**UNITED STATES**


**SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON, D.C. 20549**


**FORM 10-QSB**





(MARK ONE)





x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


AND EXCHANGE ACT OF 1934





FOR SIX MONTH PERIOD ENDED NOVEMBER 30, 2004





OR





o TRANSITION 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. 11THSTREET, 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 x No o.








Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.





On January 14, 2004, there were 15,167,185 shares of common stock, $ .01 par value per share, issued and outstanding.











**CASH TECHNOLOGIES, INC.**


**FORM 10-QSB**





**INDEX**





**PAGE NO.****PART I. FINANCIAL INFORMATION**Item 1. Consolidated Financial Statements:Consolidated Balance Sheet as of November 30, 2004 (unaudited) andMay 31, 2004
**3**Consolidated Statements of Operations for the three and six-month periodsended November 30, 2004 and November 30, 2003 (unaudited)
**4**Consolidated Statements of Cash Flows for the three and six-month periodsEnded November 30, 2004 and November 30, 2003 (unaudited)
**5**Notes to Consolidated Financial Statements for the three and six-monthperiods ended November 30, 2004 and November 30, 2003 (unaudited)
**6**Item 2. Management's Discussion and Analysis of Financial Condition,Results of Operations, and Risk Factors
**17**Item 3. Controls And Procedures
**25****PART II. OTHER INFORMATION**Item 1. Legal Proceedings
**26**Item 2. Change in Securities
**26**Item 3. Defaults Upon Senior Securities
**27**Item 4. Submission of Matters to a Vote of Security Holders
**27**Item 5. Other Information
**27**Item 6. Exhibits and Reports on Form 8-K
**27**SIGNATURES
**28**







2







**PART I**


**ITEM 1. FINANCIAL STATEMENTS**





**CASH TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED BALANCE SHEETS****NOVEMBER 30,**

**MAY 31,****2004**

**2004****(Unaudited)****ASSETS**CURRENT ASSETS:Cash and cash equivalents

$
8,849

$
20,951Accounts receivable


1,846,897


2,383Prepaid expenses and other current assets


370,712


4,000Other receivable


46,265


28,035Inventory (net)


8,606,066


Total Current Assets


10,878,789


55,369CoinBank machines held for sale


661,505


675,439PROPERTY AND EQUIPMENT (net)


34,230


30,104CAPITALIZED SOFTWARE COSTS (Note 1)


1,166,184


1,446,068OTHER ASSETS


743,821


93,822**TOTAL ASSETS**

**$**
**13,484,529**

**$**
**2,300,802****LIABILITIES AND STOCKHOLDERS' DEFICIENCY**CURRENT LIABILITIES:Current maturities of Notes Payable (Note 4)

$
6,544,381

$
4,676,797Due to Officers and Directors (Note 4)


408,915


9,415Convertible debt (Note 5)


785,417


751,566Due to Shareholders (Note 5)


270,588


70,250Accounts payable


2,653,183


1,210,382Accrued liabilities


2,167,966


1,482,072Dividend payable


1,377,339


1,209,281Total Current Liabilities


14,207,789


9,409,763Long-Term Notes Payable (Note 6)Long-Term Convertible Debt (Note 6)





**TOTAL LIABILITIES**


14,207,789


9,409,763COMMITMENTS & CONTINGENCIES (Note 2)





MINORITY INTEREST


604,897


(23,200
)STOCKHOLDERS' DEFICIENCY: (Note 3)Cumulative Redeemable Preferred Stock


2,703,188


1,883,688Common Stock


151,232


143,669Additional Paid-In-Capital


31,782,797


30,292,720Accumulated Deficit


(35,965,374
)

(39,405,838
)Total stockholders' deficiency


(1,328,157
)

(7,085,761
)**TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY**

**$**
**13,484,529**

**$**
**2,300,802**





See notes to consolidated financial statements






3


**CASH TECHNOLOGIES, INC.****CONSOLIDATED STATEMENTS OF OPERATIONS**  ****FOR THREE MONTHS**ENDED NOVEMBER 30,**

**FOR SIX MONTHS****ENDED NOVEMBER 30,****2004**


**2003**


**2004**


**2003****(Unaudited)**





**(Unaudited)**NET REVENUES

$
549,466

$
15,000

$
564,230

$
86,525COST OF REVENUES


397,799


2,358


410,924


34,048**GROSS PROFIT (LOSS)**


151,667


12,642


153,306


52,477SELLING, GENERAL, & ADMINISTRATIVE EXPENSE


930,237


667,713


1,605,502


1,352,390RESEARCH & DEVELOPMENT EXPENSE


45,000


30,000


90,000


60,000DEPRECIATION & AMORTIZATION EXPENSE


140,861


141,145


281,504


282,290**OPERATING LOSS**


(964,431
)

(826,216
)

(1,823,700
)

(1,642,203
)INCOME FROM FORGIVENESS OF DEBT


(438,513
)




(438,513
)

INTEREST EXPENSE


124,476


118,584


221,621


295,636INCOME (LOSS) BEFORE INCOME TAXES


(650,394
)

(944,800
)

(1,606,808
)

(1,937,839
)INCOME TAXES











Minority Interest

$
(18,550
)
$
(10,399
)
$
(31,899
)
$
(21,099
)Net Income (Loss) Before Extraordinary Gain

$
(631,844
)
$
(934,401
)
$
(1,574,909
)
$
(1,916,740
)**Extraordinary Gain**

$
5,999,951

$


$
5,999,951**Minority Interest - Extraordinary Gain**

$
659,995

$


$
659,995**NET INCOME (LOSS)**

$
4,708,112

$
(934,401
)
$
3,765,047

$
(1,916,740
)Dividends & deemed dividends

$
240,554

$
111,141

$
324,583

$
302,555Net loss allocable to commonshareholders

$
4,467,558

$
(1,045,542
)
$
3,440,464

$
(2,219,295
)Basic and diluted net income (loss) per share beforeextraordinary income

$
(0.04
)
$
(0.10
)
$
(0.10
)
$
(0.22
)Basic and diluted net income (loss) per share forextraordinary income

$
0.35




$
0.35


Basic and diluted net income (loss) per share

$
0.31

$
(0.12
)
$
0.23

$
(0.25
)Basic and diluted weighted averageshares of common stock outstanding


15,114,187


8,904,995


15,114,187


8,904,995





See notes to consolidated financial statements.


