USA Technologies Inc – ‘SB-2/A’ on 8/5/04

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Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer   —   Form SB-2
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: SB-2/A      Pre-Effective Amendment to Registration of           157    790K 
                          Securities by a Small-Business Issuer                  
 2: EX-23.1     Consent of Experts or Counsel                          1      5K 
 3: EX-23.2     Consent of Experts or Counsel                          1      5K 

SB-2/A   —   Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer
Document Table of Contents

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         As filed with the Securities and Exchange Commission on August 5, 2004.

                                                     Registration No. 333-116977

--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1 
to

 FORM SB-2

Registration Statement
 Under
The Securities Act of 1933

USA TECHNOLOGIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)

Pennsylvania                 7359                     23-2679963    
------------                 ----                     ----------    
(State or other    (Primary Standard Industrial      (I.R.S. Employer   
jurisdiction of     Classification Code Number)     Identification No.) 
incorporation or                                                          
organization)                                                         

 100 Deerfield Lane, Suite 140
 Malvern, Pennsylvania 19355
 (Address of principal executive offices and zip code)

 George R. Jensen, Jr.
 Chief Executive Officer
USA Technologies, Inc.
 100 Deerfield Lane, Suite 140
 Malvern, Pennsylvania 19355
(610) 989-0340
 (Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:
 Douglas M. Lurio, Esquire
 Lurio & Associates, P. C.
 One Commerce Square
2005 Market Street, Suite 2340
 Philadelphia, PA 19103-7015
(215) 665-9300

Approximate date of proposed sale to the public:
From time to time after this Registration Statement becomes effective.

If the only securities  being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, check the following box: [ ]        

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If any of the  securities  being  registered on this Form are to be offered on a
delayed or continuous  basis  pursuant to Rule 415 under the  Securities  Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]                                

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933,  please check the following box
and list  the  Securities  Act  registration  statement  number  of the  earlier
effective registration statement for the same offering. [ ]                     

If this Form is a  post-effective  amendment filed pursuant to Rule 462(c) under
the  Securities  Act,  check  the  following  box and  list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the same offering. [ ]                                                      

If the delivery of the  prospectus  is expected to be made pursuant to Rule 434,
please check the following box. [ ]                                             

================================================================================
 CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------

                                                                [Download Table]

TITLE OF EACH                                                                    
CLASS OF                            PROPOSED        PROPOSED                     
SECURITIES      AMOUNT              MAXIMUM         MAXIMUM         AMOUNT OF    
TO BE           TO BE               OFFERING PRICE  AGGREGATE       REGISTRATION 
REGISTERED      REGISTERED          PER UNIT(5)     OFFERING PRICE  FEE          
----------     ------------        ---------------  --------------  ------------ 
                                                                                 
COMMON STOCK,                                                                    
NO PAR VALUE   42,436,250 SHARES(1)    $ .18        $ 7,638,525.00  $   967.80   
                1,077,184 SHARES(2)    $ .18        $   193,893.12  $    24.56   
                3,716,496 SHARES(3)    $ .18        $   668,969.28  $    84.76   
                  150,000 SHARES(4)    $ .18        $    27,000.00  $     3.42   
                                                    --------------  ----------   
TOTAL          47,379,930 SHARES(6)                 $ 8,528,387.40  $ 1,080.54(7)
                                                    ==============  ==========   

(1)   REPRESENTS  28,290,833 SHARES AND 14,145,417  SHARES  UNDERLYING  WARRANTS
ISSUED TO INVESTORS IN OUR 2004-A PRIVATE PLACEMENT OFFERING.       
(2)   REPRESENTS  538,592  SHARES  ISSUED  TO,  AND  538,592  SHARES  UNDERLYING
      WARRANTS  GRANTED  TO,  THE  HOLDERS OF OUR  SENIOR  NOTES WHO  ELECTED TO
      RECEIVE THESE  SECURITIES  IN LIEU OF CASH  INTEREST  PAYMENTS DUE FOR THE
      CALENDAR   QUARTER  ENDED  DECEMBER  31,  2003  AND  SHARES  AND  WARRANTS
PERTAINING TO PRIOR QUARTERS NOT PREVIOUSLY REGISTERED.             
(3)   REPRESENTS SHARES UNDERLYING WARRANTS GRANTED TO THE HOLDERS OF OUR SENIOR
      NOTES WHO PREVIOUSLY  ELECTED TO RECEIVE WARRANTS IN LIEU OF CASH INTEREST
PAYMENTS.                                                           
(4)   REPRESENTS 150,000 SHARES ISSUED TO CEOCAST, INC.                         

(5)   PURSUANT TO RULE 457(C),  THE  REGISTRATION FEE HAS BEEN CALCULATED AT THE
      AVERAGE OF THE BID AND ASKED PRICE  WITHIN 5 DAYS PRIOR TO THE DATE OF THE
FILING OF THE REGISTRATION STATEMENT.                               
(6)   THIS AMENDMENT NO. 1 NO LONGER COVERS  25,000,000 SHARES ISSUABLE TO STEVE
      ILLES UNDER A STOCK  PURCHASE  AGREEMENT  WHICH HAD BEEN  REFLECTED IN THE
REGISTRATION STATEMENT FILED ON JUNE 30, 2004.                      
(7)   A FILING FEE OF $1,650.69  WAS PAID IN  CONNECTION  WITH THE FILING OF THE
REGISTRATION STATEMENT ON JUNE 30, 2004.                            

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The registrant hereby amends this  registration  statement on such date or dates
as may be necessary to delay its effective date until the registrant  shall file
a further amendment which specifically  states that this registration  statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities  Act of  1933  or  until  the  registration  statement  shall  become
effective on such date as the  Commission,  acting pursuant to Section 8(a), may
determine.                                                                      

The  information in this  prospectus is not complete and may be changed.  We may
not sell  these  securities  until the  registration  statement  filed  with the
Securities and Exchange Commission ("SEC") is effective.  This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.               

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PROSPECTUS

USA TECHNOLOGIES, INC.
 47,379,930 shares of Common Stock

THE OFFERING

The resale of up to 47,379,930  shares of common stock in the over-the-  counter
market at the  prevailing  market price or in negotiated  transactions.  We will
receive no  proceeds  from the sale of the shares by the  selling  shareholders.
However,  we will receive  proceeds  from the sale of shares  issuable  upon the
exercise  of  warrants  by  the  selling   shareholders.   Because  the  selling
shareholders  will  offer and sell the  shares  at  various  times,  we have not
included  in this  prospectus  information  about the price to the public of the
shares or the proceeds to the selling shareholders.                             

Our common stock is included  for  quotation  on the  over-the-counter  bulletin
board under the symbol  "USTT."  The  closing bid price for the common  stock on
August 3, 2004, was $.17 per share.                                             

THIS INVESTMENT  INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE  LOSS.  Please refer to Risk  Factors  beginning on
Page 7.                                                                         

Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities
commission  has  approved  or  disapproved  of the  securities  or passed on the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.                                                               

The date of this prospectus is August 5, 2004.                                  

 TABLE OF CONTENTS

Prospectus Summary ..........................................    5              
Risk Factors ................................................    7              
Use of Proceeds .............................................   13              
Managements Discussion And Analysis of                                          
Financial Condition And Results                                             
of Operations .............................................   13            
Business ....................................................   29              
Management ..................................................   38              
Principal Shareholders ......................................   44              
Certain Transactions ........................................   48              
Selling Shareholders ........................................   49              
Market for Common Stock .....................................   56              
Description of Securities ...................................   57              
Plan of Distribution ........................................   64              
Legal Matters ...............................................   65              
Experts .....................................................   65              
Financial Statements ........................................  F-1              

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PROSPECTUS SUMMARY

OUR COMPANY                                                                     

USA Technologies,  Inc., a Pennsylvania corporation (the "Company"), was founded
in January 1992. The Company is a developer and supplier of cashless payment and
control network systems and provider of related services. The Company's patented
technologies  include  networked  cashless  transaction  solutions  and point of
purchases devices.  In May 2002, the Company completed the acquisition of Stitch
Networks Corporation,  a Delaware corporation ("Stitch"), and operates Stitch as
a wholly  owned  subsidiary  of the  Company.  Stitch  also is a  developer  and
supplier of  cashless  payment and  control  network  technologies.  Through the
acquisition of substantially all of the assets of Bayview  Technology Group, LLC
(Bayview) in July 2003, the Company now designs and manufactures patented energy
conservation  devices for equipment  such as laser  printers,  monitors,  office
peripherals,   refrigerated  vending  machines  and  glass  front  merchandisers
(referred to as slide or visi coolers).                                         

OUR BUSINESS                                                                    

The Company's point of purchase device,  called e-Port or TransAct,  facilitates
the monitor and control, the cashless payment of product and/or services and the
collection of sales and inventory data for the host equipment it is connected to
or embedded in.  Examples of host equipment  include  copiers,  faxes,  personal
computers,  printers,  vending machines and kiosks.  Our customers connect these
devices to a network,  developed  and  operated by the  Company,  which  further
facilitates the control and monitoring,  the settlement of cashless payments and
the  reporting of sales and inventory  data  collected at the point of purchase.
The Company's  systems  support  multiple  cashless  payments  methods,  such as
payments via credit/debit  cards,  smart cards,  Radio Frequency  Identification
(RFID), Personal Identification Numbers (PINs), and cellular telephones.        

Revenue   from  the  sale  of   equipment   is   recognized   on  the  terms  of
freight-on-board  shipping  point,  or upon  installation  and acceptance of the
equipment if  installation  services are  purchased  for the related  equipment.
Transaction  processing  revenue is  recognized  upon the usage of the Company's
cashless  payment and control  services and network.  Service fees for access to
the Company's  equipment and network are recognized on a monthly basis.  Product
revenues are  recognized  from the sale of products from the  Company's  vending
machines upon purchase and acceptance by the vending customer.  Product revenues
recognized  from the sale of energy  conservation  products are recognized  when
shipped to the customer.                                                        

OUR MARKET                                                                      

The Company has focused on the Vending, Kiosk and Office Equipment industries in
which to sell its networked, cashless payment systems, and has developed product
offerings in each of these  channels.  The Company markets and sells its product
and  services  directly  to the  owner,  operator  of the  equipment  and/or  to
equipment  distributors  and  resellers  established  in each of the  respective
markets.                                                                        

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Vending/Kiosk: The Company offers several variations of e-Port to the vending or
kiosk  industry  such as an audit only device and an audit  device  coupled with
cashless  payment  capabilities.  Audit only  devices  allow the operator of the
vending  machine  to  remotely  monitor  the  sales,  inventory  and  diagnostic
information  of the  machine it is  embedded  into.  In  addition,  our point of
purchase  device allows the operator of the machine to offer their  customers an
alternative payment method to cash when purchasing product. Another variation of
our e-Port product is our  multi-media  device.  The  multi-media  e-Port client
product is equipped with both the audit and cashless payment features,  referred
to above, but also includes the capability of displaying interactive advertising
and content via a LCD color touch  screen.  Information  obtained at the vending
machine by our e-Port client device is transferred  back to our network and made
available to the operator via the Internet or email.                            

Office  Equipment:  The TransAct can be sold  separately and connected to office
equipment  already  owned by the  purchaser  or it can be  coupled  with  office
equipment  sold by the  Company.  The  combined  TransAct  and office  equipment
product is called the Business  Express and is sold to hotels wishing to provide
their guests with 24x7x365 access to business center services. The same benefits
of remote sales and inventory data monitoring, as described above, are available
from the TransAct or Business Express product.                                  

Energy Conservation Products                                                    

With the  acquisition  of Bayview in July 2003,  the  Company has  acquired  the
following additional products:                                                  

-   VendingMiser(TM) installs in a cold drink  vending  machine  and reduces the
power consumption of the vending machine by an average of 46%;          

-   CoolerMiser   reduces  the  energy  used  by  sliding  glass  or  pull  open
glass-front coolers that contain non-perishable goods;                  

-   SnackMiser reduces the amount of electricity used by non-refrigerated  snack
vending machines;                                                       

-   MonitorMiser Plus is a computer monitor power controller.  It works with all
    operating  systems  and  performs by  powering  down the monitor  based upon
keyboard or mouse activity;                                             

-   LaserMiser  provides energy  conservation  to laser printers,  shutting them
    down when they are  idle.  It is a  plug-and-play  device  that is  software
    transparent  and capable of handling  any laser  printer  with a parallel or
serial connection;                                                      

-   Internal  VendingMiser (IVM) is the second generation of the VendingMiser in
    development.  It  installs  into cold  drink  vending  machines  and has the
    capability  to  control  the  cooling  system  and  the  advertising  lights
separately.                                                             

Research and Development Costs                                                  

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The Company  continuously  pursues new product offerings related to our existing
technology  and  accordingly  invests  resources  and  capital in  research  and
development.  For the years ended June 30, 2003 and 2002,  the Company  expensed
approximately $1,505,000 and $1,187,000, respectively for the development of our
proprietary technology and is reflected in general and administrative expense in
the accompanying consolidated financial statements.                             

ABOUT OUR OFFERING                                                              

Our selling shareholders are as of the date of this prospectus as follows:      

* holders of 28,979,425 shares of common stock                                  

* holders of unexercised  warrants which if exercised would represent 18,400,505
shares (based upon the price of our shares of $.17 on August 3,  2004,  all of  
these warrants have exercise prices greater than this share price)              

Based upon the shares  outstanding  as of May 31, 2004 of  339,453,012 if all of
these warrants are exercised, and all of these shares covered by this prospectus
were issued and outstanding, we would have 386,832,942 shares outstanding.      

These shares would be offered by our selling shareholders at the market price at
the time of resale. Our selling shareholders may also sell their shares to other
investors in a transaction not on the open market.  There is no requirement that
our selling shareholders sell their shares pursuant to this prospectus.         

We will not receive any of the proceeds raised by the offering. We would receive
proceeds  from the exercise by the selling  shareholders  of the warrants or the
purchase by Steve Illes from us of shares, as referred to above.                

RISK FACTORS

An  investment  in our common stock is very risky.  You should be aware that you
could lose the entire amount of your  investment.  Prior to making an investment
decision, you should carefully consider the following risk factors and the other
information contained in this prospectus.                                       

1. We have a history  of losses  since  inception  and if we  continue  to incur
losses the price of our shares can be expected to fall.                         

We have  experienced  losses  since  inception.  We expect to  continue to incur
losses for the foreseeable future as we expend  substantial  resources on sales,
marketing,  and research and  development  of our  products.  From our inception
through March 31, 2004, our cumulative losses are  approximately  $91.6 million.
For our fiscal years ended June 30, 2002 and 2003, and for the nine months ended
March 31, 2004,  we have  incurred net losses of  $17,314,807,  $21,965,499  and
$16,424,278,  respectively.  If we  continue to incur  losses,  the price of our
common stock can be expected to fall.                                           

2. Our  existence is dependent on our ability to raise  capital which may not be
available.                                                                      

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There is  currently  limited  experience  upon which to assume that our business
will prove financially  profitable or generate more than nominal revenues.  From
inception,  we have generated  funds  primarily  through the sale of securities.
There can be no assurances  that we will be able to continue to sell  additional
securities.  We expect to raise funds in the future through sales of our debt or
equity  securities  until  such  time,  if  ever,  as we  are  able  to  operate
profitably. There can be no assurance given that we will be able to obtain funds
in such manner or on terms that are beneficial to us. For the three months ended
March 31,  2004 we were  using  funds in our  operations  on a monthly  basis of
approximately  $700,000. Using that as a basis for estimating  cash requirements
for the next twelve months, along with requirements for capital expenditures and
repayment  of long  term  debt,  the  Company's  cash  needs  would  approximate
$9,000,000  through June 30, 2005. Our inability to obtain needed funding can be
expected to have a material  adverse effect on our operations and our ability to
achieve profitability. If we fail to generate increased revenues or fail to sell
additional  securities  you  may  lose  all or a  substantial  portion  of  your
investment.                                                                     

3. We received an opinion from our auditor which raises  substantial doubt about
our ability to continue as a going concern.                                     

Our auditors,  Ernst and Young,  LLP, have included an explanatory  paragraph in
their report on our June 30, 2003 consolidated  financial statements  indicating
that as of June 30,  2003,  there is  substantial  doubt  about our  ability  to
continue as a going concern. We will require additional funds in the future, and
there can be no assurance that any  independent  auditors`  report on our future
financial statements will not include a similar explanatory  paragraph if we are
unable to raise sufficient funds or generate  sufficient cash from operations to
cover the cost of our operations. The existence of the explanatory paragraph may
adversely affect our  relationship  with  prospective  customers,  suppliers and
potential  investors,  and therefore could have a material adverse effect on our
business, financial condition and results of operations.                        

4. We depend on our key personnel and if they would leave us, our business could
be adversely affected.                                                          

We are  dependent on key  management  personnel,  particularly  the Chairman and
Chief  Executive  Officer,  George R.  Jensen,  Jr. The loss of  services of Mr.
Jensen or other  executive  officers  would  dramatically  affect  our  business
prospects. Certain of our employees are particularly valuable to us because:    

o        they have specialized knowledge about our company and operations;      

o        they have specialized skills that are important to our operations; or  

o        they would be particularly difficult to replace.                       

We have entered into an  employment  agreement  with Mr.  Jensen that expires in
June 30,  2005.  We have also  entered  into  employment  agreements  with other
executive  officers,  each of  which  contain  non-compete  agreements.  We have
obtained  a key man life  insurance  policy in the amount of  $2,000,000  on Mr.
Jensen,  and a key man life insurance  policy in the amount of $1,000,000 on our
Vice-President-Research and Development, Haven Brock Kolls, Jr.                 

We do not have and do not intend to obtain key man life  insurance  coverage  on
any of our other executive  officers.  As a result,  we are exposed to the costs
associated with the death of these key employees.                               

5. USA's dependence on proprietary technology and limited ability to protect our
intellectual property may adversely affect our ability to compete.              

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A successful  challenge  to our  ownership of our  technology  could  materially
damage our business prospects.  Our technology may infringe upon the proprietary
rights of others.  Our  success is  dependent  in part on our  ability to obtain
patent protection for our proprietary products, maintain trade secret protection
and operate without infringing the proprietary rights of others.                

To date, we have 39 pending patent applications, and intend to file applications
for additional  patents covering our future  products,  although there can be no
assurance  that we will do so. In addition,  there can be no  assurance  that we
will maintain or prosecute these applications.  The United States Government and
other  countries  have granted us 49 patents as of May 31, 2004. See "Business -
Patents,  Trademarks  and  Proprietary  Information."  There can be no assurance
that:                                                                           

o        any of the remaining patent applications will be granted to us;        

o        we will  develop  additional  products  that are  patentable  or do not
infringe the patents of others;                               

o        any  patents  issued  to  us  will  provide  us  with  any  competitive
advantages or adequate protection for our products;           

o        any  patents  issued  to us  will  not be  challenged,  invalidated  or
circumvented by others; or                                    

o        any of our products would not infringe the patents of others.          

If any of the products are found to have  infringed any patent,  there can be no
assurance that we will be able to obtain licenses to continue to manufacture and
license such product or that we will not have to pay damages as a result of such
infringement.  Even if a patent  application is granted for any of our products,
there can be no  assurance  that the  patented  technology  will be a commercial
success or result in any profits to us.                                         

6.  Competition  from  others  with  greater  resources  could  prevent USA from
increasing revenue and achieving profitability.                                 

Competition   from  other  companies   which  are  well   established  and  have
substantially  greater  resources  may  reduce  our  profitability.  Many of our
competitors  have established  reputations for success in the development,  sale
and service of high quality  products.  We face  competition  from the following
groups:                                                                         

o        companies offering automated,  credit card activated control systems in
         connection  with facsimile  machines,  personal  computers,  debit card
         purchase/revalue  stations,  and use of the  Internet  and e-mail which
 directly compete with our products. See "Business-Competition";

o        companies  which  have  developed  unattended,  credit  card  activated
         control systems  currently used in connection  with public  telephones,
         prepaid  telephone  cards,  gasoline  dispensing  machines,  or vending
         machines  and are  capable  of  developing  control  systems  in direct
competition with USA; and                                     

o        businesses which provide access to the Internet and personal  computers
         to hotel guests. Although these services are not credit card activated,
such services would compete with USA's Business Express(R).   

Competition  may result in lower  profit  margins on our  products or may reduce
potential  profits or result in a loss of some or all of our customer  base.  To
the extent that our competitors  are able to offer more  attractive  technology,
our ability to compete could be adversely affected.                             

7. The termination of any of our  relationships  with third parties upon whom we
rely for supplies and services that are critical to our products could adversely
affect our business and delay achievement of our business plan.                 

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We depend on  arrangements  with third parties for a variety of component  parts
used in our products. We have contracted with RadiSys Corporation and Masterwork
Electronics to assist us to develop and manufacture our e-Port(TM) products. For
other  components,  we do not have supply  contracts with any of our third-party
suppliers  and  we  purchase  components  as  needed  from  time  to  time.  See
"Business-Procurement".  We have  contracted  with IBM to  develop  our  network
services so that these  services are Internet  capable as well as interact  with
our proposed media capable  e-Post(TM).  We have contracted with IBM to host our
network in a secure,  24/7  environment  to ensure  reliability  of our  network
services. If these business relationships are terminated,  the implementation of
our  business  plan may be  delayed  until an  alternative  supplier  or service
provider can be retained. If we are unable to find another source or one that is
comparable,  the  content  and  quality  of our  products  could  suffer and our
business, operating results and financial condition could be harmed.            

8.  We do not  expect  to pay  cash  dividends  in the  foreseeable  future  and
therefore investors should not anticipate cash dividends on their investment.   

The  holders of our common  stock and series A preferred  stock are  entitled to
receive dividends when, and if, declared by our board of directors. Our board of
directors does not intend to pay cash dividends in the foreseeable  future,  but
instead  intends to retain  any and all  earnings  to finance  the growth of the
business.  To date,  we have not paid any cash  dividends on the common stock or
series A preferred  stock and there can be no assurance that cash dividends will
ever be paid on the common stock.                                               

In addition,  our articles of  incorporation  prohibit  the  declaration  of any
dividends  on the Common  Stock  unless  and until all  unpaid  and  accumulated
dividends on the Series A preferred  stock have been declared and paid.  Through
May 31,  2004,  the unpaid and  cumulative  dividends  on the series A preferred
stock equal  $6,677,180.  The unpaid and  cumulative  dividends  on the series A
preferred  stock are  convertible  into  shares  of common  stock at the rate of
$10.00  per  share at the  option  of the  shareholder.  Through  May 31,  2004,
$2,684,444 of unpaid and  cumulative  dividends on the Series A Preferred  Stock
were  converted  into  288,521  shares  of common  stock.  See  "Description  of
Securities-Series  A Convertible  Preferred Stock."                             

9. We may fail to gain  widespread  market  acceptance  of our  products and not
generate sufficient revenues or profit margins to become successful.            

There can be no assurance  that demand for our products  will be  sufficient  to
enable us to become profitable. Likewise, no assurance can be given that we will
be able to  install  the  TransActs  and  e-Ports  at enough  locations  or sell
equipment  utilizing  our  network to enough  locations  to achieve  significant
revenues or that our operations can be conducted profitably.  Alternatively, the
locations  which would utilize the network may not be  successful  locations and
our revenues  would be adversely  affected.  We may in the future lose locations
utilizing  our  products  to  competitors,  or may not be able  to  install  our
products at competitor's locations. In addition,  there can be no assurance that
our products  could evolve or be improved to meet the future needs of the market
place.                                                                          

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10. The lack of an established  trading market may make it difficult to transfer
our stock and you may not be able to sell your shares on our trading market.    

Our Common Stock is traded on the OTC Bulletin Board.  Although there is limited
trading in the Common Stock, there is no established trading market. Until there
is an  established  trading  market,  holders  of the  common  stock may find it
difficult to dispose of, or to obtain  accurate  quotations for the price of the
common stock.  See "Description of Securities - Shares Eligible For Future Sale"
and "Market For Common Stock."                                                  

11. There are rules governing  low-priced stocks that may make it more difficult
for you to resell your shares.                                                  

Our  common  stock  is  currently  considered  a  "penny  stock"  under  federal
securities  laws since its market  price is below  $5.00 per share.  Penny stock
rules generally impose additional sales practice and disclosure  requirements on
broker-dealers who sell our shares to certain investors.                        

Broker-dealers  who sell penny stock to certain  types of investors are required
to comply with the SEC's regulations  concerning the transfer of penny stock. If
an exemption is not available, these regulations require broker-dealers to:     

-        make a  suitability  determination  prior to selling penny stock to the
purchaser;                                                    

-        receive  the  purchaser's  written  consent to the  transaction;  and -
provide certain written disclosures to the purchaser.         

-        These rules may affect the ability of  broker-dealers  to make a market
         in or trade our  shares.  This,  in turn,  may affect  your  ability to
resell those shares in the public market.                     

12. The substantial  market overhang of our shares and registered  resales under
this prospectus will tend to depress the market price of our shares.            

The  substantial  number of our shares  currently  eligible for sale in the open
market will tend to depress the market price of our shares.  See "Description of
Securities--Shares  Eligible for Future Sale" and "Market for Securities". As of
May 31, 2004, these shares consisted of the following:                          

-        339,453,012 shares of Common Stock                                     

-        522,742 shares of Preferred Stock                                      

-        20,337,777 shares  underlying Common Stock options and warrants;  and  

-        49,276,805 shares underlying our Convertible Senior Notes.             

13.  Sales of shares  eligible  for future sale from  exercise  of warrants  and
options could depress the market price of our common stock.                     

We presently have issued and outstanding options to purchase 2,134,232 shares of
our  common  stock and  warrants  to  purchase  18,203,545  shares.  The  shares
underlying  all of these  options and warrants have been  registered  and may be
freely sold upon issuance. Market sales of large amounts of our common stock, or
the potential for those sales even if they do not actually  occur,  may have the
effect of depressing the market price of our common stock.  In addition,  if our
future financing needs require us to issue additional  shares of common stock or
securities  convertible  into common stock, the supply of common stock available
for resale could be increased which could stimulate  trading  activity and cause
the market  price of our common  stock to drop,  even if our  business  is doing
well.                                                                           

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14. We are obligated to make substantial  principal and interest payments to the
holders  of the  Senior  Notes  which  may not be  available  or  would  use our
available working capital.                                                      

As of the May 31, 2004 we have approximately  $451,152 of unsecured senior notes
due on December 31, 2004, approximately $3,011,791 of unsecured senior notes due
on  December  31,  2005,  approximately  $3,213,500  of  unsecured  notes due on
December 31,  2006,  and  approximately  $3,404,490  of  unsecured  notes due on
December  31,  2007.  These  notes  accrue  cash  interest at the rate of twelve
percent  (12%) per year.  We are required to make  quarterly  interest  payments
totaling approximately $302,428 or $1,209,712 each year.                        

Until  the  Senior  Notes  have been paid by us,  they  will be  reflected  as a
liability on our financial  statements,  net of the related unamortized discount
and other issuance costs.                                                       

Our  ability  to  satisfy  the  debt  obligations  is  dependent  on our  future
performance,  the  success  of our  product  lines and on our  ability  to raise
capital.  Our  performance  is also  subject to  financial,  business and market
factors affecting our business and operations.                                  

We anticipate that the Senior Notes will be paid from cash from  operations,  as
well as proceeds from securities offerings.  However,  there can be no assurance
that we will meet our obligations to pay quarterly  interest on or the principal
amount  of the  senior  notes at  maturity.  The  payment  of the  interest  and
principal on these notes would utilize our available working capital which would
not be available for other purposes.                                            

15. Our  exchange of New Senior  Notes to our 2004 Senior Note  holders may have
been in violation of the  registration  provisions of the securities  laws. As a
result,  certain of our note  holders  may be granted  the right to rescind  the
exchange and demand the return of their old note to them by us which  matures in
December  2004.  The repayment of these notes in December  2004 would  adversely
affect our liquidity.                                                           

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      The holders of $4,067,491  of our Senior Notes due December 31, 2007,  may
have a right to rescind the  exchange of these  notes for notes  originally  due
December 31, 2004, and demand that we return to them the $4,067,491 of notes due
December  31,  2004.  As of May 31,  2004,  $3,404,490  of  these  notes  remain
outstanding. During the period from March 2003 through December 2003, we granted
to each holder of the notes due  December 31, 2004 the right to extend the notes
until December 31, 2007 and in such event agreed that the conversion rate of the
note  would  be  reduced  from  $.40 to  $.20.  On  April  14,  2003 we  filed a
Registration  Statement  which  included the shares  underlying  the 2007 notes.
Because the  exchange  offering  was not  completed  prior to the filing of this
registration  statement,  the  exchange  offer  may be  deemed  to have  been in
violation of the registration requirements of Section 5 of the Act. As a result,
we removed all of the shares  underlying  the 2007 Notes from that  registration
statement.  Generally,  the statute of limitations for this type of claim is one
year after the date of the alleged  violations and if successful,  would entitle
the Note  holders to rescind the  issuance of the new notes to them and demand a
return of the 2004 Senior Notes. If all of the note holders  demanded the return
of their notes, we would be obligated to repay the $4,067,491  principal  amount
on December  31, 2004 rather than on December  31, 2007.  This  repayment  could
significantly exceed our cash reserves and require us to borrow funds (which may
not be  available)  and would  materially  and  adversely  affect our results of
operations and financial condition.                                             

 USE OF PROCEEDS

We will not receive any of the  proceeds  from the sales of our Common  Stock by
the  selling  shareholders.  The list of the  selling  shareholders  entitled to
receive the net proceeds from any sales of our common stock begins on page 49 of
this  prospectus.  We will,  however,  receive proceeds from the exercise of any
warrants by the selling  shareholders.                                          

As of the date of this prospectus,  we would receive $3,680,101 of proceeds from
the exercise of all these warrants at the stated exercise prices. Because all of
these  warrants have exercise  prices of $.20 per share,  none of these warrants
are in the money as of the date of this prospectus.                             

MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES                                                    

GENERAL                                                                         

The  preparation  of  consolidated   financial  statements  in  conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from those estimates.  We believe the policies and estimates  related to revenue
recognition,  software  development  costs,  impairment  of  long-lived  assets,
goodwill  and  intangible  assets,   and  investments   represent  our  critical
accounting policies and estimates.  Future results may differ from our estimates
under different assumptions or conditions.                                      

REVENUE RECOGNITION                                                             

Revenue   from  the  sale  of   equipment   is   recognized   on  the  terms  of
freight-on-board  shipping  point,  or upon  installation  and acceptance of the
equipment if  installation  services are  purchased  for the related  equipment.
Transaction  processing  revenue is  recognized  upon the usage of the Company's
cashless payment and control  network.  Service fees for access to the Company's
equipment  and network  services  are  recognized  on a monthly  basis.  Product
revenues are  recognized  from the sale of products  from Company  owned vending
machines  when  there  is  purchase  and  acceptance  by the  vending  customer.
Customers  have the ability to return  vending  products for a full refund.  The
Company  estimates an allowance of product returns at the date of sale.  Product
revenue recognized from the sale of energy conservation  products are recognized
when shipped to the customer.                                                   

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SOFTWARE DEVELOPMENT COSTS                                                      

The Company  capitalizes  software  development  costs  pursuant to Statement of
Financial  Accounting  Standards No. 86 (SFAS No. 86), "Accounting for the Costs
of  Computer  Software  to  be  Sold,  Leased  or  Otherwise  Marketed",   after
technological  feasibility  of the  software  is  established  and  through  the
product's availability for general release to the Company's customers. All costs
incurred in the research  and  development  of new  software and costs  incurred
prior  to  the  establishment  of  technological  feasibility  are  expensed  as
incurred.  Amortization of software development costs commences when the product
becomes  available for general  release to customers.  Amortization  of software
development  costs is calculated as the greater of the amount computed using (i)
the ratio that current gross revenues for a product bear to the total of current
and anticipated  future gross revenues of that product or (ii) the straight-line
method over the remaining  estimated  economic life of the product.  The Company
reviews the unamortized  software  development  costs at each balance sheet date
and, if necessary,  will write down the balance to net  realizable  value if the
unamortized costs exceed the net realizable value of the asset. During May 2000,
the  Company  reached  technological  feasibility  for  the  development  of the
multi-media e-Port client product and related enhanced network and, accordingly,
the Company commenced  capitalization  of software  development costs related to
this  product and network.  Costs  capitalized  through 2002 were $5.3  million,
which included capitalized interest of approximately $493,000,  pursuant to SFAS
No. 34, "Capitalization of Interest Costs".                                     

During the fourth  quarter of fiscal 2002,  the  multi-media  e-Port(TM)  client
product  and  enhanced  network  became  available  for  general  release to the
Company's customers.  The multimedia  e-port(TM) client product is equipped with
both the audit and cashless payment  features,  but also includes the capability
of displaying interactive  advertising and content via a LCD screen. During this
quarter,  Management  performed  an  evaluation  of the  commercial  success and
preliminary  market acceptance of the multi-media  e-Port(TM) client product and
enhanced network and as a result of this evaluation the Company  determined that
the  estimated  future  revenues  less  costs to  complete  and  dispose  of the
multi-media  e-Port client product was zero.  Therefore,  the Company wrote down
$2,663,000  of software  development  costs  related to the  multi-media  e-Port
client product.  The unamortized balance of the software development costs after
the impairment  charge is being  amortized over an estimated  useful life of two
years.  Amortization expense was approximately  $1,331,000 during the year ended
June 30, 2003,  $2,996,000  during the year ended June 30, 2002  (including  the
above  impairment  adjustment of $2,663,000)  and $999,000 for nine months ended
March  31,  2004.  Such  amortization  is  reflected  in  cost of  sales  in the
accompanying consolidated statements of operations.                             

IMPAIRMENT OF LONG LIVED ASSETS                                                 

The Company  adopted SFAS No. 144 on July 1, 2002. In  accordance  with SFAS No.
144, the Company  reviews its long-lived  assets  whenever  events or changes in
circumstances  indicate  that the  carrying  amount  of such  assets  may not be
recoverable. During the fourth quarter of fiscal year 2003, the Company reviewed
certain  long-lived  assets  (vending  machines) and determined that such assets
were impaired.  These vending  machines were used in the Company's Kodak Program
to sell  disposable  cameras and film.  Management  determined  that it was more
likely than not that the vending machines would be disposed of before the end of
their previously estimated useful lives. The                                    

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estimated  undiscounted  cash  flows for this  group of assets was less than the
carrying value of the related assets. As a result, the Company recorded a charge
of approximately  $321,000 representing the difference between the fair value as
determined from a quoted market price and carrying value of the group of assets.
Such  amount is  reflected  in  depreciation  expense  in the 2003  consolidated
statement  of  operations.  During the nine  months  ended March 31,  2004,  the
agreement for the Kodak Program was  terminated as a result of the settlement of
a dispute among the parties to the  agreement.  The settlement  provides,  among
other  things,  that the  Company  will  receive  $300  for each of the  vending
machines  used in the Kodak  Program  which  resulted in a further write down of
$290,000 in the carrying value of the vending machines.  This charge is included
in gain on termination of contract in the  consolidated  statement of operations
for the nine months ended March 31, 2004.                                       

GOODWILL AND INTANGIBLE ASSETS                                                  

On July 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142 (SFAS No.  142)  "Goodwill  and other  Intangible  Assets,"  under which
Goodwill is no longer  permitted to be  amortized  to  earnings,  but instead is
subject to periodic testing for impairment.  Intangible assets with finite lives
will continue to be amortized over their  estimated  useful lives.  Although the
Company  did  not  adopt   Statement  No.  142  until  fiscal  year  2003,   the
non-amortization  provisions  of Statement  No. 142 for  combinations  initiated
after June 30, 2001 were applicable for the Company effective July 1, 2001.     

Under SFAS No. 142, the Company  tested  goodwill for  impairment  during fiscal
year 2003 using the transitional  two-step  process  prescribed by SFAS No. 142.
The first step of the  goodwill  impairment  test is used to identify  potential
impairment  by  comparing  the fair value of the Company with its net book value
(or  carrying  amount),  including  goodwill.  If the fair value of the  Company
exceeds its carrying amount,  goodwill is considered not impaired and the second
step of the  impairment  test is  unnecessary.  If the  carrying  amount  of the
Company exceeds its fair value, the second step of the goodwill  impairment test
is performed to measure the amount of  impairment  loss, if any. The second step
of the goodwill impairment test compares the implied fair value of the Company's
goodwill with the carrying  amount of that goodwill.  If the carrying  amount of
the  Company's  goodwill  exceeds the implied  fair value of that  goodwill,  an
impairment loss is recognized in an amount equal to that excess. Determining the
fair value of the Company under the first step of the goodwill  impairment  test
and  determining  the fair value of individual  assets and  liabilities of a the
Company (including  unrecognized intangible assets) under the second step of the
goodwill  impairment  test is judgmental in nature and often involves the use of
significant estimates and assumptions.  Similarly, estimates and assumptions are
used in determining the fair value of other intangible  assets.  These estimates
and assumptions could have a significant  impact on whether or not an impairment
charge is recognized and also the magnitude of any such charge. To assist in the
process of determining  goodwill  impairment,  the Company performed an internal
valuation and estimated fair value using a discounted  cash flow analysis.  This
approach uses  significant  estimates and assumptions,  which include  projected
future cash flows (including timing), discount rate reflecting the risk inherent
in future cash flows and a perpetual growth rate.                               

The Company performed an annual impairment test of goodwill as of April 1, 2003,
as prescribed by SFAS and  concluded  that there were no impairment  indicators.
The Company will perform the impairment  tests required under SFAS No. 142 on an
annual basis unless other indicators are present.                               

INVESTMENT                                                                      

The Company  accounts for  investments in accordance with Statement of Financial
Accounting Standards No. 115 (SFAS 115),  "Accounting for Certain Investments in
Debt   and   Equity   Securities".   Management   determines   the   appropriate
classifications  of  securities  at the time of purchase  and  reevaluates  such
designation  as of each balance sheet date.  Available for sale  securities  are
carried  at fair  value,  with the  unrealized  gains and losses  reported  in a
separate component of stockholders' equity in other comprehensive income (loss).

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A judgmental aspect of accounting for investments  involves  determining whether
an  other-than-temporary  decline in value of the investment has been sustained.
If  it   has   been   determined   that   an   investment   has   sustained   an
other-than-temporary decline in its value, the investment is written down to its
fair  value,  by a charge to  earnings.  Such  evaluation  is  dependent  on the
specific  facts and  circumstances.  Factors that are  considered by the Company
each quarter in determining whether an other-than-temporary decline in value has
occurred  include:  the market  value of the  security  in  relation to its cost
basis;  the financial  condition of the investee;  and the intent and ability to
retain the investment  for a sufficient  period of time to allow for recovery in
the  market  value of the  investment.  In  evaluating  the  factors  above  for
available-for-sale  securities,  management  presumes  a decline  in value to be
other-than-temporary  if the quoted  market  price of the  security is below the
investment's  cost  basis  for a period  of six  months  or more.  However,  the
presumption  of an  other-than-temporary  decline  in  these  instances  may  be
overcome  if  there is  persuasive  evidence  indicating  that  the  decline  is
temporary in nature (e.g., strong operating performance of investee,  historical
volatility of investee, etc.).                                                  

During the fiscal year ended June 30, 2003, the Company  invested in the Jubilee
Investment Trust, PLC (Jubilee),  a United Kingdom investment trust whose shares
trade on the London Stock Exchange. The investment in Jubilee has been accounted
for as  "available  for sale".  At June 30,  2003,  the  Company  determined  in
accordance  with  SFAS  115,  that  the  decline  in the  market  value  of this
investment was "other than temporary", as the security's quoted market price was
below  the  investments's  cost  basis  for a  period  of six  months  or  more.
Accordingly,  the  Company  wrote  down  the  investment  to its  fair  value of
$904,049, realizing an impairment loss of $1,945,951.                           

FORWARD LOOKING STATEMENTS                                                      

This prospectus  contains certain forward looking  statements  regarding,  among
other things,  the anticipated  financial and operating  results of the Company.
For this purpose, forward looking statements are any statements contained herein
that are not statements of historical fact and include,  but are not limited to,
those   preceded  by  or  that   include  the  words,   "believes,"   "expects,"
"anticipates," or similar expressions. Those statements are subject to known and
unknown  risks,  uncertainties  and other  factors  that could  cause the actual
results to differ  materially from those  contemplated  by the  statements.  The
forward  looking  information is based on various  factors and was derived using
numerous  assumptions.  Important  factors that could cause the Company's actual
results to differ materially from those projected,  include, for example (i) the
ability of the  Company  to  generate  sufficient  sales to  generate  operating
profits,  or to sell  products  at a profit,  (ii) the ability of the Company to
raise funds in the future through sales of securities, (iii) whether the Company
is able to enter into binding agreements with third parties to assist in product
or network  development,  (iv) the ability of the Company to  commercialize  its
developmental  products,  or if actually  commercialized,  to obtain  commercial
acceptance  thereof,  (v)  the  ability  of the  Company  to  compete  with  its
competitors  to obtain market  share,  (vi) the ability of the Company to obtain
sufficient funds through  operations or otherwise to repay its debt obligations,
including but not limited to Senior Notes, or to fund  development and marketing
of its  products;  (vii) the  ability of the  Company to obtain  approval of its
pending patent applications; or (viii) the ability of the Company to satisfy its
trade obligations included in accounts payable and accrued liabilities. Although
the Company  believes that the forward looking  statements  contained herein are
reasonable,  it can give no assurance  that the Company's  expectations  will be
met.                                                                            

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RESULTS OF OPERATIONS                                                           

NINE MONTHS ENDED MARCH 31, 2004:                                               

      The nine months ended March 31, 2004 resulted in a net  operating  loss of
$16,424,278  (approximately  $9,500,000  non-cash)  compared  to a net  loss  of
$12,542,898  (approximately  $3,100,000  million  non-cash)  for the  comparable
period in the prior fiscal year.                                                

      Revenues for the nine months ended March 31, 2004  increased to $4,947,882
from $2,233,330  during the same period in the prior fiscal year, an increase of
$2,714,552  or 122%.  This  increase was  primarily  attributed  to sales of the
Company's  energy  conservation  equipment  for the nine months  ended March 31,
2004,  as such revenues did not exist in the  corresponding  period of the prior
fiscal year since the  acquisition of Bayview  occurred in July 2003, as well as
increases in equipment sales of our cashless technologies and services. Revenues
are discussed in more detail as follows:                                        

      Equipment  sales:  Revenues from equipment  sales  increased to $3,741,359
from $880,545 in the corresponding  period of the prior fiscal year, an increase
of  $2,860,814  or 325%.  This  increase is mainly due to sales of the Company's
energy  conservation  equipment of approximately  $2,751,000 for the nine months
ended March 31, 2004 as such revenues did not exist in the corresponding quarter
of the prior year,  since the  acquisition of Bayview  occurred in July 2003. In
addition,  sales of the Company's  cashless  technology,  which includes e-Port,
e-Suds and Kiosk systems,  increased to $521,000,  approximately $225,000 or 76%
over the  corresponding  period of the prior fiscal year. The increases in sales
were offset by a decrease in Business Center  equipment  sales of  approximately
$84,000.                                                                        

      Product sales and other:  Revenues from product sales and other  decreased
to $304,476 from $357,703,  a decrease of $53,227 or 15% over the same period of
the prior  fiscal year.  This  decrease was due to a decrease in camera and film
sales from Company owned vending machines of approximately  $254,000 as a result
of the wind down of the Kodak Vending Placement Agreement, offset by $200,000 of
revenue  recorded  in the  quarter  ended  December  31,  2003  relating  to the
Strategic  Alliance  Agreement  executed in October 2003 between the Company and
Conopco, Inc dba Unilever Home & Personal Care North America.                   

      License and transaction  fees:  Revenues from license and transaction fees
decreased  $93,035 or 9% from  $995,082  to $902,047  for the nine months  ended
March 31, 2003 and 2004,  respectively.  This  decrease was due to a decrease in
fees earned from the Kodak Vending Placement Agreement of approximately $128,000
as a result of the wind down of the  contract,  offset by an increase in fees of
approximately  $35,000  as a result of an  increase  in the  number  of  devices
connected to the Company's network.                                             

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      Cost  of  sales  consisted  of  equipment,  product  and  labor  costs  of
approximately  $1,750,000  and $723,000 for the nine months ended March 31, 2004
and  2003,  respectively,  an  increase  of  $1,027,000;   software  development
amortization  of  approximately  $999,000 and $874,000 for the nine months ended
March 31, 2004 and 2003, respectively,  an increase of $125,000; and network and
transaction  related  costs of $488,000  and  $461,000 for the nine months ended
March 31, 2004 and 2003,  respectively,  a increase of $27,000.  The increase of
$1,179,351 or 57% in total cost sales from $2,057,173 to $3,236,524 for the nine
months ended March 31, 2003 and 2004, respectively, was principally attributable
to the increase in equipment sales.                                             

      Gross  profit for the nine months  ended  March 31,  2004 was  $1,711,358,
compared to gross  profit of  $176,157  in the same  period in the prior  fiscal
year.  The  increase of  $1,535,201  was due to  increases  in  hardware  sales,
particularly the addition of our higher margin,  energy  conservation  equipment
sales that were not present in the same period in the prior fiscal year.        

