UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  
 
 FORM
10-Q
 
 (MARK
ONE)
 
 xQUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934
 
 FOR
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2009 AND FEBRUARY
28, 2008
 
 OR
 
 oTRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934
 
 COMMISSION
FILE NUMBER: 001-15783
  
 CASH
TECHNOLOGIES, INC.
 (Exact
name of registrant as specified in its charter)
 
 DELAWARE
                  
                  95-4558331(State
      or other jurisdiction of incorporation organization)
                  
                  (IRS
      Employer Identification
No.)
 
 1434
      W. 11 THSTREET, LOS ANGELES, CA
                
                90015(Address
      of principal executive offices)
                
                (Zip
      Code)
 
 (213)
745-2000
 (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 xNo o
  
 
 Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.
 
 On April
20, 2009, there were 24,753,726 shares of common stock, $ .01 par value per
share, issued and outstanding.
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
 Yes oNo x
  
 
  CASHTECHNOLOGIES, INC.
 FORM
10-Q
 
 INDEX
 
 PAGE
      NO.PART
      I. FINANCIAL INFORMATIONItem
      1.
                          
                          Condensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets as of February 28, 2009
      (unaudited) and May 31, 2008
                          
                          3Condensed Consolidated Statements
      of Operations for the threeand ninemonth periods endedFebruary 28, 2009andFebruary 28, 2008(unaudited)
                          
                          4Condensed Consolidated Statements
      of Cash Flows for theninemonth periods EndedFebruary 28, 2009andFebruary 28, 2008(unaudited)
                          
                          5Notes to Condensed Consolidated
      Financial Statements for the threeand ninemonth periods endedFebruary 28, 2009andFebruary 28, 2008(unaudited)
                          
                          6Item
      2.
                          
                          Management's Discussion and Analysis of Financial Condition,
      Results of Operations, and Risk Factors
                          
                          14Item
      4.
                          
                          Controls And Procedures
                          
                          24PART
      II. OTHER INFORMATIONItem
      1.
                          
                          Legal Proceedings
                          
                          25Item
      2.
                          
                          Unregistered Sales of Equity Securities and Use of
      Proceeds
                          
                          26Item
      3.
                          
                          Defaults Upon Senior Securities
                          
                          26Item
      4.
                          
                          Submission of Matters to a Vote of Security
      Holders
                          
                          26Item
      5.
                          
                          Other Information
                          
                          26Item
      6.
                          
                          Exhibits and Reports on Form 8-K
                          
                          26SIGNATURES
                          
                          27
  Index
  PART
I
 
 ITEM1. FINANCIAL STATEMENTS
 
 CASHTECHNOLOGIES, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 
 February
      28,
                                    
                                    
                                    MAY
      31,2009
                                    
                                    
                                    2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                    
                                    $
                                    41,415
                                    
                                    
                                    $
                                    410,305Accounts
      receivable
                                    
                                    
                                    552,045
                                    
                                    
                                    
                                    128,622Prepaid
      expenses and other current assets
                                    
                                    
                                    475,960
                                    
                                    
                                    
                                    529,896Other
      receivable (net of allowance $50,000)
                                    
                                    
                                    226,854
                                    
                                    
                                    
                                    118,456Inventory
                                    
                                    
                                    12,352,875
                                    
                                    
                                    
                                    11,967,341Assets
      of discontinued operationsCash
                                    
                                    
                                    41
                                    
                                    
                                    
                                    41Accounts
      receivable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Prepaid
      expenses and other current assets
                                    
                                    
                                    90,000
                                    
                                    
                                    
                                    117,000Inventory
      (net of allowance $121,000)
                                    
                                    
                                    93,553
                                    
                                    
                                    
                                    93,553Property
      and equipment, net
                                    
                                    
                                    -Note
      receivable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Other
      assets
                                    
                                    
                                    18,230
                                    
                                    
                                    
                                    18,230Total
      assets of discontinued operations
                                    
                                    
                                    201,824
                                    
                                    
                                    
                                    228,824Total
      Current Assets
                                    
                                    
                                    13,850,973
                                    
                                    
                                    
                                    13,383,444CoinBank
      machines held for sale
                                    
                                    
                                    564,890
                                    
                                    
                                    
                                    609,890PROPERTY
      AND EQUIPMENT (net)
                                    
                                    
                                    
                                    
                                    
                                    
                                    3,027NOTES
      RECEIVABLECAPITALIZED
      SOFTWARE COSTS
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -HPS
      PREFERRED STOCK
                                    
                                    
                                    218,401
                                    
                                    
                                    
                                    218,401CLAIMREMEDI
      PREFERRED STOCK
                                    
                                    
                                    
                                    
                                    
                                    
                                    3,500,000BIPS
      PREFERRED STOCK
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -OTHER
      ASSETS
                                    
                                    
                                    279,400
                                    
                                    
                                    
                                    -TOTAL
      ASSETS
                                    
                                    $
                                    14,913,664
                                    
                                    
                                    $
                                    17,714,762LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIENCY)CURRENT
      LIABILITIES:Current
      maturities of Notes Payable  (Note 5)
                                    
                                    $
                                    3,874,619
                                    
                                    
                                    $
                                    3,938,524Due
      to Officers and Directors
                                    
                                    
                                    8,915
                                    
                                    
                                    
                                    8,915Convertible
      debt (Note 6)
                                    
                                    
                                    110,012
                                    
                                    
                                    
                                    147,337Due
      to Shareholders (Note 4)
                                    
                                    
                                    159,823
                                    
                                    
                                    
                                    398,805Accounts
      payable
                                    
                                    
                                    2,299,582
                                    
                                    
                                    
                                    894,202Accrued
      liabilities
                                    
                                    
                                    2,661,911
                                    
                                    
                                    
                                    1,956,702Dividend
      payable
                                    
                                    
                                    612,492
                                    
                                    
                                    
                                    461,246Liabilities
      of discontinued operationsAccounts
      payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Notes
      payable
                                    
                                    
                                    336,344
                                    
                                    
                                    
                                    336,344Accrued
      expenses and other current liabilities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Total
      liabilities of discontinued operations
                                    
                                    
                                    336,344
                                    
                                    
                                    
                                    336,344Total
      Current Liabilities
                                    
                                    
                                    10,063,698
                                    
                                    
                                    
                                    8,142,075Long-Term
      Notes Payable  (Note 6)
                                    
                                    
                                    2,215,786
                                    
                                    
                                    
                                    1,933,673Mandatorily
      redeemable preferred shares
                                    
                                    
                                    1,246,188TOTAL
      LIABILITIES
                                    
                                    
                                    13,525,672
                                    
                                    
                                    
                                    10,075,748COMMITMENTS
      & CONTINGENCIES (Note 2)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -MINORITY
      INTEREST
                                    
                                    
                                    (129,189
                                    )
                                    
                                    
                                    (122,640
                                    )MINORITY
      INTEREST OF DISCONTINUED OPERATIONS
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -TOTAL
      MINORITY INTEREST
                                    
                                    
                                    (129,189
                                    )
                                    
                                    
                                    (122,640
                                    )STOCKHOLDERS'
      EQUITY (DEFICIENCY):Stockholder's
      equity of discontinued operationsAdditional
      paid in capital
                                    
                                    
                                    979,367
                                    
                                    
                                    
                                    979,367Accumulated
      equity
                                    
                                    
                                    (1,086,887
                                    )
                                    
                                    
                                    (1,086,887
                                    )Total
      stockholder's equity of discontinued operations
                                    
                                    
                                    (107,520
                                    )
                                    
                                    
                                    (107,520
                                    )Cumulative
      Redeemable Preferred Stock, 1,500,000 shares authorized, 649,045 shares
      issued and outstanding at Feb 28, 2009 and Feb 28, 2008
                                    
                                    
                                    10,215,024
                                    
                                    
                                    
                                    10,906,811Common
      Stock, $0.01 par value, 65,000,000 shares authorized, 24,753,726 and
      24,442,976  shares issued and outstanding at Feb 28, 2009
      and  Feb 28, 2008
                                    
                                    
                                    368,132
                                    
                                    
                                    
                                    368,132-Additional
      Paid-In-Capital
                                    
                                    
                                    42,750,906
                                    
                                    
                                    
                                    42,265,826Accumulated
      Deficit
                                    
                                    
                                    (51,709,361
                                    )
                                    
                                    
                                    (45,671,595
                                    )Total
      stockholders' Equity
                                    
                                    
                                    1,517,181
                                    
                                    
                                    
                                    7,761,654TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
                                    
                                    $
                                    14,913,664
                                    
                                    
                                    $
                                    17,714,762
 See notes
to consolidated financial statements
  3
 Index
  CASHTECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 THREE
      MONTH PERIOD ENDED
                                              
                                              
                                              NINE
      MONTH PERIOD ENDEDFEBRUARY
      28,
                                              
                                              
                                              FEBRUARY
      28,2009
                                              
                                              
                                              2008
                                              
                                              
                                              2009
                                              
                                              
                                              2008NET
      REVENUES
                                              
                                              $
                                              569,188
                                              
                                              
                                              $
                                              40,468
                                              
                                              
                                              $
                                              1,244,617
                                              
                                              
                                              $
                                              119,403COST
      OF REVENUES
                                              
                                              
                                              352,278
                                              
                                              
                                              
                                              30,770
                                              
                                              
                                              
                                              1,110,696
                                              
                                              
                                              
                                              94,013GROSS
      PROFIT (LOSS)
                                              