****


4


**CASH TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF CASH FLOWS**  **FOR THE SIX MONTHS ENDED NOVEMBER 30,****2004**

**2003****OPERATING ACTIVITIES:**Net loss

$
3,765,047

$
(1,916,740
)Adjustments to reconcile net loss to net cash used byoperating activities:Extraordinary Gain


(5,999,951
)

Minority interest


628,097


(21,099
)Amortization of capitalized software


279,885


279,884Noncash compensation expense





258,209Income on forgiveness of debt


(438,513
)

Depreciation expense


1,620


2,406Changes in operating assets and liabilities:Account receivable


(22,913
)

101CoinBank machines held for sale


13,934


27,867Prepaid expenses and other current assets


5,655


4,057Inventory


(135,841
)

Other assets





(3,240
)Accounts payable


(43,785
)

(217,590
)Accrued interest


221,621


256,671Accrued expenses and other current liabilities


80,386


321,926Net cash used in operating activities


(1,644,758
)

(1,007,548
)**INVESTING ACTIVITIES:**Investment in subsidiary


(650,000
)

Purchase of property and equipment


(5,746
)

Net cash provided by (used in) investing activities


(655,746
)

**FINANCING ACTIVITIES:**Bank overdraft





Proceeds from conversion of warrants


188,615


235,910Proceeds from short-term debt


889,916


Proceeds from common stock of subsidiary





Repayments on short-term debt


(228,694
)

Proceeds on sale of preferred stock


832,000Proceeds from sale of common stock


490,000


799,705Net cash provided by financing activities


2,171,837


1,035,615**CHANGE IN CASH AND CASH EQUIVALENTS**


(128,667
)

28,067Cash and Cash Equivalents, Beginning of Period


137,516


1,874Cash and Cash Equivalents, End of Period

$
8,849

$
29,941**SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION**Income taxes

$


$
**SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS**Conversion of preferred stock into common stock

$
12,500

$
Conversion of convertible debt into common stock

$


$
3,606,695Issuance of common stock for services performed

$


$
317,474Dividends declared on preferred stock

$
168,058

$
168,057Dividends paid on preferred stock with common stock

$


$
18,000Deemed dividend on warrants issued

$
156,525

$
302,505Conversion of shareholder warrants

$
188,615

$
235,910Total assets purchased

$
10,798,988

$
Total liabilities assumed

$
2,299,037

$
Net assets purchased

$
8,499,951

$
Bank debt assumed

$
(1,600,000
)
$
Loan assumed

$
(250,000
)
$
Cash paid as investment in subsidiary

$
(650,000
)
$
Extrodinary gain

$
5,999,951

$



See notes to consolidated financial statements





****


5


**CASH TECHNOLOGIES, INC.**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**NOTE 1:**  **GENERAL**





GOING CONCERN:




We have prepared the financial statements included in this Form 10-QSB 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 activity 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, 2004, 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 November 30, 2004 and the results of operation and cash flows for the three and six month periods ended November 30, 2004 and November 30, 2003. 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-QSB. 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, 2004, filed with the SEC. The results of operations for the three and six months period ended November 30, 2004, are not necessarily
indicative of the results to be expected for any subsequent quarter or for the entire fiscal year.





In December of 1997, we filed a patent application describing our transaction processing and networking technologies, which resulted in the issuance of patent, number 6,308,887, by the U.S. Patent and Trademark Office on October 30, 2001. The technology, which we refer to as EMMA (E commerce Message Management Architecture), allows for the seamless integration of conventional ATM and credit card networks with non-bank networks and the Internet.




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 $45,000 for the three month period ended November 30, 2004.








6







Amortization of the capitalized software commenced on January 1, 2002. Amortization had been calculated over a seven year period for the quarter ended February 28, 2002 resulting in an amortization expense of $65,989. Management changed the amortization period for capitalized software to five years starting March 1, 2002, primarily to approximate the estimated period over which the business brought about by the technology will expand into its expected capacity. As of March 1, 2002, net unamortized capitalized software amounted to $2,705,547. The unamortized cost as of March 1, 2002 is being amortized over the remaining revised estimated life. The change resulted in an amortization expense of $205,931, an increase of $40,959 ($0.01 per share) from the original estimated amortization period, for the year
ended May 31, 2002. During the quarter ended November 30, 2004, we amortized an additional $139,942 of capitalized software.





In connection with the development of our EMMA software, during the period ended September 30, 1999 we utilized $278,000 in funds for coding and testing activities necessary to resolve all of the identified high-risk development issues. These costs were reflected as expenses on our financial statements. Commencing October 1, 1999 through December 31, 2002 we incurred approximately $2,771,536 over 27 months of coding, subsequent to the detail program design and establishment of feasibility, until the product became available in January 2002 for general release to customers. These costs were treated as capitalized software costs in our financial statements through December 31, 2002. We discuss below the manner in which we developed our EMMA software, which is intended to assist the reader in understanding
the difference in our costs in the technological feasibility using detail program design and capitalized software costs during production (coding) phases.





With respect to the technological feasibility using the detail program design approach, there were two primary issues, which can be classified as high risk development issues which needed to be resolved as evidence that technological feasibility had been established under paragraph 4(a)(3) of SFAS 86.




The first issue involved the testing of our proprietary messaging protocol and parallel processing method for predicted performance and behavior. We estimate that we expended approximately $160,000 for this activity. The messaging protocol and processing method are what we believe differentiates us from other attempts to develop similar software. Once these were developed, successfully tested using simulations with existing applications and deemed workable, the development risk for messaging was overcome and a patent application for the multi-transactional architecture was filed on July 2, 1999. This patent was granted by the U.S. Patent and Trademark Office in October of 2001.




The second high risk development issue was obtaining independent ATM certification for our new messaging architecture. In order to process EFT network transactions, the software being developed has to be certifiable by one of the major authorized EFT networks (such as Star, MAC, etc.) for interfacing with the global EFT network. We partnered with a third-party ATM software provider to assist in these efforts, instead of developing the software for this step ourselves. This significantly reduced our costs to complete this high risk development step because we were able to incorporate and modify the third partys software, which had been previously certified, and re-certify it rather than develop our own similar software from scratch. A per-transaction license fee will be paid by us to the third party
when the system starts generating transactions, thereby further reducing development costs. Certification was obtained in August of 1999 and the EMMA software was then deemed feasible.




**COSTS BEFORE VS. AFTER FEASIBILITY**





There are two primary reasons that the expensed costs prior to feasibility were far less than the costs subsequent to feasibility, which were capitalized.





7


First, our proprietary messaging and processing methods were proven earlier than expected.





Second, as stated above, instead of developing our own ATM software we used a third party software product, which saved time and money. This was completed on August 19, 1999.





Partnering with other software providers and licensing third-party software allowed us to reduce costs below original estimates during the high-risk technological feasibility phase using the detail program design approach. In contrast to the initial high-risk development effort, the subsequent coding required more resources and time than expected. As a result, the costs to establish feasibility (approximately $278,000) were substantially lower than the subsequent cost (approximately $2,770,000) incurred to make the product available for general release to customers. It is also important to observe that this category of transaction software is rare in the marketplace and doesnt follow the typical pattern of development of the vast majority of consumer and office software,
where in most development dollars are expended early in technological feasibility phase using a working model.





Our offered products such as ATM-X and POS-X were originally contemplated in the detailed program design established prior to September 1999. We have given trade names such as ATM-X and POS-X (referring to whether EMMA would be running an ATM or at a retail point of sale) to help market the uses of EMMA.





In addition, management has identified potential uses for EMMA not originally contemplated. These new uses were created after January 2002 and the costs associated with these new uses, as reflected in our filings, have been treated as general and administrative expenses and not capitalized. Certain of these potential uses have been given trade names such as PrISM (PrISM uses EMMAs fraud detection to control access to a physical location). Any programming that has been done for such products (primarily for demos, creating use-specific screens and interfacing to third-party products) were included in General and Administrative expenses and were minimal. In future filings, similar costs will be charged to Research and Development Expense.





