UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q





(MARK
ONE)





x   QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 2010





OR





o   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from
___________    to       ___________





000-17874


(Commission
file number)








Global Axcess Corp logo




GLOBAL
AXCESS CORP


(Exact
name of registrant as specified in its charter)





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




(904)
280-3950


(Registrant's
telephone number, including area code)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes x No






Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).     Yes  No 





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





Large
accelerated
Filer                                                                     Accelerated
Filer 


Non-accelerated
Filer                                                                                 Smaller
reporting company x





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




As of
November 09, 2010, the registrant had 22,139,444 shares outstanding of the
common stock ($0.001 par value).









TABLE
      OF CONTENTS
              Page
      No.PART
      I
              FINANCIAL
      INFORMATIONItem
      1.
              Financial
      Statements (unaudited)
              4Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              25Item
      3.
              Quantitative
      and Qualitative Disclosure About Market Risk
              35Item
      4.
              Controls
      and Procedures
              35PART
      II
              OTHER
      INFORMATIONItem
      1.
              Legal
      Proceedings
              35Item
      1A.
              Risk
      Factors
              35Item
      2.
              Unregistered
      Sale of Equity Securities and Use of Proceeds
              36Item
      3.
              Defaults
      Upon Senior Securities
              36Item
      4.
              [Removed
      and Reserved]
              36Item
      5.
              Other
      Information
              36Item
      6.
              Exhibits
              36SIGNATURES
              38





2




Forward-Looking
Statements





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





In
addition to historical information, this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially. Factors that might cause or contribute to
such differences include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations." You should carefully review the risks described in other
documents we file from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-Q that have been or are to be filed
in 2010.





When
used in this report, the words "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "targets," "estimates," and similar expressions are
generally intended to identify forward-looking statements. You should not place
undue reliance on the forward-looking statements, which speak only as of the
date of this Quarterly Report on Form 10-Q. We undertake no obligation to
publicly release any revisions to the forward-looking statements or reflect
events or circumstances after the date of this document.





Estimates
of future financial results are inherently unreliable.





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





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




3





PART
I - FINANCIAL INFORMATION





ITEM
1. Financial Statements (unaudited)





GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




(Unaudited)
                
                
                (Audited)September 30, 2010
                
                
                December 31, 2009ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                2,285,290
                
                
                $
                2,007,860Automated
      teller machine vault cash
                
                
                250,000
                
                
                
                250,000Accounts
      receivable, net of allowance of $3,678 in 2010 and $12,616 in
      2009
                
                
                831,638
                
                
                
                845,000Inventory,
      net of allowance for obsolescence of$82,572 in 2010
      and $94,572 in 2009
                
                
                982,231
                
                
                
                308,031Deferred
      tax asset - current
                
                
                868,848
                
                
                
                868,848Prepaid
      expenses and other current assets
                
                
                202,966
                
                
                
                132,100Total
      current assets
                
                
                5,420,973
                
                
                
                4,411,839Fixed
      assets, net
                
                
                9,067,043
                
                
                
                5,299,661Other
      assetsMerchant
      contracts, net
                
                
                10,190,858
                
                
                
                10,665,613Intangible
      assets, net
                
                
                4,166,740
                
                
                
                4,095,911Deferred
      tax asset - non-current
                
                
                813,618
                
                
                
                813,618Restricted
      cash
                
                
                -
                
                
                
                800,000Other
      assets
                
                
                72,807
                
                
                
                30,307Total
      assets
                
                $
                29,732,039
                
                
                $
                26,116,949LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                
                $
                3,960,330
                
                
                $
                2,983,583Automated
      teller machine vault cash payable
                
                
                250,000
                
                
                
                250,000Notes
      payable - related parties  - current portion,
net
                
                
                28,955
                
                
                
                26,722Notes
      payable - current portion
                
                
                21,222
                
                
                
                19,803Senior
      lenders' notes payable - current portion, net
                
                
                1,980,412
                
                
                
                1,828,572Capital
      lease obligations - current portion
                
                
                444,740
                
                
                
                667,233Total
      current liabilities
                
                
                6,685,659
                
                
                
                5,775,913Long-term
      liabilitiesNotes
      payable - related parties - long-term portion, net
                
                
                51,254
                
                
                
                72,690Notes
      payable - long-term portion
                
                
                57,132
                
                
                
                73,120Senior
      lenders' notes payable - long-term portion, net
                
                
                5,652,933
                
                
                
                3,300,000Capital
      lease obligations - long-term portion
                
                
                216,866
                
                
                
                329,314Total
      liabilities
                
                
                12,663,844
                
                
                
                9,551,037Stockholders'
      equityPreferred
      stock; $0.001 par value; 5,000,000 sharesauthorized,
      no shares issued and outstanding
                
                
                -
                
                
                
                -Common
      stock; $0.001 par value; 45,000,000 shares authorized,22,237,861
      and 21,931,786 shares issued and 22,084,836 and 21,883,924
      sharesoutstanding
      at 09/30/10 and 12/31/09, respectively
                
                
                22,133
                
                
                
                21,932Additional
      paid-in capital
                
                
                23,129,595
                
                
                
                22,900,880Accumulated
      deficit
                
                
                (6,001,567
                )
                
                
                (6,344,934
                )Treasury
      stock; 153,025 and 47,862 shares of common stock at costat
      09/30/10 and 12/31/09, respectively
                
                
                (81,966
                )
                
                
                (11,966
                )Total
      stockholders' equity
                
                
                17,068,195
                
                
                
                16,565,912Total
      liabilities and stockholders' equity
                
                $
                29,732,039
                
                
                $
                26,116,949




See
Accompanying Notes to Condensed Consolidated Financial Statements




4





GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





For
      the Three Months EndedSeptember 30, 2010
                    
                    
                    September 30, 2009Revenues
                    
                    $
                    5,779,313
                    
                    
                    $
                    5,314,857Cost
      of revenues
                    
                    
                    3,473,994
                    
                    
                    
                    2,787,699Gross
      profit
                    
                    
                    2,305,319
                    
                    
                    
                    2,527,158Operating
      expensesDepreciation
      expense
                    
                    
                    382,160
                    
                    
                    
                    303,864Amortization
      of intangible merchant contracts
                    
                    
                    207,665
                    
                    
                    
                    201,790Selling,
      general and administrative
                    
                    
                    1,619,125
                    
                    
                    
                    1,367,182Stock
      compensation expense
                    
                    
                    54,288
                    
                    
                    
                    30,979Total
      operating expenses
                    
                    
                    2,263,238
                    
                    
                    
                    1,903,815Operating
      income from continuing operationsbefore
      items shown below
                    
                    
                    42,081
                    
                    
                    
                    623,343Interest
      expense, net
                    
                    
                    (137,915
                    )
                    
                    
                    (147,299
                    )Net
      Income (loss)
                    
                    $
                    (95,834
                    )
                    
                    $
                    476,044Income
      (loss) per common share - basic:Net
      Income (loss) per common share
                    
                    $
                    0.00
                    
                    
                    $
                    0.02Income
      (loss) per common share - diluted:Net
      Income (loss) per common share
                    
                    $
                    0.00
                    
                    
                    $
                    0.02Weighted
      average common shares outstanding:Basic
                    
                    
                    21,954,030
                    
                    
                    
                    21,883,924Diluted
                    
                    
                    21,954,030
                    
                    
                    
                    23,471,284




See
Accompanying Notes to Condensed Consolidated Financial Statements




5




GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





For
      the Nine Months EndedSeptember 30, 2010
                    
                    
                    September 30, 2009Revenues
                    
                    $
                    16,666,296
                    
                    
                    $
                    16,098,699Cost
      of revenues
                    
                    
                    9,328,022
                    
                    
                    
                    8,457,522Gross
      profit
                    
                    
                    7,338,274
                    
                    
                    
                    7,641,177Operating
      expensesDepreciation
      expense
                    
                    
                    1,013,260
                    
                    
                    
                    863,206Amortization
      of intangible merchant contracts
                    
                    
                    606,329
                    
                    
                    
                    590,474Selling,
      general and administrative
                    
                    
                    4,747,697
                    
                    
                    
                    3,994,416Stock
      compensation expense
                    
                    
                    156,667
                    
                    
                    
                    86,064Total
      operating expenses
                    
                    
                    6,523,953
                    
                    
                    
                    5,534,160Operating
      income from continuing operationsbefore
      items shown below
                    
                    
                    814,321
                    
                    
                    
                    2,107,017Interest
      expense, net
                    
                    
                    (368,808
                    )
                    
                    
                    (509,789
                    )Loss
      on early extinguishment of debt
                    
                    
                    (102,146
                    )
                    
                    
                    (467,391
                    )Net
      Income
                    
                    $
                    343,367
                    
                    
                    $
                    1,129,837Income
      per common share - basic:Net
      Income per common share
                    
                    $
                    0.02
                    
                    
                    $
                    0.05Income
      per common share - diluted:Net
      Income per common share
                    
                    $
                    0.01
                    
                    
                    $
                    0.05Weighted
      average common shares outstanding:Basic
                    
                    
                    21,930,267
                    
                    
                    
                    21,579,475Diluted
                    
                    
                    23,481,861
                    
                    
                    
                    22,442,190




See Accompanying Notes to Condensed
Consolidated Financial Statements




6




GLOBAL
AXCESS CORP AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009Cash
      flows from operating activities:Income
      from continuing operations
              
              $
              343,367
              
              
              $
              1,129,837Adjustments
      to reconcile net income from continuing operationsto
      net cash provided by continuing operating activities:Stock
      based compensation
              
              
              156,667
              
              
              
              86,064Stock
      options issued to consultants in lieu of cash compensation
              
              
              -
              
              
              
              16,063Loss
      on early extinguishment of debt
              
              
              61,508
              
              
              
              467,391Depreciation
      expense
              
              
              1,013,260
              
              
              
              863,206Amortization
      of intangible merchant contracts
              
              
              606,329
              
              
              
              590,474Amortization
      of capitalized loan fees
              
              
              25,250
              
              
              
              21,706Allowance
      for doubtful accounts
              
              
              12,824
              
              
              
              (1,707
              )Allowance
      for inventory obsolescence
              
              
              (12,000
              )
              
              
              47,227Non-cash
      interest income on swap agreement with senior lender
              
              
              -
              
              
              
              (7,921
              )Accretion
      of discount on notes payable
              
              
              -
              
              
              
              47,211Changes
      in operating assets and liabilities:Change
      in automated teller machine vault cash
              
              
              -
              
              
              
              (250,000
              )Change
      in accounts receivable
              
              
              538
              
              
              
              47,728Change
      in inventory
              
              
              (722,804
              )
              
              
              (247,818
              )Change
      in prepaid expenses and other current assets
              
              
              (70,866
              )
              
              
              40,186Change
      in other assets
              
              
              (42,500
              )
              
              
              (21,075
              )Change
      in intangible assets, net
              
              
              (157,587
              )
              
              
              (70,696
              )Change
      in accounts payable and accrued liabilities
              
              
              976,747
              
              
              
              247,533Change
      in automated teller machine vault cash payable
              
              
              -
              
              
              
              250,000Net
      cash provided by continuing operating activities
              
              
              2,190,733
              
              
              
