U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
Mark One

 [ X ]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the Fiscal Year ended September 30, 1998

                                       OR

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

                  For the transition period from _____ to _____

                         Commission File Number 0-25148

                        GLOBAL PAYMENT TECHNOLOGIES, INC.
                 (Name of small business issuer in its charter)

             Delaware                                            11-2974651
   (State or other jurisdiction                               (I.R.S. Employer
 of incorporation or organization)                           Identification No.)

20 East Sunrise Highway, Suite 201, Valley Stream, New York         11581
         (Address of principal executive office)                  (Zip Code)

Issuer's telephone number 516-256-1000

Securities registered under Section 12(b) of the Exchange Act:

                                      None

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.01 per share
                                (Title of class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter  period that the  registrant  was required to file such reports) and (2)
has been subject to such filing  requirements for the past 90 days. 
                                                       Yes [__X__]    No [_____]

<PAGE>


     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the best of the  registrant's  knowledge,  in definitive proxy or
information  statements  incorporated  by  reference  in Part  III of this  Form
10-KSB. [ ]

     For the  fiscal  year  ended  September  30,  1998,  the net  sales  of the
registrant were $39.388 million.

     The aggregate  market value of the Common Stock of the  registrant  held by
non-affiliates  of the registrant,  based on the average bid and asked prices on
December 21, 1998, was approximately $31,778,000.

     As of December 21, 1998,  the  registrant  had a total of 5,365,100  Common
Shares outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy  Statement for the year ended  September 30, 1998 are
incorporated by reference into Part III.

Transitional Small Business Disclosure format (Check one): Yes [___] No [_X_]


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                                     PART I

Item 1.   Description of Business

General

Global Payment Technologies, Inc. (the "Company") was originally incorporated in
New York in 1988 under the name Coin Bill  Validator,  Inc. In March  1997,  the
Company's  shareholders  approved  a change of the  Company's  name and state of
incorporation  from New York to  Delaware,  effected  through  the merger of the
Company into the Company's wholly-owned subsidiary, Global Payment Technologies,
Inc., a Delaware corporation.

The Company designs and manufactures currency validation systems including paper
currency validators and related paper currency stackers,  and sells its products
in the United States and numerous international markets.  Validators receive and
authenticate  paper  currencies  in a variety of automated  machines,  including
gaming machines,  and beverage and vending  machines,  which dispense  products,
services,  coinage  and  other  currencies.  Note  stackers  are sold  with most
validators  and are  designed to store  validated  paper  currency  and, in some
cases,  record and store  information on contents,  usually in secure  removable
cassettes.  Although the Company knows of no  commercially  available  validator
that is counterfeit-currency-proof,  the Company's validators and stackers offer
significant  protection against tampering and counterfeit currencies and provide
tamper-evident  storage of validated  currency.  The  Company's  validators  are
adaptable  to  a  wide  variety  of  original  equipment   manufacturer  ("OEM")
applications  and have been  engineered into the design of most major gaming and
numerous  beverage and vending machines sold worldwide.  The Company's  products
offer a highly competitive level of performance and are designed to provide ease
of maintenance and repair.

In August 1996, the Company acquired a 50%  non-controlling  interest in a South
African   affiliate,   Global  Payment   Technologies  South  Africa  Pty.  Ltd.
("GPT-SA"), which on July 3, 1998, changed its name to Global Payment Technology
Holdings (Proprietary) Limited. This entity is responsible for sales and service
of the Company's  products in the South African region on an exclusive basis. On
May  29,  1998,  Hosken  Consolidated   Investments  ("HCI"),  a  South  African
investment  company,  purchased  a one-third  interest  in GPT-SA.  Terms of the
transaction  called for HCI to purchase  certain shares from the Company and the
Bevin Trust  (GPT-SA's  founding  shareholders),  as well as  additional  shares
directly from GPT-SA,  which reduced the Company's  ownership of GPT-SA from 50%
to 33%.

In January  1997,  the  Company  acquired a 50%  non-controlling  interest  in a
China-based affiliate, Hangzhou CBV Plastics Corp. Ltd. This entity manufactures
plastic  and  metal  components,  some of which are used by the  Company  in its
production.

In August  1997,  the  Company  acquired a 50%  non-controlling  interest  in an
Australian  affiliate,  Global  Payment  Technologies  Australia  Pty. Ltd. This
entity is  responsible  for sales  and  service  of the  Company's  products  in
Australia and New Zealand on an exclusive basis.


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In June 1998, the Company formed Global Payment  Technologies  (Europe)  Limited
("GPT-Europe"),  which is based in the United  Kingdom  and is  responsible  for
sales and service for the Company's products in Europe. GPT-Europe purchased the
assets and assumed the  liabilities of Global Payment  Technologies  (U.K.) Ltd.
("GPT-UK"), the Company's prior independent European distributor, as of February
28, 1998. The Company,  through a capital  contribution of $76,000,  owns 70% of
GPT-Europe,  with the remaining 30% owned by GPT-Europe's  operations manager, a
former principal of GPT-UK.

Background and History

In the 1980s,  a general  trend  developed  with  respect to an  increase in the
incorporation of paper currency  validators in a large number of beverage,  food
and novelty vending machines that offered primarily low-priced items. During the
1990s,  subsequent  technological  improvements  in the sensory  capabilities of
validators  created the ability to process high  volumes of larger  denomination
notes,  which led to the extensive  use of  validators in many new  applications
including casino gaming machines, lottery ticket dispensing devices and postage,
transportation,  parking and vending machines. This trend accelerated during the
1990s as a result of the overall growth in the worldwide gaming and beverage and
vending industries.

Since  incorporation,  the  Company's  net sales have  grown from  approximately
$35,000 in fiscal  1989 to $16.7  million in fiscal  1996,  to $23.9  million in
fiscal 1997 and to $39.4  million in fiscal  1998.  Prior to January  1993,  the
Company's marketing efforts were directed primarily toward domestic distribution
and  end-users  that  focused  on  the  replacement  and  retrofit  markets  for
validators in amusement  and gaming  machines.  Commencing in January 1993,  the
Company  began to focus its  marketing  efforts on OEMs of gaming  machines  and
automated vending machines that dispense beverages,  telephone cards and postage
stamps. In addition, since January 1993, the Company has progressively increased
its  marketing  efforts  to the  international  market for  currency  validation
systems,  in  particular  targeting  the  international  gaming  industry.   The
Company's  international  sales  amounted to  approximately  84% of net sales in
fiscal  1998 and 73% of net  sales  in  fiscal  1997.  Management  believes  the
international  market for currency  validation systems may grow at a faster rate
than in the United States and,  therefore,  may  represent  the  Company's  best
long-term growth opportunity. However, the Company has been able to increase its
presence  in the  domestic  gaming  market  as a result  of  increased  domestic
activity by certain of the Company's international customers.

Marketing Strategy

The Company has  continued to focus its marketing  efforts on those  segments of
the  marketplace  which  require  a  relatively  high  degree  of  security  and
substantial  custom  design  work  that  is  not  adequately  served  by  larger
competitors,  who focus  primarily  on the broader,  higher-volume  market using
standardized  product  configurations.  This  focus  has been  effective  in the
worldwide  gaming market and is the "niche" strategy that allowed the Company to
develop a strong  international  customer  base  that  originally  started  with
manufacturers too small to attract the Company's competition.  The focus of this
strategy has and continues to be the creation of


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an increasing  presence in the  international  gaming industry that continues to
gain momentum as markets and customers  grow. In 1997,  this strategy led to the
Company's  products being designed into most of the major OEMs' gaming machines.
In 1998, this strategy  continued to lead to new customers that opted to use the
Company's  products  based  on its  growing  strength  internationally  and  its
reputation for working closely to adapt to customers'  needs.  As a result,  the
Company now finds itself in the position of gaining additional business based on
its  acceptance  as the  currency  validation  standard  for a number of growing
markets  worldwide,  specifically  the  Australian  and South  African  markets.
Additionally,  the efforts of establishing a strong international  presence have
led to growth in the domestic  gaming sector as the domestic market is viewed as
a primary  target  for  expansion  by  several  of the  Company's  international
customers.

In 1998,  the Company  expanded its  marketing  efforts to include the end-users
(i.e., casino operators) who purchase machines from the OEMs to help ensure that
the Company's  validator  products will be specified as the product of choice in
new orders. The Company also focused on creating business in the retrofit market
for  certain  important  gaming  venues  such as Nevada,  where  gaining  market
presence  would provide  improved  visibility  and  credibility  in the domestic
market.  The expected results of improved  recognition were achieved in 1998. In
1999, the Company plans to expand on this strategy by working  directly with its
customers  who market the gaming  machine  and bill  validator  products to both
domestic and international casino operators as part of an integrated package. By
marketing  directly to the end-users in conjunction with the OEMs, the Company's
products will gain acceptance as its customers'  gaming machines gain entry into
major  casinos  or  regions   previously   dominated  by  competitive   currency
validators.  At the same time,  this strategy  allows the Company's  products to
demonstrate  the high  performance  and  quality  achieved  in  other  worldwide
markets.  This team effort will include the marketing of the product, as well as
on-site  training to allow the end-users to quickly become  comfortable with the
technology, features and functions of the product.

In  1997,  the  Company  announced  the  creation  of a new  division  to  focus
additional  sales and  marketing  efforts on the beverage and vending  industry,
where the Company's market presence has been limited.  The Company's strategy in
the large worldwide  beverage and vending industry has been and will continue to
be the same "niche" effort that has been  successful in the gaming  marketplace.
The  Company  has  focused  on  creating  relationships  with the major OEMs and
end-user customers in this industry segment in emerging  international  markets.
By working with both the OEMs and  end-users to adapt the products to meet their
needs, the Company is beginning to create a growing presence in the beverage and
vending  market with its current  product lines.  This  flexibility to adapt the
Company's  products to meet the customers' needs has led to a successful product
launch in Russia  during 1998,  and this  strategy  will  continue to be used to
develop  particular areas such as the emerging markets in Eastern Europe and the
Pacific Rim.  Management  believes  this  strategy  will assist in providing the
Company with increased  visibility and  credibility in the overall  beverage and
vending industry.  The Company has recognized the need to develop a product that
can more effectively compete in terms of price and features with other validator
manufacturers serving these industries. The


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Company  has  placed a high  priority  on this  product  development  effort and
expects to begin field trials during the fourth quarter of calendar 1999.