      Total  operating  expenses  for the nine  months  ended March 31, 2004 was
$15,306,671,  (non-cash  $7,200,000)  an increase of  $5,895,104 or 63% over the
same period from the prior fiscal year.  The  components  of operating  expenses
(General and  administrative,  Compensation,  Depreciation  and amortization and
Loss on debt  modification) and the causes of this significant  increase in each
category are explained further below:                                           

      General and administrative expenses increased from $4,951,021 for the nine
months  ended March 31, 2003 to  $5,096,447  for the nine months ended March 31,
2004,  an  increase of $145,426  or 3%.  This  increase is due to  increases  in
overall general and administrative expenses of approximately  $1,001,000 related
to the acquired energy conservation operation, as such expenses did not exist in
the comparable period last fiscal year. This increase was offset by decreases of
$873,000  of  professional  fees,  primarily  related  to  business  consulting,
promotion and public relations.                                                 

      Compensation expense increased to $8,664,200 (non-cash $4,700,000) for the
nine  months  ended March 31,  2004,  a  $5,897,032  or 213%  increase  over the
comparable  period last fiscal  year.  This  increase  is  primarily  due to the
issuance of 10,500,000  shares of Common Stock to the Company's  Chief Executive
Officer in connection with the amendment of his employment agreement. This was a
one-time,  non-cash  payment valued at $4,620,000  representing 80% of the total
increase.  Other components of this increase were due to approximately  $554,000
increase in bonus expenses,  primarily to the Company's  executive  officers and
approximately $662,000 of additional  compensation,  including employee benefits
and sales commissions, related to the acquired energy conservation operations in
July 2003, as such expenses did not exist in the  comparable  period last fiscal
year.                                                                           

      Depreciation and amortization  expense for the nine months ended March 31,
2004 was  $1,227,109,  compared  to  $734,026  for the same  period in the prior
fiscal year, a $493,083 or 67%  increase.  This  increase  was  attributable  to
amortization  expense of intangible assets of $681,000 and depreciation  expense
of property and equipment of $90,000 acquired from Bayview in July 2003,  offset
by decreases  in  depreciation  of existing  assets that have reached the end of
their estimated useful life.                                                    

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      The Company  incurred  charges during the nine months ended March 31, 2004
and 2003  relating to the  modification  of debt terms for certain of the Senior
Notes in the amount of $318,915 and $959,352,  respectively.  This charge is for
the  write-off  of the  unamortized  debt  discount  remaining  for Senior Notes
scheduled to mature in December  2003 and  December  2004 whose  conversion  and
maturity terms were modified.  The Company offered these note  modifications  to
the Note holders,  and recognized the related  non-cash  charge to operations in
order to manage short-term cash flows.                                          

      During the nine  months  ended  March 31,  2004,  a gain of  $509,244  was
recorded relating to the termination the Kodak Vending Placement Agreement. This
gain is comprised of the payment from Kodak of  approximately  $675,000 plus the
cancellation of Stitch's  obligation to the supplier of the vending  machines of
approximately  $124,000  less a write  down of the  carrying  value  of  vending
machines of approximately $290,000 to their realizable value of $300 per vending
machine.  To the  extent  any  costs are  incurred  by  Stitch  to  fulfill  its
obligations  under the  settlement  agreement,  these  costs will be recorded as
incurred, as any additional costs cannot be reasonably estimated at this time.  

      During the nine months  ended March 31, 2004,  the Company sold  1,669,091
shares of its Jubilee investment for total net proceeds of $1,471,142, resulting
in a gain of $603,480.  Proceeds of $762,130 were  received  subsequent to March
31, 2004 and are reflected as an other receivable as of that date.              

      Total interest  expense  increased  from  $3,319,444 to $3,971,688 for the
nine months ended March 31, 2003 and 2004, respectively, an increase of $652,244
or 20%. This increase was primarily  attributable to charges incurred due to the
acceleration  of  unamortized  debt discount and other issuance costs on the 12%
Senior Notes that were  converted into Common Stock during the nine month period
ending March 31, 2004.                                                          

FISCAL YEAR ENDED JUNE 30, 2003:                                                

The  fiscal  year  ended  June 30,  2003  resulted  in a net  operating  loss of
$21,965,499  (approximately  $12.6 million  non-cash)  compared to a net loss of
$17,314,807  (approximately $11.0 million non-cash) for the comparable period in
the prior fiscal year.                                                          

Revenues for the fiscal year ended June 30, 2003 were $2,853,068, an increase of
$1,170,367  or 70% from the fiscal year ended June 30,  2002.  This  increase in
revenues is primarily due the  inclusion of a full year of product  revenues and
service and  transaction  fees relating to Stitch  Networks  Corporation,  which
accounted for approximately  $1,136,000 of the revenue  increase.  The remaining
increase was due to increased  equipment  sales of e-Port and Business  Express.
The Company is  continually  increasing its sales efforts to sell its e-Port and
Business Express products.                                                      

Overall,  operating  expenses  for the  fiscal  year  ended  June 30,  2003 were
$17,912,707,  representing a $886,842 or 5% increase over the prior period.  The
significant changes in each category were as follows:                           

The  decrease  of  $1,091,458  or 27% in  cost  of  sales  is due  primarily  to
amortization  of software  development  costs of  $1,331,000 in 2003 compared to
$2,996,000 in 2002. The 2002 amortization  included a one-time impairment charge
of $2,663,000 that was non-recurring in fiscal year 2003. The remaining increase
in cost of sales is  attributable  to the increase in e-Port sales during fiscal
year 2003.                                                                      

The  decrease in general and  administrative  expenses  was $673,380 or 9%. This
decrease is due to changes in the following expenses:  consulting,  advertising,
public  relations  and  promotion  expense  decrease of  $1,368,022  for reduced
corporate  and  investor  relations  services  offset by  increases  in  product
development  and outside  services of $926,395 for work on the network.  We have
continued to utilize  consultants  for general  business  activities,  including
network services, and have attempted whenever possible to pay for these services
on a non-cash basis through the issuance of debt and equity instruments.        

Compensation  expense increased  $318,548 or 7% over last year. This increase is
due to the inclusion of salaries of $136,000 related to the Stitch operations as
well as an increase of approximately $200,000 in bonus expense during the fiscal
year ended June 30, 2003 versus fiscal year ended June 30, 2002.                

Depreciation and amortization  expense increased by $811,478 for the fiscal year
ended June 30, 2003,  which is  attributable to increased  depreciation  expense
resulting  from  assets  acquired  in the  Stitch  acquisition,  as  well as the
impairment loss of $321,476  recorded on a group of vending  machines during the
fiscal year in accordance with SFAS No. 144.                                    

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The  Company  incurred  a charge  during the  fiscal  year  ended June 30,  2003
relating  to the  modification  of debt  terms  for  certain  2000  and 2001 12%
Convertible  Senior  Notes  in the  amount  of  $1,521,654.  There  was no  such
comparable  charge in the prior year.  This charge is for the  unamortized  debt
discount  that  remained  on the Senior  Notes that are  scheduled  to mature in
December 2003 and December 2004 whose terms were modified for those note holders
who agreed to extend the maturity of their notes in exchange for a reduction    
in the  conversion  rate.  The Company  offered these note  modifications  (e.g.
extended  maturity  dates),  and  recognized  the  related  non-cash  charge  to
operations in order to manage short-term cash flows.                            

In June 2003, the Company determined that the decline in the market value of the
investment  in  the  Jubilee   Investment  Trust  was  "other  than  temporary."
Accordingly,  the Company recorded a loss of $1,945,951, which is reflected as a
loss on investment in the 2003  Consolidated  Statement of  Operations.  No such
comparable loss was recorded in the previous year.                              

Total interest expense increased by $2,991,166,  due to the greater debt carried
by the  Company to finance its  operations.  A  significant  portion of interest
expense is the amortization of non-cash debt discount.                          

FISCAL YEAR ENDED JUNE 30, 2002:                                                

For the  fiscal  year  ended  June  30,  2002,  the  Company  had a net  loss of
$17,314,807 (approximately $11.0 million non-cash).                             

Revenues for the fiscal year ended June 30, 2002 were $1,682,701, an increase of
$231,699  or 16% from the prior  year.  This  increase  in  revenues is directly
attributable to the acquisition of Stitch Networks Corporation,  which accounted
for $210,068 of the increase.  Other revenues remained flat with the prior year,
as the  Company's  sales  efforts did not produce  significant  revenues  due to
limited market acceptance,  which was less than that anticipated by the Company.
The Company is continually  increasing its sales efforts to sell its e-Ports and
its Business Express products.                                                  

Overall,  operating  expenses  for the  fiscal  year  ended  June 30,  2002 were
$17,025,865, representing a $7,365,090 or 76% increase over the prior year. This
increase  is due to the  increases  of  $3,113,674  or 328%  in  cost of  sales,
$2,332,938 or 42% in general and administrative  expenses,  $1,687,886 or 57% in
compensation  expense,  and $230,592 or 110% in  depreciation  and  amortization
expense. The significant changes in each category are as follows:               

The  increase of  $3,113,674  or 328% in cost of sales is due  primarily  to the
inclusion of amortization of software  development costs and the cost of product
relating to Stitch Networks  Corporation.  In fiscal 2002, the Company  recorded
software   amortization  of  $2,996,000,   including  an  impairment  charge  of
$2,663,000,  in cost of sales  as  required  by  generally  accepted  accounting
principles.  During  the  fourth  quarter  of  fiscal  year  2002,  the  Company
determined that the estimated future revenues less costs to complete and dispose
the  enhanced  e-Port  client  product was zero,  and  therefore  recorded  this
impairment charge to reflect software  development costs at their net realizable
value.  There was no  amortization  expense for  software  development  costs in
fiscal year ended 2001. The remaining  increase in cost of sales is attributable
to the  increase in sales,  primarily  related to the Stitch  revenues in fiscal
2002.                                                                           

The increase in general and administrative  expenses of $2,332,938 or 42% is due
primarily to the increase in non-cash (securities) compensation in the amount of
$555,482 paid to our investment  banker,  increase in the non-cash  (securities)
compensation  paid  to  our  public  relations  consultants  in  the  amount  of
$1,601,915, and the increase in non-cash (securities) compensation in the amount
of $657,238 paid to our other business consultants. Although these expenses did 
not  result in  increased  revenues  during  the fiscal  year,  we believe  that
increased  revenues may occur in the future.  Our investment  banker provided us
with various  financial  advisory  services  during the fiscal  year,  including
identifying   strategic   acquisition   opportunities.   Our  public   relations
consultants  assisted us to attempt to introduce the Company and its products as
well as  communicate  with our  shareholders.  Our  other  business  consultants
assisted us during the fiscal year with  technical  development of and advice in
connection  with our network and e-Port  products.  The increases in our general
and  administrative  expenses  were  offset by a  substantial  decrease in legal
expenses of $992,181,  primarily  associated with  termination of the Mail Boxes
Etc. litigation, which was settled in fiscal year 2001.                         

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The increase in compensation expense of $1,687,886 or 57% from the previous year
is mainly attributable to an increase in stock bonus expense to Company officers
and employees of  $1,248,545,  which was a non-cash  expense.  The stock bonuses
were  issued  in order to  adequately  compensate  and  attempt  to  retain  the
Company's management team intact. Corporate salaries increased $342,921 or 113%,
due to increased headcount by 16% during the year, primarily due to the addition
of Stitch Network's personnel during the last one and one half months of 2002.  

Depreciation and amortization  expense of $440,238 increased by $230,592,  which
is directly  attributable  to the increased  depreciation  expense of the assets
acquired in the Stitch acquisition.                                             

Interest  expense  increased by $864,929,  primarily as a result of the non-cash
amortization  to interest  expense  relating to the debt discount and beneficial
conversion features on the Company's convertible Senior Notes.                  

PLAN OF OPERATIONS                                                              

Vending                                                             

      In February 2004, the Company and Motient Corporation,  owner and operator
of a two-way  wireless data network,  together  launched a marketing  program to
bring vending machines online using the Company's e-Port cashless payment system
and Motient's  wireless data network.  In December  2003,  the Motient  wireless
network became available to the current generation of e-Port,  on-line,  vending
technology.  This connectivity capability has enabled customers to substantially
ramp up the adoption of solutions  such as cashless  vending and data  delivery.
The targeted goal for the  marketing  program is to bring 10,000 units online by
December 31, 2004.  As of March 31, 2004,  there were 260 units on the Company's
network and Motient wireless network as result of this initiative.              

      Coinciding  with  the  Motient   initiative,   described  above,  was  the
identifying  and pursuit of target  markets  where  customers  can be assured of
early  success  from the  adoption of cashless  technology.  As a result of this
initiative, sales in the quarter ended March 31, 2004 increased over the        

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previous  two quarters of the 2004 fiscal  year,  the largest  ever  increase in
e-Port sales, with shipments to 19 different bottlers and vending operators,  of
which 11 were new  accounts.  Most notable were sales to an operator for the new
Pop  Century  Hotel at Disney in Orlando,  Florida and to a vending  operator in
Southern  California,  to address a growing  problem of vandalism in their hotel
locations.  The Company's e-Port cashless payment solution enabled this operator
to replace  coins and bills  completely,  thus  removing  cash  reserves  in the
machines.                                                                       

      The  following  initiatives  were  launched  during the fourth  quarter of
fiscal year 2004.  First, the  availability of new combo readers  (combined bill
validator  and card  reader  in a single  device)  brought  many  joint  selling
opportunities with MEI and Coinco,  manufacturers of these devices.  Second, the
Company began a campaign  titled  "Coca-Cola  experience with cashless" aimed at
acquiring  as  customers,   Coke  bottlers   throughout  the  U.S.,  based  upon
experiences with current Coca-Cola customers. Lastly, the Company appointed John
Roughneen,  a  successful  vending  executive,   as  VP  of  Strategic  Business
Development.  Mr. Roughneen is well known within the vending  industry,  and his
reputation and prior successes  within the vending  industry is already having a
positive impact on our business.                                                

Energy Management                                                   

      With the  acquisition of Bayview on July 11, 2003, the Company now designs
and  manufactures  patented  energy  conservation  devices for equipment such as
laser printers, monitors, office peripherals,  refrigerated vending machines and
glass front merchandisers  (referred to as slide or visi coolers).  These energy
conservation  devices reduce power  consumption of various types of equipment by
allowing  the  equipment to operate in power saving mode when full power mode is
not  necessary.  These  devices,  which include the  VendingMiser,  CoolerMiser,
SnackMiser,   MonitorMiser   and   LaserMiser   can  use  activity,   occupancy,
temperature,  timing  or other  various  methods  to  determine  which  mode the
equipment should be in. Route to market for the energy  conservation  devices is
much the same as the Company's e-Port  technology,  with the notable addition of
governmental and utility rebate and give-away programs,  where by part or all of
the  cost of the  energy  management  device  is  covered  by  government  funds
allocated to energy conservation projects.                                      

      In April 2004,  the Company  launched  "Project  Get Green",  an incentive
program  developed  and  sponsored  by  the  National   Automatic   Merchandiser
Association (NAMA) and the Company. This program is aimed at helping the vending
industry  meet new ENERGY  STAR(R)  standards for energy  consumption  that were
announced in April 2004 by the Environmental  Protection Agency (EPA). The EPA's
new  standards  represent a  significant  opportunity  for the  Company,  as our
technology  will  render  a   non-conforming   vending  machine  ENERGY  STAR(R)
equivalent or compliant.  The Company estimates that 4.6 million machines in the
U.S. market are candidates for our energy management technology.  The joint NAMA
and  Company  initiative  includes  a 20  percent  marketing  allowance  on  the
Company's  energy  management  solutions  through  June 30, 2004 and the Company
anticipates  increased sales as a result of vending  operators  taking proactive
actions to become compliant with the new EPA standards.                         

      In February  2004, in an effort to continue to  strengthen  its network of
government  and  utility  entities  offering  rebates for the  Company's  energy
products,  Eugene Water & Electric  Board, a publicly  owned electric  utilities
company  located  in the  State of  Oregon,  agreed to offer a $120  rebate  per

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installation of the VendingMiser.  To date the Company has twenty-two (22) power
utility or  government  agencies  currently  offering  rebates to customers  who
install the Company's energy products.                                          

      In January 2004, the Company entered into an alliance with the EnergySmart
Grocer,  an  energy  consultant  to  independent  grocers,  to bring  an  energy
conservation  program,  utilizing the  Company's  CoolerMiser  and  VendingMiser
solutions,   to  thousands  of  independent  grocery  stores  in  the  state  of
California.  The  program  includes  a rebate of $90 for every  CoolerMiser  and
VendingMiser  installed.  To date, 390 units or $54,000 has been sold under this
program.                                                                        

      The Company has also targeted local, state and federal government agencies
as customers for this product line. In order to increase the Company's  reach in
this  regard,   the  Company   embarked  on  a  campaign  for  General  Services
Administration (GSA) approval,  which would make these products available to all
government agencies. The Company is anticipating GSA approval in the near term. 

Laundry                                                             

      In April 2004,  the  Company  and  Caldwell  and  Gregory  entered  into a
five-year  agreement,  whereby  the Company  has  granted  Caldwell  and Gregory
rights,  subject  to total  minimum  purchase  requirements  of 10,500  units by
September  2008, to exclusively  provide e-Suds to colleges and  universities in
Pennsylvania,  Delaware,  Maryland,  Virginia, West Virginia,  Tennessee and the
District of Columbia.                                                           

      In March 2004, the Company installed its eSuds Internet  connected laundry
system at Carnegie Mellon University, in Pittsburgh,  Pennsylvania, on a limited
number of machines for a pilot phase  working  through  Caldwell and Gregory,  a
laundry  service  operator in the  university and college  laundry  marketplace.
After only two weeks into the pilot phase,  due to favorable  student  response,
Caldwell and Gregory and Carnegie  Mellon  University  agreed to transition from
the  pilot  to full  implementation  for the  fall  semester  2004,  giving  the
universities  4,000  campus  residents  the  ability to use the  e-Suds  laundry
services.                                                                       

      In October 2003,  the Company signed a strategic  alliance  agreement with
Conopco,  Inc.  dba  Unilever  Home &  Personal  Care  North  America  to be the
exclusive  provider of laundry  detergent  for the e-Suds  program to be used in
colleges and universities  located in the United States.  Under the terms of the
agreement,  the Company  agrees to be a reseller of Unilever  Products  that are
dispensed  through the USA e-Suds  System and the Company will also receive fees
from Unilever based on the number of injections of Unilever Products through the
USA e-Suds System.                                                              

      American  Sales Inc.  (ASI) has signed a five-year  agreement  to purchase
units of Stitch's e-Suds laundry solution for their university  locations in the
Midwest. In October 2003, the Company installed a system at ASI's facilities for
testing,  which  completed  final testing in May 2004. In June 2004, the Company
realized unit sales.                                                            

ZiLOG Strategic Alliance                                            

      In October 2002,  the Company signed a five-year  Strategic  Alliance with
ZiLOG   Corporation,   a   semiconductor   company,   which  is  a  supplier  of
microprocessors  to the retail  point of sale and other  industries.  One of the
purposes  of this  alliance  was to combine  the  Company's  proprietary  e-Port
software with ZiLOG's eZ80 line of microprocessors,  such that the Company might
be able to improve  price/performance  of its product  line,  and allow ZiLOG to
market an e-Port enabled, network ready, eZ80 microprocessor.  Since the signing
of this agreement,  the Company has developed,  commercialized  and implemented,
for purchase by its customers,  products and services utilizing the work-product
of this  alliance.  For example,  in its e-Suds  product  line,  the Company has
contracted  with Caldwell and Gregory,  and American Sales Inc. for up to 19,000
e-Suds "connections".  Additionally, the Company has developed, and is beginning
to test, its new G-5 e-Port for the vending market.                             

      The Company has also  worked with ZiLOG to create an e-Port  enabled  eZ80
ZiLOG  processor,  which is intended to allow ZiLOG  customers  to engineer  and
manufacture  their products with the  capability to attach to a network,  and in
some cases, the Company's  network.  The e-Port enabled eZ80 ZiLOG processor has
been shown at  various  trade  events,  and has been  demonstrated  to a limited
number of potential customers.                                                  

      The   Company   expects  to  gain   market   traction   due  to   improved
price/performance  - such as in  e-Suds  and the new  G-5  e-Port  for  vending.
Additionally,  the Company  intends to license  software  embedded in the e-Port
enabled ZiLOG eZ80, as well as, possibly  providing  network  services for ZiLOG
customers who engineer and  manufacture  the e-Port enabled eZ80 ZiLOG processor
into the products they bring to market.                                         

Kodak Vending                                                       

      In December  2003,  the parties to the Kodak Vending  Placement  Agreement
agreed to terms of an early termination of the contract  effective  December 31,
2003.  The  settlement  resulted in the  termination  of the  vending  agreement
pursuant to which the  Company  received a payment  from Kodak of  approximately
$675,000 and payments equal to $300 per vending machine from the supplier of the
vending  machines as the machines are pulled from service at the supplier's sole

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cost and  expense.  Upon receipt of the $300 per vending  machine,  title to the
vending machine will transfer to the supplier. The settlement agreement provides
that all machines are to be pulled from service no later than mid calendar  year
2004. As of the date of this prospectus,  substantially  all of the machines are
no longer in service.  In addition,  the supplier agreed to cancel an obligation
for the purchase of vending machines in the approximate amount of $124,000.     

      The vending  machines  were used as  collateral  to secure a bank facility
used to purchase the machines under which  $377,653 was  outstanding as of March
31, 2004.  Final  payment of the debt will occur no later than the time title of
the machines is transferred to the supplier.                                    

      Revenues  of the  Company  will be  reduced  as a  result  of the  vending
contract  termination.  However,  because  the  Kodak  program  is and has  been
operating  at a loss,  the  termination  of the program  would  eliminate  these
ongoing  losses.  Revenues  related to the Kodak program through the fiscal year
ended June 30, 2003 were approximately $1,092,000 and approximately $124,000 and
$471,000 for the three and nine months ended March 31, 2004, respectively.      

LIQUIDITY AND CAPITAL RESOURCES                                                 

During  the fiscal  year ended June 30,  2003,  the  Company  completed  several
financing  transactions.  Net proceeds of $9,930,879  were realized from private
placement  offerings  of Common  Stock  including  the  exercise of Common Stock
Purchase Warrants and Options. Proceeds of $1,833,841 were realized from private
placement  offerings of 12%  Convertible  Senior Notes. As of June 30, 2003, the
Company had a working capital deficit of $791,532.                              

During the fiscal year ended June 30, 2003,  net cash of $9,228,899  was used by
operating activities, primarily due to the net loss of $21,965,499 offset by the
following non-cash charges:  $2,573,301 for Common Stock,  Common Stock Warrants
and Senior Notes issued for services;  $2,743,083 of non cash  depreciation  and
amortization;  $2,955,158 of non-cash amortization of the debt discount relating
to the 12%  Convertible  Senior  Notes;  $1,945,951  for a realized  loss on the
investment in the Jubilee Trust;  $1,521,654 loss realized on the  modifications
of the Senior Notes;  and $860,250 of interest  expense on the Senior Notes paid
through the issuance of Common Stock.                                           

During  the  fiscal  year  ended  June  30,  2003,  net cash  used in  investing
activities was $186,895  principally due to the investment in computer equipment
and  furniture  and  equipment  of $149,000 (a reduction of over $2 million from
2002 for investments in property, equipment and software development costs). The
net cash  provided by  financing  activities  of  $11,242,279  was  attributable
primarily to net proceeds  generated  from the issuance of Common Stock  through
private placements, exercise of Common Stock Purchase Warrants, and net proceeds
generated through the issuance of the 12% Convertible Senior Notes offset by the
payment of long-term debt and capital leases of $557,441.                       

In connection with the May 2002 Stitch  acquisition  (Note 4 to the Consolidated
Financial Statements),  the Company assumed long term debt of $3,976,000,  which
included a vending equipment  borrowing  facility and working capital loans. The
Company repaid  $2,165,000 of the working  capital loans in June 2002 leaving an
outstanding  balance of $275,000.  These loans are secured by certain  assets of
Stitch. At June 30, 2003 $166,765 of working capital loans are outstanding which
bear  interest  at 6.75% per annum.  Such  loans  were  payable on July 8, 2002.
During fiscal year 2003 the bank extended the due date on these loans on several
occasions  under  forbearance  agreements.  At June 30, 2003, the Company was in
default under this working capital loan agreement.                              

      At June 30, 2003 and March 31, 2004 the Company  also has a bank  facility
(the  Facility),  which was  utilized to fund the  purchase of vending  machines
placed at locations  where Kodak film  products are sold.  Borrowings  were made
from time to time under the facility,  with repayment  schedules set at the time
of each  borrowing,  including  equal  monthly  payments  over 36 months  and an
interest  rate based  upon 495 basis  points  over the three year U.S.  Treasury
Notes.  The Company has  granted the bank a security  interest in these  vending
machines.  Repayment  of  principal is also insured by a Surety Bond issued by a
third-party insurer in exchange for an initial fee paid by the Company.         

      For the nine months ended March 31, 2004,  net cash of $7,653,857 was used
by operating activities,  primarily due to the net loss of $16,424,278 offset by
non-cash charges aggregating approximately $9,500,000 for transactions involving
issuing  Common Stock for services and in  connection  with the amendment to the
CEO's   employment   agreement,   depreciation   and   amortization  of  assets,
amortization of debt discount, loss on debt modifications relating to the Senior
Notes and  interest  expense  relating  to the  Senior  Notes paid  through  the
issuance of Common Stock and Common Stock Warrants, offset by a gain on the sale
of  investment  and gain on the  termination  of a contract.  In  addition,  the
Company's net operating  assets increased by $778,969  (primarily  inventory and
accounts receivable),  a substantial portion of which relates to the addition of
the energy conservation equipment line from the Bayview acquisition.            

      For the nine  months  ended  March 31,  2004,  net cash used in  investing
activities  was $257,351,  comprised of the cash  component of the investment in
Bayview,  purchases of property and equipment and the proceeds received from the
sale of a portion of the investment in the Jubilee Trust.                       

      Proceeds  from  financing  activities  for the nine months ended March 31,
2004 provided  $6,986,182 of funds,  which was necessary to support cash used in
operating and investing  activities.  Proceeds of $7,544,590  were realized from
several  private  placement  offerings of Common  Stock,  the exercise of Common
Stock Warrants and collection of Common Stock subscriptions receivable. Payments
of long-term debt and capital leases totaled $558,408.                          

      Long-term  debt  obligations  of the  Company as of March 31, 2004 were as
follows:                                                                        

Bank facility                               $377,653    
Working capital loans                         76,765    
Other, including capital lease obligations    42,462    
                                        --------
                                         496,880
Less current portion                         479,070    
                                        --------
                                        $ 17,810
                                        ========

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      The bank  facility  (the  Facility)  was  utilized to fund the purchase of
vending  machines  placed at  locations  where  Kodak  film  products  are sold.
Borrowings  were made  from time to time  under  the  Facility,  with  repayment
schedules set at the time of each borrowing,  including  equal monthly  payments
over 36 months and an interest  rate based upon 495 basis  points over the three
year U.S.  Treasury Notes.  The Company granted the bank a security  interest in
the vending  machines.  Repayment  of principal is also insured by a Surety Bond
issued by a  third-party  insurer in  exchange  for an  initial  fee paid by the
Company.  Final  maturity,  scheduled to extend into the fiscal year ending June
30, 2005,  is  anticipated  to occur during the year ending June 30, 2004 due to
the termination of the vending placement  agreement and the removal from service
and sale of the vending  machines used as collateral for the bank  facility.  As
described  above,  the debt,  with a balance  outstanding  at March 31,  2004 of
$377,653,  will be repaid no later  than the time  Stitch  returns  the  vending
machines to the supplier.                                                       

      In connection with the Stitch  acquisition,  the Company assumed long-term
debt which  included  a working  capital  loan.  This loan is secured by certain
assets of Stitch and bears interest at 6.75% per annum. On November 6, 2003, the
Company  reached an agreement  with the bank to make monthly  installments  that
will repay the remaining balance on the working capital loan by October 2004.   

      The Company has incurred losses since inception. For the nine months ended
March 31, 2004, the net loss was $16,424,278 of which  approximately  $9,500,000
related to non-cash  charges.  Cumulative losses through March 31, 2004 amounted
to approximately $91,600,000. The Company has continued to raise capital through
equity and debt offerings to fund operations.                                   

      The impact of the  Bayview  acquisition  on cash flows for the nine months
ended  March 31,  2004 was a net cash  outflow  of  approximately  $1,000,000  -
$300,000  of cash  used in  operations  and  $728,000  invested  in  assets  and
liabilities connected with the purchase. The structure of the acquisition of the
energy  conservation  equipment line from Bayview did not include  acquiring the
working  capital  required to support the business.  The nine months'  operating
cash flows reflected an investment for this working capital.                    

      On March 31, 2004,  the Company had  approximately  $1,500,000 of cash and
cash equivalents. As of June 30, 2004, the Company had cash and cash equivalents
of  approximately  $3,000,000.  These cash  balances  resulted from the proceeds
generated  from the various  private  placements of Common Stock that have taken
place during fiscal 2004, the most recent of which is the 2004-A  offering.  The
2004-A  offering  was  initiated  in February  2004 and  resulted in the sale of
28,290,833  shares at $0.15 per share.  Through March 31, 2004,  550,000  shares
were sold under this  offering  resulting  in gross  proceeds  of  $82,500,  and
subsequent  to this  date,  27,740,833  shares  were sold  under  this  offering
resulting in gross proceeds of $4,161,125. In addition,  warrants were exercised
during  the  three  months  ended  June 30,  2004  pursuant  to which  more than
20,000,000   shares  of  Common   Stock  were  issued   providing   proceeds  of
approximately $1,800,000.                                                       

      On June 18, 2004, we entered into a Common Stock  Purchase  Agreement with
Steve Illes. During the one year period following the date of effectiveness of a
registration  statement  covering the shares,  Illes has agreed to purchase from
USA shares of Common Stock,  provided that the aggregate  purchase price can not
exceed  $7,500,000.  Under the Agreement,  Illes is permitted to purchase Common
Stock from USA at any time at the price per share of $.30. In addition,  USA has
the right at any time to require Illes to purchase  Common Stock from USA at the
lower of: (i) $.30;  or (ii) 90% of the  closing bid price per share on the date
prior to the date of the delivery by USA to Illes of notice of his obligation to
purchase.  USA can require Illes to purchase  shares under the Agreement only if
the shares  have been  registered  by the  Company for resale by Illes under the
Act. During any calendar  month,  Illes is not permitted to purchase and can not
be required by USA to purchase  Common Stock for an aggregate  purchase price in
excess of  $700,000.  In July 2004,  the staff of the  Securities  and  Exchange
Commission indicated that because of the discretion given to Mr. Illes under the
agreement  to  purchase  shares  at any  time for  $.30  per  share,  it was not
appropriate  to register  the shares  unless  this  discretion  was  eliminated.
Promptly  following the date of this prospectus,  the Company intends to attempt
to renegotiate the agreement with Mr. Illes.  If the Company is successful,  the
Company intends to file a new registration statement covering the shares.       

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      During the year ended June 30, 2003, cash used in operating activities was
approximately  $750,000 per month. For the nine months ended March 31, 2004 cash
used in operating  activities was  approximately  $850,000 per month.  Operating
cash flows during the nine months ended March 31, 2004 were  impacted by working
capital  increases that were  disproportionate  to the increase in revenues,  as
well as the investment made in working capital to support the energy  management
equipment line acquired from Bayview.  The nine-month  period also absorbed cash
bonuses  of  approximately  $600,000,   primarily  to  the  Company's  executive
officers. The Company believes it can improve its management of working capital,
primarily  related to accounts  receivable,  and reduce  cash used in  operating
activities to approximately $700,000 per month, which is comparable to cash used
in  operating  activities  during the three  months  ended March 31,  2004.  The
foregoing estimated monthly cash requirement assumes no significant  increase in
revenues.  Using that as a basis for estimating cash  requirements  for the next
twelve months, along with requirements for capital expenditures and repayment of
long-term debt, the Company's cash needs would  approximate  $9,000,000  through
June 30, 2005.                                                                  

      If cash requirements  materialize over the next twelve months on the basis
described,  the Company would expect that the cash resources currently available
and in place should be  sufficient to provide  funding for its  operating  needs
over that period  considering  cash on hand as of June 30, 2004 and  anticipated
funding of up to $7,500,000 under the Common Stock Purchase Agreement with Steve
Illes.  If we are not successful in  renegotiating  our agreement with Mr. Illes
and timely  registering  the  shares,  the Company  would  attempt to enter into
appropriate financing arrangements with another investor, or raise the necessary
capital through  additional  private  placement  offerings of securities.  Other
sources of capital include (1) future  exercises of warrants for which there are
"in the money"  warrants with  exercise  prices below $0.11 per share that would
yield approximately  $1,000,000 based on the warrants  outstanding as of May 31,
2004 and (ii) the capital  markets  which the Company  believes are available to
raise funding if needed given its current  product  offerings and the markets it
is addressing.                                                                  

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The holders of $4,067,491 of our Senior Notes due December 31, 2007,  may have a
right to rescind the exchange of these notes for notes  originally  due December
31, 2004,  and demand that we return to them the  $4,067,491 of Senior Notes due
December  31,  2004.  As of May 31,  2004,  $3,404,490  of  these  notes  remain
outstanding. During the period from March 2003 through December 2003, we granted
to each holder of the Senior Notes due December 31, 2004 the right to extend the
notes until December 31, 2007 and in such event agreed that the conversion  rate
of the note would be  reduced  from $.40 to $.20.  On April 14,  2003 we filed a
registration  statement  which  included all of the shares  underlying  the 2007
notes.  Because the exchange  offering was not completed  prior to the filing of
that  Registration  Statement,  the exchange offer may be deemed to have been in
violation of the registration requirements of Section 5 of the Act. As a result,
we removed all of the shares  underlying  the 2007 Notes from that  registration
statement.  Generally,  the statute of limitations for this type of claim is one
year after the date of the alleged  violations and if successful,  would entitle
the note  holders to rescind the  issuance of the new notes to them and demand a
return of the 2004  notes.  If all of the note  holders  demanded  the return of
their notes, we would be obligated to repay the $4,067,491  principal  amount on
December  31, 2004  rather  than on December  31,  2007.  This  repayment  could
significantly exceed our cash reserves and require us to borrow funds (which may
not be  available)  and would  materially  and  adversely  affect our results of
operations and financial  condition.  Because of the reduced  conversion rate of
$.20 per share granted in connection  with the extension of the maturity date of
these notes, we do not anticipate that a significant  number of the noteholders,
if any, would demand the return of their old note.                              

Commitments                                                                     

During March 2003,  the Company  entered into a lease through  December 31, 2008
for 12,864  square  feet of space in  Malvern,  Pennsylvania  for its  principal
executive office.  The operating lease provides for escalating rent payments and
a period of free rent prior to the  commencement of the monthly lease payment in
January 2004 of approximately $25,000 per month.                                

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As a result of the  acquisition of Bayview,  the Company  assumed two additional
operating  leases for office space located in Denver  Colorado,  which expire in
June  2005.  The Denver  office  space  leases  6,742  square  feet of space for
approximately  $6,000 per month.  The lease  agreements  generally  require  the
Company to pay certain operating expenses, maintenance and property taxes.      

OTHER EVENTS                                                                    

From February  through June 2004, the Company sold  28,290,833  shares of Common
Stock  to 34  accredited  investors  at  $.15  per  share  for an  aggregate  of
$4,243,625.  During  June 2004,  the  Company  granted to each  investor  in the
offering a warrant to purchase one-half of a share for each share subscribed for
by such  investor in the  offering.  The Company  issued  warrants to purchase a
total of 14,145,417  shares.  The warrants are  exercisable at $.20 per share at
any time through  December  31, 2004.  We have agreed to register the shares and
the shares  underlying the warrants under the Act for resale for a period of two
years. The offer and sales of the shares was exempt from registration under Rule
506 promulgated  under Section 4(2) of the Act. All of the investors were either
pre-existing security holders or business associates. The offer and sale thereof
did not involve any  general  advertising  or  solicitation  and the  securities
contained appropriate restrictive legends under the Act.                        

In January 2004, we issued 538,592 shares and warrants to purchase up to 538,592
shares  to the  holders  of our  senior  notes  who  elected  to  receive  these
securities  in lieu of the  cash  interest  payment  due for the  quarter  ended
December 31, 2003 and for shares and warrants  pertaining to prior  quarters not
previously  registered.  The shares were purchased at the rate of $.20 per share
and the warrants are  exercisable  at $.20 per share at any time through  August
30, 2004.  We have agreed to register the shares and the shares  underlying  the
warrants under the Act for resale for a period of 2 years.  The securities  were
offered and sold under the  exemption  from  registration  set forth in Rule 506
promulgated  under the Act. All of the noteholders are accredited  investors and
existing security holders, and there was no general solicitation or advertising.

In June 2004,  we issued  warrants to purchase up to 3,716,496  shares of Common
Stock to the  holders of our  senior  notes who  elected  to receive  shares and
warrants in lieu of the cash  interest  payment due for the quarters  ended June
30, 2002,  September 30, 2002, December 31, 2002, March 31, 2003, June 30, 2003,
September 30, 2003 and December 31, 2003. For each warrant  previously issued to
the noteholder,  the noteholder received an additional warrant. The warrants are
exercisable  at $.20 per share at any time through  December  31, 2004.  We have
agreed to register the shares  underlying  the warrants under the Act for resale
for a period  of 2 years.  The  securities  were  offered  and  sold  under  the
exemption from registration set forth in Rule 506 promulgated under the Act. All
of the noteholders  are accredited  investors and existing  security  holders of
USA, and there was no general solicitation or advertising.                      

In January  2004,  we issued to  CEOCAST,  Inc.  a total of  150,000  shares for
services  to be rendered  to the  Company.  The offer and sale of the shares was
exempt from  registration  under Section 4(2) of the Act. The Company  agreed to
use its best efforts to register the shares for resale under the Act.           

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BUSINESS

USA Technologies,  Inc., a Pennsylvania corporation (the "Company"), was founded
in January 1992. Currently,  the Company's core business is its cashless payment
and control  network.  The  equipment  component of the network  consists of the
Company's client devices, e-Port and TransAct, and any associated equipment such
as copiers,  computers or vending  machines.  When sold to hotels,  the TransAct
plus office equipment is called the Business Express(R).  The e-Port or TransAct
client  device  allows a consumer to use a credit  card to make a purchase  from
host  equipment  such as  copiers,  computers  or vending  machines  and gathers
information about sales and operations of the host equipment.  The e-Port client
products  currently are targeted to the vending  industry.  USA Technologies has
historically  generated some revenues from the direct sale of this equipment.  A
second source of revenues is generated from product sales from our Kodak vending
machines.  In addition,  transaction  processing  revenue is recognized upon the
usage of the Company's  cashless payment and control  network.  Service fees for
access to the  Company's  equipment  and network  services are  recognized  on a
monthly basis.                                                                  

The Company's network brings  additional  benefits to the auditing and financial
services the Company provides its customers.  The auditing feature of our e-Port
and TransAct  client  products,  captures  supply  chain data (i.e.  units sold,
product sold, price of units sold) and other machine diagnostic information, and
transmits  this  information  back to either a customer's  network or to the USA
network for reporting.  The Company provides  financial  services  consisting of
turnkey  processing  of  unattended  cashless  transactions;  24x7x365  helpdesk
support for customer refunds and  troubleshooting and the reporting of sales and
inventory data. This service  generates  monthly network fees, plus  transaction
processing fees from the retention of a portion of the monies generated from all
credit card  transactions  conducted  through its  cashless  payment and control
network.                                                                        

Our cashless payment and control network operates as follows:                   

-        The consumer swipes a credit card through the e-Port or TransAct.      

-        The  e-Port or  TransAct  transmits  the  request  to the  credit  card
processor.                                                    

-        The e-Port or TransAct activates the equipment for use by the consumer.

-        Once the consumer  finishes  using the e-Port or TransAct,  the control
         system  transmits  a  record  of the  transaction  to the  credit  card
processor.                                                    

-        The credit card processor electronically transfers the proceeds derived
         from the  transaction,  less the credit card  processor's  charge (i.e.
transaction fees), to us.                                     

-        Finally,  we  forward  money  (check or  electronic)  to each  customer
representing its share of the proceeds.                       

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CASHLESS PAYMENT PROCESSING                                                     

Each of the  Company's  cashless  control  systems  records  and  transmits  all
transaction  data to the  Company,  which then  forwards  it to the credit  card
processor and related  system  involving the banks and the credit card companies
such as Visa,  MasterCard and American  Express.  Based on the transaction data,
the payment for services  rendered or product  purchased is then  electronically
transferred to the Company's bank (less various financial charges).  The Company
then forwards to the location it's agreed upon share of the funds, through check
or EFT. In hospitality, if the Company has sold the business center equipment to
the location,  the portion  retained by the Company is generally 5% of the gross
revenues. In cases where the Company continues to own the equipment, the portion
retained can be as high as 90% of gross revenues. In the Kodak program,  charges
for product have been negotiated to give Stitch a reasonable margin. In addition
the Company  charges a fixed monthly  management fee which is generally  $20-$25
per control system for existing hospitality locations.                          

PRODUCT LINES                                                                   

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THE E-PORT FOR VENDING                                                          

In general, our vending service enables:                                        

-        cashless transactions including credit cards, smart cards, student Ids,
PDAs and cell phones;                                         

-        real-time access to monitor  inventory,  sales, audit (cash and credit)
and machine maintenance via the Internet from any PC;         

-        the  potential  of an added  revenue  stream  with a LCD color  touch  
  screen for displaying interactive advertising and content on our
multi-media e-Port client product.                            

The e-Port  allows a consumer  to use a credit  card or other  forms of cashless
payment  to make a  purchase,  and also  gathers  information  about  sales  and
operations of the host equipment.  Additional  capabilities can include Internet
connectivity  and wireless  communications.  With some  additional  effort,  our
multi-media  e-Port client  product could offer the capability for public access
electronic  commerce and advertising.  The multi-media  e-Port client device has
had limited market acceptance to date.                                          

For the years ended June 30, 2003, June 30 2002, and the nine months ended March
31, 2004 the Company has  expensed  approximately  $1,505,000,  $1,187,000,  and
$474,000,  respectively for the development of its proprietary technology. These
amounts  include the expense of outside  consultants  and contractors as well as
compensation  paid to certain of the  Company's  employees  and is  reflected in
compensation  and  general  and  administrative   expense  in  the  accompanying
consolidated   financial   statements.   Through  March  31,  2003  the  Company
capitalized  approximately  $5.3 million for the services of IBM, to program the
enhancements to the Company's  proprietary  "USAlive" server network and for the
development of the e-Port client product  containing  multi-media  capabilities.
During the fourth quarter of fiscal 2002, the multi-media e-Port product and the
enhanced  network became  available for general release and thus began marketing
it to  the  Company's  customers.  Management  performed  an  evaluation  of the
commercial  success and preliminary  market acceptance of the multi-media e-Port
client product and the enhanced network and as a result of this evaluation,  due
mainly to the limited market  acceptance of the  multi-media  e-Port(TR)  client
product, the Company determined that the estimated future revenues less costs to
complete  and dispose of the  multi-media  e-Port (TM) client  product was zero.
Accordingly,  the Company recorded an impairment  charge of  approximately  $2.7
million of software  development costs related to the multi-media  e-Port client
product  reflecting the software  development costs at its net realizable value.
The Company  continues to market the multi-media  e-Port client product,  and to
date,  revenues generated from its sale have been  insignificant.  See Note 2 to
the Consolidated Financial Statements.                                          

With the  acquisition  of Stitch  Networks,  the  Company has  acquired  vending
business with Eastman Kodak. This consists of locating  specially designed Kodak
vending  machines  in high  profile  venues  across  the United  States  such as
amusement  parks,  zoos,  and sports  stadiums.  The vending  machines  dispense
disposable  cameras and associated film. This agreement will terminate  December
31, 2003, and after this date we will continue to receive on going revenues from
the  approximately  286  placements  in service.  As discussed  in  Management's
Discussion and Analysis of Financial  Condition and Results of  Operations,  the
Kodak agreement was terminated effective December 31, 2003.                     

THE BUSINESS EXPRESS (R) FOR HOTELS                                             

The  hotel/motel  hospitality  industry  has become more  competitive  as chains
increase efforts to attract the most profitable customer:  the business traveler
or conference attendee, who accounts for the majority of hotel occupancy,  stays
longer and spends more per visit than the leisure  traveler.  For these reasons,
hotels  have  become  responsive  to the  needs of the  business  traveler.  The
Business Express enables a hotel to address some of these needs,  while offering
the possibility of generating incremental revenue.                              