              3,255,409Cash
      flows from investing activities:Costs
      of acquiring merchant contracts
              
              
              (131,574
              )
              
              
              (81,141
              )Purchase
      of property and equipment
              
              
              (4,459,354
              )
              
              
              (628,365
              )Net
      cash used in investing activities
              
              
              (4,590,928
              )
              
              
              (709,506
              )Cash
      flows from financing activities:Proceeds
      from issuance of common stock
              
              
              2,249
              
              
              
              9,100Proceeds
      from senior lenders'  notes payable
              
              
              8,083,407
              
              
              
              5,000,000Proceeds
      from notes payable
              
              
              710,533
              
              
              
              69,905Change
      in restricted cash
              
              
              800,000
              
              
              
              (800,000
              )Principal
      payments on senior lenders'  notes payable
              
              
              (5,578,634
              )
              
              
              (5,814,286
              )Principal
      payments on notes payable
              
              
              (725,102
              )
              
              
              (7,208
              )Principal
      payments on notes payable - related parties
              
              
              (19,203
              )
              
              
              (17,139
              )Principal
      payments on capital lease obligations
              
              
              (595,625
              )
              
              
              (648,702
              )Net
      cash provided by (used in) financing activities
              
              
              2,677,625
              
              
              
              (2,208,330
              )Increase
      in cash
              
              
              277,430
              
              
              
              337,573Cash,
      beginning of period
              
              
              2,007,860
              
              
              
              1,560,910Cash,
      end of the period
              
              $
              2,285,290
              
              
              $
              1,898,483Cash
      paid for interest
              
              $
              345,942
              
              
              $
              447,764


See
Accompanying Notes to Condensed Consolidated Financial Statements




7




Supplemental
schedule of non-cash investing and financing activities:





For
      the Nine Months EndedSUPPLEMENTAL
      CASH FLOW INFORMATION
              
              September 30, 2010
              
              
              September 30, 2009The
      significant non-cash investing and financing activities of the Company
      were as follows:Operating
      activities:Net
      transfer of de-installed net fixed assets to (from)
    inventory
              
              $
              (60,604
              )
              
              $
              (241,833
              )Total
      non-cash operating activities
              
              $
              (60,604
              )
              
              $
              (241,833
              )Investing
      activities:Purchase
      of assets under capital lease obligations
              
              $
              260,684
              
              
              $
              464,723Net
      transfer of de-installed net fixed assets (to) from
    inventory
              
              
              60,604
              
              
              
              241,833Total
      non-cash investing activities
              
              $
              321,288
              
              
              $
              706,556Financing
      activities:Settlement
      of stock option exercises through issuance of treasury
    stock:Repurchase
      of treasury stock, 105,163 shares of common stock at cost
              
              $
              (70,000
              )
              
              $
              -Treasury
      Shares in lieu of cash for stock option exercises
              
              
              -
              
              
              
              -Total
      non-cash financing activities
              
              $
              (70,000
              )
              
              $
              -





See
Accompanying Notes to Condensed Consolidated Financial Statements




8




GLOBAL
AXCESS CORP AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2010


(Unaudited)





1.    BASIS
OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Securities and Exchange Commission (“the “SEC”)
requirements for interim financial statements. Therefore, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
These condensed consolidated financial statements should be read in conjunction
with the Form 10-K for the year ended December 31, 2009 of Global Axcess Corp
and its subsidiaries (the “Company").





The
condensed consolidated financial statements present the condensed consolidated
balance sheets, statements of operations, and cash flows of the Company. The
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America.





The
condensed consolidated financial information is unaudited. In the opinion of
management, all adjustments (consisting of only normal recurring
adjustments)  necessary to present fairly the financial position as of
September 30, 2010 and the results of operations and cash flows presented herein
have been included in the condensed consolidated financial statements. Interim
results are not necessarily indicative of results of operations for the full
year.





All
fiscal 2010 adjustments are of normal recurring nature.





2.    DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Description of
Business





Global
Axcess Corp, primarily through its wholly owned subsidiaries, Nationwide Money
Services, Inc., Nationwide Ntertainment Services, Inc. and EFT Integration Inc.,
is an independent provider of self-service kiosk
solutions.  Nationwide Ntertainment Services, Inc. was formed during
fiscal 2009.  These solutions include ATM and DVD kiosk management and
support services focused on serving the self-service kiosk needs of merchants,
grocers, retailers and financial institutions nationwide. It is a one-stop
gateway for unattended self-service kiosk management services.  The
Company currently owns, manages or operates approximately 4,900 self-service
kiosks in its national network spanning 43 states.





Significant Accounting
Policies





The
preparation of financial statements and related disclosures in conformity with
generally accepted accounting principles (“GAAP”) in the United States of
America requires management to make judgments, assumptions and estimates that
affect the amounts reported in the Company’s condensed consolidated financial
statements and accompanying notes. The Company bases its estimates and judgments
on historical experience and on various other assumptions that it believes are
reasonable under the circumstances. However, future events are subject to
change, and the best estimates and judgments routinely require adjustment. The
amounts of assets and liabilities reported in its condensed consolidated balance
sheets, and the amounts of revenues and expenses reported for each of its fiscal
periods, are affected by estimates and assumptions which are used for, but not
limited to, the accounting for allowance for doubtful accounts, goodwill and
intangible asset impairments,  inventory and income taxes. Actual
results could differ from these estimates. The following accounting policies are
significantly affected by judgments, assumptions and estimates used in the
preparation of the Company’s condensed consolidated financial
statements.





Cash and Cash
Equivalents





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




9





Principles of
Consolidation





The
condensed consolidated financial statements include the accounts of Global
Axcess Corp and its subsidiaries. Global Axcess Corp has the following
subsidiaries:  Nationwide Money Services, Inc. (“Nationwide”),
Nationwide Ntertainment Services, Inc. and EFT Integration, Inc.
(“EFTI”).  All significant intercompany transactions and accounts have
been eliminated in consolidation.





Revenue
Recognition





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





Branding
fees are generated by the Company’s bank branding arrangements, under which
financial institutions pay a fixed monthly fee per ATM to the Company to have
their brand name on selected ATMs within the Company’s ATM portfolio. In return
for such fees, the bank’s customers can use those branded ATMs without paying a
surcharge fee.  Branding fees are recognized in the period that the
service is performed. None of the branding fees are subject to escalation
clauses.  Should the Company include escalation clauses in its future
branding contracts, pursuant to GAAP guidelines for revenue recognition, the
monthly per ATM branding fees, which would be subject to escalation clauses
within the agreements, would be recognized as revenues on a straight-line basis
over the term of the agreement. In most of its branding agreements, the Company
does not receive any one-time set-up fees in addition to the monthly branding
fees. The Company has received immaterial one-time set-up fees per ATM. This
set-up fee is separate from the recurring, monthly branding fees and is meant to
compensate the Company for the burden incurred related to the initial set-up of
a branded ATM versus the on-going monthly services provided for the actual
branding. Since any and all one-time set up fees have been immaterial to date,
the Company has recorded the fee upon contract signing.  Should any
future branding agreements contain material set-up fees, in accordance with
GAAP, the Company would defer these set-up fees (as well as the corresponding
costs associated with the initial set-up) and recognize such amounts as revenue
(and expense) over the terms of the underlying bank branding
agreements.





Additionally,
the Company recognizes revenue on breached contracts when cash is
received.  During the nine-month period ended September 30, 2010, the
Company did not book any revenue on breached contracts.





In
connection with the Company’s merchant-owned ATM operating/processing
arrangements, the Company typically pays the surcharge fees that it earns to the
merchant as fees for providing, placing, and maintaining the ATM unit. In
accordance with GAAP, the Company has recorded such payments as a direct
reduction of revenue.





The
Company follows GAAP in reporting revenue gross as a principal versus net as an
agent for its merchant contracts. In accordance with GAAP, if the Company
performs as an agent or broker without assuming the risks and rewards of
ownership of the goods, sales should be and are reported on a net
basis.





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




10





Through
our wholly-owned subsidiary, Nationwide Ntertainment Services, Inc., we are also
engaged in the business of operating a network of DVD rental kiosks. We offer
self-service DVD rentals through kiosks where consumers can rent or purchase
movies or games. Our current DVD kiosks are installed primarily at grocery
stores. Our DVD kiosks, through our brand InstaFlix,  serve as a mini
video rental store and occupy an area of less than ten square
feet.  Consumers use a touch screen to select their DVD, swipe a valid
credit or debit card, and rent movies or games in some kiosks. The process is
designed to be fast, efficient and fully automated with no upfront or membership
fees. Typically, the DVD rental price is a flat fee plus tax for one night and
if the consumer chooses to keep the DVD for additional nights, they are
automatically charged for the additional fee. We generate revenue primarily
through fees charged to rent or purchase a DVD, and pay our retail partners a
percentage of our revenue.





Net
revenue from DVD movie rentals is recognized on a ratable basis during the term
of a consumer's rental transaction. On rental transactions for which the related
DVDs have not yet been returned to the kiosk at month-end, revenue is recognized
with a corresponding receivable recorded in the balance sheet, net of a reserve
for potentially uncollectible amounts. We record revenue net of refunds to
consumers.





During
the three-month and nine-month periods ended September 30, 2010, revenues
generated from our DVD rental kiosks were $359,105 and $461,920,
respectively.





Total Revenue and Total Cost
of Revenues Presentation





The
Company presents “Revenues” and “Cost of revenues” as a single line item in the
condensed consolidated statements of operations.  The following tables
set forth the revenue and cost of revenues sources included in the single line
items presented for the three-month and nine-month periods ended September 30,
2010 and 2009:




11





Revenues:





For
      the Three Months EndedSeptember 30, 2010
              
              
              September 30, 2009ATM
      Surcharge / Convenience Fee revenue
              
              $
              3,156,113
              
              
              $
              3,009,025ATM
      Interchange revenue
              
              
              1,717,123
              
              
              
              1,814,198ATM
      Processing revenue
              
              
              43,644
              
              
              
              45,103ATM
      Sales revenue
              
              
              139,439
              
              
              
              67,160Other
      ATM revenue
              
              
              363,889
              
              
              
              373,833DVD
      Rental revenue
              
              
              359,105
              
              
              
              5,538Total
      revenue
              
              $
              5,779,313
              
              
              $
              5,314,857
  For
      the Three Months EndedSeptember 30, 2010
              
              
              September 30, 2009ATM
      Operating revenue
              
              $
              5,280,769
              
              
              $
              5,242,159ATM
      Sales revenue
              
              
              139,439
              
              
              
              67,160DVD
      Operating revenue
              
              
              359,105
              
              
              
              5,538Total
      revenue
              
              $
              5,779,313
              
              
              $
              5,314,857
  For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009ATM
      Surcharge / Convenience Fee revenue
              
              $
              9,428,929
              
              
              $
              8,986,970ATM
      Interchange revenue
              
              
              5,319,653
              
              
              
              5,495,201ATM
      Processing revenue
              
              
              131,795
              
              
              
              161,687ATM
      Sales revenue
              
              
              279,049
              
              
              
              271,203Other
      ATM revenue
              
              
              1,044,950
              
              
              