The  Company's  revenue  growth  is due,  in  large  part,  to its  focus on the
customer,  as well as on the  development of products that utilize  leading edge
features that add value to the gaming and beverage and vending industries.  This
strategy will be further expanded upon with the release and trials of the newest
generation products in calendar 1999. The Company will strive to raise the level
of currency acceptance and counterfeit  rejection to new standards,  in addition
to  redefining  the  validator as a  "universal  payment  processor."  This will
include  expanding the ability of the validator to coordinate  the processing of
payments  or   transactions   through  a  variety  of  media,   both  paper  and
electronically based.

The Company's overall sales and marketing  strategy in both the worldwide gaming
and beverage and vending markets is to deliver a high quality product  supported
by a local  sales  and  service  organization  in order  to make  the  Company's
products the market standard for currency validation  products.  The Company has
successfully pursued this strategy in Australia with its largest customer,  with
whom the Company has a supply agreement,  and in the South African gaming market
where the Company's products are accepted as the industry standard.  Also toward
this end,  during  fiscal 1996 and fiscal 1997,  the Company  established  joint
ventures that provide local sales and service in both Australia and South Africa
and  strengthened  its distributor  relationship  in Italy. In addition,  during
fiscal 1998 the Company formed  GPT-Europe,  a new 70%-owned  entity, to provide
local  sales  and  service  in  Europe.   The  Company  expects  to  expand  its
international sales and service capabilities during 1999.

The continued  success of the Company may be dependent  upon the use of paper or
simulated  paper currency in automated  payment  systems for gaming and beverage
and vending applications.  A substantial diminution of the use of paper currency
as a  means  of  payment  through  a  return  to  extensive  use of  high-value,
metal-based  coinage or the  widespread  adoption of electronic  funds  transfer
systems based on credit,  debit or "smart-cards"  could materially and adversely
affect the Company's  future growth until and unless the Company  develops other
products  that are not solely  dependent on the use of paper or simulated  paper
currency.  The Company believes that aspects of its technology and manufacturing
expertise - for example, the technology  applicable to electro-optical  scanning
and certain of its patented  technologies  and  proprietary  algorithms,  may be
applicable to products and systems for  conducting  transactions  using forms of
currency  other than paper.  The  Company is  currently  investigating  and will
continue to investigate such  opportunities  and endeavor to develop new product
applications  where markets for such products may exist.  However,  no assurance
can be given that the Company  will be able to  successfully  develop and market
such new products and systems.

Products

Since  inception,   the  Company  has  endeavored,   through  its  research  and
development  and  manufacturing  efforts,  to  provide  products  that  meet the
specific  performance  requirements  of its customers.  These  requirements  are
continually evolving as the markets for currency


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validators continue to grow and as technological  advances are incorporated into
the  products'  design.  The Company spent  approximately  $350,000 and $245,000
during fiscal 1998 and fiscal 1997,  respectively,  on research and development.
The Company's  research and development  consists primarily of efforts to expand
its product lines into new applications  and markets.  The Company's new product
development  efforts  are  focused  on the  design  of its  next  generation  of
validator products, which the Company anticipates will begin field trials in the
first quarter of calendar 1999 and will be  commercially  available in the third
quarter of calendar  1999.  Later in 1999,  the Company plans to introduce a new
product model designed  specifically  to address the  requirements of the highly
competitive  beverage and vending  marketplace.  These  products are intended to
allow the Company to increase its overall  market  penetration  and share in the
domestic  and  international  marketplace  for both the gaming and  beverage and
vending industries.

The Company's principal products include three basic validator models and a wide
range of comprehensive  currency databases and note stacker  configurations.  In
fiscal 1997, the Company planned for a shift in demand towards its Generation II
product line and such sales  amounted to 58% of unit sales.  During fiscal 1998,
this shift  continued and Generation II product line sales  accounted for 72% of
unit  sales.  The  Generation  III  product  has been  designed  to be a drop-in
replacement  for  Generation  II  and  it  is  focused   towards   bringing  new
technological features to the marketplace.  Once the Generation III product line
is  commercially  available,  the  Company  expects  sales  to  shift  from  its
Generation II product line. The Company believes it has adequately  reserved for
inventory obsolescence for the anticipated shift in demand from its Generation I
products to its Generation II products and will continually  assess the adequacy
of inventory reserves for the anticipated shift in demand towards its Generation
III products.

The  Model  125  ("M-125")  is the  Company's  first  generation  multi-country,
multi-denominational  validator model specifically designed for the beverage and
vending  industries where its  space-saving  upstack design makes it popular for
use in machines where space is at a premium. The M-125's note stackers are fully
detachable  and  available  with  capacities  of 150, 300 and 600 notes.  During
fiscal  1998,  M-125  sales were  primarily  in vending  applications  in Italy,
helping  to grow  the  Company's  presence  and  credibility  in that  important
European market.

The  Model  150  ("M-150")  is the  Company's  first  generation  multi-country,
multi-denominational validator designed to fit machines where space is available
either to the rear or downward.  The M-150 is available  with locking  removable
cassette bill  stackers in 500,  1,000 and 2,000 bill  capacities  and is United
States  Postal  Service,  Department  of Gaming  Enforcement  ("DGE") and Gaming
Laboratories,  Inc.  ("GLI")  approved.  Due to the growth and acceptance of the
Generation  II product  line,  the M-150  product will begin to be phased out in
1999.

The Company's Generation II product line features several technological advances
designed  specifically to meet the exacting requirements of the gaming industry.
The Generation II line


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includes the Company's "IDS," "IDUS," "IBS," and "IBSi" validators. The IBSi has
been  positioned  as a  replacement  for the Company's  first  generation  M-150
validator.  Generation  II products have been approved by DGE and GLI as well as
by a number of U.S. and international test labs.

Generation II validators are offered in a wide variety of  configurations  which
can provide  solutions for most worldwide  gaming  markets,  as well as for many
beverage and vending  markets.  Generation II validators  can be configured  for
down-stack  applications  which  allow the note  stacker,  a security  removable
cassette, to be reached through a separate front entrance in the gaming machine.
Rear  stacker  configurations  are also  available.  The  front  section  of all
Generation  II validator  units can be opened  easily to allow for  maintenance,
repair or clearance of the currency  pathway without  violating the integrity of
the  associated  security  stacker.  Generation  II  validators  offer  currency
acceptance  of  notes up to 3.34  inches  (85 mm) in  width  and  have  enhanced
features for gaming and high security  applications.  These  features  include a
multi-level  high security  validation  process with  side-looking  sensors,  an
animated  bill  runway  with  "smart   visuals"  for  customer   attraction  and
diagnostics,  a user-selectable currency denomination acceptance and an optional
bar-code  reader for tickets and coupons.  The  Generation II line also offers a
"soft drop analyzer"  ("SDA") option.  This patented SDA feature allows the note
stacker cassette to maintain and track specific  information such as currency or
coupons in the cassette by quantity and  denomination;  the specific  machine or
game that the cassette was removed from; the  acceptance  rate of the validator;
and  time-in/time-out of the cassette from the gaming machine.  This information
can be easily  downloaded,  via a docking station provided by the Company,  to a
personal computer allowing instant feedback/tracking for the machine operator.

Product Performance and Warranties

The  Company's  validator and note stacker  products are generally  covered by a
one-year warranty against defects in materials or workmanship, which the Company
believes is standard for the  industry.  The Company or its  authorized  service
agents  will repair or replace any units which  require  warranty  service.  The
Company  does not  warrant  that its  validators  will  reject  all  counterfeit
currencies and believes that there is no commercially  available  validator that
is  counterfeit-currency-proof  or warranteed as such. To support its increasing
international  market  presence,  the  Company has  expanded  its  warranty  and
non-warranty support coverage to provide in-country  capability in key worldwide
markets (e.g.  Australia,  South Africa and Europe).  In these markets the local
sales and service joint  venture  partners  provide  warranty  labor,  while the
Company's  primary  product  support in these markets is in the form of warranty
parts.  The Company  expects to expand its  international  service  capabilities
during 1999.

Marketing and Sales

An "in-house"  sales force  consisting of sales  representatives,  sales/product
technicians  and customer  service  support  personnel  conducts  the  Company's
primary  sales and  marketing  efforts in both the  domestic  and  international
markets.  During the latter  part of fiscal  1996 and during  fiscal  1997,  the
Company established joint ventures providing local sales and service in


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the key markets of South  Africa and  Australia  and a  Company-owned  sales and
service  office was opened in the important  Las Vegas,  Nevada  market.  During
fiscal 1998, the Company formed  GPT-Europe,  a new 70%-owned entity, to provide
local sales and service in Europe and acquired the assets and liabilities of its
former independent European  distributor.  The overall sales and service network
provides  effective  international  coverage  for  the  Company's  products  and
customers and is an indication of the Company's commitment to providing superior
service worldwide.

During fiscal 1998, the Company expanded its "Technical  Services" and "Customer
Service" groups which were formed in 1997 and allowed the Company to become more
customer-focused.  During fiscal 1999, the Company anticipates further expansion
of the sales and marketing  structure to support additional sales  opportunities
worldwide.

Customer Concentration

During fiscal 1998, the Company's  largest customer  accounted for approximately
46% of net sales. Net sales to the gaming industry  accounted for  approximately
81% of the Company's  revenues,  with the  remaining 19% primarily  from product
applications  in the beverage and vending  industry.  The Company  anticipates a
further  reduction  of its  dependence  on its largest  customer  and the gaming
industry by expanding  its  customer  base and by the  introduction  of its next
generation of validation products for the beverage and vending marketplace.

Manufacturing

Since 1995 the Company's  operations  have been conducted from a leased facility
of 40,000  square  feet,  which  houses  the  manufacturing  and  administrative
functions  in  Hauppauge,  New York.  During  fiscal  1997,  due to the need for
increased  production space to meet ongoing and anticipated future sales growth,
the Company leased an additional  4,400 square feet of space located adjacent to
the existing Hauppauge facility.