The Business Express utilizes the Company's existing applications for computers,
copiers, and facsimile equipment,  and combines them into a branded product in a
functional  kiosk  type  workstation.   All  devices  are  cashless,   therefore
eliminating  the  need  for an  attendant  normally  required  to  provide  such
services.                                                                       

Our hotel service enables:                                                      

-        cashless transactions using credit cards and room cards for payment;   

-        access to unattended 24/7 business center services for hotel guests;   

-        access to vending  machines for hotel guests with the use of their room
card.                                                         

E-SUDS (TM) FOR LAUNDRY                                                         

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With the acquisition of Stitch Networks, the Company acquired additional product
line  enhancements.  One such  enhancement is our university  laundry  services,
which enable:                                                                   

-        students to go on-line and check the  availability of laundry  machines
     and receive email or a page when their laundry cycles are complete;

-        students  to charge the cost of their  laundry to their  credit card or
student account;                                              

-        laundry operators to access inventory, sales, audit and maintenance via
the Internet from any PC;                                     

-        laundry  operators to benefit from additional  revenue through the sale
of detergent automatically added to the wash cycle.           

There are minimal  revenues in the year ended June 30, 2003 for this product due
to it currently being under development.                                        

Through the acquisition of substantially all of the assets of Bayview Technology
Group,  LLC  (Bayview)  in July 2003,  the Company now designs and  manufactures
patented  energy  conservation  devices for  equipment  such as laser  printers,
monitors,  office  peripherals,  refrigerated  vending  machines and glass front
merchandisers (referred to as slide or visi coolers).  These energy conservation
products reduce power  consumption of various types of equipment by allowing the
equipment to operate in power saving mode when full power mode is not necessary.
These  devices,  which  include  the  VendingMiser,   CoolerMiser,   SnackMiser,
MonitorMiser and LaserMiser can use activity, occupancy,  temperature, timing or
other various methods of determining which mode it should be in. Route to market
for the  energy  conservation  products  is much the  same as for the  Company's
e-Port technology,  with the notable addition of governmental and utility rebate
and give-away  programs  where part or all of the cost of the energy  management
products  is covered  by  government  funds  available  for energy  conservation
projects.                                                                       

ENERGY CONSERVATION PRODUCTS                                                    

With the  acquisition  of Bayview in July 2003,  the  Company has  acquired  the
following additional products:                                                  

-        VendingMiser(TM) installs in a cold drink  vending  machine and reduces
    the power consumption of the vending machine by an average of 46%;

-        CoolerMiser  reduces  the  energy  used by  sliding  glass or pull open
glass-front coolers that contain non-perishable goods;        

-        SnackMiser  reduces the amount of electricity used by  non-refrigerated
snack vending machines;                                       

-        MonitorMiser Plus is a computer monitor power controller. It works with
         all  operating  systems and performs by powering down the monitor based
upon keyboard or mouse activity;                              

-        LaserMiser  provides energy  conservation  to laser printers,  shutting
         them  down when they are idle.  It is a  plug-and-play  device  that is
         software  transparent  and capable of handling any laser printer with a
parallel or serial connection;                                

-        Internal   VendingMiser   (IVM)  is  the  second   generation   of  the
         VendingMiser  in  development.  It  installs  into cold  drink  vending
         machines and has the  capability to control the cooling  system and the
advertising lights separately.                                

MARKETING                                                                       

As of May 31, 2004,  the Company was marketing and selling its products  through
its full time staff consisting of two people.  The Company is primarily  focused
on the vending, hospitality, kiosk and laundry industries.                      

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Within the vending  industry,  our e-Port (TM) client product is being purchased
by soft drink bottlers and independent  vending operators  throughout the United
States.  On the soft drink bottler side, heavy effort is being put into securing
initial  distribution  agreements with the top ten Coke and Pepsi bottlers,  and
Dr.  Pepper.  Three  of the  premier  national  independent  vending  operators,
Compass,  ARAMARK and  Sodexho,  have already  installed  e-Port (TM) in various
locations.  One major vending operator,  International  Vending Management,  has
signed a contract with the Company  although  nominal  revenues have resulted to
date from this contract.                                                        

In March 2002, the Company signed an agreement with MEI (Mars Electronics),  who
agreed to sell and  distribute  an MEI  branded  cashless  payment  system to be
developed by the Company,  as part of its  portfolio  of vending  solutions.  By
contract,  MEI has committed to buy a minimum of 10,000 units of the USA product
over the course of 24 month  agreement or pay the Company $4.00 per unit for any
shortfall.  Commercial  availability  is planned for winter 2003 and through the
date hereof no revenues have been generated from this arrangement.              

The Company continues to work with the top vending machine  manufacturers  (OEM)
in order to  incorporate  our e-Port  (TM)  technology  into newly  manufactured
vending machines coming off the factory assembly line. In addition,  the Company
continues  to sell to and increase the number of  authorized  resellers  for its
products. In the hospitality  industry,  Business Express continues to be one of
the premier  solutions for automated  business  centers.  The addition of e-Port
(TM)  technology for vending  machines  located in hotels now offers a "one-stop
shopping"  experience  to hotels that have or are  considering  purchasing a USA
business center.                                                                

Within the laundry  industry,  American  Sales Inc. (ASI) has signed a five-year
agreement  to  purchase  units of Stitch's  e-Suds  laundry  solution  for their
university  locations in the Midwest.  Through the date hereof,  the Company has
finalized  product  commercialization.  In June 2004, the Company  realized unit
sales under this contract.                                                      

In October 2002,  the Company signed a Strategic  Alliance  Agreement with ZiLOG
Corporation,  a semiconductor  company that is a supplier of  microprocessors to
the  retail  point  of  sale  industry.   The  agreement  allows  the  Company's
proprietary  network  software  (USALive)  to be embedded on a chip  produced by
ZiLOG. The Company would license its software to the purchaser and would receive
a license fee. A second revenue stream could be generated when those who buy the
retail point of sales terminals  begin to use them,  because they could elect to
use the USA network  which is embedded on the chip  procurement.  As of the date
hereof,  no products have been available for commercial use and accordingly,  no
revenues have been generated.                                                   

The Company utilizes  independent third party companies for the manufacturing of
its  e-Port(TM)  product line.  The Company  purchases  other  components of its
business center  (computers,  printers,  fax and copy machines)  through various
manufacturers. Orders are regularly placed for expected orders weeks in advance.

COMPETITION                                                                     

We are aware of three  competitors who offer unattended  business centers in the
hospitality  industry in competition with the Business Express.  We believe that
our products  (currently  located in over 400  locations)  are in  approximately

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seventy-five  percent of the locations currently  utilizing  unattended business
centers. We are aware of one competitor in regards to our e-Port control systems
for use in the beverage vending industry. There are at the present time very few
installations of this product.                                                  

In  addition,  the  businesses  which have  developed  unattended,  credit  card
activated   control  systems  currently  in  use  in  connection  with  gasoline
dispensing,  public  telephones,  prepaid  telephone  cards,  ticket  dispensing
machines,   vending  machines,  or  facsimile  machines,  might  be  capable  of
developing  products or utilizing their existing products in direct  competition
with our e-port control systems targeted to the beverage vending industry.  Many
of these businesses are well established,  have substantially  greater resources
than  the  Company  and  have   established   reputations  for  success  in  the
development,  sale and  service of high  quality  products.  Any such  increased
competition  may result in  reduced  sales  and/or  lower  percentages  of gross
revenues  being  retained  by the  Company  in  connection  with  its  licensing
arrangements,  or otherwise may reduce potential  profits or result in a loss of
some  or all of its  customer  base.  The  Company  is  also  aware  of  several
businesses that make available use of the Internet and use of personal computers
to hotel  guests in their hotel  rooms.  Such  services  might  compete with the
Company's  Business  Express,  and the  locations  may not  order  the  Business
Express, or if ordered, the hotel guest may not use it.                         

TRADEMARKS, PROPRIETARY INFORMATION AND PATENTS                                 

The Company received federal registration  approval of the following trademarks:
Business Express, Express Solutions,  C3X, TransAct, Public PC, PC Express, Copy
Express,  Credit Card Copy Express,  Credit Card Computer  Express,  Credit Card
Printer Express,  Credit Card Microfiche Express, Credit Card Debit Express, The
Office That Never  Sleeps,  Intelligent  Vending and  e-Port(TM).  The following
trademarks are pending federal registration: USALive, Dial-A-Vend, Dial-A-Snack,
Dial-A-Vend.com,  e-Port The Next Generation in Vending and CineMachine. Through
its wholly  owned  subsidiary,  Stitch  Networks,  the  Company  has secured one
registered   trademark   eVend.net  and  three   trademarks   that  are  pending
registration: eSuds.net, E-ppliance and Stitch Networks. In addition, due to the
July 2003  acquisition  of Bayview,  the  Company  has secured the  VendingMiser
trademark and the trademark SnackMiser is pending federal registration.         

Much of the technology developed or to be developed by the Company is subject to
trade secret  protection.  To reduce the risk of loss of trade secret protection
through disclosure, the Company has entered into confidentiality agreements with
its key employees. There can be no assurance that the Company will be successful
in  maintaining  such trade secret  protection,  that they will be recognized as
trade  secrets by a court of law, or that others will not  capitalize on certain
of the Company's technology.                                                    

Through May 31, 2004, 47 United States patents and 2 Canadian  patents have been
issued to the Company  (including 4 patents acquired in July 2003 from Bayview).
39 patents are pending (including 2 Canadian and 5 acquired from Bayview).      

The list of issued patents is as follows:                                       

o   U.S. Patent No.  5,619,024  entitled "Credit Card and Bank Issued Debit Card
    Operating  System  and  Method  for  Controlling  and  Monitoring  Access of
Computer and Copy Equipment";                                           

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o   U.S.  Patent No.  5,637,845  entitled  "Credit  and Bank  Issued  Debit Card
    Operating    System   and   Method   for    Controlling   a   Prepaid   Card
Encoding/Dispensing Machine";                                           

o   U.S. Patent No. D423,474 entitled "Dataport";                               

o   U.S. Patent No. D415,742 entitled "Laptop Dataport Enclosure";              

o   U.S. Patent No. D418,878 entitled "Sign Holder";                            

o   U.S.  Patent No.  6,056,194  entitled  "System and Method for Networking and
Controlling Vending Machines";                                          

o   U.S. Patent No. D428,047 entitled "Electronic Commerce Terminal Enclosure"; 

o   U.S. Patent No. D428,444 entitled  "Electronic  Commerce Terminal  Enclosure
for a Vending Machine";                                                 

o   U.S. Patent No. 6,119,934  entitled "Credit Card, Smart Card and Bank Issued
    Debit  Card   Operated   System  and   Method  for   Processing   Electronic
Transactions";                                                          

o   U.S.  Patent No.  6,152,365  entitled  "Credit  and Bank  Issued  Debit Card
Operated System and Method for Controlling a Vending Machine";          

o   U.S. Patent No. D437,890 entitled  "Electronic  Commerce Terminal  Enclosure
with a Hooked Fastening Edge for a Vending Machine";                    

o   U.S. Patent No. D441,401 entitled  "Electronic  Commerce Terminal  Enclosure
with Brackets";                                                         

o   U.S.  Patent No.  6,321,985  entitled  "System and Method for Networking and
Controlling Vending Machines";                                          

o   U.S.  Patent No.  6,505,095  entitled  "System for  Providing  Remote Audit,
    Cashless  Payment,  and  Interactive  Transaction  Capabilities in a Vending
Machine";                                                               

o   U.S. Patent No. 6,389,337  entitled  "Transacting  e-commerce and Conducting
    e-business  Related to  Identifying  and  Procuring  Automotive  Service and
Vehicle Replacement Parts";                                             

o   U.S. Patent No. 6,021,626 entitled "Forming,  Packaging, Storing, Displaying
and Selling Clothing Articles"; and                                     

o   U.S.  Patent No.  6,152,845  entitled  "Credit  and Bank  Issued  Debit Card
    Operated    System   and   Method   for    Controlling    a   Prepaid   Card
Encoding/Dispensing Machine";                                           

o   U.S Patent No. 6,622,124 entitled "Method of transacting an electronic mail,
    an  electronic  commerce,  and  an  electronic  business  transaction  by an
electronic commerce terminal operated on a transportation vehicle";     

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o   U.S.  Patent  No.  6,615,186  entitled  "Communicating  interactive  digital
    content between  vehicles and internet based data  processing  resources for
the purpose of transacting e-commerce or conducting e-business";        

o   U.S. Patent No. 6,615,183  entitled "Method of warehousing user data entered
at an electronic commerce terminal";                                    

o   U.S. Patent No.  6,611,810  entitled  "Store display window  connected to an
electronic commerce terminal";                                          

o   U.S.  Patent  No.  6,609,103  entitled  "Electronic  commerce  terminal  for
facilitating incentive-based purchasing on transportation vehicles";    

o   U.S. Patent No. 6,609,102 entitled  "Universal  interactive  advertising and
    payment system for public access  electronic  commerce and business  related
products and services";                                                 

o   U.S. Patent No. D478,577 entitled "Transceiver base unit";                  

o   U.S. Patent No. 6,606,605  entitled "Method to obtain customer specific data
for public access electronic commerce services";                        

o   U.S. Patent No.  6,606,602  entitled  "Vending machine control system having
    access to the internet for the purposes of transacting  e-mail,  e-commerce,
and e-business, and for conducting vending transactions";               

o   U.S. Patent No. 6,604,087 entitled "Vending access to the internet, business
application software, e-commerce, and e-business in a hotel room";      

o   U.S. Patent No. 6,604,086 entitled  "Electronic  commerce terminal connected
to a vending machine operable as a telephone";                          

o   U.S. Patent No. 6,604,085 entitled  "Universal  interactive  advertising and
    payment  system network for public access  electronic  commerce and business
related products and services";                                         

o   U.S.  Patent  No.  6,601,040  entitled  "Electronic  commerce  terminal  for
wirelessly communicating to a plurality of communication devices";      

o   U.S. Patent No. 6,601,039 entitled "Gas pump control system having access to
    the  Internet  for the  purposes  of  transacting  e-mail,  e-commerce,  and
e-business, and for conducting vending transactions";                   

o   U.S. Patent No. 6,601,038 entitled "Delivery of goods and services resultant
    from an  electronic  commerce  transaction  by way of a pack and  ship  type
company";                                                               

o   U.S. Patent No. 6,601,037  entitled "System and method of processing  credit
    card, e-commerce, and e-business transactions without the merchant incurring
transaction processing fees or charges worldwide";                      

o   U.S.  Patent  No.  D477,030   entitled  "Vending  machine  cashless  payment
terminal";                                                              

o   U.S.  Patent No. D476,037  entitled "User  interface  bracket for a point of
sale terminal";                                                         

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o   U.S.  Patent  No.  D476,036  entitled  "Printer  bracket  for  point of sale
terminal";                                                              

o   U.S.  Patent No. D475,751  entitled "User  interface  bracket for a point of
sale terminal";                                                         

o   U.S.  Patent  No.  D475,750  entitled  "Paper  guide  for a  point  of  sale
terminal";                                                              

o   U.S.  Patent  No.  D475,414  entitled  "Printer  bracket  for  point of sale
terminal";                                                              

o   U.S. Patent No. 5,844,808 entitled "Apparatus and methods for monitoring and
communicating with a plurality of networked vending machines";          

o   U.S. Patent No. 6,581,396 entitled  "Refrigerated vending machine exploiting
expanded temperature variance during power-conservation mode";          

o   U.S. Patent No. 6,389,822 entitled  "Refrigerated vending machine exploiting
expanded temperature variance during power-conservation mode";          

o   U.S. Patent No. 6,243,626  entitled  "External power management  device with
current monitoring precluding shutdown during high current"; and        

o   U.S. Patent No. 5,477,476 entitled "Power  conservation  system for computer
peripherals";                                                           

o   U.S.  Patent  No.  6,629,080  entitled  "Transaction  processing  method  of
    fulfilling  an electronic  commerce  transaction  by an electronic  commerce
terminal system";                                                       

o   Canadian Patent No. D199-1014 entitled "Sign Holder";                       

o   Canadian Patent No. D199-1038 entitled "Laptop Data Port Enclosure".        

The Company  believes that the U.S. patent No.  6,505,095  entitled  "System for
providing  remote  audit,   cashless   payment,   and  interactive   transaction
capabilities  in  a  vending  machine"  is  very  important  in  protecting  its
intellectual  property used in its e-Port control system targeted to the vending
industry. The patent expires in July 2021.                                      

Employees                                                                       

On May 31, 2004,  the Company had 46  full-time  employees.  In  addition,  as a
result of the  purchase  of  Bayview on July 11,  2003,  the  Company  currently
utilizes the services of 2 full-time independent contractors to Bayview.        

Properties                                                                      

During March 2003,  the Company  entered into a lease through  December 31, 2008
for 12,864  square  feet of space in  Malvern,  PA for its  principal  executive
office.  The operating  lease provides for escalating rent payments and a period
of free rent prior to the  commencement  of the monthly lease payment in January
2004 of approximately $25,000 per month.                                        

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As a result of the July 2003  acquisition  of Bayview,  the Company  assumed two
additional operating leases for office space located in Denver,  Colorado, which
expire in June 2005.  The Denver  office space leases 6,742 square feet of space
for approximately  $6,000 per month. The lease agreements  generally require the
Company to pay certain operating expenses, maintenance and property taxes.      

Where to get more information                                                   

We file annual,  quarterly and special  reports and other  information  with the
SEC. You may read and copy any document we file with the SEC at the SEC`s Public
Reference Room, 450 Fifth Street, N.W.,  Washington,  D.C. 20549. You may obtain
information on the operation of the public  reference room by calling the SEC at
1-800-SEC-0330.  The same information may be obtained at the following  Regional
Office of the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public  Reference  Section
of the SEC`s Washington, D.C. office at prescribed rates.                       

Our   filings   may   also   be   accessed    through   the   SEC`s   web   site
(http://www.sec.gov).   We  will  provide  a  copy  of  any  or  all   documents
incorporated by reference herein (exclusive of exhibits unless such exhibits are
specifically incorporated by reference therein),  without charge, to each person
to whom this  prospectus  is  delivered,  upon  written  or oral  request to USA
Technologies,  Inc., 100 Deerfield Lane, Suite 140, Malvern, Pennsylvania 19355,
Attn: George R. Jensen, Jr., Chief Executive Officer (telephone (610) 989-0340).

We will furnish record holders of our securities with annual reports  containing
financial  statements  audited and reported  upon by our  independent  auditors,
quarterly reports containing unaudited interim financial  information,  and such
other  periodic  reports  as we may  determine  to be  appropriate  or as may be
required by law.                                                                

MANAGEMENT

Directors and Executive Officers                                                

Our Directors and executive  officers, on May 31, 2004, together with their ages
and business backgrounds were as follows:                                       

Name                                  Age      Position(s) Held                 
----                                  ---      ----------------                 
George R. Jensen, Jr.                 55       Chief Executive Officer,         
                                      Chairman of the Board of
                       Directors
Stephen P. Herbert                    41       President, Director              
Haven Brock Kolls, Jr.                37       Vice President - Research and    
                         Development
Mary West Young                       49       Chief Financial Officer          
William W. Sellers (1)(2)             81       Director                         
William L. Van Alen, Jr. (1)(2)       69       Director                         
Steven Katz (1)                       54       Director                         
Douglas M. Lurio (2)                  47       Director                         

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(1) Member of Compensation Committee                                            
(2) Member of Audit Committee                                                   

Each Director  holds office until the next Annual  Meeting of  shareholders  and
until his successor has been elected and qualified.                             

George R. Jensen, Jr., has been our Chief Executive Officer and a Director since
our inception in January 1992.  Mr.  Jensen was  Chairman,  Director,  and Chief
Executive  Officer of American Film  Technologies,  Inc. ("AFT") from 1985 until
1992.   AFT  was  in  the  business  of  creating   color  imaged   versions  of
black-and-white films. From 1979 to 1985, Mr. Jensen was Chief Executive Officer
and  President  of  International  Film  Productions,  Inc.  Mr.  Jensen was the
Executive  Producer of the twelve hour miniseries,  "A.D.", a $35 million dollar
production  filmed in Tunisia.  Procter and Gamble,  Inc., the primary source of
funds,  co-produced  and sponsored the epic,  which aired in March 1985 for five
consecutive  nights  on the NBC  network.  Mr.  Jensen  was also  the  Executive
Producer  for the 1983  special  for public  television,  "A Tribute to Princess
Grace". From 1971 to 1978, Mr. Jensen was a securities broker, primarily for the
firm of Smith Barney,  Harris Upham. Mr. Jensen was chosen 1989  Entrepreneur of
the Year in the high technology category for the Philadelphia, Pennsylvania area
by Ernst & Young LLP and Inc.  Magazine.  Mr.  Jensen  received  his Bachelor of
Science  Degree  from the  University  of  Tennessee  and is a  graduate  of the
Advanced  Management  Program  at  the  Wharton  School  of  the  University  of
Pennsylvania.                                                                   

Stephen P.  Herbert was  elected a Director  in April 1996,  and joined USA on a
full-time basis on May 6, 1996.  Prior to joining us and since 1986, Mr. Herbert
had been employed by  Pepsi-Cola,  the beverage  division of PepsiCo,  Inc. From
1994 to April  1996,  Mr.  Herbert  was a Manager  of Market  Strategy.  In such
position he was responsible for directing development of market strategy for the
vending channel and subsequently the supermarket channel for Pepsi-Cola in North
America.  Prior thereto, Mr. Herbert held various sales and management positions
with  Pepsi-Cola.  Mr. Herbert  graduated with a Bachelor of Science degree from
Louisiana State University.                                                     

Haven Brock Kolls, Jr., joined USA Technologies on a full-time basis in May 1994
and was elected an executive  officer in August 1994. From January 1992 to April
1994,  Mr. Kolls was Director of  Engineering  for  International  Trade Agency,
Inc., an engineering firm specializing in the development of control systems and
management software packages for use in the vending machine industry.  Mr. Kolls
was an  electrical  engineer for Plateau Inc.  from 1988 to December  1992.  His
responsibilities included mechanical and electrical computer-aided  engineering,
digital electronic hardware design, circuit board design and layout, fabrication
of system  prototypes and software  development.  Mr. Kolls is a graduate of the
University of Tennessee with a Bachelor of Science Degree in Engineering.       

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Mary West  Young  joined  USA in April  2004 and was  named our Chief  Financial
Officer  in May  2004.  From 2001 to 2003,  Ms.  Young  served  as  Senior  Vice
President-Finance,  Controller and Chief Accounting  Officer of RCN Corporation,
and from 1998 to 2000 she  served as Vice  President  -  Finance  and  Corporate
Controller for De Lage Landen  Financial  Services,  Inc. Ms. Young held several
management positions in International, Treasury and Accounting with Verizon from
1984 to 1992 and 1994 to 1998.  Ms.  Young  received her Bachelor of Science and
Masters of Business  Administration  degrees from La Salle  University  and is a
Certified Public Accountant.                                                    

William W. Sellers joined the Board of Directors of USA in May 1993. Mr. Sellers
founded The Sellers Company in 1949, which has been nationally recognized as the
leader in the design  and  manufacture  of  state-of-the-art  equipment  for the
paving  industry.  Mr.  Sellers has been awarded five United States  patents and
several Canadian patents  pertaining to this equipment.  The Sellers Company was
sold to Mechtron  International in 1985. Mr. Sellers is Chairman of the Board of
Sellers Process Equipment Company,  which sells products and systems to the food
and other  industries.  Mr. Sellers is actively  involved in his community.  Mr.
Sellers received his undergraduate degree from the University of Pennsylvania.  

William L. Van Alen,  Jr., joined the Board of Directors of USA in May 1993. Mr.
Van Alen is  President  of  Cornerstone  Entertainment,  Inc.,  an  organization
engaged in the  production  of feature  films of which he was a founder in 1985.
Since 1996,  Mr. Van Alen has been  President and a Director of The Noah Fund, a
publicly  traded  mutual  fund.  Prior to 1985,  Mr. Van Alen  practiced  law in
Pennsylvania  for  twenty-two  years.  Mr. Van Alen  received his  undergraduate
degree in Economics from the University of Pennsylvania  and his law degree from
Villanova Law School.                                                           

Steven Katz joined the Board of Directors in May 1999. He is President of Steven
Katz & Associates,  Inc., a management consulting firm specializing in strategic
planning and corporate development for technology and service-based companies in
the health care,  environmental,  telecommunications  and Internet markets.  Mr.
Katz`s prior experience includes five years with PriceWaterhouse & Co. in audit,
tax and  management  advisory  services;  two years of corporate  planning  with
Revlon, Inc.; five years with National Patent Development  Corporation (NPDC) in
strategic  planning,   merger  and  acquisition,   technology  in-licensing  and
out-licensing,  and corporate  turnaround  experience as President of three NPDC
subsidiaries;  and two  years  as a Vice  President  and  General  Manager  of a
non-banking division of Citicorp, N.A.                                          

Douglas M. Lurio joined the Board of Directors of USA in June 1999. Mr. Lurio is
President of Lurio &  Associates,  P.C.,  attorneys-at-law,  which he founded in
1991. He  specializes  in the practice of corporate and  securities  law.  Prior
thereto, he was a partner with Dilworth, Paxson LLP. Mr. Lurio received Bachelor
of Arts Degree in Government  from Franklin & Marshall  College,  a Juris Doctor
Degree from Villanova Law School,  and a Masters in Law  (Taxation)  from Temple
Law School.                                                                     

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EXECUTIVE COMPENSATION                                                          

The following table sets forth certain  information with respect to compensation
paid or accrued by the Company during the fiscal years ended June 30, 2001, June
30, 2002 and June 30, 2003 to each of the executive officers and employee of the
Company named below.                                                            

Summary Compensation Table

                                                        [Enlarge/Download Table]

                                Fiscal                                                                             
Name and Principal Position     Year                Annual Compensation                   Long Term Compensation   
------------------------------ ------      ----------------------------------------     ---------------------------
                                           Salary        Bonus         Other              Restricted   Securities  
                                                         (1)           Annual             Stock        Underlying  
                                                                       Compensation       Awards       Options (3) 
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
George R. Jensen, Jr.,           2003      $189,038      $250,000      $223,211(2)            --            --     
Chief Executive Officer,         2002      $135,000      $288,000      $ 80,000(2)            --       320,000     
                                 2001      $135,000      $140,000            --               --       300,000     

Stephen P. Herbert,              2003      $183,854      $225,000      $185,317(2)            --            --     
President                        2002      $125,000      $270,000      $ 80,000(2)            --       300,000     
                                 2001      $125,000      $134,400            --               --        80,000     

Leland P. Maxwell, Chief         2003      $120,000      $ 85,845      $ 89,190(2)            --            --     
Financial Officer(4)             2002      $110,308      $151,200            --               --       130,000     
                                 2001      $108,000      $ 44,240            --               --        50,000     

H. Brock Kolls, Senior Vice      2003      $150,000      $ 25,000      $ 64,493(2)            --            --     
President, Research &            2002      $125,769      $180,000      $ 50,000(2)            --       250,000     
Development                      2001      $120,000      $ 97,440            --               --        80,000     

Michael K. Lawlor, Senior        2003      $120,000      $103,252      $ 89,190(2)            --            --     
Vice President, Sales and        2002      $103,846      $151,200            --               --       130,000     
Marketing(4)                     2001      $100,000      $ 38,640            --               --        50,000     

Adele H. Hepburn                 2003      $ 91,000      $282,382            --               --            --     
Director of Investor             2002      $ 91,000      $472,609            --               --       500,000     
Relations                        2001      $ 91,000      $171,700            --               --            --     

(1) For  fiscal  year  2001,  represents  shares of Common  Stock  issued to the
executive officers during the fiscal year valued at $1.12 per share, the closing
bid price on the date of  issuance.  For Mr.  Lawlor,  the bonus  also  includes
$1,265 sales commission. For fiscal year 2002, represents shares of Common Stock
issued to the executive officers valued at $0.45 per share, which was the market
value on the date of  grant  (Mr.  Jensen-640,000  shares;  Mr.  Herbert-600,000
shares;  Mr.  Kolls-400,000   shares;  Mr.   Maxwell-260,000   shares;  and  Mr.
Lawlor-260,000  shares).  For Mr. Maxwell and Mr. Lawlor in 2002, the bonus also
includes  90,000  shares of Common Stock  valued at $0.38,  which was the market
price on the day of grant.  This  stock was  awarded to  reimburse  them for tax
payments  incurred  as a result  of the  award of a  previous  bonus.  For Adele
Hepburn in fiscal 2002, the bonus includes $408,267 of non cash compensation, as
follows: 435,334 shares of Common Stock at $0.60; 384,334 shares at $0.10; and a
$108,834 2001 - D 12% Senior Notes due December 31, 2003.  For fiscal year 2003,
includes a $100,000  Senior Note due 2005,  including  200,000  shares valued at
$.20, and $150,000 cash bonus for Mr. Jensen and $100,000  Senior Note due 2005,
including 200,000 shares valued at $0.20 and $125,000 cash bonus for Mr. Herbert
and a $25,000  cash bonus for Mr.  Kolls;  and a $100,000  Senior Note due 2005,
including  200,000  shares valued at $.20 per share,  a $41,095  Senior Note due
2004, and $100,000 cash bonus for Ms. Hepburn.                                  

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(2) Represents cash payments  authorized to reimburse certain executive officers
for tax  payments  incurred  from the award of a  previous  bonus as well as car
allowance payments.                                                             

(3) In July 1999, the Company  extended the expiration dates until June 30, 2001
of the  options  to  acquire  Common  Stock  held  by the  following  directors,
officers, and employee:  Adele Hepburn - 77,000 options; H. Brock Kolls - 20,000
options;  William  Sellers  -  15,500  options;  and  William  Van Alen - 12,500
options.  All of the  foregoing  options  would  have  expired  in the first two
calendar  quarters of the year 2000 or the first calendar  quarter of year 2001.
In February 2001,  all these options were further  extended until June 30, 2003,
and in addition the expiration  dates of the following  additional  options were
also extended to June 30, 2003: H. Brock Kolls - 20,000 options; Stephen Herbert
- 40,000  options;  Michael  Lawlor - 3,750  options;  George  Jensen -  200,000
options.  In October 2000,  the Company  issued to George R. Jensen,  Jr., fully
vested  options to acquire  up to  200,000  shares of Common  Stock at $1.50 per
share.  The options  were  exercisable  at any time  within two years  following
issuance.  In February 2001, the Company  extended the expiration  date of these
options until June 30, 2003. Effective December 31, 2002, all of the outstanding
options  (whether  vested  or  unvested)  then held by each of  Messrs.  Jensen,
Herbert,  Kolls,  Maxwell,  Sellers,  Van Alen,  Katz,  Lurio and  Boynton  were
voluntarily canceled by each of the foregoing individuals.                      

(4) Employed by the Company through June 30, 2003.                              

During  the  fiscal  year  ended  June 30,  2003,  there were no grants of stock
options to the executive officers or the employee named above.                  

TOTAL OPTIONS EXERCISED IN FISCAL YEAR ENDED JUNE 30, 2003 AND YEAR END VALUES  

The following table gives information for options exercised by each of the named
executive  officers  and an  employee  in fiscal  year  2003,  and the number of
options held by these executive officers and an employee at fiscal year end:    

                                                        [Enlarge/Download Table]

                                                                  Number of                             
                                                                  Securities            Value of        
                                                                  Underlying            Unexercised     
                                                                  Unexercised           In-the -Money   
                                                                  Options at            Options at      
                                                                  FY-End (#)            FY-End($)       
                            Shares Acquired                       Exercisable/          Exercisable/    
Name                        On Exercise (#)  Value Realized ($)   Unexersisabble        Unexercisable   
--------------------------------------------------------------------------------------------------------
                                                                                                        
Adele H. Hepburn            0                0                    77,000/0              0               
--------------------------------------------------------------------------------------------------------

During the fiscal year ended June 30, 2003,  there were no options  exercised by
the executive  officers and there were no options held by executive  officers at
fiscal year end.                                                                

EXECUTIVE EMPLOYMENT AGREEMENTS                                                 

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The Company has entered  into an  employment  agreement  with Mr.  Jensen  which
expires June 30, 2005, and is automatically renewed from year to year thereafter
unless  canceled by Mr.  Jensen or the Company.  The  agreement  provides for an
annual base salary of $250,000 effective January 1, 2004. Mr. Jensen is entitled
to  receive  such  bonus or  bonuses  as may be  awarded  to him by the Board of
Directors.  In determining  whether to pay such a bonus, the Board would use its
subjective discretion. The Agreement requires Mr. Jensen to devote his full time
and attention to the business and affairs of the Company,  and obligates him not
to engage in any investments or activities  which would compete with the Company
during the term of the Agreement and for a period of one year thereafter.       

The  agreement  also grants to Mr. Jensen in the event a "USA  Transaction"  (as
defined  below) occurs after the date thereof an aggregate of 14,000,000  shares
of Common Stock subject to adjustment  for stock splits or combinations ("Jensen
Shares"). Mr. Jensen is not required to pay any additional consideration for the
Jensen Shares. At the time of any USA Transaction,  all of the Jensen Shares are
automatically  deemed to be issued and outstanding  immediately prior to any USA
Transaction,  and are entitled to be treated as any other issued and outstanding
shares of Common Stock in connection with such USA Transaction.                 

The term USA Transaction is defined as (i) the acquisition of fifty-one  percent
or more of the then outstanding voting securities  entitled to vote generally in
the election of Directors of the Company by any person, entity or group, or (ii)
the approval by the  shareholders  of the Company of a  reorganization,  merger,
consolidation,  liquidation,  or  dissolution  of  the  Company,  or  the  sale,
transfer,  lease or other  disposition of all or substantially all of the assets
of the Company.  The Jensen Shares are  irrevocable  and fully  vested,  have no
expiration  date, and will not be affected by the  termination  of Mr.  Jensen`s
employment  with the Company  for any reason  whatsoever.  If a USA  Transaction
shall occur at a time when there are not a sufficient  number of authorized  but
unissued  shares of Common Stock,  then the Company shall as a condition of such
USA Transaction promptly take any and all appropriate action to make available a
sufficient number of shares of Common Stock. In the alternative, the Company may
structure the USA  Transaction  so that Mr. Jensen would receive the same amount
and type of  consideration  in connection  with the USA Transaction as any other
holder of Common Stock.                                                         

The Company has entered into an employment  agreement  with Mr.  Herbert,  which
expires  on June  30,  2005,  and is  automatically  renewed  from  year to year
thereafter unless canceled by Mr. Herbert or the Company. The Agreement provides
for an annual base salary of $230,000 per year  effective  January 1, 2004.  Mr.
Herbert is entitled to receive  such bonus or bonuses as the Board of  Directors
may award to him. The Agreement requires Mr. Herbert to devote his full time and
attention to the business  and affairs of the Company and  obligates  him not to
engage in any  investments  or  activities  which would compete with the Company
during the term of the agreement and for a period of one year thereafter. In the
event that a USA Transaction (as defined in Mr. Jensen's  employment  agreement)
shall occur,  then Mr.  Herbert has the right to terminate his agreement upon 30
days notice to USA.                                                             

Mr.  Kolls has entered into an  employment  agreement  with the  Company,  which
expires  on June  30,  2005,  and is  automatically  renewed  from  year to year
thereafter unless canceled by Mr. Kolls or the Company.  The agreement  provides
for an annual base salary of $165,000 per year  effective  January 1, 2004.  Mr.
Kolls is entitled to a payment of $5,000 upon each of the following:  (i) filing
of a new patent application by USA for which he is listed as the inventor;  (ii)
granting of any such patent application;  and (iii) issuance of a patent for any
patent  application  that had been filed prior to April 20,  2004.  Mr. Kolls is
also  entitled to receive  such bonus or bonuses as may be awarded to him by the
Board of Directors. The Agreement requires Mr. Kolls to devote his full time and

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attention to the business and affairs of the Company,  and  obligates him not to
engage in any  investments  or  activities  which would compete with the Company
during the term of his agreement and for a period of one year thereafter. In the
event that a USA Transaction (as defined in Mr. Jensen's  employment  agreement)
shall occur,  then Mr. Kolls has the right to terminate  his  agreement  upon 30
days notice to USA.                                                             

Ms.  Hepburn has entered into an employment  agreement  with the Company,  which
expires  on June  30,  2005,  and is  automatically  renewed  from  year to year
thereafter unless canceled by Ms. Hepburn or the Company. The agreement provides
for an annual base salary of $130,000 per year  effective  January 1, 2004.  Ms.
Hepburn  is also  entitled  to  receive  such  bonus or  bonuses as the Board of
Directors  may award to her. The  Agreement  requires Ms.  Hepburn to devote her
full  time and  attention  to the  business  and  affairs  of the  Company,  and
obligates her not to engage in any investments or activities which would compete
with the Company  during the term of the  agreement and for a period of one year
thereafter.                                                                     

Ms.  Young has entered  into an  employment  agreement  with the Company  which 
expires  on April  30,  2005,  and is  automatically  renewed  from year to year
thereafter unless canceled by Ms. Young or the Company.  The agreement  provides
for a base annual salary of $165,000 and a discretionary performance based bonus
of up to 35% of her base salary.  Ms. Young also received a $30,000 payment that
she used to purchase from the Company 200,000 shares of restricted  Common Stock
at $.15 per share.  Ms. Young was also granted options to purchase up to 300,000
shares of Common  Stock of the  Company  at $.30 per  share.  The  options  vest
ratably  over a  two-year  period  and are  exercisable  at any time  during the
two-year period following  vesting.  The agreement  requires Ms. Young to devote
her  full-time  and  attention to the  business and affairs of the Company,  and
obligates her not to engage in any investments or activities which would compete
with the Company  during the term of her  agreement and for a period of one year
thereafter.                                                                     

COMPENSATION OF DIRECTORS                                                       

Members  of the Board of  Directors  receive  cash and equity  compensation  for
serving on the Board of Directors.                                              

In  April  2002,  the  Company  granted  to each of the five  outside  Directors
(Messrs.  Sellers, Van Alen, Katz, Lurio, and Boynton) options to purchase up to
100,000  shares of Common Stock at $0.40 per share as  compensation  for serving
the one-year term,  which commenced March 21, 2002. The options are fully vested
and are  exercisable at any time prior to April 12, 2005.  Commencing on July 1,
2002 and at any and all times  through  June 30,  2003,  each  Director has been
granted the right,  without the payment of the per share  exercise price of such
options,  to  receive  up to 50,000  shares  represented  by those  options.  In
September 2002, Edwin P. Boynton elected to receive 50,000 shares in lieu of the
above options.                                                                  

In February  2001,  the Company  granted a total of 300,000  options to purchase
Common Stock at $1.00 per share to each of the then outside members of the Board
(Messrs.  Sellers, Van Alen, Smith, Katz, Lurio, and Boynton). Of these, 120,000
options vested  immediately;  90,000 options vested on June 30, 2001; and 90,000
vested on June 30,  2002.  The options are  exercisable  at any time within five
years following the vesting.                                                    

On December  31, 2002,  each of Messrs.  Sellers,  Van Alen,  Katz,  Lurio,  and
Boynton voluntarily canceled all of the outstanding options then held by them.  

During June 2003, we paid $50,000 to each of Messrs. Sellers, Van Alen, and Katz
for their  services as Directors  during the 2003 fiscal year. As a condition of
the cash payment,  each of these  Directors  agreed to purchase from the Company
500,000 shares of Common Stock at $0.10 per share.                              

During June 2004,  we paid  $30,000 to each of Messrs.  Sellers and Van Alen for
their services as Chairs of the Compensation  Committee and the Audit Committee,
respectively,  rendered during the two prior fiscal years. As a condition of the
payment,  each agreed to  purchase  200,000  shares of Common  Stock at $.15 per
share in the 2004-A offering.                                                   

PRINCIPAL SHAREHOLDERS                                                          

Common Stock                                                                    

The following table sets forth, as of May 31, 2004, the beneficial  ownership of
the Common Stock of each of the Company's directors and executive officers,  the
other employee named in the summary  compensation table set forth above, as well
as by the Company's  directors and executive officers as a group.  Except as set
forth below,  the Company is not aware of any beneficial owner of more than five
percent of the Common Stock. Except as otherwise indicated, the Company believes
that  the  beneficial  owners  of  the  Common  Stock  listed  below,  based  on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable:    

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                      Number of Shares
    Name and Address                    of Common Stock            Percent
       of Beneficial Owner                 Beneficially Owned(1)     of Class(2)
     -------------------                  ---------------------     --------
George R. Jensen, Jr.                       10,821,000 shares(3)         2.63%  
517 Legion Road                                                                 
West Chester, Pennsylvania 19382                                                

Stephen P. Herbert                          1,986,050 shares(4)           *     
536 West Beach Tree Lane                                                        
Strafford, Pennsylvania 19087                                                   

Haven Brock Kolls, Jr.                      707,325 shares(5)             *     
1573 Potter Drive                                                               
Pottstown, Pennsylvania  19464                                                  

Steven Katz                                 535,000 shares                *     
20 Rebel Drive                                                                  
East Brunswick NJ 08116                                                         

Adele H. Hepburn                            8,787,928 shares(6)          2.14%  
208 St. Georges Road                                                            
Ardmore, Pennsylvania 19003                                                     

Douglas M. Lurio                            921,463 shares(7)             *     
2005 Market Street, Suite 2340                                                  
Philadelphia, Pennsylvania 19103                                                

William W. Sellers                          2,333,812 shares(8)           *     
394 East Church Road                                                            
King of Prussia, Pennsylvania 19406                                             

William L. Van Alen, Jr.                    1,973,340 shares(9)           *     
Cornerstone Entertainment, Inc.                                                 
P.O. Box 727 Edgemont, Pennsylvania 19028                                       

Mary West Young                              237,500 shares (10)          *     
2175 Wyndtree Lane                                                              
Malvern, PA 19355                                                               

All Directors and Executive Officers                                            
As a Group (8 persons)                     19,515,490 shares(11)         4.75%  

---------                                                                       
* Less than one percent (1%)                                                    

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(1)  Beneficial  ownership is  determined  in  accordance  with the rules of the
Securities and Exchange  Commission and derives from either voting or investment
power  with  respect  to  securities.  Shares  of  Common  Stock  issuable  upon
conversion  of the  Preferred  Stock,  shares  issuable  upon the  conversion of
Convertible  Senior Notes,  or shares of Common Stock  issuable upon exercise of
warrants and options  currently  exercisable,  or exercisable  within 60 days of
May 31, 2004, are deemed to be beneficially owned for purposes hereof.          

(2) On May 31, 2004 there were  339,453,012  shares of Common  Stock and 522,742
shares of Series A  Preferred  Stock  issued and  outstanding.  For  purposes of
computing  the  percentages  under this table,  it is assumed that all shares of
issued and  outstanding  Preferred Stock have been converted into 522,742 shares
of Common Stock, that all of the options to acquire Common Stock which have been
issued and are fully  vested as of May 31,  2004 (or  within  60-days of May 31,
2004) have been converted into 2,134,232 shares of Common Stock. For purposes of
computing  such  percentages  it has also been assumed that all of the remaining
Purchase  Warrants have been  exercised for  18,203,545  shares of Common Stock;
that all of the  Senior  Notes have been  converted  into  49,276,805  shares of
Common Stock;  and that all of the accrued and unpaid dividends on the Preferred
Stock have been converted,  into 667,718 shares of Common Stock. Therefore,  for
purposes of computing the  percentages  under this table,  there are 410,258,054
shares of Common Stock issued and outstanding.                                  

(3) Includes  511,000 shares of Common Stock  beneficially  owned by his spouse.
Does not include the right granted to Mr. Jensen under his Employment  Agreement
to receive  Common Stock upon the  occurrence of a USA  Transaction  (as defined
therein). See "Executive Employment Agreements". Includes 6,000,000 shares owned
by George R. Jensen,  Jr.  Grantor  Retained  Unitrust  dated July 14, 2003 over
which Mr. Jensen retains beneficial ownership.                                  

(4) Includes  250,000  shares  issuable to Mr.  Herbert upon the  conversion  of
Senior  Notes,  1,050  shares of Common Stock  beneficially  owned by his child,
600,000  shares of Common  Stock  beneficially  owned by his spouse and  250,000
shares  issuable upon the conversion of Senior Notes  beneficially  owned by his
spouse.                                                                         

(5) Includes  12,000 shares of Common Stock owned by Mr. Kolls' spouse,  150,000
shares  issuable  to his spouse  upon  conversion  of her Senior  Note and 3,600
shares issuable upon the exercise of warrants beneficially owned by his spouse. 

(6) Includes  473,044  shares of Common Stock owned by her spouse,  5,150 shares
underlying Series A Preferred Stock held by her and her spouse, 1,615,418 shares
issuable upon the conversion of her Senior Notes,  58,495 shares issuable to her
spouse upon the conversion of his Senior Notes,  and 22,589 shares issuable upon
the exercise of her warrants.                                                   

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(7) Includes 225,000 shares issuable upon conversion of Senior Notes.           

(8) Includes  17,846 shares of Common Stock owned by the Sellers Pension Plan of
which Mr.  Sellers is a trustee,  4,952  shares of Common Stock owned by Sellers
Process Equipment Company of which he is a Director, and 10,423 shares of Common
Stock  owned  by Mr.  Seller's  wife.  Includes  408,334  shares  issuable  upon
conversion of his Senior Notes.                                                 

(9)  Includes  116,670  shares of Common  Stock  issuable  to Mr.  Van Alen upon
conversion  of his Senior Notes and 4,000  shares of Common  Stock  beneficially
owned by his spouse.                                                            

(10) Includes  37,500  shares of Common Stock issuable upon exercise of options.