                                              
                                              216,910
                                              
                                              
                                              
                                              9,698
                                              
                                              
                                              
                                              133,921
                                              
                                              
                                              
                                              25,390SELLING,
      GENERAL, & ADMINISTRATIVE EXPENSE
                                              
                                              
                                              529,458
                                              
                                              
                                              
                                              527,252
                                              
                                              
                                              
                                              1,565,010
                                              
                                              
                                              
                                              2,012,955IMPAIRMENT
      OF INVESTMENT IN BIPS
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2,000,000IMPAIRMENT
      OF INVESTMENT IN CLAIMREMEDI
                                              
                                              
                                              3,500,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              3,500,000IMPAIRMENT
      OF COINBANK MACHINES
                                              
                                              
                                              
                                              
                                              
                                              
                                              100,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              100,000IMPAIRMENT
      OF GOODWILL
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              200,000GAIN
      ON SALE OF HPS/CDHC STOCK
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (79,580
                                              )RESEARCH
      AND DEVELOPMENT
                                              
                                              
                                              
                                              
                                              
                                              
                                              18,750
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              56,250DEPRECIATION
      & AMORTIZATION EXPENSE
                                              
                                              
                                              1,519
                                              
                                              
                                              
                                              753
                                              
                                              
                                              
                                              3,027
                                              
                                              
                                              
                                              1,913OPERATING
      LOSS
                                              
                                              
                                              (3,814,067
                                              )
                                              
                                              
                                              (637,057
                                              )
                                              
                                              
                                              (5,134,116
                                              )
                                              
                                              
                                              (4,066,148
                                              )OTHER
      INCOME
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              30,488INTEREST
      EXPENSE
                                              
                                              
                                              178,893
                                              
                                              
                                              
                                              109,782
                                              
                                              
                                              
                                              737,491
                                              
                                              
                                              
                                              362,534PROFIT/(LOSS)
      BEFORE INCOME TAXES
                                              
                                              
                                              (3,992,960
                                              )
                                              
                                              
                                              (746,839
                                              )
                                              
                                              
                                              (5,902,095
                                              )
                                              
                                              
                                              (4,428,682
                                              )INCOME
      TAXES
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -MINORITY
      INTEREST (Note 9)
                                              
                                              
                                              (9,026
                                              )
                                              
                                              
                                              (5,508
                                              )
                                              
                                              
                                              (15,575
                                              )
                                              
                                              
                                              (19,030
                                              )NET
      INCOME (LOSS) FROM CONTINUING OPERATIONS
                                              
                                              $
                                              (3,983,934
                                              )
                                              
                                              $
                                              (741,331
                                              )
                                              
                                              $
                                              (5,886,520
                                              )
                                              
                                              $
                                              (4,409,652
                                              )DISCONTINUED
      OPERATIONSNET
      REVENUES
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -FORGIVENESS
      OF DEBT
                                              
                                              
                                              
                                              
                                              
                                              
                                              -COST
      OF REVENUES
                                              
                                              
                                              
                                              
                                              
                                              
                                              -SELLING,
      GENERAL & ADMINISTRATIVE EXPENSE
                                              
                                              
                                              
                                              
                                              
                                              
                                              (2,469
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              291,322INTEREST
      EXPENSE
                                              
                                              
                                              
                                              
                                              
                                              
                                              (10,009
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (45,711
                                              )GAIN
      (LOSS) FROM DISPOSITION OF SUBSIDIARY'S ASSETS
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -WIRTE
      OFF OF LONG OUTSTANDINGESTIMATED
      LIIABILITIES
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -GAIN/(LOSS)
      FROM WRITE OFF OF LONG TERM NOTE
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (7,518,118
                                              )Extraordinary
      Gain on purchase of CPI assets
                                              
                                              
                                              
                                              
                                              
                                              
                                              -INCOME
      (LOSS) FROM DISCONTINUED OPERATIONS
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (12,478
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (7,272,507
                                              )NET
      INCOME (LOSS)
                                              
                                              $
                                              (3,983,934
                                              )
                                              
                                              $
                                              (753,809
                                              )
                                              
                                              $
                                              (5,886,520
                                              )
                                              
                                              $
                                              (11,682,159
                                              )Dividends
      & deemed dividends
                                              
                                              $
                                              50,415
                                              
                                              
                                              $
                                              50,000
                                              
                                              
                                              $
                                              151,246
                                              
                                              
                                              $
                                              150,000Net
      income (loss) allocable to common shareholders
                                              
                                              $
                                              (4,034,349
                                              )
                                              
                                              $
                                              (803,809
                                              )
                                              
                                              $
                                              (6,037,766
                                              )
                                              
                                              $
                                              (11,832,159
                                              )Basic
      and diluted net income (loss) per share before extraordinary
      income
                                              
                                              $
                                              (0.16
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (0.24
                                              )
                                              
                                              $
                                              (0.32
                                              )Basic
      and diluted net income (loss) per share for extraordinary
      income
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (0.32
                                              )Basic
      and diluted weighted average shares of common stock
      outstanding
                                              
                                              
                                              24,753,726
                                              
                                              
                                              
                                              34,671,863
                                              
                                              
                                              
                                              24,753,726
                                              
                                              
                                              
                                              34,671,863
 
 
 See notes
to consolidated financial statements
  4
 Index
  CASHTECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 PERIOD
      ENDEDFEBRUARY
      28,2009
                          
                          
                          2008OPERATING
      ACTIVITIES:Net
      loss
                          
                          $
                          (5,886,520
                          )
                          
                          $
                          (11,682,159
                          )Adjustments
      to reconcile net loss to net cash used byoperating
      activities:Bad
      Debt Expense-discontinued operations
                          
                          
                          
                          
                          
                          
                          7,938,663Impairment
      of investment in BIPS
                          
                          
                          
                          
                          
                          
                          2,000,000Impairment
      of investment in ClaimRemedi
                          
                          
                          3,500,000Gain
      on sale of investment
                          
                          
                          
                          
                          
                          
                          (79,580
                          )Minority
      interest
                          
                          
                          (6,549
                          )
                          
                          
                          (18,348
                          )Amortization
      deemed interest expense
                          
                          
                          568,221
                          
                          
                          
                          16,360Depreciation
      expense
                          
                          
                          3,027
                          
                          
                          
                          (1,572
                          )Other
      Assets
                          
                          
                          
                          
                          
                          
                          472,973Gain
      on sale of asset
                          
                          
                          
                          
                          
                          
                          -Impairment
      of CoinBank machines held for sale
                          
                          
                          
                          
                          
                          
                          100,000Changes
      in operating assets and liabilities:Accounts
      receivable
                          
                          
                          (423,422
                          )
                          
                          
                          (770
                          )Inventory
                          
                          
                          (385,534
                          )
                          
                          
                          -Coinbank
      Machinery Held for Sale
                          
                          
                          
                          
                          
                          
                          -Prepaid
      expenses and other current assets
                          
                          
                          53,936
                          
                          
                          
                          (500,377
                          )Other
      receivable
                          
                          
                          (108,398
                          )
                          
                          
                          (127
                          )Accrued
      interest
                          
                          
                          
                          
                          
                          
                          49,820Accounts
      payable
                          
                          
                          1,405,380
                          
                          
                          
                          (482,957
                          )Accrued
      expenses and other current liabilities
                          
                          
                          705,209
                          
                          
                          
                          (673,422
                          )Change
      in net assets of business held for sale
                          
                          
                          72,000
                          
                          
                          
                          1,024,490Net
      cash provided by (used in) operating activities
                          
                          
                          (502,651
                          )
                          
                          
                          (1,837,006
                          )INVESTING
      ACTIVITIES:Proceeds
      from sale of investment
                          
                          
                          -
                          
                          
                          
                          500,000Purchase
      of inventory
                          
                          
                          -Net
      cash provided by (used in) investing activities
                          
                          
                          -
                          
                          
                          
                          500,000FINANCING
      ACTIVITIES:Net
      proceeds from issuance of preferred stock
                          
                          
                          275,001
                          
                          
                          
                          31,001Proceeds
      from Long-term debt
                          
                          
                          198,972
                          
                          
                          
                          260,000Proceeds
      from short term debt
                          
                          
                          
                          
                          
                          
                          (83,215
                          )Repayments
      on short-term debt
                          
                          
                          (340,212
                          )
                          
                          
                          -Repayments
      on long-term debt
                          
                          
                          
                          
                          
                          
                          -Proceeds
      from sale of common stock
                          
                          
                          
                          
                          
                          
                          33,963Net
      cash provided by (used in) financing activities
                          
                          
                          133,761
                          
                          
                          
                          241,749CHANGE
      IN CASH AND CASH EQUIVALENTS
                          
                          
                          (368,890
                          )
                          
                          
                          (1,095,257
                          )Cash
      and Cash Equivalents, Beginning of Period
                          
                          
                          410,305
                          
                          
                          
                          1,107,649Cash
      and Cash Equivalents, End of Period
                          
                          $
                          41,415
                          
                          
                          $
                          12,392SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONIncome
      taxes
                          
                          
                          2,400
                          
                          
                          
                          -SUPPLEMENTAL
      DISCLOSURE OF NONCASH TRANSACTIONSGain
      (Loss) on operations of discontinued operations
                          
                          
                          
                          
                          
                          $
                          (7,372,507
                          )Dividends
      declared on preferred stock
                          
                          $
                          108,831
                          
                          
                          $
                          150,000
 
 
 See notes
to consolidated financial statements
  5
 Index
  CASHTECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 NOTE 1:  GENERAL
 
 GOING
CONCERN:
 
 We have
prepared the financial statements included in this Form 10-Q assuming that we
will continue as a going concern. Although we have raised additional capital
since our initial public offering in July 1998, we have never generated
sufficient revenue-producing activities to sustain our operations. Accordingly,
we must raise significant capital to fund current operations and to repay
existing debt. Our auditors have included an explanatory paragraph in their
report for the year ended May 31, 2008, indicating there is substantial doubt
regarding our ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of any uncertainty.
 