The Company's  manufacturing  operations  consist  primarily of  mechanical  and
electro-optical   assembly  and  the  provision  of  wiring  harnesses   between
components  and between the  validator and the OEM machine in which the finished
product  is to be used.  The  Company  routinely  tests all  components  and has
extensive "burn-in" procedures for both the electronic  components and the final
assembled  product.  Direct  control over  fabrication  and testing  permits the
Company to shorten its  production  cycle and protect  patented and  proprietary
technology.  During fiscal 1998 the Company  significantly  improved its overall
manufacturing  productivity,  as measured by a production  capacity  increase of
approximately  48% without  adding a  production  shift.  This was achieved by a
combination of increased staff as well as improved  manufacturing  efficiencies.
Management  believes  additional  productivity  improvements can be realized and
will   continue  to  focus  the  Company's   efforts  on  achieving   production
efficiencies  while  maintaining high quality standards for its products and the
work  environment  for its  associates.  In an effort to meet  future  increased
customer demand,  the Company is actively pursuing ways to expand its production
capabilities, which could include offshore sub-assembly fabrication.


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The Company  depends on a limited  number of  suppliers  for various  stamped or
formed housings, gears, cogs and wheels and electronic assemblies or components,
including certain  microprocessor chips. The Company believes that concentrating
its purchases from its existing  suppliers  provides,  in certain cases,  better
prices, better quality and consistency and more reliable deliveries. The Company
maintains on-going communications with its suppliers to prevent interruptions in
supply and, to date,  generally has been able to obtain  adequate  supplies in a
timely manner.  The Company has entered into volume blanket purchase  agreements
with selected suppliers to guard against shortages of unique components, thereby
limiting the Company's exposure to business interruptions.  Furthermore, many of
the electronic  components used by the Company,  including its  microprocessors,
are widely used in many applications and are available from a number of sources.
However,  the short  wavelength  light source which forms a critical part of the
Company's optical scanning device is now commercially available from only a very
limited  number of suppliers.  The Company  believes that if such supply were to
become unavailable, its units could be redesigned to use other light sources and
still remain  competitive in the marketplace.  However,  any interruption in the
supply  of  key  components  which  cannot  be  quickly  remedied  could  have a
materially adverse effect on the Company's results of operations.

Competition

The market for the  Company's  products  is very  competitive  and the number of
competitors  and their  product  offerings  have  increased  due to the  growing
worldwide  marketplace.  A number  of  competitors  have  significantly  greater
financial,   technical,   sales  and  marketing   resources  than  the  Company.
Additionally,   certain  of  these  companies  have  acquired  competitors  with
synergistic  product lines in an effort to offer a more complete solution.  Most
recently,   Coin  Controls  Limited  ("Coin  Controls")   acquired  Ardac,  Inc.
("Ardac"),  a  domestic  currency  validator  manufacturer.  Coin  Controls  had
primarily  focused  on the  validation  of coins  worldwide  for the  gaming and
amusement  industries.  With the acquisition of Ardac, Coin Controls now has the
ability to package its coin  mechanism  with a currency  validator  for both the
gaming and beverage and vending  industries.  A similar package concept has been
in place with Mars Electronics  International ("MEI"), to serve the beverage and
vending marketplace.  In the domestic market,  certain competitors are divisions
or affiliates of manufacturers of vending machines.  For example, Royal Vendors,
Inc. is an affiliate  of Coin  Acceptors,  Inc.  ("Coinco").  Accordingly,  such
validator  manufacturers  enjoy a  competitive  advantage in  providing  for the
significant validator requirements of their affiliates.  For validators sold for
use in the beverage,  food, snack and lower-priced  goods or amusement  markets,
Coinco dominates the domestic market.  MEI, Ardac, Japan Cash Machines Co., Ltd.
("JCM"),  Sanyo,  Conlux,  Coegis and  Cashcode  Company,  Inc.  are  recognized
competitors in the growing international beverage and vending market.

The  largest  supplier of  validators  used in the  domestic  gaming and lottery
markets  is JCM.  Internationally,  the  Company  competes  for  gaming  machine
business with JCM, MEI and Ardac.  In the  secondary  low-value  gaming  markets
(Award Without Pay), Innovative Technology,  Ltd. maintains a significant market
share due to its low-cost approach to this


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<PAGE>


market.  The  Company has focused  its  marketing  efforts on the  higher-priced
domestic and international  gaming validator  business and competes on the basis
of  quality,  durability  and  performance  while  maintaining  a high  level of
protection  against  tampering  and  counterfeit   currencies,   as  well  as  a
competitive price point.

The Company  historically  has been more willing to address smaller markets than
its larger  competitors  and expects to encounter  increased  competition as the
markets  addressed by its products  continue to grow. Also, the Company has been
willing to adapt its  products to a variety of OEMs,  which has allowed it to be
flexible to expand when new markets open up to sales.  The Company believes that
performance,  quality and protection against tampering and counterfeit  currency
are  relatively  more  important,   and  price  relatively  less  important,  as
competitive factors in the worldwide gaming marketplace.

Intellectual Property

The Company relies on certain proprietary  know-how and trade secrets to protect
its technology.  Important  components of this  proprietary  information are the
Company's library of distinguishing  characteristics of the currencies which its
validators  scan and validate and its  proprietary  algorithms.  The Company has
entered into non-disclosure and secrecy agreements with all of its key employees
having access to this technology.

The Company holds eight U.S. patents as follows: design for "Escrow Box for Coin
Operated  Machines,"  Patent  #0283518  issued April 22, 1986;  "Paper  Currency
Acceptor  and Method of Handling  Paper  Currency  for Vending  Machines and the
Like," Patent #4884671 issued December 5, 1989;  "Anti-fraud Currency Acceptor,"
Patent  #5259490  issued  November  9, 1993;  "Bill  Accumulating  and  Stacking
Device," Patent #5322275 issued June 21, 1994; "Mechanism for Insuring Alignment
of Currency in Currency Validators," Patent #5527031 issued June 18, 1996; "Soft
Count Tracking  System,"  Patent  #5630755  issued May 5, 1997;  "Paper Currency
Validator (Side-Looking Sensors)," Patent #5806649 issued September 15, 1998 and
"Electrical Switch Connectors," Patent #5842879 issued December 1, 1998. Certain
patents  cover  technology  used in the  Company's  first and second  generation
validator  product lines and the  remaining  patents  cover  technology  used in
certain  special  models.  In  addition,  the Company has also applied for three
additional  U.S.  patents,  the most  important of which covers the use of short
wave-length light in a validator to discern the color and other  characteristics
of bills being scanned.

In addition to its U.S. patents and pending patent applications, the Company has
also applied for patent  protection in a large number of international  markets.
If issued,  and if  corresponding  foreign  patents  are  obtained,  the Company
believes   these  patents  could  provide   important   protection  for  certain
technological advantages its validators have in international markets.  However,
the Company  believes that it will not be materially  and adversely  affected if
these  patents  are not  issued.  No  assurances  can be given  that any  patent
applications will result in the issuance of additional patents. As of this date,
the Company has received no foreign patents.


                                       11

<PAGE>


Although the Company has not received any claims  asserting  infringement of the
proprietary  rights of third  parties,  there  can be no  assurance  that  third
parties will not assert infringement claims against the Company in the future or
that any such  assertion  may not  require  the  Company to enter  into  royalty
arrangements or result in protracted or costly litigation.

Government Regulation

As a  supplier  of paper  currency  validators  to  customers  subject to gaming
regulations and postal  regulations,  the Company is indirectly  subject to such
regulations  that  are  reflected  in  customer   purchase  orders  or  customer
specifications.  The Company  believes that it is in full  compliance  with such
regulations. Any failure to comply with such regulations,  however, could have a
materially adverse effect on the results of operations of the Company.

Employees

On December 17, 1998, the Company had 236 employees,  including 6 executives; 19
sales, technical support and customer service representatives;  39 engineers and
software  developers;  35  materials,  quality  control  and  quality  assurance
personnel;    22    administrative    and    clerical    personnel;    and   115
assembly/manufacturing personnel. The Company believes its relationship with its
employees is good.

Special Note Regarding Forward-Looking Statements

A number of statements  contained in this report are forward-looking  statements
within the meaning of the Private Securities  Litigation Reform Act of 1995 that
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those expressed or implied in the applicable  statements.  These
risks  and  uncertainties  include,  but  are  not  limited  to:  the  Company's
dependence   on  the  paper   currency   validator   market  and  its  potential
vulnerability  to  technological  obsolescence;  dependence on a limited base of
customers  for a  significant  portion of sales;  the risks that its current and
future products may contain errors or defects that would be difficult and costly
to detect and  correct;  potential  difficulties  in  manufacturing  operations;
possible risks of product  inventory  obsolescence;  potential  shortages of key
parts  and/or  raw  materials;   potential   difficulties  in  managing  growth;
dependence on key personnel;  the possible  impact of  competitive  products and
pricing;  uncertainties with respect to the Company's business strategy; general
economic conditions in the domestic and international  markets;  and other risks
described in the Company's Securities and Exchange Commission filings.

Item 2.   Description of Property

The  Company   leases   approximately   44,400  square  feet  which  houses  the
manufacturing and  administrative  functions in Hauppauge,  New York, for a term
expiring March 31, 2000, at an annual base rental of  approximately  $290,000 in
fiscal 1998, increasing to approximately $300,000 in the final year of the term.
The Company believes this facility is adequate for its  manufacturing  needs for
the foreseeable  future. The Company leases  approximately  6,600 square feet in
Valley  Stream,  New York,  for a term expiring  February 28, 2002, at an annual


                                       12

<PAGE>


base rental of $150,000  increasing  annually to  approximately  $170,000 in the
final year of the term.  This  facility  houses the  executive,  accounting  and
certain sales  functions of the Company.  The Company also leases  approximately
2,300 square feet in Las Vegas,  Nevada,  for a term expiring April 30, 2000, at
an annual base rental of $19,700 increasing annually to approximately $21,700 in
the final year of the term.  This  facility  houses  certain  sales and  service
functions of the Company.

