---




UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-QSB


(Mark One)


|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- |  | -------------------------------------------------------------------------------------------




For three month period ended August 31, 2002





OR





| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- |  | --------------------------------------------------------------------------------------------




Commission File Number: 001-15783





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CASH TECHNOLOGIES, INC.


(Exact name of registrant as specified in its charter)





Delaware (State or other
jurisdiction of incorporation organization)

95-4558331 (IRS
Employer Identification No.)





1434 W. 11th Street, Los Angeles, CA (Address of principal executive offices)

90015 (Zip Code)





(213) 745-2000


(Registrants telephone number, including area code)





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





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





On October 1, 2002, there were 6,054,694 shares of common stock, $ .01 par value, issued and
outstanding.





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CASH TECHNOLOGIES, INC.





FORM 10-QSB





INDEX





Page No.PART I.    FINANCIAL INFORMATIONItem 1.

Consolidated Financial Statements:Consolidated Balance Sheets as of August 31, 2002 (unaudited) and May 31, 2002

3Consolidated Statements of Operations for the three-month period ended August 31, 2002 and 2001 (unaudited)

4Consolidated Statements of Cash Flows for the three-month period ended August 31, 2002 and 2001 (unaudited)

5Notes to Consolidated Financial Statements for the three-month period ended August 31, 2002 and 2001 (unaudited)

6Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

13PART II.    OTHER INFORMATIONItem 1.

Legal Proceedings

21Item 2.

Changes in Securities

22Item 3.

Default Upon Senior Securities

23Item 4.

Submission of Matters to a Vote of Security Holders

24Item 5.

Other Information

24Item 6.

Exhibits and Reports on Form 8-K

24SIGNATURES

25




2




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PART I





ITEM 1.    FINANCIAL STATEMENTS








CASH TECHNOLOGIES, INC.





CONSOLIDATED BALANCE SHEETS


(Unaudited)





August 31, 2002


May 31, 2002ASSETSCURRENT ASSETS:Cash and cash equivalents

$
394


$
419,704Accounts receivable


139,606



38,276Other receivable (net of allowance $21,000)


85,532



85,532Total current assets


225,532



543,512CoinBank machines held for sale


936,402



1,029,292PROPERTY AND EQUIPMENT (net)


48,308



56,890CAPITALIZED SOFTWARE COSTS


2,425,662



2,565,605DEFERRED FINANCE FEES


20,833



83,333OTHER ASSETS


3,000



3,000TOTAL ASSETS

$
3,659,737


$
4,281,632LIABILITIES AND STOCKHOLDERS DEFICIENCYCURRENT LIABILITIES:Current maturities of notes payable


776,165



4,137,630Due to officers and directors


153,364



75,000Convertible debt


4,091,623



1,420,574Equity placement liability


530,000



530,000Accounts payable


979,352



961,045Accrued liabilities


1,125,543



954,745Bank overdraft


197,800



197,800Dividend payable


864,453



776,456Total current liabilities


8,718,300



9,053,250Long-term notes payable


3,288,465



Long-term convertible debt






2,586,674TOTAL LIABILITIES


12,006,765



11,639,924COMMITMENTS & CONTINGENCIESSTOCKHOLDERS DEFICIENCY:Common stock


63,822



62,335Preferred stock


1,904,688



1,904,688Additional paid in capital


20,417,568



20,140,847Accumulated deficit


(30,733,106
)


(29,466,162
)Total stockholders deficiency


(8,347,028
)


(7,358,292
)TOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY

$
3,659,737


$
4,281,632





See notes to consolidated financial statements




3




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CASH TECHNOLOGIES, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





For Three Months Ended August 31,2002


2001GROSS REVENUES (Note 1)

$
2,138,392


$
974,320NET REVENUES

$
187,371


$
28,852COST OF REVENUES


130,458


$
39,074GROSS PROFIT (LOSS)


56,913


$
(10,222
)SELLING, GENERAL, & ADMINISTRATIVE EXPENSE


721,209



492,613RESEARCH & DEVELOPMENT EXPENSE


72,346



DEPRECIATION & AMORTIZATION EXPENSE


147,562



26,551OPERATING LOSS


(884,204
)


(529,386
)INTEREST EXPENSE


229,133



264,755LOSS BEFORE INCOME TAXES


(1,113,337
)


(794,141
)INCOME TAXES






NET LOSS

$
(1,113,337
)


(794,141
)Dividends & deemed dividends

$
122,969



576,682Net loss allocable to common shareholders

$
(1,236,305
)


(1,370,823
)Basic and diluted net loss per share

$
(0.25
)

$
(0.38
)Basic and diluted weighted average shares of common stock outstanding


4,936,281



3,566,120





See notes to consolidated financial statements.







4




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CASH TECHNOLOGIES, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Fiscal Three Months Ended
August 31,2002


2001OPERATING ACTIVITIES:Net loss

$
(1,113,337
)

$
(794,141
)Adjustments to reconcile net loss to net cash used by operating activities:Amortization of discount on convertible debt






17,583Amortization of capitalized software


139,943



Noncash deemed interest expense


62,500



83,334Noncash compensation expense


162,598



Depreciation expense


8,582



31,592Changes in operating assets and liabilities:Account receivable


(101,330
)


30,615CoinBank machines held for sale


92,890



9,289Prepaid expenses and other current assets






7,500Other assets






2,629Accounts payable


18,307



(51,581
)Accrued interest


161,375



157,625Accrued expenses and other current liabilities


170,798



96,243Net cash used in operating activities


(397,674
)


(409,312
)INVESTING ACTIVITIES:Purchase of property and equipment






(535
)Capitalized software






(180,264
)Net cash used in investing activities






(180,799
)FINANCING ACTIVITIES:Book overdraft






(1,840
)Net proceeds from issuance of preferred stock






818,000Proceeds from short-term debt


78,364



158,000Repayments on short-term debt


(150,000
)


Proceeds from sale of common stock


50,000



100,000Net cash provided by financing activities


(21,636
)


1,074,160CHANGE IN CASH AND CASH EQUIVALENTS


(419,310
)


484,049Cash and Cash Equivalents, Beginning of Year


419,704



Cash and Cash Equivalents, End of Year

$
394


$
484,049SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONIncome taxes

$



$
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSConversion of preferred stock into common stock