 PRESENTATION
OF INTERIM INFORMATION:
 
 In the
opinion of the management of Cash Technologies, Inc. (“Cash Tech” or the
"Company"), the accompanying unaudited condensed consolidated financial
statements include all normal adjustments considered necessary to present fairly
the financial position as of February 28, 2009 and the results of operation and
cash flows for the three and nine-month periods ended February 28, 2009 and
February 28, 2008. Interim results are not necessarily indicative of results to
be expected for any subsequent quarter or for the entire fiscal
year.
  The
condensed consolidated financial statements and notes are presented as permitted
by Form 10-Q. These condensed financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted pursuant to such SEC rules and
regulations. These financial statements should be read in conjunction with the
Company's audited financial statements and the accompanying notes included in
the Company's Form 10-KSB for the year ended May 31, 2008, filed with the SEC.
The results of operations for the three and nine-month periods ended February
28, 2009, are not necessarily indicative of the results to be expected for any
subsequent quarter or for the entire fiscal year.
 
 The
research and development of new software products and enhancements to existing
software products were expensed as incurred (and recorded in the consolidated
statement of operation) until technological feasibility has been established.
Technological feasibility is established upon completion of a detailed program
design or working model. Amortization of the capitalized software commenced on
January 1, 2002. As of May 31, 2008, capitalized software costs had been fully
amortized. Technological feasibility was achieved in September of 1999 and
commencing October 1, 1999 all expenses related to EMMA software development had
been capitalized. As of December 31, 2001, we had capitalized $2,771,536 in
development and related costs. The EMMA product was available for release to the
public in January 2002 thus all development costs since have been
expensed.
 
 Recent
Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value and expands disclosure of fair value measurements. SFAS 157 applies under
other accounting pronouncements that require or permit fair value measurements
and, accordingly, does not require any new fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. We evaluated the impact of the adoption and determined that
it does not have any impact on our current financial condition or results of
operations.
  6
 Index
  In
February 2007, the Financial Accounting Board (FASB) issued SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”)
which permits entities to choose to measure many financial instruments and
certain other items at fair value that are not currently required to be measured
at fair value. SFAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007. We evaluated the impact of the adoption
and determined that it does not have any impact on our current financial
condition or results of operations.
 
 In June
2007, the Emerging Issues Task Force of the FASB issued EITF Issue no. 07-3,
Accounting for Nonrefundable
Advance Payments for Goods or Services to be Used in Future Research and
Development Activities, (“EITF 07-3”) which is effective for fiscal
years beginning after December 15, 2007.  EITF 07-3 requires that
nonrefundable advance payments for future research and development activities be
deferred and capitalized.  Such amounts will be recognized as an
expense as the goods are delivered or the related services are
performed.  We evaluated the impact of the adoption and determined
that it does not have any impact on our current financial condition or results
of operations.
 
 In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations(“SFAS
No. 141(R)”), which requires entities to record fair value estimates of
contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisition costs as incurred and
does not permit certain restructuring activities previously allowed under
Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of
purchase accounting.  SFAS 141(R) is effective for financial
statements issued for fiscal years beginning after December 15,
2008.    We have not determined the effect that the adoption
of SFAS No. 141(R) will have on its consolidated financial statements, but the
impact will be limited to any future acquisitions beginning in our 2010 fiscal
year.
 
 In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51, (“SFAS No.
160”), which causes non-controlling interests in subsidiaries to be included in
the equity section of the balance sheet.  SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15,
2008.  We have not determined the effect that the adoption of SFAS No.
160 will have on its consolidated financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and how derivative instruments and related hedged items
affect a company's financial position, financial performance and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. We are currently evaluating
the impact, if any, that SFAS 161 will have on our financial position or results
of operations.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 162”). SFAS 162 identifies a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles for nongovernmental entities (the
“Hierarchy”). The Hierarchy within SFAS 162 is consistent with that previously
defined in the AICPA Statement on Auditing Standards No. 69, “The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles”
(“SAS 69”). SFAS 162 is effective 60 days following the United States Securities
and Exchange Commission’s (the “SEC”) approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles”. The adoption of SFAS
162 will not have a material effect on our Consolidated Financial Statements
because we have utilized the guidance within SAS 69.
 
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60 (“SFAS No. 163”).
SFAS 163 requires recognition of an insurance claim liability prior to an event
of default when there is evidence that credit deterioration has occurred in an
insured financial obligation. SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and all interim
periods within those fiscal years. Early application is not permitted. Our
adoption of SFAS 163 will not have a material effect on our Consolidated
Financial Statements
  7
 Index
  IMPAIRMENT
OF BIPS
 During
the twelve months ended May 31, 2008, management concluded that due to adequate
quarterly data no longer being available, that the resulting uncertainty
requires us to take a 100% reserve on the BIPS investment. Although we believe
that our investment in BIPS has the potential for returns previously indicated,
we have concluded that we can no longer support the value of the investment
under FSP 115-1.
  IMPAIRMENT
OF CLAIMREMEDI
 Due to
the de-emphasis of our medical software products business, Veredi, Inc.,
following the acquisition of the Champion assets in May 2008, and the resulting
impact on performance targets in our agreement with medical software development
partner ClaimRemedi, Inc. (“ClaimRemedi”), we have agreed to exchange preferred
stock we previously issued to ClaimRemedi for common stock of ClaimRemedi which
we held and impaired the value of our investment in ClaimRemedi.
 NOTE
2. COMMITMENTS AND CONTINGENCIES
 
 In 2001
we delivered stock certificates representing 700,000 shares to an escrow agent
as collateral for a loan. The loan was never consummated, and in May 2001 we
notified the transfer agent to cancel the shares. Thereafter the escrow agent,
an attorney, died and we were never able to recover the certificates. In 2004 it
came to our attention that a party was attempting to transfer 450,000 of the
700,000 shares. We immediately initiated a lawsuit in New York to prevent the
transfer of the shares and have them retired. In December, 2004, we reached a
settlement in which the shares would be returned to us without any exchange of
money. We intend to similarly pursue the recovery of the remaining 250,000
shares, however in the event that we cannot achieve a satisfactory outcome in
such effort, or in the event that the pending settlement is not consummated for
any reason, some or all of these shares may be treated as outstanding and our
Stockholders' Equity line item would have to be adjusted to reflect such
additional shares.
  NOTE
3:  STOCKHOLDERS’ EQUITY
 
 During
the nine month period ended February 28, 2009, the Company raised a total of
$279,400 through the sale of the Company’s preferred stock to principals of
Turbomotive, Inc, in support of CPI Holdings’ acquisition of certain
turbocharger intellectual property and related assets.
 NOTE
4: RELATED PARTY TRANSACTIONS
 
 As of
February 28, 2009, we were in arrears of approximately $535,500 for the salary
to Mr. Korman, and owed $259,638 in accrued rent for our offices to a company in
which Mr. Korman has a beneficial interest.
 
 In
addition, for the same period we were in arrears of approximately $32,000 for
the salary to Mr. King.
 
 NOTE
5: NOTE PAYABLE
 
 In 1997,
we entered into a credit agreement with G.E. Capital Corporation, or G.E.
Capital, pursuant to which we borrowed $ 5,500,000 for the purchase of CoinBank
component equipment, working capital and general corporate purposes. Due to our
inability to repay G.E. Capital on the original terms, on September 29, 2000 we
entered into the first of several loan modifications with G.E. The most recent
modification requires interest-only payments at a rate of 11% until February 1,
2010 at which time the entire unpaid balance shall be due and payable. We have
no current plan or capability to repay G.E. its principal. A default of this
obligation could result in the delisting and/or bankruptcy of the Company. As of
February 28, 2009, we owed G.E. Capital approximately $4 million, which includes
the principal, financing fees and unpaid interest.
 
 NOTE
6: CONVERTIBLE DEBT
 
 In May
2003 we completed a private placement offering with a stockholder consisting of
an unsecured convertible promissory note in the principal amount of $50,000,
bearing interest at the rate of 5% per annum and redeemable Warrants to purchase
100,000 shares of common stock. The note is convertible into common stock at the
conversion rate of $0.50 per share. The Warrants are exercisable at $1.00 per
share. At that time we also reduced the exercise price of 8,000 Series C
warrants owned by the stockholder from $2.50 to $0.25 per share. The note was
due and payable on May 2, 2008. This note was converted on September 11, 2006
and was reclassified into equity.
 On May
22, 2007 we completed a private placement consisting of a convertible note,
common stock and common stock warrants. The total placement was for $1,500,000
and consisted of:
  8
 Index
  ·
              a 6% interest 3 year convertible
      note for $1,200,000 with a conversion price of $1.05 per
      share,
 
 ·
              $300,000 of common stock at $0.80
      per share, or 375,000 shares of common
  stock,
 
 ·
              common stock purchase warrants to
      purchase 759,000 shares of common stock at $1.75 per
      share
 
 In May
2003 we completed a private placement offering with one of our stockholders
consisting of convertible notes and warrants under Section 4(2) of the
Securities Act of 1933. The offering consisted of an unsecured convertible
promissory note in the principal amount of $50,000, bearing interest at the rate
of 5% per annum and redeemable warrants to purchase 100,000 shares of common
stock. The note is convertible into our common stock at the conversion rate of
$0.50 per share. The Warrants are exercisable at a price of $1.00 per share. We
also reduced the exercise price of 8,000 Series C warrants owned by the
stockholder from $2.50 to $0.25 per share. The note is due and payable on May 2,
2008 and remains unpaid. A deemed dividend expense of $25,331 was recognized in
conjunction with the warrants offered in this placement.
 
