                      5.2
                      %
                      
                      
                      1.2
                      %EBITDA
      (1)
                      
                      
                      19.8
                      %
                      
                      
                      17.2
                      %





(1) See
“—EBITDA”





Comparison of Results of
Operations for the Fiscal Years Ended December 31, 2008 and
2007





Revenues





Our
revenues from continuing operations increased 1.9% to $22,171,072 for the fiscal
year ended December 31, 2008 ("fiscal 2008") from $21,750,897 for the fiscal
year ended December 31, 2007 ("fiscal 2007").  We achieved increased
revenues from fiscal 2007 despite lower transaction volumes.  This
increase was mainly due to increased revenues relating to increased
surcharge/convenience fees on selected ATMs beginning in the first quarter of
2008.





Cost of
Revenues





Our total
cost of revenues from continuing operations decreased by approximately 2.8% to
$12,347,991 in fiscal 2008 from $12,705,636 in fiscal 2007.  Total
cost of revenues as a percentage of revenues from continuing operations was
approximately 55.7% in fiscal 2008 and 58.4% in fiscal 2007.  The
principal components of cost of revenues are merchant and distributor
commissions, cost of cash, cash replenishment, maintenance, transaction
processing charges, telecommunication costs and equipment costs on related
equipment sales.  The decrease in cost of revenues year over year was
primarily due to lower cash costs resulting from lower interest
rates.  This decrease was offset by higher fuel charges resulting in
higher first line and second line maintenance costs as well as increased
residual/commission payments to customers from fiscal 2007.





Gross
Profit





Gross
profit from continuing operations as a percentage of revenues was approximately
44.3% in fiscal 2008 and approximately 41.6% in fiscal 2007. The increased gross
profit and gross profit percentage for the fiscal year ended December 31, 2008
versus the same period in 2007 was mainly attributable to the increased
surcharge/convenience fees on selected ATMs and lower cash costs due to lower
interest rates.


Page
29





Operating
Expenses





Our total
operating expenses from continuing operations decreased to $7,630,429, or
approximately 34.5% of revenues, in fiscal 2008 from $7,534,576, or
approximately 34.6% of revenues in fiscal 2007. The principal components of
operating expenses are general and administrative expenses such as professional
and legal fees, administrative salaries and benefits, consulting and audit fees,
occupancy costs, sales and marketing expenses and administrative
expenses.  Operating expenses also include depreciation, amortization
of intangible merchant contracts, impairment of notes receivable, recovery of
bad debts and stock compensation expenses.





To aid in
the understanding of our discussion and analysis of our operating expenses, the
following table summarizes the amount and percentage change in the amounts from
the previous year for certain operating expense line items:





For the yearended
                  
                  
                  For the yearended
                  
                  
                  2007 to 2008
                  
                  
                  2007 to 2008December 31,2008
                  
                  
                  December 31,2007
                  
                  
                  $ Change
                  
                  
                  % ChangeDepreciation
      expense
                  
                  $
                  1,411,360
                  
                  
                  $
                  1,536,616
                  
                  
                  $
                  (125,256
                  )
                  
                  
                  (8.2
                  )
      %Amortization
      of intangible merchant contracts
                  
                  
                  770,270
                  
                  
                  
                  725,935
                  
                  
                  
                  44,335
                  
                  
                  
                  6.1
                  %Selling,
      general and administrative
                  
                  
                  5,288,959
                  
                  
                  
                  5,279,101
                  
                  
                  
                  9,858
                  
                  
                  
                  0.2
                  %Impairment
      of notes receivable
                  
                  
                  -
                  
                  
                  
                  5,743
                  
                  
                  
                  (5,743
                  )
                  
                  
                  -Recovery
      of bad debts
                  
                  
                  -
                  
                  
                  
                  (100,000
                  )
                  
                  
                  100,000
                  
                  
                  
                  -Stock
      compensation expense
                  
                  
                  159,840
                  
                  
                  
                  87,181
                  
                  
                  
                  72,659
                  
                  
                  
                  83.3
                  %Total
      operating expenses
                  
                  $
                  7,630,429
                  
                  
                  $
                  7,534,576
                  
                  
                  $
                  95,853
                  
                  
                  
                  1.3
                  %





See
explanation of operating expenses below:





Depreciation
Expense





Depreciation
expense from continuing operations decreased in fiscal 2008 to $1,411,360 from
$1,536,616 in fiscal 2007.  This decrease in depreciation expense was
mainly due to depreciation savings resulting from refinancing several fair
market value capital leases to bargain purchase option capital
leases.  This refinancing enables the Company to depreciate the assets
covered under the respective leases over a longer period of time thus recording
savings relating to the depreciation on the equipment covered under those
leases.





Amortization of Intangible
Merchant Contracts





Amortization
of intangible merchant contracts from continuing operations increased in fiscal
2008 to $770,270 from $725,935 in fiscal 2007.  The increase in
amortization expense was mainly due to the additional amortization from the
capitalized merchant contracts relating to the Triple-DES upgrades purchased
during the last nine months of 2007.





The
Company amortized $103,884 and $174,726 of developed software in fiscal years
2008 and 2007, respectively.





See
Financial Statement Footnotes #2 “Summary of Significant Accounting Policies”
and #7 “Intangible Assets and Merchant Contracts,” regarding the amortization of
intangible merchant contracts.





Selling, General and
Administrative (SG&A) Expenses





Our total
SG&A expenses from continuing operations increased slightly to $5,288,959 in
fiscal 2008 from $5,279,101 in fiscal 2007.  SG&A expenses
represented 23.9% of revenues for the year ended December 31, 2008 compared to
24.3% of revenues for the year ended December 31, 2006. Included in the fiscal
2008 SG&A expenses was $222,622 of performance based incentive
expenses.  This compares to $23,710 of such expenses in fiscal
2007.  Excluding these performance based expenses, SG&A expenses
would have decreased 3.6% year over year.





Impairment and Restructuring
Charges





During
fiscal 2007, we incurred impairment of notes receivable charges of
$5,743.




Page
30




Recovery of Bad
Debts




In fiscal
2007, we recorded a recovery of bad debts of $100,000 which related to the
settlement of a previously fully reserved note.





Stock Compensation
Expense





In fiscal
2008, we recorded stock compensation expenses of $159,840 mainly relating to
executive stock option grants (see Financial Footnote #2 “Description Of
Business and Summary of Significant Accounting Policies” and Financial Footnote
# 19 “Stock Options and Warrants”) during fiscal 2007 combined with additional
grants in fiscal 2008.  During the fiscal year ended December 31, 2007
we recorded stock compensation expenses of $87,181.





Interest
Expense





Interest
expense from continuing operations decreased to $1,046,287, or 4.7% of revenues,
for the fiscal year ended December 31, 2008 compared to $1,232,661, or 5.7% of
revenues, in fiscal 2007. The decrease was mainly due to decreased debt balances
in fiscal 2008 as compared to the debt balances in fiscal 2007. During the
fiscal period ended December 31, 2008 we recorded interest expense of $40,985
relating to the change in fair value of interest swap agreement we entered into
with our senior lender.  The interest rate swap has not been
designated as a hedging instrument and our policy is to record the change in
fair value as an increase or decrease to interest expense in our consolidated
statements of income.  The decrease in interest rates during 2008
caused us to have a $93,242 unfavorable market value of the swap at December 31,
2008.  During the fiscal period ended December 31, 2007 we recorded
interest expense of $48,551 relating to the interest swap
agreement.





For the year ended
                            
                            
                            For the year endedDecember 31, 2008
                            
                            
                            December 31, 2007Interest
      expense, net
                            
                            $
                            880,299
                            
                            
                            $
                            1,066,674Accretion
      of discount on notes payable
                            
                            
                            165,988
                            
                            
                            
                            165,987Total
      Interest expense, net
                            
                            $
                            1,046,287
                            
                            
                            $
                            1,232,661




Gain (loss) on Sale or
Disposal of Assets





In fiscal
2008, we recorded a gain on disposal of certain ATM assets of
$23,872.  This gain related to insurance proceeds from a warehouse
flood in Texas during the summer of 2008.  In fiscal 2007, we recorded
a loss on sale or disposal of certain ATM assets and leasehold improvements of
$22,517.





Income Tax
Expense





The
income tax expense from continuing operations was $0 for fiscal years 2008 and
2007, respectively.  At December 31, 2008, the Company has a Net
Operating Loss (“NOL”) carryforward of approximately $26.0 million
available.  The NOL is due to expire during fiscal years
2009-2027.





Income from Discontinued
Operations





We had
income from discontinued operations of $175,000 during the fiscal year ended
December 31, 2007 resulting from the received amounts pertaining to the escrowed
portion of the Company’s Cash Axcess Corp sale.





Net
Income





We had
net income of $1,170,237 during the fiscal year ended December 31, 2008 compared
to net income of $430,507 for the fiscal year ended December 31,
2007.





EBITDA





EBITDA (a
non-GAAP measure) is defined as earnings before net interest, taxes,
depreciation and amortization. EBITDA has some inherent limitations in measuring
operating performance due to the exclusion of certain financial elements such as
depreciation and is not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the method of
calculation. Furthermore, EBITDA is not intended to be a substitute for cash
flows from operating activities, as a measure of liquidity, or an alternative to
net income in determining our operating performance in accordance with
accounting principles generally accepted in the United States of America. Our
use of EBITDA should be considered within the following
context:


Page
31





·
            We
      acknowledge that our depreciable assets are necessary to earn revenue
      based on our current business.




·
            Our
      use of EBITDA as a measure of operating performance is not based on our
      belief about the reasonableness of excluding depreciation when measuring
      financial performance.




·
            Our
      use of EBITDA is supported by the importance of EBITDA to the following
      key stakeholders:




·
            Analysts — who
      estimate our projected EBITDA and other EBITDA-based metrics in their
      independently developed financial models for
  investors;




·
            Creditors — who
      evaluate our operating performance based on compliance with certain
      EBITDA-based debt covenants;




·
            Investment
      Bankers — who use EBITDA and other EBITDA-based metrics in their
      written evaluations and comparisons of companies within our industry;
      and




·
            Board of Directors and
      Executive Management — who use EBITDA as an essential metric for
      evaluating management performance relative to our operating budget and
      bank covenant compliance, as well as our ability to service debt and raise
      capital for growth opportunities which are a critical component to our
      strategy.




The
following table sets forth a reconciliation of net income from continuing
operations to EBITDA for each period included herein:





For the year ended
                
                
                For the year endedDecember 31, 2008
                
                
                December 31, 2007Net
      income from continuing operations
                
                $
                1,170,237
                
                
                $
                255,507Interest
      expense, net
                
                
                1,046,287
                
                
                
                1,232,661Depreciation
      expense
                
                
                1,411,360
                
                
                
                1,536,616Amortization
      of intangible merchant contracts
                
                
                770,270
                
                
                
                725,935EBITDA
      from continuing operations
                
                $
                4,398,154
                
                
                $
                3,750,719





Our
EBITDA from continuing operations increased to $4,398,154 for fiscal 2008 from
$3,750,719 for fiscal 2007. EBITDA from continuing operations as a percentage of
revenues increased to 19.8% for fiscal 2008 from 17.2% for fiscal
2007.





The
following table sets forth a reconciliation of net income from continuing
operations to EBITDA before stock compensation expense for each period included
herein:





For the year ended
                
                
                For the year endedDecember 31, 2008
                
                
                December 31, 2007Net
      income from continuing operations
                
                $
                1,170,237
                
                
                $
                255,507Interest
      expense, net
                
                
                1,046,287
                
                
                
                1,232,661Depreciation
      expense
                
                
                1,411,360
                
                
                
                1,536,616Amortization
      of intangible merchant contracts
                
                
                770,270
                
                
                
                725,935Stock
      compensation expense
                
                
                159,840
                
                
                
                87,181EBITDA
      from continuing operations before stock compensation
    expense
                
                $
                4,557,994
                
                
                $
                3,837,900





Our
EBITDA from continuing operations before stock compensation expense increased to
$4,557,994 for fiscal 2008 from $3,837,900 for fiscal 2007. EBITDA from
continuing operations before stock compensation expense as a percentage of
revenues increased to 20.6% for fiscal 2008 from 17.6% for fiscal
2007.


Page
32





LIQUIDITY
AND CAPITAL RESOURCES





Financial
Condition





For the yearended
                  
                  
                  For the yearended
                  
                  
                  2007 to 2008
                  
                  
                  2007 to 2008December 31,2008
                  
                  
                  December 31,2007
                  
                  
                  $ Change
                  
                  
                  % ChangeNet
      cash provided by operating activities
                  
                  $
                  2,979,341
                  
                  
                  $
                  2,549,108
                  
                  
                  $
                  430,233
                  
                  
                  
                  16.9
                  %Net
      cash used in investing activities
                  
                  
                  (261,381
                  )
                  
                  
                  (921,383
                  )
                  
                  
                  660,002
                  
                  
                  
                  (71.6
                  )
      %Net
      cash used in financing activities
                  
                  
                  (1,697,211
                  )
                  
                  
                  (1,841,408
                  )
                  
                  
                  144,197
                  
                  
                  
                  (7.8
                  )
      %Increase
      (decrease) in cash
                  
                  $
                  1,020,749
                  
                  
                  $
                  (213,683
                  )
                  
                  $
                  1,234,432





Operating
Activities





During
fiscal 2008, we funded our continuing operations through operating activities.
Net cash provided by continuing operating activities amounted to $2,979,341 as
compared to $2,549,108 during fiscal 2007.





Investing
Activities





Net cash
used in investing activities from continuing operations for fiscal 2008 was
$261,381.  The decrease from the $921,383 used for fiscal 2007 was
mainly due to the purchases associated with the Triple-DES requirements in
2007.





Financing
Activities





Net cash
used in financing activities for continuing operations for fiscal amounted to
$1,697,211, mainly relating to principal payments on senior lenders’ notes
payable and capital lease obligations.





Working
Capital





As of
December 31, 2008, the Company had current assets of $3,466,314 and current
liabilities of $3,938,101, which results in negative working capital of
$471,787.  This compares to a working capital deficit of $3,126,641
that existed at December 31, 2007, resulting in an improvement of
$2,654,854.  Despite the negative working capital, we believe that if
we achieve our 2009 business plan, we will have sufficient working capital to
meet our current obligations during 2009.  However, we do anticipate
the need to raise capital lease financing to meet our capital needs of
approximately $1,000,000 to expand our ATM portfolio and fund new back office
equipment during 2009.





Additional Funding
Sources





We are
continuing our efforts to raise additional capital lease
financing.  We estimate the Company will require approximately
$1,000,000 of new lease financing to fund new purchases of ATMs and back office
equipment.  We currently have lease lines available for approximately
$1,500,000 for these new purchases.





The
Company does not use its own funds for vault cash, but rather relies upon third
party sources. The Company in general rents the vault cash from financial
institutions and pays a negotiated interest rate for the use of the money. The
vault cash is never in the possession of, controlled or directed by the Company
but rather cycles from the bank to the armored car carrier and to the ATM. Each
day’s withdrawals are settled back to the owner of the vault cash on the next
business day. Both Nationwide and its customers (the merchants) sign a document
stating that the vault cash belongs to the financial institution and that
neither party has any legal rights to the funds. The required vault cash is
obtained under the following arrangements:





·
            Wilmington
      Savings Fund Society. Beginning in September 2004,
      the Company has an arrangement with Wilmington Savings Fund Society
      (“WSFS”) allowing us to obtain up to $20,000,000 in vault
      cash.   The WSFS contract may be terminated by WSFS at any
      time upon breach by us and upon the occurrence of certain other events.
      Under this arrangement, we are required to pay a monthly service fee on
      the outstanding amount equal to the prime rate of interest, plus a
      specified percentage, and must pay monthly "bank" and insurance fees. We
      are also required to maintain insurance on the vault cash. The contract
      currently in place with WSFS expires on October 31, 2009 with a one year
      auto renewal period unless one party gives 60 days notice of their
      intention not to renew.  As of December 31, 2008, the Company
      had 41 ATMs funded by WSFS with a vault cash outstanding balance of
      approximately $767,400 in connection with this
      arrangement.




Page
33




·
            First
      Charter.  On September 1, 2004, we entered into an
      arrangement with First Charter National Bank (“First Charter”) allowing us
      to obtain up to $3,000,000 in vault cash.  We had since
      increased the line as of December 31, 2006 to $6,000,000.  In
      September 2008, First Charter was acquired by Fifth Third Bancorp (“Fifth
      Third”).  Fifth Third’s strategy relating to providing ATM vault
      cash is different than First Charter’s.  As a result, Fifth
      Third elected to terminate the contract early.  As of December
      31, 2008, the Company had no ATMs funded by Fifth
  Third.




·
            Elan
      (formerly GenPass Technologies).  On November 24, 2006,
      we signed a Cash Provisioning Agreement with Elan allowing us to obtain up
      to $30,000,000 in vault cash.  The Elan contract may be
      terminated by Elan at any time upon breach by us and upon the occurrence
      of certain other events.  Under this arrangement, we are
      required to pay a monthly service fee on the average terminal balance plus
      a load factor.  In addition, we are required to maintain
      insurance on the vault cash.  The contract currently in place
      with Elan expires on August 11, 2009 with a one year auto renewal period
      unless one party gives 180 days notice of their intention not to
      renew.  As of December 31, 2008, the Company had 981 ATMs funded
      by Elan with a vault cash outstanding balance of about approximately
      $21,168,900.




·
            Various
      Branded Cash Partners.  Nationwide has partnered with
      numerous banks and credit unions to market specific Nationwide ATMs to the
      cardholders of these institutions.  We add signage and marketing
      material to the ATM so that the ATM is easily identified as being
      associated with the bank or credit union, and the cardholders of these
      institutions receive surcharge free transactions at the designated
      ATMs.  This provides the bank or credit union additional
      marketing power and another point of access to funds for their
      cardholders.  In return for this benefit, the bank or credit
      union, provide and manage the vault cash in the specified ATM(s), as well
      as provide and pay for cash replenishment and first line
      maintenance.  The advantage to Nationwide is that this reduces
      the costs associated with vault cash, cash replenishment and first line
      maintenance by approximately 50%.  Another advantage is that
      with a branded ATM, transaction volumes traditionally increase more than
      at non-branded ATMs.  As of December 31, 2008, Nationwide had 59
      branded financial partners, which funded 548
  ATMs.




Contractual
Obligations





Our
ability to fund our capital needs is also impacted by our overall capacity to
acquire favorable financing terms in our acquisition of ATMs. Our contractual
obligations, including commitments for future payments under non-cancelable
lease arrangements and short and long-term debt arrangements, are summarized
below and are fully disclosed in Financial Footnotes #9 “Notes Payable – Related
Parties”, #11 “Senior Lenders’ Notes Payable,” #12 “Capital Lease Obligations”
and #13 “Commitments and Contingencies” to our consolidated financial
statements. We do not participate in, nor secure financings for, any
unconsolidated, limited or special purpose entities.





We
anticipate that our capital expenditures for fiscal 2009 will total
approximately $1,000,000, primarily for the acquisition and/or upgrade of ATMs
and related ATM installation costs. We lease our ATMs under capital lease
agreements that expire by the end of 2011 and provide for lease payments at
interest rates averaging approximately 12.0% per annum. In 2008, we refinanced
existing leases and acquired approximately $407,404 of new lease financing for
ATMs.  Also, we acquired approximately $39,000 of auto financing for
two trucks for our technicians.  See Financial Footnote #12 “Capital
Lease Obligations” to the Consolidated Financial Statements. We have the
following payment obligations under current financing and leasing
arrangements:





Total
                      
                      
                      Less than 1 year
                      
                      
                      1-2 Years
                      
                      
                      2-9 YearsNotes
      payable- related parties (*)
                      
                      $
                      1,571,119
                      
                      
                      $
                      146,250
                      
                      
                      $
                      1,343,687
                      
                      
                      $
                      81,182Senior
      lender notes (*)
                      
                      
                      5,939,035
                      
                      
                      
                      1,052,777
                      
                      
                      
                      4,445,402
                      
                      
                      
                      440,856Capital
      lease obligations (*)
                      
                      
                      1,315,830
                      
                      
                      
                      866,344
                      
                      
                      
                      435,012
                      
                      
                      
                      14,474Operating
      leases
                      
                      
                      419,808
                      
                      
                      
                      136,061
                      
                      
                      
                      220,233
                      
                      
                      
                      63,514Total
      contractual cash obligations
                      
                      $
                      9,245,793
                      
                      
                      $
                      2,201,433
                      
                      
                      $
                      6,444,334
                      
                      
                      $
                      600,026





(*)
Includes interest in future periods


Page
34





Critical Accounting
Policies





The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect the
amounts reported in our consolidated financial statements and accompanying
notes. We base our estimates and judgments on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. However, future events are subject to change, and the best
estimates and judgments routinely require adjustment. The amounts of assets and
liabilities reported in our consolidated balance sheet, and the amounts of
revenues and expenses reported for each of our fiscal periods, are affected by
estimates and assumptions which are used for, but not limited to, the accounting
for allowance for doubtful accounts, depreciation and amortization, fixed
assets, goodwill and intangible asset impairments, stock-based compensation,
restructurings and income taxes. Actual results could differ from these
estimates. The following critical accounting policies are significantly affected
by judgments, assumptions and estimates used in the preparation of our
consolidated financial statements.





Revenue Recognition
Policies





We
recognize revenues as ATM card holders use ATMs or as services are rendered to
customers.  Revenues are adjusted with positive and negative
processing accruals occurring in the operation of the Company's ATM network in
the ordinary course of business. It is the policy of the Company to book as
revenue all surcharge and interchange fees it receives and has earned based on
contracts, whether for its owned ATMs or for those it manages. In the case of
managed ATMs, the Company then books as commission expense all monies paid to
the owners of the ATMs. Surcharge/convenience fees are fees assessed directly to
the consumer utilizing the ATM terminals owned by the Company. The
surcharge/convenience fees assessed mostly range from $1.50 to $2.75 based upon
a cash withdrawal transaction from the ATM terminals.





Interchange
fees are fees assessed directly to the card issuer of the
consumer.  The interchange fees are comprised of two fees: (1) an
interchange fee ranging from approximately $0.40 to $0.55 based upon each cash
withdrawal transaction; and (2) an interchange fee ranging from approximately
$0.15 to $0.25 based upon an account inquiry by the consumer.





Management
fees are charged and recognized monthly to various companies or individuals that
use the services of Nationwide to operate their ATMs. These fees are for
services such as cash management, project management and account
management.





The
Company recognizes revenues on breached contracts when cash is
received.





Allowance of Uncollectible
Accounts Receivable





Accounts
receivable have been reduced by an allowance for amounts that may become
uncollectible in the future. This estimated allowance is based on historical
experience, credit evaluations, specific customer collection issues and the
length of time a receivable is past due.  The Company records an
allowance for doubtful accounts for any billed invoice aged past 60 days. When
the Company deems the receivable to be uncollectible, the Company charges the
receivable against the allowance for doubtful accounts.





Fixed
assets





ATM and
computer equipment comprises a significant portion of our total assets. Changes
in technology or changes in our intended use of these assets may cause the
estimated period of use or the value of these assets to change. We perform
annual internal studies to confirm the appropriateness of estimated economic
useful lives for each category of current equipment. Estimates and assumptions
used in setting depreciable lives require both judgment and
estimates.





Stock-based
compensation





Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
"Share-Based Payment," using the modified-prospective-transition method which
requires us to recognize compensation expense on a prospective basis. SFAS No.
123(R) requires that all stock based compensation be recognized as an expense in
the financial statements and that such cost be measured at the fair value of the
award. The stock based compensation expense is included in operating expenses in
the consolidated statements of income.


Page
35


Impairment of Long-Lived
Assets





The
Company reviews long-lived assets for impairment under SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.”  Long-lived
assets to be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.  The carrying amount of a long-lived asset is not
recoverable if it exceeds the estimated sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
asset.  Long-lived assets to be disposed of are reported at the lower
of carrying amount or fair value less cost to sell.





Recent Accounting
Pronouncements





See
Financial Statement Footnotes #2 “Summary of Significant Accounting Policies”
regarding the impact of recently issued accounting pronouncements.





