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, 2009





OR





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




000-17874(Commission
      file number)GLOBAL
      AXCESS CORP(Exact
      name of registrant as specified in its charter)





NEVADA
            88-0199674(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





7800
      BELFORT PARKWAY, Suite 165JACKSONVILLE,
      FLORIDA
            32256(Address
      of principal executive offices)
            (Zip
      Code)





(904)
280-3950


(Registrant's
telephone number, including area code)


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 03, 2009, the registrant had 21,883,924 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
              
              22Item  3.
              Quantitative
      and Qualitative Disclosure About Market Risk
              
              31Item  4.
              Controls
      and Procedures
              
              31Item  4T.
              Controls
      and Procedures
              
              31PART  II
              OTHER
      INFORMATIONItem  1.
              Legal
      Proceedings
              
              31Item  1A.
              Risk
      Factors
              
              32Item  2.
              Unregistered
      Sale of Equity Securities and Use of Proceeds
              
              32Item  3.
              Defaults
      Upon Senior Securities
              
              32Item  4.
              Submission
      of Matters to a Vote of Security Holders
              
              32Item  5.
              Other
      Information
              
              32Item  6.
              Exhibits
              
              32SIGNATURES
              
              33


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 2009.





When
used in this report, the words "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "targets," "estimates," and similar expressions are
generally intended to identify forward-looking statements. You should not place
undue reliance on the forward-looking statements, which speak only as of the
date of this 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 30,2009
                
                
                December 31,2008ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                1,898,483
                
                
                $
                1,560,910Automated
      teller machine vault cash
                
                
                250,000
                
                
                
                —Accounts
      receivable, net of allowance of $8,027 in 2009 and $9,799 in
      2008
                
                
                802,352
                
                
                
                848,373Inventory,
      net of allowance for obsolescence of $101,260 in 2009 and $54,033 in
      2008
                
                
                235,489
                
                
                
                276,731Deferred
      tax asset - current
                
                
                615,332
                
                
                
                615,332Prepaid
      expenses and other current assets
                
                
                118,382
                
                
                
                164,968Total
      current assets
                
                
                3,920,038
                
                
                
                3,466,314Fixed
      assets, net
                
                
                5,194,853
                
                
                
                4,723,138Other
      assetsMerchant
      contracts, net
                
                
                10,821,793
                
                
                
                11,331,126Intangible
      assets, net
                
                
                4,090,923
                
                
                
                4,118,426Restricted
      cash
                
                
                800,000
                
                
                
                -Other
      assets
                
                
                30,307
                
                
                
                9,232Total
      assets
                
                $
                24,857,914
                
                
                $
                23,648,236LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                
                $
                2,767,008
                
                
                $
                2,527,396Automated
      teller machine vault cash payable
                
                
                250,000
                
                
                
                -Notes
      payable - related parties  - current portion,
net
                
                
                26,017
                
                
                
                24,010Notes
      payable - current portion
                
                
                19,213
                
                
                
                -Senior
      lenders' note payable - current portion, net
                
                
                1,428,571
                
                
                
                606,705Capital
      lease obligations - current portion
                
                
                704,791
                
                
                
                779,990Total
      current liabilities
                
                
                5,195,600
                
                
                
                3,938,101Long-term
      liabilitiesNotes
      payable - related parties - long-term portion, net
                
                
                1,294,016
                
                
                
                1,304,595Notes
      payable - long-term portion
                
                
                78,336
                
                
                
                -Senior
      lenders' note payable - long-term portion, net
                
                
                2,857,143
                
                
                
                4,240,086Capital
      lease obligations - long-term portion
                
                
                316,804
                
                
                
                425,582Deferred
      tax liability- long-term portion
                
                
                275,532
                
                
                
                275,532Total
      liabilities
                
                
                10,017,431
                
                
                
                10,183,896Stockholders'
      equityPreferred
      stock; $0.001 par value; 5,000,000 shares authorized, no shares issued and
      outstanding
                
                
                -
                
                
                
                -Common
      stock; $0.001 par value; 45,000,000 shares authorized, 21,021,786 shares
      issued and 21,883,924 and 20,973,924 shares outstanding
                
                
                21,932
                
                
                
                21,022Additional
      paid-in capital
                
                
                22,858,820
                
                
                
                22,613,424Accumulated
      deficit
                
                
                (8,028,303
                )
                
                
                (9,158,140
                )Treasury
      stock; 47,862 shares of common stock at cost
                
                
                (11,966
                )
                
                
                (11,966
                )Total
      stockholders' equity
                
                
                14,840,483
                
                
                
                13,464,340Total
      liabilities and stockholders' equity
                
                $
                24,857,914
                
                
                $
                23,648,236





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 30,2009
                    
                    
                    September 30,2008Revenues
                    
                    $
                    5,314,857
                    
                    
                    $
                    5,652,977Cost
      of revenues
                    
                    
                    2,787,699
                    
                    
                    
                    3,199,906Gross
      profit
                    
                    
                    2,527,158
                    
                    
                    
                    2,453,071Operating
      expensesDepreciation
      expense
                    
                    
                    303,864
                    
                    
                    
                    329,061Amortization
      of intangible merchant contracts
                    
                    
                    201,790
                    
                    
                    
                    193,173Selling,
      general and administrative
                    
                    
                    1,367,182
                    
                    
                    
                    1,367,572Stock
      compensation expense
                    
                    
                    30,979
                    
                    
                    
                    30,540Total
      operating expenses
                    
                    
                    1,903,815
                    
                    
                    
                    1,920,346Operating
      income from continuing operations before items shown below
                    
                    
                    623,343
                    
                    
                    
                    532,725Interest
      expense, net
                    
                    
                    (147,299
                    )
                    
                    
                    (255,900
                    )Net
      Income
                    
                    $
                    476,044
                    
                    
                    $
                    276,825Income
      per common share - basic:Net
      Income per common share
                    
                    $
                    0.02
                    
                    
                    $
                    0.01Income
      per common share - diluted:Net
      Income per common share
                    
                    $
                    0.02
                    
                    
                    $
                    0.01Weighted
      average common shares outstanding:Basic
                    
                    
                    21,883,924
                    
                    
                    
                    20,973,924Diluted
                    
                    
                    23,471,284
                    
                    
                    
                    21,043,567





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 30,2009
                    
                    
                    September 30,2008Revenues
                    
                    $
                    16,098,699
                    
                    
                    $
                    17,026,465Cost
      of revenues
                    
                    
                    8,457,522
                    
                    
                    
                    9,578,552Gross
      profit
                    
                    
                    7,641,177
                    
                    
                    
                    7,447,913Operating
      expensesDepreciation
      expense
                    
                    
                    863,206
                    
                    
                    
                    1,108,318Amortization
      of intangible merchant contracts
                    
                    
                    590,474
                    
                    
                    