 In May
2003 we completed a private placement offering with one of our stockholders
consisting of convertible notes and warrants under Section 4(2) of the
Securities Act of 1933. The offering consisted of an unsecured convertible
promissory note in the principal amount of $20,750, bearing interest at the rate
of 5% per annum and redeemable warrants to purchase 30,000 shares of common
stock. The note is convertible into our common stock at the conversion rate of
$0.50 per share. The Warrants are exercisable at a price of $0.65 per share. We
also reduced the exercise price of 45,000 Series B warrants owned by the
stockholder from $4.50 to $0.65 per share which were converted immediately for
gross proceeds to us of $29,250. The note was due and payable on May 8, 2008 and
remains unpaid. A deemed dividend expense of $25,901 was recognized in
conjunction with the warrants offered in this placement.
 
 As of
February 28, 2008, we still owed $120,750 in principal and interest to the
remaining noteholders. There can be no assurance that we will be able to pay the
remaining noteholders when the notes are due and that the noteholders will not
declare an event of default and demand immediate payment or seek to attach our
assets, including our EMMA technology. (See Risk Factors).
 
 In May
2008 we completed a private placement offering with 5 investors consisting of
(i) convertible debentures totaling $1,590,000, convertible into common stock at
$0.25 per share, with interest at 12% per annum payable quarterly, secured by
the assets of CPI Holdings; and (ii) 5-year warrants to purchase 3.18 million
shares of common stock, exercisable at $0.50 per share; and (iii) warrants
expiring on November 7, 2008 to purchase 1.59 million shares of common stock
exercisable at $.35 per share.
 
 In
accordance with EITF 98-05, “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustment Conversion Ratios
Abstract”, the Company allocated the proceeds according to the value of the
convertible note and the warrants based on their relative fair
values.  Fair value of the warrants was determined using the
Black-Scholes valuation model.  For the 6-month
warrants,  risk-free interest rate used ranged from 1.64% to 1.74%,
volatility rate ranged from 172% to  208%, and exercise price is
$0.35.  For the 5-year warrants, risk-free interest rate used ranged
from 2.99% to 4.86%, volatility rate ranged from 406% to 593%, and exercise
price is $0.75 and $0.50.
 
 In
accordance with EITF 00-27, “Application of Issue No. 98-5 to Certain
Convertible Instruments”, the issue costs, value of the beneficial conversion
feature and value of the warrants amounting to $75,000, $328,579 and $290,996,
respectively, have been recorded as a discount to convertible notes and are
being amortized over the term of the notes using the straight-line
method.  For the three months ended February 28, 2009,
amortization of the discount was $6,918, $79,609 and $62,255,
respectively.  For the nine months ended February 28, 2009,
amortization of the discount was $20,985, $241,502 and $188,288,
respectively.  Unamortized debt discount as of February 28, 2009 are
$25,189, $775,096 and $612,323, respectively
  9
 Index
  NOTE
7: STOCK BASED COMPENSATION
 
 Effective
June 1, 2006 the Company adopted SFAS 123(R) using the modified prospective
approach and accordingly prior periods have not been restated to reflect the
impact of SFAS 123(R). Under SFAS 123(R), stock-based awards granted prior to
its adoption will be expensed over the remaining portion of their vesting
period. These awards will be expensed under the accelerated amortization method
using the same fair value measurements which were used in calculating pro forma
stock-based compensation expense under SFAS 123. For stock-based awards granted
on or after June 1, 2006, the Company will amortize stock-based compensation
expense on a straight-line basis over the requisite service period, which is
five years.
 
 SFAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from initial
estimates. Stock-based compensation expense has been recorded net of estimated
forfeitures for such that expense was recorded only for those stock-based awards
that are expected to vest. Previously under APB 25 to the extent awards were
forfeited prior to vesting, the corresponding previously recognized expense was
reversed in the period of forfeiture.
 
 SFAS 123
requires the Company to provide pro-forma information regarding net loss as if
compensation cost for the stock options granted to the Company’s employees had
been determined in accordance with the fair value based method prescribed in
SFAS 123. Options granted to non-employees are recognized in these financial
statements as compensation expense under SFAS 123 using the Black-Scholes
option-pricing model.
 
 For the
nine month period ended February 28, 2009, the fair value of option grants is
estimated on the date of grant utilizing the Black-Scholes option-pricing model
with the weighted average assumption for options granted during 2003-2008,
expected life of the option is 5 years, expected volatility of 134.46%, risk
free interest rate of 3.76% and a 0% dividend yield. No option grants occurred
during the period.
 
 NOTE
8: SEGMENT REPORTING
 
 We
operate through principal business segments: CPI Holdings, LLC and Veredi, Inc.
(formerly Claim-Remedi Services, Inc.)
 
 Information
on our business segments for the:
 
 Three
      months ended
                                                                                                  
                                                                                                  
                                                                                                  Nine
      months endedFebruary
      28,
                                                                                                  
                                                                                                  
                                                                                                  February
      28,Net
      revenues:
                                                                                                  
                                                                                                  2009
                                                                                                  
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  2009
                                                                                                  
                                                                                                  
                                                                                                  2008ClaimRemedi/CashTechCard,Coin
      Machines
                                                                                                  
                                                                                                  
                                                                                                  18,602
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  40,468
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  137,439
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  119,403CPI
      Holdings
                                                                                                  
                                                                                                  
                                                                                                  550,586
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,107,178
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Unallocated
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -569,188
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  40,468
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,244,617
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  119,403Interest
      expense:ClaimRemedi/CashTechCard,Coin
      Machines
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -CPI
      Holdings
                                                                                                  
                                                                                                  
                                                                                                  386,780
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  462,334
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Unallocated
                                                                                                  
                                                                                                  
                                                                                                  180,750
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  109,782
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  275,157
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  362,534567,530
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  109,782
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  737,491
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  362,534Depreciation
      & Amortization:ClaimRemedi/CashTechCard,Coin
      Machines
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -CPI
      Holdings
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Unallocated
                                                                                                  
                                                                                                  
                                                                                                  1,519
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  753
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,027
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,9131,519
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  753
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,027
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,913Segment
      Income (loss):ClaimRemedi/CashTechCard,Coin
      Machines
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (198,711
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (25,161
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (2,775,850
                                                                                                  )CPI
      Holdings
                                                                                                  
                                                                                                  
                                                                                                  (761,853
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1,387,500
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  -Unallocated
                                                                                                  
                                                                                                  
                                                                                                  (3,222,081
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (542,620
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (4,473,859
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (1,633,802
                                                                                                  )(3,983,934
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (741,331
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (5,886,520
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (4,409,652
                                                                                                  )
  10
 Index
  On May 5,
2008 CPI Holdings, LLC (dba Champion Parts) acquired assets of Champion Parts,
Inc. for $2.97 million.
 
 NOTE
9: MINORITY INTEREST
 
 For the
three month periods ended February 28, 2009 and February 28, 2008, we
allocated $0 and $6,291 of losses in CT Holdings to minority
interest.  For the nine month periods ended February 28, 2009 and
2008, we allocated $6,549 and $12,840 of losses in CT Holdings to minority
interest.
 
 NOTE
10: NOTE RECEIVABLE
 
 On
October 31, 2007, the Company's TAP Holdings, LLC (dba Tomco Auto Products)
subsidiary sold most of its assets to competitor Champion Parts, Inc. TAP
received $1.3 million in cash and a secured promissory note for $9.5 million
subject to certain offsets to be paid over a maximum of 11 years, however,
Champion defaulted on the note when it filed for Chapter 11 bankruptcy
protection on October 10, 2007. Champion's bankruptcy and default of the $9.5
million secured note owed by Champion to TAP Holdings required us to write-off
the adjusted $7.9 million remaining note balance.
 
 On May 5,
2008 the Company’s CPI Holdings, LLC (dba Champion Parts) subsidiary acquired
most of the assets of Champion Parts, Inc. from its lender, PNC Bank, following
a court-ordered foreclosure, for $2.97 million.  To fund the
acquisition and working capital, Cash Tech raised approximately $3.4 million in
debt and convertible debt.
  11
 Index
  The
acquired assets consist of finished goods, raw materials, component parts, all
manufacturing and office equipment, furniture, computers, intangible assets such
as the company name, IP, software, records, etc.
 
 NOTE
11: SUBSEQUENT EVENTS
 
 On
February 25, 2009 the Company received a letter from NYSE Alternext US (the
“Exchange”) notifying the Company that the Exchange intended to file a delisting
application with the SEC due to the Company’s failure to meet certain continued
listing requirements of the Exchange.
 
 The
letter acknowledged that the Company met 5 of the 6 listing criteria cited by
the Exchange in its letter dated November 1, 2007, including the requirement to
maintain $6,000,000 in shareholders’ equity, but stated that in the opinion of
the Exchange the Company continued to be “financially impaired,” a violation of
Section 1003(a)(iv) of the Company Guide.
 