ITEM
      7A.
            QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Impact
of Inflation and Changing Prices. Our results of operations were impacted
by decreasing interest rates as noted below:





Increases
in interest rates will increase our cost of cash expenses.  We have
vault cash agreements with various financial institutions that supply cash to
our ATMs for fees based on variable interest rates. Vault cash obtained under
these programs remains the property of the financial institution and, as such,
is not reflected on our consolidated balance sheet. During 2008, amounts we
accessed each month ranged from $19 million to $23 million and we paid cash
fees totaling approximately $800 thousand for use of the cash. During 2007,
amounts we accessed each month ranged from $18.5 million to $22.4 million
and we paid cash fees totaling approximately $1.4 million for use of the cash.
Such fees are related to the bank’s interest rates. If such rates were to
increase by 100 basis points, our gross profit would decline by approximately
$200,000 on a pre-tax basis for 2008 and 2007.   Decreased
interest rates will have an opposite effect to gross profit.





Interest
Rate Impact. We paid an average interest rate of 3.94% for our vault cash
fees in fiscal 2008 compared to an average interest rate of 6.73% in fiscal
2007.   Specific to this decrease in interest rates, our gross
profit increased in fiscal 2008 by approximately $550,000.


Page
36


ITEM
      8.
            FINANCIAL STATEMENTS
      AND SUPPLEMENTARY DATA





Our
consolidated financial statements required by this item are incorporated herein
by reference to the consolidated financial statements beginning on Page F-1
immediately following the signature page.





ITEM
      9.
            CHANGES IN AND
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.





ITEM
      9A.
            CONTROLS AND
      PROCEDURES





Not
applicable.





ITEM
      9A(T).
            CONTROLS AND
      PROCEDURES





Evaluation of Disclosure
Controls and Procedures and Changes in Internal Control over Financial
Reporting





Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2008.
In designing and evaluating our disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applied its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, our
chief executive officer and chief financial officer concluded that, as of
December 31, 2008, our disclosure controls and procedures were (1) effective in
that they were designed to ensure that material information relating to us is
made known to our chief executive officer and chief financial officer by others
within the Company, as appropriate to allow timely decisions regarding required
disclosures, and (2) effective in that they provide that information required to
be disclosed by us in our reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and
forms.





Management’s Responsibility
for Financial Statements





Our
management is responsible for the integrity and objectivity of all information
presented in this Annual Report on Form 10-K. The consolidated financial
statements were prepared in conformity with accounting principles generally
accepted in the United States of America and include amounts based on
management’s best estimates and judgments. Management believes the consolidated
financial statements fairly reflect the form and substance of transactions and
that the financial statements fairly represent the Company’s financial position
and results of operations.





The Audit
Committee of the Board of Directors, which is composed solely of independent
directors, meets regularly with the Company’s independent registered public
accounting firm and representatives of management to review accounting,
financial reporting, internal control and audit matters, as well as the nature
and extent of the audit effort. The Audit Committee is responsible for the
engagement of the independent registered public accounting firm. The independent
registered public accounting firm has free access to the Audit
Committee.





Management’s Report on
Internal Control Over Financial Reporting





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal controls over financial reporting. The Company's internal control
system over financial reporting is a process designed under the supervision of
the Company's chief executive officer and chief financial officer to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the consolidated financial statements in accordance with U.S.
generally accepted accounting principles.





The
Company’s management, including its principal executive officer and principal
financial officer, conducted an evaluation of the effectiveness of its internal
control over financial reporting based on the framework in “Internal
Control-Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on its evaluation
under the framework in “Internal Control-Integrated Framework,” the Company’s
management concluded that the Company’s internal control over financial
reporting was effective as of December 31, 2008.


Page
37





All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions.





This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by the
company's registered public accounting firm pursuant to temporary rules of the
SEC that permit the company to provide only management's report in this annual
report.





Changes
in Internal Control Over Financial Reporting





There
were no changes during the quarter ended December 31, 2008 in our internal
control over financial reporting or in other factors that materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.





ITEM
      9B.
            OTHER
      INFORMATION





None.





PART
III





ITEM
      10.
            DIRECTORS, EXECUTIVE
      OFFICERS AND CORPORATE
GOVERNANCE





The
Company's executive officers, directors and key employees and their ages and
positions as of December 31, 2008 are as follows:





Name
              
              Age
              
              PositionsWalter
      A. Howell
              
              58
              
              DirectorLock
      Ireland
              
              65
              
              Vice
      Chairman, DirectorSharon
      Jackson
              
              51
              
              SecretaryRobert
      Landis
              
              49
              
              DirectorMichael
      J. Loiacono
              
              42
              
              Chief
      Financial Officer, Chief Accounting OfficerJoseph
      M. Loughry, III
              
              63
              
              Chairman,
      DirectorGeorge
      A. McQuain
              
              53
              
              President,
      CEO and DirectorAlan
      Rossiter
              
              63
              
              DirectorHeather
      Webb Carrouth
              
              31
              
              Vice
      President of New Business
Development





The
following is a brief description of each officer and director listed
above:





Walter A. Howell,
Director





Mr.
Howell is currently Senior Vice President, Americas Business Development for CSC
(formerly Computer Sciences Corporation), a leading technology services company.
Previously, he spent 15 years as an executive in the technology industry focused
on financial services with CA (formerly Computer Associates), IBM and American
Management Systems and 20 years in commercial banking with Riggs Bank
NA.  Mr. Howell originally joined the Company as a director in
September 2007 and his current term expires on the date of the next shareholder
meeting which has not yet been scheduled.





Lock Ireland, Vice Chairman,
Director





Currently
a consultant and Director with NHB Holdings, Inc. and Proficio Bank, Mr. Ireland
has over 30 years experience in the banking industry. Prior to this he was the
President and CEO for Resource Corporate Management, Inc. (RCMI) from 1994 to
2002, RCMI is a company that promotes new products and services with community
banks via the Bankers' Banks across the United States. Mr. Ireland has held
numerous positions from Vice-President to CEO with the following banks: Bankers
Trust of South Carolina, 1st Performance Bank, Republic National Bank and
Resource Bancshares. His current affiliations include being a Board Member of
the Jacksonville Economic Company and previous Board Governor for the
Jacksonville Chamber of Commerce. Mr. Ireland brings many affiliations and much
experience in the banking and financial industries to the
Company.  Mr. Ireland originally joined the Company as a director in
July 2003 and his current term expires on the date of the next shareholder
meeting which has not yet been scheduled.


Page
38


Sharon Jackson,
Secretary





Ms.
Jackson has served as the Company’s Director of Corporate Development and
Assistant Secretary from 2004 to 2006 and then as the Director of Corporate
Operations and Corporate Secretary from 2006 to present. Prior to 2004, Ms.
Jackson served as the Director of Marketing and Client Services for Nationwide
Money Services, Inc.





Robert Landis,
Director





Mr.
Landis is currently the Chairman, Chief Financial Officer and Treasurer of
Comprehensive Care Corporation, a publicly traded company that provides managed
behavioral healthcare services. He has been with Comprehensive Care for over 5
years, working directly with all operations, financial and SEC filings. Prior to
this, Mr. Landis was with Maxicare Health Plans, Inc., a health maintenance
organization, as its Treasurer from 1983-1998.  Mr. Landis also serves
on the Board of Directors and on the audit committee of Nyer Medical Group,
Inc., a publicly traded company engaged in the ownership and operation of
pharmacies. Mr. Landis, a Certified Public Accountant, received a Bachelor’s
Degree in Business Administration from the University of Southern California and
a Master’s Degree in Business Administration from California State University at
Northridge. Mr. Landis brings strong financial, operational and SEC experience
to the Company, and is Chairman of the Audit Committee for the
Company.  Mr. Landis originally joined Global Axcess as a director in
July 2003 and his current term expires on the date of the next shareholder
meeting which has not yet been scheduled.





Michael J. Loiacono, Chief
Financial Officer and Chief Accounting Officer





Mr.
Loiacono brings more than 20 years of professional experience working with both
public and private companies within the telecommunications and software
industries. Prior to joining Global Axcess in March 2006, Mr. Loiacono served as
Vice President of Finance for InfiniRoute Networks Inc., which was acquired by
TNS, Inc. At InfiniRoute, Mr. Loiacono managed their financial strategies to
support the company's growth, and oversaw the day-to-day financial operations,
including budget planning, accounting, billing, and financial reporting. Before
his role at InfiniRoute, Mr. Loiacono served roles as VP of Finance at Reach
Services, USA. and Controller and Director of Finance for ITXC Corp, which was
acquired by Teleglobe, Inc. He has also held financial management positions at
Voxware, Inc. and Dendrite International, Inc., two publicly traded companies.
Mr. Loiacono holds a Bachelor of Science degree from Rutgers University. Mr.
Loiacono is responsible for: financing the operations of the Company and its
subsidiaries; financing the internal growth of the Company; strategic, legal and
risk analysis for the Company; and SEC filings of the Company.





Joseph M. Loughry, III,
Chairman, Director





Mr.
Loughry has had successful hands-on experience in creating shareholder value in
public and privately held processing services and software companies with sales
ranging from $15 million to $300 million annually. In September 2007, Mr.
Loughry was named President and Chief Executive Officer of Persystent
Technologies Corporation, a privately-owned Tampa, Florida software company
which provides enterprise laptop and desktop standard configuration management
and desired state enforcement capabilities to corporations and government
agencies.  Previously, as President and CEO of HTE, Inc. (listed on
NASDAQ) he engineered the turnaround of a public software company that provides
integrated application solutions to mid-tier county and city governments
throughout the nation. HTE, Inc. was eventually sold to SunGard Data Systems.
His background includes almost a decade at General Electric Information Services
where he was involved in general management, sales & marketing, product
management and product development. He also served as President and CEO of
QuestPoint Holdings, Inc., a financial transaction processing services business
and as CEO of Nationwide Remittance Centers, Inc. a venture funded lock-box
services business, which was acquired by CoreStates Bank. Mr. Loughry graduated
from the University of Maryland with a degree in Business Administration in
1967. Mr. Loughry originally joined Global Axcess as a director in December 2005
and his current term expires on the date of the next shareholder meeting which
has not yet been scheduled.


Page
39


George A. McQuain,
President, CEO and Director





Mr.
McQuain was Chief Executive Officer for Nationwide Money Services, Inc ("NMS"),
a Global Axcess Corp subsidiary, prior to his appointment as CEO and President
of Global Axcess Corp. He joined Global Axcess Corp as a Vice President of
Operations in July 2002. Prior to his association with NMS, Mr. McQuain served
as President and Chief Executive Officer of Ntercept Communications, where he
decisively improved sales, marketing and product implementation. Prior to
Ntercept, Mr. McQuain led First Union National Bank’s nationwide lockbox
operations. Prior to First Union, Mr. McQuain was Chief Operating Officer of
QuestPoint Holdings, a subsidiary of CoreStates Financial Corporation. Mr.
McQuain received his MBA in Finance and Management from George Mason University
in Fairfax, Virginia. Mr. McQuain became a director of the Company in September
2006 and his current term expires on the date of the next shareholder meeting
which has not yet been scheduled.





Alan W. Rossiter,
Director





Since
July of 2002, Mr. Rossiter has served as President of Springboard Capital
Management, Inc., based in Jacksonville, Florida.  Springboard Capital
Management manages the activities of two early-stage venture capital investment
funds, Springboard Capital I, LLC and Springboard Capital II, LLC. Additionally,
since 1996 he has served as the President and CEO of Enterprise North Florida
Corporation, which provides emerging technology companies with extensive
business, technical and financial services. Mr. Rossiter served for 27 years as
a career Officer in the United States Navy specializing in the field of aviation
logistics management and maintenance. Mr. Rossiter received a Bachelors degree
in History from Denison University in 1967, graduated from the Naval Aviation
Candidate School at Pensacola, Florida in 1969 and graduated from the National
University of San Diego with a Masters of Business Administration in Financial
Management and Information Systems in 1983.  Mr. Rossiter originally
joined Global Axcess as a director in December 2005 and his current term expires
on the date of the next shareholder meeting which has not yet been
scheduled.





Heather Webb Carrouth, Vice
President of New Business Development





Heather
Webb Carrouth joined the Company in April 2002 as a Software Engineer. Heather
gained in-depth knowledge of our business processes while developing many of our
custom in-house software solutions. Heather’s knowledge of the business process
led her into the roles of Director of ATM Operations followed by Vice President
of Operations and most recently, Vice President of New Business Development.
Heather obtained her BS in Computer Science from North Carolina State
University.





The
Board of Directors (the “Board”) has established the following
committees:





Compensation
Committee





The
Compensation Committee of the Board, which is composed solely of independent
directors, consists of Lock Ireland, who serves as Chairman of this committee,
Robert Landis, and Alan Rossiter.  The Compensation Committee met two
times during fiscal 2008. The function of the Compensation Committee is to
approve stock plans and option grants and review and make recommendations to the
Board of Directors regarding executive compensation and benefits.





Audit
Committee





The Audit
Committee of the Board, which is composed solely of independent directors,
consists of Lock Ireland, Robert Landis, and Joseph M. Loughry
III.  The Board of Directors has determined that Mr. Landis, who
serves as Chairman of the Audit Committee, qualifies as an “audit committee
financial expert,” as defined in the rules of the SEC. The Audit Committee met
six times in fiscal year 2008.  Responsibilities of the Audit
Committee include (1) reviewing the Company’s consolidated financial statements
and consulting  with
the  independent  auditors  concerning the
Company's  consolidated financial
statements,  accounting  and  financial  policies,  and
internal  controls,  (2) reviewing the scope of the
independent  auditors' activities and the fees of the independent
auditors, and (3) reviewing the independence of the auditors. The Board has
determined that each of Messrs. Ireland, Landis, and Loughry meet the
independence standards established by the Nasdaq Stock Market.





Mergers and Acquisitions
Committee





The
Mergers and Acquisitions Committee of the Board, which is composed solely of
independent directors, consists of Lock Ireland, Robert Landis, Alan Rossiter,
and Joseph M. Loughry III, who serves as Chairman of this
committee.  The Mergers and Acquisitions Committee did not meet during
fiscal 2008. The function of the Mergers and Acquisitions Committee is to
explore alternative ways to enhance shareholder value including joint ventures,
mergers, stock sale or a potential sale of company assets and make
recommendations to the Board.


Page
40


Nominating & Corporate
Governance Committee





The
primary function of the Nominating & Corporate Governance Committee of the
Board, which is composed solely of independent directors, is to (a) identify
individuals qualified to become members of the Board, (b) approve and recommend
to the Board director candidates, (c) develop, recommend to the Board and update
as necessary corporate governance principles and policies applicable to the
Company, and (d) monitor compliance with such principles and policies. Robert
Landis is the Chairman of this committee. The Nominating & Corporate
Governance Committee did not meet during fiscal 2008.





Meetings of the
Board





In 2008,
the Board met eight times. The Board adopted various resolutions pursuant to
three unanimous written consents in lieu of a meeting during the year ended
December 31, 2008.  Five of the incumbent directors attended 100% of
the aggregate of (i) the meetings of the Board during the year and (ii) the
total number of meetings of all committees of the Board on which the incumbent
directors served.  The other remaining incumbent director attended
87.5% of the aggregate of (i) the meetings of the Board during the year and (ii)
the total number of meetings of all committees of the Board on which the
incumbent directors served.





Board
Independence





At the
end of 2008, there were five non-employee directors and one employee
director.  The board of directors has determined that the five
non-employee directors are “independent” based on the NASDAQ definition of
independent director.





Corporate
Governance





The role
of the Board of Global Axcess Corp is to oversee the business and affairs of the
Company for the benefit of its stockholders. In addition, the Board considers
the interests of its other interested parties, including its employees,
customers, suppliers, creditors and the communities in which the Company does
business. The Board has adopted corporate governance guidelines, as well as
committee charters, to provide a framework for the functioning of the Board and
Board Committees.  The Corporate Governance Guidelines document has
been posted on the Company’s website at www.GlobalAxcess.biz.





Code of
Ethics





The
Company has adopted a Code of Ethics and Business Conduct that applies to all
officers, directors and employees of the Company.  The document has
been posted on the Company’s website at www.GlobalAxcess.biz.





Whistleblower
Policy





The
Company has adopted a Whistleblower Policy that applies to all officers,
directors and employees of the Company.  The document has been posted
on the Company’s website at www.GlobalAxcess.biz.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires the Company's executive officers and
directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of their ownership thereof and
changes in that ownership with the SEC and the National Association of
Securities Dealers, Inc. Executive officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company with copies
of all such reports they file.





Based
solely upon a review of Forms 3, 4 and 5, and amendments thereto, furnished to
the Company during fiscal year 2008, other than as discussed below, the Company
is not aware of any director, officer or beneficial owner of more than ten
percent of the Company's Common Stock that, during fiscal year 2008, failed to
file on a timely basis, reports required by Section 16(a) of the Securities
Exchange Act of 1934.


Page
41


During
fiscal year 2008, there were Form 4s filed late by George A. McQuain (reporting
one transaction),   Michael J. Loiacono (reporting two
transactions), John C. Rawlins, Jr. (reporting one transaction), Sharon Jackson
(reporting two transactions) and Heather Webb Carrouth (reporting two
transactions).





ITEM
      11.
            EXECUTIVE
      COMPENSATION





The
following table summarizes all compensation paid by the Company with respect to
the fiscal years ended December 31, 2008 and 2007 for the Chief Executive
Officer and all other executive officers whose total cash compensation exceeds
$100,000 in the fiscal years ended December 31, 2008 and 2007:





SUMMARY
COMPENSATION TABLE





Name & Principal Position
                            
                            Year
                            
                            Salary ($)
                            
                            
                            Bonus($)
                            
                            
                            Stock
                              Awards
                              ($)
                            
                            
                            Option
                              Awards
                              ($)
                            
                            
                            Non-Equity
                              Incentive Plan
                              Compensation
                              ($)
                            
                            
                            Change in
                              Pension Value
                              and Non-
                              Qualified
                              Deferred
                              Compensation
                              Earnings ($)
                            
                            
                            All OtherCompensation
                              ($)
                            
                            
                            Total ($)George
      A. McQuain -
                            
                            2008
                            
                            $
                            227,298
                            
                            
                            $
                            7,206
                            
                            
                            
                            -
                            
                            
                            $
                            65,083
                            (1),(2)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            6,614
                            
                            
                            $
                            306,201President
      and CEO, COO
                            
                            2007
                            
                            $
                            200,013
                            
                            
                            $
                            5,815
                            
                            
                            
                            -
                            
                            
                            $
                            30,117
                            (1)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            235,945Michael
      J. Loiacono -
                            
                            2008
                            
                            $
                            152,478
                            
                            
                            $
                            5,196
                            
                            
                            
                            -
                            
                            
                            $
                            37,453
                            (1),(3),(4),(5)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            195,127CFO
      and CAO
                            
                            2007
                            
                            $
                            145,018
                            
                            
                            $
                            3,614
                            
                            
                            
                            -
                            
                            
                            $
                            17,764
                            (1)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            166,396John
      C. Rawlins, Jr. -
                            
                            2008
                            
                            $
                            148,040
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            27,286
                            (1),(6)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            175,326Executive
      VP Sales
                            
                            2007
                            
                            $
                            150,010
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            15,059
                            (1)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            165,069Heather
      Webb Carrouth -
                            
                            2008
                            
                            $
                            113,777
                            
                            
                            $
                            3,213
                            
                            
                            
                            -
                            
                            
                            $
                            5,393
                            (7),(8)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            2,680
                            
                            
                            $
                            125,063VP
      New Business Development
                            
                            2007
                            
                            $
                            104,694
                            
                            
                            $
                            2,285
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            106,979





(1)
            On
      April 2, 2007, the Board of Directors approved Executive Stock Option
      grants with respect to 25% of the shares are based on a performance based
      vesting, 25% are based on a market condition, 12.5% vest on October 2,
      2007, 12.5% vest on April 2, 2008, 12.5% vest on April 2, 2009 and 12.5%
      vest on April 2, 2010.


(2)
            57,166
      shares vest under this option on March 20, 2009 and March 20, 2010 and
      57,167 shares on March 20, 2011.


(3)
            The
      option is exercisable during the term of Michael Loiacono's employment
      with respect to 25% of the shares six months from the option grant date
      and the remaining shares thereafter in three equal installments on the
      anniversary of the option grant
date.


(4)
            9,000
      shares vest under this option on February 28, 2009, February 28, 2010 and
      February 28, 2011.


(5)
            40,000
      shares vest under this option on March 20, 2009, March 20, 2010 and March
      20, 2011.


(6)
            On
      October 28, 2008, John Rawlins' position with the Company was eliminated
      as part of a reduction in the Company’s
  workforce.


(7)
            4,333
      shares vest under this option on February 28, 2009 and February 28, 2010
      and 4,334 shares on February 28,
2011.


(8)
            25,000
      shares vest under this option on March 20, 2009, March 20, 2010 and March
      20, 2011.





The
option awards were valued using the Black Scholes option pricing model assuming
up to 5 year lives, no expected dividend payments, volatility average of
approximately 131%, forfeiture rate of 0% and a risk free rate of
5%.