$



$
35,587Deemed dividend on preferred stock

$



$
433,060Common stock offering

$
50,000


$
Issuance of common stock for services performed

$
162,600


$
99,167Dividends declared on preferred stock

$
87,997


$
131,582Deemed dividend on warrants issued

$
65,610


$
12,038





See notes to consolidated financial statements




5




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CASH TECHNOLOGIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 1:    GENERAL





Going Concern:





The Company has prepared the financial statements included in this Form 10-QSB assuming that the Company will continue as a going concern. Although the Company has raised additional capital since its
public offering in July 1998, it has not generated sufficient revenue-producing activity to sustain its operations. Accordingly, the Company must realize a satisfactory level of profitability from its current and future operation in order to remain
a viable entity. In addition, the Company must raise significant capital to fund current operations and to repay existing debt. The Companys auditors have included an explanatory paragraph in their report for the year ended May 31, 2002,
indicating there is substantial doubt regarding the Companys 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. (the Company), the accompanying unaudited condensed consolidated financial statements include all
normal adjustments considered necessary to present fairly the financial position as of August 31, 2002 and the results of operation and cash flows for the three month period ended August 31, 2002 and 2001. 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, 2002, filed with the SEC. The results of
operations for the three month period ended August 31, 2002, are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year.





Gross revenuesincludes the value of currency processed and does not represent revenue under generally accepted accounting principles.





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. As of August 31, 2002, capitalized
software costs amounted to $2,425,662. Technological feasibility was achieved in September of 1999 and from that point forward all expenses related to the EMMA software development had been capitalized. As of December 31, 2001, the Company 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 totaling $213,647 since have been expensed including $72,346 in the current quarter.




6




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Amortization commenced on January 1, 2002. Amortization had been calculated over
a seven (7) 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 (5) 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 August 31, 2002, the Company amortized an additional $139,943. The current EMMA asset is currently valued at $2,425,662, which reflects the costs incurred by the Company in developing the asset, as well as the net realizable
value estimated in management's determination. Management believes that its estimates reflect its ability, based upon management's internal projections, to obtain a recovery on the asst. These estimates assume that recovery of the value of the asset
will be obtained commencing in the later half of the 2003 calendar year, and will be obtained in full by the end of calendar year 2005. These projections and estimates are subject to numerous contingencies, including, without limitation, the
condition of the economy and the ability and willingness of corporate entities to purchase software such as the EMMA software.





In its projections, management has calculated a transaction fee based upon use of the technology through placement on mobile trucks operated by an independent third party . The transaction charge for use through ATM machines would be
higher, because the services available through an ATM located in a bank office would be greater and the expense to Cash Technologies is also greater. The projected transaction fees are based upon management's discussions with potential customers,
including bank and non-bank ATM service providers.





Management has had significant negotiations with
representatives of various large financial institutions regarding installation of EMMA based products.





According
to a study entitled "The Use of Checks and other Non-Cash Payment Instruments in the United States" prepared by the Federal Reserve, there were 42.5 billion checks processed in the Untied States during the year 2000.





Much of our SG&A costs are fixed in nature, therefore, as the volume of transactions and revenues increase, the SG&A does not
increase proportionately.





There can be no assurance that management's estimates will prove accurate, and
investors should be aware that in the event these estimates are inaccurate, a write down of all or a portion of this asset may be required.





NOTE 2.    COMMITMENTS AND CONTINGENCIES





On August 7, 2000 Shaws
Supermarkets filed a lawsuit, captioned Shaws Supermarkets, Inc. v. Cash Technologies, Inc., CoinBank Automated Systems Inc. (Civil action # 00CV11571WGY, 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 $200,000, for contract termination fees and reimbursements. We believed that the amount owed was approximately
$55,000 and had accrued for the liability. In January of 2001, both parties agreed to settle the lawsuit for $74,778 subject to certain conditions. As a consequence of our discovery of potential damage to some of the machines and Shaws refusal
to permit our inspection of the machines before executing a release, the settlement agreement was never completed.





On June 7, 2002, Shaws Supermarkets filed a lawsuit, captioned Shaws Supermarkets, Inc. v. Cash Technologies, Inc., CoinBank Automated Systems Inc. (Civil action # 02-02532, United States District Court, District
of Massachusetts), against us again claiming breach of contract and damages in excess of $200,000. We were unaware of the lawsuit until September 2002 when we were served a proper summons. As before, we believe that Shaws claims are without
merit and that we have meritorious defenses. Furthermore, we have filed a countersuit in excess of $750,000 for the value for our CoinBank machines, loss of business and all other applicable costs incurred by us.





In December 1997, Vindex USA, Inc. filed a complaint against our CoinBank subsidiary, in the Superior Court of California, Los Angeles
County seeking to recover $40,000, an unspecified amount of commissions and interest accrued thereon allegedly due it under the terms of a consulting agreement it alleges was breached by CoinBank. The court has entered judgment against CoinBank in
favor of Vindex in the sum of $97,864, which remains outstanding.





We have commenced a lawsuit in Austria against
Geld Bearbeitungs Systeme GES.M.B.H., an Austrian entity which had been manufacturing certain of our CoinBank machines. As previously described in our SEC Reports, we have a five year licensing and manufacturing services agreement with Geld. We had
previously entered into a letter of intent to acquire Geld and certain disputes have arisen regarding the acquisition and licensing agreements between the parties. We instituted the suit to enforce certain licensing rights under our agreements and
to enforce the acquisition letter of intent. Although we believe, based upon advice of our Austrian counsel, that we have a meritorious and strong claim, we may not be successful in our suit. Recently the Austrian Courts awarded us a 10% ownership
interest in Geld resulting from a ruling adverse to one of its principals.





We are involved in a litigation titled
Kane Corte, et al v. Cash Technologies, Inc. et al., (Case # 128256, 32/nd/ Judicial District Parish of Terrebonne, State of Louisiana). In August 2001, we first




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became aware that an entity to which we had sold 23 CoinBank machines in October 1999 had filed suit against us in Louisiana court and obtained
a default judgment against us. The Louisiana judgment was issued on August 15, 2000 and rewarded the purchaser $230,000 in damages and ordered that the machines be returned to the Company. In March 2001, the purchaser obtained a sister-state
judgment against us in California based on the judgment of the Louisiana court and a writ of execution was issued.