Furthermore, as in all of our applications where we expect to use biometrics, the biometrics will be purchased/licensed from a third party.





For the reasons cited, most development costs occurred after the software program design was completed and feasibility was achieved. These results are not typical, nor comparable to software developers who use either the detail program design approach, which we used, or the working model approach, under paragraph 4(b) of SFAS 86, and these factors should be considered when reviewing our financial statements.








**NOTE 2. COMMITMENTS AND CONTINGENCIES**





Shaw's Supermarkets has filed a lawsuit, captioned Shaw's Supermarkets, Inc. v. Cash Technologies, Inc., CoinBank Automated Systems Inc. (United States District Court, District of Massachusetts), against us claiming breach of contract and damages. We operated CoinBank machines in Shaw's locations in New England on a free-placement basis since June, 1999 and had been negotiating a settlement and termination agreement with Shaw's to terminate the CoinBank machine placements in light of our decision to exit the free placement business. Shaw's was claiming damages in excess
of $100,000, for contract termination fees and reimbursements. As of May 31, 2004, we had accrued approximately $109,000 for this liability along with fees and expenses. Furthermore, we had significant claims against Shaw's for damages to the machines. In September, 2004, Shaws and Cash Technologies, Inc. agreed to settle this litigation with mutual, general releases and without any exchange of money.  Therefore the accrued liability has been removed from our balance sheet in the current quarter.





8







In June, 2002 we were notified that a vendor, Kiosk Information Systems, Inc. (KIS), had obtained a judgment against us for $129,567 allegedly owed for services rendered in 1999, plus interest and attorneys fees. Upon learning of the judgment, we notified KIS that we have never been served with a lawsuit related to this matter and were unaware of the existence of the case. As of May 31, 2004, we had an accrued liability of $138,000 for this lawsuit. We had filed a petition to vacate the judgment, but in December, 2004, KIS and Cash Technologies, Inc. agreed to a settlement in which we paid KIS $50,000. The balance of the accrued liability of $88,000 will be written off in the quarter ending February 28, 2005.
 
 In February 2003 Samson Consulting Corp. was hired, inter alia , to provide consulting services and arrange financing for us. The term of the agreement was 12 months at a monthly cost of $50,000 or an equivalent value in shares of our stock; either party had the right to terminate after one month for any reason.  Shortly thereafter, we terminated the agreement for Samsons failure to perform. In July 2004, Samson initiated arbitration in New York State claiming that the agreement was wrongfully terminated and that Samson is owed damages. We believe that Samson is owed nothing. Nevertheless, there is
no assurance that an arbitrator will not award Samson fees for the period prior to the termination of the agreement or for the entire one-year term.  In any event, we may incur significant costs of litigation.
 
 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, passed away 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 tentative settlement in which the shares would be returned to us without any exchange of money, pending execution of final settlement documentation. 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 Deficiency line item would have to be adjusted to reflect such additional shares.




**NOTE 3: STOCKHOLDERS EQUITY**





In fiscal quarter ended November 30, 2004, in a private transaction under Section 4(2) of the Securities Act of 1933, as amended, we sold 50 shares of preferred stock for gross proceeds of $50,000. We also issued 10,000 of our common stock purchase warrants with an exercise price of $2.50 and an additional 15,000 with an exercise price of $3.50. All common stock purchase warrants have an exercise life of 5 years and there was no beneficial conversion recognized in conjunction with this transaction.





In the fiscal quarter ended November 30, 2004, in private transactions under Section 4(2) of the Securities Act of 1933, as amended, the Company sold 456,206 shares of the Companys Common Stock for gross proceeds of $490,000. In addition the Company issued 235,263 5 year Common Stock purchase warrants with exercise prices ranging from $2.00 to $3.00.





In the fiscal quarter ended November 30, 2004 shareholders exercised 279,862 Common Stock purchase warrants and the Company received gross proceeds of $188,615.








9







On November 5, 2004 the Companys majority owned subsidiary, TAP Holdings, LLC acquired certain assets and liabilities of Tomco Auto Products, Inc. for a purchase price of $2,500,000, less certain adjustments, paid as follows: $650,000 in cash and the remainder from an asset based credit line, seller-carried financing and assumption of certain liabilities. The total assets purchased had an approximate book value of $11,001,478 a majority of which was inventory, valued at $9,650,225. The difference between the net inventory and the purchase price resulted in an extraordinary gain to the Company of $5,999,951.
 
 Stockholders Equity is based on 11,852,895 and 15,114,187 shares of common stock being outstanding as of November 30, 2003 and November 30, 2004, respectively. In the event that up to 700,000 shares, issued in 2001 as collateral for a loan that was not obtained (see Note 2: Commitments and Contingencies, above) are determined to be outstanding, the Stockholders Deficiency line item would have to be adjusted to reflect such additional shares.





**NOTE 4: RELATED PARTY TRANSACTIONS**





As of November 30, 2004, we have outstanding short-term loans of an aggregate principal amount of $408,915 from Bruce Korman (and related parties) who is this companys Chief Executive Officer and Chairman of the Board of Directors. The loans are short term interest bearing loans and are payable upon demand. Furthermore, as of November 30, 2004, we were in arrears of $323,802 for the salary to Mr. Korman and we owed $68,578 in accrued rent for our offices to a company in which Mr. Korman has a beneficial interest.


As of November 30, 2004, we were in arrears in the amount of $72,553 for salary to Mr. Darryl Bergman. Mr. Bergman serves as our Chief Technology Officer.





**NOTE 5: SHORT-TERM DEBT**





In 1997, we entered into a credit agreement with G.E. Capital Corporation ("G.E.") pursuant to which we borrowed $5,500,000 for the purchase of CoinBank component equipment, working capital and general corporate purposes. In September, 2000, due to our inability to repay G.E. on the original terms, we restructured the loan through the first of several loan modifications. The most recent modification, which shall expire in November, 2005, requires interest-only payments at a rate of 9.5% and the entire unpaid balance is due at maturity. As of November 30, 2004, we owed $3,946,517, which includes the principal,
financing fees and unpaid interest.


In January 2000, we completed a private placement offering of convertible notes and warrants under Section 4(2) of the Securities Act of 1933. The offering consisted of units, each unit comprised of a secured convertible promissory note in the principal amount of $50,000, bearing interest at the rate of 10% per annum and Series B Redeemable Warrants to purchase 5,000 shares of common stock. GunnAllen Financial, Inc., one of our investment bankers and an underwriter in our initial public offering, was engaged as placement agent for this offering. We received gross proceeds from this offering of $3,362,000 from the sale of 67.2 Units. As a result of this offering, we issued notes in the aggregate principal amount of $3,362,000 and 336,200 Series B Common Stock Purchase Warrants The notes were originally
convertible into our Common Stock at the conversion rate of $9.50 per share. The Series B Warrants were originally exercisable at a price of $13.00 per share. The notes were originally due and payable on July 31, 2001. The notes were secured by a first priority lien on all of our assets.