                    577,502Selling,
      general and administrative
                    
                    
                    3,994,416
                    
                    
                    
                    3,987,978Stock
      compensation expense
                    
                    
                    86,064
                    
                    
                    
                    152,564Total
      operating expenses
                    
                    
                    5,534,160
                    
                    
                    
                    5,826,362Operating
      income from continuing operations before items shown below
                    
                    
                    2,107,017
                    
                    
                    
                    1,621,551Interest
      expense, net
                    
                    
                    (509,789
                    )
                    
                    
                    (782,281
                    )Loss
      on early extinguishment of debt
                    
                    
                    (467,391
                    )
                    
                    
                    -Net
      Income
                    
                    $
                    1,129,837
                    
                    
                    $
                    839,270Income
      per common share - basic:Net
      Income per common share
                    
                    $
                    0.05
                    
                    
                    $
                    0.04Income
      per common share - diluted:Net
      Income per common share
                    
                    $
                    0.05
                    
                    
                    $
                    0.04Weighted
      average common shares outstanding:Basic
                    
                    
                    21,579,475
                    
                    
                    
                    20,973,924Diluted
                    
                    
                    22,442,190
                    
                    
                    
                    20,998,495





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, 2009
                
                
                September 30, 2008Cash
      flows from operating activities:Income
      from continuing operations
                
                $
                1,129,837
                
                
                $
                839,270Adjustments
      to reconcile net income from continuing operations to net cash provided by
      continuing operating activities:Stock
      based compensation
                
                
                86,064
                
                
                
                152,564Stock
      options issued to consultants in lieu of cash compensation
                
                
                16,063
                
                
                
                -Loss
      on early extinguishment of debt
                
                
                467,391
                
                
                
                -Depreciation
      expense
                
                
                863,206
                
                
                
                1,108,318Amortization
      of intangible merchant contracts
                
                
                590,474
                
                
                
                577,502Amortization
      of capitalized loan fees
                
                
                21,706
                
                
                
                34,824Allowance
      for doubtful accounts
                
                
                (1,707
                )
                
                
                (13,220
                )Allowance
      for inventory obsolescence
                
                
                47,227
                
                
                
                -Non-cash
      interest expense (income) on swap agreement with senior
    lender
                
                
                (7,921
                )
                
                
                14,300Accretion
      of discount on notes payable
                
                
                47,211
                
                
                
                124,491Changes
      in operating assets and liabilities:Change
      in automated teller machine vault cash
                
                
                (250,000
                )
                
                
                -Change
      in accounts receivable
                
                
                47,728
                
                
                
                (47,197
                )Change
      in inventory
                
                
                (247,818
                )
                
                
                24,097Change
      in prepaid expenses and other current assets
                
                
                40,186
                
                
                
                (10,735
                )Change
      in other assets
                
                
                (21,075
                )
                
                
                5,907Change
      in intangible assets, net
                
                
                (70,696
                )
                
                
                633Change
      in accounts payable and accrued liabilities
                
                
                247,533
                
                
                
                (671,047
                )Change
      in automated teller machine vault cash payable
                
                
                250,000
                
                
                
                -Net
      cash provided by continuing operating activities
                
                
                3,255,409
                
                
                
                2,139,707Cash
      flows from investing activities:Costs
      of acquiring merchant contracts
                
                
                (81,141
                )
                
                
                (39,483
                )Purchase
      of property and equipment
                
                
                (628,365
                )
                
                
                (178,725
                )Net
      cash used in investing activities
                
                
                (709,506
                )
                
                
                (218,208
                )Cash
      flows from financing activities:Proceeds
      from issuance of common stock
                
                
                9,100
                
                
                
                -Proceeds
      from senior lenders'  notes payable
                
                
                5,000,000
                
                
                
                39,028Proceeds
      from notes payable
                
                
                69,905
                
                
                
                -Change
      in restricted cash
                
                
                (800,000
                )
                
                
                -Principal
      payments on senior lenders'  notes payable
                
                
                (5,814,286
                )
                
                
                (552,658
                )Principal
      payments on notes payable
                
                
                (7,208
                )
                
                
                (25,000
                )Principal
      payments on notes payable - related parties
                
                
                (17,139
                )
                
                
                (15,299
                )Principal
      payments on capital lease obligations
                
                
                (648,702
                )
                
                
                (779,993
                )Net
      cash used in financing activities
                
                
                (2,208,330
                )
                
                
                (1,333,922
                )Increase
      in cash
                
                
                337,573
                
                
                
                587,577Cash,
      beginning of period
                
                
                1,560,910
                
                
                
                540,161Cash,
      end of the period
                
                $
                1,898,483
                
                
                $
                1,127,738Cash
      paid for interest
                
                $
                447,764
                
                
                $
                603,579





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, 2009
                
                
                September 30, 2008The
      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
                
                $
                (241,833
                )
                
                $
                124,728Total
      non-cash operating activities
                
                $
                (241,833
                )
                
                $
                124,728Investing
      activities:Purchase
      of assets under capital lease obligations
                
                $
                464,723
                
                
                $
                407,404Net
      transfer of de-installed net fixed assets (to) from
    inventory
                
                
                241,833
                
                
                
                (124,728
                )Total
      non-cash investing activities
                
                $
                706,556
                
                
                $
                282,676





See
Accompanying Notes to Condensed Consolidated Financial
Statements


8


GLOBAL
AXCESS CORP AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2009


(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, 2008 of Global Axcess Corp
and its subsidiaries (the “Company").





The
condensed consolidated financial statements present the condensed consolidated
balance sheet, 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, 2009 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 2009 adjustments are of normal recurring nature with the exception
of:





•           $467,391
loss on early extinguishment of debt charges.





2.    DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Description of
Business





Global
Axcess Corp, through its wholly-owned subsidiaries, is an independent provider
of self-service kiosk services in the United States.  Through its
wholly-owned subsidiary, Nationwide Money Services, Inc., the Company provides
turnkey ATM management solutions that include cash, project and account
management services. The Company currently owns, manages or operates
approximately 4,500 ATMs 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”) accepted in the United States
of America and 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 consolidated financial
statements.


9


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.





The
Company maintains $800,000 of cash on deposit with SunTrust Bank that is pledged
for a particular use and is restricted. This restricted cash balance is
classified in other assets on the Company’s consolidated balance
sheet.





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.





Use
of Estimates





The
      preparation of the condensed consolidated financial statements in
      conformity with accounting principles generally accepted in the United
      States of America requires management to make estimates and assumptions
      that affect the amounts reported in the condensed consolidated financial
      statements and accompanying notes. Actual results could differ from these
      estimates.





Revenue
Recognition





Transaction
service and processing fees are recognized in the period that the service is
performed.  The Company receives two types of
fees:  surcharge/convenience fees paid by consumers utilizing certain
ATMs owned or managed by the Company; and interchange fees paid by their
banks.    Processing fees are generally charged on a per
transaction basis, depending on the contractual arrangement with the
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, 2009, 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.