Item 3.   Legal Proceedings

The Company is not a defendant in any material legal  proceedings.  As a part of
the Company's  strategy for enforcing its patent  portfolio,  it has commenced a
lawsuit against one of its competitors  whom it believes has infringed on one of
its patents, the outcome of which is not determinable at this time.

Item 4.   Submission of Matters to a Vote of Security Holders

Not applicable.


                                       13

<PAGE>


                                     PART II

Item 5.   Market for Common Equity and Related Stockholder Matters

a)   Market Information

The Company's  Common Stock is listed and trades on the NASDAQ  National  Market
System under the symbol GPTX.  The  following  table sets forth,  on a per share
basis,  the high and low sale  prices for the  Company's  Common  Stock for each
quarter of fiscal 1997 and fiscal 1998.

                                                     Common Stock
                                                  -----------------
          Quarter Ended                           High*        Low*
          -------------                           -----        ----
          December 31, 1996                       5 3/4       4 7/16
          March 31, 1997                          6 5/16      4 3/4
          June 30, 1997                           9 1/2       4 5/16
          September 30, 1997                     12 1/4       7 1/2
          December 31, 1997                      11 7/8       8
          March 31, 1998                         15 1/2       8 1/4
          June 30, 1998                          14 7/8       7 1/4
          September 30, 1998                     11 5/8       4 1/2

          *All prices give retroactive  effect to a two-for-one  stock split, in
          the form of a stock dividend, distributed on September 4, 1997.

b)   Holders

The  approximate  number of  beneficial  holders  and  holders  of record of the
Company's Common Stock as of December 21, 1998, were 1,550 and 66, respectively.

c)   Dividends

The holders of Common  Stock are  entitled to receive  such  dividends as may be
declared by the Company's Board of Directors.  The Company has never in the past
declared  or paid any cash  dividends  and does not expect to declare or pay any
cash dividends in the foreseeable future.


                                       14

<PAGE>


Item 6.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations

Results of Operations

Fiscal year ended September 30, 1998 compared with September 30, 1997

Sales

Net sales for fiscal 1998 increased by 65.0% to $39.388 million as compared with
$23.868  million in fiscal 1997. The sales growth in fiscal 1998 is attributable
to increased demand for the Company's bill validator  products  primarily in the
international gaming industry.  Although sales to the international beverage and
vending market represent a relatively small percentage of the Company's  overall
sales, such sales increased 83% to $6.413 million in 1998. The revenue growth is
the result of the Company  broadening its customer base, and accordingly,  sales
to the Company's  largest customer,  as a percentage of net sales,  decreased to
45.7%  of net  sales in 1998  from  54.0% of net  sales  in 1997.  Net  sales to
international  customers  accounted  for  83.9% and 72.8% of net sales in fiscal
1998 and 1997, respectively.

Gross Profit

Gross profit increased to $16.375 million, or 41.6% of net sales, in fiscal 1998
as  compared  with  $8.986  million,  or 37.6% of net  sales,  in the prior year
period.  The increase in gross profit as a percentage of net sales was primarily
attributable to increased  operating  efficiencies due to longer production runs
and reduced product costs resulting from volume  purchase  arrangements.  During
the fourth quarter of fiscal 1998, the Company initiated selling directly to its
Australian  affiliate which  subsequently  sells the Company's products into the
Australian and New Zealand markets. This distribution method will be utilized by
the Company's South African affiliate commencing in fiscal 1999. Under the prior
method,  the Company  sold  directly  to the  customer,  recognizing  additional
revenues and the related  commission  expense.  As a result of this change,  the
Company  expects  future  operating  results to reflect  lower gross profit from
these  sales  and a  commensurate  reduction  in sales  commissions  within  its
operating expenses.

Operating Expenses

Operating  expenses in fiscal 1998  increased  by 72.2% to $10.983  million,  or
27.9% of net sales, as compared with $6.378  million,  or 26.7% of net sales, in
fiscal 1997. The primary  reason for the increase in operating  expenses was due
to  increased  sales  commissions  expense in fiscal  1998 of $2.738  million as
compared  with  $300,000  in  fiscal  1997.  These   commissions  were  paid  to
distributors of the Company's products,  including certain affiliates  providing
in-country  sales and service in  Australia,  South Africa and Europe.  As noted
above,  the Company  expects a  significant  reduction in sales  commissions  in
fiscal 1999 on sales to  Australia  and South Africa as a result of the shift in
distribution  method.  Excluding  the  effect  of these  commissions,  operating
expenses as a percentage  of sales were 20.9% in 1998 as compared  with 25.5% in
1997.  In addition to the  increased  sales  commissions,  the Company  incurred
increased  staffing  and related  payroll  costs  necessary to support the sales
growth in fiscal 1998 as well as to support  the  Company's  growth  strategy in
fiscal 1999 and beyond.


                                       15

<PAGE>


Net Income

For fiscal  1998,  the  Company's  net income was $3.356  million,  or $0.56 per
share, as compared with $1.475 million, or $0.25 per share for fiscal 1997. (Net
income per share figures give retroactive effect in all periods to a two-for-one
stock split, in the form of a stock dividend, distributed on September 4, 1997.)
During fiscal 1998,  the Company  recognized an after-tax  gain of $225,000,  or
$0.04 per share,  which was the result of the sale of a portion of the Company's
equity interest in its South African affiliate ("GPT-SA").  The Company now owns
a one-third  interest  in GPT-SA and 50%  non-controlling  interests  in a local
sales and service  organization in Australia and a manufacturing  firm in China,
all of which are accounted for using the equity method.  Included in the results
of operations for fiscal 1998 and 1997 are the Company's share of losses (net of
profits) of these  affiliates of $215,000 and $71,000,  respectively.  In fiscal
1998,  equity  in  income  of  unconsolidated  affiliates  has been  reduced  by
approximately $400,000, which represents the gross profit on the Company's sales
to its  affiliates  that  have not yet been  recognized  by the  affiliates.  In
addition,  the Company owns 70% of GPT-Europe Limited, a local sales and service
organization  in  Europe,  whose  results  are  consolidated  in  the  Company's
financial statements.

Fiscal year ended September 30, 1997 compared with September 30, 1996

Sales

Net sales for fiscal 1997 increased by 43.0% to $23.868 million as compared with
$16.693 million in fiscal 1996. The sales growth in fiscal 1997 is attributed to
increased  demand for the Company's  bill  validator  products  primarily in the
international  gaming  industry and reflects a substantial  increase in sales to
the Company's largest customer, which accounted for 54.0% and 37.6% of net sales
in fiscal 1997 and fiscal  1996,  respectively.  While the  Company  anticipates
increasing  sales to its largest  customer,  management  is working to develop a
broader  customer  base,  which will serve to reduce its  dependence  on any one
customer. Net sales to international  customers accounted for 72.7% of net sales
in both fiscal 1997 and fiscal 1996.

Gross Profit

Gross profit increased to $8.986 million,  or 37.6% of net sales, in fiscal 1997
as  compared  with  $5.257  million,  or 31.5% of net sales,  in the  prior-year
period.  The prior-year's  results were  significantly  impacted by an inventory
write-down  of  approximately  $1.1  million.  Excluding  this  write-down,  the
Company's gross profit as a percentage of net sales was 38.3%.  This decrease in
gross profit as a percentage  of net sales is due to  increased  product  costs,
manufacturing  labor and benefit  costs,  as well as a reduced  gross  profit on
sales  to a new  customer  in the  beverage  and  vending  division,  which  was
substantially offset by operational efficiencies.

Operating Expenses

Operating  expenses  in fiscal  1997  increased  by 33.5% to $6.378  million  as
compared with $4.777 million in fiscal 1996.  This increase was  principally due
to increased  staffing and related  payroll costs necessary to support the sales
growth in fiscal 1997 as well as to support  the  Company's  growth  strategy in
fiscal 1998 and beyond. In addition,  the Company incurred commission expense in
the fourth quarter of fiscal 1997 of approximately $300,000 as


                                       16

<PAGE>


compared with none in fiscal 1996. These  commissions were primarily in the form
of payments to the Company's Australian affiliate,  who is responsible for sales
and service in Australia and New Zealand on an exclusive  basis. As a percentage
of net sales, the Company has reduced its operating  expenses to 26.7% in fiscal
1997 as compared with 28.6% in fiscal 1996, as the  infrastructure  recently put
in place has been able to efficiently support the Company's growth.

Net Income

For fiscal  1997,  the  Company's  net income was $1.475  million,  or $0.25 per
share, as compared with $272,000,  or $0.05 per share,  for fiscal 1996.  Fiscal
1996 net income and net income  per share  figures  reflect a pre-tax  inventory
write-down of $1.1 million  related to certain early  generation  products,  the
future  sales of  which  management  believes  have  been and will be  adversely
impacted  by sales of newly  released  products.  Excluding  the  effect  of the
inventory  write-down,  fiscal 1997 net income increased 62.8% compared with pro
forma net income of $906,000,  or $0.16 per share,  in fiscal 1996.  (Net income
per share figures give retroactive  effect in all periods to a two-for-one stock
split,  in the form of a stock  dividend,  distributed on September 4, 1997.) At
the end of fiscal  1996 and  during  fiscal  1997,  the  Company  purchased  50%
non-controlling  interests  in local  sales and service  organizations  in South
Africa and Australia and in a plastics  manufacturing firm in China. Included in
the results of operations for fiscal 1997 are the Company's share of the profits
and losses of these three unconsolidated affiliates.

Liquidity and Capital Resources

The  Company's  capital  requirements  consist  primarily of those  necessary to
continue  to  expand  and   improve   manufacturing   and  product   development
capabilities, sales and marketing operations,  investments in affiliates and, to
a lesser degree,  interest payments on the Company's  indebtedness.  The Company
believes that its available resources,  including its credit facilities,  should
be sufficient to meet its obligations as they become due and permit continuation
of its planned expansion throughout fiscal 1999 and beyond.