 The
letter also cited violations of certain other listing criteria, including
Company Guide Sections 704, 1003(d) and 132(e), which refer to the failure to
hold an annual meeting in 2008 and provide certain information, Section
1003(f)(v), which is the failure to effect a reverse split of the Company’s
stock and Section 1002(b), which was the Exchange’s opinion that the Company’s
reduced market cap makes “further dealings on the Exchange
inadvisable.”
 
 The
Company believed that it met the objective financial criteria of the Exchange
and that the cited financial violations were subjective and failed to adequately
consider the Company’s significant improvements in revenues and shareholders’
equity.  Nevertheless, the Company decided that it would not appeal
the decision and to pursue trading on the OTC Bulletin Board market for several
reasons:
 
 (a) The
Company had annually incurred a six-figure expense from Exchange listing fees,
additional listing application fees, legal, accounting and transaction
structuring expenses which it will not have to incur on the OTCBB;
 
 (b)
Management believes that the Company’s stock price will be determined by
investors based primarily on financial performance without regard to its listing
on any exchange and that the Company’s uncertain listing status has itself
contributed to the Company’s low stock price;
 
 (c)
Management believes that given the Company’s expected growth over the next year,
the drastic reverse split demanded by the Exchange was and is not in the best
interest of the Company’s shareholders.
 
 The
Company ceased trading on the Exchange on March 12, 2009 and began trading on
the “Pink Sheets” under the symbol “CTQN.”  An application is now
pending with NASDAQ to initiate trading on the OTC Bulletin
Board.  NASDAQ provides no estimate of the time to review such an
application and while management believes that the Company is qualified for the
Bulletin Board, there can be no assurance that it’s application will be
approved.
  As a
further consequence of our delisting from Amex/NYSE Alternext, we have
re-classified certain preferred stock that contained mandatory redemption
provisions.
 ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 SAFE
HARBOR STATEMENT
 
 In
addition to historical information, the information included in this Form 10-Q
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the ''Securities Act''), and Section 21E of
the Securities Exchange Act of 1934, as amended (the ''Exchange Act''), such as
those pertaining to the Company's capital resources, performance and results of
operations. Forward-looking statements involve numerous risks and uncertainties
and should not be relied upon as predictions of future events. Certain such
forward-looking statements can be identified by the use of forward-looking
terminology such as ''believes,'' ''expects,'' ''may,'' ''will,'' ''should,''
''seeks,'' ''approximately”, ''intends,'' ''plans,'' ''pro forma,''
''estimates,'' or ''anticipates'' or the negative thereof or other variations
thereof or comparable terminology, or by discussions of strategy, plans or
intentions. Such forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and may be
incapable of being realized. The following factors, among others, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: significant and immediate need
for capital, lack of revenue, market acceptance of the Company's products,
technological restrictions upon development, limited marketing experience,
uncertainty of product development, including our EMMA technology, dependence
upon new technology, need for qualified management personnel and competition.
The success of the Company also depends upon economic trends generally,
governmental regulation, legislation, and population changes. Readers are
cautioned not to place undue reliance on forward-looking statements, which
reflect management's analysis only. The Company assumes no obligation to update
forward-looking statements.
  12
 Index
  Introduction
 
 Cash
Technologies, Inc., is a Delaware corporation, incorporated in August 1995.
Unless the context otherwise requires, references herein to "we," "our" or "Cash
Tech" refers to Cash Technologies, Inc., and its wholly-owned and majority-owned
subsidiaries National Cash Processors, Inc., a Delaware corporation; CoinBank
Automated Systems, Inc., a Delaware corporation; CoinBank Automation Handels
GmbH, organized and operating in Salzburg, Austria, Cash Tech Card Systems,
Inc., a Delaware corporation, CT Holdings, LLC., a Delaware limited liability
company of which we own 86.65%, CPI Holdings, LLC dba Champion Parts, an
Arkansas limited liability company, Veredi, Inc. (formerly Claim-Remedi
Services, Inc)., a Delaware company and TAP Holdings, LLC (formerly dba Tomco
Auto Products), a California limited liability company. Our address is 1434 West
11th Street, Los Angeles, California 90015. Our telephone number is (213)
745-2000.
 
 Our
independent certified public accountant included an explanatory paragraph in its
report for the year ended May 31, 2008, which indicated a substantial doubt as
to the ability of us to continue as a going concern. This concern is primarily
due to substantial debt service requirements and working capital needs. See
independent certified public accountant's letter.
 
 The
research and development of new software products and enhancements to existing
software products were expensed as incurred (and recorded in the consolidated
statement of operation) until technological feasibility has been established.
Technological feasibility is established upon completion of a detailed program
design or working model. Amortization of the capitalized software commenced on
January 1, 2002. As of May 31, 2007, capitalized software costs had been fully
amortized . Technological feasibility was achieved in September of 1999 and
commencing October 1, 1999 all expenses related to EMMA software development had
been capitalized. As of December 31, 2001, we had capitalized $2,771,536 in
development and related costs. The EMMA product was available for release to the
public in January 2002 thus all development costs since have been expensed
including $25,000 for the fiscal year ended May 31, 2008 and $93,750 for the
fiscal year ended May 31, 2007 .
 
 Much of
our SG&A costs are fixed in nature, therefore, as revenues increase, our
SG&A does not increase proportionately.
 
 We record
as revenue licensing and software fees as well as coin counting machine sales in
accordance with generally accepted accounting principles.
 
 We are
currently engaged principally in the auto products business.
 
 
 RESULTS
OF OPERATIONS
 
 THREE
MONTHS ENDED FEBRUARY 28, 2009 COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28,
2008.
  13
 Index
  Net revenuesfor the
three-month period ended February 28, 2009 increased to $569,188 compared to
$40,468 for the same 2008 period. The increase in net revenue is attributable
primarily to the acquisition of the Champion assets and the corresponding start
of operations of CPI Holdings.
 
 Cost of revenuesfor the
three-month period ended February 28, 2009 was $352,278 compared to $30,770 for
the same 2008 period. The increase in cost of revenues is directly related to
the increase in sales from the start of our CPI Holdings
subsidiary.
 
 Grossprofit (loss)for the three months
ended February 28, 2009 was $216,910 compared to a Gross profitof $9,698 for
the same period a year ago.
 
 Selling, General and Administrativeexpenses for the three months ended February 28, 2009, was $529,458
compared to $527,252 for the same three months ended February 28, 2008. These
expenses consist primarily of wages (and wage related costs), outside contractor
expenses, travel/promotional expenses, professional services and
facilities/office related expenses.
 
 Impairment of investment in
ClaimRemediwas $3,500,000 for the three months ended February 28,
2009.  Although this asset has been written off, management believes
there may be value to this asset yet there is no reliable way to evaluate this
asset at this time.
 
 
 Research and developmentexpenses for the three months ended February 28, 2009 were $0 and for
2008, were $18,750.
 
 Depreciation and amortizationexpenses for the three months ended February 28, 2009, and February 28,
2008, were $1,519 and $753, respectively.   The increase was due
to additional amortization expense related to the acquisition of the CPI
assets.
 
 Interest expensefor the
three months ended February 28, 2009 and February 28, 2008, was $178,893 and
$109,782.  The increase was due to additional imputed interest related
to the acquisition of the CPI assets.
 
 Minority Interestfor the
three months ended February 28, 2009 and February 28, 2008, was $9,026 and
$5,508, respectively.
 
 As a
result of the foregoing, net income (losses) for the three months ended February
28, 2009 and February 28, 2008, were $(3,983,934) and $(741,331),
respectively.
  
 NINE
MONTHS ENDED FEBRUARY 28, 2009 COMPARED TO THE NINE MONTHS ENDED FEBRUARY 28,
2008.
  Net revenuesfor the
nine-month period ended February 28, 2009 increased to $1,244,617 compared to
$119,403 for the same 2008 period. The increase in net revenue is attributable
primarily to the acquisition of the Champion assets and the corresponding start
of operations of CPI Holdings.
 
 Cost of revenuesfor the
nine-month period ended February 28, 2009 was $1,110,696 compared to $94,013 for
the same 2008 period. The increase in cost of revenues is directly related to
the increase in sales from the start of our CPI Holdings
subsidiary.
 
 Grossprofitfor the nine months
ended February 28, 2009 was $133,921 compared to a Gross profitof $25,390 for
the same period a year ago.
 
 14
 Index
 Selling, General and Administrativeexpenses for the nine months ended February 28, 2009, decreased to
$1,565,010 compared to $2,012,955 for the same nine months ended February 28,
2008. These expenses consist primarily of wages (and wage related costs),
outside contractor expenses, travel/promotional expenses, professional services
and facilities/office related expenses.
 
 Research and developmentexpenses for the nine months ended February 28, 2009 were $0 and for
2008, were $56,250.
 
 Impairment of investment in
ClaimRemediwas $3,500,000 for the nine months ended February 28,
2009.  Although this asset has been written off, management believes
there may be value to this asset yet there is no reliable way to evaluate this
asset at this time.
 
 Impairment of CoinBank Machineswas $0 for the nine month period ended February 28, 2009 and $100,000 for
the nine month period ended February 28, 2008.
 
 Impairment of BIPS was $0 for
the nine month period ended February 28, 2009 and $2,000,000 for the same period
in 2008.
 