10


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.





Total Revenue and Total Cost
of Revenues Presentation





The
Company presents “Revenues” and “Cost of revenues” as a single line item in the
consolidated statements of operations.  The following tables set forth
the revenue and cost of revenues sources included in the single line items
presented for the three-month and nine-month periods ended September 30, 2009
and 2008:





Revenues:





For the Three Months EndedSeptember 30, 2009
                                
                                
                                September 30, 2008Surcharge
      / Convenience Fee revenue
                                
                                $
                                3,009,025
                                
                                
                                $
                                3,031,740Interchange
      revenue
                                
                                
                                1,814,198
                                
                                
                                
                                1,978,252Processing
      revenue
                                
                                
                                45,103
                                
                                
                                
                                72,257ATM
      Sales revenue
                                
                                
                                67,160
                                
                                
                                
                                119,254Other
      revenue
                                
                                
                                379,371
                                
                                
                                
                                451,474Total
      revenue
                                
                                $
                                5,314,857
                                
                                
                                
                                5,652,977For the Three Months EndedSeptember 30, 2009
                                
                                
                                September 30, 2008ATM
      Operating revenue
                                
                                $
                                5,247,697
                                
                                
                                $
                                5,533,723ATM
      Sales revenue
                                
                                
                                67,160
                                
                                
                                
                                119,254Total
      revenue
                                
                                $
                                5,314,857
                                
                                
                                $
                                5,652,977For the Nine Months EndedSeptember 30, 2009
                                
                                
                                September 30, 2008Surcharge
      / Convenience Fee revenue
                                
                                $
                                8,986,970
                                
                                
                                $
                                9,005,422Interchange
      revenue
                                
                                
                                5,495,201
                                
                                
                                
                                6,019,038Processing
      revenue
                                
                                
                                161,687
                                
                                
                                
                                227,623ATM
      Sales revenue
                                
                                
                                271,203
                                
                                
                                
                                431,594Other
      revenue
                                
                                
                                1,183,638
                                
                                
                                
                                1,342,788Total
      revenue
                                
                                $
                                16,098,699
                                
                                
                                $
                                17,026,465For the Nine Months EndedSeptember 30, 2009
                                
                                
                                September 30, 2008ATM
      Operating revenue
                                
                                $
                                15,827,496
                                
                                
                                $
                                16,594,871ATM
      Sales revenue
                                
                                
                                271,203
                                
                                
                                
                                431,594Total
      revenue
                                
                                $
                                16,098,699
                                
                                
                                $
                                17,026,465


11


Cost
of Revenues:





For the Three Months EndedSeptember 30, 2009
                                    
                                    
                                    September 30, 2008Merchant
      residual / commission costs
                                    
                                    $
                                    1,585,053
                                    
                                    
                                    $
                                    1,886,794Cost
      of cash
                                    
                                    
                                    442,833
                                    
                                    
                                    
                                    467,170Processing
      costs
                                    
                                    
                                    221,928
                                    
                                    
                                    
                                    222,735Communication
      costs
                                    
                                    
                                    156,484
                                    
                                    
                                    
                                    146,405ATM
      Sales costs
                                    
                                    
                                    49,509
                                    
                                    
                                    
                                    118,516Other
      cost of revenues
                                    
                                    
                                    331,892
                                    
                                    
                                    
                                    358,286Total
      cost of revenues
                                    
                                    $
                                    2,787,699
                                    
                                    
                                    
                                    3,199,906For the Three Months EndedSeptember 30, 2009
                                    
                                    
                                    September 30, 2008Cost
      of ATM operating revenue
                                    
                                    $
                                    2,738,190
                                    
                                    
                                    $
                                    3,081,390ATM
      Sales costs
                                    
                                    
                                    49,509
                                    
                                    
                                    
                                    118,516Total
      cost of revenues
                                    
                                    $
                                    2,787,699
                                    
                                    
                                    $
                                    3,199,906For the Nine Months EndedSeptember 30, 2009
                                    
                                    
                                    September 30, 2008Merchant
      residual / commission costs
                                    
                                    $
                                    4,970,103
                                    
                                    
                                    $
                                    5,521,077Cost
      of cash
                                    
                                    
                                    1,273,950
                                    
                                    
                                    
                                    1,519,930Processing
      costs
                                    
                                    
                                    647,279
                                    
                                    
                                    
                                    650,358Communication
      costs
                                    
                                    
                                    438,644
                                    
                                    
                                    
                                    432,323ATM
      Sales costs
                                    
                                    
                                    251,934
                                    
                                    
                                    
                                    400,644Other
      cost of revenues
                                    
                                    
                                    875,612
                                    
                                    
                                    
                                    1,054,220Total
      cost of revenues
                                    
                                    $
                                    8,457,522
                                    
                                    
                                    $
                                    9,578,552For the Nine Months EndedSeptember 30, 2009
                                    
                                    
                                    September 30, 2008Cost
      of ATM operating revenue
                                    
                                    $
                                    8,205,588
                                    
                                    
                                    $
                                    9,177,908ATM
      Sales costs
                                    
                                    
                                    251,934
                                    
                                    
                                    
                                    400,644Total
      cost of revenues
                                    
                                    $
                                    8,457,522
                                    
                                    
                                    $
                                    9,578,552





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.  At September
      30, 2009, the Company's inventory, net of an allowance for obsolescence of
      $101,260, totaled $235,489.


12


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,
2009, the Company had bad debt reserves totaling $8,027 against gross accounts
receivable totaling $810,379.





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.





Intangible Assets – Goodwill
and Merchant Contracts





In June
2001, the FASB issued guidance on goodwill and other intangible
assets.  The guidance established accounting and reporting standards
for goodwill and intangible assets resulting from business combinations. The
guidance included provisions discontinuing the periodic amortization of, and
requiring the assessment of, the potential impairments of goodwill (and
intangible assets deemed to have indefinite lives). As the guidance replaced the
measurement guidelines for goodwill impairment, goodwill not considered impaired
under previous accounting literature may be considered impaired under
GAAP.  The guidance also required that the Company complete a two-step
goodwill impairment test. The first step compares the fair value of each
reporting unit to its carrying amount, including goodwill. If the fair value of
a reporting unit exceeded its carrying amount, goodwill is not considered to be
impaired and the second step is not required. The guidance required completion
of this first step within the first nine months of initial adoption and annually
thereafter. If the carrying amount of a reporting unit exceeded its fair value,
the second step is performed to measure the amount of impairment loss. The
second step compared the implied fair value of goodwill to the carrying value of
a reporting unit's goodwill. The implied fair value of goodwill is determined in
a manner similar to accounting for a business combination with the allocation of
the assessed fair value determined in the first step to the assets and
liabilities of the reporting unit. The excess of the fair value of the reporting
unit over the amounts assigned to the assets and liabilities is the implied fair
value of goodwill. This allocation process is only performed for purposes of
evaluating goodwill impairment and does not result in an entry to adjust the
value of any assets or liabilities. An impairment loss is recognized for any
excess in the carrying value of goodwill over the implied fair value of
goodwill.