Upon learning of this matter, we immediately initiated legal actions in Louisiana and California. At a hearing in the Louisiana court, we were granted a Temporary Restraining Order staying enforcement of the judgment. We contend that
the Louisiana court had no jurisdiction and that we were never properly served with either the original Louisiana lawsuit, the judgment issued by the Louisiana court or the California sister- state judgment. We also contend that Kane Cortes
allegations are without merit and that his desire to return the machines is a result of his failed business practices. The Company has initiated legal action in both Louisiana and California seeking to set aside both judgments and to cause the
matter, including the issue of jurisdiction, to be heard on its merits by the Louisiana court. The Company believes that it will be successful in these actions to set aside the judgments. The Company further believes that it has meritorious defenses
to each of the allegations in the action and that it will ultimately prevail on merits. The Company will incur the cost of defense, including legal fees, in an undetermined amount in connection with these matters, which may not be recoverable. There
can be no assurance that the Company will be successful in the defense.





On July 10, 2002, Burns International
Security Services (Burns) obtained a default judgment against the Company for $14,157 (the Judgment) for services Burns rendered to one of the Companys affiliates. On August 15, 2002, the Company, not having received
actual notice of the lawsuit before the judgment was entered, filed a motion to set aside or vacate the Judgment. The court, on September 4, 2002, issued a tentative ruling in the Companys favor granting the motion to set aside or vacate the
Judgment. In October 2002, the Company and Burns reached a settlement for the Company to pay a gross amount of $12,257 in installments. As of October 15, 2002, the Company has made a payment of $2,000 with regards to this judgment.





On August 1, 2002, Cash Technologies, Inc. filed a lawsuit, captioned Cash Technologies, Inc. v. McNeely and
Willmon (Case No. BC 278823, Superior Court of the State of California), for breach of contract to collect $79,999 owed to the Company by the defendants. This dispute arose from loans made by the Company in September, 2000 to
McNeely, Willmon and a third individual in connection with a proposed acquisition of a company in which they were major shareholders. Pursuant to the promissory notes, the loans were due to be repaid in December 2000. Despite our repeated collection
efforts, two of the borrowers, McNeely and Willom, have refused to pay the amounts owed. We are seeking an amount in excess of $79,999 from the defendants. On September 25, 2002, McNeely and Willmon filed a cross complaint claiming $500,000 in
compensatory damages to which the Company is required to respond by October 25, 2002. We believe that the cross complaint is without merit and feel confident that we will prevail in this matter, although there can be no assurance.





NOTE 3:    STOCKHOLDERS EQUITY





In June 2002, in a private transaction under Section 4(2) of the Securities Act of 1933, as amended, sold 1 unit at an aggregate of $50,000 of its securities to 1 foreign investor. Each unit comprised
of (i) 33,333 shares of Common Stock and (ii); 5,000 common stock purchase warrants. The warrants have an exercise price of $2.00 per share and are exercisable for five years. A deemed dividend benefit of $4,855 was recognized in conjunction with
this placement.





In June 2002, the Company awarded 60,400 shares of the Companys common stock and 50,400
common stock warrants with an exercise price of $2.00 and a five (5) year life to a consultant. The




8




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Company recorded a compensation expense charge of $90,600 as well as a beneficial conversion feature of $50,291.





Also in June 2002, the Company issued 55,000 shares of the Companys common stock to one of its developers in lieu of services
rendered. The shares of common stock were valued at $1.36 per share.





NOTE 4:    RELATED PARTY TRANSACTIONS





In April 2002, the Company had obtained a short-term loan of $75,000 from Mr. Robert Fagenson who serves on
the Companys Board of Directors. The total amount of this loan is still outstanding. The loan bears an interest 10% per annum and is payable upon demand. As of the quarter ended August 31, 2002 the Company has accrued $10,625 in interest with
regards to this loan. Also, in the fiscal quarter ended August 31, 2002, the Company obtained short-term loans of an aggregate principal amount of $78,364 from Bruce Korman (and related parties) who is an affiliate, Chief Executive Officer and
Chairman of the Board of Directors of the Company. The loans are short-term non-interest bearing loans and are payable upon demand. Furthermore, as of August 31, 2002, the Company had $61,308 in arrears in salary to Mr. Korman.





NOTE 5:    SHORT-TERM DEBT NEGOTIATED TO LONG-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. On September 29, 2000 the Company entered into an agreement with GE to defer principal payments on the debt for twelve (12) months and to defer interest payments for six (6) months. As
consideration for the extension, the Company and GE have agreed to increase the principal portion of the loan by $500,000 and the Company recorded deferred financing fees, which were amortized over an eighteen (18) month period. The Company and G.E.
Capital had negotiated another waiver agreement as of September 13, 2001 pursuant to which G.E. Capital agreed to a six (6) month deferral of interest payments and a twelve (12) month deferral of principal payments provided (i) we granted G.E.
Capital a lien on all of its assets (ii) we paid G.E. Capital 60% of all proceeds from the sale of its CoinBank machines (iii) we obtained subordination agreements from all of our noteholders prior to December 30, 2001 whereby the noteholders
subordinate their lien to that of G.E. Capital (iv) the sum of $250,000 is added to the outstanding principal amount of the loan, which is being amortized over a twelve (12) month period. As of August 31, 2002 we owed $3,886,778, which includes the
principal, financing fees and unpaid interest. On September 27, 2002 the Company entered into a new promissory note with GE to begin monthly interest payments and repay the total debt outstanding in twelve (12) monthly payments beginning October 15,
2002 of which the first eleven (11) consisting of interest only and the payment twelve (12) consisting of all outstanding principal, interest and fees. The Company agreed to (i) pay 9.5% per annum for the first six (6) payments (ii) pay 11.5% per
annum for the last six (6) payments (iii) a minimum of 18% if the Company was to become in default (iv) 5% late fee if a payment is received ten (10) days after the payment date and (v) 90% of all gross proceeds received from the sale of
CoinBank machines. As of the date of this report, the Company has yet to make the initial payment to GE.





NOTE
6:    CONVERTIBLE DEBT





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




9




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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.