10


Since July 31, 2001, some of the notes have been in default, and some have been restructured. Under the restructuring, the notes were extended for two (2) years to July 2003, the noteholders agreed to surrender all old warrants priced at $13.50 per share to receive 2 replacement warrants for every old warrant surrendered. The new warrants were vested immediately, have a life of 5 years and were exercisable at $1.35 through December 31, 2001, $2.20 through January 15, 2002 and $4.50 thereafter. In August, 2003, the Company proposed the conversion to equity of the secured convertible debt to the noteholders. The proposed terms included reducing the conversion price of the notes to $2.50 per share and the exercise price of the warrants to $0.65.





During the fiscal year ended May 31, 2004, noteholders representing $3,774,049 of principal and interest, approximately 83% of the total value of notes, converted their notes into 1,510,814 shares of our common stock at $2.50 per share. We are in discussions with the remaining noteholders. As of November 30, 2004, we still owed $785,417 in principal and interest to the remaining noteholders.





In May 2003 we completed a private placement offering with one of our stockholders consisting of convertible notes and warrants.  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.





In May 2003 we completed a private placement offering with one of our stockholders consisting of convertible notes and warrants.  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 is due and payable on May 8, 2008.





We obtained loans of $68,000 in the fiscal year ended May 31, 2002, $342,700 during the fiscal year ended May 31, 2003 and $400,000 during the quarter ended November 30, 2004 from Bruce Korman who is our Chief Executive Officer and Chairman of our Board of Directors. The loans were short-term loans and as of November 30, 2004 $408,915 is outstanding and currently payable to Mr. Korman.





The Companys subsidiary TAP Holdings, LLC which owns and operates Tomco auto products has an asset based equity line with a revolving credit line which was partially used for the acquisition of Tomco Auto Products and for operating cashflow. On November 30, 2004 the balance for the above mentioned equity line was approximately $1,890,078. The equity line is based upon the inventory and receivables of the Company.





**NOTE 6: LONG-TERM DEBT**





NONE





**NOTE 7: STOCK BASED COMPENSATION**





11


All stock options issued to employees have an exercise price not less than the fair market value of our common stock on the date of grant, and in accounting for such options utilizing the intrinsic value method there is no related compensation expense recorded in our financial statements. If the compensation had been determined based on the fair market value of the stock option on their dates of grant in accordance with SFAS 123 and SFAS 148, our net loss and loss per share for the three and six month periods ended November 30, 2004 and November 30, 2003, would have been increased to the pro forma amounts presented below:





**FOR THREE MONTHS**

**FOR SIX MONTHS****ENDED NOVEMBER 30,**

**ENDED NOVEMBER 30,****2004**

**2003**

**2004**

**2003**Net Income (Loss)As Reported


4,708,112


(934,401
)

3,765,047


(1,916,740
)Pro Forma


4,467,558


(1,045,542
)

3,440,464


(2,219,295
)Basic and Diluted Income (loss)Per Common ShareAs Reported


0.30


(0.17
)

0.25


(0.22
)Pro Forma


0.31


(0.21
)

0.23


(0.25
)




For the six month period ended November 30, 2004, 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 1999-2004, expected life of the option is 5 years, expected volatility of 38%, risk free interest rate of 3.46% and a 0% dividend yield. The weighted average fair value at the grant date for such option is $5.38 per option.





For the six month period ended November 30, 2003, 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 1998-2003, expected life of the option is 5 years, expected volatility of 51%, risk free interest rate of 3.31% and a 0% dividend yield. The weighted average fair value at the grant date for such option is $5.38 per option.




**NOTE 8: SEGMENT REPORTING**




We operate through four business segments: CoinBank machine-related activities, EMMA-related activities, Heuristic Technologies, Inc. and TAP Holdings, LLC (aka Tomco). We sell CoinBank self-service coin counting machines through existing equipment distribution channels. Our EMMA transaction processing system has not yet been deployed and all current software development costs are being expensed.





12


Information on our business segments for the:





**Three Months ended**



**Six Months ended****November 30,**



**November 30,**Net revenues:

**2004**



**2003**



**2004**



**2003**CoinBank machines


9,058











23,822





46,525EMMA




















25,000Heuristics




















Tomco


540,408











540,408Unallocated








15,000











15,000549,466





15,000





564,230





86,525Interest expense:CoinBank machines


2,336





2,336





4,671





4,671EMMA




















Heuristics




















Tomco


24,228











24,228





Unallocated


97,912





116,284





192,722





290,965124,476





118,620





221,621





295,636Depreciation& Amortization:CoinBank machines




















EMMA


139,942





139,942





279,884





279,884Heuristics




















Tomco




















Unallocated


919





1,203





1,620





2,407140,861





141,145





281,504





282,291Segment Income (loss):CoinBank machines


50,186





(73,139
)




(32,068
)




(126,702
)EMMA




















Heuristics


(64,303
)










(174,219
)Tomco


(106,765
)










(106,765
)Unallocated


4,828,994





(861,262
)




4,078,099





(1,790,038
)4,708,112





(934,401
)




3,765,047





(1,916,740
)Net identifiable assets:CoinBank machines


661,505





834,223





661,505





834,223EMMA


1,166,184





1,725,952





1,166,184





1,725,952Heuristics




















Tomco


10,837,905











10,837,905





Unallocated


818,935





159,431





818,935





159,43113,484,529





2,719,606





13,484,529





2,719,606








13


**NOTE 9: MINORITY INTEREST**


The Company owns a subsidiary named CT Holdings, LLC of which shareholders own 13.65% and the Company owns 86.35%. These shareholders have contributed $443,000 and the proceeds have been used to further develop EMMA-related products for CT Holdings, LLC as well as for working capital for CT Holdings, LLC and Cash Technologies, Inc. During the quarter ended November 30, 2004, the Company has allocated $5,354 of losses in CT Holdings, LLC to minority interest.
 
 In November 2004, the Company formed a subsidiary TAP Holdings, LLC to purchase and operate certain assets of Tomco Auto Products, Inc. The Company owns 89% of TAP Holdings; other shareholders own the remaining 11%. During the quarter ended November 30, 2004, the Company has allocated $13,196 of net loss and $659,995 of extraordinary income in TAP Holdings, LLC, to minority interest.