(11) Includes all shares of Common Stock  described in footnotes (3) through (5)
and (7) through (10) above.                                                     

Preferred Stock                                                                 

The following table sets forth,  as of May 31, 2004 the beneficial  ownership of
the Preferred Stock by the Company's directors and executive officers, the other
employee named in the Summary  Compensation Table set forth above, as well as by
the Company's  directors and executive officers as a group.  Except as set forth
below,  the  Company  is not  aware of any  beneficial  owner of more  than five
percent of the  Preferred  Stock.  Except as  otherwise  indicated,  the Company
believes that the beneficial  owners of the Preferred Stock listed below,  based
on information  furnished by such owners,  have sole investment and voting power
with  respect  to  such  shares,   subject  to  community  property  laws  where
applicable.                                                                     

            Number of Shares
Name and Address of                   of Preferred Stock           Percent      
Beneficial Owner                      Beneficially Owned         of Class(l)    
-------------------                   ------------------           --------     
Adele H. Hepburn                                                                
208 St. Georges Road                                                            
Ardmore, Pennsylvania 19003             5,150 shares                  *         

All Directors and                                                               
Executive Officers                                                              
As a Group (8 persons)                         0                      *         

--------------                                                                  
*   Less than 1%.                                                               
(1) There were 522,742  shares of Preferred  Stock issued and  outstanding as of
May 31, 2004.                                                           

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CERTAIN TRANSACTIONS

On December 31, 2000, Stitch Networks Corporation  ("Stitch") executed a Vending
Placement,  Supply and Distribution Agreement with Eastman Kodak Company, Maytag
Corporation and Dixie Narco,  Inc., which formed a strategic  alliance to market
and execute a national  vending  program for the sale of one-time use camera and
film products.  The Agreement provides for an initial term of three years ending
December  31,  2003,  with  additional  provisions  for  early  termination  and
extensions as defined.  Furthermore, the Agreement also provides for exclusivity
among the parties for the term of the  Agreement  relating to the sale of camera
and film products from vending  machines within the  Continental  United States.
Pursuant to this agreement, Stitch, the Company`s subsidiary,  purchases vending
machines from Dixie-Narco,  Inc. ("Dixie"). Dixie is owned by Maytag Corporation
which is the owner of the  Company`s  shareholder,  Maytag  Holdings,  Inc.  Mr.
Boyle,  a  former  Director  of the  Company,  is a  Vice  President  of  Maytag
Corporation.  There were  purchases  from Dixie of  $201,000  and $8,000 for the
fiscal year ended June 30, 2003 and for the period May 14, 2002 through June 30,
2002,  respectively.  There were no purchase  during the nine months ended March
31, 2004. Amounts payable to Dixie remains  approximately  $130,000 and $124,000
and are included in accounts payable in the June 30, 2003 and 2002  consolidated
balance sheets of the Company.                                                  

During the fiscal  years  ended June 30,  2003 and June 30,  2002,  the  Company
incurred  charges to Lurio &  Associates,  P.C., of which Mr. Lurio is President
and a shareholder,  for professional fees of approximately $305,000 and $213,000
respectively,  for legal  services  rendered  to the  Company  by such law firm.
During the years ended June 30, 2003 and 2002, the Company accrued approximately
$22,000 and $30,000,  respectively,  for these services. Mr. Lurio is a Director
of the Company.                                                                 

     In October  2002,  the Company  approved  the issuance to each of George R.
Jensen, Jr., our Chief Executive Officer,  and Stephen P. Herbert, our President
and Chief Operating Officer,  of $100,000 of the Senior Note offering.  Pursuant
thereto, each of them received a $100,000 12% Senior Note due December 31, 2005,
and the related 200,000 shares of Common Stock.  Both Mr. Jensen and Mr. Herbert
earned the Note and related  shares in fiscal  2003 for  services  rendered.  In
October 2002,  the Company  approved the issuance of $100,000 of the Senior Note
offering  and  200,000  related  shares of  Common  Stock to Adele  Hepburn  for
services rendered during the 2002 calendar year. Ms. Hepburn earned the Note and
related shares in fiscal 2003 for services rendered.                            

     In April and May 2003, the Company  authorized the payment of $420,000 over
the following  six months to its five  executive  officers.  The payments are to
assist in the 2002 tax liability  incurred by the executives due to common stock
bonuses received by them during calendar year 2002.                             

     During June 2003,  the Company  approved the  following  cash payments as a
bonus for  services  rendered to the Company by the named  executive  during the
2003   fiscal   year:   Mr.   Jensen-$150,000;    Mr.   Herbert-$125,000;    Ms.
Hepburn-$100,000;  and  Mr.  Kolls-  $25,000.  The  payment  of  the  bonus  was
conditioned  upon the executive  investing the entire cash bonus in common stock
of the Company at $.10 per share.                                               

On July 10, 2003,  USA and George R. Jensen,  Jr., Chief  Executive  Officer and
Chairman of USA, agreed upon an amendment to Mr. Jensen's employment  agreement.
Pursuant  thereto,  the number of shares of Common  Stock of USA issuable to Mr.
Jensen  by USA upon  the  occurrence  of a "USA  Transaction"  (as such  term is
defined in his employment  agreement) was fixed at 14,000,000 shares rather than

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seven percent of the then issued and outstanding shares as previously  provided.
USA also agreed to issue to Mr.  Jensen an  aggregate  of  10,500,000  shares of
restricted   Common  Stock,   2,500,000  shares  of  which  will  be  issued  as
compensation to Mr. Jensen for future  services,  and 8,000,000  shares of which
will be  issued  to Mr.  Jensen  in  connection  with the  employment  agreement
amendment.  Mr. Jensen has agreed to enter into a lock up agreement  pursuant to
which he shall not sell  2,500,000  of the  shares  for a  one-year  period  and
8,000,000 of the shares for a two-year period.                                  

The  Company  does not have any policy  with  respect to  entering  into  future
related party transactions.                                                     

SELLING SHAREHOLDERS

Each of the selling  shareholders  listed below is, as of the date  hereof,  the
holder of our common  stock or has the right to acquire  the number of shares of
common  stock or has agreed to purchase the number of shares of common stock set
forth opposite such selling shareholder`s name. The issuance of the common stock
to the selling  shareholders  as well as the issuance of the common stock to the
selling  shareholders upon exercise of the warrants was or will be a transaction
exempt  from  the  registration  requirements  of  the  Act  and  various  state
securities laws.                                                                

We have agreed,  at our expense,  to register all of the common stock for resale
by the  selling  shareholders  under the Act.  We expect  to incur  expenses  of
approximately  $30,000 in connection  with the  registration  statement of which
this prospectus is a part.                                                      

The number of shares that may be actually sold by the selling  shareholder  will
be determined by the selling shareholder.  The selling shareholders are under no
obligation to sell all or any portion of the shares offered, nor are the selling
shareholders  obligated to sell such shares  immediately  under this Prospectus.
Particular selling shareholders may not have a preset intention of selling their
shares  and may offer  less than the  number of shares  indicated.  Because  the
selling  shareholder  may sell all,  some or none of the shares of common  stock
that the selling shareholder holds, no estimate can be given as to the number of
shares of our common  stock that will be held by the  selling  shareholder  upon
termination  of the  offering.  Shares of common  stock may be sold from time to
time by the selling  shareholders or by pledgees,  donees,  transferees or other
successors in interest.                                                         

The  following  tables  set  forth  information  with  respect  to each  selling
shareholder  and the  respective  amounts  of common  stock  that may be offered
pursuant to this prospectus. None of the selling shareholders has, or within the
past three years has had, any position,  office or other  material  relationship
with us,  except  as noted  below.  Except  as  specifically  set  forth  below,
following the offering,  and assuming all of the common stock offered hereby has
been sold, none of the selling  shareholders  will  beneficially own one percent
(1%) or more of the common stock.                                               

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CEOCAST COMMON STOCK

                                              Beneficial Ownership
                     Common Stock             after Offering
Selling Shareholder            Offered Hereby(24)   Number           Percent    
-------------------            ------------------   ------           -------    
CEOCAST, INC.(1)                  150,000           450,000             *       

------------------                                                              
* Less than 1%                                                                  

(1)   CEOCAST IS OUR PUBLIC RELATIONS CONSULTANT. REPRESENTS SHARES ISSUED BY US
      IN JANUARY  2004 AT $.22 PER SHARE FOR  SERVICES  RENDERED  TO US. WE HAVE
      AGREED TO REGISTER  THESE  SHARES FOR RESALE UNDER THE ACT AT OUR COST AND
      EXPENSE  THROUGH JUNE 30, 2005.  THE NATURAL  PERSONS WHO  EXERCISES  SOLE
      AND/OR SHARED VOTING OR  DISPOSITIVE  POWERS WITH RESPECT TO THE SHARES IS
RACHEL GLICKSMAN AND GARY NASH.                                     

 2004-A OFFERING

                                                          Beneficial Ownership
                            Common Stock                  after Offering
Selling Shareholder           Offered Hereby(15)         Number          Percent
-------------------           -----------------          ------          -------

SUSAN H BOTHNER                   750,000                  0               *    
WILLIAM L CARHART                 311,250                  0               *    
CEOCAST INC (1)                   450,000                  150,000         *    
FAROOQ A CHAUDHRY                 75,000                   0               *    
SHERI-LYNN DEMARIS                2,000,000                0               *    
SUKHDEV S & NONI P DHINDSA        1,000,000                0               *    
FRIEDLAND CAPITAL INC (2)         600,000                  0               *    
CAPE MCKINNON INC. (3)            750,000                  0               *    
ROBERT C HECTOR JR                750,000                  0               *    
ADELE H HEPBURN (4)               500,000                  6,184,623       1.50 
STEPHEN P HERBERT (5)             750,000                  1,100,000       *    
STEVE ILLES (6)                   7,500,000                33,520,000      8.15 
BURTON JENSEN                     1,100,000                0               *    
DAVE JENSEN                       1,100,000                0               *    
RON JENSEN                        1,100,000                0               *    
LEONARDO CAPITAL FUND LTD (7)     4,500,000                0               *    
GREGG NEWHUIS                     1,500,000                0               *    
MICHAEL J OBRIEN                  450,000                  0               *    
GEORGE OCONNELL                   1,500,000                0               *    
PETER B PAKRADOONI                150,000                  0               *    
PALISADES MASTER FUND LP (8)      4,500,000                0               *    
WILLIAM RECKTENWALD               300,000                  0               *    
YOMI RODRIG                       3,000,000                0               *    
JOHN ROUGHNEEN (9)                300,000                  0               *    
WILLIAM W SELLERS (10)            300,000                  2,333,812       *    
DANIEL E SPEALMAN                 1,000,000                                     
BB SECURITIES CUSTODIAN                                                         
FBO DANIEL E SPEALMAN IRA       1,250,000                0               *  
STANDARD BANK LONDON (11)         1,500,000                0               *    
LUCAS POST VAN ALEN               187,500                  0               *    
WILLIAM L VAN ALEN III            75,000                   0               *    
WILLIAM L VAN ALEN JR (12)        1,537,500                315,538         *    
FRANCIS E. WOLFE                  150,000                  0               *    
FRANCES YOUNG (13)                1,200,000                0               *    
MARY WEST YOUNG (14)              300,000                  37,500          *    

Total 42,436,250        
------------                                                                    
* less than 1 %.                                                        

(1)   CEOCAST  IS OUR  PUBLIC  RELATIONS  CONSULTANT.  THE  NATURAL  PERSON  WHO
      EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE  POWERS WITH RESPECT TO
      SHARES HELD OF RECORD BY THE ENTITY, CEOCAST, INC. IS RACHEL GLICKSMAN AND
GARY NASH.                                                          

(2)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT TO SHARES  HELD OF RECORD BY THE  ENTITY,  FRIEDLAND
CAPITAL INC IS JEFF FRIEDLAND.                                      

(3)   THE NATURAL  PERSON WHO EXERCISES  SOLE AND/OR SHARED  DISPOSITIVE  POWERS
      WITH  RESPECT TO THE SHARES  HELD OF RECORD BY THE ENTITY,  CAPE  MCKINNON
INC, IS STEVE FRYE.                                                 

(4)   MS. HEPBURN IS AN EMPLOYEE OF THE COMPANY.                                

(5)   MR. HERBERT IS A DIRECTOR AND OUR PRESIDENT AND CHIEF OPERATING OFFICER.  

(6)   MR. ILLES IS A CONSULTANT TO THE COMPANY.                                 

(7)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT  TO SHARES  HELD OF RECORD BY THE  ENTITY,  LEONARDO
CAPITAL FUND LTD IS NEVIL DE TSCHARNER.                             

(8)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT TO SHARES  HELD OF RECORD BY THE  ENTITY,  PAILSADES
MASTER FUND LP IS ANDY RUCKLESS.                                    

(9)   MR. ROUGHNEEN IS AN EMPLOYEE OF THE COMPANY.                              

(10)  MR. SELLERS IS A DIRECTOR OF THE COMPANY.                                 

(11)  THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS WITH RESPECT TO SHARES HELD OF RECORD BY THE ENTITY,  STANDARD BANK
LONDON IS YOMI RODRIG.                                              

(12)  MR. VAN ALEN IS A DIRECTOR OF THE COMPANY.                                

(13)  MS. YOUNG IS A FORMER EMPLOYEE OF THE COMPANY.                            

(14)  MS. YOUNG IS CHIEF FINANCIAL OFFICER OF THE COMPANY.                      

(15)  REPRESENTS  28,290,833  SHARES PURCHASED FOR $.15 PER SHARE AND 14,145,417
      SHARES UNDERLYING WARRANTS EXERCISABLE AT $.20 PER SHARE AT ANY TIME PRIOR
      TO DECEMBER 31, 2004  ISSUED TO INVESTORS IN OUR 2004-A PRIVATE PLACEMENT.
      AS OF THE DATE HEREOF, NONE OF THESE WARRANTS HAVE BEEN EXERCISED. WE HAVE
      AGREED TO REGISTER THESE SHARES FOR RESALE AT OUR COST AND EXPENSE THROUGH
JUNE 30, 2006.                                                      

DECEMBER 2003 INTEREST COMMON STOCK       

                                                          Beneficial Ownership
                                 Common Stock             after Offering
Selling Shareholder                  Offered Hereby(16)   Number        Percent 
-------------------                  -----------------   --------      ---------

DONALD T AANESTAD                       9,000               0              *    
VIJAY ALIMACHANDANI                     1,500               0              *    
JOHN P AYERS                            4,500               0              *    
CHARLES F BELLAVIA                      4,500               0              *    
BENJAMIN LEEBIRD                        4,500               0              *    
KATHLYNE K BIRDSALL                     563                 0              *    
JOSEPH J BOLITSKY                       30,000              0              *    
EDWIN R BOYNTON(1)                      14,625              0              *    
DAVID G BRAY                            900                 0              *    
DOUGLAS & CAROLYN BRITTAIN              9,000               0              *    
BRITTAIN FAMILY TRUST (2)               3,000               0              *    
GORDON L BRODINE                        18,000              0              *    
MICHAEL J BUDINETZ                      6,413               0              *    
CARLSON INVESTMENTS (3)                 34,200              0              *    
MICHAEL J CHIORDI                       4,500               0              *    
GERALD E CLARK JR                       3,150               0              *    
DIANE CLOUTIER                          27,000              0              *    
ROGER D COFFEY                          4,500               0              *    
MARC A COHEN                            16,875              0              *    
CORNERSTONE PUBLIC RELATIONS                                                    
GRP. (4)                             422                 0              * 
JIM CROSS                               1,500               0              *    
WILLIAM R CROTHERS                      2,813               0              *    
LORRAINE CROW                           450                 0              *    
CLIFTON B CURRIN TR FBO CLIFTON B                                               
CURRIN TRUST UA MARCH 8, 1989         9,000               0              *  
BENJAMIN DEACON                         1,125               0              *    
DELTA WESTERN COMPANY (5)               16,875              0              *    
LOUIS E DI RENZO                        2,250               0              *    
ANEES T  DIN                            12,150              0              *    
LEO J DOLAN                             9,000               0              *    
ROBERT F DRESS                          3,300               0              *    
HOWARD EFFRON                           4,500               0              *    
BENTLY ELLIOTT                          450                 0              *    
ANTHONY J FANELLI                       12,150              0              *    
HELEN K FOX                             4,500               0              *    
SAMANTHA HARRIS FULMER                  450                 0              *    
DOROTHY GALVIN                          450                 0              *    
MARGARET R GEDDIS                       1,125               0              *    
ROBERT G GIDDENS                        47,055              0              *    
FREDERICK F GLOCKNER                    450                 0              *    
WILLIAM M GOLDSTEIN                     13,500              0              *    
EDWARD HALDEMAN                         9,000               0              *    
PAULINE E HALDEMAN                      9,000               0              *    
IRA FBO ROBERT A HAMILTON (6)           1,890               101,752        *    
JOHN E HAMILTON                         1,350               0              *    
ROBERT A HAMILTON (6)                   4,095               104,713        *    
PETER & DEBORAH HARRIS                  2,250               0              *    
JOYCE HODGES                            2,250               0              *    
MICHELLE HOLLENSHEAD                    938                 0              *    
JAMES M HOLMWOOD                        3,300               0              *    
HRUBALA ASSOCIATES (7)                  9,000               0              *    
GORDON F HUDSON                         9,000               0              *    
CHRISTINE F HUGHES                      1,125               0              *    
WENDY JENKINS (8)                       9,000               20,800         *    
CHARLES T JONES                         2,250               0              *    
IRA FBO FRED KARAGOSIAN PERSHING                                                
LLC C/F ROTH CONVERSION                                                       
ACCOUNT 7FP-001878                     4,500               0              *   
GLORIA & FRED KARN                      450                 0              *    
MICHAEL KATCHUR                         3,375               0              *    
MAUDE WOOD KENT                         4,500               0              *    
THOMAS & MAUDE WOOD KENT                4,500               0              *    
ROBERT A KILGORE                        22,500              0              *    
SHIRLEY K KNERR                         4,050               0              *    
GREGORY S KOBUS                         4,500               0              *    
PAUL G LANNI                            4,500               0              *    
WARREN D LEWIS                          7,125               0              *    
H MATHER LIPPINCOTT JR                  4,500               0              *    
ANTHONY F LOPEZ                         9,000               0              *    
ROBERT  LOZOWSKI                        900                 0              *    
DOUGLAS LURIO (9)                       6,750               914,713        *    
JAMES P MACCAIN                         17,250              0              *    
LEWIS F MADAN                           900                 0              *    
KATHLEEN J MASON                        39,000              0              *    
BARRY N MCCABE                          4,500               0              *    
DUANE C MCCARTHY                        450                 0              *    
G ELLARD MCCARTHY                       2,250               0              *    
JOHN F  MCCORMICK                       22,500              0              *    
BOB MCGARRAH (10)                       13,500              0              *    
JOHN P MCGONIGLE                        450                 0              *    
MARY C MCGONIGLE                        450                 0              *    
MEDIATECH PARTNERS (11)                 324,089             0              *    
EILEEN MILLER                           1,800               0              *    
HARLEY & BROOK MILLER                   9,488               0              *    
GEORGE W MOFFITT JR                     5,063               0              *    
THOMAS MOLUMPHY                         2,250               0              *    
MOLUMPHY CAPITAL MGMT (12)              4,500               0              *    
ROBERT H MONTGOMERY                     12,000              0              *    
MAC G MORRIS                            2,250               0              *    
JAMES MOSIER                            9,000               0              *    
ELIZABETH L NELSON                      16,875              0              *    
ROBERT F NEMETH                         9,000               0              *    
GREGG J NEWHUIS                         49,500              0              *    
JEFFREY M NEWHUIS                       3,150               0              *    
PATRICK NOLAN                           10,564              0              *    
PAUL NORDIN                             1,500               0              *    
GEORGE O'CONNELL                        96,750              0              *    
OLDOM & CO                              4,500               0              *    
ROBERT PADRICK                          18,000              0              *    
ROBERT PADRICK TRUSTEE FBO                                                      
KELLIE NICOLE PADRICK                4,500               0              * 

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ROBERT PADRICK TRUSTEE FOR                                                      
ROBERT G PADRICK                     9,000               0              * 
MICHAEL A PARKER                        1,500               0              *    
NEIL L PARKER                           2,250               0              *    
RICHARD & LAURA PARKER                  11,250              0              *    
JOSEPH PELLEGRINO                       90,000              0              *    
ROBERT H POTTS                          4,500               0              *    
CHARLES W PROCTOR III                   188                 0              *    
ERNEST L RANSOME III                    2,250               0              *    
HARRY RENNER IV                         37,688              0              *    
JOHN B RETTEW III                       6,000               0              *    
GARDINER ROGERS                         4,950               0              *    
MARIE G ROPER                           2,250               0              *    
GERALD B ROSENTHAL                      9,000               0              *    
KARL F RUGART                           12,375              0              *    
JOHN S RUPP                             4,500               0              *    
VALENTINA SAS                           900                 0              *    
EDWARD L SCHOENHUT                      9,000               0              *    
STEPHEN SCHWARTZ                        11,250              0              *    
MARY L SCRANTON                         2,625               0              *    
NICHOLAS SELLERS                        4,500               0              *    
RAYMOND K SHOTWELL                      2,475               0              *    
LEONARD H SICHEL JR                     4,500               0              *    
RICHARD SMITH                           1,200               0              *    
KATHY SMITLEY                           2,250               0              *    
TERRY W STANGLEIN                       16,200              0              *    
ELINOR STEINHILBER                      4,500               0              *    
MICHAEL & ELLEN STEIR                   5,625               0              *    
CPT ERIC W STETSON                      2,250               0              *    
GERTRUDE T STEVENS                      15,625              0              *    
HOMER N STEWART                         4,500               0              *    
PRISCILLA STITT                         675                 0              *    
VIVIAN STROUD (13)                      2,250               175,825        *    
GEORGE E SZYCHOSKI                      45                  0              *    
MICHAEL W SZYCHOSKI                     113                 0              *    
CONSTANTINE TEOFIL SZYMBORSKI           4,500               0              *    
ALFRED & SUSAN THOMPSON                 1,238               0              *    
ANDREW THOMPSON                         225                 0              *    
WILLIAM E THOROUGHGOOD                  1,125               0              *    
GUILLERMO M TORRES                      18,000              0              *    
JAMES TURNER (14)                       18,000              0              *    
WILLIAM L VAN ALEN JR (15)              24,000              1,829,038      *    
DAVID L WEAVER                          2,340               0              *    
DWANE M WEAVER                          4,500               0              *    
MICHAEL L WEAVER                        450                 0              *    
WESLEY R WEAVER                         6,750               0              *    
ARTHUR & RUTH WIENER                    7,602               0              *    
J EDWARD WILLIARD                       44,250              0              *    
KENNETH B WILSON                        2,250               0              *    
CLAUDINE W WOLFE                        1,350               0              *    
C EDWIN & JANET LYN WRIGHT              2,250               0              *    
JOHN D WRIGHT                           4,500               0              *    
CRAIG YOSHIMOTO                         4,500               0              *    
JOSEPH ZIRBES                           2,250               0              *    
RUTH  ZWEIGBAUM                         5,644               0              *    
 ---------
 1,615,776

* Less than 1%                                                                  

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(1)   MR. BOYNTON IS A FORMER DIRECTOR OF THE COMPANY.                          

(2)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT  TO SHARES  HELD OF RECORD BY THE  ENTITY,  BRITTAIN
FAMILY TRUST, IS E. DOUGLAS BRITTAIN.                               

(3)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT  TO SHARES  HELD OF RECORD  BY THE  ENTITY,  CARLSON
INVESTMENTS IS JIM CARLSON.                                         

(4)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT  TO  THE  SHARES  HELD  OF  RECORD  BY  THE  ENTITY,
CORNERSTONE PUBLIC RELATIONS GROUP, IS M. DARLENE HERBERT FELT.     

(5)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT TO THE SHARES  HELD OF RECORD BY THE  ENTITY,  DELTA
WESTERN COMPANY, IS GEORGE W MOFFITT.                               

(6)   MR. HAMILTON IS AN EMPLOYEE OF USA.                                       

(7)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS WITH  RESPECT TO THE SHARES  HELD OF RECORD BY THE ENTITY,  HRUBALA
ASSOCIATES, A PARTNERSHIP, IS DAVID R MOLUMPHY.                     

(8)   MS. JENKINS IS AN EMPLOYEE OF THE COMPANY.                                

(9)   MR. LURIO IS A DIRECTOR AND HIS LAW FIRM,  LURIO &  ASSOCIATES,  P.C.,  IS
GENERAL COUNSEL TO USA.                                             

(10)  MR. MCGARRAH WAS A CONSULTANT TO THE COMPANY.                             

(11)  MEDIATECH CAPITAL IS THE SUCCESSOR TO TECHNOLOGY PARTNERS (HOLDINGS), LLC,
      THE COMPANY'S FORMER INVESTMENT  BANKER.  THE NATURAL PERSON WHO EXERCISES
      SOLE AND/OR  SHARED  VOTING OR  DISPOSITIVE  POWERS WITH RESPECT TO SHARES
HELD OF RECORD BY MEDIATECH CAPITAL IS PORTER BIBB.                 

(12)  THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS WITH  RESPECT TO THE SHARES HELD OF RECORD BY THE ENTITY,  MOLUMPHY
CAPITAL MGMT, IS DAVID R MOLUMPHY.                                  

(13)  MS. STROUD IS AN EMPLOYEE OF USA.                                         

(14)  MR. TURNER IS AN EMPLOYEE OF USA.                                         

(15)  MR. VAN ALEN IS A DIRECTOR OF USA.                                        

(16)  REPRESENTS 538,592 SHARES ISSUED AT THE RATE OF $.20 PER SHARE AND 538,592
      SHARES UNDERLYING WARRANTS TO PURCHASE OUR SHARES AT $.20 PER SHARE AT ANY
      TIME THROUGH AUGUST 30, 2004.  THESE SHARES AND WARRANTS TO PURCHASE UP TO
      538,592  SHARES  WERE  ISSUED TO OUR  SENIOR  NOTEHOLDERS  WHO  ELECTED TO
      RECEIVE  THESE  SECURITIES  IN LIEU OF CASH  FOR  THE  DECEMBER  31,  2003
      QUARTERLY  INTEREST  PAYMENTS  AND FOR SHARES AND WARRANTS  PERTAINING  TO
      PRIOR QUARTERS NOT PREVIOUSLY  REGISTERED.  ALSO  REPRESENTS AN ADDITIONAL
      538,592 SHARES UNDERLYING  WARRANTS THAT WERE ISSUED IN JUNE 2004 THAT ARE
      EXERCISABLE  AT $.20 PER SHARE AT ANY TIME PRIOR TO DECEMBER 31, 2004.  WE
      HAVE AGREED TO REGISTER  THESE SHARES FOR RESALE UNDER THE ACT AT OUR COST
      AND EXPENSE THROUGH JUNE 30, 2006. AS OF THE DATE OF THIS PROSPECTUS, NONE
OF THESE WARRANTS HAVE BEEN EXERCISED.                              

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 INTEREST WARRANTS

                                                      Beneficial Ownership
                       Common Stock             after Offering
Selling Shareholder             Offered Hereby(27)   Number           Percent   
-------------------             -----------------    ------           -------   

DONALD T AANESTAD                  12,900              0                 *      
VIJAY ALIMACHANDANI                19,150              0                 *      
ALAN ALPERT                        4,350               0                 *      
JOHN P AYERS                       8,700               0                 *      
JOHN  BACHICH                      21,000              0                 *      
CHARLES F BELLAVIA                 6,450               0                 *      
NANCY & EARL BESCH                 8,700               0                 *      
GUNTER J  BEYER                    6,483               0                 *      
BENJAMIN LEE BIRD                  8,700               0                 *      
KATHLYNE K BIRDSALL                1,090               0                 *      
DAVID C BLACKBURN                  650                 0                 *      
JOSEPH J BOLITSKY                  58,000              0                 *      
EDWIN R BOYNTON (1)                28,275              0                 *      
JAMES R BOYNTON                                                                 
ACCT# OUP-957361-M2               3,600               0                 *     
DAVID G BRAY                       1,554               0                 *      
DOUGLAS & CAROLYN                                                               
BRITTAIN                          13,933              0                 *     
BRITTAIN FAMILY TRUST (2)          5,800               0                 *      
GORDON L BRODINE                   30,080              0                 *      
MICHAEL J BUDINETZ                 9,688               0                 *      
VINCENT J CALVARESE                7,125               0                 *      
WILLIAM ACAMPBELL                  1,350               0                 *      
RALPH A CARABASI MD                600                 0                 *      
JULIE CARLSON                      5,683               0                 *      
CARLSON INVESTMENTS (3)            11,400              0                 *      
GARY CELLA                         1,360               0                 *      
MICHAEL J CHIORDI                  8,700               0                 *      
GERALD E CLARK JR                  6,090               0                 *      
ROBERT J CLARKE                    8,697               0                 *      
DIANE CLOUTIER                     52,200              0                 *      
ROGER D COFFEY                     6,433               0                 *      
MARC A COHEN                       50,025              0                 *      
Cornerstone Public Relations                                                    
Grp, M Darlene Herbert Felt (4)   725                 0                 *     
JOHANNA CRAVEN                     1,068               0                 *      
JIM CROSS                          2,900               0                 *      
WILLIAM R CROTHERS                 5,440               0                 *      
DUDLEY R CROW                      83                  0                 *      
LORRAINE CROW                      791                 0                 *      
CLIFTON B CURRIN                                                                
TRUST                            9,000               0                 *    
DAMAR FAMILY TRUST                                                              
DTD 7-1-03 (5)                   80,273              0                 *    
BENJAMIN DEACON                    1,978               0                 *      
DELTA WESTERN COMPANY (6)          32,625              0                 *      
DAVID DEMEDIO (7)                  9,975               250,624           *      
LOUIS E DI RENZO                   4,350               0                 *      
DILIGENT FINANCE COMPANY LTD (8)   178,134             0                 *      
ANEES T DIN                        12,150              0                 *      
LEO J DOLAN                        17,400              0                 *      
ROBERT F DRESS                     6,300               0                 *      
HOWARD EFFRON                      8,407               0                 *      
BENTLY ELLIOTT                     7,913               0                 *      
ELLSHAY LLC (9)                    1,500               0                 *      
ANTHONY J FANELLI                  13,540              0                 *      
HENRY J FIELDMAN                   3,600               0                 *      
JOHN S FOSTER                      59,450              0                 *      
HELEN K FOX                        8,509               0                 *      
SAMANTHA HARRIS FULMER             787                 0                 *      
DOROTHY GALVIN                     870                 0                 *      
MARGARET R GEDDIS                  2,175               0                 *      
ROBERT G  GIDDENS                  80,419              0                 *      
FREDERICK F GLOCKNER               870                 0                 *      
WILLIAM M GOLDSTEIN                26,100              0                 *      
EDWARD HALDEMAN                    6,000               0                 *      
PAULINE E HALDEMAN                 6,000               0                 *      
IRA FBO ROBERT A HAMILTON (10)     3,486               100,156           *      
JOHN E HAMILTON                    2,610               100,891           *      
ROBERT A HAMILTON (10)             7,917               0                 *      
PETER & DEBORAH HARRIS             350                 0                 *      
GEORGE HARRUM (11)                 417                 0                 *      
JOHN HAY                           3,600               0                 *      
HEALD FAMILY TRUST (12)            8,400               0                 *      
ANDREW B HEBENSTREIT               16,500              0                 *      
ADELE H HEPBURN (13)               22,679              6,661,945         1.62   
JOYCE HODGES                       4,350               0                 *      
MICHELLE HOLLENSHEAD               1,815               0                 *      
JAMES M HOLMWOOD                   17,400              0                 *      
HRUBALA ASSOCIATES, A                                                           
PARTNERSHIP (14)                  15,117              0                 *     
GORDON F HUDSON                    16,375              0                 *      
CHRISTINE F HUGHES                 2,175               0                 *      
STEVE ILLES (15)                   90,000              39,430,000        9.58   
WENDY JENKINS (16)                 8,900               20,500            *      
WILLIAM ROBERT JOHNSTON            4,350               0                 *      
CHARLES T JONES                    4,350               0                 *      
ROTH IRA FBO FRED                                                               
KARAGOSIAN, PERSHING LLC                                                        
AS CUSTODIAN                     8,700               0                 *    
GLORIA & FRED KARN                 870                 0                 *      
MICHAEL KATCHUR                    6,525               0                 *      
THOMAS A KATCHUR                   37,500              0                 *      
MAUDE WOOD KENT                    8,700               0                 *      
THOMAS & MAUDE WOOD KENT           8,700               0                 *      
ROBERT A KILGORE                   43,500              0                 *      
SHIRLEY K KNERR                    7,830               0                 *      
GREGORY S KOBUS                    8,700               0                 *      
CHRISTINE C KOLLS                  3,600               0                 *      
PAUL G LANNI                       8,700               0                 *      
WARREN D LEWIS                     11,075              0                 *      
LEXINGTON VENTURES INC (17)        3,800               0                 *      
H MATHER LIPPINCOTT JR             7,500               0                 *      
ANTHONY F LOPEZ                    11,700              0                 *      
ROBERT  LOZOWSKI                   1,287               0                 *      
LSP PARTNERS (18)                  50                  0                 *      
DOUGLAS LURIO (19)                 11,250              910,213           *      
JAMES P MACCAIN                    21,800              0                 *      
LEWIS F MADAN                      1,740               0                 *      
KATHLEEN J MASON                   75,400              0                 *      
CHARLES MAYER                      3,780               0                 *      
BARRY N MCCABE                     6,217               0                 *      
DUANE C MCCARTHY                   870                 0                 *      
G ELLARD MCCARTHY                  4,350               0                 *      
JOHN F MCCORMICK                   3,750               0                 *      
BOB MCGARRAH (20)                  13,500              462,500           *      
JOHN P MCGONIGLE                   870                 0                 *      
MARY C MCGONIGLE                   870                 0                 *      
MEDIATECH CAPITAL PARTNERS (21)    304,602             0                 *      
JAMES F MERRIMAN                   42,568              0                 *      
EILEEN MILLER                      3,480               0                 *      
HARLEY & BROOK MILLER              17,584              0                 *      
WANDA S MOFFITT                    2,700               0                 *      
GEORGE W MOFFITT JR                9,790               0                 *      
THOMAS  MOLUMPHY                   4,350               0                 *      
MOLUMPHY CAPITAL MGMT (22)         8,700               0                 *      
ROBERT H MONTGOMERY                23,200              0                 *      
MAC G MORRIS                       4,350               0                 *      
JAMES H MOSIER                     12,099              0                 *      
GARY NASH                          480                 0                 *      
ELIZABETH L NELSON                 30,942              0                 *      
ROBERT F  NEMETH                   10,827              0                 *      
GREGG J  NEWHUIS                   58,148              0                 *      
JEFFREY M NEWHUIS                  6,090               0                 *      
PATRICK NOLAN                      19,139              0                 *      
PAUL NORDIN                        2,900               0                 *      
GARY OAKLAND                       4,850               0                 *      
GEORGE O'CONNELL                   140,250             0                 *      
OLDOM & CO                         4,500               0                 *      
ROBERT PADRICK                     6,000               0                 *      

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ROBERT PADRICK TRUSTEE FBO                                                      
KELLIE NICOLE PADRICK             1,500               0                 *     
ROBERT PADRICK TRUSTEE FOR                                                      
ROBERT G PADRICK                  34,500              0                 *     
MICHAEL A PARKER                   2,900               0                 *      
NEIL L PARKER                      3,775               0                 *      
RICHARD & LAURA PARKER             15,792              0                 *      
JOSEPH PELLEGRINO                  133,333             0                 *      
ROBERT H POTTS                     7,500               0                 *      
CHARLES W PROCTOR III              321                 0                 *      
ERNEST L RANSOME III               4,350               0                 *      
HARRY RENNER IV                    41,363              0                 *      
JOHN B RETTEW III                  9,500               0                 *      
GARDINER ROGERS                    9,570               0                 *      
MARIE G ROPER                      4,350               0                 *      
GERALD B ROSENTHAL                 9,000               0                 *      
KARL F RUGART                      23,925              0                 *      
JOHN S RUPP                        6,696               0                 *      
VALENTINA SAS                      1,740               0                 *      
EDWARD L SCHOENHUT                 17,400              0                 *      
WILLIAM F SCHOENHUT JR             22,183              0                 *      
STEPHEN  SCHWARTZ                  20,150              0                 *      
VICKI S SCIFERS                    1,950               0                 *      
MARY L SCRANTON                    5,075               0                 *      
NICHOLAS SELLERS                   8,700               0                 *      
William W Sellers tr ua 11/20/00                                                
William W Sellers Rev Trust (23)  21,683              0                 *     
AMY T SEYMOUR                      33                  0                 *      
RAYMOND K SHOTWELL                 3,668               0                 *      
LEONARD H SICHEL JR                8,700               0                 *      
RICHARD SMITH                      98,320              0                 *      
KATHY SMITLEY                      2,696               0                 *      
MELVIN G SNYDER                    1,950               0                 *      
TERRY W STANGLEIN                  26,642              0                 *      
ELINOR STEINHILBER                 8,700               0                 *      
MICHAEL & ELLEN STEIR              9,633               0                 *      
CPT ERIC W STETSON                 4,350               0                 *      
GERTRUDE T STEVENS                 12,084              0                 *      
HOMER N STEWART                    8,700               0                 *      
PRISCILLA STITT                    3,450               0                 *      
VIVIAN K STROUD (24)               4,800               173,275           *      
CLARK D & CAROLYN S STULL          8,610               0                 *      
GEORGE E SZYCHOSKI                 87                  0                 *      
MICHAEL W SZYCHOSKI                220                 0                 *      
CONSTANTINE TEOFIL SZYMBORSKI      8,700               0                 *      
ALFRED & SUSAN THOMPSON            1,952               0                 *      
ANDREW THOMPSON                    435                 0                 *      
WILLIAM E THOROUGHGOOD             1,125               0                 *      
GUILLERMO M TORRES                 3,000               0                 *      
JAMES TURNER (25)                  26,467              0                 *      
ANTHONY B ULLMAN                   3,600               0                 *      
WILLIAM L VAN ALEN JR (26)         14,533              1,838,505         *      
C ANTHONY WAINWRIGHT               2,000               0                 *      
DAVID L WEAVER                     780                 0                 *      
DWANE M WEAVER                     6,433               0                 *      
MICHAEL L WEAVER                   870                 0                 *      
WESLEY R WEAVER                    9,999               0                 *      
ARTHUR L WHEELER                   113,100             0                 *      
ARTHUR & RUTH WIENER               8,915               0                 *      
ARTHUR A WIENER                    2,587               0                 *      
BERNARD WIENER                     1,283               0                 *      
J EDWARD WILLIARD                  52,000              0                 *      
KENNETH B WILSON                   3,258               0                 *      
CLAUDINE W WOLFE                   1,548               0                 *      
C EDWIN & JANET LYNN WRIGHT        3,108               0                 *      
JOHN D WRIGHT                      7,525               0                 *      
CRAIG YOSHIMOTO                    8,700               0                 *      
JOSEPH ZIRBES                      2,250               0                 *      
RUTH ZWEIGBAUM                     10,265              0                 *      

          TOTAL              3,177,904           0                 *

* Less than 1%                                                                  

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(1)   MR. BOYNTON IS A FORMER DIRECTOR OF THE COMPANY.                          

(2)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT  TO SHARES  HELD OF RECORD BY THE  ENTITY,  BRITTAIN
FAMILY TRUST, IS E. DOUGLAS BRITTAIN.                               

(3)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT  TO SHARES  HELD OF RECORD  BY THE  ENTITY,  CARLSON
INVESTMENTS IS JIM CARLSON.                                         

(4)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT  TO  THE  SHARES  HELD  OF  RECORD  BY  THE  ENTITY,
CORNERSTONE PUBLIC RELATIONS GROUP, IS M. DARLENE HERBERT FELT.     

(5)   THE NATURAL  PERSONS WHO EXERCISE SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT TO THE  SHARES  HELD OF RECORD BY THE  ENTITY, DAMAR
FAMILY TRUST ARE MARLENE AND DAVID WEAVER.                          

(6)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT TO THE SHARES  HELD OF RECORD BY THE  ENTITY,  DELTA
WESTERN COMPANY, IS GEORGE W MOFFITT.                               

(7)   MR. DEMEDIO IS AN EMPLOYEE OF USA.                                        

(8)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS WITH RESPECT TO THE SHARES HELD OF RECORD BY THE ENTITY,  DILLIGENT
FINANCE, IS RAI HAMILTON.                                           

(9)   THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS WITH  RESPECT TO THE SHARES  HELD OF RECORD BY THE ENTITY,  ELSHAY,
LLC, IS MARK ERLICH.                                                

(10)  MR. HAMILTON IS AN EMPLOYEE OF USA.                                       

(11)  MR. HARRUM IS AN EMPLOYEE OF USA.                                         

(12)  THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT TO THE SHARES  HELD OF RECORD BY THE  ENTITY,  HEALD
FAMILY TRUST, IS JACK HEALD.                                        

(13)  MS. HEPBURN IS AN EMPLOYEE OF THE COMPANY.                                

(14)  THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS WITH  RESPECT TO THE SHARES  HELD OF RECORD BY THE ENTITY,  HRUBALA
ASSOCIATES, A PARTNERSHIP, IS DAVID R MOLUMPHY.                     

(15)  MR. ILLES IS A CONSULTANT TO THE COMPANY.                                 

(16)  MS. JENKINS IS AN EMPLOYEE OF THE COMPANY.                                

(17)  THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS WITH RESPECT TO THE SHARES HELD OF RECORD BY THE ENTITY,  LEXINGTON
VENTURES, IS LARRY GORDON.                                          

(18)  THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS  WITH  RESPECT  TO THE  SHARES  HELD OF RECORD BY THE  ENTITY,  LSP
PARTNERS, IS AARON LEHMAN.                                          

(19)  MR. LURIO IS A DIRECTOR AND HIS LAW FIRM,  LURIO &  ASSOCIATES,  P.C.,  IS
GENERAL COUNSEL TO USA.                                             

(20)  MR. MCGARRAH WAS A CONSULTANT TO THE COMPANY.                             

(21)  MEDIATECH  CAPITAL  PARTNERS  IS  THE  SUCCESSOR  TO  TECHNOLOGY  PARTNERS
      (HOLDINGS),  LLC, THE  COMPANY'S  FORMER  INVESTMENT  BANKER.  THE NATURAL
      PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE  POWERS WITH
      RESPECT TO SHARES HELD OF RECORD BY MEDIATECH  CAPITAL  PARTNERS IS PORTER
BIBB.                                                               

(22)  THE NATURAL  PERSON WHO EXERCISES SOLE AND/OR SHARED VOTING OR DISPOSITIVE
      POWERS WITH  RESPECT TO THE SHARES HELD OF RECORD BY THE ENTITY,  MOLUMPHY
CAPITAL MGMT, IS DAVID R MOLUMPHY.                                  

(23)  MR. SELLERS IS A DIRECTOR OF THE COMPANY.                                 

(24)  MS. STROUD IS AN EMPLOYEE OF USA.                                         

(25)  MR. TURNER IS AN EMPLOYEE OF USA.                                         

(26)  MR. VAN ALEN IS A DIRECTOR OF USA.                                        

(27)  REPRESENTS  3,177,904 SHARES UNDERLYING WARRANTS TO PURCHASE OUR SHARES AT
      $.20 PER SHARE AT ANY TIME THROUGH  DECEMBER 31, 2004. THESE WARRANTS WERE
      ISSUED TO OUR SENIOR  NOTEHOLDERS  WHO HAD  PREVIOUSLY  ELECTED TO RECEIVE
      WARRANTS IN LIEU OF CASH FOR INTEREST  PAYMENTS ON ACCOUNT OF THE CALENDAR
      QUARTERS ENDED JUNE 30, 2002,  SEPTEMBER 30, 2002 DECEMBER 31, 2002, MARCH
      31, 2003,  JUNE 30, 2003,  AND  SEPTEMBER 30, 2003.  THE 538,592  WARRANTS
      ISSUED ON ACCOUNT OF THE NOTEHOLDERS WHO HAD PREVIOUSLY ELECTED TO RECEIVE
      WARRANTS IN LIEU OF CASH FOR INTEREST  FOR THE  DECEMBER  2003 QUARTER ARE
      REFLECTED  IN THE PRIOR  SELLING  SHAREHOLDER'S  TABLE.  WE HAVE AGREED TO
      REGISTER  THESE  SHARES FOR RESALE  UNDER THE ACT AT OUR COST AND  EXPENSE
      THROUGH JUNE 30, 2006.  AS OF THE DATE OF THIS  PROSPECTUS,  NONE OF THESE
WARRANTS HAVE BEEN EXERCISED.                                       

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 MARKET FOR COMMON STOCK

The Common Stock is currently traded on the OTC Electronic  Bulletin Board under
the symbol USTT.                                                                

The high and low bid prices on the OTC Electronic  Bulletin Board for the Common
Stock were as follows:                                                          

Fiscal                                                                          

2002                                               High           Low           
----                                               ----           ---           
First Quarter (through September 30, 2001)        $ 1.05         $ 0.60         
Second Quarter (through December 31, 2001)        $ 0.74         $ 0.34         
Third Quarter (through March 31, 2002)            $ 0.80         $ 0.39         
Fourth Quarter (through June 30, 2002)            $ 0.41         $ 0.20         

2003                                                                            
----                                                                            
First Quarter (through September 30, 2002)        $ 0.39         $ 0.14         
Second Quarter (through December 31, 2002)        $ 0.23         $ 0.13         
Third Quarter (through March 31, 2003)            $ 0.22         $ 0.16         
Fourth Quarter (through June 30, 2003)            $ 0.64         $ 0.17         

2004                                                                            
----                                                                            
First Quarter (through September 30, 2003)        $ 0.54         $ 0.34         
Second Quarter (through December 31, 2003)        $ 0.42         $ 0.12         
Third Quarter (through March 31, 2004)            $ 0.29         $ 0.15         

Such quotations reflect inter-dealer prices,  without retail mark-up,  mark-down
or commission and may not represent actual transactions.                        