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 in accordance
with GAAP.


13





The
Company’s merchant contracts are made up of contracts with automatic renewable
lives.  The Company has determined after review of its contracts that
the economic life of the contracts is extended and estimated over 21 years (or
three times renewal) based on historical and expected useful lives of similar
assets.   The Company amortizes the merchant contracts over their
estimated useful lives of 21 years.  The Company has adopted GAAP to
reflect the fair value of the merchant contracts, and uses a two step valuation
process to determine if there has been any impairment on the value of the
merchant contract assets.  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 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, 2009:




Gross Carrying Value
            
            
            Accumulated
              Amortization
            
            
            NetGoodwill
            
            $
            4,189,645
            
            
            $
            168,286
            
            
            $
            4,021,359Other
      Intangible Assets
            
            
            79,663
            
            
            
            10,099
            
            
            
            69,564Merchant
      contracts
            
            
            14,775,729
            
            
            
            3,953,936
            
            
            
            10,821,793Total
      Intangible assets and merchant contracts
            
            $
            19,045,037
            
            
            $
            4,132,321
            
            
            $
            14,912,716




Fair Value of Financial
Instruments




The
carrying amounts of the Company’s long-term liabilities approximate the
estimated fair values at September 30, 2009, 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 consolidated balance sheet with an offsetting amount reported as
automated teller machine vault cash payable.  As of September 30,
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 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.  Stock options to purchase 1,662,000 shares of common
stock that were outstanding at September 30, 2008 were not included in the
computation of diluted earnings per share for the three months ended September
30, 2008 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.  No stock warrants outstanding at
September 30, 2008 were included in the computation of diluted earnings per
share because they were anti-dilutive.


14




For the Three Months EndedSeptember 30, 2009
                        
                        
                        September 30, 2008NumeratorIncome
      from continuing operations
                        
                        $
                        476,044
                        
                        
                        $
                        276,825Numerator
      for diluted income per shareavailable
      to common stockholders
                        
                        $
                        476,044
                        
                        
                        $
                        276,825DenominatorWeighted
      average shares
                        
                        
                        21,883,924
                        
                        
                        
                        20,973,924Effect
      of dilutive securities:Treasury
      method, effect of employee stock options & warrants
                        
                        
                        1,587,360
                        
                        
                        
                        69,643Denominator
      for diluted income per share adjustedweighted
      shares after assumed exercises
                        
                        
                        23,471,284
                        
                        
                        
                        21,043,567Income
      per common share - basic:Income
      from continuing operations
                        
                        $
                        0.02
                        
                        
                        $
                        0.01Net
      Income per common share
                        
                        $
                        0.02
                        
                        
                        $
                        0.01Income
      per common share - diluted:Income
      from continuing operations
                        
                        $
                        0.02
                        
                        
                        $
                        0.01Net
      Income per common share
                        
                        $
                        0.02
                        
                        
                        $
                        0.01




15




For
      the Nine Months EndedSeptember 30, 2009
                                        
                                        
                                        September 30, 2008NumeratorIncome
      from continuing operations
                                        
                                        $
                                        1,129,837
                                        
                                        
                                        $
                                        839,270Numerator
      for diluted income per shareavailable
      to common stockholders
                                        
                                        $
                                        1,129,837
                                        
                                        
                                        $
                                        839,270DenominatorWeighted
      average shares
                                        
                                        
                                        21,579,475
                                        
                                        
                                        
                                        20,973,924Effect
      of dilutive securities:Treasury
      method, effect of employee stock options & warrants
                                        
                                        
                                        862,715
                                        
                                        
                                        
                                        24,571Denominator
      for diluted income per share adjustedweighted
      shares after assumed exercises
                                        
                                        
                                        22,442,190
                                        
                                        
                                        
                                        20,998,495Income
      per common share - basic:Income
      from continuing operations
                                        
                                        $
                                        0.05
                                        
                                        
                                        $
                                        0.04Net
      Income per common share
                                        
                                        $
                                        0.05
                                        
                                        
                                        $
                                        0.04Income
      per common share - diluted:Income
      from continuing operations
                                        
                                        $
                                        0.05
                                        
                                        
                                        $
                                        0.04Net
      Income per common share
                                        
                                        $
                                        0.05
                                        
                                        
                                        $
                                        0.04




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





Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
GAAP using the modified-prospective-transition method which requires us to
recognize compensation expense on a prospective basis. 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, in addition to reflecting compensation for new share-based awards,
expense is also recognized to reflect the remaining service period of awards
that had been included in pro-forma disclosure in prior periods.  The
stock-based compensation expense is included in operating expenses in the
consolidated statements of operations. During the three-month periods ended
September 30, 2009 and 2008, the Company recorded $30,979 and $30,540,
respectively, of stock compensation expenses.  During the nine-month
periods ended September 30, 2009 and 2008, the Company recorded $86,064 and
$152,564, respectively, of stock compensation expenses.


16


Performance Based 401k
Contribution Plan





Effective
fiscal 2007, the Company implemented a performance based incentive program
matching 401k contributions.  For each quarter the Company achieves
its net income budget, the Company will match up to 50% of the first 6% of an
employee’s 401k contributions during that respective quarter.  During
the three-month periods ended September 30, 2009 and 2008, the Company recorded
$0 and $11,050, respectively, of expenses relating to this
plan.  During the nine-month periods ended September 30, 2009 and
2008, the Company recorded $21,050 and $31,907, 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, 2009, the Company recorded $55,588 of
bonus and estimated payroll tax expenses relating to this plan.  Of
the $55,588 recorded during the three-month period ended September 30, 2009,
$32,976 is held back and will be paid upon achievement of fiscal 2009 net
profits.  During the three-month period ended September 30, 2008, the
Company recorded $35,728 of expenses relating to this plan.





During
the nine-month period ended September 30, 2009, the Company recorded $162,777 of
bonus and estimated payroll tax expenses relating to this plan.  Of
the $162,777 recorded during the nine-month period ended September 30, 2009,
$110,778 is held back and will be paid upon achievement of fiscal 2009 net
profits.  During the nine-month period ended September 30, 2008, the
Company recorded $98,784 of expenses relating to this plan.