Since July 31, 2001, the notes have been in default, however the Company has made an offer to the noteholders to restructure the debt. Under the offer, the notes would be extended for two (2) years to
July 2003 and the noteholders will surrender all old warrants priced at $13.50 per share and will receive 2 replacement warrants for every old warrant surrendered. The new warrants are vested immediately and have a life of 5 years and are
exercisable at $1.35 thru December 31, 2001, $2.20 through January 15, 2002 and $4.50 thereafter. To date, the Company has received executed Acceptance Letters from thirty-five (35) of the forty-eight (48) noteholders, which modify the terms of the
original Promissory Notes. The Company is engaged in discussions with the remaining thirteen (13) noteholders to finalize modifications of their Notes. As of August 31, 2002 the Company has received commitments for $2,587,000 of the notes, which
represents approximately 77% of the total notes outstanding. As part of the restructuring process the Company reclassified $339,722 of interest accrued as part of the reissued notes. As of August 31, 2002 the Company has accrued an additional
$389,901 in interest payable on the notes. The Company has recognized a deemed dividends expense of $273,904 in conjunction with this restructuring.





NOTE 7:    SEGMENT REPORTING





The Company operates through 3 business
segments: Cash processing, CoinBank machines, and the development and marketing of its EMMA transaction processing software and related services. The Company has a firm fixed price contract with the Los Angeles County Metropolitan Transportation
Authority to count currency, which purchased in bulk at a discount from face value and processed and deposited at face value in the Companys account. The Company also sells self-service coin counting (CoinBank) machines through existing
equipment distribution channels.







10




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Information on the Companys business segments for the three months ended August 31,





2002


2001Net revenues and sales:Cash processing

27,624


14,902CoinBank machines

138,500


13,950EMMA

21,247


187,371


28,852Interest expenseCash processing




CoinBank machines

2,336


2,336EMMA




Unallocated

226,797


262,419229,133


264,755Depreciation and amortizationCash processing




12,956CoinBank machines

5,849


10,616EMMA

141,714


Unallocated

4,887


2,979147,562


26,551Segment profit (loss)Cash processing

(25,921
)

(58,548
)CoinBank machines

(192,594
)

(335,220
)EMMA

(894,822
)

(500,373
)Unallocated




(1,113,337
)

(794,141
)Net identifiable assets:Cash processing




51,022CoinBank machines

961,506


1,278,416EMMA

2,425,662


2,543,012Unallocated

272,569


790,0553,659,737


4,662,505





NOTE 8:    SUBSEQUENT EVENTS





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. On September 29, 2000 the Company entered into an agreement with GE to defer principal payments on the debt for twelve (12) months and to defer interest
payments for six (6) months. As consideration for the extension, the Company and GE have agreed to increase the principal portion of the loan by $500,000 and the Company recorded deferred financing fees, which were amortized over an eighteen (18)
month period. The Company and G.E. Capital had negotiated another waiver agreement as of September 13, 2001 pursuant to which G.E. Capital agreed to a six (6) month deferral of interest payments and a twelve (12) month deferral of principal payments
provided (i) we granted G.E. Capital a lien on all of its assets (ii) we paid G.E. Capital 60% of all proceeds from the sale of its CoinBank machines (iii) we obtained subordination agreements from all of our noteholders prior to December 30, 2001
whereby the noteholders subordinate their lien to that of G.E. Capital (iv)




11




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the sum of $250,000 is added to the outstanding principal amount of the loan, which is being amortized over a twelve (12) month period. As of
August 31, 2002 we owed $3,886,778, which includes the principal, financing fees and unpaid interest. On September 27, 2002 the Company entered into a new promissory note with GE to pay the total debt outstanding in twelve (12) monthly payments
beginning October 15, 2002 of which the first eleven (11) consisting of interest only and the payment twelve (12) consisting of all outstanding principal, interest and fees. The Company agreed to (i) pay 9.5% per annum for the first six (6) payments
(ii) pay 11.5% per annum for the last six (6) payments (iii) a minimum of 18% if the Company was to become in default (iv) 5% late fee if a payment is received ten (10) days after the payment date and (v) 90% of all gross proceeds received from
the sale of CoinBank machines. As of the date of this report, the Company has yet to make the initial payment to GE.





The Company projects that within the next twelve (12) month period the Company will achieve positive cashflow. Furthermore, the Company projects that it will take approximately two and a half (2.5) years to recover the capitalized
software costs for EMMA.





Research and development costs for the three month period ended August 31, 2002
increased to $72,346 compared to zero for the three month period ended August 31, 2001.




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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, 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, incorporated in May, 1994, which became a subsidiary in January, 1996; CoinBank Automated Systems, Inc., a Delaware
corporation, incorporated in November, 1995; and CoinBank Automation Handels GmbH, Salzburg, Austria incorporated in February, 1998. In December, 2001, we created a new subsidiary, Cintelia Systems Inc., a Delaware corporation and in June, 2002 we
created another subsidiary CT Holdings, LLC., also a Delaware corporation of which we currently own 86.6%.





Our
business model has evolved over the last three years from a business based upon currency processing in our Los Angeles facilities and retail coin processing through our CoinBank machines, to a business based upon our proprietary transaction
processing technology called E-commerce Message Management Architecture, or EMMA. Although we intend to continue operations in our original two lines of business, much of our operations in the last three years have been refocused upon development of
EMMA and marketing of this new transaction processing technology. We anticipate most of our future growth will be based upon EMMA, although there can be no assurance that we will be able to generate revenue from this business line and we have not
generated any EMMA related revenue to date.





EMMA is designed to interface with our various e-commerce partners
and to seamlessly connect with financial networks, particularly the four main channels through which trillions of dollars in commerce are transacted each year:





(1)  the ATM network;




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(2)  the credit card network;





(3)  the Automated Clearing House (ACH) network; and





(4)  cash.





The EMMA transaction processing system allows individuals with no ATM card or credit card to access these four channels and obtain the expanded number of services that are offered through them, and not otherwise easily accessible.
For consumers, EMMA will result in access to these services and products through ATM machines and Point of Sale terminals located at retail outlets, including supermarkets, general merchandisers and convenience stores and others. Utilization of EMMA
will allow retail establishments such as grocery supermarkets, banks, brokerage firm offices, check cashing establishments and other commercial outlets to provide consumers with greater financial services which may result in increased revenues to
such establishments. For every transaction processed through EMMA, we intend to receive a transaction fee.