 Depreciation and amortizationexpenses for the nine months ended February 28, 2009, and February 28,
2008, were $3,027 and $1,913, respectively.
 
 Interest expensefor the nine
months ended February 28, 2009 and February 28, 2008, was $737,491 and
$362,534.
 
 Minority Interestfor the
nine months ended February 28, 2009 and February 28, 2008, was $(15,575) and
$(19,030), respectively.
 
 As a
result of the foregoing, net (losses) for the nine months ended February 28,
2009 and February 28, 2008, were $(5,886,520) and $(4,409,652),
respectively.
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Our
capital requirements have been and will continue to be significant, and our cash
requirements have exceeded cash flow from operations. At February 28, 2009, we
had working capital of $3,787,275 compared to working capital of $5,241,369
at May 31, 2008. At February 28, 2009, we had a cash balance of approximately
$41,415. We are in immediate need of working capital to continue our business
and operations. To date, we have been funding our operations primarily through
the issuance of equity in private placement transactions with existing
stockholders or affiliates of stockholders. There can be no assurance that we
will be able to continue to raise required working capital in this or any other
manner.
 
 Since
inception, we have satisfied our working capital requirements through limited
revenues generated from operations, the issuance of equity and debt securities,
borrowing under a line of credit and loans from our security holders. Our
independent certified public accountant included an explanatory paragraph in its
report for the year ended May 31, 2008, which indicated a substantial doubt as
to our ability to continue as a going concern. This concern is primarily due to
substantial debt service requirements and working capital needs.
  Net cashprovided by (used in)operating activitieswas
$(502,651) for the nine-months ended February 28, 2009 compared to $(1,837,006)
for the nine-months ended February 28, 2008.
 
 Net cash provided by (used
in)investingactivitiesfor the nine-months ended February 28, 2009, was $0 as compared to
$500,000 for the nine-months ended February 28, 2008. The increase was
attributable to the sale of investment.
 15
 Index
  Net cash provided by (used in)
financing activitiesfor the nine-months ended February 28, 2009, was
$133,761 as compared to $241,749 for the nine-months ended February 28, 2008.
The decrease was attributable to the net result of repayment of debt offset by
various fund raising activities.
 
 In 1997,
we entered into a credit agreement with G.E. Capital Corporation, or G.E.
Capital, pursuant to which we borrowed $ 5,500,000 for the purchase of CoinBank
component equipment, working capital and general corporate purposes. Due to our
inability to repay G.E. Capital on the original terms, on September 29, 2000 we
entered into the first of several loan modifications with G.E. The most recent
modification requires a payment of certain fees and interest following which GE
has agreed to extend the loan on interest-only terms at a rate of 9.5% for 12
additional months at which time the entire unpaid balance shall be due and
payable. We have no current plan or capability to repay G.E. its principal. A
default of this obligation could result in the delisting and/or bankruptcy of
the Company. As of February 28, 2009, we owed G.E. Capital approximately $4
million which includes the principal, financing fees and unpaid
interest.
 In May
2003 we completed a private placement offering with one of our stockholders
consisting of convertible notes and warrants under Section 4(2) of the
Securities Act of 1933. The offering consisted of an unsecured convertible
promissory note in the principal amount of $50,000, bearing interest at the rate
of 5% per annum and redeemable warrants to purchase 100,000 shares of common
stock. The note is convertible into our common stock at the conversion rate of
$0.50 per share. The Warrants are exercisable at a price of $1.00 per share. We
also reduced the exercise price of 8,000 Series C warrants owned by the
stockholder from $2.50 to $0.25 per share. The note was due and payable on May
2, 2008 and remains unpaid. A deemed dividend expense of $25,331 was recognized
in conjunction with the warrants offered in this placement.
 
 In May
2003 we completed a private placement offering with one of our stockholders
consisting of convertible notes and warrants under Section 4(2) of the
Securities Act of 1933. The offering consisted of an unsecured convertible
promissory note in the principal amount of $20,750, bearing interest at the rate
of 5% per annum and redeemable warrants to purchase 30,000 shares of common
stock. The note is convertible into our common stock at the conversion rate of
$0.50 per share. The Warrants are exercisable at a price of $0.65 per share. We
also reduced the exercise price of 45,000 Series B warrants owned by the
stockholder from $4.50 to $0.65 per share which were converted immediately for
gross proceeds to us of $29,250. The note was due and payable on May 8, 2008 and
remains unpaid. A deemed dividend expense of $25,901 was recognized in
conjunction with the warrants offered in this placement.
 
 In
November 2004, TAP Holdings, LLC established a line of credit with BFI Business
Finance. The maximum amount available under the line of credit is $2,000,000,
limited to 60% of eligible accounts receivable plus 60% of eligible inventory up
to $1,000,000, less any availability reserves, as defined in the loan agreement.
Interest is payable monthly at 4.0% per annum above the prime interest rate (10%
at May 31, 2005). The line of credit is collateralized by a security interest in
TAP's accounts receivable, inventories, property and equipment and certain other
assets as well as a limited personal guaranty from TAP's chairman (who is not an
employee of Cash Technologies). TAP must also adhere to covenant limitations,
conditions and restrictions as set forth in the loan and security agreement. As
of February 28, 2009, there was $205,703 outstanding including
interest.
 
 The
outstanding balance is expected to be paid from the sale of certain assets of
TAP and refunded insurance deposits.
 
  RISK
FACTORS
 
 The
following factors, in addition to those discussed elsewhere, should be
considered carefully in evaluating our business and us. An investment in our
shares involves a high degree of risk and is suitable only for those investors
who can bear the risk of loss of their entire investment.
 
 Risks
Related to Our Financial Condition
  16
 Index
  We
have limited revenues and a history of incurring losses, which has resulted in
our independent accountants issuing opinions containing doubts about our ability
to continue as a going concern.
 
 We have
generated limited revenues since our inception, and, while we expect to generate
significant revenues within the next fiscal year, there is no assurance that we
will be successful. For the fiscal years ended May 31, 2008 and 2007, we had net
sales of $336,615 and $313,946, respectively. Virtually all of our revenues for
the fiscal year beginning June 1, 2008 until the quarter ending February 28,
2009 were derived from our CPI Holdings subsidiary.
 
 Prior to
the fiscal year ended May 31, 2008 we have incurred losses since our inception.
For the last two fiscal years ended May 31, 2007 and 2008, net income (losses)
of ($3,065,247) and $(800,052) respectively. In its reports accompanying our
audited financial statements for the fiscal years ended May 31, 2007 and 2008,
our independent auditors included an explanatory paragraph wherein they
expressed substantial doubt about our ability to continue as a going concern.
For the nine-month period ended February 28, 2009 we have incurred additional
losses of $(1,872,098).
 
 We
are unable to pay our current liabilities, and must rely on the continued
forbearance of specific creditors to avoid bankruptcy.
 
 As of
February 28, 2009 we had outstanding current liabilities of $9,791,691,
consisting of obligations and accruals for loans, dividends and notes payable,
trade payables, taxes, unpaid salaries and other items of which approximately
$1,820,000 is not being paid as agreed. Our creditors have, to date, agreed not
to accelerate on these obligations and not to foreclose on our assets. However,
should the creditors demand immediate repayment, we would have to raise the
needed funds to satisfy the obligations, possibly on unsatisfactory terms or
failing that, we would have to consider ceasing operations and/or filing for
bankruptcy protection.
 
 We
have an immediate need for capital and if we are unable to obtain the financing
we need, our business may fail.
 
 As of
February 28, 2009, Cash Tech had working capital of $4,929,362 and available
cash of $177,492. Our capital requirements have been and will continue to be
significant, and our cash requirements have exceeded cash flow from operations
since inception. We are in immediate need of capital to continue to operate. We
have been dependent on the proceeds of private placements of our debt and equity
securities to satisfy our working capital requirements. We will be dependent
upon the proceeds of future private placement offerings or other public
offerings to fund our short-term working capital requirements, to fund certain
marketing activities and to continue implementing our business strategy. There
can be no assurance we will be able to raise necessary capital. To the extent
that we incur indebtedness or issue debt securities, we will be subject to all
of the risks associated with incurring indebtedness, including the risks that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. Any inability to obtain additional
financing when needed could require us to significantly curtail, or possibly
cease altogether, our operations. There can be no assurance that our lenders
will not declare an event of default and demand immediate payment or seek to
attach our assets. As of February 28, 2009, we also owe approximately $4
million to General Electric Capital Corporation. In 2000, we entered into
the first of several loan renewals with G.E., the most recent of which shall
expire on February 1, 2010 at which time all sums owing to GE are due and
payable. A default of this obligation or failure to negotiate a renewal
could result in the delisting and/or bankruptcy of the
Company.
 
 Our
assets serve as collateral for various loan obligations and therefore may not be
available for distribution to stockholders in the event of
liquidation.
 
 We have
previously granted security interests in all of our assets to several lenders,
including the holder of notes in the principal and interest amount of $178,520
issued in a placement which was completed in January 2000, General Electric
Capital Corporation pursuant to a Master Security Agreement originally entered
into in May 1997 and liens in favor of BFI Finance on all assets of TAP Holdings
pursuant to a Loan and Security Agreement entered into in November,
2004.
  17
 Index
  As of
February 28, 2009, we were indebted to G.E. in the amount of approximately $4
million including interest. As a result of the aforementioned security
interests, creditors would be entitled to collect upon the assets prior to any
distribution being available to holders of our Common Stock or Preferred
Stock.
 