Recent Accounting
Pronouncements





In June
2003, the SEC adopted final rules under Section 404 of the Sarbanes-Oxley Act of
2002 (“Section 404”), as amended, by SEC Release No. 33-8760 on December 15,
2006. Commencing with the Company’s annual report for the year ended December
31, 2007, the Company is required to include a report of management on the
Company’s internal control over financial reporting. The internal control report
must include a statement of management’s responsibility for establishing and
maintaining adequate internal control over financial reporting for the Company;
of management’s assessment of the effectiveness of the Company’s internal
control over financial reporting as of year-end; and of the framework used by
management to evaluate the effectiveness of the Company’s internal control over
financial reporting.  Furthermore, beginning with the Company’s annual
report for fiscal year 2010, the Company is required to file the auditor’s
attestation report separately on the Company’s internal control over financial
reporting on whether it believes that the Company has maintained, in all
material respects, effective internal control over financial
reporting.





In April
2008, the FASB issued guidance which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. This guidance is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The guidance contained in this
FSP for determining the useful life of a recognized intangible asset is applied
prospectively to intangible assets acquired after the effective date. Additional
disclosures required in this FSP are applied prospectively to all intangible
assets recognized as of, and subsequent to, the effective date.  The
adoption of this guidance did not have an impact on our consolidated financial
position, results of operations or cash flows.





In May
2008, the FASB issued guidance regarding the hierarchy of generally accepted
accounting principles. The guidance identifies the sources of accounting
principles to be used in the preparation of financial statements that are
presented in conformity with generally accepted accounting principles (“GAAP”)
in the United States (the GAAP hierarchy). The Company currently follows the
hierarchy of GAAP as presented and does not expect its adoption will have a
material impact on its consolidated results of operations and financial
condition.


17


In May
2009, the FASB issued guidance regarding subsequent events.  While the
guidance does not change the requirements of GAAP, relative to reporting and
disclosure of subsequent events, it does introduce a requirement to disclose the
“date through which subsequent events have been evaluated.”  We have
adopted that disclosure requirement.





On July
1, 2009, the FASB issued the FASB Accounting Standards Codification
(“Codification”). The Codification became the single source of authoritative
nongovernmental U.S. GAAP, superseding existing FASB, American Institute of
Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and
related literature. The Codification eliminates the previous US GAAP hierarchy
and establishes one level of authoritative GAAP. All other literature is
considered non-authoritative. The Codification changes the referencing and
organization of accounting guidance and is effective for the Company beginning
the quarter ended September 30, 2009. The Codification does not change GAAP and
only affects how specific references to GAAP literature are disclosed in the
notes to the Company’s consolidated financial statements.  The Company
does not expect that the adoption of this standard will have a material impact
on the Company's financial statements.





3.    ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities consisted of the following as of September 30,
2009 and December 31, 2008:





September 30, 2009
                  
                  
                  December 31, 2008Accounts
      payable
                  
                  $
                  573,213
                  
                  
                  $
                  417,874Accrued
      commissions/residual payments
                  
                  
                  1,296,156
                  
                  
                  
                  1,157,410Accrued
      cost of cash and cash replenishment expenses
                  
                  
                  329,762
                  
                  
                  
                  326,015Accrued
      payroll
                  
                  
                  319,103
                  
                  
                  
                  298,139Accrued
      audit fees
                  
                  
                  79,250
                  
                  
                  
                  83,000Accrued
      interest
                  
                  
                  4,594
                  
                  
                  
                  97,827Other
                  
                  
                  164,930
                  
                  
                  
                  147,131Accounts
      payable and accrued liabilities
                  
                  $
                  2,767,008
                  
                  
                  $
                  2,527,396





4.    SENIOR
LENDERS’ NOTES PAYABLE





On March
27, 2009, the Company entered into a credit and security agreement (the “Credit
Agreement”) with SunTrust Bank (the “Lender”).  The Credit Agreement
provides 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 (the “Promissory Note”) in such amount to the
Lender.  The Company will repay the amount borrowed over 42 months,
beginning April 30, 2009, with 41 equal monthly principal payments plus accrued
interest, with the final payment to be made on September 30,
2012.  The interest rate is fixed at 6.99% per annum.  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.





The
Company also paid a termination fee of $85,312 for its interest swap agreement
in connection with the prepayment of the Prior Loan Agreement and Renewal Note,
which amount was previously accounted for as accrued interest.





The
Credit Agreement contains customary representations, warranties and covenants,
including (1) maintenance of a minimum amount of $800,000 of restricted cash in
a deposit account with the Lender, (2) maintenance of tangible net worth value
of at least $9 million, and (3) maintenance of debt service coverage of at least
1.25.  As of September 30, 2009, the Company was in compliance with
all applicable covenants and ratios under its credit agreement with SunTrust
Bank.


18


5.    COMMITMENTS
AND CONTINGENCIES





We lease
ATMs and back office computer equipment under capital lease agreements that
expire between 2009 and 2012 and provide for lease payments at interest rates
from 5.99% up to 14.37% per annum. The majority of the capital lease agreements,
which total approximately 100% of our September 30, 2009 balances, are at
interest rates at or below 12.11%. See Financial Footnote #12 to the
Consolidated Financial Statements in the Annual Report on Form 10-K for fiscal
2008.





During
the three-month period ended September 30, 2009, we entered into $387,773 of new
capital lease obligations.  These new capital lease obligations are
30-month leases at an interest rate of 10.42% per
annum.    As of September 30, 2009, approximately $1,021,600
of capital lease obligations were included in the Company’s consolidated balance
sheet.





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





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,
2009 is related to deferred tax assets arising from net operating loss
carryforwards.  Management believes that based upon its projection of
future taxable income for the foreseeable future, it is more likely than not
that the Company will not be able to realize the full benefit of the net
operating loss carryforwards before they expire due to the amortization and
depreciation losses from the projected acquisition assets.





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





8.  CHANGES
IN STOCKHOLDERS' EQUITY





See the
table below for all the equity transactions for the three-month period ended
September 30, 2009:


19





Additional
                        
                        
                        
                        
                        
                        
                        
                        
                        TotalCommon
      Stock
                        
                        
                        Paid-in
                        
                        
                        Accumulated
                        
                        
                        Treasury
                        
                        
                        Stockholders'Shares
                        
                        
                        Amount
                        
                        
                        Capital
                        
                        
                        Deficit
                        
                        
                        Stock
                        
                        
                        EquityBalances,
      June 30, 2009
                        
                        
                        21,883,924
                        
                        
                        $
                        21,932
                        
                        
                        $
                        22,811,778
                        
                        
                        $
                        (8,504,347
                        )
                        
                        $
                        (11,966
                        )
                        
                        $
                        14,317,397Stock
      compensation expense
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        30,979
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        30,979Stock
      options issued to consultants in lieu of cash compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        16,063
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        16,063Stock
      warrants excercised
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        476,044
                        
                        
                        
                        -
                        
                        
                        
                        476,044Balances,
      September 30, 2009
                        
                        
                        21,883,924
                        
                        
                        $
                        21,932
                        
                        
                        $
                        22,858,820
                        
                        
                        $
                        (8,028,303
                        )
                        
                        $
                        (11,966
                        )
                        
                        $
                        14,840,483





9.
            FAIR
      VALUE MEASUREMENT




On
January 1, 2008, we adopted FASB guidance regarding fair value measurements
which defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and expands disclosures about fair value
measurements.  The statement applies whenever other statements require
or permit assets or liabilities to be measured at fair value.  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.