14


**NOTE 10: EXTRAORDINARY INCOME**





On November 5, 2004 the Companys majority owned subsidiary, TAP Holdings, LLC acquired certain assets and liabilities of Tomco Auto Products, Inc. for a purchase price of $2,500,000, less certain adjustments, paid as follows: $650,000 in cash and the remainder from an asset based credit line, seller-carried financing and assumption of certain liabilities. The total assets purchased had an approximate fair value of $11,001,478 a majority of which was inventory, valued at $9,650,225. The difference between the net assets and the purchase price resulted in an extraordinary gain to the Company of $5,999,951 as outlined below:


**Assets purchased &****liabilities assumed****Nov. 5, 2004****Assets**Cash

$
116,565Accounts receivable

$
1,968,276Accounts receivable other

$
55,815Inventory

$
9,650,225Less: inventory reserve

$
(1,180,000
)Fixed Assets

$
4,063,589Less: accumulated depreciation

$
(4,063,589
)Prepaid expenses

$
372,367Other assets

$
18,230**Total Assets**

**$**
**11,001,478****Liabilities**Accounts payable

$
1,568,358Warranty reserve

$
202,490Accrued expenses

$
730,679**Total Liabilities**

**$**
**2,501,527****Net Assets**

**$**
**8,499,951****Purchase price**

**$**
**2,500,000****Extraordinary gain**

**$**
**5,999,951**




15





**NOTE 11: SUBSEQUENT EVENTS**




In December 2004, The Companys subsidiary, Heuristic Technologies, Inc. ("Heuristic"), signed agreements with First Federal Savings Bank of the Midwest, dba Meta Payment Systems ("Meta") and eCommLink, Inc. which allow Heuristic to market its new stored-value debit card products. Meta, under its agreement, shall be the issuer of the cards, providing all card-related banking functions and access to the MasterCard(R) network. ECommLink will provide transaction processing for all card transactions. In the future, Heuristic intends to add proprietary features to the card using the capabilities of Cash Tech's advanced EMMA(TM) data processing system.
 
 In December 2004, Heuristic launched its debit card product called the CashTech.Card(TM). The CashTech.Card, to be issued by Meta, is a stored-value MasterCard card designed for a myriad of uses. Heuristic plans to distribute the CashTech.Cards for expense reimbursements, Health Reimbursement Accounts (HRA's) and Health Savings Accounts (HSA's). Other anticipated uses include payroll, check cashing, loyalty programs and personal uses.
 
 In December 2004, the Companys subsidiary, Heuristic Technologies, Inc. ("Heuristic"), has signed a Service and Joint Marketing Agreement with Navigator Medical Management Services, LLC ("Navigator"), an administrator of employee healthcare benefits. Under the agreement, Navigator will distribute the CashTech.Card to beneficiaries for expense reimbursements, Health Reimbursement Accounts (HRA's) and Health Savings Accounts (HSA's). Heuristic will provide customer service, data processing and marketing services to Navigator. The Company expects to receive the first orders for the cards in the third fiscal quarter of 2005.


16


**ITEM 2. 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-QSB 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.*





**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 subsidiaries, National Cash Processors, Inc., a Delaware corporation; CoinBank Automated Systems, Inc., a Delaware corporation; CoinBank Automation Handels GmbH, a subsidiary that was organized in, and operates in, Salzburg, Austria, and Cintelia Systems Inc., a Delaware corporation. In June, 2002 we formed another subsidiary CT Holdings, LLC., a Delaware limited liability company of which we currently own 86.65%. In May, 2004, we formed Heuristic Technologies, Inc., a Delaware corporation, to develop and market products for the employee benefits and
healthcare industries. In October 2004, we formed TAP Holdings, LLC., a California limited liability company of which we currently own 89% to acquire and operate the assets of Tomco Auto Products, Inc. Unless the context otherwise requires, references herein to we or us refers to Cash Technologies, Inc., and its wholly-owned and majority owned subsidiaries.
  Until June 2002, we were engaged in two lines of business, namely, (i) currency processing through our main office in Los Angeles and (ii) coin counting through machines placed in retail establishments, banks and other businesses. In the fiscal year ended May 31. 2003 we discontinued and ceased our currency processing business. Accordingly, no financial information is described herein regarding those prior operations.
 
 In 1995, we began our development of CoinBank self-service coin counting machines, distributed through our CoinBank Automated Systems, Inc. subsidiary. The machines provide individuals and small businesses with a convenient method for disposing of their accumulated loose coin without the need for pre-sorting or wrapping. To date revenues from this product line have not been significant.


17


In December of 1997, we filed a patent application describing a transaction processing and networking technology, later named EMMA (E-commerce Message Management Architecture), which resulted in the issuance of patent number 6,308,887, by the U.S. Patent and Trademark Office on October 30, 2001.





In June 2002 we formed a subsidiary named CT Holdings, LLC to develop, market and implement EMMA-based banking applications. CT Holdings, LLC is developing BONUS(TM), a suite of self-service electronic banking services, including automated check cashing, that it intends to bring to the marketplace. To date, third party investors have invested a total of $443,000 in CT Holdings, LLC. These investors currently own 13.65% while we own 86.35% of CT Holdings, LLC.





In August 2004, we announced that we had completed the acquisition of certain assets of Heuristic Technologies, LLC, a Sherman Oaks, California-based financial data processor, through a newly formed wholly owned subsidiary, Heuristic Technologies, Inc. ("HTI"). As part of the transaction, HTI has executed employment agreements with the two senior executives of Heuristic who operate the new subsidiary. The agreements call for the issuance of up to $3,700,000 worth of our preferred stock based on various revenue and income milestones of HTI. The preferred stock is convertible to our common stock at a 20% discount to the market price, with a floor of $2.00 per share and a ceiling of $5.00 per share, and includes a dividend equal to 24% of the net income of HTI subject to certain conditions. We intend to
combine the expertise of these two executives with our electronic financial processing technologies to develop a line of products and services that can effect and expedite electronic employee benefit, healthcare, and insurance claims processing transactions. We believe that our EMMA technology will enhance the products that HTI will offer in these markets. HTI is offering (i) a stored value debit card and (ii) a suite of products designed for managing employee benefits and insurance claims.





On November 5, 2004 the Companys majority owned subsidiary, TAP Holdings, LLC acquired certain assets and liabilities of Tomco Auto Products, Inc. for a purchase price of $2,500,000, less certain adjustments, paid as follows: $650,000 in cash and the remainder from an asset based credit line, seller-carried financing and assumption of certain liabilities. The total assets purchased had an approximate fair value of $11,001,478 a majority of which was inventory, valued at $9,650,225. The difference between the net assets and the purchase price resulted in an extraordinary gain to the Company of $5,999,951.




Tomco is a leading provider of remanufactured fuel system components. Founded in 1947, the Los Angeles-based company distributes its products through major auto products retailers throughout the U.S. such as NAPA, with 6,000 stores, CARQUEST, with more than 3,600 stores, O'Reilly Automotive, with more than 1,100 stores and others.





In December 2004, The Companys subsidiary, Heuristic Technologies, Inc. ("Heuristic"), signed agreements with First Federal Savings Bank of the Midwest, dba Meta Payment Systems ("Meta") and eCommLink, Inc. which allow Heuristic to market its new stored-value debit card products. Meta, under its agreement, shall be the issuer of the cards, providing all card-related banking functions and access to the MasterCard(R) network. ECommLink will provide transaction processing for all card transactions. In the future, Heuristic intends to add proprietary features to the card using the capabilities of Cash Tech's advanced EMMA(TM) data processing system.





18


In December 2004, Heuristic launched its debit card product called the CashTech.Card(TM). The CashTech.Card, to be issued by Meta, is a stored-value MasterCard card designed for a myriad of uses. Heuristic plans to distribute the CashTech.Cards for expense reimbursements, Health Reimbursement Accounts (HRA's) and Health Savings Accounts (HSA's). Other anticipated uses include payroll, check cashing, loyalty programs and personal uses.