              1,178,100DVD
      Rental revenue
              
              
              461,920
              
              
              
              5,538Total
      revenue
              
              $
              16,666,296
              
              
              $
              16,098,699
  For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009ATM
      Operating revenue
              
              $
              15,925,327
              
              
              $
              15,821,958ATM
      Sales revenue
              
              
              279,049
              
              
              
              271,203DVD
      Operating revenue
              
              
              461,920
              
              
              
              5,538Total
      revenue
              
              $
              16,666,296
              
              
              $
              16,098,699




12




Cost
of Revenues:





For
      the Three Months EndedSeptember 30, 2010
              
              
              September 30, 2009ATM
      Merchant residual / commission costs
              
              $
              1,609,109
              
              
              $
              1,585,053ATM
      Cost of cash
              
              
              570,377
              
              
              
              442,833ATM
      Processing costs
              
              
              282,849
              
              
              
              221,928ATM
      Communication costs
              
              
              130,759
              
              
              
              156,484ATM
      Sales costs
              
              
              144,777
              
              
              
              49,509Other
      ATM cost of revenues
              
              
              309,265
              
              
              
              322,276DVD
      operating costs
              
              
              426,858
              
              
              
              9,616Total
      cost of revenues
              
              $
              3,473,994
              
              
              $
              2,787,699
  For
      the Three Months EndedSeptember 30, 2010
              
              
              September 30, 2009Cost
      of ATM Operating revenue
              
              $
              2,902,359
              
              
              $
              2,728,574ATM
      Sales costs
              
              
              144,777
              
              
              
              49,509Cost
      of DVD Operating revenue
              
              
              426,858
              
              
              
              9,616Total
      cost of revenues
              
              $
              3,473,994
              
              
              $
              2,787,699
  For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009ATM
      Merchant residual / commission costs
              
              $
              4,701,863
              
              
              $
              4,970,103ATM
      Cost of cash
              
              
              1,663,471
              
              
              
              1,273,950ATM
      Processing costs
              
              
              786,698
              
              
              
              647,279ATM
      Communication costs
              
              
              429,836
              
              
              
              438,644ATM
      Sales costs
              
              
              276,671
              
              
              
              251,934Other
      ATM cost of revenues
              
              
              876,967
              
              
              
              859,996DVD
      operating costs
              
              
              592,516
              
              
              
              15,616Total
      cost of revenues
              
              $
              9,328,022
              
              
              $
              8,457,522
  For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009Cost
      of ATM Operating revenue
              
              $
              8,458,835
              
              
              $
              8,189,972ATM
      Sales costs
              
              
              276,671
              
              
              
              251,934Cost
      of DVD Operating revenue
              
              
              592,516
              
              
              
              15,616Total
      cost of revenues
              
              $
              9,328,022
              
              
              $
              8,457,522





Inventory





Inventory
      is stated at the lower of cost (first-in, first-out method) or
      market.  Inventory consists primarily of ATMs, other
      self-service kiosks and related parts and equipment.  Parts
      given to merchants for no charge are recorded to Merchant Contracts when
      the part is placed into service and the merchant signs a term extension to
      an existing contract.  The cost of the part will subsequently be
      amortized over the life of the contract extension.  ATMs and
      parts available for sale are classified as inventory until such time as
      the machine or part is sold or installed and in service. Once the ATM or
      part is sold, it is relieved to cost of
  revenues.





Also
included in inventory is the library of DVDs in the Company’s DVD rental
kiosks.  DVDs are initially recorded at cost and are amortized into
cost of sales over an assumed useful life to their estimated salvage value and
substantially all of the amortization expense is recognized within nine months
to one year of the assumed life of the DVDs.




13





At
September 30, 2010, the Company's inventory, net of an allowance for
obsolescence of $82,572, totaled $982,231.  Of the $1,064,803 of gross
inventory at September 30, 2010, $825,763 related to DVD library.





The
components of inventory for the period ended September 30, 2010 are as
follows:




September
      30, 2010ATM
      Parts and supplies
              
              $
              116,189Automated
      teller machines
              
              
              122,851DVD
      library
              
              
              825,7631,064,803Less:
      reserve for inventory obsolescence
              
              
              82,572Inventory,
      net
              
              $
              982,231




Accounts Receivable and
Allowance for Doubtful Accounts





The
Company reviews the accounts receivable on a regular basis to determine the
collectability of each account. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the failure of its clients to make
required payments. At each reporting period, the Company evaluates the adequacy
of the allowance for doubtful accounts and calculates the appropriate allowance
based on historical experience, credit evaluations, specific client collection
issues and the length of time a receivable is past due. The Company records an
allowance for doubtful accounts for any billed invoice aged past 60 days. When
the Company deems the receivable to be uncollectible, the Company charges the
receivable against the allowance for doubtful accounts. As of September 30,
2010, the Company had bad debt reserves totaling $3,678 against gross accounts
receivable totaling $835,316.





Fixed
Assets





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





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





Depreciation
is recognized using the straight-line method over the following approximate
useful lives.




Useful LifeATMs
              
              
              10
      yearsDVD
      kiosks
              
              
              5
      yearsComputers
              
              
              5
      yearsOffice
      furniture and equipment
              
              
              5
      yearsVehicles
              
              
              5
      yearsLeasehold
      improvements
              
              
              shorter
      of lease term or usefullife
      of improvem ent
 14


Intangible Assets – Goodwill
and Merchant Contracts





GAAP
requires that the Company complete a two-step goodwill impairment test annually.
The first step compares the fair value of each reporting unit to its carrying
amount, including goodwill. If the fair value of a reporting unit exceeded its
carrying amount, goodwill is not considered to be impaired and the second step
is not required. If the carrying amount of a reporting unit exceeds its fair
value, the second step is performed to measure the amount of impairment loss.
The second step compares the implied fair value of goodwill to the carrying
value of a reporting unit's goodwill. The implied fair value of goodwill is
determined in a manner similar to accounting for a business combination with the
allocation of the assessed fair value determined in the first step to the assets
and liabilities of the reporting unit. The excess of the fair value of the
reporting unit over the amounts assigned to the assets and liabilities is the
implied fair value of goodwill. This allocation process is only performed for
purposes of evaluating goodwill impairment and does not result in an entry to
adjust the value of any assets or liabilities. An impairment loss is recognized
for any excess in the carrying value of goodwill over the implied fair value of
goodwill.





Intangible
assets with finite lives and merchant contracts are stated at cost, net of
accumulated amortization, and are subject to impairment testing under certain
circumstances in accordance with GAAP. These assets are amortized on the
straight-line method over their estimated useful lives or period of expected
benefit. These assets are subject to periodic impairment testing.





The
Company’s merchant contracts are made up of contracts with automatic renewable
lives.  The Company has determined after review of its contracts that
the economic life of the contracts is extended and estimated over 21 years (or
three times renewal) based on historical and expected useful lives of similar
assets.   The Company amortizes the merchant contracts over their
estimated useful lives of 21 years.  The Company uses a two step
valuation process to determine if there has been any impairment on the value of
the merchant contract assets.  Additionally, when the Company gives
away an ATM part to induce a contract extension from the merchant, the Company
records the value of the ATM part to Merchant Contracts and amortizes the value
of the part over the life of the contract extension.





The first
step in impairment testing is to periodically assess the remaining contract
lives, including expected renewals.  If the periodic assessment
results in a determination that the economic lives of the merchant contracts are
less than 21 years, the Company adjusts the remaining amortization lives of the
merchant contracts.  The Company’s merchant contracts have an average
initial term of approximately seven years.  While the Company has
historically experienced a higher turnover rate among its merchant-owned clients
than with its company-owned portfolio, the Company is currently experiencing an
average of 2.2 renewals on its current merchant-owned contracts acquired through
the end of fiscal 2005.  In accordance with GAAP, an entity shall
consider its own historical experience about renewal or extension used to
determine the useful life of a recognized intangible asset.  Until
such time when the Company’s historical experience does not support the useful
and economic life of the merchant contracts, the Company concludes that the
current economic life of 21 years is appropriate.





The
second step is to compare the estimated future undiscounted cash flows of each
reporting unit to the carrying amount of the merchant contracts, thus testing
the impairment of the value of the contracts.  An impairment loss is
recognized for any excess in the carrying value of merchant contracts over the
assessed fair value of merchant contracts. To date, the Company’s testing has
indicated that there is no impairment of its goodwill and merchant
contracts.





The
following table summarizes Intangible Assets and Merchant Contracts at September
30, 2010:




15





Gross Carrying Value
              
              
              Accumulated Amortization
              
              
              NetGoodwill
              
              $
              4,189,645
              
              
              $
              168,286
              
              
              $
              4,021,359Other
      Intangible Assets
              
              
              157,691
              
              
              
              12,310
              
              
              
              145,381Merchant
      contracts
              
              
              14,949,867
              
              
              
              4,759,009
              
              
              
              10,190,858Total
      Intangible assets and merchant contracts
              
              $
              19,297,203
              
              
              $
              4,939,605
              
              
              $
              14,357,598




Fair Value of Financial
Instruments




The
carrying amounts of the Company’s long-term liabilities approximate the
estimated fair values at September 30, 2010, based upon the Company’s ability to
acquire similar debt at similar maturities. The carrying values of all other
financial instruments approximate their fair value because of the short-term
maturities of these instruments.





Automated Teller Machine
Vault Cash and Automated Teller Machine Vault Cash Payable




Automated
teller machine vault cash consists of funds collected from a branded bank
partner to be utilized in managing the cash in a selected number of their
ATMs.  These funds are reported as automated teller machine vault cash
on the condensed consolidated balance sheet with an offsetting amount reported
as automated teller machine vault cash payable.  As of September 30,
2010 and December 31, 2009, automated teller machine vault cash and automated
teller machine vault cash payable both totaled $250,000.





Earnings per
Share




In
calculating basic income per share, net income is divided by the weighted
average number of common shares outstanding for the period. Diluted income per
share reflects the assumed exercise or conversion of all dilutive securities,
such as options and warrants.  No such exercise or conversion is
assumed where the effect is anti-dilutive, such as when there is a net loss from
continuing operations or when the exercise price of the potentially dilutive
securities is greater than the market value of the Company’s
stock.  Stock options to purchase 2,901,905 shares of common stock and
stock warrants to purchase 165,000 shares of common stock that were outstanding
at September 30, 2010 were not included in the computation of diluted earnings
per share for the three months ended September 30, 2010 because the Company had
a net loss from operations and the impact of the assumed exercise of the stock
options and warrants is anti-dilutive.  Stock options to purchase
1,028,940 shares of common stock and stock warrants to purchase 480,000 shares
of common stock that were outstanding at September 30, 2009 were not included in
the computation of diluted earnings per share for the three months ended
September 30, 2009 because the exercise prices of these stock options were
greater than the average share price of the Company’s common stock and;
therefore, the effect would have been anti-dilutive.