Over
the past fiscal year and since, numerous business milestones were achieved by the Company, including the following:





| |  |  | We were issued a U.S. patent for essential elements of our EMMA technology
| | - |  | --------------------------------------------------------------------------




| |  |  | We were issued a U.S. patent for critical components of our CoinBank coin counting machine
| | - |  | ------------------------------------------------------------------------------------------




| |  |  | The EMMA software was deemed ready for market.
| | - |  | ----------------------------------------------




| |  |  | The BONUSbank check cashing application was created
| | - |  | ----------------------------------------------------




| |  |  | Our CT Holdings subsidiary was formed to market BONUS
| | - |  | -----------------------------------------------------




| |  |  | CT Holdings signed its first major marketing agreement with Netkey, Inc. to market BONUS to the banking industry in June, 2002
| | - |  | ------------------------------------------------------------------------------------------------------------------------------




| |  |  | A supply agreement was signed with Diebold, Inc. in July, 2002 to permit Diebold to distribute our CoinBank machines to its customers and the first order of
twenty CoinBank machines under the Diebold agreement was shipped
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The Companys first transaction revenue generating contract was signed with a Banco Popular division in August, 2002 for our mobile check cashing
application
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------




E-Commerce Message Management Architecture
(EMMA)  Transaction Processing System





In 1996, the Company began its development of an enhanced version of an automated teller machine which was designated the
ATM-X  . The ATM-X was designed to provide a range of services not typically offered by ATM machines,
such as electronic bill payment, instant activated phone cards, event ticketing and others. As development efforts proceeded, the Company discovered the need to create a robust transaction processing system that could link the new ATMs with the
worldwide financial networks in order to provide these new services to ATMs, kiosks and wireless devices.





In
December of 1997, the Company filed a patent application describing its 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 was later named 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. The explosion of Internet e-commerce has
created, in managements opinion, a demand for EMMAs unique capabilities to provide advanced financial services on ATMs, POS (point of sale) terminals and wireless devices.




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Technological feasibility was achieved in September of 1999 and from that point
forward all expenses related to the EMMA software development had been capitalized. As of December 31, 2001, the Company 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 totaling $213,647 since have been expensed including $72,346 in the current quarter.





Amortization commenced on January 1, 2002. The amortization was over a seven (7) year period for the quarter ended February 28, 2002 resulting in an amortization expense of $65,989. The amortization period for capitalized
software was changed to five (5) 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 August 31, 2002, the Company amortized an additional $139,943. As of August 31, 2002, capitalized software costs amounted to
$2,425,662.





Commercial Cash Processing





Cash Technologies, Inc. operates a cash processing facility in Los Angeles, California, where it counts currency, which it purchases in
bulk from Los Angeles Metropolitan Transit Authority at a small discount from face value. We then sort, wrap and resell the currency to various retail customers at face value plus a small fee or deposit it at face value at the Federal Reserve Bank
for credit to our account. During the fiscal quarter ended August 31, 2002, Cash Technologies counted $1,978,645 and derived net revenues of $27,624 compared to $960,370 and $14,902, respectively for the fiscal quarter ended August 31, 2001. The
Companys contract with the Los Angeles County Metropolitan Transit Authority (LACMTA) to count currency expired on June 30, 2002, which will result in a significant reduction in the Companys gross revenue in the future. As of October 1,
2002 the Company does not have any cash processing customers and, due to our focus on our other businesses, we may choose not to pursue other cash processing customers.





CoinBank Machines Business





In 1995, the Company began its development of CoinBank ® self-service coin counting machines, distributed through its CoinBank Automated Systems, Inc. subsidiary. The machines accept and count loose coin, then generate a receipt redeemable for the amount counted less a service
fee of typically 7-9%. This receipt can then be exchanged for currency or goods. The machines provide individuals and small businesses with a convenient method for the disposing of their accumulated loose coin without the need for pre-sorting or
wrapping. The Company has performed extensive field tests with these machines in Southern California, New England and Europe. The machines can be readily configured to count coin denominations from most countries in the world. An important feature
of the machines, for which the Company filed for patent protection in 1997, is their ability to reject extraneous materials such as foreign objects and slugs, minimizing down time and repairs. Patent number 6,318,536, issued by the U.S. Patent and
Trademark Office on November 20, 2001, includes the foreign debris management and other proprietary techniques.





The Company is marketing the machines to other equipment manufacturer OEM customers (manufacturers of cash handling equipment), companies with existing equipment distribution and service




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channels and directly to retailers and financial institutions.





During the fiscal year ended May 31, 2001, the Companys market analysis for self-service coin counting machines indicated that retailers were demanding higher profit
margins from the operation of these devices than that was being offered through the free-placement business model. The Company concluded that its free-placement program should be supplanted by direct sales of these machines to retail
store chains and removed substantially all of its free-placement machines from operation, including the termination of its agreement with Shaws Supermarkets. See Legal Proceedings. Though the Company intends to complete certain
potential direct sales of its coin machines, it intends to focus substantially all of its efforts and operations on the continued development and deployment of the EMMA technology.




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RESULTS OF OPERATIONS





THREE MONTHS ENDED AUGUST 31, 2002, COMPARED TO THREE MONTHS ENDED AUGUST 31, 2001.





Gross revenues include the value of the cash processed and CoinBank machine sales for the three months ended August 31, 2002, amounted to $2,138,392 compared to
$974,320 for the quarter ended August 31, 2001. Gross revenues do not represent revenues under Generally Accepted Accounting Principles. Net revenues for the 2002 period increased to $187,371 or 8.76% of gross revenues, compared to $28,852 or
2.96% of gross revenues for 2001 period. The increase in net revenue was primarily attributable to the increase in the amount of coin machines sold during the period, which provided gross proceeds of $138,500 compared to $13,950 for the same period
last year.





Cost of revenues for the three months ended August 31, 2002, was $130,458 compared to $39,074
for the quarter ended August 31, 2001. The increase in direct costs was primarily the result of an increase in the cost of coin machines sold. Included in cost of revenues is depreciation expense of $961 and $5,041 for the three months ended
August 31, 2002 and 2001, respectively.





Gross profitfor the three months ended August 31, 2002 was
$56,913 compared to a gross loss of $10,222 for the three months ended August 31, 2001. The increase in gross profit was directly related to the increase in CoinBank machines sold during the current quarter.





Selling, General and Administrative expenses for the three months ended August 31, 2002, increased to $721,209 compared to $492,613
for the three months ended August 31, 2001. 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 was
primarily attributable capitalization of software development costs during the 2001 period while amortization of capitalized software being recognized in the 2002 period. During the quarter ended August 31, 2001, $180,799 in software development
costs was recognized compared to zero for the same period in 2002.