In December 2004, the Companys subsidiary, Heuristic Technologies, Inc. ("Heuristic"), has signed a Service and Joint Marketing Agreement with Navigator Medical Management Services, LLC ("Navigator"), an administrator of employee healthcare benefits. Under the agreement, Navigator will distribute the CashTech.Card to beneficiaries for expense reimbursements, Health Reimbursement Accounts (HRA's) and Health Savings Accounts (HSA's). Heuristic will provide customer service, data processing and marketing services to Navigator. The Company expects to receive the first orders for the cards in the third fiscal quarter of 2005.


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**RESULTS OF OPERATIONS** ****





**THREE MONTHS ENDED NOVEMBER 30, 2004, COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 2003.**





*Net revenues* for the three-month period ended November 30, 2004 increased to $549,466 compared to $15,000 for the same 2003 period. The increase in net revenue was directly attributable to the sale of carburetors by Tomco, which was not in existence in the same period last year.





*Cost of revenues* for the three-month period ended November 30, 2004 was $397,799 compared to $2,358 for the quarter ended November 30, 2003. The increase in direct costs was primarily attributable to cost of raw materials in the manufacturing of carburetors and direct labor incurred by Tomco, which was not in existence in the same period last year.





*Gross profit* for the three months ended November 30, 2004 was $151,667 compared to $12,642 for the same period a year ago. The increase in gross profit was related to TAP Holdings, LLC., which was not in existence in the same period last year.





Se *lling, General and Administrative* expenses for the three months ended November 30, 2004, increased to $930,237 compared to $667,713 for the three months ended November 30, 2003. These expenses consist primarily of wages (and wage related costs), outside contractor expenses, travel/promotional expenses, professional services and facilities/office related expenses. The primary increase is attributable to TAP Holdings, LLC., which was not in existence in the same period last year.





*Research and development* expenses for the three months ended November 30, 2004, was $45,000 compared to $30,000 for the three months ended November 30, 2003. The increase was the result of additional programmer costs incurred.





*Depreciation and amortization* expenses for the three months ended November 30, 2004, and November 30, 2003, were $140,861 and $141,145, respectively.





*Other Income* for the three months ended November 30, 2004, was $438,513 compared to zero for the same period in 2003. The increase in other income was due to forgiveness of debt in the current quarter.





*Interest expense* for the three months ended November 30, 2004 and November 30, 2003, was $124,476 and $118,584, respectively.





*Minority Interest* for the three months ended November 30, 2004 and November 30, 2003, was $18,550 and $10,399, respectively





*Extraordinary Income* for the three months ended November 30, 2004, was $5,999,951 compared to zero for the same period in 2003. The increase was due to the extraordinary gain recognized in the purchase of certain assets and liabilities of Tomco Auto Products, Inc.





*Minority Interest from extraordinary income* for the three months ended November 30, 2004 and November 30, 2003, was $659,995 and zero, respectively





As a result of the foregoing, *net income (losses) from continuing operations* for the three months ended November 30, 2004 and 2003, were $4,708,112 and $(934,401), respectively.





20


**SIX MONTHS ENDED NOVEMBER 30, 2004, COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 2003.**





*Net revenues* for the six-month period ended November 30, 2004 increased to $564,230 compared to $86,525 for the same 2003 period. The increase in net revenue was attributable to the revenues for TAP Holdings, LLC., which was not in existence in the same period last year.





*Cost of revenues* for the six-month period ended November 30, 2004 was $410,924 compared to $34,048 for the period ended November 30, 2003. The increase in direct costs was primarily attributable to TAP Holdings, LLC., which was not in existence in the same period last year.





*Gross profit* for the six months ended November 30, 2004 was $153,306 compared to $52,477 for the same period a year ago. The increase in the gross profit was related to TAP Holdings, LLC., which was not in existence in the same period last year.





Se *lling, General and Administrative* expenses for the six months ended November 30, 2004, increased to $1,605,502 compared to $1,352,390 for the six months ended November 30, 2003. These expenses consist primarily of wages (and wage related costs), outside contractor expenses, travel/promotional expenses, professional services and facilities/office related expenses. The increase is primarily attributable to TAP Holdings, LLC., which was not in existence in the same period last year.





*Research and development* expenses for the six months ended November 30, 2004, was $90,000 compared to $60,000 for the six months ended November 30, 2003. The increase was the result of additional programmer costs incurred.





*Depreciation and amortization* expenses for the six months ended November 30, 2004, and November 30, 2003, were $281,504 and $282,290 respectively.





*Other Income* for the six months ended November 30, 2004, was $438,513 compared to zero for the same period in 2003. The increase in other income was due to forgiveness of debt in the current quarter.





*Interest expense* for the six months ended November 30, 2004 and November 30, 2003, was $221,621 and $295,636, respectively. The decrease was due to the conversion of convertible debt into shares of the Companys common stock.





*Minority Interest* for the six months ended November 30, 2004 and November 30, 2003, was $31,889 and $21,099, respectively





*Extraordinary Income* for the six months ended November 30, 2004, was $5,999,951 compared to zero for the same period in 2003. The increase was due to the extraordinary gain recognized in the purchase of certain assets and liabilities of Tomco Auto Products, Inc.





*Minority Interest from extraordinary income* for the six months ended November 30, 2004 and November 30, 2003, was $659,995 and zero, respectively





As a result of the foregoing, *net income (losses) from continuing operations* for the six months ended November 30, 2004 and 2003, were $3,765,047 and $(1,916,740), respectively.


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**LIQUIDITY AND CAPITAL RESOURCES**





Our capital requirements have been and will continue to be significant and our cash requirements have been exceeding our cash flow from operations. At November 30, 2004, we had a working capital deficit of $3,329,000 compared to a working capital deficit of $9,354,394 at May 31, 2004. At November 30, 2004, we had a cash balance of approximately $8,849 and an available line of credit balance of approximately $108,000. Our current monthly operating costs without any interest or principal payments on debt, amortization of warrants and depreciation expense is approximately $200,000 per month. Although our purchase of certain assets and liabilities of Tomco Auto Products, Inc. is expected to provide cash flow in the future, we are still in desperate need for working capital. To date we have been funding our
operations through the issuance of equity in private placement transactions with existing shareholders or persons with whom we have relationships, including affiliates of shareholders. There can be no assurance that we will be able to continue to raise required working capital in this manner.





Our independent certified public accountant included an explanatory paragraph in its report for the year ended May 31, 2004, 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 cash used in operating activities* was ($1,644,758) for the six months ended November 30, 2004 compared to ($1,007,548) for the six months ended November 30, 2004. The increase of net cash used by operating activities during the 2004 period was primarily due to the Companys expansion into Heuristics Technologies, Inc. and TAP Holdings, LLC.





*Net cash used in investing activities* for the six months ended November 30, 2004, was $655,746 as compared to zero for the six months ended November 30, 2003. The increase in net cash used by financing activities for the 2004 period was attributable to an increase in investment of subsidiary.