16




For
      the Three Months EndedSeptember 30, 2010
              
              
              September 30, 2009NumeratorIncome
      (loss) from continuing operations
              
              $
              (95,834
              )
              
              $
              476,044Numerator
      for diluted income (loss) per shareavailable
      to common stockholders
              
              $
              (95,834
              )
              
              $
              476,044DenominatorWeighted
      average shares
              
              
              21,954,030
              
              
              
              21,883,924Effect
      of dilutive securities:Treasury
      method, effect of employee stock options & warrants
              
              
              -
              
              
              
              1,587,360Denominator
      for diluted income (loss) per share adjustedweighted
      shares after assumed exercises
              
              
              21,954,030
              
              
              
              23,471,284Income
      (loss) per common share - basic:Net
      Income (loss) per common share
              
              $
              0.00
              
              
              $
              0.02Income
      (loss) per common share - diluted:Net
      Income (loss) per common share
              
              $
              0.00
              
              
              $
              0.02


For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009NumeratorIncome
      from continuing operations
              
              $
              343,367
              
              
              $
              1,129,837Numerator
      for diluted income per shareavailable
      to common stockholders
              
              $
              343,367
              
              
              $
              1,129,837DenominatorWeighted
      average shares
              
              
              21,930,267
              
              
              
              21,579,475Effect
      of dilutive securities:Treasury
      method, effect of employee stock options & warrants
              
              
              1,551,594
              
              
              
              862,715Denominator
      for diluted income per share adjustedweighted
      shares after assumed exercises
              
              
              23,481,861
              
              
              
              22,442,190Income
      per common share - basic:Net
      Income per common share
              
              $
              0.02
              
              
              $
              0.05Income
      per common share - diluted:Net
      Income per common share
              
              $
              0.01
              
              
              $
              0.05




17




Income
Taxes





The
Company accounts for its income taxes in accordance with GAAP which requires
recognition of deferred tax assets and liabilities for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and tax credit
carry-forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.





Repairs and Maintenance
Costs





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





Stock-based
Compensation





GAAP
requires that all stock-based compensation be recognized as an expense in the
financial statements and that such cost be measured at the fair value of the
award. Under this method, compensation expense is recognized to reflect the
remaining service period of share-based awards.  The stock-based
compensation expense is included in operating expenses in the condensed
consolidated statements of operations. During the three-month periods ended
September 30, 2010 and 2009, the Company recorded $54,288 and $30,979,
respectively, of stock compensation expenses.  During the nine-month
periods ended September 30, 2010 and 2009, the Company recorded $156,667 and
$86,064, respectively, of stock compensation expenses.





Performance Based 401k
Contribution Plan





Effective
fiscal 2007, the Company implemented a performance based incentive program
matching 401k contributions.  During fiscal year 2009, for each
quarter the Company achieved its net income budget, the Company matched up to
50% of the first 6% of an employee’s 401k contributions during that respective
quarter.  For fiscal year 2010, there is no qualification of the
Company achieving its net income budget and the Company match is
automatic.  During the three-month periods ended September 30, 2010
and 2009, the Company recorded $12,910 and $0, respectively, of expenses
relating to this plan.  During the nine-month periods ended September
30, 2010 and 2009, the Company recorded $36,405 and $21,050, respectively, of
expenses relating to this plan.





Performance Based Incentive
Bonus Plan





Effective
fiscal 2008, the Company implemented a performance based incentive program for
employees and management of the Company.  A quarterly cash bonus pool
is funded by the Company’s achievement of net profits.





During
the three-month period ended September 30, 2010, the Company did not record any
amounts pertaining to this plan.  During the three-month period ended
September 30, 2009, the Company recorded $55,588 of expenses relating to this
plan.





During
the nine-month period ended September 30, 2010, the Company recorded $26,716 of
bonus and estimated payroll tax expenses relating to this plan.  Of
the $26,716 recorded during the nine-month period ended September 30, 2010,
$9,487 was accrued and will be paid upon achievement of fiscal 2010 net
profits.  During the nine-month period ended September 30, 2009, the
Company recorded $162,777 of expenses relating to this plan.





Recent Accounting
Pronouncements





Recent
accounting pronouncements: In January 2010, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”),
Improving Disclosures about Fair Value Measurements. ASU 2010-06 provides
amendments to FASB ASC 820-10 that requires new fair value disclosures and
clarifies existing fair value disclosures required under FASB ASC 820-10. The
new disclosures and clarifications of existing disclosures are effective for
interim and annual reporting periods beginning after December 15, 2009, except
for certain disclosures about purchases, sales, issuances, and settlements in
the roll forward activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The adoption of the new provisions
within ASU 2010-06 did not have an impact on our consolidated financial
position, results of operations, cash flows, or disclosures.




18








3.    ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities consisted of the following as of September 30,
2010 and December 31, 2009:





September
      30, 2010
              
              
              December
      31, 2009Accounts
      payable
              
              $
              1,578,539
              
              
              $
              624,874Accrued
      commissions/residual payments
              
              
              1,283,841
              
              
              
              1,223,734Accrued
      cost of cash and cash replenishment expenses
              
              
              318,876
              
              
              
              440,043Accrued
      payroll
              
              
              256,140
              
              
              
              332,117Accrued
      audit fees
              
              
              65,625
              
              
              
              84,000Asset
      Retirement Obligation
              
              
              63,074
              
              
              
              63,074Accrued
      taxes
              
              
              37,478
              
              
              
              64,500Other
              
              
              356,757
              
              
              
              151,241Accounts
      payable and accrued liabilities
              
              $
              3,960,330
              
              
              $
              2,983,583




4.    SENIOR
LENDERS’ NOTES PAYABLE AND NOTES PAYABLE





On June
18, 2010, the Company, entered into a $17.0 million credit facility with Fifth
Third Bank  ("Fifth Third").  The credit facility consists
of three components:  (i) a term loan of $5.0 million, (ii) a draw
loan of up to $2.0 million, and (iii) an equipment finance line of up to $10.0
million.





The term
loan and the draw loan are covered by a Loan and Security Agreement, dated as of
June 18, 2010 (the "Loan Agreement"), among the Company, Nationwide Money
Services, Inc., Nationwide Ntertainment Services, Inc., EFT Integration, Inc.
(all subsidiaries of the Company) and Fifth Third.





On the
day of closing of the Loan Agreement, the Company issued a promissory note (the
"Term Promissory Note") in the amount of $5.0 million to Fifth Third covering
the amount disbursed pursuant to the term loan.   The Company
will repay the amount borrowed over 36 months, beginning July 1, 2010, with 36
monthly principal payments plus accrued interest, with the final payment to be
made on May 31, 2013.  The Term Promissory Note carries interest of
LIBOR plus up to 400 basis points based on a ratio of the Company’s indebtedness
to EBITDA or 5.5%, whichever is greater.





Upon
entering into the Loan Agreement, the Company repaid in full all outstanding
borrowings under and terminated its (1) Credit and Security Agreement, dated as
of December 23, 2009, with SunTrust Bank ("SunTrust") (the "First Prior Loan
Agreement"), and (2) Loan and Security Agreement, dated as of December 29, 2009
(the "Second Prior Loan Agreement"), with Proficio Bank
(“Proficio”).  See Note #10 “Loss on Early Extinguishment of Debt” for
detail of the charges relating to the extinguishment of these
debts.





Also on
the day of the closing of the Loan Agreement, the Company issued a promissory
note (the "Draw Promissory Note") to Fifth Third covering any amounts which
might be disbursed pursuant to the draw loan, which can be a maximum of $2.0
million.  The Company can request disbursement from the draw loan in
$200,000 increments at any time after the delivery of the Draw Promissory
Note.  The Company will repay any amounts borrowed pursuant to the
Draw Promissory Note over 18 months, beginning on the first day of the month
following any draw, with 18 monthly principal payments plus accrued interest,
with the final payment to be made no later than November 30,
2011.  The Draw Promissory Note carries interest of LIBOR plus up to
400 basis points based on a ratio of the Company’s indebtedness to EBITDA or
5.5%, whichever is greater.  The proceeds of any amounts disbursed
pursuant to the draw loan will be used to purchase DVD inventory for the
Company’s DVD kiosk business line.  As of September 30, 2010, the
Company had drawn down $707,443 against the Draw Promissory Note.




19





The
equipment finance line is covered by a Master Equipment Lease Agreement, dated
as of June 18, 2010 (the "Lease Agreement"), among the Company, Nationwide Money
Services, Inc., Nationwide Ntertainment Services, Inc., and Fifth
Third.  The Lease Agreement and the corresponding equipment finance
line available from Fifth Third, will be used to fund the purchases of up to
$10.0 million of equipment (ATM and DVD kiosks), from time to time, and is
available to the Company over a five year period.  The equipment line
may also be used to support IT infrastructure. Borrowings made by the Company
pursuant to this equipment line carry a term of one-year interest-only followed
by an amortization of three years subsequent to each
drawdown.  Currently, the interest rate on this line is calculated on
the same formula as that in the Term Promissory Note and the Draw Promissory
Note, but the Company anticipates entering into a SWAP agreement to lock in the
interest rate on the equipment line.  The line is secured by any
equipment that is purchased pursuant to the line.  As of September 30,
2010, the Company had drawn down $2,342,569 against the Lease
Agreement.





The Loan
Agreement contains customary representations, warranties and covenants,
including covenants on the following:  (1) due authorization; (2)
compliance with laws; (3) absence of breach; (4) collateral ownership and
limitation of liens; (5) preparation of financial statements; (6) litigation and
taxes; (7) events of default; (8) ERISA obligations; (9) use of loan proceeds;
(10) limitations on indebtedness, liens and certain investments; (11)
limitations on changes in ownership structure; (12) dividends; (13) repurchases
of shares; and (14) maintenance of certain accounts with Fifth
Third.  The Loan Agreement, Term Promissory Note, and Draw Promissory
Note also include customary default provisions, including, without limitation,
payment defaults, cross-defaults to other material indebtedness, and bankruptcy
and insolvency.  In general, upon an event of default, Fifth Third
may, among other things, declare the outstanding principal and interest
immediately due and payable.





Pursuant
to the terms of the Loan Agreement and the Lease Agreement (as defined and
described below), the Company granted Fifth Third a security interest in all of
its assets, and the agreements are cross-collateralized.





As of
September 30, 2010, the Company was in compliance with all applicable covenants
and ratios under the Loan Agreement with Fifth Third.





On March
27, 2009, the Company entered into a credit and security agreement (the “Credit
Agreement”) with SunTrust Bank (“SunTrust”).  The Credit Agreement
provided for a maximum term loan of up to $5 million.  On March 27,
2009, the Company borrowed $5 million under the Credit Agreement and issued a
promissory note in such amount to SunTrust.  The proceeds were used to
repay CAMOFI Master LDC (“CAMOFI”) in connection with the settlement agreement,
effective as of March 17, 2009, between the Company and CAMOFI, and to repay the
outstanding principal balance under a loan agreement with Wachovia
Bank.  Upon entering into the Credit Agreement, the Company repaid in
full all outstanding borrowings under and terminated (1) its Fourth Amended and
Restated Loan Agreement, entered into as of September 28, 2007 (the “Prior Loan
Agreement”), by and between the Company and Wachovia Bank, and (2) its
Consolidated Renewal Promissory Note issued on September 28, 2007 (the “Renewal
Note”) to Wachovia Bank.  See Note #10 “Loss on Early Extinguishment
of Debt” for detail of the charges relating to the extinguishment of these
debts.