Page
42





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END DECEMBER 31, 2008





Option Awards
                                                                                              
                                                                                              
                                                                                              Stock AwardsEquityIncentiveEquity
                                                                                              
                                                                                              
                                                                                              Plan Awards:Equity
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              Incentive
                                                                                              
                                                                                              
                                                                                              Market or PayoutIncentive
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              Plan Awards:
                                                                                              
                                                                                              
                                                                                              ValuePlan
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              Number
                                                                                              
                                                                                              
                                                                                              ofAwards:
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              Market
                                                                                              
                                                                                              
                                                                                              of
                                                                                              
                                                                                              
                                                                                              UnearnedNumber
                                                                                              
                                                                                              
                                                                                              Number
                                                                                              
                                                                                              
                                                                                              Number
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              Number
                                                                                              
                                                                                              
                                                                                              Value of
                                                                                              
                                                                                              
                                                                                              Unearned
                                                                                              
                                                                                              
                                                                                              Shares,of
                                                                                              
                                                                                              
                                                                                              of
                                                                                              
                                                                                              
                                                                                              of
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              of Shares
                                                                                              
                                                                                              
                                                                                              Shares or
                                                                                              
                                                                                              
                                                                                              Shares,
                                                                                              
                                                                                              
                                                                                              Units orSecurities
                                                                                              
                                                                                              
                                                                                              Securities
                                                                                              
                                                                                              
                                                                                              Securities
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              or Units
                                                                                              
                                                                                              
                                                                                              Units of
                                                                                              
                                                                                              
                                                                                              Units or
                                                                                              
                                                                                              
                                                                                              OtherUnderlying
                                                                                              
                                                                                              
                                                                                              Underlying
                                                                                              
                                                                                              
                                                                                              Underlying
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              of Stock
                                                                                              
                                                                                              
                                                                                              Stock
                                                                                              
                                                                                              
                                                                                              Other Rights
                                                                                              
                                                                                              
                                                                                              RightsUnexercised
                                                                                              
                                                                                              
                                                                                              Unexercised
                                                                                              
                                                                                              
                                                                                              Unexercised
                                                                                              
                                                                                              
                                                                                              Option
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              That Have
                                                                                              
                                                                                              
                                                                                              That Have
                                                                                              
                                                                                              
                                                                                              That Have
                                                                                              
                                                                                              
                                                                                              That HaveOptions
                                                                                              
                                                                                              
                                                                                              Options
                                                                                              
                                                                                              
                                                                                              Unearned
                                                                                              
                                                                                              
                                                                                              Exercise
                                                                                              
                                                                                              
                                                                                              Option
                                                                                              
                                                                                              
                                                                                              Not
                                                                                              
                                                                                              
                                                                                              Not
                                                                                              
                                                                                              
                                                                                              Not
                                                                                              
                                                                                              
                                                                                              Not(#)
                                                                                              
                                                                                              
                                                                                              (#)
                                                                                              
                                                                                              
                                                                                              Options
                                                                                              
                                                                                              
                                                                                              Price
                                                                                              
                                                                                              
                                                                                              Expiration
                                                                                              
                                                                                              
                                                                                              Vested
                                                                                              
                                                                                              
                                                                                              Vested
                                                                                              
                                                                                              
                                                                                              Vested
                                                                                              
                                                                                              
                                                                                              VestedName
                                                                                              
                                                                                              Year
                                                                                              
                                                                                              Exercisable
                                                                                              
                                                                                              
                                                                                              Unexercisable
                                                                                              
                                                                                              
                                                                                              (#)
                                                                                              
                                                                                              
                                                                                              ($)
                                                                                              
                                                                                              
                                                                                              Date
                                                                                              
                                                                                              
                                                                                              (#)
                                                                                              
                                                                                              
                                                                                              ($)
                                                                                              
                                                                                              
                                                                                              (#)
                                                                                              
                                                                                              
                                                                                              ($)George
      A. McQuain -
                                                                                              
                                                                                              2008
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              (7)
                                                                                              
                                                                                              
                                                                                              171,500
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.25
                                                                                              
                                                                                              
                                                                                              3/20/2013
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -President
      and CEO, COO
                                                                                              
                                                                                              2007
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              250,000
                                                                                              (3)
                                                                                              
                                                                                              
                                                                                              250,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.32
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (3)
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2006
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2005
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2004
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              28,200
                                                                                              (1)
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              $
                                                                                              1.30
                                                                                              
                                                                                              
                                                                                              12/1/2009
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -Michael
      J. Loiacono -
                                                                                              
                                                                                              2008
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              (9)
                                                                                              
                                                                                              
                                                                                              120,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.25
                                                                                              
                                                                                              
                                                                                              3/20/2013
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -CFO
      and CAO
                                                                                              
                                                                                              2008
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              (8)
                                                                                              
                                                                                              
                                                                                              27,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.25
                                                                                              
                                                                                              
                                                                                              2/28/2013
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2007
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              125,000
                                                                                              (4)
                                                                                              
                                                                                              
                                                                                              125,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.32
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (4)
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2006
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              15,000
                                                                                              (2)
                                                                                              
                                                                                              
                                                                                              5,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.76
                                                                                              
                                                                                              
                                                                                              3/31/2011
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -John
      C. Rawlins, Jr. -
                                                                                              
                                                                                              2008
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              (11)
                                                                                              
                                                                                              
                                                                                              27,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.26
                                                                                              
                                                                                              
                                                                                              1/28/2009
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -Executive
      VP Sales
                                                                                              
                                                                                              2008
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              (10)
                                                                                              
                                                                                              
                                                                                              120,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.25
                                                                                              
                                                                                              
                                                                                              1/28/2009
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2007
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              125,000
                                                                                              (5)
                                                                                              
                                                                                              
                                                                                              125,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.32
                                                                                              
                                                                                              
                                                                                              1/28/2009
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2006
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -Heather
      Webb Carrouth -
                                                                                              
                                                                                              2008
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              (13)
                                                                                              
                                                                                              
                                                                                              75,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.25
                                                                                              
                                                                                              
                                                                                              3/20/2013
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -VP
      New Business Development
                                                                                              
                                                                                              2008
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              (12)
                                                                                              
                                                                                              
                                                                                              13,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              0.25
                                                                                              
                                                                                              
                                                                                              2/28/2013
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2007
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2006
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2005
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -2004
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              6,200
                                                                                              (6)
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              $
                                                                                              1.30
                                                                                              
                                                                                              
                                                                                              12/1/2009
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -





(1)
            On
      December 1, 2004, George McQuain received a stock option to purchase
      60,000 shares of common stock, which vested based on performance criteria.
      On December 15, 2005, 44,700 shares of common stock vested under the stock
      option and the remaining 15,300 terminated. Due to the restatement of the
      Company's operating results, the number of shares vested decreased from
      60,000 to 28,200.


(2)
            The
      option is exercisable during the term of Michael Loiacono's employment
      with respect to 25% of the shares six months from the option grant date
      and the remaining shares thereafter in three equal installments on the
      anniversary of the option grant
date.


(3)
            On
      April 2, 2007, George McQuain received a stock option to purchase 500,000
      shares of common stock, which vest based on employment and performance
      criteria. On October 10, 2007, 62,500 shares of common stock vested under
      the stock option and expire on April 2, 2010. The remaining 437,500 vest
      as follows if employment and performance criteria are met: 62,500 on April
      2, 2008 and expire on April 2, 2011; 62,500 on April 2, 2009 and expire on
      April 2, 2012; 62,500 on April 2, 2010 and expire on April 2, 2013;
      125,000 on May 15, 2008 and expire on April 2, 2011; 125,000 on April 2,
      2011 and expire on April 2, 2015.


(4)
            On
      April 2, 2007, Michael Loiacono received a stock option to purchase
      250,000 shares of common stock, which vest based on employment and
      performance criteria. On October 10, 2007, 31,250 shares of common stock
      vested under the stock option and expire on April 2, 2010. The remaining
      218,750 vest as follows if employment and performance criteria are met:
      31,250 on April 2, 2008 and expire on April 2, 2011; 31,250 on April 2,
      2009 and expire on April 2, 2012; 31,250 on April 2, 2010 and expire on
      April 2, 2013; 62,500 on May 15, 2008 and expire on April 2, 2011; 62,500
      on April 2, 2011 and expire on April 2,
2015.


(5)
            On
      April 2, 2007, John Rawlins received a stock option to purchase 250,000
      shares of common stock, which vest based on employment and performance
      criteria. On October 10, 2007, 31,250 shares of common stock vested under
      the stock option and expire on April 2, 2010. The remaining 218,750 vest
      as follows if employment and performance criteria are met: 31,250 on April
      2, 2008 and expire on April 2, 2011; 31,250 on April 2, 2009 and expire on
      April 2, 2012; 31,250 on April 2, 2010 and expire on April 2, 2013; 62,500
      on May 15, 2008 and expire on April 2, 2011; 62,500 on April 2, 2011 and
      expire on April 2, 2015.


(6)
            Option
      is exercisable during the term of Heather Webb's employment in four (4)
      installments of twenty-five percent (25%) of the Shares covered by this
      Option, the first installment to be exercisable on 12/1/04 (the "Initial
      Vesting Date"), with an additional twenty-five percent (25%) of such
      Shares becoming exercisable on each of these dates following the Initial
      Vesting Date: February 20, 2005, July 20, 2005, and December 15,
      2005.


The
installments are cumulative (i.e., this option may be exercised, as to any or
all Shares covered by an installment, at any time or times after an installment
becomes exercisable and until expiration or termination of this
option.


(7)
            On
      March 20, 2008, George McQuain received a stock option to purchase 171,500
      shares of common stock, which vest cumulatively as follows: 33 1/3% on
      March 20, 2009; 33 1/3% on March 20, 2010; 33 1/3% on March 20,
      2011.


(8)
            On
      February 29, 2008, Michael Loiacono received a stock option to purchase
      27,000 shares of common stock, which vest cumulatively as follows: 33 1/3%
      on February 28, 2009; 33 1/3% on February 28, 2010; 33 1/3% on February
      28, 2011.


(9)
            On
      March 20, 2008, Michael Loiacono received a stock option to purchase
      120,000 shares of common stock, which vest cumulatively as follows: 33
      1/3% on March 20, 2009; 33 1/3% on March 20, 2010; 33 1/3% on March 20,
      2011.


(10)
            On
      March 20, 2008, John Rawlins received a stock option to purchase 120,000
      shares of common stock, which vest cumulatively as follows: 33 1/3% on
      March 20, 2009; 33 1/3% on March 20, 2010; 33 1/3% on March 20, 2011. John
      Rawlins' employment with the Company terminated October 28, 2008 thus all
      of the options granted to John Rawlins expire January 28,
      2009.


(11)
            On
      March 31, 2008, John Rawlins received a stock option to purchase 120,000
      shares of common stock, which vest cumulatively as follows: 33 1/3% on
      March 31, 2009; 33 1/3% on March 31, 2010; 33 1/3% on March 31, 2011. John
      Rawlins' employment with the Company terminated October 28, 2008 thus all
      of the options granted to John Rawlins expire January 28,
      2009.


(12)
            On
      February 29, 2008, Heather Webb Carrouth received a stock option to
      purchase 13,000 shares of common stock, which vest cumulatively as
      follows: 33 1/3% on February 28, 2009; 33 1/3% on February 28, 2010; 33
      1/3% on February 28, 2011.


(13)
            On
      March 20, 2008, Heather Webb Carrouth received a stock option to purchase
      75,000 shares of common stock, which vest cumulatively as follows: 33 1/3%
      on March 20, 2009; 33 1/3% on March 20, 2010; 33 1/3% on March 20,
      2011.




Page
43




DIRECTOR
COMPENSATION





The
following table sets forth with respect to the named director, compensation
information inclusive of equity awards and payments made in the year end
December 31, 2008.


Name
                                                                                        
                                                                                        Year
                                                                                        
                                                                                        FeesEarned
                                                                                          orPaid in
                                                                                          Cash ($)
                                                                                        
                                                                                        
                                                                                        StockAwards
                                                                                          ($)
                                                                                        
                                                                                        
                                                                                        Option
                                                                                          Awards
      ($)
                                                                                        
                                                                                        
                                                                                        Option
                                                                                          Exercise
                                                                                          Price($)
                                                                                        
                                                                                        Option
                                                                                          ExpirationDate
                                                                                        
                                                                                        Non-Equity
                                                                                          Incentive Plan
                                                                                          Compensation
                                                                                          ($)
                                                                                        
                                                                                        
                                                                                        Change in PensionValue
                                                                                          andNonqualified
                                                                                          DeferredCompensation
                                                                                          Earnings
                                                                                        
                                                                                        
                                                                                        All Other
                                                                                          Compensation
                                                                                          ($)
                                                                                        
                                                                                        
                                                                                        Total ($)Walter
      A. Howell
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        416
                                                                                        (1)
                                                                                        
                                                                                        $
                                                                                        0.29
                                                                                        
                                                                                        8/30/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        4162008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,941
                                                                                        (2)
                                                                                        
                                                                                        $
                                                                                        0.23
                                                                                        
                                                                                        6/26/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,9412008
                                                                                        
                                                                                        $
                                                                                        6,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        2,577
                                                                                        (3)
                                                                                        
                                                                                        $
                                                                                        0.29
                                                                                        
                                                                                        8/30/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        8,5772007
                                                                                        
                                                                                        $
                                                                                        2,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        2,577
                                                                                        (3)
                                                                                        
                                                                                        $
                                                                                        0.29
                                                                                        
                                                                                        8/30/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        4,577Lock
      Ireland
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        533
                                                                                        (4)
                                                                                        
                                                                                        $
                                                                                        0.27
                                                                                        
                                                                                        7/10/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        5332008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,941
                                                                                        (2)
                                                                                        
                                                                                        $
                                                                                        0.23
                                                                                        
                                                                                        6/26/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,9412008
                                                                                        
                                                                                        $
                                                                                        33,600
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,244
                                                                                        (5)
                                                                                        
                                                                                        $
                                                                                        0.28
                                                                                        
                                                                                        7/10/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        34,8442007
                                                                                        
                                                                                        $
                                                                                        33,600
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        6,109
                                                                                        (5)
                                                                                        
                                                                                        $
                                                                                        0.28
                                                                                        
                                                                                        7/10/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        39,7092006
                                                                                        
                                                                                        $
                                                                                        15,150
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        301
                                                                                        (6)
                                                                                        
                                                                                        $
                                                                                        0.53
                                                                                        
                                                                                        7/10/2011
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        15,4512005
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        847
                                                                                        (7)
                                                                                        
                                                                                        $
                                                                                        1.45
                                                                                        
                                                                                        7/10/2010
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        8472005
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        (8)
                                                                                        
                                                                                        $
                                                                                        1.40
                                                                                        
                                                                                        4/8/2010
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        02004
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        709
                                                                                        (9)
                                                                                        
                                                                                        $
                                                                                        2.50
                                                                                        
                                                                                        7/11/2009
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        7092003
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        624
                                                                                        (10)
                                                                                        
                                                                                        $
                                                                                        1.10
                                                                                        
                                                                                        7/10/2008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        624Robert
      Landis
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        533
                                                                                        (4)
                                                                                        
                                                                                        $
                                                                                        0.27
                                                                                        
                                                                                        7/10/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        5332008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,941
                                                                                        (2)
                                                                                        
                                                                                        $
                                                                                        0.23
                                                                                        
                                                                                        6/26/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,9412008
                                                                                        
                                                                                        $
                                                                                        12,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,244
                                                                                        (5)
                                                                                        
                                                                                        $
                                                                                        0.28
                                                                                        
                                                                                        7/10/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        13,2442007
                                                                                        
                                                                                        $
                                                                                        12,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        6,109
                                                                                        (5)
                                                                                        
                                                                                        $
                                                                                        0.28
                                                                                        
                                                                                        7/10/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        18,1092006
                                                                                        
                                                                                        $
                                                                                        12,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        301
                                                                                        (6)
                                                                                        
                                                                                        $
                                                                                        0.53
                                                                                        
                                                                                        7/10/2011
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        12,3012005
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        847
                                                                                        (7)
                                                                                        
                                                                                        $
                                                                                        1.45
                                                                                        
                                                                                        7/10/2010
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        8472004
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        709
                                                                                        (9)
                                                                                        
                                                                                        $
                                                                                        2.50
                                                                                        
                                                                                        7/10/2009
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        7092003
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        624
                                                                                        (10)
                                                                                        
                                                                                        $
                                                                                        1.10
                                                                                        
                                                                                        7/10/2008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        624Joseph
      Loughry, III
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        27
                                                                                        (11)
                                                                                        
                                                                                        $
                                                                                        0.23
                                                                                        
                                                                                        12/16/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        272008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,941
                                                                                        (2)
                                                                                        
                                                                                        $
                                                                                        0.23
                                                                                        
                                                                                        6/26/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,9412008
                                                                                        
                                                                                        $
                                                                                        48,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,652
                                                                                        (12)
                                                                                        
                                                                                        $
                                                                                        0.25
                                                                                        
                                                                                        12/16/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        49,6522007
                                                                                        
                                                                                        $
                                                                                        48,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        3,728
                                                                                        (12)
                                                                                        
                                                                                        $
                                                                                        0.25
                                                                                        
                                                                                        12/16/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        51,7282006
                                                                                        
                                                                                        $
                                                                                        16,500
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        (13)
                                                                                        
                                                                                        $
                                                                                        0.35
                                                                                        
                                                                                        12/16/2011
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        10,000
                                                                                        
                                                                                        
                                                                                        $
                                                                                        26,5002005
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,873
                                                                                        (14)
                                                                                        
                                                                                        $
                                                                                        1.10
                                                                                        
                                                                                        12/16/2010
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,873George
      A. McQuain
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -2007
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -2006
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Alan
      Rossiter
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        27
                                                                                        (11)
                                                                                        
                                                                                        $
                                                                                        0.23
                                                                                        
                                                                                        12/16/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        272008
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,941
                                                                                        (2)
                                                                                        
                                                                                        $
                                                                                        0.23
                                                                                        
                                                                                        6/26/2013
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,9412008
                                                                                        
                                                                                        $
                                                                                        6,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,652
                                                                                        (12)
                                                                                        
                                                                                        $
                                                                                        0.25
                                                                                        
                                                                                        12/16/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        7,6522007
                                                                                        
                                                                                        $
                                                                                        6,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        3,728
                                                                                        (12)
                                                                                        
                                                                                        $
                                                                                        0.25
                                                                                        
                                                                                        12/16/2012
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        9,7282006
                                                                                        
                                                                                        $
                                                                                        6,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        (13)
                                                                                        
                                                                                        $
                                                                                        0.35
                                                                                        
                                                                                        12/16/2011
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        6,0002005
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,873
                                                                                        (14)
                                                                                        
                                                                                        $
                                                                                        1.10
                                                                                        
                                                                                        12/16/2010
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,873





(1)
            5,000
      shares vest under this option on August 30, 2009, August 30, 2010, August
      30, 2011 and August 30, 2012.


(2)
            16,666
      shares vest under this option on June 26, 2009 and June 26, 2010 and
      16,667 shares on June 26, 2011.


(3)
            5,000
      shares vest under this option on August 30, 2007, December 30, 2007, April
      30, 2008 and August 30, 2008.


(4)
            5,000
      shares vest under this option on July 10, 2009, July 10, 2010, July 10,
      2011 and July 10, 2012.


(5)
            2,500
      shares vest under this option on July 10, 2007, November 10, 2007, March
      10, 2008 and July 10, 2008.


(6)
            2,500
      shares vest under this option on July 10, 2006, November 10, 2006, March
      10, 2007 and July 10, 2007.


(7)
            2,500
      shares vest under this option on July 10, 2005, November 10, 2005, March
      10, 2006 and July 10, 2006.


(8)
            12,500
      shares vest under this option on April 8, 2005, July 8, 2005, October 8,
      2005 and December 15, 2005.


(9)
            2,500
      shares vest under this option on July 10, 2004, November 10, 2004, March
      10, 2005 and July 10, 2005.


(10)
            12,500
      shares vest under this option on July 10, 2003, November 10, 2003, March
      10, 2004 and July 10, 2004.


(11)
            5,000
      shares vest under this option on December 16, 2009, December 16, 2010,
      December 16, 2011 and December 16,
2012.


(12)
            2,500
      shares vest under this option on December 16, 2007, April 16, 2008, August
      16, 2008 and December 16, 2008.


(13)
            2,500
      shares vest under this option on December 16, 2006, April 16, 2007, August
      16, 2007 and December 16, 2007.


(14)
            12,500
      shares vest under this option on December 16, 2005, April 16, 2006, August
      16, 2006 and December 16, 2006.




Page
44





The
option awards were valued using the Black Scholes option pricing model assuming
up to 5 year lives, no expected dividend payments, volatility average of
approximately 131%, forfeiture rate of 0% and a risk free rate of
5%.





Non-employee
directors received cash compensation for their service as director and as Chair
of a Board committee when applicable during fiscal 2008.  The cash
compensation was paid as follows:  Chairman of the Board – $4,000 per month
and no additional compensation for Chairing or membership on a Board committee,
Vice Chairman of the Board – $2,800 per month and no additional compensation for
Chairing or membership on a Board committee, Chairman of the Audit Committee –
$500 per month, Chairman of the Compensation Committee – $250 per month, all
other non-employee directors - $500 per month. Each non-employee director is
also compensated with stock options in accordance with the terms of the
Company’s Stock Option Plan.  Such plan provides for an initial grant of
20,000 stock options upon election or appointment to the Board. 
Additionally, annual grants of 20,000 stock options are awarded for each year of
service thereafter. All non-employee directors are reimbursed for expenses
incurred in attending meetings of the Board and any committee(s)
thereof.





During
2008, a total of 350,000 stock options were granted to non-employee directors as
follows:





Name
                  
                  Number
      of Options
                  
                  Grant
      Date and Fair Value of Granted OptionsHowell,
      Walter A.
                  
                  70,000
                  
                  50,000
      options granted on June26, 2008 with a fair value of $9,980; 20,000
      options granted on August 30, 2008 with a fair value of
    $4,996Ireland,
      Lock
                  
                  70,000
                  
                  50,000
      options granted on June26, 2008 with a fair value of $9,980; 20,000
      options granted on July 10, 2008 with a fair value of
    $4,648Landis,
      Robert
                  
                  70,000
                  
                  50,000
      options granted on June26, 2008 with a fair value of $9,980; 20,000
      options granted on July 10, 2008 with a fair value of
    $4,648Loughry,
      Joseph
                  
                  70,000
                  
                  50,000
      options granted on June26, 2008 with a fair value of $9,980; 20,000
      options granted on December 16, 2008 with a fair value of
      $2,588Rossiter,
      Alan
                  
                  70,000
                  
                  50,000
      options granted on June26, 2008 with a fair value of $9,980; 20,000
      options granted on December 16, 2008 with a fair value of
      $2,588





The
following list sets forth with respect to the named director, the aggregate
number of options outstanding and excisable at year end December 31,
2008:





Name
                    
                    Total options outstanding
                    
                    
                    Total options exercisableHowell,
      Walter A.
                    
                    
                    90,000
                    
                    
                    
                    20,000Ireland,
      Lock
                    
                    
                    160,000
                    
                    
                    
                    90,000Landis,
      Robert
                    
                    
                    110,000
                    
                    
                    
                    40,000Loughry,
      Joseph
                    
                    
                    110,000
                    
                    
                    
                    40,000McQuain,
      George A.
                    
                    
                    699,700
                    
                    
                    
                    278,200Rossiter,
      Alan
                    
                    
                    110,000
                    
                    
                    
                    40,000





Performance Based 401k
Contribution Plan





Effective
fiscal 2007, the Company implemented a performance based incentive program
matching 401k contributions.  For each quarter the Company achieves its Net
Income budget, the Company matches up to 50% of the first 6% of an employee’s
401k contributions during that respective quarter.  The Company recorded
$44,741 and $7,917 of expenses relating to this plan during the fiscal years
ended December 31, 2008 and 2007, respectively.





Performance Based Incentive
Bonus Plan





Effective
fiscal 2008, the Company implemented a performance based incentive program for
all employees and management of the Company.  A quarterly cash bonus pool
is funded by the Company’s achievement of net profits.  During the fiscal
year ended December 31, 2008, the Company recorded $178,927 of expenses relating
to this plan. During fiscal 2007, the Company implemented a performance based
incentive program for several employees and management of the Company.  A
quarterly cash bonus pool was funded by the Company’s achievement of operating
profits from continuing operations.  During the fiscal period ended
December 31, 2007 the Company recorded $15,793 of expenses relating to this
plan.





Stock-based
Compensation





The
Company established a 2002 Stock Incentive Plan (the “2002 Plan”) and a 2004
Stock Incentive Plan (the “2004 Plan”), which provide the granting of options to
officers, employees, directors, and consultants of the Company.  As of
December 31, 2008, options to purchase 183,701 shares of common stock were
available for future grants under the 2002 Plan and 676,727 shares of common
stock were available for future grants under the 2004 Plan.  As of December
31, 2008, 860,428 shares of common stock were reserved for stock options granted
and 0 shares were reserved for warrants to purchase common
stock.


Page
45


Options
granted under the 2002 Plan and 2004 Plan generally have a three-year vesting
period and expire five years after grant. Most of the stock options vest ratably
during the vesting period, as opposed to awards that vest at the end of the
vesting period. The Company recognizes compensation expense for options using
the straight-line basis, reduced by estimated forfeitures. Upon exercise of
stock options, the Company issues new shares of common stock (as opposed to
using treasury shares).  All options granted pursuant to the plans shall be
exercisable at a price not less than the fair market value of the common stock
on the date of grant.





The Plans
are administered by the Company's Board.  The Board has the authority to
select individuals to receive awards, to determine the time and type of awards,
the number of shares covered by the awards, and the terms and conditions of such
awards in accordance with the terms of the plans.  In making such
determinations, the Board may take into account the recipient's current and
potential contributions and any other factors the Board considers
relevant.  The Board is authorized to establish rules and regulations and
make all other determinations that may be necessary or advisable for the
administration of the Plan.





Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004),
“Share-Based Payment,” using the modified-prospective-transition method which
requires us to recognize compensation expense on a prospective basis.  SFAS
No. 123(R) requires that all stock-based compensation be recognized as an
expense in the financial statements and that such cost be measured at the fair
value of the award.  Under this method, in addition to reflecting
compensation for new share-based awards, expense is also recognized to reflect
the remaining service period of awards that had been included in pro-forma
disclosure in prior periods.  The stock-based compensation expense is
included in operating expenses in the consolidated statements of
income.





Employment
Agreements





Information
regarding employment agreements is contained in Financial Footnote #15
“Consulting and Employment Agreements” to the consolidated financial statements
contained in this report and is incorporated herein by reference.





ITEM
12.       SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS





The
following table sets forth certain information regarding beneficial ownership of
our common stock as of February 13, 2009:





·
            by
      each person who is known by us to beneficially own more than 5% of our
      common stock;




·
            by
      each of our officers and directors;
and




·
            by
      all of our officers and directors as a
group.