*Net cash provided by financing activities* for the six months ended November 30, 2004, was $2,171,837 as compared to $1,035,615 for the six months ended November 30, 2003. The increase in net cash provided by financing activities for the 2004 period was attributable to an increase in proceeds from the issuance of preferred stock and proceeds from short-term debt offset by a decrease in proceeds from the sale of common stock.





In 1997, we entered into a credit agreement with G.E. Capital Corporation ("G.E.") pursuant to which we borrowed $5,500,000 for the purchase of CoinBank component equipment, working capital and general corporate purposes. . In September, 2000, due to our inability to repay G.E. on the original terms, we restructured the loan through the first of several loan modifications. The most recent modification requires interest-only payments at a rate of 9.5% and the entire unpaid balance is due at maturity in November, 2005. As of this date we do not have sufficient capital to repay this debt. As of November 30, 2004,
we owed $3,946,517, which includes the principal, financing fees and unpaid interest. No assurance can be given that we will be able to repay the G.E. loan by the due date.





As of November 30, 2004, we still owed $785,417 in principal and interest to certain investors who purchased our convertible notes and warrants. We have recently held discussions with some of these investors and believe that some of these loans will be converted into equity. However, if the loans are not converted, we do not have the funds to repay these loans. Since these loans were secured by a lien on our assets, a demand for the repayment of these loans may cause the foreclosure of some of our assets, which would affect our operations and the value of our remaining assets.





22


In fiscal quarter ended August 31, 2004, in a private transaction under Section 4(2) of the Securities Act of 1933, as amended, we sold 782 shares of preferred stock for gross proceeds of $782,000. We also issued 204,930 of our common stock purchase warrants with an exercise price of $3.00 and an additional 286,870 with an exercise price of $5.00. All common stock purchase warrants have an exercise life of 5 years and there was no beneficial conversion recognized in conjunction with this transaction.





In fiscal quarter ended November 30, 2004, in a private transaction under Section 4(2) of the Securities Act of 1933, as amended, we sold 50 shares of preferred stock for gross proceeds of $50,000. We also issued 10,000 of our common stock purchase warrants with an exercise price of $2.50 and an additional 15,000 with an exercise price of $3.50. All common stock purchase warrants have an exercise life of 5 years and there was no beneficial conversion recognized in conjunction with this transaction.





In the fiscal quarter ended November 30, 2004, in private transactions under Section 4(2) of the Securities Act of 1933, as amended, the Company sold 456,206 shares of the Companys Common Stock for gross proceeds of $490,000. In addition the Company issued 235,263 5 year Common Stock purchase warrants with exercise prices ranging from $2.00 to $3.00.





In the fiscal quarter ended November 30, 2004 shareholders exercised 279,862 Common Stock purchase warrants and the Company received gross proceeds of $188,615.





Recently HTI began marketing its products in the employee benefit and, healthcare industries. We anticipate that these products will commence generating revenues during this calendar year however, no assurance can be given that HTI will be able to establish its operations in a manner that will generate revenues this year, or ever, or if it does generate revenues, that such revenues will be significant.





We fully expect that with the acquisition of certain assets of Tomco and various activities by HTI we will be profitable in the 4th quarter of fiscal year ending May 31, 2005. We also believe that in this period we will generate enough funds to manage our cash flow. However, there can be no assurance that we will either be profitable or generate enough cash flow to fund our operations. We are also obligated to fund the operations of TAP and HTI.





We currently have no consistent source of revenues and income and have no established banking arrangements that could fully fund our operations. Accordingly, we are dependent upon the sales of debt or equity securities until we generate sufficient revenues from existing or future operations or from the sale of assets. In the event that we are unable to raise additional capital, we will have to significantly reduce our operations, reduce our operating costs through a headcount reduction and a reduction of outside professional services, or terminate our operations. Since we have a negative net worth of over $2.5 million, if we cease operations, our stockholders would lose their entire investment in this company.






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**RISK FACTORS**




Investors should carefully consider the risks described below and in our Annual Report on Form 10-KSB. The risks and uncertainties described below and in the Annual Report are not the only ones facing us. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected.




**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, 2003 and 2004, we had net sales of only $267,576 and $80,616, respectively. During the last fiscal quarter ended November 30, 2004, our revenues were $549,466.





We have incurred losses since our inception. For the last two fiscal years ended May 31, 2003 and 2004, we sustained net losses of $4,048,345 and $4,382,532 respectively. We had a stockholders deficiency of $7,085,761 as of May 31, 2004 which has been reduced to $1,328,157 as of November 30, 2004. In its reports accompanying our audited financial statements for the fiscal years ended May 31, 2004 and 2003, our independent auditors included an explanatory paragraph wherein they expressed substantial doubt about our ability to continue as a going concern. During the current fiscal year, we have continued to generate losses and will continue to incur losses for the foreseeable future.





**We are unable to pay our current liabilities, and must rely on the continued forbearance of specific creditors to avoid bankruptcy.**





As of November 30, 2004 we had outstanding current liabilities of $14,207,789, of which approximately $785,000 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 consider 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 November 30, 2004, Cash Tech had a working capital deficit of $3,329,000 due to continuing losses. On November 30, 2004, we had available cash of approximately $8,849 and approximately $108,000 in credit availability. 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 development of the EMMA technology, 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 substantial 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, including our EMMA technology. As of November 30, 2004, we also owe $ 3,946,517 to General Electric Capital Corporation. In 2000, we
entered into the first of several loan modifications with G.E. Capital. The current modification will expire in November 2005, and we have no current plan or arrangement for repaying G.E. Capital its principal.




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**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 various lenders, including equipment liens in favor of General Electric Capital Corporation pursuant to a Master Security Agreement originally entered into in May 1997. As of November 30, 2004, we were indebted to General Electric Capital Corporation in the amount of approximately $ 3,946,517 including interest. The default by us on certain secured obligations could permit a secured creditor to foreclose on the assets securing the
defaulted indebtedness. As a result of the existing liens and continuing losses, it is unlikely that we could obtain additional credit by securing our assets. Further, as a result of the security interests, creditors would be entitled to collect upon a sale of the assets prior to any distribution being available to holders of our Common Stock or Preferred Stock.




**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.





**The American Stock Exchange may delist our securities.**




Our common stock is listed on American Stock Exchange. Since we began trading on the American Stock Exchange, the AMEX has granted us an exemption from its listing requirements in order for our common stock to be listed for trading as we are not, and have never been, in compliance with the AMEXs criteria for continued listing. Our failure to meet these maintenance criteria may eventually result in the delisting of our common stock from the AMEX. In January, 2004 we provided AMEX with a plan to come into compliance with the continued listing requirements. Periodically AMEX requests updates to this plan to monitor our progress. Such an update is being submitted to AMEX before the end of February 2005. AMEX has the right not to accept our plan and de-list our stock, which would result in our common
stock being moved to the OTC Bulletin Board. While we have been making substantial progress on our efforts to meet the AMEX listing criteria, if we have not satisfied these criteria by April, 2005, it is likely that AMEX will de-list our stock. In the event that our stock is de-listed we would be required to liquidate certain of our Preferred Stock. No assurance can be given that we will be able to come into compliance with the AMEX listing criteria or that our progress will continue to be satisfactory to the AMEX.