 The BFI
loan is a revolving accounts receivable credit facility secured by all of the
business assets of TAP Holdings, LLC as well as a limited personal guaranty from
TAP's former chairman (who is not an employee of Cash Technologies). As of N
February 28, 2009 we owed BFI approximately $205,703 including interest. The
outstanding balance owed to BFI is expected to be paid from the sale of certain
assets of TAP and refunded insurance deposits.
 
 Any
additional financing that we may obtain may substantially dilute the interests
of our stockholders
 
 To the
extent that we obtain additional financing through the issuance of additional
equity securities in the future, such issuance may involve substantial dilution
to our then-existing stockholders.
 
 Risks
Related to CPI Holdings, LLC
 
 CPI is
expected to be substantially dependent on its major customers; initially
Autozone, Pep Boys, and CARQUEST, Mercury Marine and ATG.  These
customers have accounted thus far for approximately 77% of CPI's
revenue.  The loss of any of these customers would have a material
adverse affect on CPI's revenue.
 
 The market for fuel system products
is shrinking.
 
 Until and
unless CPI begins sales of turbocharger and/or other products under
consideration, all or virtually all of CPI’s revenue will be from the sale of
rebuilt carburetors and air conditioning compressors.  Sales of
carburetors have fluctuated and may continue to fluctuate or decline as the
number of vehicles using carburetors continues to decline.  CPI
expects to compensate for this decline by increasing its market share and from
routine price increases but there is no assurance that it can succeed in this
effort.
 
 CPI may not fully recover the
carrying value of its inventory.
 
 As of N
February 28, 2009, CPI had a carrying value of $13,234,311 for its
inventory.  In May 2008, at the time CPI's assets were purchased, an
obsolescence reserve of $1,113,200 was established to cover potential inventory
impairment.  In future periods, additional reserves may be taken based
on CPI’s inventory, which could result in a substantial expense and negatively
impact CPI’s financial results.
 
 The
turbocharger market is competitive and sales are uncertain
 
 Following
the acquisition of the Turbomotive assets (see above), CPI intends to
manufacture and distribute turbochargers though its retail and other
channels.  While CPI’s retailers have indicated their interest in
carrying the company’s turbo products, there can be no assurance that the retail
channel will be timely activated or produce sufficient revenues to meet CPI’s
objectives.  In addition, other larger manufacturers of turbos, such
as Honeywell and Borg-Warner, are better capitalized and better known than CPI
and could negatively impact CPI’s sales if they targeted the same
markets.
 
 Turbocharger
manufacturing may be delayed
 
 Following
the acquisition of the Turbomotive assets, CPI will begin to establish
manufacturing operations to produce turbochargers at its factory in Hope,
Arkansas.  While CPI’s management has manufactured turbos in the past
and believes that it possesses the necessary expertise to do so in the future,
various manufacturing start-up problems, including engineering, supply chain,
quality control or other issues, or insufficient capital to purchase needed
tooling or equipment, can delay or impede the start or continuation of turbo
production and materially impact turbocharger sales.
  18
 Index
  Risks
Related to TAP Holdings, LLC
 
 TAP’s
revenues have ceased
 
 On
October 31, 2007, the Company's TAP Holdings, LLC (dba Tomco Auto Products)
subsidiary sold most of its assets to competitor Champion Parts, Inc. TAP
received $1.3 million in cash and a secured promissory note for $9.5 million
subject to certain offsets to be paid over a maximum of 11 years, however,
Champion defaulted on the note when it filed for Chapter 11 bankruptcy
protection on October 10, 2007. Champion's bankruptcy and default of the $9.5
million secured note owed by Champion to TAP Holdings required us to write-off
the adjusted $7.9 million remaining note balance.
 
 On May 5,
2008 the Company’s CPI Holdings, LLC (dba Champion Parts) subsidiary acquired
most of the assets of Champion Parts, Inc. from its lender, PNC Bank, following
a court-ordered foreclosure, for $2.97 million.  To fund the
acquisition and working capital, Cash Tech raised approximately $3.4 million in
debt and convertible debt.
 
 The
acquired assets consist of finished goods, raw materials, component parts, all
manufacturing and office equipment, furniture, computers, intangible assets such
as the company name, IP, software, records, etc.
 
 Risks
Related to Our Healthcare Products
 
 Competition
in healthcare software is intense.
 
 Veredi
Inc.’s (formerly Claim-Remedi Services, Inc.) healthcare products compete with
products offered by companies that are larger, better known and better
capitalized than Veredi. Veredi has taken steps and developed features designed
to differentiate its products, however these steps may prove inadequate in which
event Veredi might have to withdraw one or more of its products which would have
a material adverse effect on Cash Technologies.
 
 Veredi
is liable for the loss or misuse of personal information.
 
 Veredi
and its affiliates have custody of, or come into contact with, various types of
personal information about consumers, their medical records and financial
transactions. The company has taken steps to safeguard such information and
requires that its suppliers safeguard such information, however, in the event
such safeguards fail to prevent the loss or misuse of personal information, the
company might be liable for any damages caused thereby.
 
 Veredi
is substantially dependent on third parties for data processing and customer
support.
 
 Most data
processing and customer support for Veredi’s products are performed by third
parties under various exclusive and non-exclusive contracts. This reduces
infrastructure development costs and increases speed to market, however the
failure of a third party to perform its duties or renew a service agreement
could be materially detrimental to the company's operations.
 
 Essential
services related to CashTechCard have ceased.
 
 In
December, 2007 the Company’s CashTechCard Systems, Inc. subsidiary received
notice that its card issuer, First Premier Bank, would be exiting the prepaid
debit card industry and its card transaction processing would cease by April 10,
2008. CashTechCard began efforts to secure a replacement issuer on acceptable
terms. However, as a result of the significant costs and requirements of
replacement issuers and the limited resources available from the Company as it
plans to acquire the Champion assets, on April 18, 2008 the board of
CashTechCard decided not to continue card issuance and processing
activities.
  19
 Index
  Data
processing margins generally decline as products become more
mature.
 
 Data
processing products usually become “commoditized” as they mature, with a
corresponding reduction in profit margins. This is caused by a number of
factors, including: Increased competition forcing lower prices; increased
volumes creating economies of scale which permit lower prices by competitors,
software development costs which are eventually fully amortized also permits
lower prices, et al. There is no assurance that Veredi can generate enough
growth in its sales to outpace these market forces.
 
 Risks
Related to Our CoinBank Machines
  We
may not successfully compete with our competitors.
 
 The
automotive and healthcare industries are fully developed markets served by large
companies who are better able to finance, develop and market products than is
the Company. We have attempted to differentiate our products from those of our
competitors but competitive products aimed at our target markets could obviate
the need for our products or severely limit our market penetration.
 
 We
are dependent on third-party manufacturers and on independent contractors, whose
nonperformance could harm our business.
 
 We are
substantially dependent on the ability of the independent contractors we hire to
provide software engineering and support for our products. Any contractor that
we utilize or may utilize may not have sufficient capacity to satisfy our needs
during any period of sustained demand. The loss of services of independent
contractors could disrupt our business. Furthermore, certain of our products
access networks which are owned and operated by third parties. The failure or
unavailability of these networks could have a material adverse effect on
us.
 
 Risks
Related to Government Regulation and Patent and Licensing matters
 
 Uncertainty
of patent and trademark protection.
 
 Although
we have been issued U.S. Patents with respect to our CoinBank and EMMA
technologies, there can be no assurance that these patents will afford us any
meaningful protection. We intend to rely primarily on a combination of trade
secrets, technical measures, copyright protection and nondisclosure agreements
with our employees to establish and protect the ideas, concepts and
documentation of software developed by us. Such methods may not afford complete
protection, and there can be no assurance that third parties will not
independently develop such technology or obtain access to the software we have
developed. Although we believe that our use of the software we developed and
other software used in our operations does not infringe upon the rights of
others, our use of the software we developed or such other software may infringe
upon the patents or intellectual property rights of others. In the event of
infringement, we could, under certain circumstances, be required to obtain a
license or modify aspects of the software we developed or such other software or
refrain from using such software. We may not have the necessary financial
resources to defend any infringement claim made against us or be able to
successfully terminate any infringement in a timely manner, upon acceptable
terms and conditions or at all. Failure to do any of the foregoing could have a
material adverse effect on us. Moreover, if the software we developed or any
other software or hardware used in our business is deemed to infringe upon the
rights of others, we could, under certain circumstances, become liable for
damages, which could have a material adverse effect on us. We received United
States trademark registration for the "CoinBank" name in September 1997.
Although we are not aware of any claims of infringement or other challenges to
our rights to use this trademark, there can be no assurance that our marks do
not or will not infringe upon the proprietary rights of others or that our marks
would be upheld if challenged.
  20
 Index
  Risks
Related to Our Management
 
 The
success of our business also requires that we retain other qualified management
personnel.
 
 Our
success is also dependent upon our ability to hire and retain additional
qualified management, marketing, technical, financial and other personnel.
Competition for qualified personnel is intense, and there can be no assurance
that we will be able to hire or retain additional qualified personnel. Any
inability to attract and retain qualified management and other personnel would
have a material adverse effect on us.
 
 Our
directors and officers have limited personal liability.
 