Page
46




Name
                              
                              Number
                              
                              
                              Percent (1)Walter
      A. Howell
                              
                              
                              28,000
                              
                              
                              
                              0.13
                              %
      (2)Lock
      Ireland
                              
                              
                              315,007
                              
                              
                              
                              1.50
                              %
      (3)Sharon
      Jackson
                              
                              
                              24,200
                              
                              
                              
                              0.12
                              %
      (4)Robert
      Landis
                              
                              
                              80,000
                              
                              
                              
                              0.38
                              %
      (5)Michael
      Loiacono
                              
                              
                              165,000
                              
                              
                              
                              0.79
                              %
      (6)Joseph
      M. Loughry, III
                              
                              
                              251,140
                              
                              
                              
                              1.20
                              %
      (7)George
      A. McQuain
                              
                              
                              298,200
                              
                              
                              
                              1.42
                              %
      (8)Alan
      Rossiter
                              
                              
                              42,500
                              
                              
                              
                              0.20
                              %
      (9)Heather
      Webb Carrouth
                              
                              
                              7,422
                              
                              
                              
                              0.04
                              %
      (10)All
      executive officers and directors as a group (9 persons)
                              
                              
                              1,211,469
                              
                              
                              
                              5.78
                              %5%
      owners:BFS
      U.S. Special Opportunities Trust PLC
                              
                              
                              2,820,000
                              
                              
                              
                              13.45
                              %
      (11)Rennaissance
      U.S. Growth Investment Trust PLC
                              
                              
                              2,860,000
                              
                              
                              
                              13.64
                              %
      (12)Barron
      Partners, LP
                              
                              
                              2,400,000
                              
                              
                              
                              11.44
                              %
      (13)Rennaissance
      Capital Growth & Income Fund III, Inc.
                              
                              
                              2,020,000
                              
                              
                              
                              9.63
                              %
      (14)Doucet
      Capital, LLC
                              
                              
                              2,028,213
                              
                              
                              
                              9.67
                              %
      (15)Total
                              
                              
                              13,339,682
                              
                              
                              
                              63.60
                              %


The
securities "beneficially  owned" by a person are  determined in
accordance with the  definition  of  "beneficial 
ownership"  set  forth in the  rules  and regulations 
promulgated under the Exchange Act. Beneficially owned securities may include
securities owned by and for, among others, the spouse and/or minor children of
an individual and any other relative who has the same home as such
individual.  Beneficially  owned  securities may also include
other  securities as to which the  individual has or shares voting or
investment power or which such person has the right to acquire  within 60
days of February 13, 2009 pursuant to the conversion of convertible 
equity,  exercise of options, or otherwise.  Beneficial ownership may
be disclaimed as to certain rights of the securities.





(1)
            Based
      on 20,973,924 shares of common stock outstanding as of February 13,
      2009.





(2)
            Included
      are 8,000 common shares and 20,000 stock purchase options exercisable at
      $0.29 per share.





(3)
            Included
      are  204,007  common  shares,   10,000 
      stock  purchase  options exercisable at $0.28 per share, 
      10,000 stock  purchase  options  exercisable at $0.53 per
      share, 50,000 stock purchase options exercisable at $1.40 per share,
      10,000  stock  purchase  options  exercisable  at
      $1.45 per  share,  10,000 stock purchase options 
      exercisable at $2.50 per share, 6,000  stock purchase warrants 
      exercisable at $1.75 per share, 6,000 stock purchase warrants exercisable
      at $2.50 per share,  6,000 stock purchase  warrants 
      exercisable at $5.00 per share, and 3,000 stock purchase 
      warrants  exercisable  at $1.25 per
  share.





(4)
            Included
      are 14,200 common shares and 10,000 stock purchase options exercisable at
      $1.30 per share.





(5)
            Included
      are 40,000 common shares, 10,000 stock purchase options exercisable at
      $0.28 per share, 10,000 stock purchase options exercisable at $0.53 per
      share, 10,000 stock purchase options exercisable at $1.45 per share and
      10,000 stock purchase options exercisable at
  $2.50.





(6)
            Included
      are 25,000 common shares, 125,000 stock purchase options exercisable at
      $0.32 per share and 15,000 stock purchase options exercisable at $0.76 per
      share.





(7)
            Included
      are 196,140 common shares, 10,000 stock purchase options exercisable at
      $0.25 per share, 10,000 stock purchase options exercisable at $0.35 per
      share, 20,000 stock purchase options exercisable at $1.10 per share, and
      15,000 stock purchase options exercisable at $0.76 per
    share.




Page
47


(8)
            Included
      are 20,000 common shares,   250,000 stock purchase options
      exercisable at $0.32 per share and 28,200 stock purchase options
      exercisable at $1.30 per share.





(9)
            Included
      are 2,500 common shares, 10,000 stock purchase options exercisable at
      $0.25 per share, 10,000 stock purchase options exercisable at $0.35 per
      share and 20,000 stock purchase options exercisable at $1.10 per
      share.





(10)
            Included
      are 1,222 common shares and 6,200 stock purchase options exercisable at
      $1.30 per share.





(11)
            Included
      are 1,453,332 common shares and 1,366,668 stock purchase warrants
      exercisable at prices ranging from $1.25 to $5.00.  The principal
      business address of BFS U.S. Special Opportunities Trust PLC is 8080 North
      Central Expressway, Suite 210-LB 59, Dallas, TX 
      75206-1857.





(12)
            Included
      are 1,553,332 common shares and 1,306,668 stock purchase warrants
      exercisable at prices ranging from $1.75 to $5.00.  The principal
      business address of Rennaissance U.S. Growth Investment Trust PLC is 8080
      North Central Expressway, Suite 210-LB 59, Dallas, TX 
      75206-1857.





(13)
            Included
      are 2,400,000 stock purchase warrants exercisable at prices ranging from
      $1.75 to $5.00.  The principal business address of Barron Partners,
      LP is 730 Fifth Avenue, 25th
      floor, New York, NY 10019.





(14)
            Included
      are 953,332 common shares and 1,066,668 stock purchase warrants
      exercisable at prices ranging from $1.75 to $5.00.  The principal
      business address of Rennaissance Capital Growth & Income Fund III,
      Inc. is 8080 North Central Expressway, Suite 210-LB 59, Dallas, TX 
      75206-1857.





(15)
            Included
      are 2,028,213 common shares.  The principal business address of
      Doucet Capital, LLC is 2204 Lakeshore Drive, Suite 218, Birmingham,
      Alabama 35209.





ITEM 13.       CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





None.





ITEM
14.       PRINCIPAL ACCOUNTING FEES
AND SERVICES





Audit
Fees





The
aggregate fees billed by Kirkland, Russ, Murphy & Tapp, P.A. (“KRMT”) for
professional services rendered for the audit of the Company's consolidated
financial statements for the year ended December 31, 2008 and for the reviews of
the consolidated financial statements included in the Company's Quarterly
Reports on Form 10-Q during the fiscal year 2008 were $31,500. Total unbilled
fees by Kirkland, Russ, Murphy & Tapp, P.A. (“KRMT”) for professional
services rendered for the audit of the Company's consolidated financial
statements for the year ended December 31, 2008 were $73,500. The aggregate fees
billed by KRMT for professional services rendered for the audit of the Company's
consolidated financial statements for the year ended December 31, 2007 and for
the reviews of the consolidated financial statements included in the Company's
Quarterly Reports on Form 10-QSB during the fiscal year ended December 31, 2007
were $105,200.





Audit Related
Fees





The
Company did not engage KRMT to provide professional services to the Company
regarding audit related fees during the fiscal years ended December 31, 2008 and
2007.





Tax Fees





During
the fiscal years ended December 31, 2008 and 2007, there were no fees billed by
KRMT for tax related services.





All Other
Fees





During
the fiscal year ended December 31, 2008, there were $5,460 of fees billed by
KRMT for work related to the Sarbanes-Oxley Act of 2002 and for review of the
Company’s Form S-1 filing. There were $5,542 of fees billed by KRMT for services
rendered to the Company during the fiscal year ended December 31, 2007 for work
related to the Sarbanes-Oxley Act of 2002 and for review of the Company’s Form
SB-2 filing.




Page
48


The Board
has considered whether the provision of non-audit services is compatible with
maintaining the principal accountant's independence.





The Audit
Committee’s policy is to pre-approve all audit and permissible non-audit
services provided by the independent registered public accounting firm. These
services may include audit services, audit-related services, tax services and
other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditor and
management are required to report periodically to the Audit Committee regarding
the extent of services provided by the independent auditor in accordance with
this pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis. The
Audit Committee approved all fees incurred by the Company from KRMT in 2008 and
2007.


Page
49


PART
IV





ITEM
15.       EXHIBIT, FINANCIAL STATEMENT
SCHEDULES





(a) 
            INDEX TO EXHIBITS





Exhibit
                  Number
                
                Exhibit Description3.1
                
                Articles
      of Incorporation – Restated and Amended May 30, 2001(incorporated by
      reference to form 10KSB filed with the SEC on March 31,
    2003).3.2
                
                ByLaws
      of Global Axcess Corp – As Amended (incorporated by reference to Form
      10-KSB filed with the SEC on March 31, 2003).3.3
                
                Amendment
      to the Articles of Incorporation (incorporated by reference to Form 8-K
      filed with the SEC on May 3, 2005).4.1
                
                Securities
      Purchase Agreement dated March 11, 2005 of Global Axcess Corp
      (incorporated by reference to Form 8-K filed with the SEC on April 4,
      2005).4.2
                
                Form
      of Common Stock Purchase Warrant (incorporated by reference to Form 8-K
      filed with the SEC on April 4, 2005).4.3
                
                Securities
      Purchase Agreement dated October 27, 2005 entered by and between the
      Company and the Investor (incorporated by reference to Form 8-K filed with
      the SEC on November 1, 2005).4.4
                
                9%
      Senior Subordinated Secured Convertible Note dated October 27, 2005 issued
      by the Company to the Investor (incorporated by reference to Form 8-K
      filed with the SEC on November 1, 2005).4.5
                
                Common
      Stock Purchase Warrant dated October 27, 2005 issued by the Company to the
      Investor (incorporated by reference to Form 8-K filed with the SEC on
      November 1, 2005).4.6
                
                Registration
      Rights Agreement dated October 27, 2005 entered by and between the Company
      and the Investor (incorporated by reference to Form 8-K filed with the SEC
      on November 1, 2005).4.7
                
                Subsidiary
      Guarantee dated October 27, 2005 (incorporated by reference to Form 8-K
      filed with the SEC on November 1, 2005).4.8
                
                Subordination
      Agreement dated October 27, 2005 entered by and between the Company, the
      Investor and Wachovia (incorporated by reference to Form 8-K filed with
      the SEC on November 1, 2005).4.9
                
                Security
      Agreement dated October 27, 2005 entered by and between the Company and
      the Investor (incorporated by reference to Form 8-K filed with the SEC on
      November 1, 2005).4.10
                
                Third
      Amended and Restated Loan Agreement dated October 27, 2005 entered by and
      between the Company and Wachovia (incorporated by reference to Form 8-K
      filed with the SEC on November 1, 2005).4.11
                
                Promissory
      Note dated October 27, 2005 issued by the Company to Wachovia
      (incorporated by reference to Form 8-K filed with the SEC on November 1,
      2005).4.12
                
                Form
      of Subscription Agreement dated November 8, 2005 (incorporated by
      reference to Form 8-K filed with the SEC on November 15,
      2005).




Page
50





Exhibit
                  Number
                
                Exhibit Description4.13
                
                Form
      of Common Stock Purchase Warrant dated November 8, 2005 (incorporated by
      reference to Form 8-K filed with the SEC on November 15,
      2005).4.14
                
                Consolidated
      Renewal Promissory Note dated September 28, 2007 issued by the Company to
      Wachovia (incorporated by reference to Form 8-K filed October 1,
      2007).4.15
                
                Fourth
      Amended and Restated Loan Agreement entered by and between the Company and
      Wachovia (incorporated by reference to Form 8-K filed October 1,
      2007).10.1
                
                Agreement
      entered into with Food Lion, LLC and Nationwide Money Services, Inc dated
      October 5, 2001 (incorporated by reference to form 10KSB filed with the
      SEC on April 16, 2002).10.2
                
                Asset
      Purchase Agreement dated October 28, 2005 by and between the Company and
      Amer-E-Com Digital Corporation (incorporated by reference to Form 8-K
      filed with the SEC on November 1, 2005).10.3
                
                Distributor
      ATM Processing Agreement between Nationwide Money Services and Genpass
      Technologies LLC dated December 15, 2005 (incorporated by reference to
      Form 8-K filed with the SEC on December 20, 2005).10.4
                
                Cash
      Provisioning Agreement, dated November 24, 2006, by and between Genpass
      Technologies, LLC and Nationwide Money Services, Inc. (incorporated by
      reference to Form 8-K filed February 1, 2007).10.5
                
                Office
      Lease with Surburban Owner LLC (incorporated by reference to Form 8-K
      filed March 27, 2007).10.6
                
                Net
      Enterprise Value Special Transaction Plan (incorporated by reference to
      Form 8-K filed June 14, 2007).10.7
                
                Shareholder
      Agreement with Industrial Electronic Investments Limited for sale of Cash
      Axcess Corporations (Proprietary) Limited (incorporated by reference to
      Form 8-K filed with the SEC on October 17, 2006).10.8
                
                Separation
      Agreement and Release by and between the Company and Michael Dodak
      (incorporated by reference to Form 8-K filed October 11,
      2006).10.9
                
                Separation
      Agreement and Release by and between the Company and David Fann
      (incorporated by reference to Form 8-K filed October 11,
      2006).10.10
                
                Employment
      Agreement dated July 1, 2008 by and between the Company and George McQuain
      (incorporated by reference to Form 8-K filed July 2, 2008) (Management
      compensation plan or arrangement).10.11
                
                Director
      Compensation Arrangements (incorporated by reference to Form 10-Q filed
      August 7, 2008) (Management compensation plan or
    arrangement).10.12
                
                Settlement
      Agreement, effective as of August 12, 2008, between the Company and CAMOFI
      Master LDC (incorporated by reference to Form 8-K filed August 18,
      2008).10.13
                
                First
      Modification to Settlement Agreement, dated November 6, 2008, between the
      Company and CAMOFI Master LDC (incorporated by reference to Form 8-K filed
      November 10, 2008).10.14
                
                2002
      Stock Incentive Plan (incorporated by reference to Form S-8 filed December
      10, 2003).




Page
51





Exhibit
                  Number
                
                Exhibit Description10.15
                
                First
      Amendment to 2002 Stock Incentive Plan.10.16
                
                2004
      Stock Incentive Plan (incorporated by reference to Form S-8 filed June 25,
      2004).10.17
                
                First
      Amendment to 2004 Stock Incentive Plan.10.18
                
                Mediated
      Settlement Agreement, dated January 22, 2009, by and between the Company
      and Sidney Michael Cole (This agreement has been redacted pursuant to a
      confidential treatment request filed with the SEC on the date
      hereof).31.1
                
                Certification
      of the Chief Executive Officer of Global Axcess Corp pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.31.2
                
                Certification
      of the Chief Financial Officer of Global Axcess Corp pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.32.1
                
                Certification
      of the Chief Executive Officer of Global Axcess, Inc. Pursuant to 18
      U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                
                Certification
      of the Chief Financial Officer of Global Axcess, Inc., Pursuant to 18
      U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002.




Page
52





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, as of March 3, 2009
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.





GLOBAL
      AXCESS CORPBy:/s/ George A.
      McQuainGeorge
      A. McQuainPresident
      and Chief Executive Officer




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 indicated on March 3, 2009.





Signature
                                          
                                          Title/S/
      Walter A. HowellWalter
      A. Howell
                                          
                                          Director/S/
      Lock IrelandLock
      Ireland
                                          
                                          Vice
      Chairman and Director/S/
      Robert LandisRobert
      Landis
                                          
                                          Director/S/
      Michael J. LoiaconoMichael
      J. Loiacono
                                          
                                          Chief
      Financial Officer and Chief Accounting Officer/S/
      Joseph LoughryJoseph
      Loughry
                                          
                                          Chairman
      and Director/s/George
      A. McQuainGeorge
      A. McQuain
                                          
                                          President,
      CEO and Director/S/
      Alan RossiterAlan
      Rossiter
                                          
                                          Director


Page
53




GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONSOLIDATED
FINANCIAL STATEMENTS





TABLE
OF CONTENTS





PAGE NO.Report
      of Independent Registered Public Accounting Firm
                                    1Consolidated
      financial statementsConsolidated
      balance sheets as of December 31, 2008 and 2007
                                    2Consolidated
      statements of income for the years ended December
      31, 2008, 2007 and 2006
                                    3Consolidated
      statements of stockholders’ equity for
      the years ended December 31, 2008, 2007 and 2006
                                    4Consolidated
      statements of cash flows for the years ended December
      31, 2008, 2007 and 2006
                                    5Notes to consolidated financial statementsas
      of December 31, 2008
                                    7








Report Of
Independent Registered Public Accounting Firm





Board of
Directors and Stockholders of


Global
Axcess Corp:





We have
audited the accompanying consolidated balance sheets of Global Axcess Corp and
Subsidiaries as of December 31, 2008 and 2007 and the related consolidated
statements of income, stockholders’ equity and cash flows for the years ended
December 31, 2008, 2007 and 2006. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated 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. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. 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 Global Axcess
Corp and Subsidiaries as of December 31, 2008 and 2007 and the results of its
operations and its cash flows for the years ended December 31, 2008, 2007 and
2006 in conformity with accounting principles generally accepted in the United
States of America.




/s/
KIRKLAND, RUSS, MURPHY & TAPP, P.A.


Certified
Public Accountants


Clearwater,
Florida


March 2,
2009


F-1


GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





As of December 31,2008
                    
                    
                    2007ASSETSCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    1,560,910
                    
                    
                    $
                    540,161Accounts
      receivable, net of allowance of $9,799 in 2008 and $23,797 in
      2007
                    
                    
                    848,373
                    
                    
                    
                    924,629Inventory,
      net of allowance for obsolescence of $54,033 in 2008 and $0 in
      2007
                    
                    
                    276,731
                    
                    
                    
                    235,597Deferred
      tax asset - current
                    
                    
                    615,332
                    
                    
                    
                    -Prepaid
      expenses and other current assets
                    
                    
                    164,968
                    
                    
                    
                    141,348Total
      current assets
                    
                    
                    3,466,314
                    
                    
                    
                    1,841,735Fixed
      assets, net
                    
                    
                    4,723,138
                    
                    
                    
                    5,580,882Other
      assetsMerchant
      contracts, net
                    
                    
                    11,331,126
                    
                    
                    
                    12,057,638Intangible
      assets, net
                    
                    
                    4,118,426
                    
                    
                    
                    4,165,491Deferred
      tax asset - non-current
                    
                    
                    -
                    
                    
                    
                    339,800Other
      assets
                    
                    
                    9,232
                    
                    
                    
                    15,139Total
      assets
                    
                    $
                    23,648,236
                    
                    
                    $
                    24,000,685LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                    
                    $
                    2,527,396
                    
                    
                    $
                    3,361,635Notes
      payable - related parties  - current portion,
net
                    
                    
                    24,010
                    
                    
                    
                    20,695Note
      payable
                    
                    
                    -
                    
                    
                    
                    25,000Senior
      lenders' notes payable - current portion, net
                    
                    
                    606,705
                    
                    
                    
                    600,000Capital
      lease obligations - current portion
                    
                    
                    779,990
                    
                    
                    
                    961,046Total
      current liabilities
                    
                    
                    3,938,101
                    
                    
                    
                    4,968,376Long-term
      liabilitiesNotes
      payable - related parties - long-term portion, net
                    
                    
                    1,304,595
                    
                    
                    
                    1,317,180Senior
      lenders' notes payable - long-term portion, net
                    
                    
                    4,240,086
                    
                    
                    
                    4,757,377Capital
      lease obligations - long-term portion
                    
                    
                    425,582
                    
                    
                    
                    823,489Deferred
      tax liability- long-term portion
                    
                    
                    275,532
                    
                    
                    
                    -Total
      liabilities
                    
                    
                    10,183,896
                    
                    
                    
                    11,866,422Stockholders'
      equityPreferred
      stock; $0.001 par value; 5,000,000 shares authorized, no shares issued and
      outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock; $0.001 par value; 45,000,000 shares authorized, 21,021,786 shares
      issued and 20,973,924 shares outstanding
                    
                    
                    21,022
                    
                    
                    
                    21,022Additional
      paid-in capital
                    
                    
                    22,613,424
                    
                    
                    
                    22,453,584Accumulated
      deficit
                    
                    
                    (9,158,140
                    )
                    
                    
                    (10,328,377
                    )Treasury
      stock; 47,862 shares of common stock at cost
                    
                    
                    (11,966
                    )
                    
                    
                    (11,966
                    )Total
      stockholders' equity
                    
                    
                    13,464,340
                    
                    
                    
                    12,134,263Total
      liabilities and stockholders' equity
                    
                    $
                    23,648,236
                    
                    
                    $
                    24,000,685





See
Accompanying Independent Registered Public Accounting Firm’s Report and Notes to
Consolidated Financial Statements


F-2


GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME





For
      the Fiscal Years Ended December 31,2008
                              
                              
                              2007
                              
                              
                              2006Revenues
                              
                              $
                              22,171,072
                              
                              
                              $
                              21,750,897
                              
                              
                              $
                              21,437,125Cost
      of revenues
                              
                              
                              12,347,991
                              
                              
                              
                              12,705,636
                              
                              
                              
                              12,405,270Gross
      profit
                              
                              
                              9,823,081
                              
                              
                              
                              9,045,261
                              
                              
                              
                              9,031,855Operating
      expensesDepreciation
      expense
                              
                              
                              1,411,360
                              
                              
                              
                              1,536,616
                              
                              
                              
                              1,653,861Amortization
      of intangible merchant contracts
                              
                              
                              770,270
                              
                              
                              
                              725,935
                              
                              
                              
                              705,594Impairment
      of long-lived assets
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,329,396Selling,
      general and administrative
                              
                              
                              5,288,959
                              
                              
                              
                              5,279,101
                              
                              
                              
                              6,839,003Restructuring
      charges
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              757,811Impairment
      of notes receivable
                              
                              
                              -
                              
                              
                              
                              5,743
                              
                              
                              
                              817,607Recovery
      of bad debts
                              
                              
                              -
                              
                              
                              
                              (100,000
                              )
                              
                              
                              -Stock
      compensation expense
                              
                              
                              159,840
                              
                              
                              
                              87,181
                              
                              
                              
                              (11,698
                              )Other
      expense
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              450,000Total
      operating expenses
                              
                              
                              7,630,429
                              
                              
                              
                              7,534,576
                              
                              
                              
                              12,541,574Operating
      income (loss) from continuing operationsbefore
      items shown below
                              
                              
                              2,192,652
                              
                              
                              
                              1,510,685
                              
                              
                              
                              (3,509,719
                              )Interest
      expense, net
                              
                              
                              (1,046,287
                              )
                              
                              
                              (1,232,661
                              )
                              
                              
                              (1,356,407
                              )Gain
      (loss) on sale or disposal of assets
                              
                              
                              23,872
                              
                              
                              
                              (22,517
                              )
                              
                              
                              21,672Other
      non-operating income
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              146,703Loss
      attributed to minority interest
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              109,351Income
      (loss) from continuing operations
                              
                              $
                              1,170,237
                              
                              
                              $
                              255,507
                              
                              
                              $
                              (4,588,400
                              )Income
      (loss) from discontinued operations
                              
                              $
                              -
                              
                              
                              $
                              175,000
                              
                              
                              $
                              (275,937
                              )Net
      Income (loss)
                              
                              $
                              1,170,237
                              
                              
                              $
                              430,507
                              
                              
                              $
                              (4,864,337
                              )Income
      (loss) per common share - basic:Income
      (loss) from continuing operations
                              
                              $
                              0.06
                              
                              
                              $
                              0.01
                              
                              
                              $
                              (0.22
                              )Income
      (loss) from discontinued operations
                              
                              $
                              -
                              
                              
                              $
                              0.01
                              
                              
                              $
                              (0.01
                              )Net
      Income (loss) per common share
                              
                              $
                              0.06
                              
                              
                              $
                              0.02
                              
                              
                              $
                              (0.23
                              )Income
      (loss) per common share - diluted:Income
      (loss) from continuing operations
                              
                              $
                              0.06
                              
                              
                              $
                              0.01
                              
                              
                              $
                              (0.22
                              )Income
      (loss) from discontinued operations
                              
                              $
                              -
                              
                              
                              $
                              0.01
                              
                              
                              $
                              (0.01
                              )Net
      Income (loss) per common share
                              
                              $
                              0.06
                              
                              
                              $
                              0.02
                              
                              
                              $
                              (0.23
                              )Weighted
      average common shares outstanding:Basic
                              