The
following table presents our financial assets and liabilities that were
accounted for at fair value on a recurring basis as of September 30, 2009 by
level within the fair value hierarchy:


20




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




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 and September 30, 2008, we recorded $7,921 of income
and $14,300 of expense, respectively, 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 a credit and
security agreement with SunTrust Bank and the subsequent repayment of the
Company’s outstanding principal balance with Wachovia Bank.  See Note
#4 “Senior Lenders’ Notes Payable” for details on the agreement with SunTrust
Bank.





In the
accompanying condensed consolidated balance sheets, we have recorded an asset
retirement obligation.  As discussed above, the application of the
guidance regarding fair value measurements for these non-recurring items has
been deferred.





10.  LOSS
ON EARLY EXTINGUISHMENT OF DEBT





As
discussed in Note #4 “Senior Lenders’ Notes Payable,” the Company entered into a
credit and security 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 period ended September 30, 2009:





ExtinguishmentItem description
                  
                  ChargeAccelerated
      accretion of discount on notes payable
                  
                  $
                  249,419Accelerated
      amortization of capitalized loan fees
                  
                  $
                  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
                  
                  $
                  28,054Total
      loss on early extinguishment of debt
                  
                  $
                  467,391





11.  SUBSEQUENT
EVENTS





None.


21


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.





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.


22





Results of Continuing
Operations





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




For the Three Months EndedSeptember 30,2009
            
            
            September 30,2008Revenues
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of revenues
            
            
            52.5
            %
            
            
            56.6
            %Gross
      profit
            
            
            47.5
            %
            
            
            43.4
            %Depreciation
      expense
            
            
            5.7
            %
            
            
            5.8
            %Amortization
      of intangible merchant contracts
            
            
            3.8
            %
            
            
            3.4
            %Selling,
      general and administrative
            
            
            25.7
            %
            
            
            24.2
            %Stock
      compensation expense
            
            
            0.6
            %
            
            
            0.5
            %Total
      operating expenses
            
            
            35.8
            %
            
            
            33.9
            %Operating
      income from continuing operationsbefore
      items shown below
            
            
            11.7
            %
            
            
            9.5
            %Interest
      expense, net
            
            
            -2.8
            %
            
            
            -4.5
            %Net
      income
            
            
            8.9
            %
            
            
            5.0
            %EBITDA
      (1)
            
            
            21.2
            %
            
            
            18.7
            %




For the Nine Months EndedSeptember 30, 2009
            
            
            September 30, 2008Revenues
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of revenues
            
            
            52.5
            %
            
            
            56.3
            %Gross
      profit
            
            
            47.5
            %
            
            
            43.7
            %Depreciation
      expense
            
            
            5.4
            %
            
            
            6.5
            %Amortization
      of intangible merchant contracts
            
            
            3.7
            %
            
            
            3.4
            %Selling,
      general and administrative
            
            
            24.8
            %
            
            
            23.4
            %Stock
      compensation expense
            
            
            0.5
            %
            
            
            0.9
            %Total
      operating expenses
            
            
            34.4
            %
            
            
            34.2
            %Operating
      income from continuing operationsbefore
      items shown below
            
            
            13.1
            %
            
            
            9.5
            %Interest
      expense, net
            
            
            (3.2
            %)
            
            
            (4.6
            %)Loss
      on early extinguishment of debt
            
            
            (2.9
            %)
            
            
            0.0
            %Net
      income
            
            
            6.9
            %
            
            
            4.9
            %EBITDA
      (1)
            
            
            19.2
            %
            
            
            19.4
            %




(1)
See “—EBITDA”


23





Comparison of Results of
Operations for the Three Months Ended September 30, 2009 and
2008:





Revenues





The
Company reported total operating revenue from continuing operations of
$5,314,857 for the three-month period ended September 30, 2009 as compared to
$5,652,977 for the three-month period ended September 30, 2008.  This
decrease was partly due to lower transaction volumes resulting from a lost
distributor’s client account whose 90 lost terminals contributed significant
transactions and revenue yet contributed only several thousand dollars a month
in gross profit.  Additionally, lower transaction volumes were
experienced during the summer months of 2009.  The Company typically
sees an increase in transaction activity during the summer months, but lower
vacation travel and the slower economy reduced the positive seasonal
impact.





Cost of
Revenues





Our total
cost of revenues from continuing operations decreased from $3,199,906 to
$2,787,699 for the three-month period ended September 30, 2008 to the
three-month period ended September 30, 2009.  The decrease in cost of
revenues period over period was achieved due mainly to lower fuel charges
resulting in lower first line and second line maintenance costs, and lower
interest rates which resulted in lower cash costs for the three-month period in
2009.  Additionally, the decrease in cost of revenues was also
attributed to the loss of a distributor’s client account, resulting in lower
residual / commission expenses.





Gross
Profit





Gross
profit from continuing operations as a percentage of revenue for the three-month
periods ended September 30, 2009 and 2008 were approximately 47.5%, or
$2,527,158, and approximately 43.4%, or $2,453,071, respectively. The increased
gross profit and gross profit percentage for the third quarter of 2009 versus
the same period in 2008 was mainly attributable to the decreased cost of
revenues discussed above.  Gross profit was minimally impacted due to
the lost distributor’s client account discussed above.





Operating
Expenses





Our total
operating expenses from continuing operations for the three months ended
September 30, 2009 and 2008 were $1,903,815 and $1,920,346, 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 operating expenses below:





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





Our total
SG&A expenses from continuing operations decreased to $1,367,182, or 25.7%
of revenue for the three-month period ended September 30, 2009 from $1,367,572,
or 24.2% of revenue for the three-month period ended September 30,
2008.





Depreciation
Expense





Depreciation
expense from continuing operations decreased for the three-month period ended
September 30, 2009 to $303,864 from $329,061 for the same period in
2008.





Amortization of Intangible
Merchant Contracts





Amortization
of intangible merchant contracts from continuing operations increased for the
three-month period ended September 30, 2009 to $201,790 from $193,173 for the
same period in 2008.  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, 2009 and 2008, we recorded stock
compensation expenses of $30,979 and $30,540, respectively.


24


Operating Income from
Continuing Operations





We had
operating income from continuing operations for the three-month period ended
September 30, 2009 in the amount of $623,343 as compared to operating income
from continuing operations of $532,725 in the three-month period ended September
30, 2008.





Interest Expense,
Net





Interest
expense, net, decreased for the three-month period ended September 30, 2009 to
$147,299 from $255,900 for the three-month period ended September 30,
2008.  The decrease was mainly due to the Company refinancing its
senior debt from interest rates of 9% to 6.99% combined
with  decreased debt balances at the three-month period ended
September 30, 2009, as compared to the debt balances at the three-month period
ended September 30, 2008.