 Our
Certificate of Incorporation includes provisions to limit, to the full extent
permitted by Delaware law, the personal liability of our directors for monetary
damages arising from a breach of their fiduciary duties as directors. In
addition, our By-Laws require us to indemnify any of our directors, officers,
employees or agents to the full extent permitted by Delaware law. As a result of
such provisions in our Certificate of Incorporation and the By-Laws, security
holders may be unable to recover damages against our directors and officers for
actions taken by them which constitute negligence, gross negligence or a
violation of their fiduciary duties. This may reduce the likelihood of security
holders instituting derivative litigation against directors and officers and may
discourage or deter security holders from suing our directors, officers,
employees and agents for breaches of their duty of care, even though such an
action, if successful, might otherwise benefit us and our security
holders.
 
 Risks
Related to our Common Stock
 
 If
our common stock is delisted from the American Stock Exchange, We also are
likely to be subject to the risks relating to penny stocks.
 
 Our
common stock has not been traded above $5.00 in over seven years. If our common
stock were to be delisted from trading on the American Stock Exchange and the
trading price of the common stock remained below $5.00 per share
  The
price of our common stock has been, and may continue to be,
volatile.
 
 The
market price of our common stock has fluctuated over a wide range, and it is
likely that the price of our common stock will fluctuate in the future. The one
year sale price for our common stock, as reported by the American Stock Exchange
has fluctuated from a low of $0.02 to a high of $0.60 per share. The market
price of our common stock could be impacted by a variety of factors,
including:
 
 ·
              announcements of technological
      innovations or new commercial products by us or our
      competitors.
 
 ·
              changes in government regulation
      and policies which may be undertaken with respect to security issues
      related to terrorism, privacy and other
  matters.
 
 ·
              developments in the patents or
      other proprietary rights owned or licensed by us or our
      competitors.
 
 ·
              matters related to our financial
      condition, including our ability to obtain necessary
      capital.
 
 ·
              litigation affecting us or our
      products.
 
 ·
              general market conditions in our
      industry.
 
 In
addition, the stock market continues to experience price and volume
fluctuations. These fluctuations have especially affected the market price of
many technology companies. Such fluctuations have often been unrelated to the
operating performance of these companies. Nonetheless, these broad market
fluctuations may negatively affect the market price of our common
stock.
 
 We
have the discretion to issue additional shares of preferred stock with rights
and preferences superior to those granted to holders of our common
stock.
 
 Our
Certificate of Incorporation authorizes our board of directors to issue up to
1,500,000 shares of preferred stock, from time to time, in one or more series.
Our board of directors is authorized, without further approval of the security
holders, to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, and any other rights,
preferences, privileges and restrictions applicable to each new series of
preferred stock. The issuance of such stock could adversely affect the voting
power of the holders of common stock and, under certain circumstances, make it
more difficult for a third party to gain control of us, discourage bids for our
common stock at a premium, or otherwise adversely affect the market price of our
common stock.
 
 
 ITEM4. CONTROLS AND PROCEDURES
 
 The
Company maintains disclosure controls and procedures (as defined in Exchange Act
Rule 13a-15(e)) that are designed to assure that information required to be
disclosed in its Securities Exchange Act of 1934 reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and that such information is accumulated
and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.
  21
 Index
  In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide reasonable assurance only of achieving the desired control
objectives, and management necessarily is required to apply its judgment in
weighting the costs and benefits of possible new or different controls and
procedures. Limitations are inherent in all control systems, so no evaluation of
controls can provide absolute assurance that all control issues and any fraud
within the Company have been detected.
 
 As
required by Exchange Act Rule 13a-15(b), as of the end of the period covered by
this report the Company, under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the Company’s disclosure controls and procedures. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of that
date.
 
 There was
no change in the Company’s internal control over financial reporting during the
Company’s most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
 
 PART
II. OTHER INFORMATION
 
 ITEM1. LEGAL PROCEEDINGS
 
 On August
22, 2008, TAP Holdings, LLC, a wholly owned subsidiary of Cash Technologies,
Inc. filed a lawsuit against PNC Bank National Association, PNC Business Credit,
John Stanescki, Lee Labine, Tom Stoltz and Does 1-10 (“Defendants”), in
California Superior Court (TAP Holdings, LLC vs. PNC Bank, National Association
et al, Case No. BC396800) alleging that Defendants and each of
them:
 
 (i)
Fraudulently induced TAP to enter into a Subordination and Standstill Agreement
as part of TAP’s sale of most of its assets to Champion Parts, Inc. (“Champion”)
in 2006;
 
 (ii)
Conspired to defraud TAP of payments to which it was entitled from Champion
through the use of the mail and wire in violation of the Racketeering Influenced
and Corrupt Organizations Act (RICO), 18 U.S.C. §1962;
 
 (iii)
Exercised dominion and control over Champion and its management, ultimately
resulting in the bankruptcy of Champion and the evisceration of the Promissory
Note owed by Champion to TAP with a remaining balance of approximately $8.5
million;
 
 (iv)
Breached the covenant of good faith and fair dealing in the agreements they
signed in the sale of the TAP assets to Champion;
 
 (v)
Breached their fiduciary duty to TAP in their handling of the loan(s) to
Champion; and
 
 (vi)
Negligently misrepresented and/or omitted material facts to TAP involving
Champion, the agreement and sale of the TAP assets to Champion, and the ability
of Champion to repay the Promissory Note owed to TAP.
 
 In
subsequent court proceedings, the case was transferred to federal court,
following which TAP dismissed and re-filed the case, omitting the allegations
described in item (ii).  Defendants have filed a cross-complaint
alleging that TAP owes them $600,000 for payments allegedly improperly paid by
Champion Parts, Inc. to TAP.  The company will incur significant costs
to pursue this litigation and there can be no assurance that it will
prevail.
 
 On April
14, 2008, Del Rey Ventures, Inc. filed a lawsuit in California against TAP
Holdings, LLC, for breach of contract and common counts in the amount of
$77,663, plus interest, costs and attorney’s fees.  The lawsuit also
named Cash Technologies, Inc. and TAP Holdings boardmembers Edmund King and
Bruce Korman as alter egos of TAP Holdings.  TAP Holdings and the
other defendants filed cross-complaints against Del Rey Ventures and Richard
Schoenfeld seeking no less than $3 million in compensatory damages, as well as
punitive damages, rescission, interest and costs for the wrongful conduct of the
cross-defendants, including:
  22
 Index
  i.
              Multiple acts of fraud, including
      material misrepresentations and/or omissions in connection with TAP’s sale
      of assets to Champion in October 1996 and the fraudulent inducement of an
      assignment of an employment contract from Mr. Schoenfeld to Del Rey
      Ventures;
 ii.
              Breach of fiduciary duty,
      including the defendants’ concealment of unanticipated returns before the
      1996 TAP sale of assets to Champion resulting in a shortfall at
      closing;
 iii.
              Corporate waste, including Mr.
      Schoenfeld’s misreporting of TAP’s inventory between June 2006 and October
      2006;
 iv.
              Conversion and the taking of
      corporate opportunity in the secret and unauthorized sale of approximately
      11,000 finished goods from TAP’s inventory for Mr. Schoenfeld’s personal
      gain to the detriment of TAP and its shareholders;
    and
 v.
              Breach of contract for the
      defendants’ failure to provide the services required under the assigned
      employment contract.
 
 TAP
Holdings and Cash Tech settled this case on March 24, 2009 by agreeing to pay
Del Rey the sum of $30,000 in monthly payments of $2,000 each beginning in
October 2009.  While TAP and Cash Tech believed that it had strong
meritorious defenses to Del Rey’s claims and a provable counterclaim, the cost
and distraction of litigation and unlikelihood of recovery in the event Tap and
Cash Tech prevailed made the settlement the best use of the Company’s resources
in the opinion of Management.
 
 In 2001
we delivered stock certificates representing 700,000 shares to an escrow agent
as collateral for a loan. The loan was never consummated, and in May 2001 we
notified the transfer agent to cancel the shares. Thereafter the escrow agent,
an attorney, died and we were never able to recover the certificates. In August,
2004 it came to our attention that a party was attempting to transfer 450,000 of
the 700,000 shares. We immediately initiated a lawsuit in New York to prevent
the transfer of the shares and have them retired. In December, 2004, we reached
a settlement in which the shares would be returned to us without any exchange of
money. We intend to similarly pursue the recovery of the remaining 250,000
shares, however in the event that we cannot achieve a satisfactory outcome in
such effort, or in the event that the pending settlement is not consummated for
any reason, some or all of these shares may be treated as outstanding and our
Stockholders' Equity line item would have to be adjusted to reflect such
additional shares.
 
 ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
 
 None
 
 ITEM3. DEFAULT UPON SENIOR SECUR IT IES
 
 None
 
 ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 None
 
 ITEM5. OTHER INFORMATION
 
 None
 
 ITEM6. EXHIB IT S AND REPORTS ON FORM 8-K
 
 (a)
                    
                    Exhibits31.1
                    
                    Certification
      of Chief Executive Officer31.2
                    
                    Certification
      of Chief Financial Officer32.1
                    
                    Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act(b)
                    
                    Report
      on Form 8-K filed on March 15, 2007 under Item 7.01.Report
      on Form 8-K filed on June 6, 2007 under Item 1.01 and
  3.02.
  23
 Index
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report on Form 10-Q for the fiscal
quarter ended February 28, 2009, to be signed on its behalf by the undersigned,
thereunto duly authorized the 20th day of April 2009.
 
 CASH
      TECHNOLOGIES, INC.By:
      /S/ Bruce KormanBruce
      KormanPresident
      and Chief Executive Officer
 
 
 By:
      /S/   Edmund KingEdmund
      KingChief
      Financial Officer
 
 24