                              
                              20,973,924
                              
                              
                              
                              20,988,348
                              
                              
                              
                              20,996,013Diluted
                              
                              
                              20,973,924
                              
                              
                              
                              20,988,348
                              
                              
                              
                              20,996,013





See
Accompanying Independent Registered Public Accounting Firm’s Report and Notes to
Consolidated Financial Statements


F-3


GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


FOR THE
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006





Additional
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            TotalCommon
      Stock
                                            
                                            
                                            Paid-in
                                            
                                            
                                            Accumulated
                                            
                                            
                                            Treasury
                                            
                                            
                                            Stockholders'Shares
                                            
                                            
                                            Amount
                                            
                                            
                                            Capital
                                            
                                            
                                            Deficit
                                            
                                            
                                            Stock
                                            
                                            
                                            EquityBalances,
      December 31, 2005
                                            
                                            
                                            20,970,886
                                            
                                            
                                            $
                                            20,971
                                            
                                            
                                            $
                                            22,345,398
                                            
                                            
                                            $
                                            (5,796,469
                                            )
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            16,569,900Stock
      warrants exercised
                                            
                                            
                                            40,900
                                            
                                            
                                            
                                            41
                                            
                                            
                                            
                                            20,409
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            20,450Exercise
      of stock options
                                            
                                            
                                            10,000
                                            
                                            
                                            
                                            10
                                            
                                            
                                            
                                            3,490
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,500Warrant
      repricing
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            8,803
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            8,803Other
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (98,078
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (98,078
                                            )Stock
      compensation expense
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (11,697
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (11,697
                                            )Net
      loss
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (4,864,337
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (4,864,337
                                            )Balances,
      December 31, 2006
                                            
                                            
                                            21,021,786
                                            
                                            
                                            $
                                            21,022
                                            
                                            
                                            $
                                            22,366,403
                                            
                                            
                                            $
                                            (10,758,884
                                            )
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            11,628,541Settlement
      of note receivable through receipt of treasury stock (47,862
      shares)
                                            
                                            
                                            (47,862
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (11,966
                                            )
                                            
                                            
                                            (11,966
                                            )Stock
      compensation expense
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            87,181
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            87,181Net
      income
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            430,507
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            430,507Balances,
      December 31, 2007
                                            
                                            
                                            20,973,924
                                            
                                            
                                            $
                                            21,022
                                            
                                            
                                            $
                                            22,453,584
                                            
                                            
                                            $
                                            (10,328,377
                                            )
                                            
                                            $
                                            (11,966
                                            )
                                            
                                            $
                                            12,134,263Stock
      compensation expense
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            159,840
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            159,840Net
      income
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,170,237
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,170,237Balances,
      December 31, 2008
                                            
                                            
                                            20,973,924
                                            
                                            
                                            $
                                            21,022
                                            
                                            
                                            $
                                            22,613,424
                                            
                                            
                                            $
                                            (9,158,140
                                            )
                                            
                                            $
                                            (11,966
                                            )
                                            
                                            $
                                            13,464,340





See
Accompanying Independent Registered Public Accounting Firm’s Report and Notes to
Consolidated Financial Statements


F-4


GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For
      the Fiscal Years Ended December 31,2008
                              
                              
                              2007
                              
                              
                              2006Cash
      flows from operating activities:Income
      (loss) from continuing operations
                              
                              $
                              1,170,237
                              
                              
                              $
                              255,507
                              
                              
                              $
                              (4,588,400
                              )Adjustments
      to reconcile net income from continuing operationsto
      net cash provided by continuing operating activities:Stock
      based compensation
                              
                              
                              159,840
                              
                              
                              
                              87,181
                              
                              
                              
                              (2,894
                              )Depreciation
      expense
                              
                              
                              1,411,360
                              
                              
                              
                              1,536,616
                              
                              
                              
                              1,653,861Amortization
      of intangible merchant contracts
                              
                              
                              770,270
                              
                              
                              
                              725,935
                              
                              
                              
                              705,594Amortization
      of capitalized loan fees
                              
                              
                              46,431
                              
                              
                              
                              66,975
                              
                              
                              
                              73,786Impairment
      of long-lived assets
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,329,396Allowance
      for doubtful accounts
                              
                              
                              (14,201
                              )
                              
                              
                              (36,240
                              )
                              
                              
                              162,489Allowance
      for inventory obsolescence
                              
                              
                              54,033
                              
                              
                              
                              -
                              
                              
                              
                              -Non-cash
      interest expense on swap agreement with senior lender
                              
                              
                              40,985
                              
                              
                              
                              48,551
                              
                              
                              
                              3,705Accretion
      of discount on notes payable
                              
                              
                              165,988
                              
                              
                              
                              165,987
                              
                              
                              
                              168,182Impairment
      of  notes receivable
                              
                              
                              -
                              
                              
                              
                              5,743
                              
                              
                              
                              817,607(Gain)
      loss on sale or disposal of assets
                              
                              
                              (23,872
                              )
                              
                              
                              22,517
                              
                              
                              
                              -Changes
      in operating assets and liabilities:Change
      in automated teller machine vault cash
                              
                              
                              -
                              
                              
                              
                              26,220
                              
                              
                              
                              436,187Change
      in accounts receivable
                              
                              
                              90,457
                              
                              
                              
                              300,491
                              
                              
                              
                              73,164Change
      in other receivable
                              
                              
                              -
                              
                              
                              
                              15
                              
                              
                              
                              (15
                              )Change
      in inventory
                              
                              
                              116
                              
                              
                              
                              164,881
                              
                              
                              
                              (383,578
                              )Change
      in prepaid expenses and other current assets
                              
                              
                              (23,620
                              )
                              
                              
                              93,969
                              
                              
                              
                              59,868Change
      in other assets and deferred revenue
                              
                              
                              5,907
                              
                              
                              
                              (383
                              )
                              
                              
                              (50,048
                              )Change
      in intangible assets, net
                              
                              
                              634
                              
                              
                              
                              (10,635
                              )
                              
                              
                              (11,450
                              )Change
      in accounts payable and accrued liabilities
                              
                              
                              (875,224
                              )
                              
                              
                              (878,002
                              )
                              
                              
                              1,537,741Change
      in automated teller machine vault cash payable
                              
                              
                              -
                              
                              
                              
                              (26,220
                              )
                              
                              
                              (436,187
                              )Net
      cash provided by continuing operating activities
                              
                              
                              2,979,341
                              
                              
                              
                              2,549,108
                              
                              
                              
                              1,549,008Discontinued
      operationsNet
      income (loss)
                              
                              
                              -
                              
                              
                              
                              175,000
                              
                              
                              
                              (275,937
                              )Gain
      on sale of subsidiary
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (71,507
                              )Adjustments
      to reconcile net income (loss) to net cash used indiscontinued
      operations:Change
      in deferred gain on sale of subsidiary
                              
                              
                              -
                              
                              
                              
                              (175,000
                              )
                              
                              
                              -Depreciation
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              62,162Loss
      attributed to minority interest
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              (109,351
                              )Change
      in accounts receivable
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (38,822
                              )Change
      in accounts payable and accrued liabilities
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              35,105Change
      in inventory, prepaid expenses and other current assets
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (20,358
                              )Net
      cash used in discontinued operating activities
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (418,708
                              )Net
      cash provided by continuing and discontinued operating
      activities
                              
                              
                              2,979,341
                              
                              
                              
                              2,549,108
                              
                              
                              
                              1,130,300Cash
      flows from investing activities:Proceeds
      from sale of subsidiary
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              951,223Proceeds
      from other receivable related to sale of subsidiary
                              
                              
                              -
                              
                              
                              
                              175,000
                              
                              
                              
                              -Insurance
      proceeds on disposal of fixed assets
                              
                              
                              72,681
                              
                              
                              
                              47,180
                              
                              
                              
                              -Costs
      of acquiring merchant contracts
                              
                              
                              (43,758
                              )
                              
                              
                              (273,628
                              )
                              
                              
                              (134,663
                              )Purchase
      of property and equipment
                              
                              
                              (290,304
                              )
                              
                              
                              (869,935
                              )
                              
                              
                              (826,447
                              )Proceeds
      from merchant contract escrow reimbursement
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              265,160Net
      cash provided by (used in) investing activities for continuing
      operations
                              
                              
                              (261,381
                              )
                              
                              
                              (921,383
                              )
                              
                              
                              255,273Net
      cash used in investing activities for discontinued
    operations
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (86,756
                              )Net
      cash provided by (used in) investing activities
                              
                              
                              (261,381
                              )
                              
                              
                              (921,383
                              )
                              
                              
                              168,517Cash
      flows from financing activities:Proceeds
      from issuance of common stock
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              23,950Proceeds
      from senior lenders'  notes payable
                              
                              
                              39,028
                              
                              
                              
                              100,000
                              
                              
                              
                              500,000Principal
      payments on senior lenders'  notes payable
                              
                              
                              (704,177
                              )
                              
                              
                              (658,333
                              )
                              
                              
                              (2,070,832
                              )Principal
      payments on notes payable
                              
                              
                              (25,000
                              )
                              
                              
                              (25,000
                              )
                              
                              
                              (98,756
                              )Principal
      payments on notes payable - related parties
                              
                              
                              (20,695
                              )
                              
                              
                              (18,472
                              )
                              
                              
                              (16,486
                              )Principal
      payments on capital lease obligations
                              
                              
                              (986,367
                              )
                              
                              
                              (1,239,603
                              )
                              
                              
                              (1,142,890
                              )Net
      cash used in financing activities
                              
                              
                              (1,697,211
                              )
                              
                              
                              (1,841,408
                              )
                              
                              
                              (2,805,014
                              )Effect
      of exchange rate fluctuation on cash in discontinued
      operations
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (98,078
                              )Increase
      (decrease) in cash
                              
                              
                              1,020,749
                              
                              
                              
                              (213,683
                              )
                              
                              
                              (1,604,275
                              )Cash,
      beginning of period
                              
                              
                              540,161
                              
                              
                              
                              753,844
                              
                              
                              
                              2,358,119Cash,
      end of the period
                              
                              $
                              1,560,910
                              
                              
                              $
                              540,161
                              
                              
                              $
                              753,844Cash
      paid for interest
                              
                              $
                              786,697
                              
                              
                              $
                              931,357
                              
                              
                              $
                              1,134,406





See
Accompanying Independent Registered Public Accounting Firm’s Report and Notes to
Consolidated Financial Statements


F-5


GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For
      the Fiscal Years Ended December 31,SUPPLEMENTAL
      CASH FLOW INFORMATION
                                            
                                            2008
                                            
                                            
                                            2007
                                            
                                            
                                            2006The
      significant non-cash investing and financing activities of the Company
      were as follows:Operating
      activities:Net
      transfer of de-installed net fixed assets to inventory
                                            
                                            $
                                            95,283
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Total
      non-cash operating activities
                                            
                                            $
                                            95,283
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Investing
      activities:Purchase
      of assets under capital lease obligations
                                            
                                            $
                                            407,404
                                            
                                            
                                            $
                                            110,505
                                            
                                            
                                            $
                                            1,176,216Sale
      of subsidiary, see schedule below:
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,445,341Net
      transfer of de-installed net fixed assets to inventory
                                            
                                            
                                            (95,283
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Total
      non-cash investing activities
                                            
                                            $
                                            312,121
                                            
                                            
                                            $
                                            110,505
                                            
                                            
                                            $
                                            2,621,557Financing
      activitiesStock
      issued for compensation
                                            
                                            $
                                            159,840
                                            
                                            
                                            $
                                            87,181
                                            
                                            
                                            $
                                            (2,894
                                            )Modification
      of debt and warrant repricing
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            8,803Accretion
      of discount on notes payable
                                            
                                            
                                            165,988
                                            
                                            
                                            
                                            165,987
                                            
                                            
                                            
                                            168,182Total
      non-cash financing activities
                                            
                                            $
                                            325,828
                                            
                                            
                                            $
                                            253,168
                                            
                                            
                                            $
                                            174,091Settlement
      of note receivable through issuance of treasury stock:Note
      receivable
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            (17,709
                                            )
                                            
                                            $
                                            -Impairment
      of  notes receivable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            5,743
                                            
                                            
                                            
                                            -Repurchase
      of treasury stock, 47,862 shares of common stock at cost
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            (11,966
                                            )
                                            
                                            $
                                            -Sale
      of subsidiary in 2006:Cash
      proceeds from sale of 50% ownership in subsidiary
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            745,341Total
      purchase price
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            745,341Minority
      interest
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            189,932Deferred
      gain on sale
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            555,409$
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            745,341Cash
      proceeds from sale of remaining 50% ownership in
subsidiary
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            525,000Note
      received
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            175,000Total
      purchase price
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            700,000Balance
      sheet at time of saleCash
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            319,118Automated
      teller machine vault cash
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            657Accounts
      receivable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            51,093Prepaid
      expenses and other current assets
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            9,006Fixed
      assets
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            602,757Inventory
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            142,614Minority
      interest
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (80,581
                                            )Accounts
      payable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (35,105
                                            )Automated
      teller machine vault cash payable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (657
                                            )Deferred
      gain on sale
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (555,409
                                            )-
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            453,493Deferred
      gain on sale of subsidiary
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            175,000Gain
      on sale of subsidiary
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            71,507$
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            700,000




See
Accompanying Independent Registered Public Accounting Firm’s Report and Notes to
Consolidated Financial Statements


F-6


GLOBAL
AXCESS CORP AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


AS OF
DECEMBER 31, 2008





1.
            DESCRIPTION OF THE
      COMPANY’S BUSINESS AND BASIS OF
  PRESENTATION





Global
Axcess Corp (the “Company”), is a Nevada corporation organized in
1984.  The Company, primarily through its wholly owned subsidiaries,
Nationwide Money Services, Inc. and EFT Integration Inc., is an independent
provider of Automated Teller Machine ("ATM") services.  The Company
also had a wholly owned subsidiary, Cash Axcess Corporation (Proprietary)
Limited, which provided ATM services in South Africa.  This subsidiary
was sold in fiscal year 2006. The Company’s fiscal year ended December 31,
2008.





2.
            SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES





Cash
Equivalents





The
Company considers all highly-liquid investments with a maturity of three months
or less when purchased to be cash equivalents.





Concentration of Credit
Risk





Financial
instruments that potentially subject the Company to concentration of credit risk
consist primarily of temporary cash investments. The Company has several bank
accounts maintained with one financial institution and amounts on deposit may,
at times, exceed federally insurable amounts.





Principles of
consolidation





The
consolidated financial statements include the accounts of Global Axcess Corp and
its subsidiaries. The Company has the following
subsidiaries:  Nationwide Money Services, Inc. and EFT Integration,
Inc. All significant inter-company balances and transactions have been
eliminated in consolidation.





Reclassifications





Certain
reclassifications were made to the 2007 and 2006 consolidated statements of
income to conform to the 2008 presentation.  These reclassifications
had no impact on net income (loss) or stockholders’ equity.





Merchant contract
concentration





The
Company contracts the locations for its ATMs with various merchants. As of
December 31, 2008, the Company has approximately 4,236 active ATMs, of which
approximately 612 machines are contracted through a single merchant. Revenues
from this merchant were approximately 24.1%, 21.4% and 23.1% of total fees from
continuing operations for the fiscal year ended December 31, 2008, 2007 and
2006, respectively.





Use of
estimates





The
preparation of the consolidated 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 amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from these estimates.





Revenue
recognition





Transaction
service and processing fees are recognized in the period that the service is
performed.  The Company receives two types of
fees:  surcharge/convenience fees paid by consumers utilizing certain
ATMs owned or managed by the Company; and interchange fees paid by their
banks.  Processing fees are generally charged on a per transaction
basis, depending on the contractual arrangement with the
customer.  ATM sales revenue is recognized when the ATM is shipped and
installed.  Revenue from managing ATMs for others is recognized each
month when the services are performed.


F-7





Branding
fees are generated by the Company’s bank branding arrangements, under which
financial institutions pay a fixed monthly fee per ATM to the Company to have
their brand name on selected ATMs within the Company’s ATM portfolio. In return
for such fees, the bank’s customers can use those branded ATMs without paying a
surcharge fee.  Branding fees are recognized in the period that the
service is performed. None of the branding fees are subject to escalation
clauses.  Should the Company include escalation clauses in its future
branding contracts, pursuant to the SEC’s SAB, Topic 13, Revenue Recognition,
the monthly per ATM branding fees, which would be subject to escalation clauses
within the agreements, would be recognized as revenues on a straight-line basis
over the term of the agreement. In most of its branding agreements, the Company
does not receive any one-time set-up fees in addition to the monthly branding
fees. The Company has received immaterial one-time set-up fees per ATM. This
set-up fee is separate from the recurring, monthly branding fees and is meant to
compensate the Company for the burden incurred related to the initial set-up of
a branded ATM versus the on-going monthly services provided for the actual
branding. Since any and all one-time set up fees have been immaterial to date,
the Company has recorded the fee upon contract signing.  Should any
future branding agreements contain material set-up fees, pursuant to the
guidance in Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables, and SAB No. 104, Revenue Recognition,
the Company would defer these set-up fees (as well as the corresponding costs
associated with the initial set-up) and recognize such amounts as revenue (and
expense) over the terms of the underlying bank branding agreements.





Additionally,
the Company recognizes revenue on breached contracts when cash is
received.  During the fiscal year ended December 31, 2008, the Company
received and recorded approximately $14,000 of revenue on these breached
contracts.  Additionally, during the fiscal year ended December 31,
2008, in lieu of receiving cash for a breached contract, the Company received
ATMs with an approximate fair market value of $22,000.  Therefore,
during the fiscal year ended Decemebr 31, 2008, the Company recorded a total of
approximately $36,000 of revenue associated with breached
contracts.





In
connection with the Company’s merchant-owned ATM operating/processing
arrangements, the Company typically pays a portion of the surcharge fees that it
earns to the merchant as fees for providing, placing, and maintaining the ATM
unit. Pursuant to the guidance of EITF Issue No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products), the Company has recorded such payments as a direct reduction
of revenue.





The
Company follows the guidance in EITF Issue 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent, for its merchant contracts. In accordance with
EITF Issue 99-19, the Securities and Exchange Commission (the ”SEC”) staff
concluded that if a company performs as an agent or broker without assuming the
risks and rewards of ownership of the goods, sales should be and are reported on
a net basis.





The
Company is not exposed to similar financial obligations and risks as it is on
its company-owned ATM contracts.  For example, under a merchant-owned
arrangement, the merchant is responsible for most of the operating expenses of
the ATM such as maintenance, cash management and loading, supplies, signage and
telecommunication services. As such, the Company reports the
surcharge/convenience fees relating to merchant-owned ATM arrangements on a net
basis.





Total Revenue and Total Cost
of Revenues Presentation





The
Company presents “Revenues” and “Cost of revenues” as a single line item in the
consolidated statements of operations.  The following tables set forth
the revenue and cost of revenues sources included in the single line items
presented for the fiscal years ended December 31, 2008, 2007 and
2006:


F-8


Revenues:





For the year ended
                              
                              
                              For the year ended
                              
                              
                              For the year endedDecember 31, 2008
                              
                              
                              December 31, 2007
                              
                              
                              December 31, 2006Surcharge
      / Convenience Fee revenue
                              
                              $
                              11,782,306
                              
                              
                              $
                              10,807,322
                              
                              
                              $
                              10,700,846Interchange
      revenue
                              
                              
                              7,806,372
                              
                              
                              
                              8,177,250
                              
                              
                              
                              8,146,586Processing
      revenue
                              
                              
                              286,914
                              
                              
                              
                              322,938
                              
                              
                              
                              283,734ATM
      Sales revenue
                              
                              
                              519,861
                              
                              
                              
                              575,804
                              
                              
                              
                              596,157Other
      revenue
                              
                              
                              1,775,619
                              
                              
                              
                              1,867,583
                              
                              
                              
                              1,709,802Total
      revenue
                              
                              $
                              22,171,072
                              
                              
                              $
                              21,750,897
                              
                              
                              $
                              21,437,125For the year ended
                              
                              
                              For the year ended
                              
                              
                              For the year endedDecember 31, 2008
                              
                              
                              December 31, 2007
                              
                              
                              December 31, 2006ATM
      Operating revenue
                              
                              $
                              21,651,211
                              
                              
                              $
                              21,175,093
                              
                              
                              $
                              20,840,968ATM
      Sales revenue
                              
                              
                              519,861
                              
                              
                              
                              575,804
                              
                              
                              
                              596,157Total
      revenue
                              
                              $
                              22,171,072
                              
                              
                              $
                              21,750,897
                              
                              
                              $
                              21,437,125





Cost
of Revenues:





For the year ended
                                
                                
                                For the year ended
                                
                                
                                For the year endedDecember 31, 2008
                                
                                
                                December 31, 2007
                                
                                
                                December 31, 2006Merchant
      residual / commission costs
                                
                                $
                                7,051,263
                                
                                
                                $
                                6,672,380
                                
                                
                                $
                                5,613,885Cost
      of cash
                                
                                
                                2,025,680
                                
                                
                                
                                2,616,403
                                
                                
                                
                                2,869,995Processing
      costs
                                
                                
                                848,428
                                
                                
                                
                                960,544
                                
                                
                                
                                892,710Communication
      costs
                                
                                
                                562,030
                                
                                
                                
                                558,557
                                
                                
                                
                                695,304ATM
      Sales costs
                                
                                
                                486,901
                                
                                
                                
                                472,286
                                
                                
                                
                                535,283Other
      cost of revenues
                                
                                
                                1,373,689
                                
                                
                                
                                1,425,466
                                
                                
                                
                                1,798,093Total
      cost of revenues
                                
                                $
                                12,347,991
                                
                                
                                $
                                12,705,636
                                
                                
                                $
                                12,405,270For the year ended
                                
                                
                                For the year ended
                                
                                
                                For the year endedDecember 31, 2008
                                
                                
                                December 31, 2007
                                
                                
                                December 31, 2006Cost
      of ATM operating revenue
                                
                                $
                                11,861,090
                                
                                
                                $
                                12,233,350
                                
                                
                                $
                                11,869,987ATM
      Sales costs
                                
                                
                                486,901
                                
                                
                                
                                472,286
                                
                                
                                
                                535,283Total
      cost of revenues
                                
                                $
                                12,347,991
                                
                                
                                $
                                12,705,636
                                
                                
                                $
                                12,405,270




Accounts
Receivable





The
Company reviews the accounts receivable on a regular basis to determine the
collectibility of each account. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the failure of its customers to
make required payments. At each reporting period, the Company evaluates the
adequacy of the allowance for doubtful accounts and calculates the appropriate
allowance based on historical experience, credit evaluations, specific customer
collection issues and the length of time a receivable is past due. The Company
records an allowance for doubtful accounts for any billed invoice aged past 60
days. When the Company deems the receivable to be uncollectible, the Company
charges the receivable against the allowance for doubtful
accounts.  As of December 31, 2008 and 2007, the Company reserved
$9,799 and $23,797 as an allowance for doubtful accounts against the accounts
receivable of $858,172 and $948,426, respectively.


F-9




Inventory





Inventory
is stated at the lower of cost (first-in, first-out method) or
market.  Inventory consists primarily of ATMs and related parts and
equipment.  Parts relating to upgrading ATMs to become Triple DES
compliant were recorded to fixed assets when the part was placed into service,
if the ATM is company-owned. Parts relating to upgrading ATMs to become Triple
DES compliant were recorded to Merchant Contracts when the part was placed into
service, if the ATM is merchant-owned and the merchant signed a term extension
to an existing contract.  The cost of the part was subsequently
amortized over the life of the contract extension. Parts relating to upgrading
ATMs to become Triple DES compliant were expensed when the part was placed into
service, if the Company upgraded the merchant-owned ATMs at no charge to the
merchant with no contract extension.  ATMs and parts available for
sale are classified as inventory until such time as the machine or part is sold
or installed and in service. Once the ATM or part is sold, it is relieved to
cost of revenues. The Company reserves for inventory obsolescence based upon
physical inventory count and evaluations of how long items remain in inventory
combined with historical usage of respective items.  At December 31,
2008 and 2007, the Company's inventory, net of an allowance for obsolescence of
$54,033 and $0, totaled $276,731 and $235,597, respectively.