5.    COMMITMENTS
AND CONTINGENCIES





We lease
ATMs and back office computer equipment under capital lease agreements that
expire between 2010 and 2012.  The average interest rate paid on these
lease payments is 11.08% per annum. See Financial Footnote #12 to the Company’s
Consolidated Financial Statements in the Annual Report on Form 10-K for fiscal
2009.





During
the three-month period ended September 30, 2010, we entered into $58,475 of new
capital lease obligations.  As of September 30, 2010, approximately
$661,606 of capital lease obligations were included in the Company’s condensed
consolidated balance sheet.




20





6.    LITIGATION
AND CLAIMS





From time
to time, the Company and its subsidiaries may be parties to, and their property
is subject to, ordinary, routine litigation incidental to their business. We
know of no material, active or pending legal proceedings against the Company,
nor are we involved as a plaintiff in any material proceeding or pending
litigation. There are no proceedings in which any of our directors, officers or
affiliates, or any registered or beneficial shareholder, is an adverse party or
has a material interest adverse to our interest.





7.    
INCOME TAXES





The
effective tax rates for the three months ended September 30, 2010 and 2009 were
approximately 0.0% and 0.0%; respectively. The effective tax rates for the nine
months ended September 30, 2010 and 2009 were approximately 0.0% and 0.0%;
respectively. While there is no difference in the effective tax rate for the
three months and nine months ended September 30, 2010 over the respective
previous periods, the effective tax rates for the three months and nine months
ended September 30, 2010 differs from our expected tax rates for the periods
then-ended primarily due to the tax benefit recognized from the decrease in
valuation allowance established for net deferred tax assets.





In
assessing the realizability of the deferred tax assets, management considers
whether it is more likely than not, that some portion or all of the deferred tax
assets will not be realized.  The valuation allowance at September 30,
2010 is related to deferred tax assets arising from net operating loss
carryforwards.  Management believes that based upon its projection of
future taxable income for the foreseeable future, it is more likely than not
that the Company will not be able to realize the full benefit of the net
operating loss carryforwards before they expire due to the amortization and
depreciation losses from the projected acquisition assets.





At
December 31, 2009, the Company had net operating loss carryforwards remaining of
approximately $22.7 million that may be offset against future taxable income
through 2028.  As part of management’s tax strategies they will be
reviewing the use of the net operating loss carryforwards. The Company is
reviewing its tax depreciation methods for future utilization of the net
operating loss.





At
December 31, 2009, we had approximately $1,147,200 of total unrecognized tax
benefits. There were no changes to the unrecognized tax benefits during
2010.  We are subject to the income tax jurisdictions of the U.S., as
well as income tax of multiple state jurisdictions. We believe we are no longer
subject to U.S. federal income tax examinations for years before 2006, to
international examinations for years before 2005 and, with few exceptions, to
state examinations before 2005.





8.  CHANGES
IN STOCKHOLDERS' EQUITY





See the
table below for all the equity transactions for the three-month period ended
September 30, 2010:




21




Additional
              
              
              
              
              
              
              
              
              TotalCommon
      Stock
              
              
              Paid-in
              
              
              Accumulated
              
              
              Treasury
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Stock
              
              
              EquityBalances,
      June 30, 2010
              
              
              21,943,940
              
              
              $
              21,992
              
              
              $
              23,033,199
              
              
              $
              (5,905,733
              )
              
              $
              (41,966
              )
              
              $
              17,107,492Stock
      compensation expense
              
              
              -
              
              
              
              -
              
              
              
              54,288
              
              
              
              -
              
              
              
              -
              
              
              
              54,288Stock
      warrants exercised, cashless
              
              
              128,571
              
              
              
              129
              
              
              
              39,871
              
              
              
              -
              
              
              
              (40,000
              )
              
              
              -Exercise
      of stock options
              
              
              12,325
              
              
              
              12
              
              
              
              2,237
              
              
              
              -
              
              
              
              -
              
              
              
              2,249Net
      (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (95,834
              )
              
              
              -
              
              
              
              (95,834
              )Balances,
      September 30, 2010
              
              
              22,084,836
              
              
              $
              22,133
              
              
              $
              23,129,595
              
              
              $
              (6,001,567
              )
              
              $
              (81,966
              )
              
              $
              17,068,195




9.   FAIR
      VALUE MEASUREMENT







FASB
guidance regarding fair value measurements defines fair value, establishes a
framework for using fair value to measure assets and liabilities, and expands
disclosures about fair value measurements.  The statement applies
whenever other statements require or permit assets or liabilities to be measured
at fair value.  The guidance is effective for fiscal years beginning
after November 15, 2007, except for nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis for which application has been deferred for one
year.





The
guidance established the following fair value hierarchy that prioritizes the
inputs used to measure fair value:





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





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





Level 3:
Pricing inputs include significant inputs that are generally less observable
from objective sources.  These inputs may be used with internally
developed methodologies that result in management’s best estimate of fair
value.   At each balance sheet date, we perform an analysis of
all instruments subject in accordance with GAAP and include in Level 3 all of
those whose fair value is based on significant unobservable inputs.





As of
September 30, 2010, there were no financial assets and liabilities that were
accounted for at fair value on a recurring basis.





Our
derivative financial instruments are interest rate swap agreements, which are
observable at commonly quoted intervals for the full term of the derivatives and
therefore considered a level 2 input.  During the nine-month period
ended September 30, 2009, we recorded $7,921 of income relating to the interest
rate swap which is included in the interest expense, net in our condensed
consolidated statements of operations.  The interest rate swap
agreement was terminated on March 27, 2009 upon the Company entering into the
Credit Agreement with SunTrust Bank.




22


10.  LOSS
ON EARLY EXTINGUISHMENT OF DEBT





As
discussed in Note #4 “Senior Lenders’ Notes Payable and Notes Payable,” on June
18, 2010 the Company entered into the Loan Agreement with Fifth Third
Bank.  The proceeds were used to repay outstanding principal balances
under loan agreements with SunTrust and Proficio.





Also, as
discussed in Note #4 “Senior Lenders’ Notes Payable and Notes Payable,” on March
27, 2009 the Company entered into the Credit Agreement with SunTrust
Bank.  The proceeds were used to repay CAMOFI in connection with a
settlement agreement, effective as of March 17, 2009, between the Company and
CAMOFI, and to repay the outstanding principal balance under a loan agreement
with Wachovia Bank.





In
accordance with GAAP, the net carrying amount of the extinguished debt should be
recognized currently in income of the period of extinguishment as losses or
gains and identified as a separate item.





The
following summarizes the amounts charged to loss on early extinguishment of debt
for the nine-month periods ended September 30, 2010 and September 30,
2009:




For
      the Nine Months EndedItem description
              
              September 30, 2010
              
              
              September 30, 2009Accelerated
      accretion of discount on notes payable
              
              $
              -
              
              
              $
              249,419Accelerated
      amortization of capitalized loan fees
              
              $
              61,508
              
              
              $
              76,493Accelerated
      expense of prepaid loan fees
              
              $
              -
              
              
              $
              6,400Stock
      expense relating to repriced warrants on debt settlement
              
              $
              -
              
              
              $
              107,025Stock
      expense relating to warrants issued to subordinated note
      holders
              
              $
              -
              
              
              $
              28,054Prepayment
      fees on debt settlement
              
              $
              40,638
              
              
              $
              -Total
      loss on early extinguishment of debt
              
              $
              102,146
              
              
              $
              467,391


11.  BUSINESS
SEGMENT INFORMATION





FASB
requires that companies report separately in the financial statements certain
financial and descriptive information about segment revenues, income and assets.
The method for determining what information is reported is based on the way that
management organizes the operating segments for making operational decisions and
assessments of financial performance. In computing operating profit and net
income for the DVD services business, no allocations of general corporate
expenses have been made and therefore these are included in the ATM services
business as the DVD services business only includes expenses directly related to
its business.





The
following table summarizes our revenue, gross profit, SG&A, depreciation,
operating income, net income and EBITDA by segment for the periods
indicated:




23





For
      the Three Months Ended
              
              
              For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009
              
              
              September 30, 2010
              
              
              September 30, 2009Revenue:ATM
      Services
              
              $
              5,420,208
              
              
              $
              5,309,319
              
              
              $
              16,204,376
              
              
              $
              16,093,161DVD
      Services
              
              
              359,105
              
              
              
              5,538
              
              
              
              461,920
              
              
              
              5,538Consolidated
      revenue
              
              $
              5,779,313
              
              
              $
              5,314,857
              
              
              $
              16,666,296
              
              
              $
              16,098,699Gross
      profit:ATM
      Services
              
              $
              2,373,072
              
              
              $
              2,531,236
              
              
              $
              7,468,870
              
              
              $
              7,651,255DVD
      Services
              
              
              (67,753
              )
              
              
              (4,078
              )
              
              
              (130,596
              )
              
              
              (10,078
              )Consolidated
      gross profit
              
              $
              2,305,319
              
              
              $
              2,527,158
              
              
              $
              7,338,274
              
              
              $
              7,641,177SG&A:ATM
      Services
              
              $
              1,333,172
              
              
              $
              1,302,815
              
              
              $
              4,146,725
              
              
              $
              3,928,516DVD
      Services
              
              
              285,953
              
              
              
              64,367
              
              
              
              600,972
              
              
              
              65,900Consolidated
      SG&A
              
              $
              1,619,125
              
              
              $
              1,367,182
              
              
              $
              4,747,697
              
              
              $
              3,994,416Depreciation
      & Amortization:ATM
      Services
              
              $
              497,223
              
              
              $
              500,351
              
              
              $
              1,486,529
              
              
              $
              1,448,377DVD
      Services
              
              
              92,602
              
              
              
              5,303
              
              
              
              133,060
              
              
              
              5,303Consolidated
      depreciation & amortization
              
              $
              589,825
              
              
              $
              505,654
              
              
              $
              1,619,589
              
              
              $
              1,453,680Operating
      income (loss):ATM
      Services
              
              $
              488,389
              
              
              $
              697,091
              
              
              $
              1,678,949
              
              
              $
              2,188,298DVD
      Services
              
              
              (446,308
              )
              
              
              (73,748
              )
              
              
              (864,628
              )
              
              
              (81,281
              )Consolidated
      operating income
              
              $
              42,081
              
              
              $
              623,343
              
              
              $
              814,321
              
              
              $
              2,107,017Net
      income (loss):ATM
      Services
              
              $
              350,474
              
              
              $
              549,792
              
              
              $
              1,207,995
              
              
              $
              1,211,118DVD
      Services
              
              
              (446,308
              )
              
              
              (73,748
              )
              
              
              (864,628
              )
              
              
              (81,281
              )Consolidated
      net income (loss)
              
              $
              (95,834
              )
              
              $
              476,044
              
              
              $
              343,367
              
              
              $
              1,129,837EBITDA
      (1):ATM
      Services
              
              $
              985,612
              
              
              $
              1,197,442
              
              
              $
              3,063,332
              
              
              $
              3,169,284DVD
      Services
              
              
              (353,706
              )
              
              
              (68,445
              )
              
              
              (731,568
              )
              
              
              (75,978
              )Consolidated
      EBITDA
              
              $
              631,906
              
              
              $
              1,128,997
              
              
              $
              2,331,764
              
              
              $
              3,093,306




(1)
            See
      “—EBITDA”





The
following table summarizes total assets by segment for the periods
indicated:




24





(Unaudited)
              
              
              (Audited)September
      30
              
              
              December
      312010
              
              
              2009Assets:ATM
      Services
              
              $
              24,720,353
              
              
              $
              25,627,067DVD
      Services
              
              
              5,011,686
              
              
              
              489,882Consolidated
      assets
              
              $
              29,732,039
              
              
              $
              26,116,949




ITEM
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations





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





Summary





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





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





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





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




25





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





Nationwide
Ntertainment Services, Inc., a wholly owned subsidiary of the Company formed
during fiscal 2009, is engaged in the business of operating a network of DVD
rental kiosks. We offer self-service DVD rentals through kiosks where consumers
can rent or purchase movies or games. Our current DVD kiosks are installed
primarily at grocery stores. Our DVD kiosks, through our brand
InstaFlix,  serve as a mini video rental store and occupy an area of
less than ten square feet.  Consumers use a touch screen to select
their DVD, swipe a valid credit or debit card, and rent movies or games in some
kiosks. The process is designed to be fast, efficient and fully automated with
no upfront or membership fees. Typically, the DVD rental price is a flat fee
plus tax for one night and if the consumer chooses to keep the DVD for
additional nights, they are automatically charged for the additional fee. We
generate revenue primarily through fees charged to rent or purchase a DVD, and
pay our retail partners a percentage of our revenue.