At May 31,  2004,  there were  2,134,232  shares of Common Stock  issuable  upon
exercise of outstanding options. The following table shows the number of options
outstanding and their exercise price:                                           

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                                  Option
          Options Outstanding     Exercise Price
          -------------------     --------------
          1,970,565               $ .165
           125,000               $1.00
            38,667               $2.00
------------------        
Total  2,134,232                  
==================        

All of the aforesaid  options have been issued to our  employees,  former Stitch
option holders or consultants.                                                  

As of May 31,  2004,  a total  of  18,203,545  warrants  were  outstanding  with
exercise prices ranging from $.07 per share to $1.25 per share.                 

As of May 31, 2004,  there were 522,742  shares of Common  Stock  issuable  upon
conversion of the  outstanding  Preferred Stock and 667,718 shares issuable upon
the conversion of cumulative preferred dividends.                               

As of May 31, 2004 there are $10,080,937 face value of Senior Notes outstanding,
which are convertible into 49,276,805 shares of Common Stock.                   

On May 31,  2004  there were 1,520  record  holders of the Common  Stock and 544
record holders of the Preferred Stock.                                          

The holders of the Common Stock are  entitled to receive  such  dividends as the
Board of  Directors  of the Company  may from time to time  declare out of funds
legally  available  for payment of dividends.  Through the date hereof,  no cash
dividends  have been  declared on the Company's  securities.  No dividend may be
paid on the Common  Stock  until all  accumulated  and unpaid  dividends  on the
Preferred  Stock have been paid.  As of May 31, 2004,  such  accumulated  unpaid
dividends amount to $6,677,180.                                                 

During  fiscal  year 2003,  certain  holders of the  Company's  Preferred  Stock
converted  4,790  shares  into 4,790  shares of Common  Stock.  Certain of these
shareholders also converted cumulative preferred dividends of $56,050 into 5,605
shares of Common Stock.                                                         

 DESCRIPTION OF SECURITIES

General                                                                         

We are  authorized to issue up to  475,000,000  shares of common  stock,  no par
value,  and 1,800,000  shares of  undesignated  preferred  stock. As of the date
hereof,  900,000  preferred  shares have been designated as series A convertible
preferred stock, no par value. As of May 31, 2004, there were 339,453,012 shares
of common stock issued and  outstanding and 522,742 shares of series A preferred
stock issued and outstanding which are convertible into 522,742 shares of common
stock.  Through May 31, 2004, a total of 588,408 shares of preferred  stock have
been converted into 664,852 shares of common stock and $2,684,444 of accrued and
unpaid  dividends  thereon have been  converted  into  288,521  shares of common
stock.                                                                          

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Common Stock                                                                    

The holder of each share of common stock:                                       

o    is  entitled  to  one  vote  on all  matters  submitted  to a  vote  of the
     shareholders  of USA,  including  the  election of  directors.  There is no
cumulative voting for directors;                                      

o    does not have any  preemptive  rights to subscribe for or purchase  shares,
obligations, warrants, or other securities of USA; and                

o    is entitled to receive such  dividends  as the Board of Directors  may from
     time  to time  declare  out of  funds  legally  available  for  payment  of
dividends.                                                            

No dividend  may be paid on the common  stock until all  accumulated  and unpaid
dividends on the series A preferred stock have been paid. Upon any  liquidation,
dissolution or winding up of USA, holders of shares of common stock are entitled
to receive pro rata all of the assets of USA available for distribution, subject
to the  liquidation  preference  of the series A  preferred  stock of $10.00 per
share and any unpaid and accumulated dividends on the series A preferred stock. 

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Series A Convertible Preferred Stock                                            

The holders of shares of Series A preferred stock:                              

o    have the number of votes per share  equal to the number of shares of common
     stock into which each such share is convertible  (i.e., 1 share of series A
preferred stock equals 1 vote);                                       

o    are  entitled  to  vote  on  all  matters  submitted  to  the  vote  of the
shareholders of USA, including the election of directors; and         

o    are  entitled  to an annual  cumulative  cash  dividend of $1.50 per annum,
payable when, as and if declared by the Board of Directors.           

The record dates for payment of  dividends  on the Series A Preferred  Stock are
February 1 and August 1 of each year.  Any and all  accumulated  and unpaid cash
dividends on the Series A Preferred Stock must be declared and paid prior to the
declaration  and payment of any  dividends on the Common  Stock.  Any unpaid and
accumulated  dividends  will not bear  interest.  As of  May 31, 2004 the       
accumulated and unpaid dividends were $6,677,180.                               

Each share of Series A Preferred  Stock is  convertible at any time into 1 share
of fully issued and  non-assessable  Common Stock.  Accrued and unpaid dividends
earned on shares of Series A Preferred  Stock being  converted into Common Stock
are also  convertible  into Common  Stock at the rate $10.00 per share of Common
Stock at the time of conversion and whether or not such dividends have then been
declared  by USA.  As of May 31,  2004 a total of  588,408  shares  of  series A
Preferred  Stock have been  converted  into common  stock and accrued and unpaid
dividends  thereon have been converted into 288,521 shares of Common Stock.  The
conversion  rate of the Series A  Preferred  Stock (and any  accrued  and unpaid
dividends  thereon)  will  be  equitably   adjusted  for  stock  splits,   stock
combinations,  recapitalizations, and in connection with certain other issuances
of common stock by USA. Upon any liquidation, dissolution, or winding-up of USA,
the holders of Series A Preferred  Stock are entitled to receive a  distribution
in  preference  to the  Common  Stock in the amount of $10.00 per share plus any
accumulated and unpaid dividends.                                               

We have the  right,  at any time,  to redeem  all or any part of the  issued and
outstanding  series A  preferred  stock for the sum of $11.00 per share plus any
and all unpaid and  accumulated  dividends  thereon.  Upon notice by USA of such
call,  the  holders  of the  series A  preferred  stock so called  will have the
opportunity  to convert  their shares and any unpaid and  accumulated  dividends
thereon  into  shares of common  stock.  The  $11.00  per share  figure  was the
redemption  price approved by the Directors and  shareholders of USA at the time
the series A preferred stock was created and first issued.  We currently have no
plans to redeem the preferred stock.                                            

12% Senior Notes                                                                

As of May 31, 2004, we had  outstanding  $3,404,490 of Senior Notes due December
31, 2007, $3,213,500 of Senior Notes due December 31, 2006, $3,011,791 of Senior
Notes due  December 31, 2005 and $451,152 of Senior Notes due December 31, 2004.
The  principal  amount of each  senior note which is not  voluntarily  converted
shall be  payable on the  maturity  date  thereof,  at which time any unpaid and
accrued interest shall also become due. Interest shall accrue at the rate of 12%
per annum from and after the date of issuance and shall be payable  quarterly in
arrears on December 31,  March 31, June 30, and  September 30 of each year until
maturity.  The senior notes are senior to all existing equity securities of USA,
including the series A preferred stock.                                         

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Of the Senior Notes due December 31, 2003, a total of $3,823,000  were purchased
through the  exchange  of  $3,823,000  of the old senior  notes  previously  due
December 31, 2001.  The principal  amount of these notes is  convertible  at any
time into shares of common  stock at the rate of $1.25 per share.  The  interest
paid on these notes is also  convertible into shares of common stock at the rate
of $1.00 per share.  For the quarters ended  September 31, 2001 and December 31,
2001, the conversion rate relating to the interest  payments was reduced to $.50
per share and for the quarter ended March 31, 2002 to $.40 per share and for the
quarters ended June 30, 2002,  September 30, 2002,  December 31, 2002, March 31,
2003, June 30, 2003, and September 30, 2003, to $.20 per share together with one
warrant at $.20 per share for each share  issued  with an  exercise  termination
date of August 30,  2004.  We have  agreed to use our best  efforts to  register
these shares as well as the shares  underlying the warrants for resale under the
Act. These shares and shares  underlying the warrants issued by us on account of
the December 31, 2003  quarter are included in this  prospectus.  In March 2003,
each holder of these senior  notes was granted the right to have the  conversion
rate  reduced to $.20 in exchange  for  extending  the  maturity  date for three
additional  years or until  December 31, 2006.  A total of  $5,024,000  of these
notes have been extended to December 31, 2006. In connection with any extensions
other than the reduction of the conversion rate, there were no other payments or
benefits exchanged between USA and the noteholders.                             

The principal amount of each Senior Note due December 31, 2004 is convertible at
any time into shares of Common  Stock at the rate of $.40 per share.  In January
2002,  the Company  agreed to provide the option to each holder of these  senior
notes to elect to accept shares in lieu of receiving cash in satisfaction of the
interest payments otherwise due to them on account of the last three quarters of
fiscal 2002. The conversion  rate for this interest  payment due for the quarter
ended March 31, 2002 was $.40 per share.  The Company  continued  this option at
$.20 per share  for the  quarters  ended  June 30,  2002,  September  30,  2002,
December  31, 2002,  March 31, 2003,  June 30,  2003,  September  30, 2003,  and
December 31, 2003  together  with one warrant at $.20 for each share issued with
an  exercise  termination  date of August 30,  2004.  We have agreed to register
these shares as well as the shares  underlying the warrants for resale under the
Act. These shares and shares  underlying the warrants issued by us on account of
the December 31, 2003  quarter are included in this  prospectus.  In March 2003,
each holder of these senior  notes was granted the right to have the  conversion
rate  reduced to $.20 in exchange  for  extending  the  maturity  date for three
additional years or until December 31, 2007. The noteholder was required to make
the election on or prior to December 31,  2003. A total of  $4,191,350  of these
notes have been  extended to December 31, 2007 and are  convertible  at $.20 per
share.  In  connection  with any  extensions  other  than the  reduction  of the
conversion rate, there were no other payments or benefits  exchanged between USA
and the noteholders.                                                            

The principal amount of each Senior Note due December 31, 2005 is convertible at
any time into shares of Common Stock at the rate of $.20 per share.  The Company
agreed to provide  the option to each holder of these  senior  notes to elect to
accept shares in lieu of receiving cash in satisfaction of the interest payments
otherwise  due to them on account of the last quarter of fiscal 2002 at the rate
of $.20 per share.  The Company  continued this option at $.20 per share for the
quarters ended September 30, 2002,  December 31, 2002,  March 31, 2003, June 30,
2003,  September  30, 2003,  and December 31, 2003  together with one warrant at
$.20 for each share issued with an exercise termination date of August 30, 2004.
We have agreed to register  these  shares as well as the shares  underlying  the
warrants  for resale  under the Act.  These  shares and  shares  underlying  the
warrants  issued by us on account of the  December 31, 2003 quarter are included
in this prospectus.                                                             

During June 2004,  we issued a warrant to purchase  one share for each  existing
warrant  then held by the holders of the senior notes who had elected to receive
the warrant in lieu of a cash  interest  payment.  The shares  underlying  these
warrants are included in this prospectus.                                       

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The  indebtedness  evidenced  in the Senior  Note is  subordinated  to the prior
payment  when due of the  principal  of,  premium,  if any,  and interest on all
"Senior  Indebtedness",   as  defined  herein,  of  USA  as  follows:  Upon  any
distribution  of its  assets  in a  liquidation  or  dissolution  of USA,  or in
bankruptcy,  reorganization,  insolvency,  receivership  or similar  proceedings
relating to USA, the Lender shall not be entitled to receive  payment  until the
holders of Senior  Indebtedness are paid in full. Until a payment default occurs
with respect to any Senior Indebtedness,  all payments of principal and interest
due to Lender under the senior note shall be made in accordance with this senior
note.  Upon the  occurrence  of any payment  default  with respect to any Senior
Indebtedness  then,  upon written notice thereof to USA and Lender by any holder
of such Senior Indebtedness or its  representative,  no payments of principal or
interest on the senior note shall be made by USA until such payment  default has
been cured to the  satisfaction  of the holder of such  Senior  Indebtedness  or
waived by such  holder,  provided,  however,  that if during  the 180 day period
following such default,  the holder of Senior  Indebtedness  has not accelerated
its loan,  commenced  foreclosure  proceedings or otherwise undertaken to act on
such default,  then USA shall be required to continue  making payments under the
senior note,  including  any which had not been paid during such 180 day period.
In the event that any institutional  lender to USA at any time so requires,  the
Lender shall execute,  upon request of USA, any  intercreditor  or subordination
agreement(s)  with any such  institutional  lender on terms not materially  more
adverse to the Lender  then the  subordination  terms  contained  in this senior
note.                                                                           

The term "Senior Indebtedness" shall mean (a) all direct or indirect, contingent
or certain indebtedness of any type, kind or nature (present or future) created,
incurred or assumed by USA with  respect to any future  bank or other  financial
institutional  indebtedness of USA or (b) any indebtedness created, incurred, or
assumed, by USA secured by a lien on any of our assets.                         

Notwithstanding  anything herein to the contrary,  Senior  Indebtedness does not
include:                                                                        

o    unsecured  accounts  payable  to trade  creditors  of USA  incurred  in the
ordinary course of business;                                          

o    any debt owed by USA to any officer, director or stockholder of USA;       

o    any  obligation  of  Borrower  issued  or  contracted  for  as  payment  in
     consideration  of the purchase by USA of the capital stock or substantially
     all of the assets of another person or in  consideration  for the merger or
consolidation  with respect to which USA was a party;                 

o    any operating lease obligations of USA;                                    

o    any other  indebtedness  which by its terms is  subordinated  to the senior
note; or                                                              

o    any "other indebtedness" which is subordinated to all indebtedness to which
     the senior note is subordinated in  substantially  like terms as the senior
     note;  which such "other  indebtedness"  shall be treated as equal with the
indebtedness evidenced by the senior note.                            

Common Stock Purchase Warrants                                                  

As of May 31, 2004, there are outstanding  warrants to purchase 7,142,858 shares
at $.07 per share,  warrants  to  purchase  5,000,000  shares at $.10 per share,
warrants to  purchase  750,000  shares at $.067 per share,  warrants to purchase
3,654,859  shares at $.20 per share,  warrants to purchase  1,200,000  shares at
$.91 per share, warrants to purchase 377,927 shares at $1.00 per share, warrants
to purchase  2,901 shares at $1.03 per share,  and  warrants to purchase  75,000
shares at $1.25 per share.                                                      

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The  exercise  price of the  warrants  and the number of shares of Common  Stock
issuable  upon  exercise of the  warrants are subject to  adjustment  in certain
circumstances,  including a stock split of, stock dividend on, or a subdivision,
combination  or   recapitalization   of  the  common  stock.  Upon  the  merger,
consolidation,  sale of  substantially  all the assets of USA, or other  similar
transaction,  the warrant  holders  shall,  at the option of USA, be required to
exercise the warrants  immediately  prior to the closing of the transaction,  or
such  warrants  shall  automatically  expire.  Upon such  exercise,  the warrant
holders  shall  participate  on the same basis as the holders of common stock in
connection with the transaction.                                                

The  warrants do not confer upon the holder any voting or any other  rights of a
shareholder of USA. Upon notice to the warrant  holders,  USA has the right,  at
any time and from time to time,  to reduce the  exercise  price or to extend the
warrant termination date.                                                       

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Shares Eligible for Future Sale                                                 

Of the  339,453,012  shares of common  stock issued and  outstanding  on May 31,
2004, a total of  approximately  31,771,925 are restricted  securities which are
not currently  eligible for sale under Rule 144 promulgated under the Act. As of
May  31,  2004,  there  were  522,742  shares  of  preferred  stock  issued  and
outstanding,  all of which are freely transferable  without further registration
under the Act (other than shares held by "affiliates" of USA).                  

The shares of preferred  stock issued and  outstanding as of the date hereof are
convertible  into  522,742  shares of common  stock all of which  would be fully
transferable  without further registration under the Act (other than shares held
by "affiliates" of USA).                                                        

Shares of our  common  stock  which are not freely  tradeable  under the Act are
known as "restricted securities" and cannot be resold without registration under
the Act or pursuant to Rule 144 promulgated thereunder.                         

In general,  under Rule 144 as currently in effect,  a person (or persons  whose
shares are  required to be  aggregated),  including  any  affiliate  of USA, who
beneficially  owns "restricted  securities" for a period of at least one year is
entitled to sell within any  three-month  period,  shares equal in number to the
greater of (i) 1% of the then outstanding shares of the same class of shares, or
(ii) the average  weekly  trading  volume of the same class of shares during the
four calendar weeks preceding the filing of the required notice of sale with the
SEC. The seller must also comply with the notice and manner of sale requirements
of Rule 144, and there must be current public  information  available about USA.
In addition, any person (or persons whose shares must be aggregated) who is not,
at the time of sale, nor during the preceding three months,  an affiliate of the
USA, and who has beneficially  owned  restricted  shares for at least two years,
can sell such  shares  under Rule 144 without  regard to the  notice,  manner of
sale, public information or the volume limitations described above.             

Limitation of Liability; Indemnification                                        

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As permitted by the Pennsylvania  Business  Corporation Law of 1988 ("BCL"), our
By-laws  provide that  Directors  will not be personally  liable,  as such,  for
monetary damages for any action taken unless the Director has breached or failed
to perform  the duties of a Director  under the BCL and the breach or failure to
perform  constitutes  self-dealing,  willful  misconduct or  recklessness.  This
limitation  of  personal  liability  does  not  apply to any  responsibility  or
liability pursuant to any criminal statute,  or any liability for the payment of
taxes  pursuant  to  Federal,  State or local  law.  The  By-laws  also  include
provisions  for  indemnification  of our  Directors  and officers to the fullest
extent permitted by the BCL. Insofar as indemnification  for liabilities arising
under the Act may be permitted to Directors, officers and controlling persons of
USA pursuant to the foregoing  provisions,  or  otherwise,  we have been advised
that in the opinion of the SEC such  indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.                          

Transfer Agent and Registrar                                                    

The Transfer  Agent and Registrar  for our stock and warrants is American  Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.             

PLAN OF DISTRIBUTION

The selling  shareholders  are free to offer and sell the common  shares at such
times,  in such  manner  and at such  prices  as the  selling  shareholders  may
determine.  The types of  transactions  in which the common  shares are sold may
include   transactions  in  the   over-the-counter   market   (including   block
transactions),  negotiated transactions, the settlement of short sales of common
shares,  or a combination  of such methods of sale.  The sales will be at market
prices prevailing at the time of sale or at negotiated prices. Such transactions
may or may not involve brokers or dealers.                                      

The selling  shareholders  may effect such  transactions by selling common stock
directly to  purchasers  or through  broker-dealers,  which may act as agents or
principals.  Such  broker-dealers  may  receive  compensation  in  the  form  of
discounts,  concessions, or commissions from the selling shareholders.  They may
also receive  compensation  from the  purchasers  of common shares for whom such
broker-dealers  may act as agents or to whom  they  sell as  principal,  or both
(which  compensation  as to a  particular  broker-dealer  might be in  excess of
customary commissions).                                                         

The selling  shareholders and any  broker-dealers or agents that are involved in
selling the shares may also be deemed to be "underwriters" within the meaning of
the Act in connection with such sales. In such event,  any commissions  received
by such  broker-dealers  or  agents  and  profit  on the  resale  of the  shares
purchased by them may be deemed to be underwriting discounts under the Act.     

The selling  shareholders  also may resell all or a portion of the common shares
in open market  transactions  in reliance upon Rule 144 under the Act,  provided
they meet the criteria  and conform to the  requirements  of such Rule.  We have
agreed to bear all the expenses  (other than selling  commissions) in connection
with the  registration  and sale of the common stock covered by this prospectus.
In some  circumstances,  we have agreed to  indemnify  the selling  shareholders
against certain losses and liabilities, including liabilities under the Act.    

We have  advised  the  selling  shareholders  that while  they are  engaged in a
distribution  of the shares  included in this  prospectus  they are  required to
comply with Regulation M promulgated under the Securities  Exchange Act of 1934,
as  amended.  With  certain  exceptions,  Regulation  M  precludes  the  selling
shareholders,  any affiliated purchasers,  and any broker-dealer or other person
who  participates  in such  distribution  from  bidding  for or  purchasing,  or
attempting to induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.          

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 LEGAL MATTERS

The  validity  of the  common  stock  has  been  passed  upon  for us by Lurio &
Associates, P.C., Philadelphia, Pennsylvania 19103.                             

 EXPERTS

The consolidated financial statements of USA Technologies, Inc. at June 30, 2003
and  2002,  and for each of the two  years in the  period  ended  June 30,  2003
appearing in this  Prospectus  and  Registration  Statement have been audited by
Ernst & Young LLP,  independent  registered public accounting firm, as set forth
in their report thereon  (which  contains an  explanatory  paragraph  describing
conditions that raise  substantial doubt about the Company's ability to continue
as a  going  concern  as  described  in  Note  2 to the  consolidated  financial
statements)  appearing  elsewhere herein, and are included in reliance upon such
reports  given on the  authority  of such  firm as  experts  in  accounting  and
auditing.                                                                       

The financial  statements of Bayview  Technology  Group,  LLC as of December 31,
2002 and 2001 and for each of the  periods in the two years ended  December  31,
2002 included in this  Prospectus  and in the  Registration  Statement have been
audited by Anton Collins Mitchell LLP, independent  registered public accounting
firm,  as set forth in their  report  thereon  (which  contains  an  explanatory
paragraph  regarding  the  Company's  ability to  continue  as a going  concern)
appearing  elsewhere herein and are included upon the authority of said firms as
experts in auditing and accounting.                                             

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USA Technologies, Inc.

 Consolidated Financial Statements

Years ended June 30, 2003 and 2002

Contents

Report of Independent Registered Public Accounting Firm.....................F-1 

Consolidated Financial Statements                                               

Consolidated Balance Sheets.................................................F-2 
Consolidated Statements of Operations.......................................F-3 
Consolidated Statements of Shareholders' Equity ............................F-4 
Consolidated Statements of Cash Flows.......................................F-7 
Notes to Consolidated Financial Statements..................................F-8 

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 Report of Independent Registered Public Accounting Firm

USA Technologies, Inc.                                                          
Board of Directors and Shareholders                                             

We  have  audited  the   accompanying   consolidated   balance   sheets  of  USA
Technologies,  Inc. as of June 30, 2003 and 2002,  and the related  consolidated
statements of operations,  shareholders'  equity, and cash flows for each of the
two years in the period ended June 30, 2003. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.                      

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.                                               

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of USA Technologies,
Inc. at June 30, 2003 and 2002, and the  consolidated  results of its operations
and its cash flows for each of the two years in the period  ended June 30, 2003,
in  conformity  with  U.S. generally accepted accounting principles.            

The  accompanying   financial   statements  have  been  prepared   assuming  USA
Technologies,  Inc. will continue as a going concern.  As discussed in Note 2 to
the financial  statements,  the Company has incurred recurring  operating losses
and has a working capital  deficiency at June 30, 2003.  These  conditions raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters are also described in Note 2. The
financial  statements  do not include any  adjustments  to reflect the  possible
future effects on the recoverability and classification of assets or the amounts
and  classification  of  liabilities  that might result from the outcome of this
uncertainty.                                                                    

                     /s/ Ernst & Young LLP

Philadelphia,  Pennsylvania                                                     
September 12, 2003,                                                             
except for Note 17, as to which                                                 
the date is September 30, 2003                                                  

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USA Technologies, Inc.

 Consolidated Balance Sheets

                                                        [Enlarge/Download Table]

                                                                                         June 30                   March 31,   
                                                                                  2003             2002              2004      
                                                                            ---------------------------------   -------------  
Assets                                                                                           (Restated)      (Unaudited)   
Current assets:                                                                                                                
                                                                                                                               
   Cash and cash equivalents                                                $   2,384,455       $     557,970   $   1,459,429  
   Accounts receivable, less allowance for uncollectible accounts                                                              
     of $167,000 (unaudited) at March 31, 2004 and                                                                             
     $65,000 and $37,000 in 2003 and 2002, respectively                           414,796             340,293       1,315,958  
   Other receivable                                                                    --                  --         762,130  
   Inventory                                                                      457,900             877,814       1,425,126  
   Prepaid expenses and other current assets                                      201,383             124,865         337,636  
   Subscriptions receivable                                                     1,013,400              35,000              --  
   Investment                                                                     904,049                  --          88,206  
   Assets held for sale                                                                --                  --          93,300  
                                                                            ---------------------------------    ------------  
Total current assets                                                            5,375,983           1,935,942       5,481,785  

Property and equipment, net                                                       943,784           1,932,427         670,488  
Software development costs, at cost, less accumulated amortization                                                             
   of $5,326,187 (unaudited) at March 31, 2004 and                                                                             
   $4,327,526 and $2,995,979 in 2003 and 2002, respectively                       998,660           2,330,207              --  
Goodwill                                                                        7,945,580           7,945,580       7,985,207  
Intangibles, net                                                                2,591,500           2,883,500      11,140,982  
Other assets                                                                       37,174              29,117           8,544  
                                                                            ---------------------------------    ------------  
Total assets                                                                $  17,892,681       $  17,056,773    $ 25,287,006  
                                                                            =================================    ============  

Liabilities and shareholders' equity                                                                                           
Current liabilities:                                                                                                           
   Accounts payable                                                         $   2,266,156       $   3,081,495   $   2,881,330  
   Accrued expenses                                                             2,720,743           2,131,289       2,174,533  
   Current obligations under long-term debt                                       830,674             850,644         479,070  
   Convertible Senior Notes                                                       349,942                  --         387,255  
   Deposits                                                                            --             480,000              --  
                                                                            ---------------------------------    ------------  
Total current liabilities                                                       6,167,515           6,543,428       5,922,188  

Convertible Senior Notes, less current portion                                  7,808,469           6,289,825       6,602,556  
Long-term debt, less current portion                                              224,614             762,085          17,810  
Convertible debenture                                                                  --              65,543              --  
                                                                            ---------------------------------    ------------  
Total liabilities                                                              14,200,598          13,660,881      12,542,554  

Shareholders' equity:                                                                                                          
   Preferred Stock, no par value:                                                                                              
     Authorized shares--1,800,000                                                                                              
     Series A  Convertible  Preferred--Authorized  shares - 900,000                                                            
     Issued and  outstanding  shares--523,442 (unaudited) at March                                                             
        31, 2004 and  524,492 and 529,282 at June 30, 2003 and 2002,                                                           
       respectively (liquidation preference of $11,920,670 (unaudited)                                                         
       at March 31, 2004 and $11,158,027 at June 30, 2003)                      3,715,246           3,749,158        3,707,812 
   Common Stock, no par value:                                                                                                 
     Authorized shares--475,000,000 at March 31, 2004 and                                                                      
       400,000,000 and 150,000,000 at June 30, 2003 and 2002, respectively                                                     
     Issued and outstanding shares--300,151,941 (unaudited) at March                                                           
       31, 2004 and 218,741,042 and 65,339,188 at                                                                              
       June 30, 2003 and 2002, respectively                                    78,790,405          56,588,503      104,236,037 
   Subscriptions receivable                                                            --            (149,750)              -- 
   Accumulated other comprehensive income                                              --                  --           51,819 
   Accumulated deficit                                                        (78,813,568)        (56,792,019)     (95,251,216)
                                                                            ---------------------------------     ------------ 
Total shareholders' equity                                                      3,692,083           3,395,892       12,744,452 
                                                                            ---------------------------------     ------------ 
Total liabilities and shareholders' equity                                  $  17,892,681       $  17,056,773    $  25,287,006 
                                                                            =================================     ============ 

See accompanying notes.                                                         

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USA Technologies, Inc.

 Consolidated Statements of Operations

                                                        [Enlarge/Download Table]

                                                                                                        Nine months ended       
                                                                        Year ended June 30                  March 31,           
                                                                     2003             2002             2004              2003   
                                                                 ------------------------------   ------------------------------
Revenues:                                                                                                    (Unaudited)        
                                                                                                                                
   Equipment sales                                               $   1,034,427    $     795,938   $  3,741,359   $    880,545   
   License and transaction fees                                      1,373,573          778,906        902,047        995,082   
   Product sales and other                                             445,068          107,857        304,476        357,703   
                                                                 ------------------------------   ---------------------------   
Total revenues                                                       2,853,068        1,682,701      4,947,882      2,233,330   

   Cost of sales (including amortization of software                                                                            
     development costs)                                              2,971,443        4,062,901      3,236,524      2,057,173   
                                                                 ------------------------------   ---------------------------   
   Gross profit                                                       (118,375)      (2,380,200)     1,711,358        176,157   

Operating expenses:                                                                                                             
   General and administrative                                        7,194,684        7,868,064      5,096,447      4,951,021   
   Compensation                                                      4,973,210        4,654,662      8,664,200      2,767,168   
   Depreciation and amortization                                     1,251,716          440,238      1,227,109        734,026   
   Loss on debt modification                                         1,521,654               --        318,915        959,352   
                                                                 ------------------------------   ---------------------------   
Total operating expenses                                            14,941,264       12,962,964     15,306,671      9,411,567   
                                                                 ------------------------------   ---------------------------   
Operating loss                                                     (15,059,639)     (15,343,164)   (13,595,313)    (9,235,410)  

Other income (expense):                                                                                                         
   Interest income                                                      18,691           15,791         29,999         11,956   
   Gain (loss) on investment                                        (1,945,951)              --        603,480             --   
   Gain on termination of contract                                          --               --        509,244             --   
   Interest expense:                                                                                                            
     Coupon or stated rate                                          (1,163,192)        (966,974)      (850,919)      (924,582)  
     Non-cash interest and amortization of debt discount            (3,815,408)      (1,513,118)    (3,120,769)    (2,394,862)  
     Less: amount capitalized                                               --          492,658             --             --   
                                                                 ------------------------------   ---------------------------   
   Total interest expense                                           (4,978,600)      (1,987,434)    (3,971,688)    (3,319,444)  
                                                                 ------------------------------   ---------------------------   
Total other income (expense)                                        (6,905,860)      (1,971,643)    (2,828,965)    (3,307,488)  
                                                                 ------------------------------   ---------------------------   
Net loss                                                           (21,965,499)     (17,314,807)   (16,424,278)   (12,542,898)  
Cumulative preferred dividends                                        (793,586)        (822,561)      (786,513)      (793,586)  
                                                                 ------------------------------   ---------------------------   
Loss applicable to common shares                                 $ (22,759,085)   $ (18,137,368)  $(17,210,791)  $(13,336,484)  
                                                                 ==============================   ===========================   

Loss per common share (basic and diluted)                        $       (0.20)   $       (0.50)  $      (0.06)  $      (0.15)  
                                                                 ==============================   ===========================   

Weighted average number of common shares outstanding (basic and                                                                 
   diluted)                                                        111,790,358       35,994,157    276,000,532     91,491,804   
                                                                 ==============================   ===========================   

See accompanying notes.                                                         

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USA Technologies, Inc.

 Consolidated Statements of Shareholders' Equity
(Restated)

                                                        [Enlarge/Download Table]

                                             Series A                                                                              
                                            Convertible                        Deferred   Subscriptions  Accumulated               
                                          Preferred Stock   Common Stock     Compensation   Receivable     Deficit        Total    
                                         ----------------------------------------------------------------------------------------- 
                                                                                                                                   
Balance, June 30, 2001                      $ 3,933,253      $32,977,922      $(103,000)          -   $ (39,209,072)  $(2,400,897) 
Conversion of 26,002 shares of Preferred                                                                                           
   Stock to 26,002 shares of Common Stock      (184,095)         184,095              -           -               -             -  
Conversion of $268,140 of cumulative                                                                                               
   preferred dividends into 26,814                                                                                                 
   shares of Common Stock at $10.00 per                                                                                            
   share                                              -          268,140              -           -        (268,140)            -  
Issuance of 2,784,134 shares of Common                                                                                             
   Stock for professional services                    -        1,330,944              -           -               -      1,330,944 
Issuance of 500,000 Common Stock                                                                                                   
   Warrants for professional services                 -          115,000              -           -               -        115,000 
Issuance of 2,340,000 shares of Common                                                                                             
   Stock for Officer compensation                     -          981,000              -           -               -        981,000 
Issuance of 200,000 Common Stock Options                                                                                           
   for professional services                          -           66,000              -           -               -         66,000 
Issuance of 498,000 shares of Common                                                                                               
   Stock from the conversion of $622,500                                                                                           
   of the 2000 12% Senior Notes at $1.25                                                                                           
   per share                                          -          622,500              -           -               -        622,500 
Exercise of 2,333,529 Common Stock                                                                                                 
   Warrants at exercise prices  ranging from                                                                                       
   $0.10 to $0.50 per share, net of                                                                                                
   offering costs                                     -          336,921              -           -               -        336,921 
Issuance of 333,678 shares of Common Stock from the                                                                                
   conversion of $82,000 of a 9-3/4% Convertible                                                                                   
   Debenture, and the related exercise of Common                                                                                   
   Stock Warrants at varying prices per share to                                                                                   
   purchase 3,336,780 shares of Common Stock, net                                                                                  
   of offering costs                                  -          886,250              -           -               -        886,250 
Issuance of 8,772,724 shares of Common                                                                                             
   Stock in connection with Private                                                                                                
   Placement Offerings at varying                                                                                                  
   offering prices, net of offering                                                                                                
   costs of $343,944                                  -        4,747,223              -    (149,750)              -      4,597,473 
Issuance of 674,431 shares of Common                                                                                               
   Stock in lieu of cash payments for                                                                                              
   interest on the Convertible Senior                                                                                              
   Notes and the related issuance of                                                                                               
   303,829 Common Stock Warrants                      -          301,856              -           -               -        301,856 
Debt discount relating to beneficial                                                                                               
   conversion feature on the 2001 12%                                                                                              
   Senior Notes and on the $325,000                                                                                                
   9-3/4% Convertible Debenture                       -        4,067,813              -           -               -      4,067,813 
Issuance of Common Stock in connection                                                                                             
   with Stitch acquisition                            -        8,710,816              -           -               -      8,710,816 
Issuance of Common Stock Options and                                                                                               
   Common Stock Warrants in connection                                                                                             
   with Stitch acquisition                            -          963,583              -           -               -        963,583 
Compensation expense related to deferred                                                                                           
   stock awards                                       -                -        103,000           -               -        103,000 
Other                                                 -           28,440              -           -               -         28,440 
Net loss                                              -                -              -           -     (17,314,807)   (17,314,807)

                                           ----------------------------------------------------------------------------------------
Balance, June 30, 2002                        3,749,158       56,588,503              -    (149,750)    (56,792,019)     3,395,892 

See accompanying notes.                                                         

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USA Technologies, Inc.

 Consolidated Statements of Shareholders' Equity

                                                        [Enlarge/Download Table]

                                                Series A                                                                        
                                               Convertible                     Subscriptions    Accumulated                     
                                             Preferred Stock     Common Stock    Receivable       Deficit           Total       
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                
Conversion of 4,790 shares of Preferred                                                                                         
   Stock to 4,790 shares of Common Stock         (33,912)              33,912              -               -                -   
Conversion of $56,050 of cumulative                                                                                             
   preferred dividends into 5,605 shares                                                                                        
   of Common Stock at $10.00 per share                 -               56,050              -         (56,050)               -   
Issuance of 5,749,442 shares of Common                                                                                          
   Stock for professional services                     -            1,245,631        149,750               -        1,395,381   
Exercise of 17,686,489 Common Stock                                                                                             
   Warrants at $0.10 per share                         -            1,768,650              -               -        1,768,650   
Issuance of 5,727,383 shares of Common                                                                                          
   Stock from the conversion of 12%                                                                                             
   Senior Notes                                        -            1,145,442              -               -        1,145,442   
Issuance off 2,467,225 shares of Common Stock                                                                                   
   from the conversion of $243,000 of 9-3/4%                                                                                    
   debentures, and the related exercise of                                                                                      
   Common Stock Warrants at varying prices per                                                                                  
   share to purchase 7,206,893 shares of Common                                                                                 
   Stock, net of offering costs                        -              873,000              -               -          873,000   
Issuance of 89,207,511 shares of Common                                                                                         
   Stock in connection with various                                                                                             
   Private Placement Offerings at varying                                                                                       
   prices per share                                    -            8,750,058              -               -        8,750,058   
Issuance of  2,315,000  shares  of  Common                                                                                      
   Stock in lieu of cash payments for                                                                                           
   interest on the Convertible Senior Notes                                                                                     
   and the issuance of 2,315,000 Common                                                                                         
   Stock Warrants                                      -              860,250              -               -          860,250   
Debt Discount relating to beneficial                                                                                            
   conversion feature on the various 12%                                                                                        
   Senior Notes                                        -            2,947,130              -               -        2,947,130   
Issuance of 8,031,516 shares of Common                                                                                          
   Stock in connection with the issuance                                                                                        
   of 12% Senior Notes                                 -            1,664,819              -               -        1,664,819   
Issuance of 15,000,000 shares of Common                                                                                         
   Stock for the investment in Jubilee                 -            2,850,000              -               -        2,850,000   
Other                                                  -                6,960              -               -            6,960   
Net loss                                               -                    -              -     (21,965,499)     (21,965,499)  

                                           -------------------------------------------------------------------------------------
Balance, June 30, 2003                     $   3,715,246          $78,790,405     $        -   $ (78,813,568)  $    3,692,083   


See accompanying notes.                                                         

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                                                        [Enlarge/Download Table]

                                             Series A                                     Accumulated              
                                            Convertible                                     Other                  
                                             Preferred        Common     Accumulated    Comprehensive              
                                               Stock          Stock        Deficit          Income       Total     
                                           ----------------------------------------------------------------------- 
                                                                                                                   
Balance, June 30, 2003                     $  3,715,246   $ 78,790,405  $(78,813,568)  $         --   $  3,692,083 

Issuance of 1,050 shares of Common Stock                                                                           
   from the conversion of 1,050 shares                                                                             
   of Preferred Stock (Unaudited)                (7,434)         7,434            --             --             -- 

Issuance of 1,337 shares of Common Stock                                                                           
   from the conversion of cumulative                                                                               
   preferred dividends at $10.00 per                                                                               
   share (Unaudited)                                 --         13,370       (13,370)            --             -- 

Exercise of 12,053,218 Common Stock                                                                                
   Warrants and Options (Unaudited)                  --      1,013,436            --             --      1,013,436 

Issuance of 10,743,154 shares of Common                                                                            
   Stock from the conversion of 12%                                                                                
   Senior Notes (Unaudited)                          --      2,148,630            --             --      2,148,630 

Issuance of 1,443,070 shares of Common                                                                             
   Stock in exchange for salaries and                                                                              
   professional services (Unaudited)                 --        387,155            --             --        387,155 

Issuance of 10,500,000 shares of Common                                                                            
   Stock to executive in connection with                                                                           
   employment agreement (Unaudited)                  --      4,620,000            --             --      4,620,000 

Issuance of  25,437,036 shares of Common                                                                           
   Stock from  various  private                                                                                    
   placement offerings at varying                                                                                  
   prices per share (Unaudited)                      --      5,517,754            --             --      5,517,754 

Issuance of 1,062,034 shares of                                                                                    
   Common Stock and related  Common Stock                                                                          
   Warrants  in lieu of cash  payment                                                                              
   for  interest  on the 12% Senior                                                                                
   Notes (Unaudited)                                 --        478,646            --             --        478,646 

Debt discount relating to beneficial                                                                               
   conversion feature on 12% Senior Notes                                                                          
   (Unaudited)                                       --      1,981,007            --             --      1,981,007 

Issuance of 20,170,000 shares of Common                                                                            
   Stock in connection with the Bayview                                                                            
   acquisition (Unaudited)                           --      9,278,200            --             --      9,278,200 
Net loss (Unaudited)                                 --             --   (16,424,278)            --    (16,424,278)
Unrealized gain on investment (Unaudited)            --             --            --         51,819         51,819 
                                                                                                      ------------ 
Total comprehensive loss (Unaudited)                 --             --            --             --    (16,372,459)
                                           ----------------------------------------------------------------------- 
Balance, March 31, 2004 (Unaudited)        $  3,707,812   $104,236,037  $(95,251,216)  $     51,819   $ 12,744,452 
                                           ======================================================================= 

See accompanying notes.                                                         

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USA Technologies, Inc.
Consolidated Statements of Cash Flows 

                                                        [Enlarge/Download Table]

                                                                 Year ended                 Nine months ended       
                                                                  June 30                        March 31           
                                                            2003             2002          2004            2003     
                                                         ------------     -----------   ------------    ------------
                                                                          (Restated)            (Unaudited)         
                                                                                                                    
Operating activities:                                                                                               
Net loss                                                $(21,965,499)   $(17,314,807)  $(16,424,278)   $(12,542,898)
Adjustments to reconcile net loss to net cash                                                                       
  used in operating activities:                                                                                     
  Charges incurred in connection with the                                                                           
  issuance of Common Stock, Common Stock                                                                            
    Warrants and Senior Notes                              2,573,301       5,532,037      4,950,905       1,278,724 
  Interest expense on the Senior Notes paid                                                                         
    through the issuance of Common Stock                     860,250         301,856        478,646         444,618 
  Interest amortization related to Senior                                                                           
    Notes and Convertible Debentures                       2,955,158       1,513,699      2,642,123       1,950,244 
  Depreciation                                             1,119,536         403,738        373,347         632,182 
  Amortization                                             1,623,547       3,032,479      1,898,178       1,092,828 
  Gain on sale of investment                                      --              --       (603,480)             -- 
  Loss on investment                                       1,945,951              --             --              -- 
  Gain on contract settlement                                     --              --       (509,244)             -- 
  Loss on debt modification                                1,521,654              --        318,915         959,352 
  Loss on property and equipment                                  --         195,722             --              -- 
  Changes in operating assets and liabilities:                                                                      
    Accounts receivable                                      (74,503)       (232,653)      (907,662)       (104,142)
    Other receivable                                              --              --        674,649              -- 
    Inventory                                                419,914         (36,642)      (967,226)        190,095 
    Prepaid expenses, deposits and other assets              (38,325)        774,845        (68,469)         13,008 
    Accounts payable                                        (759,337)       (259,627)       746,015       1,361,218 
    Accrued expenses                                         589,454         (44,413)      (256,276)        295,115 
                                                         ------------     -----------   ------------    ------------
Net cash used in operating activities                     (9,228,899)     (6,133,766)    (7,653,857)     (4,429,656)

Investing activities:                                                                                               
Purchase of property and equipment                          (186,895)       (102,917)      (273,493)       (200,741)
Cash acquired in connection with Stitch                                                                             
   acquisition, net of financing costs                            -        2,278,229             --              -- 
Cash paid in connection with Bayview acquisition                  --              --       (727,969)             -- 
Increase in software development costs                            --      (2,238,771)                               
Cash received from sale of property and equipment                 --              --         35,100              -- 
Cash received for sale of Jubilee shares                          --              --        709,011              -- 
                                                         ------------     -----------   ------------    ------------
Net cash used in investing activities                       (186,895)        (63,459)      (257,351)       (200,741)

Financing activities:                                                                                               
Net proceeds from the issuance of Common Stock                                                                      
  and the exercise of Common                                                                                        
  Stock Purchase Warrants and Options                      9,930,879       3,912,765      6,531,190       3,274,805 
Net proceeds from issuance of Senior Notes and                                                                      
  Convertible Debenture                                    1,833,841       4,269,223             --       1,792,150 
Repayment of long-term debt                                 (557,441)     (2,533,363)      (558,408)       (455,700)
Collection of subscriptions receivable                        35,000          29,000      1,013,400          35,000 
Proceeds received from deposits for future financings             --         500,000             --              -- 
Repayment of the Senior Notes                                     --        (240,000)            --              -- 
                                                         ------------     -----------   ------------    ------------
Net cash provided by financing activities                 11,242,279       5,937,625      6,986,182       4,646,255 
                                                         ------------     -----------   ------------    ------------

Net increase (decrease) in cash and cash equivalents       1,826,485        (259,600)      (925,026)         15,858 
Cash and cash equivalents at beginning of period             557,970         817,570      2,384,455         557,970 
                                                        -------------   ------------   ------------    ------------ 
Cash and cash equivalents at end of period              $  2,384,455    $    557,970   $  1,459,429    $    573,828 
                                                        =============   ============   ============    ============ 

Supplemental disclosures of cash flow information:                                                                  
  Cash paid for interest                                $  1,479,984    $    603,312   $    685,121    $    642,842 
                                                        =============   ============   ============    ============ 
  Conversion of Convertible Preferred Stock to                                                                      
    Common Stock                                        $     33,912    $    184,095   $      7,434    $     10,266 
                                                        =============   ============   ============    ============ 
  Conversion of Cumulative Preferred Dividends to                                                                   
    Common Stock                                        $     56,050    $    268,140   $     13,370    $     15,970 
                                                        =============   ============   ============    ============ 
  Subscriptions receivable                              $  1,013,400    $     35,000   $         --    $    177,000 
                                                        =============   ============   ============    ============ 
  Conversion of Senior Notes and Debenture to                                                                       
    Common Stock                                        $  1,388,442    $    622,500   $  2,148,630    $    252,858 
                                                        =============   ============   ============    ============ 
  Purchase of investment in Jubilee through the                                                                     
    issuance of Common Stock                            $  2,850,000    $         --   $         --    $  2,850,000 
                                                        =============   ============   ============    ============ 
  Beneficial conversion feature related to Senior                                                                   
    Notes and Convertible Debenture                     $  2,947,130    $  4,067,813   $  1,981,007    $  1,037,920 
                                                        =============   ============   ============    ============ 
  Issuance of Common Stock in connection with Senior                                                                
    Note Conversions                                    $  1,664,819    $         --   $         --    $         -- 
                                                        =============   ============   ============    ============ 
  Issuance of Common Stock, Common Stock Options                                                                    
    and Warrants in connection with Stitch acquisition  $         --    $  9,674,399             --    $         -- 
                                                        =============   ============   ============    ============ 
  Capital lease obligations incurred                    $         --    $     62,984   $         --    $         -- 
                                                        =============   ============   ============    ============ 
  Prepaid stock expenses through issuance of                                                                        
    Common Stock                                        $         --    $         --   $     56,250    $    884,475 
                                                        =============   ============   ============    ============ 
  Issuance of Common Stock in connection with the                                                                   
    Bayview acquisition                                 $         --    $         --   $  9,278,200    $         -- 
                                                        =============   ============   ============    ============ 

See accompanying notes.                                                         

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

 June 30, 2003

1. Business                                                                     

USA  Technologies,   Inc.,  a  Pennsylvania   corporation  (the  Company),   was
incorporated  on January 16,  1992.  The Company  provides  unattended  cashless
payment/control  systems and associated  network and services for the copy, fax,
debit card, smart card personal computer,  laundry, and vending industries.  The
Company's devices make available credit and debit card and other payment methods
in connection with the sale of a variety of products and services. The Company's
customers  are  principally  located in the United  States and are  comprised of
hotels,  chains,  consumer package goods companies,  information  technology and
vending operators.                                                              

The Company  offers the  Business  Express(R)  and Business  Express(R)  Limited
Service (LSS) principally to the hospitality  industry.  The Business Express(R)
and Business  Express(R)  Limited Service (LSS) combines the Company's  business
applications  for  computers,  copiers and  facsimile  machines  into a business
center  unit.  The  Company  has  developed  its  next  generation  of  cashless
control/payment   systems   (e-Port(TM)),   which  includes   capabilities   for
interactive  multimedia and e-commerce,  acceptance of other forms of electronic
payments and remote  monitoring  of host machine data and is being  marketed and
sold to  operators,  distributors  and original  equipment  manufacturers  (OEM)
primarily in the vending industry.                                              

2. Accounting Policies                                                          

Basis of Financial Statement Presentation                                       

The financial  statements of the Company have been prepared assuming the Company
will continue as a going concern,  which  contemplates the realization of assets
and  the   satisfaction  of  liabilities  in  the  normal  course  of  business.
Accordingly, the financial statements do not include any adjustments to recorded
asset values that might be necessary should the Company be unable to continue in
existence.  The Company has incurred  recurring  operating losses of $22 million
and $17.3 million  during each of the fiscal years ended June 30, 2003 and 2002,
respectively,  and a loss of $16.4  million  (unaudited)  during the nine months
ended March 31, 2004. Cumulative losses from its inception through June 30, 2003
amount to  approximately  $75.2  million and the  Company had a working  capital
deficiency at June 30, 2003.  Cumulative  losses through March 31, 2004 amounted
to approximately $91.6 million (unaudited).  Losses have continued through March
2004 and are expected to continue during fiscal year 2004. The Company's ability
to meet its future  obligations is dependent upon the success of its products in
the marketplace.  Until the Company's products can generate sufficient operating
revenues,  the Company  will be required to raise  capital to meet its cash flow
requirements. These factors raise substantial doubt about the Company's ability 

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Notes to Consolidated Financial Statements

2. Accounting Policies (continued)                                              

to continue as a going concern. Management believes that actions presently being
taken will allow for the Company to continue as a going  concern.  Such  actions
include the generation of revenues from operations, additional private placement
offerings (Note 17) and continued efforts to reduce costs.                      