Fixed
assets





Fixed
assets are stated at cost, less accumulated depreciation and amortization.
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the assets, which generally range from three to 10
years. Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or the life of the asset.  The cost of
repairs and maintenance is charged to expense as incurred. Expenditures for
property improvements and renewals are capitalized, if they extend the useful
life of the related asset. Upon the sale or other disposition of a depreciable
asset, cost and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in gain (loss) on sale of assets.





The
Company periodically evaluates whether events and circumstances have occurred
that may warrant revision of the estimated useful life of fixed assets or
whether the remaining balance of fixed assets should be evaluated for possible
impairment. The Company uses an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability,
as well as historical age, to estimate useful economic lives and
values.





Lease
Committments





The
Company is party to various operating leases relating to office facilities and
certain other equipment with various expiration dates. All leasing arrangements
contain normal leasing terms without unusual purchase options or escalation
clauses. Rental expense under operating leases aggregated $218,379, $237,639 and
$323,735 for the years ended December 31, 2008, 2007 and 2006,
respectively.  The Company is also party to various capital leases for
ATMs and related components.  The assets associated with these capital
leases are recorded as fixed assets and depreciated accordingly.  The
capital lease obligation is recorded and amortized over the life the of the
lease.





Merchant Contracts and
Intangible Assets, including Goodwill





In June
2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,”
which was adopted by the Company in fiscal 2002. SFAS No. 142 established
accounting and reporting standards for goodwill and intangible assets resulting
from business combinations. SFAS No. 142 included provisions discontinuing the
periodic amortization of, and requiring the assessment of the potential
impairments of goodwill (and intangible assets deemed to have indefinite lives).
As SFAS No. 142 replaced the measurement guidelines for goodwill impairment,
goodwill not considered impaired under previous accounting literature may be
considered impaired under SFAS No. 142. SFAS No. 142 also required that the
Company complete a two-step goodwill impairment test. The first step compares
the fair value of each reporting unit to its carrying amount, including
goodwill. If the fair value of a reporting unit exceeded its carrying amount,
goodwill is not considered to be impaired and the second step is not required.
SFAS No. 142 required completion of this first step within the first six months
of initial adoption and annually thereafter. If the carrying amount of a
reporting unit exceeded its fair value, the second step is performed to measure
the amount of impairment loss. The second step compared the implied fair value
of goodwill to the carrying value of a reporting unit's goodwill. The implied
fair value of goodwill is determined in a manner similar to accounting for a
business combination with the allocation of the assessed fair value determined
in the first step to the assets and liabilities of the reporting unit. The
excess of the fair value of the reporting unit over the amounts assigned to the
assets and liabilities is the implied fair value of goodwill. This allocation
process is only performed for purposes of evaluating goodwill impairment and
does not result in an entry to adjust the value of any assets or liabilities. An
impairment loss is recognized for any excess in the carrying value of goodwill
over the implied fair value of goodwill.


F-10





In June
2001, the Company acquired 100% of the outstanding capital stock of Nationwide
Money Services, Inc. in consideration of 3,874,000 shares of the Company's
common stock, including 149,000 shares for a finder's fee. This acquisition was
recorded using the purchase method of accounting under APB No. 16 “Business
Combinations” and as such, the Company accounted for its 100% ownership interest
in Nationwide. The results of operations for the acquired company have been
included in the consolidated financial results of the Company from the date of
such transaction forward.





The
purchase price amount in excess of fair value of net assets was allocated to
merchant account contracts totaling $1,020,000, which is being amortized on a
straight-line basis over the estimated useful lives of 21 years, and goodwill
totaling $1,311,195.





Additionally,
the Company purchased 900 Merchant ATM contracts in February
2004.  The purchase price was $3,900,000 and was reflected in Merchant
Contracts. During September 2004, the Company made two additional acquisitions:
one for 111 ATM contracts, and another for 745 ATM contracts.  The
prices for those acquisitions were $918,000 and $7,000,000, respectively. In
these two acquisitions, the Company also acquired ATM machines with the fair
value of $166,500 and $1,200,000, respectively.





When the
Company acquires another company’s assets, accounting principles generally
accepted in the United States of America require the Company to estimate the
fair value of the other company's tangible assets and liabilities and
identifiable intangible assets. The purchase price is allocated to the assets
and liabilities of the acquired company for the purpose of recording these items
in the Company's financial records. Any unallocated purchase price is recorded
as goodwill. The Company applies SFAS No. 142, “Goodwill and Other Intangible
Assets” to review for impairment to the intangible goodwill and merchant
contracts. As of September 2004, the Company had relied on the reported values
of the assets acquired from  the seller to estimate fair value. In
reviewing the seller's balances, current fair values in the market, discounted
cash flow analysis of the merchant  contracts;  and after considering
the outlay of cash for maintenance and capital costs along with the projected
income from the future  income  stream from the  contracts,
 the Company  allocated $2,878,450 of the ATM Network's asset purchase
to goodwill, as of December 31, 2004, all other acquisitions assets had fair
values equal or greater than the acquisition price.To date, the Company’s
testing has indicated that there is no impairment of its goodwill.





Intangible
assets with finite lives and merchant contracts are stated at cost, net of
accumulated amortization, and are subject to impairment testing under certain
circumstances in accordance with SFAS No. 144 and other applicable
pronouncements. These assets are amortized on the straight-line method over
their estimated useful lives or period of expected benefit. These assets are
subject to periodic impairment testing in accordance with SFAS
No. 142.





The
Company’s merchant contracts are made up of contracts with automatic renewable
lives. The Company has determined after review of its contracts that the
economic life of the contracts is extended and estimated over 21 years (or three
times renewal) based on historical and expected useful lives of similar assets.
 The Company amortizes the merchant contracts over their estimated useful
lives of 21 years. The Company has adopted SFAS No. 142 to reflect the fair
value of the merchant contracts, and uses a two step valuation process to
determine if there has been any impairment on the value of the merchant contract
assets. The first step is to periodically assess the remaining contract lives,
including expected renewals. If the periodic assessment resulted in a
determination that the economic lives of the merchant contracts are less than 21
years, the Company would adjust the remaining amortization lives of the merchant
contracts. The second step is to compare the estimated future undiscounted cash
flows of each reporting unit to the carrying amount of the merchant contracts,
thus testing the impairment of the value of the contracts. An impairment loss is
recognized for any excess in the carrying value of merchant contracts over the
assessed fair value of merchant contracts. To date, the Company’s testing has
indicated that there is no impairment of its merchant contracts.





In
general, contracts for merchant owned ATMs are not subject to cancellation by
the merchant for any reason other than breach.  Breach may be defined as
bankruptcy, criminal behavior or unsatisfactory services.  Typically,
a merchant may terminate a contract by providing a predefined number of days
notice prior to the expiration of the initial term of the
contract.


F-11


In
general, as is the case for contracts of company owned ATMs, the Company may, at
its sole discretion and option, remove any and/or all ATM's and all other
property belonging to the Company from a merchant location and terminate the
contract upon 30-days written notice to a merchant if any and/or all of the
ATM's are unprofitable.





The
Company’s merchant contracts have an average initial term of approximately seven
years.  While the Company has historically experienced a higher
turnover rate among its merchant-owned customers than with its company-owned
portfolio, the Company is currently experiencing an average of 2.2 renewals on
its current merchant-owned contracts acquired through the end of fiscal
2005.  Pursuant to FASB Staff Position No. FAS 142-3 dated April 25,
2008, “an entity shall consider its own historical experience” about “renewal or
extension used to determine the useful life of a recognized intangible
asset.”  Until such time when the Company’s historical experience does
not support the useful and economic life of the merchant contracts, the Company
concludes that the current economic life of 21 years is
appropriate.





Impairment of Long-Lived
Assets





In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the Company reviews its long-lived assets, including
property and equipment and capitalized software development, for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the probability that future
undiscounted net cash flows will be less than the carrying amount of the assets.
If future estimated undiscounted cash flows are less than the carrying amount of
long-lived assets, then such assets are written down to their estimated fair
value.  During the fiscal years ended December 31, 2008 and 2007, the
Company recorded no impairment charges of long-lived assets.  During
the fiscal year ended December 31, 2006, the Company recorded impairment charges
of long-lived assets of approximately $1.3 million.





Fair value of financial
instruments





The
carrying amounts of the Company’s long-term liabilities approximate the
estimated fair values at December 31, 2008 and 2007, based upon the Company’s
ability to acquire similar debt at similar maturities. The carrying values of
all other financial instruments approximate their fair value, because of the
short-term maturities of these instruments.





Earnings per
share





In
calculating basic income (loss) per share, net income (loss) is divided by
the weighted average number of common shares outstanding for the period. Diluted
income (loss) per share reflects the assumed exercise or conversion of all
dilutive securities, such as options and warrants.  No such exercise
or conversion is assumed where the effect is anti-dilutive, such as when there
is a net loss from continuing operations or when the exercise price of the
potentially dilutive securities is less than the market value of the Company’s
stock.





Income
taxes





The
Company accounts for its income taxes in accordance with SFAS No. 109
“Accounting for Income Taxes” which requires recognition of deferred tax assets
and liabilities for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis 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.





Research and development
costs





Research
and development costs are charged to expense when incurred. Costs incurred to
internally develop software, incurred during the research and planning phase of
development, are charged to expense as incurred, and direct costs incurred
during development, testing and implementation are capitalized as incurred over
the useful life of the software and amortized for an average life of three
years.  During the fiscal years ending December 31, 2008, 2007 and
2006, the amount of research and development costs, which were borne entirely by
the Company, amounted to $0, $0 and $275,937, respectively.


F-12





Repairs and maintenance
costs





Repairs
and maintenance costs are expensed as incurred.  Repairs and
maintenance pertaining to the Company’s ATMs are recorded in cost of
revenues.  The Company records repairs and maintenance costs relating
to general office and backend related equipment to general and administrative
costs.





Performance Based 401k
Contribution Plan





Effective
fiscal 2007, the Company implemented a performance based incentive program
matching 401k contributions.  For each quarter the Company achieves
its Net Income budget, the Company matches up to 50% of the first 6% of an
employee’s 401k contributions during that respective quarter.  The
Company recorded $44,741 and $7,917 of expenses relating to this plan during the
fiscal years ended December 31, 2008 and 2007, respectively.  During
the fiscal year ended December 31, 2006, the Company recorded $12,916 of 401k
match expenses which were not tied to a performance based incentive
plan.





Performance Based Incentive
Bonus Plan





Effective
fiscal 2008, the Company implemented a performance based incentive program for
employees and management of the Company.  A quarterly cash bonus pool
is funded by the Company’s achievement of net profits.  During the
fiscal year ended December 31, 2008, the Company recorded $178,927 of expenses
relating to this plan.During fiscal 2007, the
Company implemented a performance based incentive program for several employees
and management of the Company.  A quarterly cash bonus pool was funded
by the Company’s achievement of operating profits from continuing
operations.  During the fiscal period ended December 31, 2007 the
Company recorded $15,793 of expenses relating to this plan.





Stock-based
compensation





Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
"Share-Based Payment," using the modified-prospective-transition method which
requires us to recognize compensation expense on a prospective basis. SFAS No.
123(R) requires that all stock based compensation be recognized as an expense in
the financial statements and that such cost be measured at the fair value of the
award. Under this method, in addition to reflecting compensation for new
share-based awards, expense is also recognized to reflect the remaining service
period of awards that had been included in pro-forma disclosure in prior
periods.  The stock based compensation expense is included in
operating expenses in the consolidated statements of income.





As of
December 31, 2008, total unrecognized compensation cost related to non-vested
stock-based compensation plans was $211 thousand.  This unrecognized
compensation is expected to be recognized over a weighted average period of 1.7
years.





Off Balance Sheet
Arrangements





We have
no off balance sheet arrangements, obligations under any guarantee contracts or
contingent obligations.





Recent accounting
pronouncements





In June
2003, the SEC adopted final rules under Section 404 of the Sarbanes-Oxley Act of
2002 (“Section 404”), as amended by SEC Release No. 33-8760 on December 15,
2006. Commencing with the Company’s Annual Report for the year ending December
31, 2007, the Company is required to include a report of management on the
Company’s internal control over financial reporting. The internal control report
must include a statement of management’s responsibility for establishing and
maintaining adequate internal control over financial reporting for the Company;
of management’s assessment of the effectiveness of the Company’s internal
control over financial reporting as of year-end; and of the framework used by
management to evaluate the effectiveness of the Company’s internal control over
financial reporting.  Furthermore, beginning in fiscal year 2009, the
Company is required to file the auditor’s attestation report separately on the
Company’s internal control over financial reporting on whether it believes that
the Company has maintained, in all material respects, effective internal control
over financial reporting.




F-13


In April
2008, the FASB issued Staff Position (“FSP”) No. FAS 142-3, “Determination of
the Useful Life of Intangible Assets” (“FSP FAS 142-3”) which amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets.” This FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The guidance contained in this FSP
for determining the useful life of a recognized intangible asset is applied
prospectively to intangible assets acquired after the effective date. Additional
disclosures required in this FSP are applied prospectively to all intangible
assets recognized as of, and subsequent to, the effective date.  We do
not expect the adoption of FSP to have an impact on our consolidated financial
position, results of operations or cash flows.





In May
2008, the FASB issued the Financial Accounting Standards Board SFAS No. 162,
“The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS
162 identifies the sources of accounting principles to be used in the
preparation of financial statements that are presented in conformity with
generally accepted accounting principles (“GAAP”) in the United States (the GAAP
hierarchy). The Company currently follows the hierarchy of GAAP as presented in
SFAS 162 and does not expect its adoption will have a material impact on its
consolidated results of operations and financial condition.





In June
2008, the Emerging Issues Task Force issued EITF Issue No. 07-5, “Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”
(“EITF 07-5”).  EITF 07-5 supersedes EITF Issue No. 01-6, The Meaning
of Indexed to a Company’s Own Stock, and provides guidance in evaluating whether
certain financial instruments or embedded features can be excluded from the
scope of SFAS No. 133, Accounting for Derivative and Hedging
Activities.  EITF 07-5 sets forth a two-step approach that evaluates
an instrument’s contingent exercise and settlement provisions for the purpose of
determining whether such instruments are indexed to an issuer’s own stock (a
requirement necessary to comply with the scope exception under SFAS
133).  EITF 07-5 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years.  We are currently assessing the impact related to the
adoption of EITF 07-5 on our financial instruments that fall within its
scope.





F-14


3.
              QUARTERLY INFORMATION
      (IN THOUSANDS EXCEPT PER SHARE
DATA):





Fiscal 2008 (unaudited)First
                                              
                                              
                                              Second
                                              
                                              
                                              Third
                                              
                                              
                                              FourthQuarter
                                              
                                              
                                              Quarter
                                              
                                              
                                              Quarter
                                              
                                              
                                              QuarterRevenues
                                              
                                              $
                                              5,528
                                              
                                              
                                              $
                                              5,845
                                              
                                              
                                              $
                                              5,653
                                              
                                              
                                              $
                                              5,145Gross
      profit
                                              
                                              
                                              2,408
                                              
                                              
                                              
                                              2,587
                                              
                                              
                                              
                                              2,453
                                              
                                              
                                              
                                              2,375Operating
      income from continuing operations
                                              
                                              
                                              422
                                              
                                              
                                              
                                              667
                                              
                                              
                                              
                                              533
                                              
                                              
                                              
                                              571Net
      Income from continuing operations
                                              
                                              $
                                              112
                                              
                                              
                                              $
                                              450
                                              
                                              
                                              $
                                              277
                                              
                                              
                                              $
                                              331Net
      Income
                                              
                                              $
                                              112
                                              
                                              
                                              $
                                              450
                                              
                                              
                                              $
                                              277
                                              
                                              
                                              $
                                              331Income
      per common share - basic:Income
      from continuing operations
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.02
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.02Net
      Income per common share
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.02
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.02Income
      per common share - diluted:Income
      from continuing operations
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.02
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.02Net
      Income per common share
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.02
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.02Weighted
      average common shares outstanding:Basic
                                              
                                              
                                              20,973,924
                                              
                                              
                                              
                                              20,973,924
                                              
                                              
                                              
                                              20,973,924
                                              
                                              
                                              
                                              20,973,924Diluted
                                              
                                              
                                              20,973,924
                                              
                                              
                                              
                                              20,979,768
                                              
                                              
                                              
                                              21,043,567
                                              
                                              
                                              
                                              20,973,924Fiscal 2007 (unaudited)First
                                              
                                              
                                              Second
                                              
                                              
                                              Third
                                              
                                              
                                              FourthQuarter
                                              
                                              
                                              Quarter
                                              
                                              
                                              Quarter
                                              
                                              
                                              QuarterRevenues
                                              
                                              $
                                              5,271
                                              
                                              
                                              $
                                              5,596
                                              
                                              
                                              $
                                              5,533
                                              
                                              
                                              $
                                              5,351Gross
      profit
                                              
                                              
                                              2,176
                                              
                                              
                                              
                                              2,329
                                              
                                              
                                              
                                              2,284
                                              
                                              
                                              
                                              2,256Operating
      income (loss) from continuing operations
                                              
                                              
                                              243
                                              
                                              
                                              
                                              486
                                              
                                              
                                              
                                              410
                                              
                                              
                                              
                                              372Net
      Income (loss) from continuing operations
                                              
                                              $
                                              (74
                                              )
                                              
                                              $
                                              171
                                              
                                              
                                              $
                                              96
                                              
                                              
                                              $
                                              62Income
      from discontinued operations
                                              
                                              $
                                              175
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -Net
      Income
                                              
                                              $
                                              101
                                              
                                              
                                              $
                                              171
                                              
                                              
                                              $
                                              96
                                              
                                              
                                              $
                                              62Income
      (loss) per common share - basic:Income
      (loss) from continuing operations
                                              
                                              $
                                              (0.01
                                              )
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.00Income
      (loss) from discontinued operations
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -Net
      Income (loss) per common share
                                              
                                              $
                                              0.00
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.00Income
      (loss) per common share - diluted:Income
      (loss) from continuing operations
                                              
                                              $
                                              (0.01
                                              )
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.00Income
      (loss) from discontinued operations
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -Net
      Income (loss) per common share
                                              
                                              $
                                              0.00
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              0.00Weighted
      average common shares outstanding:Basic
                                              
                                              
                                              21,021,786
                                              
                                              
                                              
                                              20,984,443
                                              
                                              
                                              
                                              20,973,924
                                              
                                              
                                              
                                              20,988,348Diluted
                                              
                                              
                                              21,021,786
                                              
                                              
                                              
                                              20,984,443
                                              
                                              
                                              
                                              20,973,924
                                              
                                              
                                              
                                              20,988,348


F-15


4.
            ACCOUNTS
      RECEIVABLE





The
components of accounts receivable for the periods presented are as
follows:





December 31, 2008
                        
                        
                        December 31, 2007Trade
      accounts receivable, billed
                        
                        $
                        130,478
                        
                        
                        $
                        208,382Trade
      accounts receivable, unbilled
                        
                        
                        727,694
                        
                        
                        
                        740,044858,172
                        
                        
                        
                        948,426Less:
      allowance for doubtful accounts
                        
                        
                        9,799
                        
                        
                        
                        23,797Accounts
      receivable, net
                        
                        $
                        848,373
                        
                        
                        $
                        924,629




5.
            INVENTORY





The
components of inventory for the periods presented are as follows:





December 31, 2008
                      
                      
                      December 31, 2007Parts
      and supplies
                      
                      $
                      130,173
                      
                      
                      $
                      122,397Automated
      teller machines
                      
                      
                      200,591
                      
                      
                      
                      113,200330,764
                      
                      
                      
                      235,597Less:
      reserve for inventory obsolescence
                      
                      
                      54,033
                      
                      
                      
                      -Inventory,
      net
                      
                      $
                      276,731
                      
                      
                      $
                      235,597




6.
              FIXED
      ASSETS





The
components of fixed assets for the periods presented are as
follows:




December 31, 2008
                            
                            
                            December 31, 2007Automated
      teller machines (A)
                            
                            $
                            9,031,960
                            
                            
                            $
                            8,725,288Furniture
      and fixtures
                            
                            
                            443,922
                            
                            
                            
                            443,109Computers,
      equipment and software (A)
                            
                            
                            2,060,954
                            
                            
                            
                            2,022,375Automobiles
                            
                            
                            342,418
                            
                            
                            
                            275,679Leasehold
      equipment
                            
                            
                            72,533
                            
                            
                            
                            72,53311,951,787
                            
                            
                            
                            11,538,984Less:
      accumulated depreciation and amortization (B)
                            
                            
                            7,228,649
                            
                            
                            
                            5,958,101Fixed
      assets, net
                            
                            $
                            4,723,138
                            
                            
                            $
                            5,580,882





(A)
              See
      Financial Footnote #12 “Capital Lease Obligations” for ATMs and computers
      held under capital leases.


(B)
              Depreciation
      expense from continuing operations for the years ended December 31, 2008,
      2007 and 2006 was $1,411,360, $1,536,616 and $1,653,862,
      respectively.




F-16




7.
              INTANGIBLEASSETS AND MERCHANT
      CONTRACTS





The
following table summarizes Intangible assets and merchant contracts at December
31, 2008:


Gross Carrying Value
                    
                    
                    Accumulated
                      Amortization
                    
                    
                    NetGoodwill
                    
                    $
                    4,189,645
                    
                    
                    $
                    168,286
                    
                    
                    $
                    4,021,359Other
      Intangible Assets
                    
                    
                    338,092
                    
                    
                    
                    241,025
                    
                    
                    
                    97,067Merchant
      contracts
                    
                    
                    14,700,588
                    
                    
                    
                    3,369,462
                    
                    
                    
                    11,331,126Total
      Intangible assets and merchant contracts
                    
                    $
                    19,228,325
                    
                    
                    $
                    3,778,773
                    
                    
                    $
                    15,449,552




The
following table summarizes Intangible assets and merchant contracts at December
31, 2007:




Gross Carrying Value
                    
                    
                    Accumulated
                      Amortization
                    
                    
                    NetGoodwill
                    
                    $
                    4,189,645
                    
                    
                    $
                    168,286
                    
                    
                    $
                    4,021,359Other
      Intangible Assets
                    
                    
                    338,727
                    
                    
                    
                    194,595
                    
                    
                    
                    144,132Merchant
      contracts
                    
                    
                    14,656,831
                    
                    
                    
                    2,599,193
                    
                    
                    
                    12,057,638Total
      Intangible assets and merchant contracts
                    
                    $
                    19,185,203
                    
                    
                    $
                    2,962,074
                    
                    
                    $
                    16,223,129




The
Company recorded amortization expense of $770,270, $725,935 and $705,593, for
the years ended December 31, 2008, 2007 and 2006, respectively.  The
Company records the amortization of loan costs in interest expense.





Aggregate
amortization over the next five years, assuming a useful life of 21 years for
merchant contracts, is expected to be as follows:





2009
                  
                  $
                  774,2732010
                  
                  $
                  774,2732011
                  
                  $
                  751,8522012
                  
                  $
                  742,6442013
                  
                  $
                  648,029





The
Company has no intangible assets, other than goodwill, that are not subject to
amortization.