For the Three Months EndedSeptember 30, 2009
                  
                  
                  September 30, 2008Interest
      expense, net
                  
                  $
                  144,443
                  
                  
                  $
                  214,403Accretion
      of discount on notes payable
                  
                  
                  2,856
                  
                  
                  
                  41,497Total
      Interest expense, net
                  
                  $
                  147,299
                  
                  
                  $
                  255,900





Income
Taxes





We
incurred no tax expense in either of the respective periods ending September 30,
2009 and September 30, 2008. At December 31, 2008, the Company had a net
operating loss carryforward of approximately $26.0 million
available.  The net operating loss carryforward is due to expire
during fiscal years 2011 through 2027.





Net
Income





We had
net income of $476,044 for the three months ended September 30, 2009, as
compared to net income of $276,825 for the three-month period ended September
30, 2008.





Comparison of Results of
Operations for the Nine months Ended September 30, 2009 and
2008:





Revenues





The
Company reported total operating revenue from continuing operations of
$16,098,699 for the nine-month period ended September 30, 2009 as compared to
$17,026,465 for the nine-month period ended September 30, 2008.  This
decrease was partly due to lower transaction volumes resulting from a lost
distributor’s client account whose 90 lost terminals contributed significant
transactions and revenue yet contributed only several thousand dollars a month
in gross profit.  Additionally, lower transaction volumes were
experienced during the summer months of 2009.  The Company typically
sees an increase in transaction activity during the summer months, but lower
vacation travel and the slower economy reduced the positive seasonal
impact.





Cost of
Revenues





Our total
cost of revenues from continuing operations decreased from $9,578,552 to
$8,457,522 for the nine-month period ended September 30, 2008 to the nine-month
period ended September 30, 2009.  The decrease in cost of revenues
period over period was achieved due mainly to lower fuel charges resulting in
lower first line and second line maintenance costs, and lower interest rates
which resulted in lower cash costs for the nine-month period in
2009.  Also, during the nine-month period ended September 30, 2009,
the Company recorded a $24,600 recovery of an expense accrual originally
recorded to expense in fiscal 2008.  Additionally, the decrease in
cost of revenues was also attributed to the loss of a distributor’s client
account, resulting in lower residual / commission expenses.


25





Gross
Profit





Gross
profit from continuing operations as a percentage of revenue for the nine-month
periods ended September 30, 2009 and 2008 were approximately 47.5%, or
$7,641,177, and approximately 43.7%, or $ 7,447,913, respectively. The increased
gross profit and gross profit percentage for the nine-month period ended
September 30, 2009 versus the same period in 2008 was mainly attributable to the
decreased cost of revenues discussed above.  Gross profit was
minimally impacted due to the lost distributor’s client account discussed
above.





Operating
Expenses





Our total
operating expenses from continuing operations for the nine months ended
September 30, 2009 and 2008 were $5,534,160 and $5,826,362, 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 operating expenses below:





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





Our total
SG&A expenses from continuing operations increased to $3,994,416, or 24.8%
of revenue for the nine-month period ended September 30, 2009 from $3,987,978,
or 23.4% of revenue for the nine-month period ended September 30,
2008.





Depreciation
Expense





Depreciation
expense from continuing operations decreased for the nine-month period ended
September 30, 2009 to $863,206 from $1,108,318 for the same period in 2008. This
decrease in depreciation expense was mainly due to depreciation savings
resulting from refinancing several fair market value capital leases to bargain
price capital leases at the end of the second quarter of fiscal
2008.  This refinancing requires the Company to depreciate the assets
covered under the respective leases over a longer period of time thus reducing
depreciation expense during the nine-month period.





Amortization of Intangible
Merchant Contracts





Amortization
of intangible merchant contracts from continuing operations increased for the
nine-month period ended September 30, 2009 to $590,474 from $577,502 for the
same period in 2008.  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, 2009 and 2008, we recorded stock
compensation expenses of $86,064 and $152,564, respectively.





Operating Income from
Continuing Operations





We had
operating income from continuing operations for the nine-month period ended
September 30, 2009 in the amount of $2,107,017 as compared to operating income
from continuing operations of $1,621,551 in the nine-month period ended
September 30, 2008.





Interest Expense,
Net





Interest
expense, net, decreased for the nine-month period ended September 30, 2009 to
$509,789 from $782,281 for the nine-month period ended September 30,
2008.  The decrease was mainly due to the Company refinancing its
senior debt from interest rates of 9% to 6.99% combined with decreased debt
balances at the nine-month period ended September 30, 2009, as compared to the
debt balances at the nine-month period ended September 30, 2008. 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.


26





For the Nine Months EndedSeptember 30, 2009
                        
                        
                        September 30, 2008Interest
      expense, net
                        
                        $
                        462,578
                        
                        
                        $
                        657,790Accretion
      of discount on notes payable
                        
                        
                        47,211
                        
                        
                        
                        124,491Total
      Interest expense, net
                        
                        $
                        509,789
                        
                        
                        $
                        782,281





Loss on early extinguishment
of debt





During
the nine-month period ended September 30, 2009, we recorded non-cash expenses of
$467,391 relating to the payoff of debt balances with two senior
lenders.  See Note #10 “Loss on Early Extinguishment of Debt” for
detail of these charges.





Income
Taxes





We
incurred no tax expense in either of the respective periods ending September 30,
2009 and September 30, 2008. At December 31, 2008, the Company had a net
operating loss carryforward of approximately $26.0 million
available.  The net operating loss carryforward is due to expire
during fiscal years 2011 through 2027.





Net
Income





We had
net income of $1,129,837 for the nine months ended September 30, 2009, as
compared to net income of $839,270 for the nine-month period ended September 30,
2008.





EBITDA





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





• 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.




27




The following table sets
forth a reconciliation of net income from continuing operations to EBITDA from
continuing operations for the three months ended September 30, 2009 and
2008:





For the Three Months EndedSeptember 30, 2009
                    
                    
                    September 30, 2008Net
      income from continuing operations
                    
                    $
                    476,044
                    
                    
                    $
                    276,825Interest
      expense, net
                    
                    
                    147,299
                    
                    
                    
                    255,900Depreciation
      expense
                    
                    
                    303,864
                    
                    
                    
                    329,061Amortization
      of intangible merchant contracts
                    
                    
                    201,790
                    
                    
                    
                    193,173EBITDA
      from continuing operations
                    
                    $
                    1,128,997
                    
                    
                    $
                    1,054,959




Our
EBITDA from continuing operations increased to $1,128,997 for the third quarter
of fiscal 2009 from $1,054,959 for the third quarter of fiscal 2008. EBITDA from
continuing operations as a percentage of revenues increased to 21.2% for the
third quarter of fiscal 2009 from 18.7% for the third quarter of fiscal
2008.