In February  1998, the Company  renewed its  $5,000,000  line of credit with The
Chase  Manhattan Bank. This facility allows for borrowings on an unsecured basis
and  expires on March 31,  1999.  Outstanding  borrowings  bear  interest at the
bank's prime rate per annum or, at the Company's option,  for borrowings greater
than $500,000,  LIBOR plus 175 basis points per annum. As of September 30, 1998,
$3,050,000 was outstanding under this line of credit.

In  September  1998,  the  Company  entered  into an  agreement  with The  Chase
Manhattan  Bank for an  additional  unsecured  line of credit  in the  aggregate
amount of $3,500,000 for the repurchase of up to 500,000 shares of the Company's
Common Stock.  Outstanding borrowings bear interest at the bank's prime rate per
annum or, at the Company's option, for borrowings  greater than $500,000,  LIBOR
plus 175 basis  points per annum.  As of  September  30,  1998,  $1,047,000  was
outstanding under this line of credit which expires on March 31, 1999.


                                       17

<PAGE>


Net cash used in operating activities amounted to $3.857 million in fiscal 1998.
Net income,  adjusted for noncash items, was $3.977 million in fiscal 1998. This
amount was  augmented  by an  increase  in accrued  expenses  and other  current
liabilities  of $1.695  million  and an  increase  in income  taxes  payable  of
$321,000 and was offset by an increase in accounts receivable of $6.034 million,
an increase in inventory of $3.344 million,  an increase in prepaid expenses and
other  assets of $214,000 and a decrease in accounts  payable of  $258,000.  Net
cash provided by operating  activities  amounted to $380,000 in fiscal 1997. Net
income,  adjusted for noncash  items,  was $2.105  million in fiscal 1997.  This
amount was augmented by an increase in accounts payable of $1.495 million and an
increase in accrued expenses and other current liabilities of $679,000,  and was
offset by an increase in accounts  receivable of $2.012 million,  an increase in
inventory of $1.365 million and a decrease in income taxes payable of $488,000.

Net cash used in  investing  activities  amounted  to $633,000 in fiscal 1998 as
compared with $1.217 million in fiscal 1997.  The Company  provided net fundings
to its joint ventures of  approximately  $42,000 in fiscal 1998 as compared with
approximately  $426,000 during fiscal 1997,  predominantly in the form of loans.
In addition,  during fiscal 1998 the Company  received and  recognized a pre-tax
gain of $385,000  from the sale of a portion of the equity in its South  African
affiliate  which reduced its ownership from 50% to 33%. The remaining  investing
activities of $976,000 in 1998 and $791,000 in fiscal 1997 were for the purchase
of property and equipment.

Net cash provided by financing  activities  amounted to $3.411 million in fiscal
1998,  as  compared  with  $23,000 in fiscal  1997.  In fiscal  1998 the Company
received  proceeds from its two credit  facilities of $4.097  million,  of which
$1.047  million was used for the repurchase of the Company's  common stock.  The
remaining  cash provided by financing  activities of $361,000 in fiscal 1998 and
all financing activities in fiscal 1997 were from the issuance of stock upon the
exercise of stock options and warrants.

Fiscal 1998 saw  continued  moderation  in the level of  inflation.  In order to
offset the resultant rise in the costs of  operations,  the Company has and will
continue  to  assess  ways  to  reduce  product   manufacturing  costs,  thereby
increasing  profit margins and improve its operations to gain  efficiencies  and
reduce operating costs.

Year 2000

In July  1996,  the  Emerging  Issues  Task  Force of the  Financial  Accounting
Standards  Board (FASB) reached a consensus on Issue 96-14,  "Accounting for the
Costs  Associated  with  Modifying  Computer  Software for the Year 2000," which
requires that costs  associated  with modifying  computer  software for the Year
2000 be expensed as incurred. The Company has formed a senior management team to
develop a  comprehensive  plan to address the year 2000  issues.  A  significant
amount of analysis has been  completed  and the Company  continues to assess and
thus far believes, based upon its internal review and other factors, that future
external  and  internal  costs to be incurred  relating to the  modification  of
internal-use  software for the year 2000 will not have a material  effect on the
Company's results of operations or financial position.


                                       18

<PAGE>


Item 7.   Financial Statements

The  financial  statements  of the  Company  required by this item are set forth
beginning on page F-1.

Item 8.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

None


                                       19

<PAGE>


                                    PART III

Items 9  through  12  inclusive  are  omitted  per  General  Instruction  E. The
information  required by Part III shall be  incorporated  by reference  from the
Registrant's  definitive  proxy  statement  pursuant to  Regulation  14A for the
fiscal year ended September 30, 1998.

Item 13.  Exhibits, List and Reports on Form 8K

(a)  Exhibits

Exhibit No.
-----------

3.1    Certificate of Incorporation (3)

3.2    Certificate of Merger (3)

3.3    By-Laws (3)

10.1   Lease  dated  September  21,  1994  between  the  Company  and  Heartland
       Associates (1)

10.2   Amendment  dated July 31, 1997 to lease dated  September 21, 1994 between
       the Company and Heartland Associates (3)

10.3   1994 Stock Option Plan (2)

10.4   1996 Stock Option Plan (2)

10.5   Employment Agreement dated January 1, 1998 between the Company and Robert
       W. Nader (5)

10.6   Employment Agreement dated October 1, 1998 between the Company and Edward
       Seidenberg (5)

10.7   Supplier   agreement   dated  May  14,  1998   between   Global   Payment
       Technologies, Inc. and Aristrocrat Leisure Industries Pty Ltd. (4)

10.8   Working  Capital  Credit  Agreement  dated  February 20, 1998 between the
       Company and The Chase Manhattan Bank (5)

10.9   Stock  Repurchase  Credit  Agreement  dated September 9, 1998 between the
       Company and The Chase Manhattan Bank (5)

10.10  Employment  Agreement  dated  September  30, 1997 between the Company and
       Stephen Katz (3) 

21     List of Subsidiaries (5)

23     Consent of  Independent Public Accountants (5)

27     Financial Data Schedule (5)

----------
(1)  Incorporated  by  reference  to  the  Company's   initial  filings  of  the
     Registration Statement on Form SB-2 (File #33-86352-NY).

(2)  Incorporated by reference to the Company's  Registration  Statement on Form
     S-8 (File #333-30829).

(3)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended September 30, 1997.

(4)  Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
     for the quarter ended June 30, 1998.

(5)  Filed herewith.


(b)  Reports on Form 8-K

No Reports on Form 8-K have been filed during the last  quarter  covered by this
Report.


                                       20

<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        Global Payment Technologies, Inc.

                                        By:  s/ Stephen Katz
                                             ---------------------------------
                                             Stephen Katz
                                             Chairman of the Board and
                                             Chief Executive Officer

Date:  December 29, 1998

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated.

        Signature                    Date                    Title
        ---------                    ----                    -----

s/ Stephen Katz               December 29, 1998     Chairman of the Board
-------------------------                           and Chief Executive Officer
Stephen Katz

s/ Edward Seidenberg          December 29, 1998     Director, President and
-------------------------                           Chief Operating Officer
Edward Seidenberg

s/ William H. (Bill) Wood     December 29, 1998     Director and Employee
-------------------------
William H. (Bill) Wood

s/ Henry Ellis                December 29, 1998     Director
-------------------------
Henry Ellis

s/ Richard Gerzof             December 29, 1998     Director
-------------------------
Richard Gerzof

s/ Martin Kern                December 29, 1998     Director
-------------------------
Martin Kern

s/ Thomas McNeill             December 29, 1998     Chief Financial Officer and
-------------------------                           Principal Accounting Officer
Thomas McNeill


                                       21

<PAGE>


                        GLOBAL PAYMENT TECHNOLOGIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Public Accountants                                    F-1

Consolidated Balance Sheets as of September 30, 1998 and 1997               F-2

Consolidated Statements of Income for the years ended 
  September 30, 1998 and 1997                                               F-3

Consolidated Statements of Shareholders' Equity for the years ended
  September 30, 1998 and 1997                                               F-4

Consolidated Statements of Cash Flows for the years ended 
  September 30, 1998 and 1997                                               F-5

Notes to Consolidated Financial Statements                                  F-6


                                       22

<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Global Payment Technologies, Inc.:

We have audited the accompanying  consolidated  balance sheets of Global Payment
Technologies,  Inc. (a Delaware  corporation) and Subsidiary as of September 30,
1998 and 1997, and the related consolidated statements of income,  shareholders'
equity and cash flows for the years then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Global Payment  Technologies,
Inc. and  Subsidiary as of September  30, 1998 and 1997,  and the results of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally accepted accounting principles.


                                        ARTHUR ANDERSEN LLP

Melville, New York
November 24, 1998


                                      F-1

<PAGE>


                        GLOBAL PAYMENT TECHNOLOGIES, INC.