8.
              ACCOUNTS PAYABLE AND
      ACCRUED LIABILITIES





The
components of accounts payable and accrued liabilities for the periods presented
are as follows:




December 31, 2008
                      
                      
                      December 31, 2007Accounts
      payable
                      
                      $
                      417,874
                      
                      
                      $
                      901,894Accrued
      commissions/residual payments
                      
                      
                      1,157,410
                      
                      
                      
                      1,157,608Accrued
      cost of cash and cash replenishment expenses
                      
                      
                      326,015
                      
                      
                      
                      431,302Accrued
      payroll
                      
                      
                      298,139
                      
                      
                      
                      303,545Accrued
      severance
                      
                      
                      -
                      
                      
                      
                      141,313Accrued
      audit fees
                      
                      
                      83,000
                      
                      
                      
                      89,269Accrued
      interest
                      
                      
                      97,827
                      
                      
                      
                      56,852Accrued
      legal fees
                      
                      
                      -
                      
                      
                      
                      15,000Other
                      
                      
                      147,131
                      
                      
                      
                      264,852Accounts
      payable and accrued liabilities
                      
                      $
                      2,527,396
                      
                      
                      $
                      3,361,635




F-17




9.
              NOTES PAYABLE –
      RELATED PARTIES





The
components of notes payable – related parties for the periods presented are as
follows:




December 31, 2008
            
            
            December 31, 2007Promissory
      note in the amount of $243,981 to a stockholder, unsecured, payable in
      monthly principal and interest installments of $3,000, bearing an annual
      interest rate of 11%, and due June 2013
            
            $
            122,598
            
            
            $
            143,293Subordinated
      unsecured debentures of $1,225,000 provided by certain stockholders with
      interest only payments made quarterly at a rate of 9%, with balloon
      payments due October 28, 2010, net of discounts and fees of $18,993 in
      2008 and $30,418 in 2007
            
            
            1,206,007
            
            
            
            1,194,5821,328,605
            
            
            
            1,337,875Less:
      current portion
            
            
            24,010
            
            
            
            20,695Long-term
      portion, net of notes payable – related parties
            
            $
            1,304,595
            
            
            $
            1,317,180





As of
December 31, 2008, principal payments due on the notes payable – related parties
are as
follows:





2009
                  
                  $
                  24,0102010
                  
                  
                  1,251,7222011
                  
                  
                  29,7402012
                  
                  
                  33,1002013
                  
                  
                  9,026Thereafter
                  
                  
                  -$
                  1,347,598Less
      unamortized discount
                  
                  
                  (18,993
                  )Total
                  
                  $
                  1,328,605




10.
              NOTE
      PAYABLE





The
components of note payable for the periods presented are as
follows:





December 31, 2008
                          
                          
                          December 31, 2007The
      Company entered into a promissory note with a non-related
      party.The
      note originally matured on September 30, 2007but
      was extended to January 2008.  Interest rate on the note is
      4%.
                          
                          $
                          -
                          
                          
                          $
                          25,000




F-18




11.
              SENIOR LENDERS’ NOTES
      PAYABLE





The
components of senior lenders’ notes payable for the periods presented are as
follows:





December 31, 2008
                                  
                                  
                                  December 31, 2007(a)
                                  Wachovia
      Bank – Fourth Amended and Restated Loan Agreement and auto
      loans
                                  
                                  $
                                  1,634,851
                                  
                                  
                                  $
                                  2,200,000(b)
                                  CAMOFI
      Master LDC, net of  warrant valuation discounts of $288,060 in
      2008 and
      $442,623 in 2007
                                  
                                  
                                  3,211,940
                                  
                                  
                                  
                                  3,057,377(c)
                                  Haven
      Trust Bank
                                  
                                  
                                  -
                                  
                                  
                                  
                                  100,0004,846,791
                                  
                                  
                                  
                                  5,357,377Less:
      current portion
                                  
                                  
                                  606,705
                                  
                                  
                                  
                                  600,000Long-term
      portion, net of senior lenders' notes payable
                                  
                                  $
                                  4,240,086
                                  
                                  
                                  $
                                  4,757,377




(a)       On
October 27, 2005, to obtain funding for the acquisition of the Merchant
Contracts and the Equipment, the Company entered into a Third Amended and
Restated Loan Agreement with Wachovia Bank ("Wachovia"), the Company's senior
lender, pursuant to which Wachovia agreed to provide a term loan to the Company
in the amount of $3,000,000. Such term loan was evidenced by a Promissory Note
(the "Wachovia Note") issued at the closing on October 27, 2005. Under the terms
of the Wachovia Note, the Company was required to make monthly payments of
$50,000 plus accrued interest, which commenced in November 2005.  In
addition, the Company granted Wachovia a security interest in substantially all
of its assets and intellectual property.  On September 28, 2007, the
Company entered into a Fourth Amended and Restated Loan Agreement with Wachovia
Bank. Concurrent with the execution of the Fourth Restated Loan Agreement, the
Company issued a Consolidated Renewal Promissory Note on September 28, 2007. The
Renewal Promissory Note consolidated the promissory note dated October 27, 2005
in the original principal amount of $3,000,000 with a September 28, 2007 balance
of $1,850,000 and the revolving line of credit dated June 22, 2005 with a
September 28, 2007 principal amount of $500,000.  Pursuant to the
terms of the Fourth Restated Loan Agreement certain required financial covenants
have been modified from the Third Amended and Restated Loan Agreement. The
Company is now required to maintain a debt service coverage ratio of 1.00 to
1.00 on or before December 31, 2007, and of not less than 1.25 to 1.00 at all
times thereafter. Further, the Company is now required to maintain a senior
funded debt to EBITDA ratio of not more than 1.50 to 1.00 on or before December
31, 2007, and of not more than 1.25 to 1.00 at all times thereafter. In
addition, the Company is now required to maintain a senior liabilities to
effective net worth ratio of not more than 2.75 to 1.00 on or before September
30, 2007, of not more than 2.50 to 1.00 after September 30, 2007, and on or
before December 31, 2007, of not more than 2.25 to 1.00 after December 31, 2007,
and on or before June 30, 2008, and of not more than 2.00 to 1.00 at all times
thereafter. As of December 31, 2007 the Company was in compliance with all
covenants.  All outstanding principal and interest is payable in full
in August 2011.





The
Company has entered into an interest rate swap related to this senior lender
notes payable. The swap exchanges the variable rate of Prime plus 1%, for a
fixed rate of interest at 9%.  The Company’s interest rate swap has
not been designated as a hedging instrument.  The Company’s policy is
to record the change in fair value as an increase or decrease to interest
expense in the accompanying consolidated statements of income.  The
change in fair value of the swap resulted in interest expense of $40,985,
$48,551 and $3,705 for fiscal years ending December 31, 2008, 2007 and 2006,
respectively.





The
Company also entered into two auto loans with Wachovia in the amount of $18,909
and $20,119.  These loans mature in February 2013 and June 2013,
respectively.





(b)       On
October 27, 2005, to obtain additional funding for the acquisition of the
Merchant Contracts and the Equipment, the Company entered into a Securities
Purchase Agreement (the "Purchase Agreement") with CAMOFI Master LDC (the
"Investor" and ”CAMOFI”) for the sale of (i) a $3,500,000, 9% Senior
Subordinated Secured Convertible Note (the "Note") and (ii) stock purchase
warrants (the "Warrant") to purchase 910,000 shares of its common stock. The
obligations under the Note are subordinated to Wachovia.  The Company
closed the financing pursuant to the Purchase Agreement on October 27, 2005. The
Note matures on October 27, 2010 and is convertible into the Company's common
stock, at the Investor's option, at a conversion price of $1.45. The Company is
permitted to require the Investor to convert a portion of the Note subject to
the attainment of certain volume and price targets specific to the Company's
common stock. The Company is required to make cash interest payments on a
monthly basis and on each conversion date, with all accrued and outstanding
interest due in full as of the maturity date. All overdue payments of interest
incur a late fee at the rate of 20% per annum. The Company may prepay all or
part of the Note in cash at 110% of the principal amount plus accrued interest.
The full principal amount of the Note is due upon default under the terms of
Note. In addition, the Company granted the Investor a junior security interest,
subordinated to Wachovia, in substantially all of its assets and intellectual
property as well as registration rights. The Warrant is exercisable until five
years from the date of issuance at an exercise price of $1.75 per share. In
addition, the exercise price of the Warrant is adjusted in the event the Company
issues common stock at a price below the exercise price. The Investor has
contractually agreed to restrict its ability to convert the Note and exercise
the Warrant and receive shares of the Company's common stock such that the
number of shares of the Company’s common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.99% of the Company's then
issued and outstanding shares of common stock. The allocation of the proceeds
between the Note and the Warrant was based upon the relative fair value of each
security.  The Black-Scholes Model was used to determine the fair
value of the Warrant.  The Warrant was assigned a fair value of
$772,816 which has been recorded as a discount to the Note.  Due to
the terms and value of the excercise and convertible prices there is no
significant beneficial conversion feature.   On December 13,
2007, the Company received a declaration of default from CAMOFI relating to this
note.  See Financial Footnote # 14”Legal Proceedings” for further
detail of this declaration of default and subsequent legal proceedings related
to this matter.


F-19




(c)       On
December 27, 2007, the Company entered into a line of credit loan from Haven
Trust Bank in Ponte Vedra Beach, Florida.  The loan was an interest
only loan at an interest rate of 8.25% and was repaid in April
2008.





As of
December 31, 2008, principal payments due on the senior lenders’ notes payable
are as follows:





2009
                  
                  $
                  606,7052010
                  
                  
                  4,107,8432011
                  
                  
                  408,5902012
                  
                  
                  9,1092013
                  
                  
                  2,604Thereafter
                  
                  
                  -$
                  5,134,852Less
      unamortized discount
                  
                  
                  (288,060
                  )Total
                  
                  $
                  4,846,791




12.
              CAPITAL LEASE
      OBLIGATIONS





The
Company is obligated under various capital leases for automated teller machines
and computer equipment. For financial reporting purposes, minimum lease payments
relating to this equipment have been capitalized. Capital lease obligations,
excluding interest, totaling $1,205,572 require minimum monthly lease payments
ranging from approximately $30 to $8,100 with interest rates ranging between
5.99% and 14.37%. The existing capital lease agreements as of December 31, 2008
are at an average interest rate of 9.37%. The future minimum lease payments
required under capital lease obligations as of December 31, 2008 are as
follows:





2009
                  
                  $
                  866,3442010
                  
                  
                  435,0122011
                  
                  
                  14,4742012
      and thereafter
                  
                  
                  -1,315,830Less:
      amount representing interest
                  
                  
                  110,258Present
      value of minimum lease payments
                  
                  
                  1,205,572Less:
      current portion of capital lease obligations
                  
                  
                  779,990Total
                  
                  $
                  425,582





Equipment
leased under capital leases as of December 31, 2008 and 2007, totaled $2,224,389
and $2,311,412, which is net of accumulated depreciation of $1,972,774 and
$1,453,733, respectively.




F-20




13.
              COMMITMENTS AND
      CONTINGENCIES





Leased
facilities





Commencing
May 2007, the Company entered into a lease for their Jacksonville, Florida
office. The term of the lease is for a period of 62 months and the rent expense
on a monthly basis for the first year is $7,545, for the second year is $7,773,
for the third year is $8,007, for the fourth year is $8,246 and for the final
period through the end of the term is $8,494. The Company entered into a new
office lease in Jacksonville, Texas which, effective February 1, 2009, became a
month to month lease. The agreement provides for minimum monthly base rental
payments of approximately $4,406. The Company also leases a warehouse facility
in South Carolina which is a month to month lease and a facility in Georgia is
also on a month to month term.  Additionally, in 2006 the Company
opened a small sales office in Kentucky which has a lease through September
2009.The Company
also has various operating leases for computers and equipment.  Rental
expense under operating leases aggregated $218,379, $237,639 and $323,735 for
the years ended December 31, 2008, 2007 and 2006, respectively.





The
following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year as of December 31, 2008:




2009
                    
                    $
                    136,0612010
                    
                    
                    111,5712011
                    
                    
                    108,6622012
                    
                    
                    60,4532013
                    
                    
                    3,061Total
                    
                    $
                    419,808





14.
              LEGAL
      PROCEEDINGS





From time
to time, the Company and its subsidiaries may be parties to, and their property
is subject to, ordinary, routine litigation incidental to their business.
Management is not aware of any lawsuits, other than discussed below that could
have a material impact on the Company’s consolidated results of operations, cash
flows or financial position.





Resource Express,
Inc.





On August
23, 2007, Nationwide filed suit against Resource Express, Inc. (the “Defendant”)
in the Circuit Court, Seventh Judicial Circuit, St. Johns County, Florida, case
No. CA 071120 for breach of contract.  Nationwide alleged that the
Defendant breached the terms of its Distributor Agreement with Nationwide which
was entered into to resolve previous litigation between the
parties.  On June 30, 2008, the Court entered a Final Default Judgment
in favor of Nationwide and against the Defendant in the amount of
$51,063.  On August 20, 2008, the Defendant filed an Assignment for
the Benefit of Creditors listing $46,407 in assets and debts in the approximate
amount of $88,000.  Nationwide has filed its proof of claim in the
amount of the judgment plus interest.  The Company expresses no
opinion as to the likelihood of success or potential amount of recovery or
collection relating to this matter, and has not recorded income during the
fiscal year ended December 31, 2008 relating to this matter.





CAMOFI Master
LDC





On
October 19, 2007, the Company was served with process by CAMOFI Master LDC
("CAMOFI "), a debt holder of the Company. In the complaint, filed in the United
States District Court in and for the Southern District of New York, CAMOFI
alleges material and negligent misrepresentation of the Company’s financial
results relating to the restatement of 2005 earnings that occurred in 2006 and
seeks not less than $2,000,000 in damages (actual amount to be calculated at
trial) plus all costs and expenses. The Company denied any and all allegations
of wrongdoing, intends to vigorously defend such action and does not anticipate
a material financial impact due to this matter.  On December 13, 2007,
in the face of a motion to dismiss that the Company filed, CAMOFI withdrew their
negligent misrepresentation claim, sent the default notification described more
fully below, and filed an amended complaint for breach of contract, alleging
that the Company breached certain representations and warranties set forth in
the convertible debt placement agreements and instruments executed by and
between CAMOFI and the Company in 2006.





Specifically,
the declaration of default and acceleration from CAMOFI (the "Notice") relates
to the Company's 9% Senior Subordinated Secured Convertible Note due October 27,
2010 in the principal amount of $3,500,000 (the "Note"). The description of the
Note and related transaction contained in the Company's Current Report on Form
8-K filed with the SEC on November 1, 2005 is hereby incorporated by
reference.


F-21




The
Notice claims that an event of default has occurred under Section 8(a)(iv) of
the Note. An event of default under Section 8(a)(iv) of the Note occurs if any
representation or warranty made in (i) the Note, (ii) any transaction document
related to the Note, (iii) any written statement pursuant to the Note, or (iv)
any other report, financial statement or certificate made or delivered to the
Investor was untrue or incorrect in any material respect as of the date of the
Note.





The
Notice demands immediate payment of an amount equal to the sum of (i) 110% of
the principal amount of the Note, plus all accrued and unpaid interest, and (ii)
all other amounts, costs, expenses and liquidated damages due in respect to the
Note. Pursuant to the terms of the Note, any overdue and unpaid interest must be
paid at the rate of 20% per annum from the date such interest was due through
the date of payment. The Company denies any claim that an event of default has
occurred under Section 8(a)(iv) of the Note and is vigorously defending its
position. The complaint seeks damages of "not less than $4,679,500"; however,
even if a court were to determine that there was an event of default under the
Note, the Company estimates that, as of the date hereof, a payment of
approximately $3,876,250 would be due and payable.





On August
12, 2008, the Company entered into a settlement agreement, effective as of
August 12, 2008 (the “Agreement”), with CAMOFI. The Agreement provided that the
Company would make a $3,700,000 lump sum payment (the “Payment”) to CAMOFI to
cancel the Company’s 9% Senior Subordinated Secured Convertible Note due October
27, 2010 in the principal amount of $3,500,000 (the “Note”) issued in October of
2005. Of the $3,700,000 total lump sum payment, $3,500,000 would repay the
principal balance of the note and $200,000 would reimburse CAMOFI for legal fees
and other expenses. The Company’s directors and officer's insurance policy will
cover the $200,000. The Payment is the entire payment that the Company would
make under the Note or any of the other transaction documents entered into by
the Company and CAMOFI in October of 2005, with the exception of any obligations
that the Company may have to CAMOFI relating to the warrants issued in
connection with the Note and the related registration rights agreement. In
addition, pursuant to the terms of the Agreement, the Company would reduce the
exercise price of the warrants from $1.75 to $0.01 and remove the full ratchet
anti-dilution protection provisions contained in the warrants. The Agreement
also provided that CAMOFI acknowledged that the Company would need to obtain
financing in order to make the Payment and, as a result, the Agreement and the
First Modification to Settlement Agreement, dated November 6, 2008, were
contingent upon the Company successfully obtaining financing by December 31,
2008.





As of
December 31, 2008, the Company was unable to obtain the necessary financing to
fulfill the terms of the Agreement.  The Company is currently working
with CAMOFI on a revised settlement agreement but can give no assurances that a
revised settlement will be consummated.





If a
settlement is to occur, and based upon calculations as of March 1, 2009, the
Company expects to record a non-cash expense of up to approximately $250,000 for
the early extinguishment of debt which would have otherwise been expensed at
$38,600 per quarter through the maturity date of the note in October 2010. Also,
if a settlement is to occur, the Company also expects to record a non-cash
expense of approximately $70,000 for the warrant repricing. This will result in
the Company recording a one-time charge of up to approximately $320,000 to
earnings upon closing.  The Company believes that all legal expenses
relating to this litigation will be covered under the Company’s directors and
officers insurance policy.





On
February 26, 2009 a judge in the United States District Court set a non-jury
trial date for March 2010.  Based upon the trial date and that there
are no assurances that a revised settlement can be reached prior to that date,
the Company believes that it is not probable that a repayment will be made in
2009 and as such the debt, net of warrant valuation discounts, is classified as
long-term debt as of December 31, 2008.





Sydney Michael
Cole





On April
3, 2008, the Company was served with process by Sidney Michael Cole ("COLE"), an
investor and shareholder of the Company. In the complaint, filed in the District
Court of Dallas County, Texas, COLE alleged securities fraud and common law
fraud relating to the restatement of the Company’s 2005 earnings that occurred
in 2006.  COLE sought unspecified damages in the
complaint.  The Company denied all allegations in the
complaint.  The Company moved the case to the United States District
Court for the Northern District of Texas, and pursuant to a Joint Report filed
with the court, the parties had proposed that the case be set for trial in
August of 2009.


F-22




On
January 22, 2009, the Company entered into an agreement with COLE to settle the
lawsuit.  Although the terms of the settlement are confidential, there
will be no impact to the Company’s income statement or any cash outlay by the
Company.  As a result of the settlement, all claims will be dismissed
with prejudice, with each side to bear its own attorneys fees and
costs.  All legal expenses incurred by the Company relating to this
litigation will be covered under the Company’s directors and officers insurance
policy.




15.
              CONSULTING AND
      EMPLOYMENT AGREEMENTS





During
the fiscal year ended December 31, 2008, the Company entered into a one-year
employment agreement with Mr. George A. McQuain.  The contract was for
one year beginning April 1, 2008.  Under the employment agreement, Mr.
McQuain will serve as the Company’s President and Chief Executive Officer and
receive an annual base salary of $250,000, which is subject to adjustment from
time to time at the discretion of the Company. The contract provides for a
one-year employment term, and provides that if the employment agreement is not
otherwise terminated, it will be automatically extended for successive periods
of one year at the end of each calendar year.





The
agreement provides that during the term of the contract and for a period of one
year and six months after the termination of the employment agreement for any
reason, Mr. McQuain will not directly or indirectly employ or solicit employees
of the Company, compete with the Company for its customers in any state where
the Company does business, interfere with relationships of the Company, or
provide information about the Company to competitors of the
Company.





The
contract also provides that if Mr. McQuain is terminated by the Company without
cause, and provided he complies with the restrictive covenants of the employment
agreement and signs a release agreement provided by the Company, he will
continue to receive his base salary for the following time period: (1) if the
termination occurs during the initial term, for the remaining portion of such
initial term, or for one year after the date of termination of his employment,
whichever is longer, or (2) if the termination occurs after the initial term,
for one year after the date of termination of his employment. In addition, Mr.
McQuain will continue to receive benefits for the applicable time period, and
the Company will pay him for any bonuses earned by the date of termination. The
employment agreement further provides that if there is a “change in control,”
Mr. McQuain will be entitled to receive the same benefits that he would be
entitled to receive if he were terminated without cause by the
Company.




16.
              COMMON
      STOCK





During
2006, a shareholder exercised stock purchase warrants for 40,900 shares of
common stock. These stock purchase warrants were exercised at $0.50 per share
resulting in proceeds to the Company of $20,450.





During
2006, the Company issued 10,000 shares of its common stock upon the exercise of
stock options previously granted by the Company to an employee with exercise
price of $0.35.





In July
2006, the Company reduced the warrant exercise price from $1.65 to $0.75 for
80,000 shares of common stock in connection with warrants issued to a consultant
in lieu of cash compensation. The change in fair value of the warrants was
recorded as additional paid in capital.





17.
              INCOME
      TAXES





Deferred
income taxes arise from the temporary differences in reporting assets and
liabilities for income tax and financial reporting purposes.  These
temporary differences primarily resulted from net operating losses and different
amortization and depreciation methods used for financial and tax
purposes.


F-23




The
components of the provision for income taxes are as follows:




2008
            
            
            2007
            
            
            2006Current:Federal
            
            $
            -
            
            
            $
            -
            
            
            $
            -State
            
            
            -
            
            
            
            -
            
            
            
            -Federal
      and state deferred tax assets
            
            
            1,614,873
            
            
            
            421,230
            
            
            
            339,800Valuation
      allowance
            
            
            (1,614,873
            )
            
            
            (421,230
            )
            
            
            (339,800
            )Provision
      for income taxes
            
            $
            -
            
            
            $
            -
            
            
            $
            -The
      provision (benefit) for income taxes shown above varies from statutory
      federal income tax rates for those periods as follows:Federal
      Income Tax Rate
            
            
            -34.00
            %
            
            
            -34.00
            %
            
            
            -34.00
            %State
      Income Tax Rate, net offederal
      tax effect
            
            
            -3.96
            %
            
            
            -0.78
            %
            
            
            0.07
            %Permanent
      items
            
            
            -0.69
            %
            
            
            -2.35
            %
            
            
            -12.32
            %Other,
      net
            
            
            38.65
            %
            
            
            37.13
            %
            
            
            46.25
            %Effective
      tax rate
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %





The
components of the net deferred tax assets and the deferred tax liabilities are
shown below.





2008
                        
                        
                        2007
                        
                        
                        2006Deferred
      tax assets (liabilities)Current
      portionArising
      from operating loss and credit carryforwards
                        
                        $
                        615,332
                        
                        
                        $
                        -
                        
                        
                        $
                        -Total
                        
                        $
                        615,332
                        
                        
                        $
                        -
                        
                        
                        $
                        -Long
      term portionArising
      from operating loss and credit carryforwards
                        
                        $
                        8,298,145
                        
                        
                        $
                        8,719,407
                        
                        
                        $
                        8,186,024Arising
      from accumulated depreciation and amortization
                        
                        
                        (4,774,847
                        )
                        
                        
                        (2,965,904
                        )
                        
                        
                        (2,853,750
                        )Total
                        
                        
                        3,523,298
                        
                        
                        
                        5,753,503
                        
                        
                        
                        5,332,274Valuation
      allowance
                        
                        
                        (3,798,830
                        )
                        
                        
                        (5,413,703
                        )
                        
                        
                        (4,992,474
                        )Total
                        
                        $
                        (275,532
                        )
                        
                        $
                        339,800
                        
                        
                        $
                        339,800





In July
2006, the FASB issued Interpretation No. 48, which clarifies the accounting for
uncertainty in income taxes recognized in an entity's financial statements in
accordance with FASB Statement No. 109 and prescribes a recognition threshold
and measurement attributes for financial statement disclosure of tax positions
taken or expected to be taken on a tax return.  Under Interpretation
48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained
upon audit by the relevant taxing authority.  An uncertain income tax
position will not be recognized if it has less than a 50% likelihood of being
sustained.  Additionally, Interpretation 48 provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.  Interpretation 48 is effective
for fiscal years beginning after December 15, 2006.





For the
period ended December 31, 2008, the Company increased its unrecognized tax
benefits for certain positions taken in the amount of $1,147,200 that resulted
in a decrease to the deferred tax asset.  The entire amount of this
unrecognized tax benefit, if recognized, would result in a decrease to the
deferred tax asset valuation allowance, and would not have an impact on the
effective tax rate.





A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:




F-24




Balance
      at January 1, 2008
                      
                      $
                      -Additions
      based on tax positions related to the current year
                      
                      
                      1,147,200Additions
      for tax positions of prior years
                      
                      
                      -Reductions
      for tax positions of prior years
                      
                      
                      -Settlements
                      
                      
                      -Total
      adjustments
                      
                      $
                      1,147,200





In
assessing the realizability of the 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 valuation allowance at December 31,
2008 is related to deferred tax assets arising from net operating loss
carryforwards.  Management believes that based upon its projection of
future taxable income for the foreseeable future, it is more likely than not
that the Company will not be able to realize the full benefit of the net
operating loss carryforwards before they expire due to
the  amortization and depreciation losses from the projected
acquisition assets.