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, 2009 and
2008:





For the Nine Months EndedSeptember 30, 2009
                      
                      
                      September 30, 2008Net
      income from continuing operations
                      
                      $
                      1,129,837
                      
                      
                      $
                      839,270Interest
      expense, net
                      
                      
                      509,789
                      
                      
                      
                      782,281Depreciation
      expense
                      
                      
                      863,206
                      
                      
                      
                      1,108,318Amortization
      of intangible merchant contracts
                      
                      
                      590,474
                      
                      
                      
                      577,502EBITDA
      from continuing operations
                      
                      $
                      3,093,306
                      
                      
                      $
                      3,307,371




Our
EBITDA from continuing operations decreased to $3,093,306 for the first nine
months of fiscal 2009 from $3,307,371 for the first nine months of fiscal 2008.
The decrease in EBITDA from continuing operations was due to the loss on early
extinguishment of debt of $467,391 recorded during the first quarter of
2009.  EBITDA from continuing operations as a percentage of revenues
decreased to 19.2% for the first nine months of fiscal 2009 from 19.4% for the
first nine months of fiscal 2008.  Excluding the loss on early
extinguishment of debt charges, EBITDA from continuing operations as a
percentage of revenues would have been 22.1% for the first nine months of
2009.




28




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 three months ended
September 30, 2009 and 2008:





For the Three Months EndedSeptember 30,2009
                    
                    
                    September 30,2008Net
      income from continuing operations
                    
                    $
                    476,044
                    
                    
                    $
                    276,825Interest
      expense, net
                    
                    
                    147,299
                    
                    
                    
                    255,900Depreciation
      expense
                    
                    
                    303,864
                    
                    
                    
                    329,061Amortization
      of intangible merchant contracts
                    
                    
                    201,790
                    
                    
                    
                    193,173Stock
      compensation expense
                    
                    
                    30,979
                    
                    
                    
                    30,540Adjusted
      EBITDA
                    
                    $
                    1,159,976
                    
                    
                    $
                    1,085,499




Our
Adjusted EBITDA increased to $1,159,976 for the third quarter of fiscal 2009
from $1,085,499 for the third quarter of fiscal 2008. Adjusted EBITDA as a
percentage of revenues increased to 21.8% for the third quarter of fiscal 2009
from 19.2% for the third quarter of fiscal 2008.





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, 2009 and 2008:





For the Nine Months EndedSeptember 30, 2009
                    
                    
                    September 30, 2008Net
      income from continuing operations
                    
                    $
                    1,129,837
                    
                    
                    $
                    839,270Interest
      expense, net
                    
                    
                    509,789
                    
                    
                    
                    782,281Depreciation
      expense
                    
                    
                    863,206
                    
                    
                    
                    1,108,318Amortization
      of intangible merchant contracts
                    
                    
                    590,474
                    
                    
                    
                    577,502Stock
      compensation expense
                    
                    
                    86,064
                    
                    
                    
                    152,564Loss
      on early extinguishment of debt
                    
                    
                    467,391
                    
                    
                    
                    -Adjusted
      EBITDA
                    
                    $
                    3,646,761
                    
                    
                    $
                    3,459,935




Our
Adjusted EBITDA increased to $3,646,761 for the first nine months of fiscal 2009
from $3,459,935 for the first nine months of fiscal 2008. Adjusted EBITDA as a
percentage of revenues increased to 22.7% for the first nine months of fiscal
2009 from 20.3% for the first nine months of fiscal 2008.





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.  During 2009 however, lower vacation
travel and the slower economy reduced the positive seasonal impact.





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.





We have
funded our operations and investment activities from cash flow generated by
operations. Net cash provided by continuing operating activities during the
nine-month period ended September 30, 2009 was $3,255,409, compared to the net
cash provided by continuing operating activities during the nine-month period
ended September 30, 2008 of $2,139,707.  This represented a 52.1%
increase year over year.




29




The
Company used $2,208,330 for financing activities, mainly paying back senior
lender notes and capital leases during the nine-month period ended September 30,
2009 and depositing $800,000 into a restricted cash deposit account with
SunTrust Bank per the credit and security agreement signed on March 27,
2009.  This compared to funds used in financing activities of
$1,333,922 for the nine-month period ended September 30, 2008.





Net cash
used in investing activities was $709,506 during the nine-month period ended
September 30, 2009, mainly representing net purchases of property and equipment.
This compares to net cash used in investing activities of $218,208 for the
nine-month period ended September 30, 2008, representing net purchases of
property and equipment.





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.





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, 2010, with a one year automatic renewal period
      unless one party gives 60 days notice of their intention not to
      renew.  As of September 30, 2009, the Company had 13 ATMs funded
      by WSFS with a vault cash outstanding balance of approximately $258,000 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, 2010, with a one year automatic renewal
      period unless one party gives 180 days notice of their intention not to
      renew.  As of September 30, 2009, the Company had 1,202 ATMs
      funded by Elan with a vault cash outstanding balance of about
      approximately $26,792,100.





·
            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, 2009, Nationwide had
      53 branded financial partners, which funded 523
  ATMs.




30




Working
Capital





As of
September 30, 2009, we had current assets of $3,920,038 and current liabilities
of $5,195,600, which results in a negative working capital of
$1,275,562  as compared to current assets of $2,601,095  and
current liabilities of $4,100,309, which results in a negative working capital
of $1,499,214  as of September 30, 2008. The ratio of current assets
to current liabilities increased to 0.75 at September 30, 2009 from 0.63 at
September 30, 2008. 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 2009.  As of September 30,
2009, we were in compliance with all applicable covenants and ratios under our
credit agreement with SunTrust 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.





ITEM  3.
Quantitative and Qualitative Disclosure About Market Risk





Not
applicable.





ITEM  4.
Controls and Procedures





Not
applicable.





ITEM  4T.
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, 2009, 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) 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 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, 2009 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.





31





ITEM
1A. Risk Factors





There
were no material changes from the 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, 2008.





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





None.





ITEM  3.
Defaults upon Senior Securities





None.





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





None.





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  (Incorporated by reference
      to form 10KSB filed with the SEC on March 31, 2003)3.3
                  
                  Amendment
      to the Articles of Incorporation  (Incorporated by reference to
      Form 8-K filed with the SEC on May 3, 2005)4.1
                  
                  Securities
      Purchase Agreement dated March 11, 2005 of Global Axcess Corp
      (Incorporated by reference to Form 8-K filed with the SEC on April 4,
      2005)4.2
                  
                  Form
      of Common Stock Purchase Warrant (Incorporated by reference to Form 8-K
      filed with the SEC on April 4, 2005)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 Corp pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002.




32





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, as of November 4,
2009 the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





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




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the 4th day of
November, 2009.





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


33