                           CONSOLIDATED BALANCE SHEETS

                        AS OF SEPTEMBER 30, 1998 AND 1997

                (Dollar amounts in thousands, except share data)


<TABLE>
<CAPTION>
ASSETS                                                                              1998        1997
                                                                                  --------    --------
<S>                                                                               <C>         <C>     
Current assets:
  Cash and cash equivalents                                                       $    834    $  1,913
  Accounts receivable, less allowance for doubtful accounts 
    of $248 and $225,  respectively                                                  5,854       4,755
  Accounts receivable from affiliates                                                4,897          85
  Inventory, less allowance for obsolescence of $942 and $742, respectively          8,090       5,120
  Prepaid expenses and other current assets                                            254         110
  Deferred income tax benefit                                                          584         421
                                                                                  --------    --------
      Total current assets                                                          20,513      12,404

Property and equipment, net                                                          1,758       1,335

Investments in unconsolidated affiliates                                               182         355

Other assets                                                                           130          60
                                                                                  --------    --------
Total assets                                                                      $ 22,583    $ 14,154
                                                                                  ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Notes payable to bank                                                           $  4,097    $   --   
  Accounts payable                                                                   2,044       2,302
  Accrued expenses and other current liabilities                                     2,925       1,230
  Income taxes payable                                                                 430         109
                                                                                  --------    --------
     Total current liabilities                                                       9,496       3,641
                                                                                  --------    --------
Deferred income taxes                                                                 --            96
                                                                                  --------    --------

Commitments and contingencies (Note 10)

Shareholders' equity:
  Common stock, 20,000,000 shares authorized;  $.01 par value, 5,570,300 shares
    issued in 1998 and 5,506,200 shares issued and outstanding in 1997                  56          55
  Additional paid-in capital                                                         8,334       7,974
  Retained earnings                                                                  5,744       2,388
                                                                                  --------    --------
                                                                                    14,134      10,417

Less:  Treasury stock, at cost, 165,000 shares in 1998                              (1,047)       --
                                                                                  --------    --------
      Total shareholders' equity                                                    13,087      10,417
                                                                                  --------    --------
Total liabilities and shareholders' equity                                        $ 22,583    $ 14,154
                                                                                  ========    ========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                      F-2

<PAGE>


                        GLOBAL PAYMENT TECHNOLOGIES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

                 FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

         (Dollar amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                    1998           1997
                                                                -----------    -----------
<S>                                                             <C>            <C>        
Net sales:
   Non-affiliates                                               $    34,572    $    23,649
   Affiliates                                                         4,816            219
                                                                -----------    -----------
                                                                     39,388         23,868

Cost of sales                                                        23,013         14,882
                                                                -----------    -----------

Gross profit                                                         16,375          8,986

Operating expenses                                                   10,983          6,378
                                                                -----------    -----------
Income from operations                                                5,392          2,608

Other income (expense):
   Equity in loss of unconsolidated affiliates                         (215)           (71)
   Gain on sale of investment in unconsolidated affiliate               385           --   
   Interest (expense) income, net                                       (62)            51
                                                                -----------    -----------
           Other income (expense), net                                  108            (20)
                                                                -----------    -----------
Income before provision for income taxes                              5,500          2,588

Provision for income taxes                                            2,144          1,113
                                                                -----------    -----------
Net income                                                      $     3,356    $     1,475
                                                                ===========    ===========
Net income per share:
   Basic                                                        $       .61    $       .27
                                                                ===========    ===========
   Diluted                                                      $       .56    $       .25
                                                                ===========    ===========
Common shares used in computing net income per share amounts:
   Basic                                                          5,513,414      5,500,530
                                                                ===========    ===========
   Diluted                                                        5,995,067      5,794,215
                                                                ===========    ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                      F-3

<PAGE>


                        GLOBAL PAYMENT TECHNOLOGIES, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                 FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

                (Dollar amounts in thousands, except share data)


<TABLE>
<CAPTION>
                                               Common Stock         Additional                    Treasury Stock
                                          ----------------------     Paid-in     Retained     -----------------------
                                            Shares       Amount      Capital     Earnings       Shares        Amount        Total
                                          ---------    ---------    ---------    ---------    ---------     ---------     ---------
<S>                                       <C>          <C>          <C>          <C>          <C>           <C>           <C>      
Balance at September 30, 1996             5,500,000    $      55    $   7,951    $     913         --       $    --       $   8,919

  Exercise of common stock options            6,200         --             23         --           --            --              23

  Net income                                   --           --           --          1,475         --            --           1,475
                                          ---------    ---------    ---------    ---------    ---------     ---------     ---------

Balance at September 30, 1997             5,506,200           55        7,974        2,388         --            --          10,417

  Exercise of common stock options
    and warrants                             64,100            1          360         --           --            --             361

  Purchase of treasury stock                   --           --           --           --       (165,000)       (1,047)       (1,047)

  Net income                                   --           --           --          3,356         --            --           3,356
                                          ---------    ---------    ---------    ---------    ---------     ---------     ---------

Balance at September 30, 1998             5,570,300    $      56    $   8,334    $   5,744     (165,000)    $  (1,047)    $  13,087
                                          =========    =========    =========    =========    =========     =========     =========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                      F-4

<PAGE>


                        GLOBAL PAYMENT TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

                          (Dollar amounts in thousands)


<TABLE>
<CAPTION>
                                                                                       1998        1997
                                                                                     -------     -------
<S>                                                                                  <C>         <C>    
OPERATING ACTIVITIES:
  Net income                                                                         $ 3,356     $ 1,475
  Adjustments to reconcile net income to net cash (used in) 
    provided by operating activities:
    Equity in loss of unconsolidated affiliates                                          215          71
    Gain on sale of investment in unconsolidated affiliate                              (385)       --   
    Depreciation and amortization                                                        553         343
    Provision for (recovery of) losses on accounts receivable                            123         (39)
    Provision for inventory obsolescence                                                 374          39
    Deferred income taxes                                                               (259)        216
    Changes in operating assets and liabilities:
      Increase in accounts receivable, including affiliates                           (6,034)     (2,012)
      Increase in inventory                                                           (3,344)     (1,365)
      Increase in prepaid expenses and other assets                                     (214)        (34)
      (Decrease) increase in accounts payable                                           (258)      1,495
      Increase in accrued expenses and other current liabilities                       1,695         679
      Increase (decrease) in income taxes payable                                        321        (488)
                                                                                     -------     -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                                   (3,857)        380
                                                                                     -------     -------
INVESTING ACTIVITIES:
  Purchases of property and equipment, net of proceeds from disposals                   (976)       (791)
  Proceeds from sale of investment in unconsolidated affiliate                           385        --   
  Investments in unconsolidated affiliates                                               (42)       (426)
                                                                                     -------     -------
NET CASH USED IN INVESTING ACTIVITIES                                                   (633)     (1,217)
                                                                                     -------     -------
FINANCING ACTIVITIES:
  Proceeds from notes payable to bank                                                  4,097        --   
  Purchase of treasury stock                                                          (1,047)       --   
  Issuance of stock upon exercise of stock options and warrants                          361          23
                                                                                     -------     -------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                              3,411          23
                                                                                     -------     -------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                             (1,079)       (814)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                         1,913       2,727
                                                                                     -------     -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                             $   834     $ 1,913
                                                                                     =======     =======
CASH PAID DURING THE YEAR FOR:
  Interest                                                                           $    97     $  --
                                                                                     =======     =======
  Income taxes                                                                       $ 1,879     $ 1,400
                                                                                     =======     =======
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                      F-5

<PAGE>


                        GLOBAL PAYMENT TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1998 AND 1997


1.   ORGANIZATION AND NATURE OF BUSINESS:

Global Payment  Technologies,  Inc. (the "Company") was established in 1988. The
Company designs,  manufactures and markets paper currency  validating  equipment
used in gaming and vending machines in the United States and other countries.

Substantially  all of the Company's  revenues are derived from the sale of paper
currency  validators and related bill stackers,  specifically the Company's IDS,
IDUS,  IBS,  M-125 and M-150  validator  models.  Fluctuations  in the Company's
results of operations may be caused by various factors, including the timing and
market acceptance of new products introduced by the Company and its competitors,
the size and  timing of  product  orders  and  shipments,  the  relative  mix of
products  sold  by the  Company,  specific  economic  conditions  in the  gaming
industry,  from which the Company derives a substantial portion of its revenues,
and general economic conditions.  Additionally,  the Company depends on a single
or limited  number of  suppliers  for certain  housings,  parts and  components,
including certain  microprocessor chips and short wave-length light sources. The
Company has entered into volume blanket  purchase  agreements  with suppliers to
guard against unique  component  shortages,  limiting the Company's  exposure to
business interruptions.

Significant Customers

The  Company's  largest  customers  for 1998 and 1997  represent  the  following
percentages of net sales and accounts receivable:

                    Net Sales                   1998            1997
                    ---------                   ----            ----
     Customer A                                  46%             54%
     Customer B                                  10%             N/A

               Accounts Receivable
               -------------------
     Customer A                                  45%             62%
     Customer B                                   8%             N/A

There  were no other  customers  that  represented  10% or more of net  sales in
either fiscal year.

Net  sales to  international  customers  were 84% and 73% of net sales in fiscal
years 1998 and 1997, respectively.

2.   SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The  consolidated  financial  statements  include the accounts of Global Payment
Technologies,   Inc.  and  its   majority-owned   subsidiary,   Global   Payment
Technologies  (Europe)  Limited.  All  significant   intercompany  accounts  and
transactions have been eliminated in consolidation.


                                      F-6

<PAGE>


Investments in Unconsolidated Affiliates

The Company  applies  the equity  method of  accounting  to its  investments  in
entities where the Company has ownership  interests of 20% to 50%. The Company's
share  of  affiliates'  earnings  or  losses  is  included  in the  consolidated
statements of income.  The Company eliminates its pro rata share of gross profit
on sales to its affiliates for inventory on hand at the affiliates at the end of
the  year.  See  Note  9 for  a  description  of  the  Company's  unconsolidated
affiliates  and  the  related   transactions   between  the  Company  and  these
affiliates.

Cash and Cash Equivalents

Cash  equivalents  are stated at cost which  approximates  market value.  Highly
liquid  investments with maturities of three months or less at the purchase date
are considered cash equivalents for purposes of the consolidated  balance sheets
and consolidated statements of cash flows.

Inventory

Inventory  is stated at the lower of cost  (first-in,  first-out  method) or net
realizable value. The Company analyzes the net realizable value of its inventory
on an ongoing  basis.  In determining  whether the net  realizable  value of its
inventory is impaired,  the Company  considers  historical sales performance and
expected  future  product  sales,   market   conditions  in  which  the  Company
distributes its products,  changes in product strategy and the potential for the
introduction of new technology or products by the Company and its competitors.

Property and Equipment and Depreciation

Property and equipment are stated at cost.  Depreciation is calculated using the
straight-line  method over the estimated useful lives of the assets (Note 5) or,
in the case of leasehold improvements,  the life of the related lease, whichever
is shorter.  Maintenance  and repair  costs are charged to expense as  incurred.
Expenditures which significantly increase value or extend useful asset lives are
capitalized.

Long-Lived Assets

The Company  accounts for long-lived  assets  pursuant to Statement of Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of", which requires
that long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used be reviewed for impairment  whenever  events or
changes in  circumstances  indicate that the carrying amount of those assets may
not be  recoverable.  The Company did not record any  impairment  adjustments in
fiscal 1998 and 1997.

Research and Development

Research and development costs incurred by the Company are included in operating
expenses in the year  incurred.  Such costs amounted to $350,000 and $245,000 in
fiscal 1998 and 1997, respectively.