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**ITEM 3. CONTROLS AND PROCEDURES**





Evaluation of Disclosure Controls and Procedures:





Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)) as of the end of the fiscal quarter ended August 31, 2004. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the evaluation date, our disclosure controls and procedures are effective to ensure that all material information required to be filed in this Quarterly Report on Form 10-QSB has been made known to them.





Changes in Internal Controls:





The Board of Directors adopted, effective, August 25, 2003 a Code of Ethics for its Chief Executive Officer and Chief Financial Officer, as well as a Code of Ethics for its employees. These Codes are intended to ensure compliance with rules and regulations, promote honest and ethical behavior and to prevent wrongdoing.





Additionally, the Board, in response to the passage of the Sarbanes-Oxley Act of 2002, among other actions, formed a Disclosure Committee comprised of various members of our management team. The Disclosure Committee is charged with, among other things, reviewing and developing policies and procedures to enhance our disclosure controls and procedures as well as with reviewing our periodic reports and other public disclosures. Other than as described above, based on their evaluation as of November 30, 2004, there have been no changes, including corrective actions with regard to significant deficiencies or material weaknesses in our internal controls or in other factors that could significantly affect these controls subsequent to November 30, 2004.





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**PART II. OTHER INFORMATION**





**ITEM 1. LEGAL PROCEEDINGS**





Shaw's Supermarkets has filed a lawsuit, captioned Shaw's Supermarkets, Inc. v. Cash Technologies, Inc., CoinBank Automated Systems Inc. (United States District Court, District of Massachusetts), against us claiming breach of contract and damages. We operated CoinBank machines in Shaw's locations in New England on a free-placement basis since June, 1999 and had been negotiating a settlement and termination agreement with Shaw's to terminate the CoinBank machine placements in light of our decision to exit the free placement business. Shaw's was claiming damages in excess
of $100,000, for contract termination fees and reimbursements. As of May 31, 2004, we had accrued approximately $109,000 for this liability along with fees and expenses. Furthermore, we had significant claims against Shaw's for damages to the machines. In September, 2004, Shaws and Cash Technologies, Inc. agreed to settle this litigation with mutual, general releases and without any exchange of money. Therefore the accrued liability has been removed from our balance sheet in the current quarter.





In June, 2002 we were notified that a vendor, Kiosk Information Systems, Inc. (KIS), had obtained a judgment against us for $129,567 allegedly owed for services rendered in 1999, plus interest and attorneys fees. Upon learning of the judgment, we notified KIS that we have never been served with a lawsuit related to this matter and were unaware of the existence of the case. As of May 31, 2004, we had an accrued liability of $138,000 for this lawsuit. We had filed a petition to vacate the judgment, but in December, 2004, KIS and Cash Technologies, Inc. agreed to a settlement in which we paid KIS $50,000. The balance of the accrued liability of $88,000 will be written off in the quarter ending February 28, 2005.




In February 2003 Samson Consulting Corp. was hired, inter alia , to provide consulting services and arrange financing for us. The term of the agreement was 12 months at a monthly cost of $50,000 or an equivalent value in shares of our stock; either party had the right to terminate after one month for any reason. Shortly thereafter, we terminated the agreement for Samsons failure to perform. In July 2004, Samson initiated arbitration in New York State claiming that the agreement was wrongfully terminated and that Samson is owed damages. We believe that Samson is owed nothing. Nevertheless, there is
no assurance that an arbitrator will not award Samson fees for the period prior to the termination of the agreement or for the entire one-year term.  In any event, we may incur significant costs of litigation.






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, passed away 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 tentative settlement in which the shares would be returned to us without any exchange of money, pending execution of final settlement documentation. 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 Deficiency line item would have to be adjusted to reflect such additional shares.







**ITEM 2. CHANGE IN SECURITIES**





In fiscal quarter ended November 30, 2004, in a private transaction under Section 4(2) of the Securities Act of 1933, as amended, we sold 50 shares of preferred stock for gross proceeds of $50,000. We also issued 10,000 of our common stock purchase warrants with an exercise price of $2.50 and an additional 15,000 with an exercise price of $3.50. All common stock purchase warrants have an exercise life of 5 years and there was no beneficial conversion recognized in conjunction with this transaction.





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In the fiscal quarter ended November 30, 2004, in private transactions under Section 4(2) of the Securities Act of 1933, as amended, the Company sold 456,206 shares of the Companys Common Stock for gross proceeds of $490,000. In addition the Company issued 235,263 five year Common Stock purchase warrants with exercise prices ranging from $2.00 to $3.00.





In the fiscal quarter ended November 30, 2004 shareholders exercised 279,862 Common Stock purchase warrants and the Company received gross proceeds of $188,615.





**ITEM 3. DEFAULT UPON SENIOR SECURITIES**





In January 2000, we completed a private placement offering of convertible notes and warrants under Section 4(2) of the Securities Act of 1933. As a result of this offering, we issued notes in the aggregate principal amount of $3,362,000 and 336,200 Series B Common Stock Purchase Warrants. The notes were originally convertible into our common stock at the conversion rate of $9.50 per share. The Series B Warrants were originally exercisable at a price of $13.00 per share. The notes were originally due and payable on July 31, 2001. The notes are secured by a first priority lien on all of our assets. As of November 30, 2004, we still owed $785,417 in principal and interest to the noteholders.





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





During this fiscal year, there have not been any matters submitted for a vote from the security holders.





**ITEM 5. OTHER INFORMATION**





On September 28, 2004, we received a notice from the American Stock Exchange (AMEX) requesting an update to our previously submitted plan to come into compliance with AMEXs continued listing requirements. As we previously disclosed, on October 20, 2003 AMEX advised us that we do not meet the continued listing standards. In response, we submitted a plan to AMEX with our plan for regaining compliance with the continued listing standards by April 20, 2005. Periodically AMEX requests updates to this plan to monitor our progress. Such an update is being submitted to AMEX before the end of February 2005. AMEX has the right not to accept our plan and de-list our stock, which would result in our common stock being moved to the OTC Bulletin Board. In the event that our stock is de-listed we
would be required to liquidate certain of our Preferred Stock. **** While we have been making substantial progress on our efforts to meet the AMEX listing criteria, if we have not satisfied these criteria by April, 2005, it is likely that AMEX will de-list our stock. ****





**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**




|(a) | Exhibits
|--- | --------

31.1  Certification of Chief Executive Officer


31.2  Certification of Chief Financial Officer


32.1  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act





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(b)  Reports on Form 8-K incorporated by reference filed on February 13, 2004





**NONE**


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**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 10QSB for the fiscal quarter ended November 30, 2004, to be signed on its behalf by the undersigned, thereunto duly authorized the 19th day of January, 2005.











CASH TECHNOLOGIES, INC.








By: /S/ Bruce Korman


________________________________________


Bruce Korman


President and Chief Executive Officer








By: /S/  Edmund King


________________________________________


Edmund King


Chief Financial Officer







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