Research and development costs for the
three month period ended August 31, 2002 increased to $72,346 compared to zero for the three month period ended August 31, 2001.





Depreciation and amortization expenses for the three months ended August 31, 2002, and 2001, were $147,562 and $26,551, respectively. The increase was the result of the amortization of capitalized software costs of 139,943
during the current quarter.





Interest expense for the three months ended August 31, 2002 and 2001, was
$229,133 and $264,755, respectively.





As a result of the foregoing, net losses for the three months ended August
31, 2002 and 2001, were $1,113,337 and $794,141 respectively.




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LIQUIDITY AND CAPITAL RESOURCES





The Companys capital requirements have been and will continue to be significant and its cash requirements have been exceeding its
cash flow from operations. At August 31, 2002, the Company had a working capital deficit of $8,492,768 compared to a working capital deficit of $9,480,804 for 2001. The variance in the working capital is primarily due to reclassification in the
current quarter of convertible notes payable of $2,926,722 from long term to short term and GE notes payable of $3,288,465 from short term to long term. At October 1, 2002, the Company had a cash balance of approximately $135,000. The Companys
current monthly operating costs without any interest or principal payments on debt, amortization of warrants and depreciation expense; is approximately $150,000 per month.





Since inception, the Company has satisfied its 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 stockholders of the Company. Furthermore, the Companys contract with the Los Angeles County Metropolitan Transit Authority (LACMTA) to count currency expired on June 30, 2002, which will
result in a significant reduction in the Companys gross revenue in the future. As of October 1, 2002 the Company does not have any cash processing customers.





The Company has entered into an OEM arrangement to supply Diebold, Inc with CoinBank machines for Diebold, Inc. to sell through its sales force. The first 20 machines under
this relationship were shipped in August 2002. The Company believes that this relationship could result in significant revenues over the next 12-month period. The gross proceeds of this sale will be approximately $138,500.





In August 2002, we signed an agreement with Popular Cash Express, Inc. (PCE), a unit of Banco Popular parent Popular, Inc., to
install its EMMA  MFS  (Mobile Financial Services) system on PCEs mobile check cashing trucks. Under the agreement, PCE is responsible for installation and
hardware costs and a per-transaction fee to Cash Tech for each check processed. The agreement provides for the parties to share the cost of a 120-day pilot, the successful conclusion of which would be followed by a rollout to PCEs fleet of
sixty (60) check cashing trucks in the Los Angeles area.





The Companys independent certified public
accountant included an explanatory paragraph in its report for the year ended May 31, 2002, which indicated a substantial doubt as to the ability of the Company 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.





Net
cash used by operating activities was $397,674 for the three months ended August 31, 2002, as compared to net cash used by operating activities of $409,312 for the three months ended August 31, 2001. The total decrease of $11,638 in net cash used by
operating activities, during the 2002 period was primarily due to an increase in accrued expenses of $74,555, non-cash compensation expense of $162,598, and amortization expense of $139,943, offset by the decrease in receivables of $131,945, and an
increase in net loss of $319,196.





Net cash used in investing activities was $180,799 for the three months ended
August 31, 2001, as compared to zero (0) for the three months ended February 28, 2002. The decrease in net cash used in investing activities was primarily attributable to a decrease in capitalized software cost of $180,264.





Net cash used in financing activities for the three months ended August 31, 2002, was $21,636 as compared to net cash provided by
financing activities of $1,074,160 for the three months ended August 31, 2001. The decrease in net cash provided by financing activities for the 2002 period was primarily




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attributable to decreases in proceeds from the issuance of preferred stock of $818,000, proceeds from the issuance of common stock of $50,000
and repayment of short-term debt of $150,000,offset by proceeds from short term debt of $78,364.





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. On September 29, 2000 the
Company entered into an agreement with GE to defer principal payments on the debt for twelve (12) months and to defer interest payments for six (6) months. As consideration for the extension, the Company and GE have agreed to increase the principal
portion of the loan by $500,000 and the Company recorded deferred financing fees, which were amortized over an eighteen (18) month period. The Company and G.E. Capital had negotiated another waiver agreement as of September 13, 2001 pursuant to
which G.E. Capital agreed to a six (6) month deferral of interest payments and a twelve (12) month deferral of principal payments provided (i) we granted G.E. Capital a lien on all of its assets (ii) we paid G.E. Capital 60% of all proceeds from the
sale of its CoinBank machines (iii) we obtained subordination agreements from all of our noteholders prior to December 30, 2001 whereby the noteholders subordinate their lien to that of G.E. Capital (iv) the sum of $250,000 is added to the
outstanding principal amount of the loan, which is being amortized over a twelve (12) month period. As of August 31, 2002 we owed $3,886,778, which includes the principal, financing fees and unpaid interest. On September 27, 2002 the Company entered
into a new promissory note with GE to pay the total debt outstanding in twelve (12) monthly payments beginning October 15, 2002 of which the first eleven (11) consisting of interest only and the payment twelve (12) consisting of all outstanding
principal, interest and fees. The Company agreed to (i) pay 9.5% per annum for the first six (6) payments (ii) pay 11.5% per annum for the last six (6) payments (iii) a minimum of 18% if the Company was to become in default (iv) 5% late fee if a
payment is received ten (10) days after the payment date and (v) 90% of all gross proceeds received from the sale of CoinBank machines. As of the date of this report, the Company has yet to make the initial payment to GE.





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.





Since July 31, 2001, the notes have been in default, however the Company has made an offer to the noteholders to
restructure the debt. Under the offer, the notes would be extended for two (2) years to July 2003 and the noteholders will surrender all old warrants priced at $13.50 per share and will receive 2 replacement warrants for every old warrant
surrendered. The new warrants are vested immediately and have a life of 5 years and are exercisable at $1.35 thru December 31, 2001, $2.20 through January 15, 2002 and $4.50 thereafter. To date, the Company has received executed Acceptance Letters
from thirty-five (35) of the forty-eight (48) noteholders, which modify the terms of the original Promissory Notes. The Company is engaged in discussions with the remaining thirteen (13) noteholders to finalize modifications of their Notes. As of
August 31, 2002 the Company has received commitments for $2,587,000 of the notes, which represents approximately 77% of the total notes outstanding. As part of the restructuring process the Company reclassified $339,722 of interest accrued as part
of the reissued notes. As of August 31, 2002 the Company has accrued an additional $389,901 in interest payable on the




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notes. The Company has recognized a deemed dividends expense of $273,904 in conjunction with this restructuring.