Warranty Policy

The Company  warrants  that its  products  are free from defects in material and
workmanship  for a period of one year  from the date of  initial  purchase.  The
warranty  does not cover any losses or damage that occur as a result of improper
installation,  misuse or neglect and repair or modification by anyone other than
the Company and its appointed  service  centers.  Warranty costs beyond one year
from the date of initial purchase are charged to the Company's customers.


                                      F-7

<PAGE>


Income Taxes

The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes"  (Note 8). SFAS No. 109  requires  an asset and  liability  approach  for
financial  reporting for income taxes.  Under SFAS No. 109,  deferred  taxes are
provided for  temporary  differences  between the carrying  values of assets and
liabilities  for  financial  reporting  and tax purposes at the enacted rates at
which these differences are expected to reverse.

Net Income Per Share

In December 1997,  the Company  adopted SFAS No. 128,  "Earnings Per Share".  In
accordance  with the  requirements  of SFAS No. 128, net income per common share
amounts  ("basic  EPS") were  computed by dividing  net earnings by the weighted
average number of common shares  outstanding,  excluding any potential dilution.
Net income per common  share  amounts  assuming  dilution  ("diluted  EPS") were
computed by reflecting potential dilution from the exercise of stock options and
warrants.  SFAS No. 128 requires the  presentation of both basic EPS and diluted
EPS on the face of the  statements  of income.  Net income per share amounts for
fiscal 1997 have been restated to conform with the provisions of SFAS No. 128.

A  reconciliation  between  the  numerators  and  denominators  of the basic and
diluted EPS computations is as follows:

<TABLE>
<CAPTION>
                                                                      Year Ended September 30,
                                                                     --------------------------
                                                                        1998            1997
                                                                     ----------      ----------
                                                                        (In thousands, except
                                                                      share and per share data)
<S>                                                                  <C>             <C>       
     Numerator
     ---------
     Net income attributable to common stock                         $    3,356      $    1,475
                                                                     ==========      ==========

     Denominator
     -----------
     Weighted average common shares outstanding - Basic               5,513,414       5,500,530
     Effect of dilutive securities:  Stock options and warrants         481,653         293,685
                                                                     ----------      ----------
     Weighted average common shares outstanding - Diluted             5,995,067       5,794,215
                                                                     ==========      ==========

     Basic EPS                                                       $      .61      $      .27
                                                                     ==========      ==========
     Diluted EPS                                                     $      .56      $      .25
                                                                     ==========      ==========
</TABLE>

Stock-Based Compensation

In fiscal 1997, the Company adopted the provisions of SFAS No. 123,  "Accounting
for  Stock-Based  Compensation",  by  continuing  to  apply  the  provisions  of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", while providing the required pro forma disclosures as if the fair
value method had been applied (Note 7).

Use of Estimates

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


                                      F-8

<PAGE>


Reclassifications

Certain prior-year financial statement amounts have been reclassified to conform
to the current year's presentation.

Recently Issued Accounting Standard

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities." This statement
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities.  SFAS No. 133 is effective for all fiscal quarters beginning
after June 15, 1999 and will not require retroactive restatement of prior period
financial statements.  The Company currently does not use derivative instruments
or engage in hedging  activities  and,  accordingly,  does not expect  that this
statement  will have an impact on its  consolidated  financial  statements  when
adopted.

3.   ACQUISITION:

In June 1998, the Company formed Global Payment  Technologies  (Europe)  Limited
("GPT-Europe"),  which is based in the United  Kingdom  and is  responsible  for
sales and service for the Company's products in Europe. GPT-Europe purchased the
assets and assumed the  liabilities of Global Payment  Technologies  (U.K.) Ltd.
("GPT-UK"),  the Company's prior independent European distributor as of February
28,  1998.  The excess of the cost over the fair market  value of the net assets
acquired  was not  material.  The  Company,  through a capital  contribution  of
$76,000,  owns 70% of GPT-Europe,  with the remaining 30% owned by  GPT-Europe's
operations  manager,  a former  principal  of  GPT-UK.  GPT-Europe's  assets and
liabilities are included in the  consolidated  balance sheet as of September 30,
1998 and the results of its operations  from March 1, 1998 to September 30, 1998
have been included in the consolidated  statements of income, net of the related
minority  interest in subsidiary  earnings,  which was not  material.  Pro forma
results of operations as if the  acquisition had been completed as of October 1,
1997  have not  been  presented,  as the  impact  on the  Company's  results  of
operations would not have been material.

4.   INVENTORY:

The following is a summary of the composition of inventory:

                                                         September 30,
                                                   ------------------------
                                                    1998              1997
                                                   ------            ------
                                                          (in 000s)
     Raw materials                                 $2,775            $1,894
     Work-in-process                                3,706             2,631
     Finished goods                                 1,609               595
                                                   ------            ------
                                                   $8,090            $5,120
                                                   ======            ======


                                      F-9

<PAGE>


5.   PROPERTY AND EQUIPMENT, NET:

Major classifications of property and equipment are as follows:

                                                               September 30,
                                                           --------------------
                                         Useful Lives        1998         1997
                                         ------------      -------       ------
                                                                 (in 000s)

     Leasehold improvements              5 years           $   243       $  155
     Furniture and fixtures              3 - 7 years           401          310
     Machinery and equipment             3 - 10 years        1,140          738
     Computer software                   5 years               578          459
     Computer hardware                   3 years               718          443
                                                           -------       ------
                                                             3,080        2,105
     Less: Accumulated depreciation
       and amortization                                     (1,322)        (770)
                                                           -------       ------
                                                           $ 1,758       $1,335
                                                           =======       ======

6.   NOTES PAYABLE TO BANK:

Lines of Credit

In February  1998, the Company  renewed its agreement  with The Chase  Manhattan
Bank for an unsecured  line of credit in the aggregate  amount of $5,000,000 for
borrowings to be made when necessary to meet  short-term  working capital needs.
Outstanding  borrowings bear interest at the bank's prime rate or LIBOR plus 175
basis points per annum.  As of September 30, 1998,  $3,050,000  was  outstanding
under  this  line of credit at an  interest  rate of 8.25%.  This line of credit
expires on March 31, 1999.

In  September  1998,  the  Company  entered  into an  agreement  with The  Chase
Manhattan  Bank for an  unsecured  line of  credit  in the  aggregate  amount of
$3,500,000  for borrowings to be made for the repurchase of up to 500,000 shares
of the  Company's  common  stock.  Outstanding  borrowings  bear interest at the
bank's prime rate or LIBOR plus 175 basis points per annum.  As of September 30,
1998,  $1,047,000 was outstanding  under this line of credit at an interest rate
of 7.25%. This line of credit expires on March 31, 1999.

7.   SHAREHOLDERS' EQUITY:

Stock Split

In July 1997,  the Company's  Board of Directors  approved a  two-for-one  stock
split, in the form of a stock dividend,  to the Company's common shareholders of
record at August 18, 1997.  The new shares were issued to such  shareholders  of
record  on  September  4,  1997.  Par  value  remained  at $.01 per  share.  All
information  contained  in the  consolidated  financial  statements  and related
footnotes has been retroactively restated to give effect to this stock split.

Stock Repurchase

In June 1998, the Board of Directors  approved a common stock  repurchase  plan,
providing for the purchase of up to 500,000 shares of the Company's common stock
over a one-year period, using a separately  established line of credit (Note 6).
In September 1998, the Company purchased 165,000 shares of its common stock at a
cost of  $1,047,000.  Subsequent  to  year-end,  in October  1998,  the  Company
purchased an additional 41,000 shares of its common stock at a cost of $223,000.


                                      F-10

<PAGE>


Stock Option Plans

In October  1994,  the  Company  adopted  the 1994 Stock  Option Plan (the "1994
Plan")  covering up to 300,000 of the Company's  common shares pursuant to which
officers,  directors and key employees of the Company,  and  consultants  to the
Company are eligible to receive incentive and/or non-qualified stock options. In
March 1996, the Board of Directors adopted the 1996 Stock Option Plan (the "1996
Plan").  The purpose and provisions of the 1996 Plan are essentially the same as
the 1994 Plan. The 1996 Plan originally  covered 400,000 of the Company's common
shares.  The total shares available for grant under the 1996 Plan were increased
to 900,000 by the Board of  Directors in September  1996.  The 1996 Plan,  as so
amended, was approved by the shareholders of the Company.

Both the 1994 Plan,  which expires on October 17, 2004, and the 1996 Plan, which
expires on March 18, 2006, are administered by the Compensation and Stock Option
Committee of the Board of  Directors.  The selection of  participants,  grant of
options, determination of price and other conditions relating to the exercise of
options are  determined by the  Compensation  and Stock Option  Committee of the
Board of Directors.

Incentive  stock  options  granted  under  both  the 1994  and  1996  Plans  are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market  value of the common  shares on the
date of the grant,  except that the term of an incentive  stock  option  granted
under each of the plans to a shareholder owning more than 10% of the outstanding
common  shares may not exceed five years and its exercise  price may not be less
than  110% of the fair  market  value of the  common  shares  on the date of the
grant.

During fiscal 1997, a total of 60,000 incentive stock options were granted under
the 1996 Plan. These options will become  exercisable over a four-year period in
equal  amounts  commencing  with the first  anniversary  from the date of grant,
except for 24,000  options,  which will vest on the same basis over a  five-year
period.

During  fiscal  1998,  a total of  147,750  incentive  stock  options  and 7,500
non-qualified  options were granted under the 1996 Plan. All options  granted in
1998 will become exercisable over a four-year period in equal amounts commencing
with the first anniversary of the date of grant.