At
December 31, 2008, the Company has net operating loss carryforwards remaining of
approximately $26 million that may be offset against future taxable income
through 2027.  As part of management’s tax strategies they will be
reviewing the use of the net operating loss carryforwards. The Company is
reviewing its tax depreciation methods for future utilization of the
NOL.





18.
            NET INCOME PER COMMON
      SHARE





Basic net
income per share is computed based on the weighted average number of common
shares outstanding during the period.  Diluted net income per common
share is computed based on the weighted average number of common shares
outstanding during the period increased by the effect of dilutive stock options
and stock purchase warrants using the treasury stock method.  No such
conversion is assumed where the effect is anti-dilutive, such as when there is a
net loss from continuing operations or when the exercise price of the
potentially dilutive securities is less than the market value of the Company’s
stock.  The following table sets forth the computation of basic and
diluted net income per common share:




F-25




Fiscal Year Ended
                                        December 31, 2008
                                      
                                      
                                      Fiscal Year Ended
                                        December 31, 2007
                                      
                                      
                                      Fiscal Year Ended
                                        December 31, 2006NumeratorIncome
      (loss) from continuing operations
                                      
                                      $
                                      1,170,237
                                      
                                      
                                      $
                                      255,507
                                      
                                      
                                      $
                                      (4,588,400
                                      )Income
      (loss) from discontinued operations
                                      
                                      
                                      -
                                      
                                      
                                      
                                      175,000
                                      
                                      
                                      
                                      (275,937
                                      )Numerator
      for diluted income (loss) per shareavailable
      to common stockholders
                                      
                                      $
                                      1,170,237
                                      
                                      
                                      $
                                      430,507
                                      
                                      
                                      $
                                      (4,864,337
                                      )DenominatorWeighted
      average shares
                                      
                                      
                                      20,973,924
                                      
                                      
                                      
                                      20,988,348
                                      
                                      
                                      
                                      20,996,013Effect
      of dilutive securities:Treasury
      method, effect of employee stock options & warrants
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Denominator
      for diluted income (loss) per share adjustedweighted
      shares after assumed exercises
                                      
                                      
                                      20,973,924
                                      
                                      
                                      
                                      20,988,348
                                      
                                      
                                      
                                      20,996,013Income
      (loss) per common share - basic:Income
      (loss) from continuing operations
                                      
                                      $
                                      0.06
                                      
                                      
                                      $
                                      0.01
                                      
                                      
                                      $
                                      (0.22
                                      )Income
      (loss) from discontinued operations
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      0.01
                                      
                                      
                                      $
                                      (0.01
                                      )Net
      Income (loss) per common share
                                      
                                      $
                                      0.06
                                      
                                      
                                      $
                                      0.02
                                      
                                      
                                      $
                                      (0.23
                                      )Income
      (loss) per common share - diluted:Income
      (loss) from continuing operations
                                      
                                      $
                                      0.06
                                      
                                      
                                      $
                                      0.01
                                      
                                      
                                      $
                                      (0.22
                                      )Income
      (loss) from discontinued operations
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      0.01
                                      
                                      
                                      $
                                      (0.01
                                      )Net
      Income (loss) per common share
                                      
                                      $
                                      0.06
                                      
                                      
                                      $
                                      0.02
                                      
                                      
                                      $
                                      (0.23
                                      )




19.
            STOCK OPTIONS AND
      WARRANTS





Stock
options





The
Company established a 2002 Stock Incentive Plan (the “2002 Plan”) and a 2004
Stock Incentive Plan (the “2004 Plan”), which provide the granting of options to
officers, employees, directors, and consultants of the Company.  As of
December 31, 2008, options to purchase 183,701 shares of common stock were
available for future grants under the 2002 Plan and 676,727 shares of common
stock were available for future grants under the 2004 Plan.  As of
December 31, 2008, 860,428 shares of common stock were reserved for future stock
option grants and no shares were reserved for warrants to purchase common
stock.





Options
granted under our 2002 Plan and 2004 Plan generally have a three-year vesting
period and expire five years after grant. Most of our stock options vest ratably
during the vesting period, as opposed to awards that vest at the end of the
vesting period. We recognize compensation expense for options using the
straight-line basis, reduced by estimated forfeitures. Upon exercise of stock
options, we issue new shares of our common stock (as opposed to using treasury
shares).  All options granted pursuant to the plans shall be
exercisable at a price not less than the fair market value of the common stock
on the date of grant.





The Plans
are administered by the Company's Board of Directors.  The Board of
Directors has the authority to select individuals to receive awards, to
determine the time and type of awards, the number of shares covered by the
awards, and the terms and conditions of such awards in accordance with the terms
of the plans.  In making such determinations, the Board of Directors
may take into account the recipient's current and potential contributions and
any other factors the Board of Directors considers relevant.  The
Board of Directors is authorized to establish rules and regulations and make all
other determinations that may be necessary or advisable for the administration
of the Plan.




F-26




During
the years ended December 31, 2008 and 2007, the Company granted stock options
totaling 995,500 and 1,060,000 shares of its common stock, with a weighted
average strike price of $0.24 and $0.32 per share, respectively. Certain stock
options were exercisable upon grant and have a life ranging from four months to
five years. The following table summarizes the Company’s stock options activity
under compensation plans:





Number
                          
                          
                          WeightedOf
                          
                          
                          AverageOptions
                          
                          
                          Exercise PriceBalance,
      December 31, 2006
                          
                          
                          974,225
                          
                          
                          $
                          1.35Options
      granted
                          
                          
                          1,060,000
                          
                          
                          
                          0.32Options
      cancelled
                          
                          
                          —
                          
                          
                          
                          —Options
      expired
                          
                          
                          (373,325
                          )
                          
                          
                          1.08Options
      exercised
                          
                          
                          —
                          
                          
                          
                          —Balance,
      December 31, 2007
                          
                          
                          1,660,900
                          
                          
                          $
                          0.75Options
      granted
                          
                          
                          995,500
                          
                          
                          
                          0.24Options
      cancelled
                          
                          
                          (272,000
                          )
                          
                          
                          0.28Options
      expired
                          
                          
                          (186,700
                          )
                          
                          
                          1.47Options exercised
                          
                          
                          —
                          
                          
                          
                          —Balance,
      December 31, 2008
                          
                          
                          2,197,700
                          
                          
                          $
                          0.50





The
following table summarizes information about options outstanding and exercisable
at December 31, 2008:





Weighted AverageShares Underlying
                                    
                                    
                                    Remaining
                                    
                                    
                                    Weighted Average
                                    
                                    
                                    Shares Underlying
                                    
                                    
                                    Weighted AverageExercise Price
                                    
                                    
                                    Options Outstanding
                                    
                                    
                                    Contractual Life Years
                                    
                                    
                                    Exercise Price
                                    
                                    
                                    Options Excercisible
                                    
                                    
                                    Exercise Price$<
      0.13
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -$0.13
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -$0.14-$5.70
                                    
                                    
                                    
                                    2,197,700
                                    
                                    
                                    
                                    2.72
                                    
                                    
                                    $
                                    0.50
                                    
                                    
                                    
                                    969,200
                                    
                                    
                                    $
                                    0.79Totals
                                    
                                    
                                    
                                    2,197,700
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.50
                                    
                                    
                                    
                                    969,200
                                    
                                    
                                    $
                                    0.79
  Exercise
      Price Equals,Number of Remaining
                                                                                        
                                                                                        
                                                                                        Exceeds or is Less than
                                                                                        
                                                                                        
                                                                                        Weighted
      Average
                                                                                        
                                                                                        
                                                                                        Range
      of
                                                                                        
                                                                                        
                                                                                        Weighted
      AverageOptions
      Granted
                                                                                        
                                                                                        
                                                                                        Market Value as of12/31/08
                                                                                        
                                                                                        
                                                                                        Exercise
      Price
                                                                                        
                                                                                        
                                                                                        Exercise
      Price
                                                                                        
                                                                                        
                                                                                        Fair
      Value-
                                                                                        
                                                                                        
                                                                                        Less
      than
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $<
      0.13
                                                                                        
                                                                                        
                                                                                        $
                                                                                        --
                                                                                        
                                                                                        
                                                                                        Equals
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $0.13
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -2,197,700
                                                                                        
                                                                                        
                                                                                        Exceeds
                                                                                        
                                                                                        
                                                                                        $
                                                                                        0.50
                                                                                        
                                                                                        
                                                                                        $0.14-$5.70
                                                                                        
                                                                                        
                                                                                        $
                                                                                        0.442,197,700





A summary
of the status of the Company’s nonvested options as of December 31, 2008 and
changes during the year then ended is presented below:




F-27




Weighted AverageOptions
                    
                    
                    Grant-DateOutstanding
                    
                    
                    Fair ValueNonvested
      options outstanding as of December 31, 2007
                    
                    
                    930,100
                    
                    
                    $
                    0.29Granted
                    
                    
                    995,500
                    
                    
                    $
                    0.21Vested
                    
                    
                    (238,400
                    )
                    
                    $
                    0.28Forfeited
                    
                    
                    (458,700
                    )
                    
                    $
                    0.29Nonvested
      options outstanding as of December 31, 2008
                    
                    
                    1,228,500
                    
                    
                    $
                    0.23





Stock
warrants





The
following table summarizes the Company’s stock warrant activity:





Number
                          
                          
                          WeightedOf
                          
                          
                          AverageWarrants
                          
                          
                          Exercise
      PriceBalance,
      December 31, 2006
                          
                          
                          11,817,060
                          
                          
                          $
                          2.68Warrants
      granted
                          
                          
                          —
                          
                          
                          
                          —Warrants
      cancelled
                          
                          
                          —
                          
                          
                          
                          —Warrants
      expired
                          
                          
                          (4,284,200
                          )
                          
                          
                          3.04Warrants
      exercised
                          
                          
                          —
                          
                          
                          
                          —Balance,
      December 31, 2007
                          
                          
                          7,532,860
                          
                          
                          $
                          2.48Warrants
      granted
                          
                          
                          —
                          
                          
                          
                          —Warrants
      cancelled
                          
                          
                          —
                          
                          
                          
                          —Warrants
      expired
                          
                          
                          (887,856
                          )
                          
                          
                          1.61Warrants
      exercised
                          
                          
                          —
                          
                          
                          
                          —Balance,
      December 31, 2008
                          
                          
                          6,645,004
                          
                          
                          $
                          2.58





The
following table summarizes information about warrants outstanding and
exercisable at December 31, 2008:





Weighted AverageShares Underlying
                            
                            
                            Remaining
                            
                            
                            Weighted Average
                            
                            
                            Shares Underlying
                            
                            
                            Weighted AverageExercise Price
                            
                            
                            Warrants Outstanding
                            
                            
                            Contractual Life Years
                            
                            
                            Exercise Price
                            
                            
                            Warrants Excercisible
                            
                            
                            Exercise Price$
                            1.25
                            
                            
                            
                            135,000
                            
                            
                            
                            1.8
                            
                            
                            $
                            1.25
                            
                            
                            
                            135,000
                            
                            
                            $
                            1.25$
                            1.75
                            
                            
                            
                            3,710,002
                            
                            
                            
                            0.5
                            
                            
                            $
                            1.75
                            
                            
                            
                            3,710,002
                            
                            
                            $
                            1.75$
                            2.50
                            
                            
                            
                            1,400,001
                            
                            
                            
                            0.1
                            
                            
                            $
                            2.50
                            
                            
                            
                            1,400,001
                            
                            
                            $
                            2.50$
                            5.00
                            
                            
                            
                            1,400,001
                            
                            
                            
                            0.1
                            
                            
                            $
                            5.00
                            
                            
                            
                            1,400,001
                            
                            
                            $
                            5.006,645,004
                            
                            
                            
                            
                            
                            
                            $
                            2.58
                            
                            
                            
                            6,645,004
                            
                            
                            $
                            2.58





20.
            RELATED PARTY
      TRANSACTIONS





None.





21.
            FAIR VALUE
      MEASUREMENT





On
January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements,” which
defines fair value, establishes a framework for using fair value to measure
assets and liabilities, and expands disclosures about fair value
measurements.  The statement applies whenever other statements require
or permit assets or liabilities to be measured at fair value.  SFAS
157 is effective for fiscal years beginning after November 15, 2007, except for
nonfinancial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis for which application
has been deferred for one year.




F-28




SFAS 157
established the following fair value hierarchy that prioritizes the inputs used
to measure fair value:




Level 1:
Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date.  Active markets are those in
which transactions for the asset or liability occur in sufficient frequency and
volume to provide pricing information on an ongoing basis.  Level 1
primarily consists of financial instruments such as exchange-traded derivatives,
listed equities and U.S. government treasury securities.





Level 2:
Pricing inputs are other than quoted prices in active markets included in Level
1, which are either directly or indirectly observable as of the reporting
date.  Level 2 includes those financial instruments that are valued
using models or other valuation methodologies.  These models are
primarily industry-standard models that consider various assumptions, including
quoted forward prices for commodities, time value, volatility factors, and
current market and contractual prices for the underlying instruments, as well as
other relevant economic measures.  Substantially all of these
assumptions are observable in the marketplace throughout the full term of the
instrument, can be derived from observable data or are supported by observable
levels at which transactions are executed in the
marketplace.  Instruments in this category include non-exchange-traded
derivatives such as over the counter forwards, options and repurchase
agreements.





Level 3:
Pricing inputs include significant inputs that are generally less observable
from objective sources.  These inputs may be used with internally
developed methodologies that result in management’s best estimate of fair
value.   At each balance sheet date, we perform an analysis of
all instruments subject to SFAS No. 157 and include in Level 3 all of those
whose fair value is based on significant unobservable inputs.





The
following table presents our financial assets and liabilities that were
accounted for at fair value on a recurring basis as of December 31, 2008 by
level within the fair value hierarchy:





Fair Value Measurements UsingTotal
                              
                              
                              Level 1
                              
                              
                              Level 2
                              
                              
                              Level 3Assets
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -Liabilities:Derivative
      financial instruments
                              
                              $
                              93,242
                              
                              
                              $
                              -
                              
                              
                              $
                              93,242
                              
                              
                              $
                              -





Our
derivative financial instruments are interest rate swap agreements, which are
observable at commonly quoted intervals for the full term of the derivatives and
therefore considered a level 2 input.  During the year ended December
31, 2008, we recorded $40,985 of expense relating to the interest rate swap
which is included in the interest expense, net in our consolidated statements of
operations.





In the
accompanying consolidated balance sheets, we have recorded debt discounted based
upon the fair value of detachable warrants as well as an asset retirement
obligation.  As discussed above, the application of SFAS 157 for these
non-recurring items has been deferred.





22.
            DISCONTINUED
      OPERATIONS





On May 2,
2006, the Company entered into a Shareholder Agreement to sell 50% of Cash
Axcess Corporation (Proprietary) Limited, in a stock arrangement with Industrial
Electronic Investments Limited. Under the requirements of FASB Interpretation
No. 46(R), this transaction constituted a variable interest for the Company,
with the Company being determined as the primary beneficiary.  In
exchange for 200 additional shares, or 50% of the outstanding shares of Cash
Axcess Corporation (Proprietary) Limited, the Company received the equivalent of
$745,341 of cash before exchange losses, to be maintained in the accounts of
Cash Axcess and used for their own ongoing operations. This sale resulted in the
Company recording a $555,409 gain deferral on the sale which was subsequently
recorded to the Company’s statement of income upon the sale of the remaining 50%
of Cash Axcess Corporation.  During the quarter ended September 30,
2006, the Company approved plans to discontinue its South African operation
which did not fit within management’s strategic plans.  On September
30, 2006, the Company finalized the sale of the remaining 50% of Cash Axcess
Corporation (Proprietary) Limited (“CAC”), its Variable Interest Entity for
$700,000.  As part of the sale of 50% of CAC on September 30, 2006,
$175,000 of the sale price was held in an escrow account as security to cover
any claims made in connection with a breach of any of the Company's warranties
in the sale agreement.  The warranty period ended and the Company
received the full escrowed amount of $175,000 on March 28, 2007.  The
Company recognized the $175,000 deferred gain on sale as income from
discontinued operations during the year ended December 31, 2007.




F-29




In
accordance with FASB Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the Company has classified CAC as discontinued
operations and reported their operating results within discontinued operations
in the accompanying condensed consolidated statements of income and statements
of cash flows.  The resulting gain on the sale was as
follows:





Sales
      price
                      
                      
                      
                      
                      
                      $
                      700,000Cost
      basisInvestment,
      less minority interest
                      
                      $
                      (812,198
                      )Other
      assets transferred
                      
                      $
                      (196,704
                      )
                      
                      $
                      (1,008,902
                      )Deferred
      escrow deposit
                      
                      
                      
                      
                      
                      $
                      (175,000
                      )$
                      (483,902
                      )Deferred
      gain on previous sale
                      
                      
                      
                      
                      
                      $
                      555,409Net
      gain on sale of assets
                      
                      
                      
                      
                      
                      $
                      71,507





The
Company has not allocated interest to discontinued operations. Operating
results, of these discontinued operations were as follows:





For the year endedDecember 31, 2006Revenues
                                  
                                  $
                                  138,138Cost
      of revenues
                                  
                                  
                                  66,442Gross
      Profit
                                  
                                  
                                  71,696Operating
      ExpensesDepreciation
      and amortization
                                  
                                  
                                  62,162Selling,
      general and administrative
                                  
                                  
                                  356,978Total
      operating expenses
                                  
                                  
                                  419,140Loss
      from operations
                                  
                                  
                                  (347,444
                                  )Gain
      on sale of assets
                                  
                                  
                                  71,507Net
      loss
                                  
                                  $
                                  (275,937
                                  )




F-30




A
      summary of both sales is as follows:Sale
      of subsidiary in 2006:Cash
      proceeds from sale of 50% ownership in subsidiary
                          
                          $
                          745,341Total
      purchase price
                          
                          $
                          745,341Minority
      interest
                          
                          
                          189,932Deferred
      gain on sale
                          
                          
                          555,409$
                          745,341Cash
      proceeds from sale of remaining 50% ownership in
subsidiary
                          
                          $
                          525,000Note
      received
                          
                          
                          175,000Total
      purchase price
                          
                          $
                          700,000Balance
      sheet at time of saleCash
                          
                          
                          $
                          319,118Automated
      teller machine vault cash
                          
                          
                          657Accounts
      receivable
                          
                          
                          51,093Prepaid
      expenses and other current assets
                          
                          
                          9,006Fixed
      assets
                          
                          
                          602,757Inventory
                          
                          
                          
                          142,614Minority
      interest
                          
                          
                          (80,581
                          )Accounts
      payable
                          
                          
                          (35,105
                          )Automated
      teller machine vault cash payable
                          
                          
                          (657
                          )Deferred
      gain on sale
                          
                          
                          (555,409
                          )453,493Deferred
      gain on sale of subsidiary
                          
                          
                          175,000Gain
      on sale of subsidiary
                          
                          
                          71,507$
                          700,000





23.
            NOTES
      RECEIVABLE





In
February 2004, the Company issued a note receivable in the amount of $190,000
due within one year and requiring monthly payments of principal and interest,
with an annual interest rate of 10%.  The note was amended to extend
the term to February 2007.  The amount remaining on the note as of
March 31, 2007 was $99,895.  The promissory note was collateralized by
the Company’s stock and during the fiscal year ended December 31, 2006, the
Company increased the reserve due to the declining stock price of the
Company.  The 47,862 shares of Company stock held as collateral on
this note were returned to the Company on April 20, 2007 as settlement of this
note.   The Company recorded the $11,966 market value of the
returned 47,862 shares of stock as treasury stock.  The settlement of
this note resulted in an impairment of notes receivable charge of $5,743
recorded during the year ended December 31, 2007.





During
the quarter ended September 30, 2005, the Company disposed of its wholly-owned
subsidiary, Electronic Payment & Transfer Corporation (“EPT”), and
discontinued offering prepaid debit cards and the related products and services
that were marketed by EPT. Subsequently, effective September 30, 2005, the
Company completed the sale of EPT to one former employee of the Company for
$1,540,000 in a secured promissory note covering the full amount of the sale
price. On August 1, 2006, Electronic Payment Systems, LLC (“EPS”), the acquirer,
failed to make its required payment and was in default of the Stock Purchase
Agreement made and entered into as of September 30, 2005.  During
2006, the Company reduced the carrying value of the note to zero.  On
June 29, 2007, the Company settled all claims against EPS in exchange for a
payment of $100,000.  Additionally, in the event EPT is sold or merged
into another entity within three years from the date of the settlement, the
Company is entitled to receive an additional $200,000 payment.  During
the year ended December 31, 2007, the Company recorded the $100,000 settlement
as a recovery of bad debts.  The $100,000 payment was received on July
6, 2007.




F-31




24.
            IMPAIRMENT OF
      LONG-LIVED ASSETS AND BUSINESS REORGANIZATION
    CHARGES





Impairment of long-lived
assets





As
discussed in Financial Footnote #2 “Summary of Significant Accounting Policies,”
the Company accounts for the impairment of long-lived assets in accordance with
SFAS No. 144 ”Accounting for the Impairment or Disposal of Long-lived
Assets.”  The following impairments were recognized during the third
quarter of 2006.





In July
2006, the Company disconnected its processing switch which processed the
transactions for its subsidiary EFT Integration, Inc. and replaced its switching
software with a third party vendor. Accordingly, the switching software was
evaluated for impairment and deemed to be impaired.





Assets
held for sale, consisting of ATMs and related software, were reevaluated for
impairment.  Of the $485,315 total assets held for sale, $125,586
worth of ATMs were determined to be useful and able to be placed back in
service.  In accordance with SFAS No. 144 ” Accounting for the
Impairment or Disposal of Long-lived Assets,” these useful assets were to be
placed back  into service at zero book value which is their
depreciated value had they not been held for sale.  Therefore, the
full balance of assets held for sale was determined to be fully
impaired.





Additionally,
the Company reviewed other ATMs and software for impairment and determined that
some of the Company’s other ATMs and software were impaired.  The
following summarizes the amounts charged to impairment of long-lived assets for
fiscal year ended December 31, 2006:





Net Book
                          
                          
                          Estimated proceeds
                          
                          
                          ImpairmentLong-lived
      asset
      description
                          
                          Value
                          
                          
                          from disposition
                          
                          
                          ChargeSwitching
      software
                          
                          $
                          610,024
                          
                          
                          
                          -
                          
                          
                          $
                          610,024Assets
      held for sale
                          
                          $
                          485,315
                          
                          
                          
                          -
                          
                          
                          $
                          485,315ATMs
      and other software
                          
                          $
                          234,057
                          
                          
                          
                          -
                          
                          
                          $
                          234,057$
                          1,329,396




Business Reorganization
Charges





During
the year ended December 31, 2006, the Company decided to restructure management
and to outsource certain employee functions to third party vendors. As part of
this decision to eliminate the positions held by the two senior officers and
other employees, the Company incurred restructuring charges during the third
quarter of 2006 in the amount of $757,811.  As of December 31, 2007,
the amount of restructuring charges accrued was $141,313.  As of
December 31, 2008, the Company had fulfilled all payment obligations regarding
the management restructuring that occurred during fiscal year 2006.





25.
            OTHER OPERATING
      EXPENSE AND OTHER NON-OPERATING
INCOME





In fiscal
year 2006, the Company incurred other operating expenses of $450,000 which
related to legal fee expenses and reserves in connection with two
claims.





Also, in
fiscal 2006, the Company recorded other non-operating income of
$146,703.  During fiscal 2006, the Company determined that $146,703 of
prior period fees had accumulated which had not been recognized as revenue, and
as such, the amount was recognized as other non-operating income during the
fourth quarter ended December 31, 2006.





26.
            SUBSEQUENT
      EVENTS





On
January 22, 2009, the Company entered into an agreement with Sidney Michael Cole
(“COLE”) to settle the lawsuit that COLE commenced on April 3,
2008.  Although the terms of the settlement are confidential, there
will be no impact to the Company’s income statement or any cash outlay by the
Company.  As a result of the settlement, all claims will be dismissed
with prejudice, with each side to bear its own attorneys fees and
costs.  All legal expenses incurred by the Company relating to this
litigation will be covered under the Company’s directors and officers insurance
policy.


F-32