In June 2002, in a private transaction under Section 4(2) of the Securities Act of 1933, as amended, sold 1 unit at an aggregate of
$50,000 of its securities to 1 foreign investor. Each unit comprised of (i) 33,333 shares of Common Stock and (ii); 5,000 common stock purchase warrants. The warrants have an exercise price of $2.00 per share and are exercisable for five years. A
deemed dividend benefit of $4,855 was recognized in conjunction with this placement.





In June 2002, the Company
awarded 60,400 shares of the Companys common stock and 50,400 common stock warrants with an exercise price of $2.00 and a five (5) year life to a consultant. The Company recorded a compensation expense charge of $90,600 as well as a beneficial
conversion feature of $50,291.





Also in June 2002, the Company issued 55,000 shares of the Companys common
stock to one of its developers in lieu of services rendered. The shares of common stock were valued at $1.36 per share.





In the fiscal quarter ended August 31, 2002, the Company obtained short-term loans of an aggregate principal amount of $78,364 from Bruce Korman (and related parties) who is an affiliate, Chief Executive Officer and Chairman of the
Board of Directors of the Company. The loans are short-term non-interest bearing loans and are payable upon demand. Furthermore as of August 31, 2002, the Company had $61,308 in arrears in salary to Mr. Korman.




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PART II.    OTHER INFORMATION





ITEM 1.    LEGAL PROCEEDINGS





NOTE 2.    COMMITMENTS AND
CONTINGENCIES





On August 7, 2000 Shaws Supermarkets filed a lawsuit, captioned Shaws
Supermarkets, Inc. v. Cash Technologies, Inc., CoinBank Automated Systems Inc. (Civil action # 00CV11571WGY, 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 $200,000, for contract termination fees and reimbursements. We believed that the amount owed was approximately $55,000 and had accrued for the liability. In January of 2001,
both parties agreed to settle the lawsuit for $74,778 subject to certain conditions. As a consequence of our discovery of potential damage to some of the machines and Shaws refusal to permit our inspection of the machines before executing a
release, the settlement agreement was never completed.





On June 7, 2002, Shaws Supermarkets filed a lawsuit,
captioned Shaws Supermarkets, Inc. v. Cash Technologies, Inc., CoinBank Automated Systems Inc. (Civil action # 02-02532, United States District Court, District of Massachusetts), against us again claiming breach of contract and damages
in excess of $200,000. We were unaware of the lawsuit until September 2002 when we were served a proper summons. As before, we believe that Shaws claims are without merit and that we have meritorious defenses. Furthermore, we have filed a
countersuit in excess of $750,000 for the value for our CoinBank machines, loss of business and all other applicable costs incurred by us.





In December 1997, Vindex USA, Inc. filed a complaint against our CoinBank subsidiary, in the Superior Court of California, Los Angeles County seeking to recover $40,000, an unspecified amount of commissions and interest
accrued thereon allegedly due it under the terms of a consulting agreement it alleges was breached by CoinBank. The court has entered judgment against CoinBank in favor of Vindex in the sum of $97,864, which remains outstanding.





We have commenced a lawsuit in Austria against Geld Bearbeitungs Systeme GES.M.B.H., an Austrian entity which had been
manufacturing certain of our CoinBank machines. As previously described in our SEC Reports, we have a five year licensing and manufacturing services agreement with Geld. We had previously entered into a letter of intent to acquire Geld and certain
disputes have arisen regarding the acquisition and licensing agreements between the parties. We instituted the suit to enforce certain licensing rights under our agreements and to enforce the acquisition letter of intent. Although we believe, based
upon advice of our Austrian counsel, that we have a meritorious and strong claim, we may not be successful in our suit. Recently the Austrian Courts awarded us a 10% ownership interest in Geld resulting from a ruling adverse to one of its
principals.





We are involved in a litigation titled Kane Corte, et al v. Cash Technologies, Inc. et al.,
(Case # 128256, 32/nd/ Judicial District Parish of Terrebonne, State of Louisiana). In August 2001, we first




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became aware that an entity to which we had sold 23 CoinBank machines in October 1999 had filed suit against us in Louisiana court and obtained
a default judgment against us. The Louisiana judgment was issued on August 15, 2000 and rewarded the purchaser $230,000 in damages and ordered that the machines be returned to the Company. In March 2001, the purchaser obtained a sister-state
judgment against us in California based on the judgment of the Louisiana court and a writ of execution was issued.





Upon learning of this matter, we immediately initiated legal actions in Louisiana and California. At a hearing in the Louisiana court, we were granted a Temporary Restraining Order staying enforcement of the judgment. We contend that
the Louisiana court had no jurisdiction and that we were never properly served with either the original Louisiana lawsuit, the judgment issued by the Louisiana court or the California sister- state judgment. We also contend that Kane Cortes
allegations are without merit and that his desire to return the machines is a result of his failed business practices. The Company has initiated legal action in both Louisiana and California seeking to set aside both judgments and to cause the
matter, including the issue of jurisdiction, to be heard on its merits by the Louisiana court. The Company believes that it will be successful in these actions to set aside the judgments. The Company further believes that it has meritorious defenses
to each of the allegations in the action and that it will ultimately prevail on merits. The Company will incur the cost of defense, including legal fees, in an undetermined amount in connection with these matters, which may not be recoverable. There
can be no assurance that the Company will be successful in the defense.





On July 10, 2002, Burns International
Security Services (Burns) obtained a default judgment against the Company for $14,157 (the Judgment) for services Burns rendered to one of the Companys affiliates. On August 15, 2002, the Company, not having received
actual notice of the lawsuit before the judgment was entered, filed a motion to set aside or vacate the Judgment. The court, on September 4, 2002, issued a tentative ruling in the Companys favor granting the motion to set aside or vacate the
Judgment. In October 2002, the Company and Burns reached a settlement for the Company to pay a gross amount of $12,257 in installments. As of October 15, 2002, the Company has made a payment of $2,000 with regards to this judgment.