Recent
Events





Revenue Trends - The
interchange rates paid to independent ATM deployers, such as ourselves, are set
by the various EFT networks over which the underlying transactions are
routed.  Recently, certain networks have reduced the net interchange
fees paid to ATM deployers for transactions routed through their
networks.  For example, effective April 1, 2010, a global network
brand reduced the interchange rates it pays to domestic ATM deployers for ATM
transactions routed across its debit network.  As a result, we have
recently seen certain financial institutions migrate their volume away from
other networks to take advantage of the lower pricing offered by these
networks.  Such rate change is expected to reduce our ATM operating
gross profits by approximately $20,000 - $25,000 a month beginning April 1,
2010.  Furthermore, if additional financial institutions move to take
advantage of this lower pricing, or if additional networks reduce the
interchange rates they currently pay to ATM deployers, our future revenues and
gross profits would be negatively impacted.  For additional details on
this rate change and other risks associated with interchange revenues, see Part
II, Item 1A. “Risk Factors”.





Financial Regulatory Reform in the
United States - The Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Act”), which contains broad measures aimed at overhauling existing
financial regulations within the United States, was signed into law on July 21,
2010.  Among many other things, the Act includes provisions that (i)
call for the establishment of a new Bureau of Consumer Financial Protection,
(ii) limit the activities that banking entities may engage in, and (iii) give
the Federal Reserve the authority to regulate interchange transaction fees
charged by electronic funds transfer networks for electronic debit
transactions.  Many of the detailed regulations required under the Act
have yet to be finalized and will likely not be finalized for some
time.  Accordingly, at this point, we do not believe that the
regulations that are likely to arise from the Act will have a material impact on
our operations.  However, based on the current language contained
within the Act, it is uncertain whether the regulation of interchange fees for
electronic debit transactions will apply to ATM cash withdrawal
transactions.  If ATM cash withdrawal transactions were to fall under
the proposed regulatory framework, and the related interchange fees were reduced
from their current levels, such change would likely have a negative impact on
our future revenues and operating profits.  Conversely, additional
proposed regulations contained within the Act are aimed at providing merchants
with additional flexibility in terms of allowing certain point-of-sale
transactions to be paid for in cash rather than with debit or credit
cards.  Such a change would likely result in the increased use of cash
at the point-of-sale for some merchants, and thus, could positively impact our
future revenues and operating profits (through increased transaction levels at
our ATMs).





Results of Continuing
Operations




26





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





For
      the Three Months EndedSeptember 30, 2010
              
              
              September 30, 2009Revenues
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of revenues
              
              
              60.1
              %
              
              
              52.5
              %Gross
      profit
              
              
              39.9
              %
              
              
              47.5
              %Depreciation
      expense
              
              
              6.6
              %
              
              
              5.7
              %Amortization
      of intangible merchant contracts
              
              
              3.6
              %
              
              
              3.8
              %Selling,
      general and administrative
              
              
              28.0
              %
              
              
              25.7
              %Stock
      compensation expense
              
              
              0.9
              %
              
              
              0.6
              %Total
      operating expenses
              
              
              39.2
              %
              
              
              35.8
              %Operating
      income from continuing operationsbefore
      items shown below
              
              
              0.7
              %
              
              
              11.7
              %Interest
      expense, net
              
              
              (2.4
              %)
              
              
              (2.8
              %)Net
      income (loss)
              
              
              (1.7
              %)
              
              
              9.0
              %EBITDA
      (1)
              
              
              10.9
              %
              
              
              21.2
              %




For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009Revenues
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of revenues
              
              
              56.0
              %
              
              
              52.5
              %Gross
      profit
              
              
              44.0
              %
              
              
              47.5
              %Depreciation
      expense
              
              
              6.1
              %
              
              
              5.4
              %Amortization
      of intangible merchant contracts
              
              
              3.6
              %
              
              
              3.7
              %Selling,
      general and administrative
              
              
              28.5
              %
              
              
              24.8
              %Stock
      compensation expense
              
              
              0.9
              %
              
              
              0.5
              %Total
      operating expenses
              
              
              39.1
              %
              
              
              34.4
              %Operating
      income from continuing operationsbefore
      items shown below
              
              
              4.9
              %
              
              
              13.1
              %Interest
      expense, net
              
              
              (2.2
              %)
              
              
              (3.2
              %)Loss
      on early extinguishment of debt
              
              
              (0.6
              %)
              
              
              (2.9
              %)Net
      income
              
              
              2.1
              %
              
              
              6.9
              %EBITDA
      (1)
              
              
              14.0
              %
              
              
              19.2
              %




(1)
See “—EBITDA”





Comparison of Results of
Operations for the Three Months Ended September 30, 2010 and
2009:





Revenues





The
Company reported total operating revenue from continuing operations of
$5,779,313  for the three-month period ended September 30, 2010 as
compared to $5,314,857  for the three-month period ended September 30,
2009.  The increase was mainly a result of DVD rental revenue of
$359,105 recorded during the third quarter of 2010.  Additionally,
more ATMs and higher ATM transaction volumes during the third quarter of 2010 as
compared to 2009, offset by a decrease in interchange revenue due to areduction in MasterCard’s
interchange rate, contributed to the revenue increase.




27





Cost of
Revenues





Our total
cost of revenues from continuing operations increased from
$2,787,699   to $3,473,994   for the three-month
period ended September 30, 2009 to the three-month period ended September 30,
2010.  Approximately $417,000 of the increase in cost of revenues year
over year related to our DVD business.  Approximately $145,000 of the
increase in cost of revenues year over year were due to increased cash costs and
vault cash insurance on increased number of ATMs, approximately $95,000 related
to purchases of ATMs for resale.  During the quarter, a service
provider increased the per-ATM cost of vault cash insurance, and this increase
also contributed approximately $12,000 to the increase in cost of
revenues.





Gross
Profit





Gross
profit from continuing operations as a percentage of revenue for the three-month
periods ended September 30, 2010 and 2009 were approximately 39.9%, or
$2,305,319, and approximately 47.5%, or  $2,527,158, respectively. The
decreased gross profit and gross profit percentage for the third quarter of 2010
versus the same period in 2009 was mainly attributable to the increased cost of
revenues discussed above.





Operating
Expenses





Our total
operating expenses from continuing operations for the three months ended
September 30, 2010 and 2009 were $2,263,238 and $1,903,815, respectively. The
principal components of operating expenses are general and administrative
expenses such as professional and legal fees, administrative salaries and
benefits, consulting and audit fees, occupancy costs, sales and marketing
expenses and administrative expenses.  Operating expenses also include
depreciation, amortization of intangible merchant contracts and stock
compensation expenses. See explanation of the principal components of operating
expenses below:





Selling, General and
Administrative (“SG&A”) Expenses





Our total
SG&A expenses from continuing operations increased to $1,619,125, or 28.0%
of revenue for the three-month period ended September 30, 2010 from $1,367,182,
or 25.7% of revenue for the three-month period ended September 30,
2009.   The increase in SG&A expenses was mainly due to
$285,953 of SG&A  expenses incurred in connection with our DVD
rental kiosk initiative.  Such DVD-related expenses included the costs
of  hired consultants and employees with industry expertise to
spearhead our efforts in this line of business, travel expenses and other
typical SG&A expenses such as marketing, professional fees, shipping, etc.
Also
contributing to the increase in SG&A expenses year over year are increases
in headcount-related expenses and increased state sales tax
accruals.




Depreciation
Expense





Depreciation
expense from continuing operations increased for the three-month period ended
September 30, 2010 to $382,160  from $303,864  for the same
period in 2009.  The increase was due to increased ATM and DVD kiosks
purchased during 2009 and 2010 to support new business in both business
lines.





Amortization of Intangible
Merchant Contracts





Amortization
of intangible merchant contracts from continuing operations increased for the
three-month period ended September 30, 2010 to $207,665 from $201,790 for the
same period in 2009.  See Note #2 “Description of Business and Summary
of Significant Accounting Policies” regarding the amortization of intangible
merchant contracts.





Stock Compensation
Expense





During
the three-month periods ended September 30, 2010 and 2009, we recorded stock
compensation expenses of $54,288 and $30,979, respectively.  The
increase was mainly due to increased stock option grants during the fourth
quarter fiscal 2009 and the first quarter of 2010.




28





Operating Income from
Continuing Operations





We had
operating income from continuing operations for the three-month period ended
September 30, 2010 in the amount of $42,081 as compared to operating income from
continuing operations of $623,343 in the three-month period ended September 30,
2009.  The decrease in operating income was primarily due to the
increased SG&A and depreciation expenses along with the decreased gross
profits discussed above.





Interest Expense,
Net





Interest
expense, net, decreased for the three-month period ended September 30, 2010 to
$137,915 from $147,299 for the three-month period ended September 30,
2009.  The decrease was mainly due to the reduced interest rates on
senior lenders’ debt as a result of the refinancing  of debt on June
18, 2010.  See Note #4 “Senior Lenders’ Notes Payabe and Notes
Payable” regarding the details of the June 18, 2010 financing.





For
      the Three Months EndedSeptember 30, 2010
              
              
              September 30, 2009Interest
      expense, net
              
              $
              137,915
              
              
              $
              144,443Accretion
      of discount on notes payable
              
              
              -
              
              
              
              2,856Total
      interest expense, net
              
              $
              137,915
              
              
              $
              147,299




Net Income
(loss)





We had a
net loss of $95,834 for the three-month period ended September 30, 2010, as
compared to net income of $476,044 for the three-month period ended September
30, 2009.  The decrease in net income year over year was primarily due
to the investment in our DVD business.