Interim Financial Information                                                   

The consolidated  financial  statements and disclosures  included herein for the
three  and nine  months  ended  March  31,  2004 and 2003 are  unaudited.  These
financial  statements  and  disclosures  have been  prepared  by the  Company in
accordance  with U.S.  generally  accepted  accounting  principles  for  interim
financial information.  Accordingly,  they do not include all of the information
and footnotes  required by U.S.  generally  accepted  accounting  principles for
complete  financial  statements.  In the opinion of management,  all adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation  have been  included.  Operating  results for the nine month period
ended March 31, 2004 are not  necessarily  indicative of the results that may be
expected for the fiscal year ending June 30, 2004.                              

Restatement                                                                     

The Company restated the June 30, 2002 balance sheet, statement of shareholders'
equity and  statement of cash flows to correct the  valuation of the  marketable
equity  securities  issued in connection with the Company's May 2002 acquisition
of Stitch Corporation (Note 4) in accordance with EITF 99-12:  "Determination of
the  Measurement  Date for the Market Price of Acquirer  Securities  Issued in a
Purchase  Business  Combination".  The Company  originally valued the marketable
securities  issued in connection with this acquisition at the market price a few
days before and a few days after May 14, 2002,  which was the date the Company's
shareholders  approved the increase in the  Company's  Common Stock to allow for
this transaction to close.  The restated June 30, 2002 balance sheet,  statement
of  shareholders'  equity and  statement  of cash flows  reflect the  marketable
securities  issued in connection with this transaction at the market price a few
days  before  and a few days  after  April  10,  2002,  the date the  definitive
agreement  was  signed.  The  restated  June  30,  2002  consolidated  financial
statements  reflect an increase in Goodwill from $6,800,827 to $7,945,580 and an
increase in Common Stock from  $55,443,750 to  $56,588,503.  The restatement did
not impact the net loss or loss per common share reported during 2002 or 2003.  

Reclassification                                                                

Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.                                       

Use of Estimates                                                                

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

Consolidation                                                                   

The  accompanying  consolidated  financial  statements  include the  accounts of
Stitch.  All  significant  intercompany  accounts  and  transactions  have  been
eliminated in consolidation.                                                    

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Notes to Consolidated Financial Statements

2.  Accounting Policies (continued)                                             

Cash Equivalents                                                                

Cash  equivalents   represent  all  highly  liquid   investments  with  original
maturities of three months or less.  Cash  equivalents  are comprised of a money
market fund and certificates of deposit.                                        

Inventory                                                                       

Inventory,  which  principally  consists  of  finished  goods,  components,  and
packaging materials, is stated at the lower of cost (first-in,  first-out basis)
or market.                                                                      

Property and Equipment                                                          

Property  and  equipment  is  recorded  at  cost.   Property  and  equipment  is
depreciated  on a  straight-line  basis over the  estimated  useful lives of the
related assets.  Leasehold  improvements are amortized on a straight-line  basis
over the  lesser of the  estimated  useful  life of the asset or the  respective
lease term.                                                                     

Goodwill and Intangible Assets                                                  

Goodwill  represents  the  excess  of cost  over  fair  value of the net  assets
acquired in acquisitions.  The Company adopted Statement of Financial Accounting
Standards  No. 142 (SFAS No. 142),  "Goodwill and Other  Intangible  Assets," on
July 1,  2002.  Under  SFAS No.  142,  Goodwill  is no  longer  permitted  to be
amortized  to  earnings,   but  instead  is  subject  to  periodic  testing  for
impairment. The Company tests goodwill for impairment using the two-step process
prescribed  by SFAS No. 142.  The first step screens for  potential  impairment,
while the second step  measures  the amount of  impairment,  if any. The Company
uses a discounted cash flow analysis to complete the first step in this process.
The Company  completed the transitional  test of goodwill as of July 1, 2002, as
prescribed  in SFAS No. 142,  during the quarter  ended  December 31, 2002.  The
Company concluded that there were no goodwill impairment  indicators as a result
of the transitional  test. The Company also performed an annual  impairment test
of goodwill as of April 1, 2003 and concluded there was no goodwill  impairment.
During the nine months ended March 31, 2004,  no events or  circumstances  arose
indicating an impairment of goodwill may have occurred.                         

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2.  Accounting Policies (continued)                                             

Goodwill and Intangible Assets (continued)                                      

Intangible  assets as of June 30, 2003 and 2002 include  patents and  trademarks
acquired  in the Stitch  acquisition.  The  aggregate  amortization  expense was
$292,000   and  $36,500   during  the  years  ended  June  30,  2003  and  2002,
respectively.  Intangible  assets as of March 31,  2004  also  include  patents,
trademarks and a non-compete agreement acquired in the Bayview acquisition (Note
17). Aggregate amortization expense was $899,518 (unaudited) for the nine months
ended March 31,  2004.  The  intangible  asset  balance and related  accumulated
amortization consists of the following:                                         

                                                        [Enlarge/Download Table]

                                                           June 30, 2003                                
                             ---------------------------------------------------------------------------
                                Gross Carrying               Accumulated              Net Carrying      
                                    Amount                  Amortization                 Value          
                             ------------------------ -------------------------- -----------------------
                                                                                                        
Amortized intangible assets                                                                             
     Trademark                  $        1,050,000         $       (118,125)       $         931,875    
     Patents                             1,870,000                 (210,375)               1,659,625    
                              --------------------       -------------------     -------------------    
Total                           $        2,920,000         $       (328,500)       $       2,591,500    
                              ====================       ===================     ===================    

                                                            June 30, 2002                               
                             ---------------------------------------------------------------------------
                                Gross Carrying               Accumulated              Net Carrying      
                                    Amount                  Amortization                 Value          
                             ------------------------ -------------------------- -----------------------
Amortized intangible assets                                                                             
     Trademark                  $        1,050,000         $        (13,125)       $       1,036,875    
     Patents                             1,870,000                  (23,375)               1,846,625    
                              --------------------       -------------------     -------------------    
Total                           $        2,920,000         $        (36,500)       $       2,883,500    
                              ====================       ===================     ===================    

                                                        [Enlarge/Download Table]

                                                    March 31, 2004 (unaudited)                         
                            ---------------------------------------------------------------------------
                               Gross Carrying               Accumulated              Net Carrying      
                                   Amount                  Amortization                 Value          
                            ------------------------ -------------------------- -----------------------
                                                                                                       
Intangible assets                                                                                      
     Trademarks                $        2,064,000         $       (196,875)       $       1,867,125    
     Patents                            9,294,000                 (885,472)               8,408,528    
     Non-Compete Agreement              1,011,000                 (145,671)                 865,329    
                             --------------------       -------------------     -------------------    
Total                          $       12,369,000         $     (1,228,018)       $      11,140,982    
                             ====================       ===================     ===================    

At June 30,  2003,  the expected  amortization  of the  intangible  assets is as
follows:  $292,000  per year in fiscal year 2004 through  fiscal year 2011,  and
$255,500 in fiscal year 2012.  Considering the Bayview acquisition in July 2003,
approximate  amortization  (unaudited) of intangible assets is expected to be as
follows:  $1,200,000  per year in fiscal  year 2004  through  fiscal  year 2008,
$1,000,000  per year in fiscal year 2009 through  fiscal year 2012,  $740,000 in
fiscal year 2013 and $22,000 in fiscal year 2014.  The weighted  average  useful
life of these  intangibles  is 10 years  at June 30,  2003 and 9.55  (unaudited)
years at March 31, 2004.                                                        

Concentration of Credit Risk                                                    

Financial instruments that subject the Company to a concentration of credit risk
consist  principally of cash and cash equivalents and accounts  receivable.  The
Company maintains cash and cash equivalents with various financial institutions.
The Company  performs  periodic  evaluations of the relative  credit standing of
those  financial  institutions,  and the  Company's  policy is designed to limit
exposure to any one institution.  The Company's accounts receivable is net of an
allowance for uncollectible accounts. The Company does not require collateral or
other  security  to  support  credit  sales,   but  provides  an  allowance  for
uncollectible   accounts  based  on  historical   experience  and   specifically
identified risks. Accounts receivable are determined to be carried at fair value
and charged off against the allowance for uncollectible accounts when management
determines that recovery is unlikely and the company ceases collection  efforts.
Approximately 57% and 41% of the Company's accounts  receivable at June 30, 2003
and 2002, and 35% and 12% of the Company's revenues for the years ended June 30,
2003 and 2002, respectively, are concentrated with two customers.               

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Notes to Consolidated Financial Statements

2.  Accounting Policies (continued)                                             

Revenue Recognition                                                             

Revenue   from  the  sale  of   equipment   is   recognized   on  the  terms  of
freight-on-board  shipping  point,  or upon  installation  and acceptance of the
equipment if  installation  services are  purchased  for the related  equipment.
Transaction  processing  revenue is  recognized  upon the usage of the Company's
cashless payment and control  network.  Service fees for access to the Company's
equipment  and network  services  are  recognized  on a monthly  basis.  Product
revenues are  recognized  from the sale of products  from Company  owned vending
machines  when there is  purchase  and  acceptance  of  product  by the  vending
customer.  Customers  have the  ability to return  vending  products  for a full
refund.  The Company  estimates an  allowance of product  returns at the date of
sale.                                                                           

Investment                                                                      

The Company  accounts for  investments in debt and equity  securities  under the
provisions of Statement of Financial  Accounting  Standards  No. 115,  (SFAS No.
115),  "Accounting  for  Certain  Investments  in Debt and  Equity  Securities".
Management determines the appropriate  classifications of securities at the time
of purchase and  reevaluates  such  designation  as of each balance  sheet date.
Available-for-sale  securities  are carried at fair value,  with the  unrealized
gains and losses  reported in a separate  component of  shareholders'  equity in
other  comprehensive  income (loss).  If the  investment  sustains an other than
temporary  decline in fair value,  the  investment  is written  down to its fair
value by a charge to earnings.                                                  

Software Development Costs                                                      

The Company  capitalizes  software  development  costs  pursuant to Statement of
Financial  Accounting  Standards No. 86 (SFAS No. 86), "Accounting for the Costs
of  Computer  Software  to  be  Sold,  Leased  or  Otherwise  Marketed",   after
technological  feasibility  of the  software  is  established  and  through  the
product's availability for general release to the Company's customers. All costs
incurred in the research  and  development  of new  software and costs  incurred
prior  to  the  establishment  of  technological  feasibility  are  expensed  as
incurred.  Amortization of software development costs commences when the product
becomes  available for general  release to customers.  Amortization  of software
development  costs is calculated as the greater of the amount computed using (i)
the ratio that current gross revenues for a product bear to the total of current
and anticipated  future gross revenues of that product or (ii) the straight-line
method over the remaining  estimated  economic life of the product.  The Company
reviews the unamortized  software  development  costs at each balance sheet date
and, if necessary,  will write down the balance to net  realizable  value if the
unamortized costs exceed the net realizable value of the asset. During May 2000,
the  Company  reached  technological  feasibility  for  the  development  of the
multi-media e-Port client product and related enhanced network and, accordingly,
the Company commenced capitalization of software development costs related to   

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Notes to Consolidated Financial Statements

2.  Accounting Policies (continued)                                             

Software Development Costs (continued)                                          

this  product and network.  Costs  capitalized  through 2002 were $5.3  million,
which included capitalized interest of approximately $493,000,  pursuant to SFAS
No. 34, "Capitalization of Interest Costs".                                     

During the fourth  quarter of fiscal 2002,  the  multi-media  e-Port(TM)  client
product  and  enhanced  network  became  available  for  general  release to the
Company's customers.  The multimedia  e-port(TM) client product is equipped with
both the audit and cashless payment  features,  but also includes the capability
of displaying interactive  advertising and content via a LCD screen. During this
quarter,  Management  performed  an  evaluation  of the  commercial  success and
preliminary  market acceptance of the multi-media  e-Port(TM) client product and
enhanced network and as a result of this evaluation the Company  determined that
the  estimated  future  revenues  less  costs to  complete  and  dispose  of the
multi-media  e-Port client product was zero.  Therefore,  the Company wrote down
$2,663,000  of software  development  costs  related to the  multi-media  e-Port
client product.  The unamortized balance of the software development costs after
the impairment  charge is being  amortized over an estimated  useful life of two
years.  Amortization  expense  for the nine  months  ended  March  31,  2004 was
$998,660 (unaudited).  Amortization expense was approximately  $1,331,000 during
the year ended June 30, 2003 and $2,996,000  during the year ended June 30, 2002
(including the above impairment adjustment of $2,663,000).  Such amortization is
reflected  in cost of  sales  in the  accompanying  consolidated  statements  of
operations.                                                                     

Fair Value of Financial Instruments                                             

The carrying  value of cash and cash  equivalents,  accounts  receivable,  other
current  assets,   accounts  payable  and  accrued  expenses   reported  in  the
consolidated  balance sheets equal or approximate  fair value due to their short
maturities.  The fair value of the Company's Senior Notes, Debenture,  and other
Long-Term  Debt  approximates  book  value as such  notes  are at  market  rates
currently available to the Company.                                             

Impairment of Long Lived Assets                                                 

The Company adopted  Statement of Financial  Accounting  Standards No. 144 (SFAS
No. 144),  "Accounting  for the Impairment or Disposal of Long-Lived  Assets" on
July 1,  2002.  In  accordance  with  SFAS No.  144,  the  Company  reviews  its
long-lived assets whenever events or changes in circumstances  indicate that the
carrying amount of such assets may not be recoverable. During the fourth quarter
of fiscal year 2003, the Company  reviewed  certain  long-lived  assets (vending
machines) and determined that such assets were impaired.  These vending machines
were used and intended for use in connection with the Company's Kodak Program to
sell disposable cameras and film.  Management determined that it was more likely
than not that these  vending  machines  would be  disposed  of before the end of
their previously  estimated useful lives. The estimated  undiscounted cash flows
for this group of assets was less than the carrying value of the related assets.
As  a  result,   the  Company  recorded  a  charge  of  approximately   $321,000
representing  the difference  between the fair value as determined from a quoted
market  price and the  carrying  value of the group of  assets.  Such  amount is
reflected  in  depreciation  expense  in  the  2003  consolidated  statement  of
operations.                                                                     

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Notes to Consolidated Financial Statements

2. Accounting Policies (continued)                                              

Advertising Expenses                                                            

Advertising   expenses  for  the  years  ended  June  30,  2003  and  2002  were
approximately $72,000 and $429,000,  respectively and were expensed as incurred.
Advertising  expenses  for the nine  months  ended  March 31, 2004 and 2003 were
approximately $36,000 (unaudited) and $37,000 (unaudited), respectively.        

Research and Development Expenses                                               

Research  and  development  expenses  are  expensed as  incurred.  Research  and
development  expenses,  which are  included  in general and  administrative  and
compensation  expense  in  the  consolidated  statements  of  operations,   were
$1,505,000  and  $1,187,000  for  the  years  ended  June  30,  2003  and  2002,
respectively  and $474,000  (unaudited) and $1,274,000  (unaudited) for the nine
months ended March 31, 2004 and 2003, respectively.                             

Accounting for Stock Options                                                    

Statement of Financial Accounting  Standards No. 123 (SFAS No.123),  "Accounting
for Stock-Based  Compensation",  provides  companies with a choice to follow the
provisions of SFAS No. 123 in determination of stock-based  compensation expense
or to continue with the provisions of APB No. 25,  "Accounting  for Stock Issued
to Employees and Related  Interpretations  in Accounting for  Stock-Compensation
Plans" and the related  FASB  Interpretation  No. 44. The Company has elected to
follow the  provisions  of APB 25.  Under APB 25, if the  exercise  price of the
Company's  stock  options  equals or exceeds the market price of the  underlying
Common Stock on the date of grant, no compensation expense is recognized.       

The effect of applying SFAS No. 123 to the Company's  stock-based awards results
in the same net loss and net loss per  common  share for the year ended June 30,
2003 and for the nine months ended March 31, 2004 and 2003 on a pro-forma  basis
under SFAS No. 123 and under APB 25. The effect of applying  SFAS No. 123 to the
Company's  stock-based  awards  resulted  in a net loss and net loss per  common
share for the year ended June 30, 2002 as follows:                              

Net loss applicable to common shares as reported                                
under APB 25                                         $(18,137,368)      
Stock option expense per SFAS 123                            (985,046)          
                                              ------------
Pro forma net loss                                       $(19,122,414)          
                                              ============

Loss per common share as reported                        $      (0.50)          
                                              ============
Pro forma net loss per common share                      $      (0.53)          
                                              ============

The fair value for the  Company's  stock  options was  estimated  at the date of
grant  using  a   Black-Scholes   option   pricing   model  with  the  following
weighted-average  assumptions for fiscal year 2002: an expected life of 2 years;
no expected cash dividend  payments on Common  Stock,  and a risk-free  interest
rate of 4.5% to 5.5%, and volatility factors of the expected market price of the
Company's Common Stock, based on historical  volatility of .85 to .95 for fiscal
2002.                                                                           

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Notes to Consolidated Financial Statements

2.  Accounting Policies (continued)                                             

Accounting for Stock Options (continued)                                        

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options,  which have no vesting  restrictions and are fully
transferable.  As noted above,  the  Company's  stock options are vested over an
extended  period.  In  addition,  option  models  require  the  input of  highly
subjective  assumptions  including  future stock price  volatility.  Because the
Company's stock options have characteristics  significantly different from those
of traded  options,  and  because  changes  in the  subjective  assumptions  can
materially  affect  the fair  value  estimates,  in  management's  opinion,  the
Black-Scholes  model does not necessarily provide a reliable measure of the fair
value of the  Company's  stock  options.  The  Company's  pro forma  information
reflects the impact of the reduction in price of certain stock options.  The pro
forma  results above are not  necessarily  reflective of the effects of applying
SFAS 123 in future periods.                                                     

Loss Per Common Share                                                           

Basic earnings per share is calculated by dividing  income (loss)  applicable to
common shares by the weighted average common shares  outstanding for the period.
Diluted earnings per share is calculated by dividing income (loss) applicable to
common shares by the weighted  average common shares  outstanding for the period
plus the  dilutive  effect  (unless  such  effect  is  anti-dilutive)  of equity
instruments.  No exercise of stock  options,  purchase  rights,  stock  purchase
warrants,  or the conversion of preferred stock,  cumulative preferred dividends
or Senior Notes was assumed  during  fiscal year 2003 or 2002 or the nine months
ended March 31, 2004 and 2003,  because the assumed exercise of these securities
would be antidilutive.                                                          

New Accounting Pronouncements                                                   

In December 2002,  Statement of Financial Accounting Standards No. 148 (SFAS No.
148),  "Accounting for  Stock-Based  Compensation-Transition  and  Disclosure-an
amendment  of FASB  Statement  No. 123" (SFAS No. 123) was issued.  SFAS No. 148
amends SFAS No. 123,  "Accounting  for  Stock-Based  Compensation,"  to provided
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee  compensation.  In addition,  SFAS
No. 148 amends the disclosure  requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported  results.  The Company has provided the  prescribed  disclosure
format  required  by SFAS No.  148  during  the year  ended  June 30,  2003.    

3. Investment in Jubilee Investment Trust                                       

During February 2003, the Company issued  15,000,000  shares of its Common Stock
($2,850,000)  for an  investment of 1,870,091  shares in the Jubilee  Investment
Trust, PLC ("Jubilee"),  a United Kingdom Investment Trust whose shares trade on
the London Stock                                                                

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Notes to Consolidated Financial Statements

3. Investment in Jubilee Investment Trust (continued)                           

Exchange.  The Company  agreed not to sell the Jubilee shares for a period of 90
days from  January 24,  2003 and to sell a maximum of 10% of the Jubilee  shares
during  each month  thereafter.  Jubilee  has  agreed not to sell the  Company's
shares of Common  Stock  for a period  of two  years  from the date of  issuance
unless agreed to by the Company.  As the investment  declined in value below its
cost basis for a period of six months or more, the Company  determined  that the
decline in the market value of this  available  for sale  investment  was "other
than temporary" and,  accordingly,  the Company wrote down the investment to its
fair value as of June 30, 2003 realizing an impairment loss of $1,945,951.      

4. Acquisition of Stitch Networks Corporation                                   

On May 14, 2002, USA Acquisition Corp., a wholly owned subsidiary of the Company
acquired  Stitch  pursuant to an  Agreement  and Plan of Merger by and among the
Company,   USA  Acquisition  Corp.,  Stitch  and  the  stockholders  of  Stitch.
Additionally,  on May 14, 2002, the Company's shareholders voted to increase the
number of authorized shares of Common Stock to 150,000,000. The Company acquired
Stitch to  strengthen  its  position as a leading  provider  of wireless  remote
monitoring  and  cashless  and mobile  commerce  solutions  and to increase  the
Company's  revenue  base.  These  revenues  would include  product  revenues and
monthly  service and  transaction  fees.  Additionally,  the  acquisition of the
Stitch technology  enhanced the Company's  existing  technology and complemented
the  revenue  and  transaction  processing  revenue  of the  Company's  existing
products.  Certain Stitch  personnel were believed to possess some key strengths
in several  disciplines  that the  Company  believed to be of great value in its
plans for growth.                                                               

Stitch became a wholly-owned  subsidiary of the Company  effective May 14, 2002.
The acquisition  was accounted for using the purchase  method and,  accordingly,
the results of the  operations of Stitch have been included in the  accompanying
consolidated  statements of operations since the acquisition  date. The purchase
price  consisted of the issuance of 22,762,341  shares of the  Company's  Common
Stock in exchange  for the  outstanding  shares of Stitch,  and the  issuance of
warrants to purchase up to  7,587,447  shares of the  Company's  Common Stock at
$.40 per share at any time  through  June 30,  2002.  The  purchase  price  also
included the assumption of outstanding  Stitch stock options that were converted
into  options to purchase an  aggregate  of  2,475,318  shares of the  Company's
Common Stock at $.165 per share at any time prior to May 14,  2007,  warrants to
purchase up to 412,553 shares of the Company's Common Stock at $.40 per share at
any time through June 30, 2002 and other acquisition  related expenses.  None of
the warrants issued in connection with the acquisition were exercised as of June
30, 2003.  A total of 4,800,000  shares of the Common Stock issued to the former
stockholders  of Stitch are held in escrow to secure  the  former  stockholder's
indemnification  obligations under the Agreement and Plan of Merger. Such shares
are  subject to  cancellation  if there is a breach of the  indemnification  (as
defined).  The value of the marketable  equity  securities  issued in connection
with this  acquisition  was determined  based on the average market price of the
Company's  Common Stock over a two-day  period  before and after April 10, 2002,
the date the  definitive  agreement  to acquire  Stitch was entered  into.  Such
valuation was in accordance with                                                

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Notes to Consolidated Financial Statements

4. Acquisition of Stitch Networks Corporation (continued)                       

EITF  99-12:  "Determination  of the  Measurement  Date for the Market  Price of
Acquirer Securities Issued in a Purchase Business Combination".                 

The  Company's  vending  machines  for the  Kodak  Program  are  purchased  from
Dixie-Narco (Dixie) and the film and cameras are purchased directly from Eastman
Kodak Company. Product revenues through the fiscal year ended June 30, 2003 were
approximately $445,000. In May 2003, Stitch notified Maytag and Dixie-Narco that
they had breached the Kodak  Agreement  because  Maytag had failed to create and
maintain  during the term of the Kodak Agreement a customer focus team and Dixie
had failed to service,  place and pick up the  machines as required in the Kodak
Agreement.  In June 2003,  Maytag and Dixie-Narco  indicated to Stitch that they
were not in breach of the Kodak  Agreement  and that  Stitch  had  breached  the
Agreement by failing to pay certain  payments due  thereunder.  Maytag and Dixie
indicated that the customer focus team was terminated due to Stitch's  breach of
the Kodak  Agreement  by failing to pay fees due  thereunder  and  Stitch's  not
taking delivery of vending  machines  ordered from Dixie.  The parties have been
negotiating  a  resolution  of this  matter  although  no  settlement  has  been
finalized.   The  Company   believes  that  any  settlement  would  involve  the
termination of the Kodak  Agreement.  In such event,  although  related revenues
would be reduced, because the Kodak program is and has been operating at a loss,
the termination of the program would  eliminate  these losses.  The Company also
believes  that any  settlement  would  involve  the payment of the amount due by
Stitch to U.S.  Bancorp  by the other  parties  to the Kodak  Agreement  and the
forgiveness  of the  payments due by Stitch to Dixie of  approximately  $124,000
(Note 18).                                                                      

During June 2002, the Company  determined  that it would vacate the office space
previously  occupied by Stitch.  Accordingly,  the Company accrued the remaining
lease exit  costs  relating  to this  property  in the  amount of  approximately
$354,000  as part of the cost of  Stitch.  While the  Company is  attempting  to
sublease this space, no provision for recovery was estimated.                   

The following table  summarizes the purchase price  allocation of the fair value
of the assets and liabilities assumed at the date of acquisition:               

Current assets                  $ 2,710,000                                     
Property and equipment            1,700,000                                     
Goodwill                          7,946,000                                     
Intangibles                       2,920,000                                     
Current liabilities              (1,554,000)                                    
Long-term debt (Note 9)          (3,976,000)                                    
-----------     
$ 9,746,000     
===========     

Unaudited  pro-forma  combined results of the Company as if the Company acquired
Stitch on July 1, 2001 is as follows:                                           

                                                        Year ended June 30
                                                      2002
                                                      ------------
Revenues                                                     $  2,869,466       
                                                      ============
Net loss                                                      (19,583,216)      
Cumulative preferred dividends                                                  
                                                           (822,561)
                                                      ------------
Loss applicable to common shares                             $(20,405,777)      
                                                      ============
Loss per common share (basic and diluted)                    $      (0.36)      
                                                      ============
Weighted average number of common shares outstanding                            
(basic and diluted)                                         56,676,823    
                                                      ============

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Notes to Consolidated Financial Statements

5. Property and Equipment                                                       

Property and equipment consist of the following:                                

                                                        [Enlarge/Download Table]

                                                Useful                        June 30                  March 31,   
                                                Lives                 2003                2002           2004      
                                        ----------------------------------------------------------  -------------- 
                                                                                                      (Unaudited)  
                                                                                                                   
Computer equipment and purchased                                                                                   
   software                                     3 years        $    1,931,912      $    1,855,459   $    2,182,079 
Vending machines and related components         7 years               688,284           1,050,220            4,427 
Control systems                                 3 years               980,759             982,371          530,303 
Furniture and equipment                       5-7 years               532,570             503,110          750,474 
Leasehold improvements                       Lease term                16,140              94,031           51,436 
Vehicles                                        5 years                10,258              10,258           10,258 
                                                           ---------------------------------------  -------------- 
                                                                    4,159,923           4,495,449        3,528,977 
Less accumulated depreciation                                      (3,216,139)         (2,563,022)      (2,858,489)
                                                           ---------------------------------------  -------------- 
                                                               $      943,784      $    1,932,427   $      670,488 
                                                           =======================================  ============== 

6. Accrued Expenses                                                             

Accrued expenses consist of the following:                                      

                                                        [Enlarge/Download Table]

                                                                   June 30                      March 31   
                                                           2003               2002                2004     
                                                    ---------------------------------------  --------------
                                                                                               (Unaudited) 
                                                                                                           
Accrued professional fees                            $       650,974      $     628,372      $      332,996
Accrued consulting fees                                      662,010             62,480             343,617
Accrued lease termination payments, net                      344,934            344,934                  --
Accrued compensation and related sales commissions           250,808            225,917             467,194
Accrued interest                                             291,315            209,885             366,923
Accrued software license and support costs                   125,385            144,755             125,385
Accrued product warranty costs                               104,406             85,827             105,612
Accrued taxes and filing fees                                 94,529            134,411             109,476
Advanced customer billings                                    62,540             30,190              62,919
Accrued other                                                133,842            264,518             260,411
                                                    ---------------------------------------  --------------
                                                     $     2,720,743      $   2,131,289      $    2,174,533
                                                    =======================================  ==============

7. Related Party  Transactions                                                  

During  the  years  ended  June  30,  2003  and  2002,   the  Company   incurred
approximately  $305,000 and $213,000,  respectively,  in  connection  with legal
services  provided by a member of the Company's  Board of Directors.  During the
nine months ended March 31, 2004, the Company  incurred  approximately  $309,000
(unaudited)  in connection  with legal  services  provided by this member of the
Company's Board of Directors.  At June 30, 2003 and 2002,  approximately $22,000
and $30,000,                                                                    

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Notes to Consolidated Financial Statements

7. Related Party Transactions (continued)                                       

respectively, of the Company's accounts payable and accrued expenses were due to
this Board member. At March 31, 2004  approximately  $36,000  (unaudited) of the
Company's  accounts  payable and accrued expenses were due to this Board member.
During the years ended June 30,  2003 and 2002 and during the nine months  ended
March 31, 2004,  certain  Board members  participated  in various debt or equity
offerings  of the  Company for a total  investment  of  approximately  $661,500,
$277,500 and $ -0- (unaudited) respectively. Stitch purchases parts and services
from Dixie-Narco,  Inc. (Dixie), an affiliate of a shareholder (Maytag Holdings,
a subsidiary of Maytag Inc.) of the Company.  There were purchases from Dixie of
$201,000 and $8,000,  for the fiscal year ended June 30, 2003 and for the period
May 14, 2002 to June 30, 2002,  respectively.  Amounts payable to Dixie included
in accounts  payable in the  accompanying  June 30,  2003 and 2002  consolidated
balance sheets were  approximately  $130,000 and $124,000,  respectively.  There
were no additional  purchases  from Dixie during the nine months ended March 31,
2004.                                                                           

8. Commitments                                                                  

o   In July 2003 the Company and the  Company's  Chief  Executive  Officer (CEO)
    amended the terms of his employment  agreement  (expiring June 2005).  Under
    the terms of the previous Executive Employment Agreement, the CEO would have
    been  granted  seven  percent  (non-dilutive)  of all the  then  issued  and
    outstanding  shares  of the  Company's  Common  Stock  in the  event  a "USA
    Transaction" (as defined) occurs, which among other events includes a change
    in control of the Company.  The amended  terms of the  Executive  Employment
    Agreement,  eliminates  the seven  percent  (non-dilutive)  right to receive
    Common Stock upon a "USA Transaction" and now grants the CEO an aggregate of
    14,000,000  shares of Common Stock subject to adjustment for stock splits or
    combinations in the event a "USA  Transaction"  occurs.  In exchange for the
    amendment of these  terms,  the Company  issued an  aggregate of  10,500,000
    shares of its Common Stock to the CEO valued at  $4,620,000  (Unaudited)  or
    $0.44 per share representing the quoted market price of the Company's Common
    Stock on the date the  purchase  agreement  was entered  into and the shares
    were valued. In connection with this amendment,  the CEO also entered into a
    lock-up  agreement  pursuant to which he shall not sell  2,500,000  of these
    shares for a one-year  period and  8,000,000  of these shares for a two-year
    period. The CEO will not be required to pay any additional consideration for
    these shares of Common Stock. At the time of a "USA Transaction", all of the
    14,000,000  shares to be issued to the CEO in connection with this amendment
    are automatically deemed to be issued and outstanding,  and will be entitled
    to be treated as any other issued and  outstanding  shares of Common  Stock.
    These shares will be  irrevocable  and fully vested,  and have no expiration
    date and will not be affected by the termination of the CEO with the Company
for any reason whatsoever.                                              

o   The Company conducts its operations from various  facilities under operating
    leases.  During March 2003, the Company  entered into a lease  agreement for
    its new  corporate  headquarters.  The lease  provides for  escalating  rent
    payments  and a period of free rent prior to the  commencement  of the lease
    payments in January 2004. The Company has provided for deferred rent expense
    for the  difference  between the rent  payments to be made and the  straight
    line  allocation  of total rent  payments to be made over the lease term. In
    connection with this lease agreement,  the Company has provided the landlord
    with a security deposit comprised of shares in the Jubilee  Investment Trust
valued at $100,000.                                                     

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Notes to Consolidated Financial Statements

8. Commitments (continued)                                                      

Rent expense under such  arrangements  was  approximately  $292,000 and $220,000
during  the years  ended  June 30,  2003 and 2002,  respectively,  and  $335,000
(unaudited)  and $201,000  (unaudited)  for the nine months ended March 31, 2004
and 2003,  respectively.  The Company has  $180,000 of equipment  under  capital
lease  agreements.  Capital  lease  amortization  of  approximately  $46,000 and
$54,000 is  included in  depreciation  expense for the years ended June 30, 2003
and 2002,  respectively.  Future minimum lease  payments  subsequent to June 30,
2003 under capital and noncancelable operating leases are as follows:           

                                                        [Enlarge/Download Table]

                                                          Capital Leases    Operating Leases   
                                                        ---------------------------------------
                                                                                               
2004                                                    $          15,960  $         244,000   
2005                                                                1,779            346,000   
2006                                                                    -            343,000   
2007                                                                    -            313,000   
2008 and thereafter                                                     -            480,000   
                                                        ---------------------------------------
Total minimum lease payments                                        17,739 $       1,726,000   
                                                                           ====================
Less amount representing interest                                    1,882                     
                                                        -------------------                    
Present value of net minimum lease payments                         15,857                     
Less current obligations under capital leases                       14,161                     
                                                        -------------------                    
Obligations under capital leases, less current portion   $           1,696                     
                                                        ===================                    

9. Long-Term Debt                                                               

Long-term debt consists of the following:                                       

                                                        [Enlarge/Download Table]

                                                         June 30                   March 31,  
                                                 2003              2002              2004     
                                            ---------------- -----------------  --------------
                                                                                  (Unaudited) 
                                                                                              
Bank facility                               $       828,466    $   1,255,113    $     377,653 
Working capital loans                               166,765          275,000           76,765 
Other, including capital lease obligations           60,057           62,984           42,462 
IBM inventory financing                                  --           19,632              --  
                                            ---------------- -----------------  --------------
                                                  1,055,288        1,612,729          496,880 
Less current portion                                830,674          850,644          479,070 
                                            ---------------- -----------------  --------------
                                            $       224,614    $     762,085    $      17,810 
                                            ================ =================  ==============

In  connection  with the  Stitch  acquisition  (Note  4),  the  Company  assumed
long-term  debt of  $3,976,000,  which  included a vending  equipment  borrowing
facility and working capital loans. The Company repaid $2,165,000 of the working
capital  loans in June 2002 leaving an  outstanding  balance of $275,000 at June
30, 2002. These loans are secured by certain assets of Stitch.  At June 30, 2003
$166,765 of the working  capital  loans are  outstanding  which bear interest at
6.75% per annum. Such loans were payable on July 8, 2002. During fiscal year    

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Notes to Consolidated Financial Statements

9. Long-Term Debt (continued)                                                   

2003 the bank  extended the due date on these loans on several  occasions  under
forbearance  agreements.  At June 30, 2003, the Company is in default under this
working  capital  loan  agreement  and  has  agreed  to a  satisfactory  payment
arrangement.                                                                    

The bank facility (the  Facility) was utilized by Stitch to fund the purchase of
vending  machines  placed at  locations  where  Kodak  film  products  are sold.
Borrowings  were made  from time to time  under  the  Facility,  with  repayment
schedules set at the time of each borrowing,  including  equal monthly  payments
over 36 months and an interest  rate based upon 495 basis  points over the three
year U.S.  Treasury Notes.  The Company granted the bank a security  interest in
the film products vending machines.  Repayment of principal is also insured by a
Surety Bond issued by a third-party  insurer in exchange for an initial fee paid
by the Company.                                                                 

10. Income Taxes                                                                

At June 30, 2003 and 2002, the Company had net operating loss  carryforwards  of
approximately  $76,211,000  and  $54,769,000,  respectively,  to  offset  future
taxable income expiring through  approximately  2023. At June 30, 2003 and 2002,
the Company recorded a net deferred tax asset of  approximately  $29,771,000 and
$20,546,000,  respectively,  which was reduced by a valuation  allowance  of the
same  amount  as the  realization  of the  deferred  tax  asset is not  certain,
principally due to the lack of earnings history.                                

The timing and extent in which the Company can utilize  future tax deductions in
any year may be limited by  provisions  of the Internal  Revenue Code  regarding
changes  in  ownership  of   corporations.   Stitch  had  net   operating   loss
carryforwards  of  approximately  $10,985,000 at the acquisition  date. Such net
operating loss carryforwards are limited under these provisions as to the amount
available to offset future taxable income.                                      

The  deferred tax assets arose  primarily  from the use of different  accounting
methods for financial statement and income tax reporting purposes as follows:   

                                           June 30
                                            2003                  2002
                                            ------------          ------------
Deferred tax assets:                                                            
Net operating loss carryforwards             $ 28,431,000          $ 19,837,000 
Deferred research and development costs           730,000               480,000 
Software development costs                      1,324,000             1,008,000 
Other                                             338,000               392,000 
                                            ------------          ------------
                                              30,823,000            21,717,000
Deferred tax liabilities:                                                       
Intangibles                                    (1,052,000)           (1,171,000)
                                            ------------          ------------
                                              29,771,000            20,546,000
Valuation allowance                           (29,771,000)          (20,546,000)
                                            ------------          ------------
Deferred tax asset, net                      $         --          $         -- 
                                            ============          ============

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Notes to Consolidated Financial Statements

10. Income Tax (continued)                                                      

Amounts assigned to intangibles  acquired in the Stitch acquisition exceeded the
tax basis.  Such excess will  increase  taxable  income as the  intangibles  are
amortized.  The net  operating  loss  carryforwards  will be used to offset  the
increase in taxable  income.  Accordingly,  the Company  recorded a deferred tax
liability of $1,171,000  and a deferred tax asset in the same amount  related to
these intangibles at the acquisition date.                                      

11. Senior Notes and Debentures                                                 

During June 2002, the Company  commenced a $2,500,000  2002-A private  placement
offering (subsequently increased to 430 units or $4,300,000),  consisting of 12%
Convertible  Senior  Notes due  December 31, 2005 ("2002  Senior  Notes").  Each
$10,000  Senior  Note is  convertible  into  Common  Stock at $.20 per share and
interest is payable quarterly. Each Note holder initially received 20,000 Common
Stock  warrants,  however  subsequent  to June 30, 2002,  the Board of Directors
amended the offering to replace the warrants with 20,000 shares of the Company's
Common Stock.  The fair value of the Common Stock issued and the intrinsic value
of the beneficial conversion feature aggregating  $2,881,847 have been allocated
to equity.  This resulting debt discount is being amortized to interest  expense
through December 31, 2005.  Through June 30, 2003, the Company issued a total of
401.5 units in this offering,  of which 7.5 units are reflected in subscriptions
receivable  at June 30, 2003.  During the year ended June 30, 2003,  $489,608 of
the 2002 Senior Notes were  converted  into  2,448,215  shares of the  Company's
Common Stock. During the nine months ended March 31, 2004, $374,359  (unaudited)
of the 2002 Senior Notes were  converted into  1,871,797  (unaudited)  shares of
Common Stock.                                                                   

During  fiscal year 2002,  the Company  commenced a  $2,500,000  2001-D  private
placement  offering  (subsequently   increased  to  650  units  or  $6,500,000),
consisting of 12%  Convertible  Senior Notes due December 31, 2004 ("2001 Senior
Notes").  Each $10,000 Senior Note is convertible  into Common Stock at $.40 per
share and interest is payable  quarterly.  Certain  shareholders of the Company,
who held warrants to purchase  Common Stock of the Company as part of an earlier
private  placement at $.50 per share,  were offered the  opportunity to cancel a
portion of such warrants and to receive an equivalent number of new Common Stock
warrants at $.10 expiring on December 31, 2002 (subsequently  extended to August
31, 2003), if they invested in the 2001-D offering.  The original  warrants were
scheduled to expire on December 31, 2001 or March 31, 2002  (according  to their
original  terms)  (Note 13).  The  estimated  fair value of the new warrants was
determined to be $1,787,084 (using the  Black-Scholes  method) and the intrinsic
value of the beneficial  conversion feature of $1,623,352 have been allocated to
equity.  This  resulting  debt discount is being  amortized to interest  expense
through  December 31, 2004.  During fiscal year 2002, the Company issued a total
of 481.4 units, resulting in the issuance of $4,814,000 of 2001 Senior Notes.   