The Company  accounts for option awards granted to employees and directors under
APB  Opinion No. 25,  under  which  compensation  cost is  recognized  for stock
options  granted at an exercise  price less than the market value of the options
on the  grant  date.  No  compensation  cost has been  recorded  by the  Company
pursuant  to APB  Opinion  No. 25. Had  compensation  cost for all stock  option
grants in fiscal years 1998 and 1997 been  determined  consistent  with SFAS No.
123, the Company's net income and earnings per share would have been:

<TABLE>
<CAPTION>
                                                               1998        1997
                                                             -------      -------
                                                       (in 000s, except per share data)

<S>                                      <C>                 <C>          <C>    
Net income:                              As Reported         $ 3,356      $ 1,475
                                         Pro Forma             3,227          958

Net income per common share - basic:     As Reported          $  .61       $  .27
                                         Pro forma               .59          .17

Net income per common share - diluted:   As Reported          $  .56       $  .25
                                         Pro forma               .54          .17
</TABLE>


                                      F-11

<PAGE>


The  effects  of  applying  SFAS No.  123 in this pro forma  disclosure  are not
indicative  of future  amounts.  SFAS No.  123 does not  apply to option  awards
granted prior to fiscal-year  1997,  and  additional  awards in future years are
anticipated.

A summary of the Company's stock option plans as of September 30, 1998 and 1997,
and changes during the years then ended, is presented below.

<TABLE>
<CAPTION>
                                                                                1998                 1997
                                                                        ------------------    -------------------
                                                                                  Weighted               Weighted
                                                                                   Average                Average
                                                                                  Exercise               Exercise
                                                                        Shares      Price     Shares      Price
                                                                        -------     -----     -------     -----
<S>                                                                     <C>         <C>       <C>         <C>  
     Outstanding at the beginning of the year                           726,400     $4.08     693,500     $3.64
        Granted at fair value                                           155,250     $8.97      60,000     $8.93
        Forfeited                                                       (20,900)    $4.15     (20,900)    $3.78
        Exercised                                                       (47,600)    $5.24      (6,200)    $3.78
                                                                        -------               -------
     Outstanding at end of the year                                     813,150     $4.94     726,400     $4.08
                                                                        =======               =======
     Options exercisable at yearend                                     526,510     $3.57     501,400     $3.45
                                                                        =======               =======
     Weighted-average fair value of options granted 
        during the year (a)                                               $5.04       N/A       $5.08       N/A
</TABLE>

(a)  The fair  value of each  option  grant was  estimated  on the date of grant
     using  the   Black-Scholes   option-pricing   model   with  the   following
     weighted-average assumptions:

                                                 Year ended September 30,
                                              ------------------------------
                                               1998                   1997
                                              -------                -------

     Risk-free interest rates                  5.22%                  6.19%
     Expected lives                           5 years                5 years
     Expected volatility                        60%                    58%
     Expected dividend yields                   --                     --

Summarized  information  about  the  Company's  stock  options  outstanding  and
exercisable at September 30, 1998 is as follows:

                                       Outstanding               Exercisable
                              ---------------------------     -----------------
                                        Average   Average               Average
    Exercise Price Range      Options     Life     Price      Options    Price
   ---------------------      -------     ----     -----      -------    -----
     $3.00 to $4.50           559,900     7.55     $3.36      481,160    $3.28
     $5.00 to $5.50            63,000     7.04      5.32       36,600     5.44
     $6.50 to $7.00           103,750     6.96      6.56         --       --
     $11.50 to $14.50          86,500     7.53     12.91        8,750    11.56
                              -------                         -------
     $3.00 to $14.50          813,150     7.43      4.94      526,510     3.57
                              =======                         =======


                                      F-12

<PAGE>


Underwriters' Warrants

In connection  with the  Company's  initial  public  offering of common stock in
February 1995, the Company granted warrants to purchase 150,000 shares of common
stock at $6.60  per  share to the  underwriters  of that  public  offering.  The
exercise  price of $6.60 per share  represented in excess of 110% of the initial
public  offering  price.  During  fiscal  1998,  16,500 of these  warrants  were
exercised.  As of September 30, 1998, all of the remaining 133,500 warrants were
exercisable and expire on February 6, 2000.

8.   INCOME TAXES:

The provision for income taxes is comprised of the following:

                                                           For the Fiscal Years
                                                           Ended September 30,
                                                           --------------------
                                                             1998         1997
                                                           -------      -------
                                                                (in 000s)
     Current:
       Federal                                             $ 1,965      $   670
       State and local                                         438          223
                                                           -------      -------
                                                             2,403          893
                                                           -------      -------
     Deferred:
       Federal                                                (179)         153
       State and local                                         (80)          67
                                                           -------      -------
                                                              (259)         220
                                                           -------      -------
          Total                                            $ 2,144      $ 1,113
                                                           =======      =======

Significant components of deferred tax assets and liabilities are as follows:

                                                           As of September 30,
                                                           --------------------
                                                             1998         1997
                                                           -------      -------
                                                                (in 000s)
     Non-current deferred tax liability:
       Depreciation                                        $ --         $   (96)
                                                           -------      -------

     Current deferred tax assets:
       Accounts receivable                                      80          101
       Inventory                                               306          320
       Accrued expenses                                         68         --
       Elimination of gross profit on sales to affiliates      130         --
                                                           -------      -------
                                                               584          421
                                                           -------      -------
     Net deferred tax asset                                $   584      $   325
                                                           =======      =======

The Company  believes  that,  based upon its  consistent  history of  profitable
operations,  it is probable  that the net  deferred tax assets will be realized,
primarily from the generation of future taxable income.


                                      F-13

<PAGE>


Reconciliation  of the  statutory  Federal  income  tax  rate  to the  Company's
effective tax rate is as follows:

                                                      For the Fiscal Years
                                                       Ended September 30,
                                                       -------------------
                                                        1998         1997
                                                       ------       ------

     U.S. Federal statutory rate                         34.0%        34.0%
     State income taxes, net of Federal benefit           4.3          7.5
     All other, net                                        .7          1.5
                                                       ------       ------

     Effective income tax rate                           39.0%        43.0%
                                                       ======       ======

9.   TRANSACTIONS WITH UNCONSOLIDATED AFFILIATES:

South Africa

In August 1996, the Company acquired a 50%  non-controlling  interest in a South
African  affiliate("GPT-SA"),  which on July 3, 1998, changed its name to Global
Payment  Technology  Holdings   (Proprietary)  Limited,  and  in  which  funding
commenced in June 1997.  This entity is responsible for sales and service of the
Company's  products in the South  African  region,  on an exclusive  basis.  The
Company  loaned  $178,000  to this  entity  during  fiscal  1997,  and loaned an
additional  $104,000  during  fiscal 1998.  Repayments  totaling  $166,000  were
received in fiscal 1998.  These  amounts are  included as part of the  Company's
investment in unconsolidated affiliates in the accompanying consolidated balance
sheets as of September 30, 1998 and 1997. On May 29, 1998,  Hosken  Consolidated
Investments  ("HCI"), a South African investment company,  purchased a one-third
interest in GPT-SA.  Terms of the transaction called for HCI to purchase certain
shares from the Company and the Bevin Trust (GPT-SA's founding  shareholders) as
well as additional shares directly from GPT-SA. The Company recognized a pre-tax
gain of $385,000 on the transaction and its ownership of GPT-SA has been reduced
from 50% to 33%. The Company's  consolidated  results of operations  include the
Company's  equity in the income of this  affiliate  in the amounts of $1,400 and
($78,000) in fiscal 1998 and 1997, respectively.

China

In January  1997,  the  Company  acquired a 50%  non-controlling  interest  in a
China-based  affiliate.  This entity manufactures  plastic and metal components,
some of which  are used by the  Company  in its  production.  In  addition,  the
Company is  obligated  to loan up to an  aggregate  of $299,000 to this  entity,
which will bear  interest  at the rate of 1.5%  above the prime rate  prevailing
from time to time at the Company's bank, per annum.  The Company loaned $219,000
to this entity during fiscal 1997 and loaned an additional $25,000 during fiscal
1998. No repayments  have been received by the Company as of September 30, 1998.
These amounts are included as part of the Company's investment in unconsolidated
affiliates in the accompanying  consolidated  balance sheets as of September 30,
1998 and 1997.  The Company's  consolidated  results of  operations  include the
Company's  equity in the loss of this  affiliate  in the amounts of $169,000 and
$42,000 in fiscal 1998 and 1997, respectively.

Australia

In August  1997,  the  Company  acquired a 50%  non-controlling  interest  in an
Australian  affiliate.  This entity is responsible  for sales and service of the
Company's  products in Australia  and New Zealand,  on an exclusive  basis.  The
Company's consolidated results of operations include the Company's equity in the
income of this  affiliate in the amounts of ($47,000) and $49,000 in fiscal 1998
and 1997,  respectively.  For fiscal  1998,  the  Company  reduced its equity in
income of  unconsolidated  affiliates by $400,000,  which  represents  the gross
profit on sales to this  affiliate  which  have not yet been  recognized  by the
affiliate.


                                      F-14

<PAGE>


10.  COMMITMENTS AND CONTINGENCIES:

Minimum Lease Commitments

The operations of the Company are conducted in leased premises,  one of which is
leased from an affiliate owned partially by the Company's Chairman.  The Company
also leases various  office  equipment.  At September 30, 1998, the  approximate
minimum  annual  rentals under these leases,  which expire  through  fiscal year
2002, were as follows:

                                    Total (including
      For the Fiscal Year            Related Party              Related Party
     Ending September 30,             Commitments)               Commitments
     --------------------             ------------               -----------
                                       (in 000s)                  (in 000s)

             1999                         483                        150
             2000                         319                        150
             2001                         150                        150
             2002                          62                         62

Total rent expense for all operating  leases was $430,000 and $388,000 in fiscal
1998 and 1997, respectively,  including $121,000 and $65,000, respectively, paid
to the  affiliate.  The  Company's  management  believes  this  lease  with  the
affiliate is on terms which approximate fair market value.

Employment Agreements

The Company has entered into various  employment  agreements with three officers
and two other employees of the Company  expiring through the end of fiscal 2000,
with minimum compensation requirements as follows:

     For the Fiscal Year
     Ending September 30,              (in 000s)
     --------------------              ---------
             1999                        $631
             2000                         592
             2001                         251

Litigation

There is one lawsuit  with third  parties  against  the Company  incident to the
operation of its business.  It is the opinion of management and its counsel that
its  ultimate  resolution  will  not have a  materially  adverse  effect  on the
Company's financial position or results of operations.


                                      F-15