Comparison of Results of
Operations for the Nine Months Ended September 30, 2010 and
2009:





Revenues





The
Company reported total operating revenue from continuing operations of
$16,666,296 for the nine-month period ended September 30, 2010 as compared to
$16,098,699 for the nine-month period ended September 30, 2009.  The
increase was mainly a result of DVD rental revenue of $461,920 recorded during
the nine-month period ended September 30, 2010.  Additionally, more
ATMs and higher ATM transaction volumes during the nine months of 2010 as
compared to 2009, offset by a decrease in interchange revenue due to a reduction
in MasterCard’s interchange rate, contributed to the revenue
increase.





Cost of
Revenues





Our total
cost of revenues from continuing operations increased from $8,457,522 to
$9,328,022 for the nine-month period ended September 30, 2009 to the nine-month
period ended September 30, 2010. Approximately $577,000 of
the increase in cost of revenues year over year related to our DVD
business.   Other increases in cost of revenues year over year
were due to increased cash costs and vault cash insurance on increased number of
ATMs.




29





Gross
Profit





Gross
profit from continuing operations as a percentage of revenue for the nine-month
periods ended September 30, 2010 and 2009 were approximately 44.0%, or
$7,338,274, and approximately 47.5%, or $7,641,177, respectively. The decreased
gross profit and gross profit percentage for the nine-month period ended
September 30, 2010 versus the same period in 2009 was mainly attributable to the
increased cost of revenues discussed above.





Operating
Expenses





Our total
operating expenses from continuing operations for the nine months ended
September 30, 2010 and 2009 were $6,523,953  and $5,534,160,
respectively. The principal components of operating expenses are general and
administrative expenses such as professional and legal fees, administrative
salaries and benefits, consulting and audit fees, occupancy costs, sales and
marketing expenses and administrative expenses.  Operating expenses
also include depreciation, amortization of intangible merchant contracts and
stock compensation expenses. See explanation of the principal components of
operating expenses below:





Selling, General and
Administrative (“SG&A”) Expenses





Our total
SG&A expenses from continuing operations increased to $4,747,697, or 28.5%
of revenue for the nine-month period ended September 30, 2010 from $3,994,416,
or 24.8% of revenue for the nine-month period ended September 30,
2009.  The increase in SG&A expenses was mainly due to $601,000 of
SG&A  expenses incurred in connection with our DVD rental kiosk
initiative.  Such DVD-related expenses included the costs
of  hired consultants and employees with industry expertise to
spearhead our efforts in this line of business, travel expenses and other
typical SG&A expenses such as marketing, professional fees, shipping,
etc.  Also contributing to the increase in SG&A expenses year over
year are investor relations expenses, expenses relating to the hiring of an
investment banking firm to evaluate possible merger and acquisitions, increases
in headcount-related expenses and increased state sales tax
accruals.





Depreciation
Expense





Depreciation
expense from continuing operations increased for the nine-month period ended
September 30, 2010 to $1,013,260 from $863,206 for the same period in 2009. The
increase was due to increased ATM and DVD kiosks purchased during 2009 and 2010
to support new business in both business lines.





Amortization of Intangible
Merchant Contracts





Amortization
of intangible merchant contracts from continuing operations increased for the
nine-month period ended September 30, 2010 to $606,329 from $590,474 for the
same period in 2009.  See Note #2 “Description of Business and Summary
of Significant Accounting Policies” regarding the amortization of intangible
merchant contracts.





Stock Compensation
Expense





During
the nine-month periods ended September 30, 2010 and 2009, we recorded stock
compensation expenses of $156,667 and $86,064, respectively.  The
increase was mainly due to increased stock option grants during the fourth
quarter fiscal 2009 and the first quarter of 2010.





Operating Income from
Continuing Operations





We had
operating income from continuing operations for the nine-month period ended
September 30, 2010 in the amount of $814,321 as compared to operating income
from continuing operations of $2,107,017 in the nine-month period ended
September 30, 2009.





Interest Expense,
Net





Interest
expense, net, decreased for the nine-month period ended September 30, 2010 to
$368,808 from $509,789 for the nine-month period ended September 30,
2009.  The decrease was partly due to the reduced interest rates on
senior lenders’ debt as a result of the refinancing  of debt on June
18, 2010.  See Note #4 “Senior Lenders’ Notes Payabe and Notes
Payable” regarding the details of the June 18, 2010 financing.  During
the nine-month period ended September 30, 2009 we recorded interest income of
$7,921 relating to the interest swap agreement we entered into with our former
senior lender.




30




For
      the Three Months EndedSeptember 30, 2010
                
                
                September 30, 2009Net
      income (loss) from continuing operations
                
                $
                (95,834
                )
                
                $
                476,044Interest
      expense, net
                
                
                137,915
                
                
                
                147,299Depreciation
      expense
                
                
                382,160
                
                
                
                303,864Amortization
      of intangible merchant contracts
                
                
                207,665
                
                
                
                201,790EBITDA
      from continuing operations
                
                $
                631,906
                
                
                $
                1,128,997




Loss on early extinguishment
of debt





During
the nine-month periods ended September 30, 2010 and 2009, we recorded expenses
of $102,146 and $467,391, respectively, relating to the payoff of debt balances
with a senior lender and notes payable.  See Note #10 “Loss on Early
Extinguishment of Debt” for detail of these charges.





Net
Income





We had
net income of $343,367 for the nine months ended September 30, 2010, as compared
to net income of $1,129,837 for the nine-month period ended September 30,
2009.





EBITDA





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





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





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





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





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





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





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





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








The following table sets
forth a reconciliation of net income (loss) from continuing operations to EBITDA
from continuing operations for the three months ended September 30, 2010 and
2009:




31





For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009Interest
      expense, net
              
              $
              368,808
              
              
              $
              462,578Accretion
      of discount on notes payable
              
              
              -
              
              
              
              47,211Total
      interest expense, net
              
              $
              368,808
              
              
              $
              509,789




Our
EBITDA from continuing operations decreased to $631,906 for the third quarter of
fiscal 2010 from $1,128,997 for the third quarter of fiscal 2009. EBITDA from
continuing operations as a percentage of revenues decreased to 10.9% for the
third quarter of fiscal 2010 from 21.2% for the third quarter of fiscal
2009.




The following table sets
forth a reconciliation of net income from continuing operations to EBITDA from
continuing operations for the nine months ended September 30, 2010 and 2009:




For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009Net
      income from continuing operations
              
              $
              343,367
              
              
              $
              1,129,837Interest
      expense, net
              
              
              368,808
              
              
              
              509,789Depreciation
      expense
              
              
              1,013,260
              
              
              
              863,206Amortization
      of intangible merchant contracts
              
              
              606,329
              
              
              
              590,474EBITDA
      from continuing operations
              
              $
              2,331,764
              
              
              $
              3,093,306




Our
EBITDA from continuing operations decreased to $2,331,764 for the first nine
months of fiscal 2010 from $3,093,306 for the first nine months of fiscal
2009.  EBITDA from continuing operations as a percentage of revenues
decreased to 14.0% for the first nine months of fiscal 2010 from 19.2% for the
first nine months of fiscal 2009.





The following table sets
forth a reconciliation of net income (loss) from continuing operations to EBITDA
from continuing operations before stock compensation expense (“Adjusted
EBITDA”)  for the three months ended September 30, 2010 and
2009:





For
      the Three Months EndedSeptember 30, 2010
              
              
              September 30, 2009Net
      income (loss) from continuing operations
              
              $
              (95,834
              )
              
              $
              476,044Interest
      expense, net
              
              
              137,915
              
              
              
              147,299Depreciation
      expense
              
              
              382,160
              
              
              
              303,864Amortization
      of intangible merchant contracts
              
              
              207,665
              
              
              
              201,790Stock
      compensation expense
              
              
              54,288
              
              
              
              30,979Adjusted
      EBITDA
              
              $
              686,194
              
              
              $
              1,159,976




Our
Adjusted EBITDA decreased to $686,194 for the third quarter of fiscal 2010 from
$1,159,976 for the third quarter of fiscal 2009. Adjusted EBITDA as a percentage
of revenues decreased to 11.9% for the third quarter of fiscal 2010 from 21.8%
for the third quarter of fiscal 2009.




32




The following table sets
forth a reconciliation of net income from continuing operations to EBITDA from
continuing operations before stock compensation expense and loss on early
extinguishment of debt (“Adjusted EBITDA”)  for the nine months ended
September 30, 2010 and 2009:





For
      the Nine Months EndedSeptember 30, 2010
              
              
              September 30, 2009Net
      income from continuing operations
              
              $
              343,367
              
              
              $
              1,129,837Interest
      expense, net
              
              
              368,808
              
              
              
              509,789Depreciation
      expense
              
              
              1,013,260
              
              
              
              863,206Amortization
      of intangible merchant contracts
              
              
              606,329
              
              
              
              590,474Stock
      compensation expense
              
              
              156,667
              
              
              
              86,064Loss
      on early extinguishment of debt
              
              
              102,146
              
              
              
              467,391Adjusted
      EBITDA
              
              $
              2,590,577
              
              
              $
              3,646,761




Our
Adjusted EBITDA decreased to $2,590,577 for the first nine months of fiscal 2010
from $3,646,761 for the first nine months of fiscal 2009. Adjusted EBITDA as a
percentage of revenues decreased to 15.5% for the first nine months of fiscal
2010 from 22.7% for the first nine months of fiscal 2009.





Seasonality





In our
ATM operations, we traditionally experience higher transaction volumes per
machine in the second and third quarters than in the first and fourth quarters.
The increased volumes in the summer months coincide with increased vacation
travel in the United States.





Liquidity and Capital
Resources





Our
primary liquidity and capital resource needs are to finance the costs of our
operations, to make capital expenditures and to service our debt.





Net cash
provided by continuing operating activities during the nine-month period ended
September 30, 2010 was $ 2,190,733, compared to the net cash provided by
continuing operating activities during the nine-month period ended September 30,
2009 of $ 3,255,409.  The decrease was mainly attributable to the
decrease in net income year over year.





Net cash
provided by financing activities was $ 2,677,625  due to drawdowns
from the Loan Agreement (discussed in Note #4 “Senior Lenders’ Notes Payable and
Notes Payable,”) offset by paying back senior lender notes and capital leases
during the nine-month period ended September 30, 2010.  This compared
to funds used in financing activities of $2,208,330 for the nine-month period
ended September 30, 2009.  During the nine-month period ended
September 30, 2010, we deposited $800,000 into our cash account from a
restricted cash deposit account pursuant to the previous Credit Agreement with
SunTrust Bank.





Net cash
used in investing activities was $4,590,928 during the nine-month period ended
September 30, 2010, mainly representing net purchases of DVD rental kiosks and
ATMs. This compares to net cash used in investing activities of $709,506 for the
nine-month period ended September 30, 2009, representing net purchases of
ATMs.





Recently,
the capital and credit markets have become increasingly volatile as a result of
adverse conditions that have caused the failure and near failure of a number of
large financial service companies. If the capital and credit markets continue to
experience volatility and the availability of funds remains limited, it is
possible that our ability to access the capital and credit markets may be
limited by these factors at a time when we would like to refinance maturing
debt.  Likewise, if the financial institutions listed below experience
similar failures, we would need to find other third party sources to fund our
vault cash discussed below.