During fiscal year 2001, the Company  authorized a $6,700,000  private placement
offering  ("2000  Senior  Notes")  of 670 units at $10,000  per unit.  Each unit
consisted of a $10,000 12% Convertible Senior Note,  maturing December 31, 2003,
and 2,000 shares of Restricted Common Stock. Each Note is convertible           

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Notes to Consolidated Financial Statements

11. Senior Notes and Debentures (continued)                                     

into Common Stock at $1.25 per share  anytime  through  December  31, 2003.  The
Company  issued  1,136,300  shares  of  Common  Stock in  connection  with  this
Offering.  The fair  value of the  Common  Stock on the date  such  shares  were
granted of  $1,215,843  and the  intrinsic  value of the  beneficial  conversion
feature in the 2000  Senior  Notes of $409,104  was  allocated  to equity.  This
resulting debt discount is being amortized to interest  expense through December
31,  2003.  Through June 30, 2003,  $647,500 of such Notes were  converted  into
518,000  shares of Common Stock.  There have been no  conversions  subsequent to
June 30, 2003.                                                                  

In March 2003,  the Company  granted to the holders of the 2000 Senior Notes and
2001 Senior Notes the right to extend the maturity date of these Senior Notes to
December 31, 2006 and December 31, 2007, respectively,  in exchange for reducing
the conversion rates from $1.25 to $0.20 per share for the 2000 Senior Notes and
from  $0.40 to $0.20 per share for the 2001  Senior  Notes.  This offer has been
extended by the  Company's  Board of Directors  until  October 31, 2003 and then
further extended to December 31, 2003. Through June 30, 2003,  $3,548,000 of the
2000 Senior Note holders and  $3,363,397 of the 2001 Senior Note holders  agreed
to this offer and exchanged their Notes. Subsequent to June 30, 2003 and through
September 12, 2003, an additional $456,000 of the 2000 Senior Notes and $276,701
of the 2001 Senior Notes have been  exchanged for the 2006 Senior Notes and 2007
Senior  Notes,  respectively.  From  September 13, 2003 to December 31, 2003, an
additional  $1,020,000  (unaudited)  of  the  2000  Senior  Notes  and  $551,252
(unaudited)  of the 2001 Senior  Notes have been  exchanged  for the 2006 Senior
Notes and 2007 Senior Notes, respectively.  For all 2000 Senior Note holders who
agreed to exchange their Notes, such amounts have been reflected as long-term in
the  accompanying  June  30,  2003  consolidated  balance  sheet.  Senior  Notes
scheduled to mature on December 31, 2004 are reflected as a current liability in
the accompanying March 31, 2004 consolidated balance sheet along with $10,000 of
Senior Notes  scheduled  to mature on December 31, 2003 that were not  exchanged
for 2006 Senior  Notes.  The  exchange of the 2000 Senior  Notes and 2001 Senior
Notes to the 2006 Senior  Notes and 2007 Senior  Notes was deemed a  significant
modification of the terms of the Senior Notes and, accordingly the 2000 and 2001
Senior Notes have been extinguished.  Accordingly,  at June 30, 2003 and for the
nine months ended March 31, 2004, the Company  expensed  $1,521,654 and $318,915
(unaudited) of unamortized  debt discount and other issuance costs  remaining on
the 2000 Senior Notes and 2001 Senior Notes.  Such amounts have been reported as
loss on  debt  modification  in the  June  2003  and  March  2004  statement  of
operations.                                                                     

As the share price was greater than the conversion rate in the fourth quarter of
fiscal year 2003, the Company  recorded the intrinsic  value of this  beneficial
conversion  feature of $1,318,500  and $590,710 for the Senior Notes due in 2006
and 2007, respectively.  For the nine months ended March 31, 2004, an additional
$1,981,007  (unaudited) was recorded as beneficial  conversion.  Such amount has
been allocated to equity and the resulting  debt discount is being  amortized to
interest  expense  through the Notes  maturity  dates.  During fiscal year 2003,
$332,500  and  $323,334  of  the  Senior  Notes   maturing  in  2006  and  2007,
respectively,  were  converted  into  1,662,500  and  1,616,668,  shares  of the
Company's  Common Stock.  During the nine months ended March 31, 2004 $1,372,000
(unaudited)  and $402,272  (unaudited)  of the Senior Notes maturing in 2006 and
2007, respectively, were converted into 8,871,357 shares of the Company's Common
Stock.                                                                          

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Notes to Consolidated Financial Statements

11. Senior Notes and Debentures (continued)                                     

A summary of the various Senior Note activities is as follows:                  

                                                        [Enlarge/Download Table]

                                                           Senior Notes Maturing December 31,                         
                                  ----------------------------------------------------------------------------------- 
                                      2003              2004               2005              2006             2007    
                                  ----------------------------------------------------------------------------------- 
                                  (2000 Senior      (2001 Senior       (2002 Senior      (2006 Senior     (2007 Senior
                                      Notes)            Notes)             Notes)            Notes)           Notes)  
                                                                                                                      
Outstanding at June 30, 2001      $ 5,656,500       $        --        $       --        $       --       $        -- 
Issued for cash and services               --         4,814,593           444,083                --                -- 
Converted into Common Stock          (622,500)               --                --                --                -- 
Repaid at maturity                         --                --                --                --                -- 
Less:  Unamortized debt discount                                                                                      
   and other issuance costs          (750,295)       (2,928,567)         (323,989)               --                -- 
                                  ----------------------------------------------------------------------------------- 
Balance at June 30, 2002            4,283,705         1,886,026           120,094                --                -- 
Issued for cash and services/                                                                                         
   (rescinded)                             --          (172,091)        3,571,675                --                -- 
Exchange of 2000 and 2001 Senior                                                                                      
   Notes for 2006 and 2007                                                                                            
   Senior Notes                    (3,548,000)       (3,363,397)               --         3,548,000         3,363,397 
Converted into Common Stock                --                --          (489,608)         (332,500)         (323,334)
Less: Unamortized debt discount                                                                                       
   and other issuance costs, net                                                                                      
   of accretion                       670,062         2,474,637        (1,829,234)       (1,104,169)         (596,852)
                                  ----------------------------------------------------------------------------------- 
Balance at June 30, 2003          $ 1,405,767       $   825,175       $ 1,372,927       $ 2,111,331       $ 2,443,211 
Exchange of 2000 and 2001 Senior                                                                                      
   Notes for 2006 and 2007                                                                                            
   Senior Notes (Unaudited)        (1,476,000)         (827,953)               --         1,476,000           827,953 
Converted into Common Stock                                                                                           
  (Unaudited)                              --                --          (374,359)       (1,372,000)         (402,272)
Less: Unamortized debt discount                                                                                       
   and other issuance costs, net                                                                                      
   of accretion (Unaudited)            80,233           380,033           809,024            80,739          (370,000)
                                  ----------------------------------------------------------------------------------- 
Balance at March 31, 2004                                                                                             
(Unaudited)                       $    10,000       $   377,255       $ 1,807,592       $ 2,296,070       $ 2,498,892 
                                  =================================================================================== 

The unamortized  debt discount and other issuance costs  represents fees paid in
connection  with these  financings,  the estimated  fair value of the detachable
equity  instruments  issued  in  connection  with  these  financings,   and  any
beneficial  conversion embedded in the debt at the commitment date. Such amounts
are being amortized over the remaining life of the respective debt  instruments.
Debt discount  amortization  for the Senior Notes,  which has been  reflected as
interest expense in the consolidated statements of operations, was approximately
$2,690,000  and  $1,513,000  for  the  years  ended  June  30,  2003  and  2002,
respectively.  For the nine months ended March 31, 2004 and 2003, $2,642,123 and
$1,950,244,  respectively,  (unaudited) was charged to interest  expense for the
amortization of debt discount on the Senior Notes.                              

During  October  2002,  the Company's  Board of Directors  approved that for the
quarterly  interest payment payable by the Company on its 12% Convertible Senior
Notes (for all quarters in fiscal year 2003),  at the option of the note holder,
the interest  payment due can be used to purchase shares of the Company's Common
Stock at a rate of $.20 per share.  Additionally,  for each share purchased, the
note  holder  also  received a warrant to  purchase  one share of the  Company's
Common Stock at $.20 per share  exercisable  at any time prior to June 30, 2004.
During the years ended June 30,  2003 and 2002,  2,315,000  and  674,431  shares
respectively,  were issued for the payment of the quarterly interest. A total of
2,315,000 and 303,831  warrants were also issued during the years ended June 30,
2003 and 2002, respectively. The estimated fair value of the                    

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Notes to Consolidated Financial Statements

11. Senior Notes and Debentures (continued)                                     

warrants  issued of  approximately  $279,000 and $43,000 was determined  using a
Black-Scholes  method and has been recorded as interest expense.  The holders of
Senior  Notes  continued  to have the option to use  quarterly  interest  earned
through  December 31, 2003 to purchase common shares at $.20 per share.  For the
nine  months  ended March 31,  2004,  1,062,034  (unaudited)  shares were issued
(along  with an  identical  number of  warrants)  for the  payment of  quarterly
interest  to those  note  holders  accepting  the  offer.  The fair value of the
warrants  issued and the beneficial  conversion  feature related to the $.20 per
share  rate used to  convert  the  interest  to Common  Stock  totaled  $266,258
(unaudited) and has been recorded as additional interest expense for the period.

The Company executed a Securities  Purchase Agreement with an investment company
for the purchase of $325,000 (as amended) of a 9.75% Convertible  Debenture (the
Debenture)  due August 2004.  Interest on the Debenture  was payable  monthly in
arrears  and the  Debenture  was  convertible  at a price equal to the lesser of
$1.00 or 72% (80% prior to June 18, 2002) of the lowest closing bid price of the
Company's  Common Stock during the 20 day period  prior to the  conversion.  The
Company  reserved  the right to prepay  the  portion of the  Debenture  that the
investment company elected to convert, plus interest, at 150% of such amount, if
the  price  of  Common  Stock  is less  than  $0.40  per  share.  At the time of
conversion,  the Company issued to the Debenture  holder warrants to purchase an
amount of Common  Stock equal to ten times the number of shares  issued upon the
conversion of the Debenture. The warrants are exercisable at the same conversion
price as the Debenture.  Due to the  significance  of the beneficial  conversion
feature  associated  with this  instrument,  the entire $325,000 of proceeds was
allocated to the warrants and has been  allocated to equity.  This debt discount
is being  amortized to interest  expense over the term of the Debenture.  During
the fiscal years ending June 30, 2003 and 2002, the investment company converted
$243,000 and $82,000,  respectively of the Debenture,  resulting in the issuance
of 2,467,225 and 333,678 shares,  respectively  of Common Stock.  The investment
company also  exercised  warrants  resulting  in the  issuance of 7,206,893  and
3,336,780  shares of Common Stock and  generating  net cash proceeds of $630,000
and  $804,250  during the years ended June 30, 2003 and 2002,  respectively.  At
June 30, 2002, $280,000 of deposits represented funds advanced to the Company by
the investment  company for future warrant  exercises.  Such funds were utilized
for this purpose during fiscal year 2003.                                       

12. Series A Preferred Stock                                                    

The  authorized  Preferred  Stock may be issued from time to time in one or more
series, each series with such rights,  preferences or restrictions as determined
by the Board of Directors. Each share of Series A Preferred Stock shall have the
right to one vote and is convertible at any time into one share of Common Stock.
Each share of Common  Stock  entitles the holder to one voting  right.  Series A
Preferred  Stock provides for an annual  cumulative  dividend of $1.50 per share
payable to the  shareholders of record in equal parts on February 1 and August 1
of each year.  Cumulative unpaid dividends at June 30, 2003 and 2002 amounted to
$5,913,107 and $5,175,571,  respectively and $6,686,250 (unaudited) at March 31,
2004.  Cumulative  unpaid dividends are convertible into common shares at $10.00
per common share at the option of the  shareholder.  During the years ended June
30, 2003 and 2002,  certain  holders of the Preferred  Stock converted 4,790 and
26,002  shares,  respectively,  into  4,790 and 26,002  shares of Common  Stock,
respectively.  Certain of these shareholders also converted cumulative preferred
dividends of $56,050 and $268,140, respectively, into 5,605 and 26,814 shares of
Common Stock during the years ended June 30, 2003 and 2002, respectively. During
the nine months ended March 31, 2004,  certain  holders of the  Preferred  Stock
converted 1,050 (unaudited) shares into 1,050 (unaudited) shares of Common Stock
and converted  cumulative  preferred dividends of $13,370 into 1,337 (unaudited)
shares  of  Common  Stock.  The  Series A  Preferred  Stock  may be  called  for
redemption  at the  option  of the Board of  Directors  at any time on and after
January 1, 1998 for a price of $11.00 per share plus payment                    

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Notes to Consolidated Financial Statements

12. Series A Preferred Stock (continued)                                        

of all accrued and unpaid dividends.  No such redemption has occurred as of June
30,  2003 or March 31,  2004.  In the event of any  liquidation,  the holders of
shares of Series A Preferred  Stock issued  shall be entitled to receive  $10.00
for each outstanding share plus all cumulative  unpaid  dividends.  If funds are
insufficient  for this  distribution,  the assets  available will be distributed
ratably among the preferred shareholders.                                       

13. Common Stock Transactions                                                   

During the years ended June 30, 2003 and 2002, the Company's  Board of Directors
authorized various Common Stock private placement offerings as follows:         

    o   2003-A Private  Placement  Offering to sell up to 15,000,000  restricted
        shares of Common Stock  (subsequently  amended to  86,000,000  shares in
        August  2003).  Through June 30,  2003,  the Company  issued  78,636,082
        shares  of its  Common  Stock  generating  net  proceeds  of  $7,792,133
        ($7,863,082 less offering costs of $71,475). Included in this amount are
        subscriptions  receivable  totaling  $937,830.  Such  subscriptions  are
        reflected in current  assets in the 2003  balance  sheet as such amounts
        were collected by the Company as of September 12, 2003. The Company also
        issued  1,854,390  shares from this  offering for  services  rendered by
        consultants  in the amount of $397,889.  Subsequent to June 30, 2003 and
        through  September 12, 2003, the Company issued an additional  2,228,390
        shares of Common Stock in this offering  generating  gross cash proceeds
of $222,839.                                                    

    o   Five private  placement  offerings during fiscal year 2003 to individual
        investors  aggregating  10,571,429 shares of Common Stock generating net
proceeds of $957,925 as follows:                                

                  i.)   2,500,000  million  shares to an accredited  investor at
                $0.10 per share generating proceeds of $250,000;

                  ii.)  1,000,000 shares to an accredited  investor at $0.10 per
                        share generating proceeds of $100,000,  plus warrants to
                        purchase up to 4,000,000  shares of the Company's Common
                        Stock at $0.10  per share at any time  through  November
28, 2003;                       

                  iii.) 1,500,000 shares to an accredited  investor at $0.10 per
                        share generating  proceeds of $50,000,  plus warrants to
                        purchase  750,000  shares of  Common  Stock at $0.15 per
                        share  through  October  2007.  This  investor  has also
                        agreed to purchase  an  additional  1,500,000  shares of
                        Common   Stock  at  $0.10  per  share  and   receive  an
                        additional  750,000 warrants upon the effectiveness of a
                        registration statement to register the initial 1,500,000
million shares purchased;       

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Notes to Consolidated Financial Statements

13. Common Stock Transactions (continued)                                       

                  iv.)   3,571,429 shares to an accredited  investor at $.07 per
                         share  generating  net  proceeds of $244,925  ($250,000
                         less  offering  costs of  $5075).  This  investor  also
                         received a warrant to purchase  7,142,858 shares of the
                         Company's  Common  Stock at $.07 per  share at any time
                         before October 26, 2007,  and an additional  warrant to
                         purchase  5,000,000  shares at $0.10 per share expiring
October 2003; and             

                  v.)    2,000,000 shares to an accredited investor at $0.12 per
                         share  generating  proceeds of  $240,000.  The investor
                         also received a warrant to purchase 2,000,000 shares of
                         Common Stock at $.10 per share through May 31, 2003. No
                  warrants were exercised during fiscal year 2003.

o        2001-C Private Placement  Offering for the issuance of 4,500,000 shares
         of Common Stock at $.50 per share.  For each share purchased the holder
         received a warrant to  purchase  one share of Common  Stock at $.50 per
         share expiring in May 2002. During fiscal year 2002, the Company issued
         4,046,684  shares of Common Stock generating net proceeds of $1,992,852
($2,077,124 less offering costs of $84,272).                  

o        2001-B Private Placement  Offering for the issuance of 8,400,000 shares
         of Common  Stock at $.60 per share.  For each  dollar  invested in this
         offering the Company also issued a Common Stock Warrant to the investor
         at $.50 per  share  (subsequently  reduced  to $.10 if the  shareholder
         invested in the 2001 D Senior Note  Offering).  Through  June 30, 2001,
         the Company  issued  2,669,400  shares of Common Stock  generating  net
         proceeds of $1,546,885  ($1,601,640  less  offering  costs of $54,755).
         During fiscal year 2002,  the Company  issued an  additional  4,726,040
         shares  of  Common  Stock   generating   net  proceeds  of   $2,754,371
($3,014,043 less offering costs of $259,672).                 

Participants in the 2001-B offering  exercised  3,375,761 and 1,684,504 warrants
during  the  years  ending  June 30,  2003 and  2002,  respectively,  generating
proceeds of $337,577  and  $168,451,  respectively.  Participants  in the 2001-C
offering  exercised  284,934 and 122,358  warrants at $0.10 per share during the
years  ending  June 30,  2003 and 2002,  respectively,  generating  proceeds  of
$28,494 and $12,236, respectively.                                              

The Company  also issued  2,855,042  and  2,784,134  shares of Common  Stock for
professional   services   during  the  years  ended  June  30,  2003  and  2002,
respectively.  Such shares were valued based on the fair value of the  Company's
Common Stock on the date the shares were granted. During the year ended June 30,
2003 and 2002, the Company also issued  1,040,000 and 2,340,000 shares of Common
Stock to certain  employees and officers for  services.  These shares were fully
vested on the date of grant;  accordingly,  the  Company  recorded  compensation
expense of $166,400 and $981,000  during the years ended June 30, 2003 and 2002,
respectively,  based on the fair value of the Company's Common Stock on the date
the shares were granted.                                                        

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Notes to Consolidated Financial Statements

13. Common Stock Transactions (continued)                                       

During October 2002, the Company's Board of Directors authorized granting to all
of the holders of the 12% Convertible Senior Notes  (hereinafter  referred to as
Investors),  10,306,026  Common Stock warrants to purchase the Company's  Common
Stock at $0.10 per share.  The total number of the warrants  issued was equal to
75% of the dollar amount of the Senior Notes held by the then  Investors.  These
warrants  were  exercisable  through  November 30, 2002  (subsequently  extended
through October 31, 2003). Upon the exercise of the warrant by the Investor, the
Company  granted  an  identical  number of  warrants  to that  Investor  with an
exercise price of $0.10 per share exercisable  through October 31, 2003. Through
June 30,  2003,  the  Investors  exercised  a total of  7,127,508  Common  Stock
warrants,  generating  gross  proceeds to the Company of  $712,751.  At June 30,
2003,  an  additional  7,127,508  warrants were granted upon the exercise of the
initial warrant to these Investors.  Of the additional warrants,  6,898,296 were
exercised  as of June 30,  2003,  generating  gross  proceeds  to the Company of
$689,830.                                                                       

During the year ended June 30, 2003,  the  Company's  shareholders  approved the
increase in the Company's authorized Common Stock on several occasions.  At June
30, 2003,  the  Company's  shareholders  approved an increase in the  authorized
shares of Common Stock to 400,000,000.                                          

A summary of Common Stock Warrant activity for the years ended June 30, 2003 and
2002 and the nine months ended March 31, 2004 is as follows:                    

                                          Warrants
                                           -------------------
Outstanding at June 30, 2001                               8,233,028            
Issued                                                22,602,593        
Exercised                                             (1,833,529)       
Cancelled                                            (22,162,272)       
                                           -------------------
Outstanding at June 30, 2002                               6,839,820            
Issued                                                76,286,145        
Exercised                                            (18,894,241)       
Cancelled                                             (2,104,000)       
                                           -------------------
Outstanding at June 30, 2003                              62,127,724            
Issued (unaudited)                                     1,066,034        
Exercised (unaudited)                                (11,934,356)       
Cancelled (unaudited)                                (15,465,715)       
                                           -------------------
Outstanding at March 31, 2004 (Unaudited)                 35,793,687            
                                           ===================

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Notes to Consolidated Financial Statements

13. Common Stock Transactions (continued)                                       

The exercise price and exercise dates of outstanding  and  exercisable  warrants
outstanding at June 30, 2003 are as follows:                                    

Outstanding and                               
              Exercisable       Exercise Price         Expiration Date
           ---------------------------------------------------------------------
                    5,796,973         $ 0.10              September 30, 2003
                  7,142,858           0.07              October 26, 2007
                  7,142,858           0.07              To Be Determined
                  5,000,000           0.10              To Be Determined
                   4,000,000           0.10              November 28, 2003
                2,480,150           0.10              April 18, 2005
                3,472,220           0.10              April 24, 2005
             11,513,006           0.10              June 2, 2005
                   1,500,000           0.15              November 15, 2007
               2,618,831           0.20              June 30, 2004
                  150,000           0.70              August 2, 2003
                     650,000           0.70              November 23, 2003
                 1,200,000           0.91              August 29, 2010
                  377,927           1.00              April 24, 2011
                    2,901           1.03              April 30, 2011
                  75,000           1.25              June 30, 2006
                     5,000           4.00              August 17, 2003
                  9,000,000           0.10              To Be Determined
--------------------                                      
62,127,724                            
====================                                      

During the years ended June 30, 2003 and 2002, the Company's  Board of Directors
amended  the terms of certain  outstanding  Common  Stock  Warrants  whereby the
exercise  price was reduced and the expiration  dates were  extended.  The above
table  reflects the status of the  warrants as of June 30, 2003.  Certain of the
warrant  expiration dates will be determined upon the registration of the shares
of Common Stock underlying such warrants.                                       

The exercise price and exercise dates of outstanding  and  exercisable  warrants
outstanding at March 31, 2004 are as follows (Unaudited):                       

Outstanding and                               
              Exercisable       Exercise Price         Expiration Date
           ---------------------------------------------------------------------
                3,571,429         $ 0.07              April 22, 2004
               2,500,000           0.10              June 22, 2004
               3,673,665           0.20              June 30, 2004
                   2,500,000           0.10              December 22, 2004
                 13,999,907           0.1008            December 1, 2005
                  75,000           1.25              June 30, 2006
                  7,142,858           0.07              October 26, 2007
                     750,000           0.067             November 15, 2007
                 1,200,000           0.906             August 29, 2010
                  377,927           1.00              April 24, 2011
                    2,901           1.03              April 30, 2011
--------------------                                      
35,793,687                            
====================                                      

14. Stock Options                                                               

The Company's  Board of Directors has granted options to employees and its Board
members to purchase  shares of Common Stock at or above fair market  value.  The
option term and vesting  schedule are  established  by the contract that granted
the option.                                                                     

The following table  summarizes all stock option activity during the years ended
June 30, 2003 and 2002 and for the nine months ended March 31, 2004:            

                                Common Shares Under   Exercise Price Per
                            Options Granted            Share
                                 -----------------------------------------------
Balance at June 30, 2001                4,886,667          $    0.50-$5.00      
Granted                                 4,505,318          $    0.165-$.70      
Canceled or expired                    (4,101,500)         $    0.40-$5.00      
                                 -----------------------------------------------
Balance at June 30, 2002                5,290,485          $   0.165-$5.00      
Canceled or expired                    (2,383,000)         $    0.40-$5.00      
                                 -----------------------------------------------
Balance at June 30, 2003                2,907,485          $   0.165-$2.50      
Exercised (unaudited)                    (223,862)         $   0.165            
Canceled or expired (unaudited)          (549,391)         $   0.165-$2.50      
                                 -----------------------------------------------
Balance at March 31, 2004                                                       
(Unaudited)                             2,134,232          $   0.165-$2.00      
                                 ===============================================

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Notes to Consolidated Financial Statements

14. Stock Options (continued)                                                   

The price range of the  outstanding  Common Stock options at June 30, 2003 is as
follows:                                                                        

                                                        Weighted Average
         Option             Options Outstanding and    Remaining Contract Life
Exercise Prices              Exercisable                   (Yrs.)   
--------------------------------------------------------------------------------
$   .165                       2,475,318                   3.87     
$    .70                         150,000                   0.09     
$   1.00                         125,000                   2.85     
$   1.50                          42,000                   0.10     
$   2.00                          41,167                   1.25     
$   2.50                          74,000                   0.04     
   ---------------------------
   2,907,485
   ===========================

The price range of the outstanding  Common Stock options at March 31, 2004 is as
follows (Unaudited):                                                            

                                                        Weighted Average
         Option             Options Outstanding and    Remaining Contract Life
Exercise Prices              Exercisable                   (Yrs.)   
--------------------------------------------------------------------------------
$   .165                       1,970,565                   3.17     
$   1.00                         125,000                   2.12     
$   2.00                          38,667                    .53     
   ---------------------------
   2,134,232
   ===========================

As of June 30,  2003,  the Company has  reserved  shares of Common Stock for the
following:                                                                      

                                                        [Enlarge/Download Table]
                                                                                     
Exercise of Common Stock options                                            2,907,485
Exercise of Common Stock warrants                                          62,127,724
Conversions of Preferred Stock and cumulative Preferred Stock dividends     1,115,803
Conversions of Senior Notes                                                53,295,128
                                                                         ------------
                                                                          119,446,140
                                                                         ============

As of March 31, 2004,  the Company has  reserved  shares of Common Stock for the
following (Unaudited):                                                          

                                                        [Enlarge/Download Table]
                                                                                     
Exercise of Common Stock options                                            2,134,232
Exercise of Common Stock warrants                                          35,793,687
Conversions of Preferred Stock and cumulative Preferred Stock dividends     1,192,067
Conversions of Senior Notes                                                50,813,055
                                                                         ------------
                                                                           89,933,041
                                                                         ============

15. Retirement Plan                                                             

The Company's  Savings and Retirement Plan (the Plan) allows  employees who have
attained  the  age of 21 and  have  completed  six  months  of  service  to make
voluntary contributions up to a maximum of 15% of their annual compensation,  as
defined in the Plan.  Through  June 30,  2000,  the Plan did not provide for any
matching  contribution  by the Company,  however,  starting at the  beginning of
fiscal year 2001, the Company has amended the Plan to include a Company matching
contribution up to 10% of an employee's compensation. Effective January 1, 2003,
the matching  contribution changed to a dollar-for-dollar  matching contribution
on salary deferrals up to 3% of the employee's  compensation  then a fifty-cents
on the  dollar  matching  contribution  on salary  deferrals  from 3% to 5%. The
Company   contribution   for  the  years  ended  June  30,  2003  and  2002  was
approximately  $67,000 and $48,000,  respectively  and for the nine months ended
March 31, 2004 and 2003,  the Company  contribution  was  approximately  $53,000
(unaudited) and $37,000 (unaudited), respectively.                              

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Notes to Consolidated Financial Statements

16.  Contingencies                                                              

In the normal  course of business,  various legal actions and claims are pending
or may be instituted or asserted in the future against the Company.  The Company
does not  believe  that the  resolution  of these  matters  will have a material
effect on the financial position or results of operations of the Company.       

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Notes to Consolidated Financial Statements

17. Subsequent Events                                                           

BAYVIEW TECHNOLOGY GROUP, LLC                                                   

On July 11,  2003,  the  Company  acquired  substantially  all of the  assets of
Bayview  Technology Group, LLC (Bayview).  Under the terms of the asset purchase
agreement  the Company  issued to Bayview  20,000,000  shares of its  restricted
Common  Stock  and cash of  $631,247  (unaudited)  to settle  an  obligation  of
Bayview.  The  definitive  agreement  also  provides  for the  Company to assume
certain  obligations  under  a  royalty  agreement  expiring  May 31,  2006.  In
connection with this transaction the Company also agreed to issue 170,000 shares
of its restricted  Common Stock to a consultant who provided certain services to
the Company in connection with this acquisition.                                

The acquired  energy control  equipment  reduces  energy  consumption in vending
machines,  glass  front  coolers,  laser  printers,  monitors  and other  office
peripherals  throughout the United States.  As a result of the acquisition,  the
Company believes it will be a leading provider of end-to-end networked solutions
that  includes  wireless  and internet  connections,  cashless  transaction  and
security/ID capability and interactive media functionality, and remote inventory
and auditing  control and energy cost  reductions  and  environmental  emissions
reductions. The Company also expects to reduce costs through economies of scale.

The acquisition cost of Bayview was $10,030,894  (unaudited),  which principally
was  comprised of the issuance of 20,000,000  shares of restricted  Common Stock
valued at $9,200,000 (unaudited) and a cash payment of $631,247 (unaudited). The
value of the  20,000,000  shares of Common  Stock  was  determined  based on the
average  market  price of the  Company's  Common  Stock over the two-day  period
before and after the  definitive  agreement  date of July 11, 2003. The purchase
price also included acquisition related costs of $199,647 (unaudited).          

The  following  table  summarizes  the fair  values of the assets  acquired  and
liabilities assumed at the date of acquisition (Unaudited):                     

Current assets                       $      7,628 
Property and equipment                    244,704 
Intangible assets                       9,449,000 
Goodwill                                  329,562 
                                    ------------
Total assets acquired                $ 10,030,894 
                                    ============

Of  the  $9,449,000  (Unaudited)  of  acquired  intangible  assets,   $7,424,000
(Unaudited)  was  assigned to patents  that are subject to  amortization  over a
10-year period,  $1,011,000  (Unaudited) was assigned to non-compete  agreements
that are subject to amortization over a 5-year period and $1,014,000 (Unaudited)
was assigned to trademarks and trade names that are not subject to amortization.

The acquisition  was accounted for using the purchase  method and,  accordingly,
the results of  operations  of Bayview  have been  included in the  accompanying
consolidated statements of operations since the date of acquisition.  Results of
operations  of the Company  for the nine  months  ended March 31, 2004 would not
have been significantly  different than reported had the acquisition taken place
July 1, 2003.  Pro-forma  combined  results for the nine months  ended March 31,
2003 would have been as follows  had the  acquisition taken place July 1, 2002 -
revenues of $6,306,838 (unaudited);  net loss of $12,927,242  (unaudited);  loss
applicable to common shares of  $13,720,828  (unaudited);  loss per common share
(basic and diluted) of $0.12 (unaudited).                                       

OTHER SUBSEQUENT EVENTS                                                         

On September  26, 2003,  the Company  completed a sale of  20,000,000  shares of
Common  Stock to  accredited  investors  at $0.25  per  share  generating  gross
proceeds of $5,000,000.  Of these shares,  Wellington  Management  Company,  LLP
purchased  18,000,000 on behalf of their clients,  and the balance of the shares
were purchased by other investors.  An additional  10,000 shares  (unaudited) of
Common  Stock  were  sold to  these  investors  generating  proceeds  of  $2,500
(unaudited).                                                                    

During  September  2003, the Company issued 500,000 shares of Common Stock to an
existing  investor in connection  with  provision from a fiscal year 2003 equity
transaction. The Company also reduced the exercise price on 750,000 Common Stock
Warrants  previously issued to this investor from $0.10 per share to $0.0665 per
share. Such shares were viewed as an adjustment to the original shares issued in
connection with the original private placement offering.                        

On September 16, 2003 and  September 24, 2003,  the Company sold an aggregate of
700,000  shares of its  investment  in Jubilee  realizing  net cash  proceeds of
approximately  $395,000.                                                        

During  September  2003,  the  Company's  Board  of  Directors   authorized  the
establishment  of the 2003-A Stock  Compensation  Plan whereby 500,000 shares of
the  Company's  Common Stock shall be available  for future  issuance to Company
employees, directors or consultants as compensation.                            

During the period from  September  12,  2003  through  September  30,  2003,  an
additional  $660,000  of the 2000 Senior  Notes and  $430,390 of the 2001 Senior
Notes have been exchanged for the 2006 and 2007 Senior Notes, respectively.  For
the 2000 Senior  Noteholders  who agreed to exchange  their notes,  such amounts
have been reflected as long-term in the accompanying  June 30, 2003 consolidated
balance sheet.                                                                  

The  following  condensed  consolidated  pro forma  balance  sheet  reflects the
effects of these subsequent events as if they have occurred as of June 30, 2003:

                                                        [Enlarge/Download Table]

                                                 As Reported                             Proforma   
Condensed Consolidated Proforma Balance Sheet   June 30, 2003         Adjustments      June 30, 2003
                                               -----------------------------------------------------
                                                                                                    
Total current assets                             $ 5,375,983         $ 4,426,000         $ 9,801,983

Property and equipment                               943,784             237,000           1,180,784

Intangibles, including goodwill                   11,535,740           9,805,000          21,340,740

Other assets                                          37,174                  --              37,174
                                               -----------------------------------------------------
Total assets                                     $17,892,681         $14,468,000         $32,360,681
                                               =====================================================

Current liabilities                              $ 6,215,108         $   190,000         $ 6,405,108

Long-term liabilities                              7,985,490                  --           7,985,490

Total shareholders' equity                         3,692,083          14,278,000          17,970,083
                                               -----------------------------------------------------
Total liabilities and shareholders' equity       $17,892,681         $14,468,000         $32,360,681
                                               =====================================================

The adjustment column reflects the recording of the operating assets of Bayview.
The purchase  price is comprised  of the  issuance of  20,000,000  shares of the
Company's  Common Stock valued at  $9,200,000,  a cash payment of $631,000,  the
assumption  of $40,000 of  liabilities  and the payment of  acquisition  related
expenses of  $228,000.  The  adjustment  column also  reflects  the  issuance of
20,000,000  shares of the Company's  Common Stock at $0.25 per share  generating
gross proceeds of $5,000,000.                                                   

18. Subsequent Events (Unaudited)                                               

In  November  2003,  Stitch and the lessor of the office  space that  Stitch had
occupied  reached an agreement that required Stitch to pay the lessor $55,000 as
consideration to release Stitch from any further obligations under the lease. In
addition, a security deposit of approximately $9,000 was retained by the lessor.
Accordingly,  the  difference  between  estimated  lease exit  costs  accrued of
$354,000 and actual  consideration paid, was recorded as a reduction of goodwill
in the amount of $290,000 during the nine months ended March 31, 2004.          

On November 6, 2003 the Company reached an agreement with the bank that provided
working   capital  loans  to  Stitch  whereby  the  Company  will  make  monthly
installments  to repay the remaining  balance  ($76,765 as of March 31, 2004) by
October 2004.                                                                   

Effective  December  31,  2003,  the  parties  to the  Kodak  Vending  Placement
Agreement  (Note 4) finalized a settlement  of a dispute  which  resulted in the
termination  of the  vending  agreement  as of  December  31,  2003.  Under  the
settlement agreement, the Company received a payment from Kodak of approximately
$675,000.  The Company  will also receive  payments of $300 per vending  machine
from the  supplier  of the vending  machines,  as the  machines  are pulled from
service at the  supplier's  sole cost and expense.  Upon receipt of the $300 per
machine, title to the vending machine will transfer from Stitch to the supplier.
Through  March 31, 2004 the  Company  received  approximately  $35,000 for these
machines.  The settlement  agreement provides that all machines are to be pulled
from  service  no later  than mid  calendar  year  2004.  Substantially  all the
machines are no longer in service.  The agreement also provides for the supplier
to cancel a $124,000  obligation of Stitch for the purchase of vending machines.
The vending machines were used as collateral to secure the bank facility used to
purchase the machines under which $377,653 was outstanding as of March 31, 2004.
The Company  will repay this debt as the vending  machines  are  returned to the
supplier.                                                                       

This termination  agreement  resulted in gain of $509,244 during the nine months
ended March 31, 2004 and such amount is  reflected  as Other income in the March
31, 2004  Consolidated  Statement of  Operations.  This gain is comprised of the
payment from Kodak of  approximately  $675,000 plus the cancellation of Stitch's
obligation  to the supplier of the vending  machines of  approximately  $124,000
reduced  by  a  write  down  of  the  carrying  value  of  vending  machines  of
approximately $290,000 to reflect the vending machines at their realizable value
of $300 per machine.  The vending  machines are reported as assets held for sale
in the  Consolidated  Balance Sheet,  as it was determined that the plan of sale
criteria  in FAS  144  was  met in the  termination  agreement,  at  which  time
depreciation  of these  assets  ceased.  To the extent any costs are incurred by
Stitch to fulfill its obligations  under the settlement  agreement,  these costs
will be recorded as incurred.                                                   

In March 2004,  the Company sold 969,091  (unaudited)  of the Jubilee shares for
net proceeds of $1,075,891  (unaudited).  Sale proceeds of $762,130  (unaudited)
were  outstanding as of March 31, 2004 and are reflected as Other  receivable in
the March 31, 2004  unaudited  Balance Sheet.  These proceeds were  subsequently
received in April  2004.  Gains  realized in these sales  during the nine months
ended March 31, 2004 totaled  $603,480  (unaudited)  and are  reflected in Other
income (expense) in the March 31, 2004 consolidated statement of operations.  An
unrealized  gain of $51,819  (unaudited)  on the  remaining  shares  held by the
Company is reflected in shareholders'  equity as Accumulated other comprehensive
income at March 31, 2004.                                                       

On April 21,  2004,  the Company and La Jolla Cove  Investors,  Inc.  reached an
agreement  regarding La Jolla's letter claiming  damages for failure to register
certain shares underlying La Jolla's warrants.  Per this agreement,  the Company
agreed to extend the expiration date of La Jolla's remaining 13,510,000 warrants
until  December 1, 2005, La Jolla released all claims against the Company and La
Jolla  agreed to limit the sale of our shares  during any  calendar  month to an
amount not greater than seven percent of the prior month's share trading volume.
On May 11, 2004,  the Company  agreed to reduce the exercise price of La Jolla's
remaining warrants from $0.1008 to $0.0908.  During May 2004, La Jolla exercised
all of their remaining  warrants at $0.0908 per share generating net proceeds of
$1,215,900.                                                                     

In June 2004 the Board of Directors took certain actions:                       

      Each investor in the 2004-A private placement offering of Common Stock (an
      offering  for the issuance of up to  35,000,000  shares of Common Stock at
      $.15 per share  authorized  by the Board of  Directors  in  February  2004
      resulting in sales through  March 31, 2004 of 550,000  shares for proceeds
      of  $82,500  and  an  aggregate  of  28,290,833  shares  for  proceeds  of
      $4,243,625 through June 29, 2004) will receive warrants to purchase shares
      of the  Company's  Common  Stock  equal  to 50% of the  number  of  shares
      purchased in the offering.  These warrants will be exercisable at $.20 per
      share and expire on December  31, 2004.  As of June 29,  2004,  14,145,417
warrants were issued.                                               

      Warrants  granted to holders of Senior Notes who opted to receive  payment
      of interest in Common  Shares in lieu of cash had the  expiration  date of
      their warrants  extended to August 30, 2004 from June 30, 2004. As of June
      29, 2004 there were warrants  outstanding to purchase  3,716,496 shares of
      Common Stock at $.20 per share. In addition, the holders of these warrants
      were granted one additional  warrant for each warrant  previously  granted
     with the same exercise price and an expiration date of December 31, 2004.

      A  Common  Stock  Purchase  Agreement  with  Steve  Illes,  an  accredited
      investor,  was approved.  During the one year period following the date of
      effectiveness of a registration  statement covering the shares,  Illes has
      agreed to  purchase  from USA shares of Common  Stock,  provided  that the
      aggregate purchase price can not exceed  $7,500,000.  Under the Agreement,
      Illes is  permitted  to purchase  Common Stock from USA at any time at the
      price per  share of $.30.  In  addition,  USA has the right at any time to
      require Illes to purchase Common Stock from USA at the lower of: (i) $.30;
      or (ii) 90% of the  closing  bid price per share on the date  prior to the
      date of the  delivery  by USA to  Illes of  notice  of his  obligation  to
      purchase.  USA can require  Illes to purchase  shares under the  Agreement
      only if the shares have been registered by the Company for resale by Illes
      under the Act.  During  any  calendar  month,  Illes is not  permitted  to
      purchase  and can not be required by USA to purchase  Common  Stock for an
      aggregate  purchase price in excess of $700,000.  We have agreed to pay to
Illes a due diligence fee of $45,000.                               

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Table of Contents                                                                     
                                                                                      
            Report of Independent Registered Public Accounting Firm.              F-34

            Balance Sheets as of December 31, 2002 and 2001.                      F-35

            Statements   of  Operations   for  year  ended   December  31,  2002      
            (Successor),  period from June 1, 2001  (Commencement of Operations)      
            through  December  31, 2001  (Successor)  and period from January 1,      
            2001 through May 31, 2001 (Predecessor)                               F-36

            Statements  of Members'  Equity/Stockholders'  Equity for year ended      
            December   31,   2002   (Successor),   period   from  June  1,  2001      
            (Commencement of Operations)  through December 31, 2001 (Successor),      
            and period from January 1, 2001 through May 31, 2001 (Predecessor).   F-37

            Statements   of  Cash  Flows  for  year  ended   December  31,  2002      
            (Successor),  period from June 1, 2001  (Commencement of Operations)      
            through  December  31, 2001  (Successor)  and period from January 1,      
            2001 through May 31, 2001 (Predecessor).                              F-38

            Summary of Accounting Policies.                                       F-39

            Notes to Financial Statements.                                        F-45

            Unaudited Financial Statements:                                           

            Balance Sheet as of June 30, 2003 (Unaudited).                        F-53

            Statements of Operations for the six months ended June 30, 2003           
            and 2002 (Unaudited).                                                 F-54

            Statements of Member's Equity (Deficit) for the six months                
            ended June 30, 2003 and 2002 (Unaudited).                             F-55

            Statements of Cash Flows for the six months ended June 30, 2003           
            and 2002 (Unaudited).                                                 F-56

            Summary of Significant Accounting Policies for the six months             
            ended June 30, 2003 and 2002 (Unaudited).                             F-57

            Selected Notes to Financial Statements for the six months                 
            ended June 30, 2003 and 2002 (Unaudited).                             F-60

(b) Pro Forma Financial Information (Unaudited):                                      

    Pro Forma Consolidated Balance Sheet as of June 30, 2003 (Unaudited).         F-65

    Pro Forma Consolidated Statement of Operations for the year ended                 
    June 30, 2003 (Unaudited).                                                    F-66

    Pro Forma Consolidated Statement of Operations for the year ended                 
    June 30, 2002 (Unaudited).                                                    F-67

    Notes to Pro Forma Consolidated Financial Statements (Unaudited)              F-68

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 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Members                                                                         
Bayview Technology Group, LLC                                                   
Denver, Colorado                                                                

We have audited the accompanying balance sheets of Bayview Technology Group, LLC
(the  "Company"  and  "Successor")  as of December  31,  2002 and 2001,  and the
related  statements of operations,  members'  equity and cash flows for the year
ended  December 31, 2002 and for the period from June 1, 2001  (commencement  of
operations)  through  December  31,  2001,  and the  statements  of  operations,
stockholders'   equity  and  cash  flows  of  Bayview   Technology  Group,  Inc.
("Predecessor")  as described in Summary of Accounting  Policies - Organization,
Description of Business and Basis of Presentation for the period from January 1,
2001 to May 31, 2001. These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.                                       

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.                                               

In our opinion,  the Successor  financial  statements  referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 2002 and 2001, and the results of its operations and cash flows for
the  year  ended  December  31,  2002  and  for the  period  from  June 1,  2001
(commencement  of  operations)  through  December  31, 2001 in  conformity  with
accounting  principles  generally  accepted  in the  United  States of  America.
Further, in our opinion, the Predecessor  financial statements referred to above
present  fairly,  in all material  respects the results of  operations  and cash
flows of the  Predecessor  for the period  January 1, 2001 to May 31,  2001,  in
conformity with accounting principles generally accepted in the United States of
America.                                                                        

As discussed in Summary of Accounting  Policies -  Organization,  Description of
Business and Basis of Presentation,  the Successor  purchased certain assets and
assumed  certain  liabilities of the  Predecessor on May 31, 2001, in a business
combination  accounted for as a purchase.  As a result, the financial statements
of the Sucessor are  presented on a new basis of  accounting  from the financial
statements of Predecessor and, therefore, are not comparable.                   

As discussed in Summary of Accounting  Policies,  the Company changed its method
of accounting for goodwill in 2002.                                             

The accompanying  financial  statements have been prepared  assuming the Company
will  continue as a going  concern.  As more fully  described  in the Summary of
Accounting  Policies - Going Concern and  Management's  Plans,  the Company sold
substantially  all of its revenue  producing  assets in 2003 and is dependent on
funding from its members for its continuing  operations.  These  conditions give
rise to  substantial  doubt about the  Company's  ability to continue as a going
concern.  Management's  Plans are also  described  in the Summary of  Accounting
Policies,  Going Concern and Management's Plans. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty. 