On August 1, 2002, Cash Technologies, Inc. filed a lawsuit, captioned Cash Technologies, Inc. v. McNeely and
Willmon (Case No. BC 278823, Superior Court of the State of California), for breach of contract to collect $79,999 owed to the Company by the defendants. This dispute arose from loans made by the Company in September, 2000 to
McNeely, Willmon and a third individual in connection with a proposed acquisition of a company in which they were major shareholders. Pursuant to the promissory notes, the loans were due to be repaid in December 2000. Despite our repeated collection
efforts, two of the borrowers, McNeely and Willom, have refused to pay the amounts owed. We are seeking an amount in excess of $79,999 from the defendants. On September 25, 2002, McNeely and Willmon filed a cross complaint claiming $500,000 in
compensatory damages to which the Company is required to respond by October 25, 2002. We believe that the cross complaint is without merit and feel confident that we will prevail in this matter, although there can be no assurance.





ITEM 2.    CHANGE IN SECURITIES





In June 2002, in a private
transaction under Section 4(2) of the Securities Act of 1933, as amended, sold 1 unit at an aggregate of $50,000 of its securities to 1 foreign investor. Each unit comprised of (i) 33,333 shares of Common Stock and (ii); 5,000 common stock purchase
warrants. The warrants have an exercise price of $2.00 per share and are exercisable for five years. A deemed dividend benefit of $4,855 was recognized in conjunction with this placement.





In June 2002, the Company awarded 60,400 shares of the Companys common stock and 50,400 common stock warrants with an exercise price of $2.00 and a five (5) year life
to a consultant. The Company recorded a compensation expense charge of $90,600 as well as a beneficial conversion feature of $50,291.





Also in June 2002, the Company awarded 55,000 shares of the Companys common stock to one of its developers in lieu of services rendered. The shares of common stock were valued at $1.36 per share.




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ITEM 3.    DEFAULT UPON SENIOR SECURITIES





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. On September 29, 2000 the Company entered
into an agreement with GE to defer principal payments on the debt for twelve (12) months and to defer interest payments for six (6) months. As consideration for the extension, the Company and GE have agreed to increase the principal portion of the
loan by $500,000 and the Company recorded deferred financing fees, which were amortized over an eighteen (18) month period. The Company and G.E. Capital had negotiated another waiver agreement as of September 13, 2001 pursuant to which G.E. Capital
agreed to a six (6) month deferral of interest payments and a twelve (12) month deferral of principal payments provided (i) we granted G.E. Capital a lien on all of its assets (ii) we paid G.E. Capital 60% of all proceeds from the sale of its
CoinBank machines (iii) we obtained subordination agreements from all of our noteholders prior to December 30, 2001 whereby the noteholders subordinate their lien to that of G.E. Capital (iv) the sum of $250,000 is added to the outstanding principal
amount of the loan, which is being amortized over a twelve (12) month period. As of August 31, 2002 we owed $3,886,778, which includes the principal, financing fees and unpaid interest. On September 27, 2002 the Company entered into a new promissory
note with GE to pay the total debt outstanding in twelve (12) monthly payments beginning October 15, 2002 of which the first eleven (11) consisting of interest only and the payment twelve (12) consisting of all outstanding principal, interest and
fees. The Company agreed to (i) pay 9.5% per annum for the first six (6) payments (ii) pay 11.5% per annum for the last six (6) payments (iii) a minimum of 18% if the Company was to become in default (iv) 5% late fee if a payment is received ten
(10) days after the payment date and (v) 90% of all gross proceeds received from the sale of CoinBank machines. As of the date of this report, the Company has yet to make the initial payment to GE.





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.





Since July 31, 2001, the notes have been in default, however the Company has made an offer to the noteholders to restructure the debt.
Under the offer, the notes would be extended for two (2) years to July 2003 and the noteholders will surrender all old warrants priced at $13.50 per share and will receive 2 replacement warrants for every old warrant surrendered. The new warrants
are vested immediately and have a life of 5 years and are exercisable at $1.35 thru December 31, 2001, $2.20 through January 15, 2002 and $4.50 thereafter. To date, the Company has received executed Acceptance Letters from thirty-five (35) of the
forty-eight (48) noteholders, which modify the terms of the original Promissory Notes. The Company is engaged in discussions with the remaining thirteen (13) noteholders to finalize modifications of their Notes. As of August 31, 2002 the Company has
received commitments for $2,587,000 of the notes, which represents approximately 77% of the total notes outstanding. As part of the restructuring process the Company reclassified $339,722 of interest accrued as part of the reissued notes. As of
August 31, 2002 the Company has accrued an additional $389,901 in interest payable on the notes. The Company has recognized a deemed dividends expense of $273,904 in conjunction with this restructuring.




23




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





Not
Applicable





ITEM 5.    OTHER INFORMATION





NONE





ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K





(a)  Exhibits





23.1

GE Capital Agreement99.1

Certifications





(b)  Reports on Form 8-K





NONE




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SIGNATURE





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 August 31, 2002, to be signed on its behalf by the undersigned, thereunto duly authorized the 21st day of October 2002.





CASH TECHNOLOGIES, INC.By:

/s/    BRUCE KORMANBruce Korman President and
Chief Executive Officer








By:

/s/    EDMUND KINGEdmund King Chief Financial
Officer




25




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Annex A








CERTIFICATIONS*





I, Bruce Korman,
Chief Executive Officer, certify that:





1.  I have reviewed this quarterly report on
Form 10-QSB for the period ended August 31, 2002, of Cash technologies, Inc.;





2.  Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;





3.  Based on my
knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;





4.  The registrants other certifying officers
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:





a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation
Date); and





c)  presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.  The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the
equivalent functions):





a)  all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and





b)  any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls; and




26




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6.  The registrants other certifying officers and I
have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.





/s/    BRUCE
KORMANBruce Korman Chief
Executive Officer





Date:  October 21, 2002




27




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CERTIFICATIONS*





I, Edmund King, Chief Financial Officer, certify that:





1.  I have reviewed this quarterly report on Form 10-QSB for the period ended August 31, 2002, of Cash technologies, Inc.;





2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;





3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;





4.  The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:





a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;





b)  evaluated the
effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;





5.  The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and





b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and




28




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6.  The registrants other certifying officers and I
have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.





/s/   EDMUND KINGEdmund King Chief Financial
Officer





Date:  October 21, 2002





NOTE





|* |  | Provide a separate certification for each principal executive officer and principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The
required certification must be in the exact form set forth above.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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