33





The
Company does not use its own funds for vault cash, but rather relies upon third
party sources. The Company in general rents the vault cash from financial
institutions and pays a negotiated interest rate for the use of the money. Other
than the $250,000 of automated teller machine vault cash discussed in Note # 2
“Description of Business and Summary of Significant Accounting Policies“, the
vault cash is never in the possession of, controlled or directed by the Company
but rather cycles from the bank to the armored car carrier and to the ATM. Each
day’s withdrawals are settled back to the owner of the vault cash on the next
business day. Both Nationwide and its clients, the merchants, sign a document
stating that the vault cash belongs to the financial institution and that
neither party has any legal rights to the funds. The required vault cash is
obtained under the following arrangements:





·
            Wilmington
      Savings Fund Society (“WSFS”). Beginning in September 2004, the
      Company has an arrangement with Wilmington Savings Fund Society allowing
      us to obtain up to $20,000,000 in vault cash.   The WSFS
      contract may be terminated by WSFS at any time upon breach by us and upon
      the occurrence of certain other events. Under this arrangement, we are
      required to pay a monthly service fee on the outstanding amount equal to
      the prime rate of interest, plus a specified percentage, and must pay
      monthly "bank" and insurance fees. We are also required to maintain
      insurance on the vault cash. The contract currently in place with WSFS
      expires on October 31, 2011, with a one year automatic renewal period
      unless one party gives 60 days notice of their intention not to
      renew.  As of September 30, 2010, the Company had 7 ATMs funded
      by WSFS with a vault cash outstanding balance of approximately $137,460 in
      connection with this arrangement.





·
            Elan
      (formerly GenPass Technologies).  On November 24, 2006,
      we signed a Cash Provisioning Agreement with Elan allowing us to obtain up
      to $30,000,000 in vault cash.  The Elan contract may be
      terminated by Elan at any time upon breach by us and upon the occurrence
      of certain other events.  Under this arrangement, we are
      required to pay a monthly service fee on the average terminal balance plus
      a load factor.  In addition, we are required to maintain
      insurance on the vault cash.  The contract currently in place
      with Elan expires on August 11, 2011, with a one year automatic renewal
      period unless one party gives 180 days notice of their intention not to
      renew.  As of September 30, 2010, the Company had 1,479 ATMs
      funded by Elan with a vault cash outstanding balance of about
      approximately $36,628,359.





·
            Various
      Branded Cash Partners.  Nationwide has partnered with
      numerous banks and credit unions to market specific Nationwide ATMs to the
      cardholders of these institutions.  We add signage and marketing
      material to the ATM so that the ATM is easily identified as being
      associated with the bank or credit union, and the cardholders of these
      institutions receive surcharge free transactions at the designated
      ATMs.  This provides the bank or credit union additional
      marketing power and another point of access to funds for their
      cardholders.  In return for this benefit, the bank or credit
      union, provide and manage the vault cash in the specified ATM(s), as well
      as provide and pay for cash replenishment and first line
      maintenance.  The advantage to Nationwide is that this reduces
      the costs associated with vault cash, cash replenishment and first line
      maintenance by approximately 50%.  Another advantage is that
      with a branded ATM, transactions volumes traditionally increase more than
      at non-branded ATMs.  As of September 30, 2010, Nationwide had
      50 branded financial partners, which funded 496
  ATMs.





Working
Capital





As of
September 30, 2010, we had current assets of $5,420,973 and current liabilities
of $6,685,659, which results in negative working capital of $1,264,686 as
compared to current assets of $3,920,038 and current liabilities of $5,195,600,
which resulted in a negative working capital of $1,275,562 as of September 30,
2009. The ratio of current assets to current liabilities increased to 0.81 at
September 30, 2010 from 0.75 at September 30, 2009.  Despite the
negative working capital, we believe that if we achieve our business plan, we
will have sufficient working capital to meet our remaining and current
obligations during 2010 and 2011.  As of September 30, 2010, we were
in compliance with all applicable covenants and ratios under the Loan Agreement
with Fifth Third Bank.





Impact of Inflation and
Changing Prices





We were
not impacted by inflation during the past two fiscal years in any material
respect.  Interest rate decreases have decreased the rental cost of
our vault cash.  As the interest rates decrease and vault cash costs
decrease, this will have a more favorable impact on the Company’s
income.




34





ITEM  3.
Quantitative and Qualitative Disclosure About Market Risk





Not
applicable.





ITEM  4.
Controls and Procedures





Evaluation of Disclosure
Controls and Procedures





The
Company has established disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known on a timely basis to the officers who certify its
financial reports and to other members of senior management and the Company’s
board of directors. Based on their evaluation as of September 30, 2010, the
principal executive officer and principal financial officer of the Company have
concluded that the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) are effective to ensure that the information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act of 1934, as amended is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.





Changes in Internal Control
Over Financial Reporting





There
were no changes to internal controls over financial reporting that occurred
during the three months ended September 30, 2010 that have materially affected,
or are reasonably likely to materially impact, our internal controls over
financial reporting.





PART
II - OTHER INFORMATION





ITEM
1. Legal Proceedings





Information
regarding legal proceedings is contained in Note #6 (“Litigation and Claims”) to
the Condensed Consolidated Financial Statements contained in this report and is
incorporated herein by reference.





ITEM
1A. Risk Factors





Other
than the risk factors discussed below, there have been no material changes from
risk factors previously disclosed in Risk Factors within “Item 1. Description of
Business” included in our Annual Report on Form 10-K for the year ended December
31, 2009.





Interchange fees,
which comprise a substantial portion of our transaction revenues, may be lowered
at the discretion of the various EFT networks through which our transactions are
routed, or through potential regulatory changes, thus reducing our future
revenues.  Interchange fees, which represented approximately
34% of our total ATM operating revenues for the year ended December 31, 2009,
are set by the various EFT networks through which transactions conducted on our
devices are routed.  Interchange fees are set by each network and
typically vary from one network to the next.  Accordingly, if some or
all of the networks through which our ATM transactions are routed were to reduce
the interchange rates paid to us or increase their transaction fees charged to
us for routing transactions across their network, or both, our future
transaction revenues could decline.





Recently,
certain networks have reduced the net interchange fees paid to ATM deployers for
transactions routed through their networks.  For example, effective
April 1, 2010, a global network brand reduced the interchange rates it pays to
domestic ATM deployers for ATM transactions routed across its debit
network.  As a result, we have recently seen certain financial
institutions migrate their volume away from other networks to take advantage of
the lower pricing offered by these networks.  Such rate change has
reduced our ATM operating gross profits by approximately $20,000
-  $25,000 a month beginning April 1, 2010.  Furthermore, if
additional financial institutions move to take advantage of this lower pricing,
or if additional networks reduce the interchange rates they currently pay to ATM
deployers, our future revenues and gross profits would be negatively
impacted.




35





We depend upon
third-party manufacturers of our DVD rental kiosks and related
software.  We depend upon third-party manufacturers to
manufacture our kiosks. We intend to continue expanding our installed base in
the U.S. and such expansion may be limited by the manufacturing capacity of the
third-party manufacturers who may not be able to meet our manufacturing needs in
a satisfactory and timely manner. Furthermore, we are reliant on the third-party
manufacturer for the development of its core software technology. Any failure by
them to develop, produce and manufacture functional DVD rental kiosks and
related software could harm our business, financial condition and results of
operations.





We depend upon
third parties for the maintenance and servicing of our kiosks and the
fulfillment of our DVD titles.  We depend upon a third-party
distributors for the fulfillment of our DVD titles,  third-party
providers for payment processing and third-party service providers for the
maintenance and servicing of our kiosks.  Any failure by us to
maintain these existing relationships or to establish new relationships on a
timely basis or on acceptable terms could harm our business, financial condition
and results of operations.





Any significant
disruption in our computer systems or equipment could result in a loss of users.  The operation of our DVD rental kiosks is dependent on their
ability to connect to our back-end platform running in our datacenters. Our
reputation and ability to attract, retain and serve our users are dependent upon
the reliable performance of our network infrastructure and fulfillment
processes. Interruptions in these systems could hinder our ability to process
transactions, which could diminish the attractiveness of our service to existing
and potential users.





If we are unable
to build our brand, our ability to attract and retain users may be adversely
affected.  We are still developing our brand identity,
InstaFlix, and we must build strong brand identity to compete successfully. To
succeed, will have to compete for users against other brands that have greater
recognition, such as Redbox and NCR/Blockbuster Express. To the extent
dissatisfaction with our service is not adequately addressed, our brand may be
adversely impacted. If our efforts to promote and maintain our brand are not
successful, our operating results and our ability to attract and retain users of
our service may be adversely affected.





If we do not
manage our DVD inventory effectively, our business, financial condition and
results of operations could be materially and adversely affected. If we
do not acquire sufficient copies of popular DVDs, we may not satisfy user
demand, and our user satisfaction and results of operations could be adversely
affected.  Conversely, if we attempt to mitigate this risk and acquire
more copies than needed to satisfy our user demand, our inventory utilization
would become less effective and our gross margins would be adversely
affected.  Our ability to accurately predict user demand may impact
our ability to acquire appropriate quantities of certain DVDs.




ITEM
2. Unregistered Sale of Equity Securities and Use of Proceeds





None.





ITEM  3.
Defaults Upon Senior Securities





None.





ITEM  4.
[Removed and Reserved]





36





ITEM  5.
Other Information





None.





ITEM  6.
Exhibits





Exhibit
            
            Description3.1
            
            Articles
      of Incorporation - Restated and Amended May 30, 2001 (Incorporated by
      reference to Form 10KSB filed with the SEC on March 31,
    2003).3.2
            
            By-Laws
      of Global Axcess Corp - As Amended and Restated  (Incorporated
      by reference to Form 8-K filed with the SEC on April 6,
    2010).3.3
            
            Amendment
      to the Articles of Incorporation  (Incorporated by reference to
      Form 8-K filed with the SEC on May 3, 2005).10.1
            
            Amendment
      One to Employment Agreement, dated October 21, 2010, by and among the
      Company and George A. McQuain (Incorporated by reference to Form 8-K filed
      with the SEC on October 26, 2010).10.2
            
            Employment
      Agreement, dated October 21, 2010, by and between the Company and Michael
      J. Loiacono (Incorporated by reference to Form 8-K filed with the SEC on
      October 26, 2010).31.1
            
            Certification
      of the Chief Executive Officer of Global Axcess Corp pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.31.2
            
            Certification
      of the Chief Financial Officer of Global Axcess Corp pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.32.1
            
            Certification of the Chief
      Executive Officer of Global Axcess Corp pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            
            Certification
      of the Chief Financial Officer of Global Axcess Corppursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.




37




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, as of November 10,
2010 the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


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




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the 10th day of
November, 2010.





Signature
              
              Title/S/
      Michael J. LoiaconoMichael
      J. Loiacono
              
              Chief
      Financial Officer and Chief Accounting Officer/s/George
      A. McQuainGeorge
      A. McQuain
              
              President,
      Chief Executive Officer and
Director




38