                                              /s/ Anton Collins Mitchell LLP

Denver, Colorado                                                                
September 4, 2003                                                               

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BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                                  December 31             
                                                                          2002                 2001       
                                                                   ---------------------------------------
                                                                                                          
Assets (Notes 3 and 4)                                                                                    
Current Assets:                                                                                           
  Cash                                                               $         54,604    $        3,242   
  Accounts receivable (Note 10)                                               858,397           970,478   
  Inventories                                                                 317,202           437,840   
  Prepaid expenses and other current assets                                    37,138            13,468   
                                                                   ---------------------------------------
Total current assets                                                        1,267,341         1,425,028   

Goodwill (Note 1)                                                           1,820,758         1,820,758   
Deposits                                                                       27,577            42,672   
Property and equipment, net (Note 2 and 13)                                   253,748           229,398   
Patents and trademarks, net of $79,779 and $29,167 of accumulated                                         
    amortization (Notes 1 and 13)                                             701,758           720,833   
                                                                   ---------------------------------------
Total assets                                                         $      4,071,182    $    4,238,689   
                                                                   =======================================

Liabilities and Members' Equity                                                                           
Current Liabilities:                                                                                      
  Accounts payable and accrued expenses (Notes 4 and 8)              $        458,473    $      483,447   
  Line of credit (Note 3)                                                           -           320,578   
  Line of credit - related party (Note 3)                                     245,000                 -   
  Commissions and royalties payable (Note 7)                                  224,164           231,779   
  Current maturities of long-term debt - related party (Note 4)               591,568           553,983   
                                                                   ---------------------------------------
Total current liabilities                                                   1,519,205         1,589,787   

Long-Term Debt - related party, less current maturities (Note 4)              621,257         1,216,017   
                                                                   ---------------------------------------
Total liabilities                                                           2,140,462         2,805,804   

Commitments and Contingencies (Notes 5, 7, 8 and 11)                                                      

Members' Equity (Note 6 and 13)                                             1,930,720         1,432,885   
                                                                   ---------------------------------------
Total liabilities and members' equity                                $      4,071,182    $    4,238,689   
                                                                   =======================================

See accompanying  independent  auditors' report,  summary of accounting policies
and notes to financial statements.                                              

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                                           BAYVIEW TECHNOLOGY GROUP, LLC

                                          STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                                        Period from                       
                                                        June 1, 2001       Period from    
                                                     (Commencement of    January 1, 2001  
                                     Year Ended     Operations) through      through      
                                  December 31, 2002  December 31, 2001     May 31, 2001   
                                     (Successor)        (Successor)       (Predecessor)   
                                  --------------------------------------------------------
                                                                                          
Revenues (Note 10)                  $   5,793,029      $   2,364,787        $  785,836    

Cost of Sales (Note 8)                  2,500,803          1,288,412           223,017    
                                  --------------------------------------------------------
Gross Profit                            3,292,226          1,076,375           562,819    

Operating Expenses:                                                                       
   Selling (Note 7)                     1,228,465            456,512           170,596    
   General and administrative           1,323,979            709,652           336,821    
   Depreciation and amortization          118,407            116,919             6,900    
                                  --------------------------------------------------------
Total operating expenses                2,670,851          1,283,083           514,317    
                                  --------------------------------------------------------
Income (loss) from operations             621,375           (206,708)           48,502    

Other (expense):                                                                          
   Interest expense                      (123,540)           (73,685)           (6,911)   
                                  --------------------------------------------------------

Net income (loss)                  $      497,835      $    (280,393)       $   41,591    
                                  ========================================================


See accompanying  independent  auditors' report,  summary of accounting policies
and notes to financial statements.                                              

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STATEMENTS OF MEMBERS' EQUITY/STOCKHOLDER'S EQUITY

PERIOD FROM JANUARY 1, 2001 THROUGH MAY 31, 2001 (PREDECESSOR)                  

Common Stock  
--------------------- 
                                                     Retained    Stockholders'
                         Shares     Amount       Earnings       Equity
                             ---------------------------------------------------
Balance, January 1, 2001      250,000   $ 25,000      $  93,602    $  118,602   
Net income for the period           -         -          41,591        41,591   
                             ---------------------------------------------------
Balance, May 31, 2001         250,000   $ 25,000      $ 135,193    $  160,193   
                             ===================================================

PERIOD FROM JUNE 1, 2001 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 2002 
(SUCCESSOR)                                                                     

                                               Total
                                                Members'
                                              Equity
                                              --------------
Balance, June 1, 2001 (Commencement of Operations)       $          -           
Cash received for 60,000 membership units issued                                
to founders (Note 6)                                          1,000         
Issuance of 35,000 membership units, net of issuance                            
costs of $37,722 (Note 6)                                 1,712,278         
Net loss for the period                                      (280,393)          
                                              --------------
Balance, December 31, 2001                               $  1,432,885           
Net income for the period                                     497,835           
                                              --------------
Balance, December 31, 2002                               $  1,930,720           
                                              ==============

See accompanying  independent  auditors' report,  summary of accounting policies
and notes to financial statements.                                              

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                                           BAYVIEW TECHNOLOGY GROUP, LLC

                                          STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]


                                                                               Period from                      
                                                                               June 1, 2001       Period from   
                                                                            (Commencement of    January 1, 2001 
                                                            Year Ended     Operations) through      through     
                                                         December 31, 2002  December 31, 2001     May 31, 2001  
                                                            (Successor)        (Successor)       (Predecessor)  
                                                        --------------------------------------------------------
                                                                                                                
Cash flows from Operating Activities                                                                            
Net income (loss) for the period                           $     497,835      $    (280,393)      $     41,591  
Adjustments to reconcile net income (loss) to net cash                                                          
provided by (used in) operating activities:                                                                     
  Depreciation and amortization                                  118,407            116,919              6,900  
  Decrease (increase) in current assets:                                                                        
     Accounts receivable                                         112,081           (954,592)           166,534  
     Inventories                                                 120,638           (247,134)           (25,463) 
     Prepaid expenses and other current assets                   (23,670)           (13,468)            (3,948) 
  Increase (decrease) in current liabilities:                                                                   
     Accounts payable and accrued expenses                       (24,974)           347,000             64,173  
     Commissions and royalties payable                            (7,615)           231,779            (47,875) 
                                                         -------------------------------------------------------
Net cash provided by (used in) operating activities              792,702           (799,889)           201,912  

Cash flows from Investing Activities                                                                            
Purchases of property and equipment                              (92,145)          (168,478)              (812) 
Acquisition of the assets of                                                                                    
  Bayview Technology Group, Inc (Note 2)                               -         (1,023,959)                 -  
Investment in patents and trademarks                             (31,537)                 -                  -  
Other deposits                                                    15,095            (38,288)                 -  
                                                         -------------------------------------------------------
Net cash used in investing activities                           (108,587)        (1,230,725)              (812) 

Cash flows from Financing Activities                                                                            
Borrowings of bank revolving line of credit                      795,000            520,578                  -  
Payments on bank revolving line of credit                     (1,115,578)          (200,000)          (148,387) 
Proceeds from issuance of membership units                             -          1,751,000                  -  
Payment of issuance costs                                              -            (37,722)                 -  
Payments on long-term debt                                      (557,175)                 -            (79,657) 
Borrowings on line of credit - related party                     470,000                  -                  -  
Payments on line of credit - related party                      (225,000)                 -                  -  
                                                         -------------------------------------------------------
Net cash provided by (used in) financing activities             (632,753)         2,033,856           (228,044) 
                                                         -------------------------------------------------------
Net (decrease) increase in cash                                   51,362              3,242            (26,944) 

Cash, beginning of period                                          3,242                  -             26,944  
                                                         -------------------------------------------------------
Cash, end of period                                        $      54,604      $       3,242        $         -  
                                                         =======================================================

See accompanying  independent  auditors' report,  summary of accounting policies
and notes to financial statements.                                              

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SUMMARY OF ACCOUNTING POLICIES

ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION                 

Bayview  Technology  Group LLC (the "Company" or "Successor") was organized as a
Limited  Liability  Company  ("LLC")  under the laws of the State of Colorado in
December 2000. In July 2003, The Company changed its name to BT LLC. The Company
acquired  Bayview  Technology  Group,  Inc.  (the  "Predecessor,"   subsequently
changing its name to Bayview  Ventures,  Inc.) on May 31, 2001 (effectively June
1, 2001) and began  operations  on June 1, 2001.  The  Company is engaged in the
sale and  distribution of energy saving devices,  more  particularly,  plug load
controllers.  The  accompanying  financial  statements  reflect  the  results of
operations  and cash flows of the  Predecessor  for the  period  January 1, 2001
through May 31, 2001.                                                           

GOING CONCERN AND MANAGEMENT'S PLANS                                            

As more fully  described in Note 13, the Company sold  substantially  all of its
long-lived assets in July 2003 and does not currently anticipate  continuing its
operations.  Based  on  projections,  management  currently  estimates  that the
Company  will not have the ability to meet all of its  obligations  as they come
due. The Company is  attempting  to raise  additional  funds from its members to
meet this budgeted  shortfall but has not received a firm commitment from any of
its members to provide the  necessary  funding.  These  conditions  give rise to
substantial doubt about the Company's ability to continue as a going concern. In
response  to this  condition,  management  is  actively  trying  to  secure  the
necessary   additional   funds  from  its  members,   reduce  or  eliminate  all
non-essential  costs,  and negotiate  extensions and reductions in the Company's
obligations  with various  creditors.  No  assurances  can be provided  that the
Company will be successful in executing its plans.                              

The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverability  or  classification  of asset carrying amounts or the amounts and
classification  of  liabilities  that may result should the Company be unable to
continue as a going concern.                                                    

INVENTORIES                                                                     

Inventories  are  stated at the  lower of cost  (using  the first in,  first out
method) or market,  and consist  primarily of saleable  finished goods including
electronic components and devices.                                              

PROPERTY AND EQUIPMENT                                                          

Property and equipment are recorded at cost.  Provisions  for  depreciation  are
computed using the straight-line method over estimated useful lives ranging from
3 to 7 years. Maintenance and repairs are charged to expense as incurred.       

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INCOME TAXES                                                                    

There is no provision for income taxes because,  as a limited liability company,
the  Company's  taxable  income is passed  through to its members who pay income
taxes on their proportionate share of the taxable income.                       

STATEMENTS OF CASH FLOWS                                                        

The Company  considers all  short-term  investments  purchased  with maturity of
three months or less and money market accounts to be cash equivalents.          

PATENTS AND TRADEMARKS                                                          

Patents and trademarks were recorded at cost less accumulated amortization,  and
were  amortized  using the  straight-line  method over their  estimated  life of
fifteen years.                                                                  

Amortization  expense on patents and  trademarks  was $50,612 for the year ended
December 31, 2002 and $29,167 for the period from June 1, 2001  (Commencement of
Operations) through December 31, 2001.                                          

GOODWILL                                                                        

Goodwill  represents  the  excess of the cost over the fair  value of net assets
acquired  at the date of  acquisition  (Note 1) and was being  amortized  on the
straight-line  method over fifteen years through December 31, 2001. (See Summary
of Account Policies - Recent Accounting Pronouncements for treatment of goodwill
as of January 1, 2002).  Goodwill  amortization was $73,672 for the period ended
December 31, 2001.                                                              

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LONG-LIVED ASSETS AND LONG-LIVED ASSETS FOR SALE                                

Long-lived  assets,  including property and equipment and patents and trademarks
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying  amount may not be  recoverable.  If the expected  future cash
flow from the use of the assets and its  eventual  disposition  is less than the
carrying  amount of the assets,  an impairment  loss is recognized  and measured
using the asset's fair value.                                                   

In the  period  when  the  plan of  sale  criteria  of  Statement  of  Financial
Accounting Standards ("SFAS") No. 144 are met, long-lived assets are reported as
held for sale,  depreciation and amortization cease, and the assets are reported
at the lower of carrying value or fair value less costs to sell.                

USE OF ESTIMATES                                                                

The  preparation  of the Company's  financial  statements,  in  conformity  with
accounting  principles  generally  accepted  in the  United  States of  America,
requires the Company's  management to make estimates and assumptions that effect
the reported  amounts of assets and  liabilities,  the  disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
revenues and expenses during the reporting periods.  Actual results could differ
from those estimates.                                                           

CONCENTRATION OF CREDIT RISK                                                    

The Company's financial instruments that are exposed to concentrations of credit
risk  consist of cash and cash  equivalent  balances in excess of the  insurance
provided by  governmental  insurance  authorities.  The Company's  cash and cash
equivalents are placed with financial  institutions  and are primarily in demand
deposit accounts.                                                               

Concentrations of credit risk with respect to accounts receivable are associated
with many customers  dispersed  across  geographic  areas. The Company reviews a
customer's  credit history before  extending credit and establishes an allowance
for  doubtful  accounts  based  upon  the  credit  risk of  specific  customers,
historical trends and other information.  No allowance for doubtful accounts was
established at December 31, 2002 and 2001.                                      

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ADVERTISING COSTS                                                               

The Company expenses  advertising costs as incurred.  Advertising costs amounted
to $54,525 for the year ended  December 31, 2002 and $13,080 for the period from
June 1, 2001 (Commencement of Operations) through December 31, 2001.            

REVENUE RECOGNITION                                                             

The Company  recognizes  revenue when its products are shipped to its customers,
at which  time  title  passes  to the  customer  and the risks  and  rewards  of
ownership  are  transferred.  Revenue from certain  sales  programs with utility
organizations  are not  recognized  until  the  product  has been  installed  at
designated locations and the Company has no remaining performance obligation.   

RESEARCH AND DEVELOPMENT                                                        

Research  and  development  expenditures  are  expensed  in the  period in which
incurred.  For the period from June 1, 2001 (Commencement of Operations) through
December 31, 2001,  research and  development  expenses  were $9,432 and for the
year ended December 31, 2002 they were $32,676.                                 

STOCK OPTION PLAN                                                               

The Company has a stock-based  employee  compensation  plan,  which is described
more fully in Note 6. The Company  accounts for this plan under the  recognition
and  measurement  principles  of  Accounting  Principles  Board  Opinion No. 25,
Accounting  for Stock  Issued to  Employees,  and  related  Interpretations.  No
stock-based  employee  compensation  is  reflected in the  Company's  net income
(loss),  as all options  granted under this plan had an exercise  price equal to
the market value of the  underlying  common stock on the date of grant.  Had the
Company employed the fair value method of accounting prescribed by SFAS No. 123,
Accounting for Stock-Based Compensation,  the pro forma net income (loss) of the
Company  would not be materially  different  than the reported net income (loss)
for any period presented.                                                       

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RECENT ACCOUNTING PRONOUNCEMENTS                                                

In June 2001, the Financial  Accounting  Standards Board (the "FASB")  finalized
SFAS No.  141,  Business  Combinations,  and SFAS No.  142,  Goodwill  and Other
Intangible  Assets.  SFAS No. 141  requires  the use of the  purchase  method of
accounting  and  prohibits  the  use  of  the  pooling-of-interests   method  of
accounting for business combinations initiated after June 30, 2001. SFAS No. 141
also requires that companies  recognize  acquired  intangible  assets apart from
goodwill if the acquired  intangible  assets meet  certain  criteria  and,  upon
adoption of SFAS No. 142,  that  companies  reclassify  the carrying  amounts of
intangible  assets and goodwill  based on the criteria in SFAS No. 141. SFAS No.
142 requires,  among other things,  that companies no longer amortize  goodwill,
but instead test goodwill for impairment at least  annually.  In addition,  SFAS
No. 142 requires that  companies  identify  reporting  units for the purposes of
assessing potential future impairments of goodwill, reassess the useful lives of
other  existing   recognized   intangible  assets,  and  cease  amortization  of
intangible  assets with an indefinite  useful life. An intangible  asset with an
indefinite  useful life should be tested for  impairment in accordance  with the
guidance in SFAS No. 142.                                                       

Effective  January 1, 2002 the Company  adopted SFAS No. 142. As of December 31,
2001 the Company had  $1,820,758 in unamortized  goodwill.  Upon the adoption of
SFAS  No.  142,  goodwill  is no  longer  amortizable  and  will be  subject  to
impairment  testing. As a result, the Company has not amortized goodwill for the
year ended December 31, 2002. Had the Company not amortized  goodwill during the
period ended  December 31, 2001,  amortization  expense would have  decreased by
$73,672 and net loss would have decreased by $73,672 to ($206,721).             

In accordance with SFAS No. 142, the Company completed a transitional impairment
test and an annual  impairment test of goodwill and has determined  goodwill and
other intangible assets were not impaired.  Goodwill will be tested annually and
whenever  events  and  circumstances  occur  indicating  that the  asset  may be
impaired.                                                                       

Upon the  adoption of SFAS No. 142,  the Company  evaluated  the useful lives of
existing  intangible  assets and determined  that the existing  useful lives are
appropriate.                                                                    

In June 2001,  the FASB  issued SFAS No. 143,  Accounting  for Asset  Retirement
Obligations.  SFAS No. 143 requires  the fair value of a liability  for an asset
retirement  obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are  capitalized as part of the carrying  amount of the long-lived  asset.
SFAS No. 143 is effective for the Company for fiscal years  beginning after June
15, 2002. The Company's adoption of this statement had no material impact on the
Company's financial statements.                                                 

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RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)                                    

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 requires that those long-lived assets be
measured  at the  lower of  carrying  amount or fair  value,  less cost to sell,
whether  reported  in  continuing  operations  or  in  discontinued  operations.
Therefore,  discontinued operations will no longer be measured at net realizable
value or include amounts for operating  losses that have not yet occurred.  SFAS
144 is effective  for  financial  statements  issued for fiscal years  beginning
after December 15, 2001 and, generally, is to be applied prospectively.         

In April 2002, the FASB issued SFAS No. 145,  Rescissions of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. SFAS
No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from  Extinguishment  of
Debt, and an amendment of that Statement,  SFAS No. 64,  Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements.                                      

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities.  SFAS No. 146 requires companies to recognize costs
associated  with exit or disposal  activities when they are incurred that at the
date of commitment to an exit or disposal  plan.  Examples of such costs covered
by the standard include lease termination  costs and certain employee  severance
costs associated with a restructuring,  discontinued operation, plant closing or
other exit or disposal  activity.  SFAS No. 146 is effective  prospectively  for
exit  and  disposal  activities  initiated  after  December  31,  2002.  As  the
provisions  of SFAS No. 146 are to be applied  prospectively  after its adoption
date, the Company cannot  determine the potential  effects that adoption of SFAS
No. 146 will have on its future results of operations or financial position.    

In December  2002,  the FASB issued SFAS No.  148,  Accounting  for  Stock-Based
Compensation-Transition  and Disclosure-an  Amendment of FASB Statement No. 123.
SFAS No. 148 amends SFAS No. 123,  Accounting for Stock-Based  Compensation,  to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based method of  accounting  for  stock-based  employee  compensation.  In
addition,  SFAS No. 148 amends the  disclosure  requirements  of SFAS No. 123 to
require prominent  disclosures in both annual and interim  financial  statements
about the method of accounting for  stock-based  employee  compensation  and the
effect  of the  method  used  on  reported  results.  The  Company  adopted  the
disclosure requirements effective December 31, 2002 in its financial statements.

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 NOTES TO FINANCIAL STATEMENTS

1. BUSINESS COMBINATIONS                                                        

On May 31, 2001 the Company acquired  substantially all of the assets of Bayview
Ventures,  Inc., a California  corporation,  for a purchase price of $2,906,447.
The acquisition has been accounted for using the purchase method and the results
of  operations  are  reflected  in the  financial  statements  from  the date of
acquisition.  Pursuant to the purchase agreement, the Company paid $1,000,000 in
cash,  assumed  liabilities of $136,447 and executed a note to the seller in the
amount of  $1,770,000  (see Note 4). The  Company  incurred  costs of $23,959 in
connection with the  acquisition.  Amounts in excess of the fair market value of
the assets acquired are accounted for as goodwill.  The following represents the
allocation of the purchase price:                                               

  Amount
   ---------------

Accounts receivable                $     15,886                                 
Inventory                               190,706                                 
Deposits                                  4,384                                 
Fixed assets                             75,000                                 
Patents and trademarks                  750,000                                 
Goodwill                              1,894,430                                 
   ---------------
  $  2,930,406
   ===============

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2. PROPERTY AND EQUIPMENT                                                       

Property and equipment consisted of the following:                              

                                         December 31
                                         2002               2001
                                         -----------------------------------
Equipment                                    $    237,425        $   147,846    
Furniture and fixtures                             98,198             95,632    
                                         -----------------------------------
                                              335,623            243,478
Less accumulated depreciation                      81,875             14,080    
                                         -----------------------------------
                                         $    253,748        $   229,398
                                         ===================================

Depreciation  expense  for the year ended  December  31, 2002 and for the period
from June 1, 2001  (Commencement  of Operations)  through  December 31, 2001 was
$67,795 and $14,080.                                                            

3. LINE OF CREDIT AND LINE OF CREDIT - RELATED PARTY                            

The Company  had a $500,000  revolving  line of credit with a bank.  The line of
credit was  entered  into on August 3, 2001 and  expired on August 3, 2002.  The
line of credit bore interest at a variable rate that was calculated  based on an
index,  which is the Bank Base Rate plus 1.5%.  During the period August 3, 2001
through December 31, 2001 the rates ranged from 6.5% to 8.5% per annum. The Line
of Credit had an  outstanding  balance of $320,578 at December  31, 2001 and was
secured by substantially all of the assets of the Company.  In addition,  two of
the  Company's  members  (who  were  also  executive  officers  of the  Company)
guaranteed  the  line of  credit  and  pledged  personal  assets  as  additional
security.                                                                       

Effective  September 30, 2002,  the Company  entered into a new $500,000 line of
credit  agreement  with  Bayview  Ventures,  Inc.  (Note 1).  The line of credit
expired on June 1, 2003.  The line of credit bears interest at the prime rate as
published in the Wall Street Journal,  plus 1.75%. The line of credit is secured
by  substantially  all of the assets of the  Company.  In  addition,  one of the
Company's members (who is also an executive  officer) has guaranteed the line of
credit and pledged  personal assets as additional  security.  The balance of the
line of credit at  December  31, 2002 was  $245,000  and the  interest  rate was
6.259%.                                                                         

Effective June 1, 2003,  Bayview  Ventures,  Inc. agreed to extend the repayment
date of the Line of Credit Agreement to November 8, 2003.                       

Interest  expense  recognized  in  connection  with the line of credit - related
party, was $6,493 for the year ended December 31, 2002. Accrued interest payable
in connection with the line of credit - related party was $1,282 at December 31,
2002.                                                                           

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4. LONG-TERM DEBT - RELATED PARTY                                               

Long-term debt consists of a note payable to Bayview Ventures, Inc. (see Note   
1). The sole  stockholder  of  Bayview  Ventures,  Inc.  is an  employee  of the
Company. The note was in the original amount of $1,770,000 and bears interest at
the  rate of  6.9%  per  annum  and  was  originally  payable  in  three  annual
installments  plus  accrued  interest  beginning  on June 1,  2002.  The note is
secured,  subject  to  certain  subordination,  by  all  inventories,   accounts
receivable,  and  substantially  all  of the  assets  acquired  in the  business
combination (Note 1).                                                           

Effective April 30, 2002, the terms of the note payable were amended. An initial
payment of $250,000 was made June 30, 2002.  Subsequent  payments are to be made
based on 50% of excess cash flow  defined as earnings  before  interest,  taxes,
depreciation  and  amortization  less fixed  charges  (interest  expense for the
period of determination  plus minimum rent payments under operating  leases) and
total capital expenditures.  The calculation is to be completed by the tenth day
of the subsequent month and reviewed and agreed to by the note holder.  Payments
will be made  immediately  thereafter.  During the year ended December 31, 2002,
the Company made principal  payments of $557,175.  Included in accounts  payable
and accrued  interest  at  December  31, 2002 and 2001 is $43,807 and $65,730 of
accrued interest due on the note.                                               

The term of the note agreement was modified in both May and June 2003,  pursuant
to which the maturity date of the note payable was extended to July 14, 2003.   

Bayview Ventures, Inc. agreed to modify the repayment terms of the principal and
accrued  interest on the note  payable in  connection  with the  acquisition  of
certain assets of the Company by USA Technologies, Inc. ("USAT"). (See Note 13) 

In accordance  with the modified  terms,  in July 2003, the Company paid Bayview
Ventures,  Inc. approximately $631,000 and 1,200,000 shares of USAT common stock
having an agreed upon value of $333,333.  The remaining  balance owed to Bayview
Ventures, Inc. (including both principal and accrued interest) of $333,333 is to
be repaid no later than November 8, 2003.                                       

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5. LEASE OBLIGATIONS                                                            

The Company  leases office space under three  operating  lease  agreements.  The
lease  agreements  generally  require  the  Company  to  pay  certain  operating
expenses,   maintenance,   and  property   taxes.   The  lease   agreements  are
noncancellable.  Two agreements expire in June 2005 and one agreement expires in
October 2003.                                                                   

Rent  expense  was $48,324  for the period  from June 1, 2001  (Commencement  of
Operations)  through  December 31, 2001 and $111,633 for the year ended December
31, 2002.                                                                       

Future minimum lease payments under the  noncancellable  operating leases are as
follows:                                                                        

Years Ending                                                                    

December 31,                 Amount                                         
-----------------------------------------                                       

2003                     $   121,560                                        
2004                         101,172                                        
2005                          51,864                                        
--------------              
$   274,596               
==============              

6. MEMBERS' EQUITY                                                              

The Company  issued  60,000  units to its  founding  members,  for $1,000 at the
formation of the Company.                                                       

Pursuant to the terms of a private  placement  memorandum  ("PPM") in 2001,  the
Company  issued  35,000  membership  units at a per unit  price of $50 for total
proceeds of $1,750,000.  Issuance  expenses in connection with the offering were
$37,722.  Under terms of the PPM, the Company  guaranteed the investors that the
value of their units would  appreciate at no less than a 20%  cumulative  return
over the  three-year  period  following the issuance of the units.  In the event
that the overall value (as  determined  by a calculation  defined in the PPM) of
the Company in June 2004 or the value  received by the Company  upon the sale of
its assets  prior to that time does not  provide  for the  minimum  return,  the
investors  are to  receive  additional  units  as  determined  by a  calculation
contained in the PPM. The PPM also granted the  investors  the right,  after the
payment of  amounts  due to Bayview  Ventures,  Inc.  (see Note 4), to an annual
preferential right to distributions of $200,000. No such distributions have been
paid through 2002.                                                              

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6. MEMBERS' EQUITY (CONTINUED)                                                  

Option Plan                                                                     

Effective May 30, 2001, the Company adopted The Bayview  Technology  Group,  LLC
2001 Membership Option Plan (the "Plan").  The purpose of the Plan is to provide
a benefit to key employees  and  management.  Participants  of the Plan shall be
recommended by the President and Chief Executive Officer of the Company, and the
issuance of unit options are to be approved by the  Personnel  and  Compensation
Committee  of the  Board  of  Directors.  The  membership  units,  which  may be
delivered under the Plan, shall not exceed an aggregate of 15,000 units.  During
2002,  options to purchase 4,750  membership units at a per unit price of $52.63
ware granted.  In March 2003,  1,189 of the options  vested and 132 options will
vest each month thereafter until all 4,750 become vested.  The options expire in
June 2007. The aggregate fair value of the options granted (determined using the
Black-Scholes  option pricing model and assuming no dividends or  volatility,  a
discount  rate of 4.5% and an expected  life of five years) was  estimated to be
approximately $37,000. Upon a merger of the Company or the sale of substantially
all  of  its  assets,   any  unvested  options  become  immediately  vested  and
exercisable.  The options  became  fully vested in July 2003 upon the closing of
the USAT transaction (see Note 13).                                             

Pro forma  results of  operations,  assuming the Company had used the fair value
method of accounting for the 2002 option grant, are not presented as they do not
differ materially from the Companys historical results.                         

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7. EMPLOYMENT AGREEMENTS                                                        

The Company has an employment  agreement  with the sole  stockholder  of Bayview
Ventures,  Inc.  (Note 1).  Under the terms of the  agreement,  the  Company  is
required to pay a royalty to Bayview Ventures,  Inc., based upon the sale of its
devices.  The Company is also required to pay the employee an annual base salary
of $126,240. During the period ended December 31, 2001, the Company paid Bayview
Ventures,  Inc. $24,027 in royalties and at December 31, 2001 royalties  payable
to Bayview  Ventures,  Inc. were  $179,174.  During the year ended  December 31,
2002,  the Company  paid Bayview  Ventures,  Inc.  $374,136 in royalties  and at
December 31, 2002, royalties payable to Bayview Ventures, Inc. totaled $157,271.

Effective May 20, 2002, the Company entered into an employment agreement with an
employee.  Under the terms of the agreement,  the Company is required to pay the
employee a base  salary of  $116,000  during the  initial  one-year  term of the
employment  period (as defined in the  agreement).  Employment is to be reviewed
annually for renewal  and/or  renegotiation.  The employee  also is to receive a
commission of 1.25% of certain sales revenue as defined in the agreement.       

8. SUPPLIER AGREEMENT                                                           

Effective July 1, 2001, the Company  entered into an agreement with an unrelated
entity for the manufacture of the Company's  electronic devices. The agreement's
initial term is two years, and the agreement automatically renews for subsequent
one-year   periods  unless  either  party  provides   written   notification  of
termination.  At June 30, 2003, the agreement is still in effect.  In connection
with the  agreement,  the  Company  is  required  to  provide  the  entity  with
thirteen-week  production forecasts and the Company is obligated to purchase the
manufactured  devices and  reimburse  the  entity,  under  certain  terms of the
agreement.  During the period  from June 1, 2001  (Commencement  of  Operations)
through December 31, 2001, the Company purchased  $309,775 from the entity,  and
at December 31,  2001,  the Company  owed the entity  $197,169.  During the year
ended December 31, 2002, the Company purchased $1,817,383 from the entity and at
December 31, 2002, the Company owed the entity $285,656.                        

9. AGREEMENTS WITH UTILITY ORGANIZATIONS                                        

The Company has an agreement with the Bonneville  Power  Administration  ("BPA")
that expired  April 30, 2003 to provide and install  BPA's  electronic  devices.
Under the terms of this agreement,  the Company is to receive a negotiated price
per  unit  and  installation  fee per  unit,  for  each  device  installed.  The
Bonneville Power  Administration  contract provides for total purchase price and
fees of $3,000,000. The agreement was not renewed.                              

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10. SIGNIFICANT CONTRACTS                                                       

The  Company  has  received  greater  than  10% of  its  revenues  from  certain
customers. A summary of significant customers is as follows:                    

             December 31
Revenues:                             2002        2001                          
             -------------------------
Customer A                            36%         33%                           
Customer B                            12%         11%                           
Customer C                             -%         13%                           
Customer D                             -%         16%                           
             -------------------------

             December 31
Accounts Receivable:                  2002        2001                          
             -------------------------
Customer A                             2%         79%                           
Customer B                            44%          4%                           
Customer C                             -%          9%                           
Customer D                             -%          7%                           
             -------------------------

11. CONTINGENCIES                                                               

In February 2003, a fire occurred in a facility in Idaho, in which the Company's
product was installed days before the fire. The insurance  company  representing
the company that occupied the facility is  investigating  the cause of the fire.
The Company has informed their insurance carrier of the incident and the Company
is currently in the process of investigating  the matter and to what extent,  if
any, the Company may be held  responsible.  The outcome of this  contingency  is
currently  unknown.  Any  potential  liability  may be covered by the  Company's
insurance  carrier.  No liability for the outcome of this  contingency  has been
recorded in the accompanying financial statements.                              

The Company occupied premises in California  through June 1, 2002, at which time
the premises were vacated. The landlord is seeking rent from the Company for the
period from June 2002 through  October  2003 (lease  termination  date),  in the
aggregate  amount of approximately  $62,000.  The Company does not believe it is
responsible  for this amount,  as it never formally  assumed the lease.  Bayview
Ventures,  Inc. was the original  lessee.  At December 31, 2002, the Company has
accrued  $26,000,  which  represents the Company's best estimate of its expected
liability to settle the matter.                                                 

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12. SUPPLEMENTAL CASH FLOW INFORMATION                                          

                               Period from
                                June 1, 2001
                            (Commencement of
                 Year ended      Operations) through
            December 31, 2002    December 31, 2001
            --------------------------------------
Cash paid for interest       $   142,928         $  5,744                       
            ======================================

13. SALE OF OPERATIONS                                                          

On July 11,  2003,  the Company sold  substantially  all of its fixed assets and
intellectual  property  (including  patents  and  trademarks),  as well as other
various assets,  to USAT in exchange for 20,000,000 shares of USAT common stock.
Additionally,  USAT paid  approximately  $631,000  to  Bayview  Ventures,  Inc.,
representing the amount currently due to Bayview Ventures,  Inc. pursuant to its
note payable from the Company (see Note 4). Pursuant to the sale agreement,  the
shares  of USAT  common  stock  received  by the  Company  cannot  be sold for a
one-year  period,  after which time a monthly  limitation  will be placed on the
maximum number of shares, that may be sold.                                     

In connection  with the sale,  the Company  issued an additional  9,534 units to
investors in the  Company's  2001 PPM pursuant to guaranteed  return  provisions
contained  in the PPM (see Note 6).  Additionally,  the Company  granted  10,250
units to two employees.                                                         

Management  determined that the plan of sale criteria in SFAS No. 144 was met in
April 2003, at which time  depreciation  and amortization of these assets ceased
and the assets  began to be  reported at the lower of their  carrying  amount or
fair value less cost to sell.                                                   

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 BALANCE SHEET
 (Unaudited)

                                                                [Download Table]


                                                                         June 30,   
                                                                           2003     
                                                                       -------------
                                                                                    
Assets                                                                              
Current assets:                                                                     
  Cash                                                                 $     54,201 
  Accounts receivable                                                     1,295,947 
  Inventories                                                               381,486 
  Prepaid expenses and other current assets                                  16,324 
                                                                       -------------
Total current assets                                                      1,747,958 

Goodwill                                                                  1,820,758 
Deposits                                                                     16,977 
Long-Lived Assets Held for Sale                                                     
  Property and equipment, net                                               223,820 
  Patents and trademarks, net of $106,689 of accumulated amortization       689,641 
                                                                       -------------
Total assets                                                           $  4,499,154 
                                                                       =============

Liabilities and Members' Equity                                                     
Current liabilities:                                                                
  Accounts payable and accrued expenses                                $    737,569 
  Line of credit - related party                                            438,000 
  Commissions and royalties payable                                         259,401 
  Current maturities of long-term debt - related party                      591,568 
                                                                       -------------
Total current liabilities                                                 2,026,538 

Long-term debt - related party, less current maturities                     621,257 
                                                                       -------------
Total Liabilities                                                         2,647,795 

Members' Equity                                                           1,851,359 
                                                                       -------------
Total liabilities and members' equity                                  $  4,499,154 
                                                                       =============

See accompanying notes.                                                         

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STATEMENTS OF OPERATIONS
 (Unaudited)

                                          Six months ended June 30
                                          2003              2002
                                       -------------------------------------
Revenues                                     $   2,514,735     $   2,673,642    

Cost of Sales                                    1,143,397         1,237,622    
                                       -------------------------------------
Gross Profit                                     1,371,338         1,436,020    

Operating expenses:                                                             
Selling                                         692,049           490,518 
General and administrative                      642,755           688,373 
Depreciation and amortization                    69,932            53,388 
                                       -------------------------------------
Total operating expenses                         1,404,736         1,232,279    
                                       -------------------------------------
Income (loss) from operations                      (33,398)          203,741    

Other expense:                                                                  
Interest expense                                (45,963)          (54,959)
                                       -------------------------------------

Net income (loss)                            $     (79,361)    $     148,782    
                                       =====================================

See accompanying notes.                                                         

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 STATEMENTS OF MEMBERS' EQUITY
 (Unaudited)

                                           Six months ended June 30,
                                            2003              2002
                                           -------------------------------
Balance, beginning of period                   $  1,930,720     $  1,432,885    
Net income (loss) for period                        (79,361)         148,782    
                                           -------------------------------
Balance, end of period                         $  1,851,359     $  1,581,667    
                                           ===============================

See accompanying notes.                                                         

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STATEMENTS OF CASH FLOWS
 (Unaudited)

                                                        [Enlarge/Download Table]


                                                                       Six months ended June 30      
                                                                       2003                2002      
                                                                 ------------------------------------
                                                                                                     
Cash flows from operating activities                                                                 
Net income (loss)                                                $        (79,361)     $     148,782 
Adjustments to reconcile net income (loss) to net cash provided                                      
 by operating activities:                                                                            
  Depreciation and amortization                                            69,932             53,388 
  Decrease (increase) in current assets:                                                             
     Accounts receivable                                                 (437,550)           183,617 
     Inventories                                                          (64,284)           (65,856)
     Prepaid expenses and other current assets                             20,814            (23,209)
  Increase in current liabilities:                                                                   
     Accounts payable and accrued expenses                                279,095            105,510 
     Commissions and royalties payable                                     35,237              3,052 
                                                                 ------------------------------------
Net cash provided by (used in) operating activities                      (176,117)           405,284 

Cash flows from investing activities                                                                 
Purchase of property and equipment                                         (2,493)            (9,640)
Investment in patents and trademarks                                      (14,793)                 - 
Deposit on software under development                                           -            (11,066)
                                                                 ------------------------------------
Net cash used in investing activities                                     (17,286)           (20,706)

Cash flows from financing activities                                                                 
Borrowings of bank revolving line of credit                                     -            415,000 
Payments on bank revolving line of credit                                       -           (650,000)
Payments on long-term debt                                                      -           (137,320)
Borrowings on Line of Credit-Related Party                                693,000                  - 
Payments on Line of Credit-Related Party                                 (500,000)                 - 
                                                                 ------------------------------------
Net cash provided by (used in) financing activities                       193,000           (372,320)
                                                                 ------------------------------------
Net increase (decrease) in cash                                              (403)            12,258 

Cash, beginning of period                                                  54,604              3,242 
                                                                 ------------------------------------
Cash, end of period                                              $         54,201      $      15,500 
                                                                 ====================================

Supplemental disclosures of cash flow information:                                                   
   Interest paid                                                 $          9,492      $     121,141 
                                                                 ====================================


See accompanying notes.                                                         

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 SIX MONTHS ENDED JUNE 30, 2003 AND 2002
 (Unaudited)

ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION                 

Bayview  Technology  Group,  LLC  (the  "Company"  was  organized  as a  Limited
Liability  Company  ("LLC")  under the laws of the State of Colorado in December
2000.  The  Company  is engaged in the sale and  distribution  of energy  saving
devices, more particularly, plug load controllers.                              

GOING CONCERN AND MANAGEMENT'S PLANS                                            

As more fully  described in Note 8, the Company sold  substantially  all of its 
long-lived assets in July 2003 and does not currently anticipate  continuing its
operations.  Based  on  projections,  management  currently  estimates  that the
Company  will not have the ability to meet all of its  obligations  as they come
due. The Company is  attempting  to raise  additional  funds from its members to
meet this budgeted  shortfall but has not received a firm commitment from any of
its members to provide the  necessary  funding.  These  conditions  give rise to
substantial doubt about the Company's ability to continue as a going concern. In
response  to this  condition,  management  is  actively  trying  to  secure  the
necessary   additional   funds  from  its  members,   reduce  or  eliminate  all
non-essential  costs,  and negotiate  extensions and reductions in the Company's
obligations  with various  creditors.  No  assurances  can be provided  that the
Company will be successful in executing its plans.                              

The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverability  or  classification  of asset carrying amounts or the amounts and
classification  of  liabilities  that may result should the Company be unable to
continue as a going concern.                                                    

INTERIM FINANCIAL INFORMATION                                                   

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all adjustments  (consisting of normal  recurring
accruals)  considered  necessary  for a fair  presentation  have been  included.
Operating  results for the six months  ended June 30,  2003 are not  necessarily
indicative of the results that may be expected for the year ending  December 31,
2003.                                                                           

INVENTORIES                                                                     

Inventories  are  stated at the  lower of cost  (using  the first in,  first out
method) or market,  and consist  primarily of saleable  finished goods including
electronic components and devices.                                              

PROPERTY AND EQUIPMENT                                                          

Property and equipment are recorded at cost.  Provisions  for  depreciation  are
computed using the straight-line method over estimated useful lives ranging from
3 to 7 years. Maintenance and repairs are charged to expense as incurred.       

Effective in April 2003,  property and  equipment was reflected as held for sale
and reported at the lower of carrying value or fair value, less cost to sell.   

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INCOME TAXES                                                                    

There is no provision for income taxes because,  as a limited liability company,
the  Company's  taxable  income is passed  through to its members who pay income
taxes on their proportionate share of the taxable income.                       

STATEMENTS OF CASH FLOWS                                                        

The Company  considers all  short-term  investments  purchased  with maturity of
three months or less and money market accounts to be cash equivalents.          

PATENTS AND TRADEMARKS                                                          

Patents and trademarks were recorded at cost less accumulated amortization,  and
were amortized using the straight-line method over fifteen years.               

Amortization  expense on patents and  trademarks was $26,911 and $25,000 for the
six months ended June 30, 2003 and 2002, respectively. Commencing in April 2003,
patents and  trademarks  are  considered  to be held for sale and carried at the
lower of carrying value or fair value less costs to sell.                       

GOODWILL                                                                        

Goodwill  represents  the  excess of the cost over the fair  value of net assets
acquired at the date of  acquisition.  Goodwill is not  amortized  but is tested
annually to determine  whether there is any  impairment  to its carrying  value.
Impairment testing is also done if events or circumstances arise indicating that
impairment may have occurred.                                                   

LONG-LIVED ASSETS AND LONG-LIVED ASSETS FOR SALE                                

Long-lived  assets,  including property and equipment and patents and trademarks
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying  amount may not be  recoverable.  If the expected  future cash
flow from the use of the assets and its  eventual  disposition  is less than the
carrying  amount of the assets,  an impairment  loss is recognized  and measured
using the asset's fair value.                                                   

In the period when the plan of sale criteria of SFAS No. 144 are met, long-lived
assets are reported as held for sale,  depreciation and amortization  cease, and
the assets are reported at the lower of carrying  value or fair value less costs
to sell.                                                                        

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USE OF ESTIMATES                                                                

The  preparation  of the Company's  financial  statements,  in  conformity  with
accounting  principles  generally  accepted  in the  United  States of  America,
requires the Company's  management to make estimates and assumptions that effect
the reported  amounts of assets and  liabilities,  the  disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
revenues and expenses during the reporting periods.  Actual results could differ
from those estimates.                                                           

ADVERTISING COSTS                                                               

The Company expenses  advertising costs as incurred.  Advertising costs amounted
to  $53,932  and  $15,631  for the six  months  ended  June 30,  2003 and  2002,
respectively.                                                                   

REVENUE RECOGNITION                                                             

The Company  recognizes  revenue when its products are shipped to its customers,
at which  time  title  passes  to the  customer  and the risks  and  rewards  of
ownership  are  transferred.  Revenue from certain  sales  programs with utility
organizations  are not  recognized  until  the  product  has been  installed  at
designated locations and the Company has no remaining performance obligation.   

RESEARCH AND DEVELOPMENT                                                        

Research  and  development  expenditures  are  expensed  in the  period in which
incurred. Research and development expenses were $39,370 and $14,147 for the six
months ended June 30, 2003 and 2002, respectively.                              

STOCK OPTION PLAN                                                               

The Company has a stock-based  employee  compensation plan. The Company accounts
for this plan under the  recognition  and  measurement  principles of Accounting
Principles Board Opinion No. 25,  Accounting for Stock Issued to Employees,  and
related  Interpretations.  No stock-based employee  compensation is reflected in
the Company's net income (loss),  as all options  granted under this plan had an
exercise price equal to the market value of the underlying  membership  units on
the date of grant.  Had the Company employed the fair value method of accounting
prescribed by SFAS No. 123,  Accounting for  Stock-Based  Compensation,  the pro
forma net income  (loss) of the Company  for the six months  ended June 30, 2003
and 2002 would not have been  materially  different from the reported net income
(loss).                                                                         

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 BAYVIEW TECHNOLOGY GROUP, LLC

SELECTED NOTES TO FINANCIAL STATEMENTS

 SIX MONTHS ENDED JUNE 30, 2003 AND 2002
 (Unaudited)

1. PROPERTY AND EQUIPMENT                                                       

Property and equipment as of June 30, 2003 consisted of the following:          

Equipment                          $  248,547                                   
Furniture and fixtures                 98,197                                   
 -------------
   346,744
Less accumulated depreciation         122,924                                   
 -------------
$  223,820
 =============

Depreciation  expense was $43,021 and $28,388 for the six months  ended June 30,
2003 and 2002, respectively.                                                    

2. LINE OF CREDIT - RELATED PARTY                                               

Effective September 30, 2002, the Company entered into a $500,000 line of credit
agreement  with Bayview  Ventures,  Inc.  The line of credit  expired on June 1,
2003.  The line of credit  bears  interest at the prime rate as published in the
Wall Street Journal,  plus 1.75%. The line of credit is secured by substantially
all of the assets of the Company. In addition, one of the Company's members (who
is also an  executive  officer)  has  guaranteed  the line of credit and pledged
personal  assets as  additional  security.                                      

Effective June 1, 2003,  Bayview  Ventures,  Inc. agreed to extend the repayment
date of the line of Credit  Agreement to November 8, 2003. At June 30, 2003, the
balance of the Line of Credit was $438,000 and the interest rate was 5.75%.     

Interest  expense  recognized  in  connection  with the line of credit - related
party, was $10,422 for the six months ended June 30, 2003.                      

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3. LONG-TERM DEBT - RELATED PARTY                                               

Long-term debt at June 30, 2003 consists of a note payable to Bayview  Ventures,
Inc.  The sole  stockholder  of Bayview  Ventures,  Inc.  is an  employee of the
Company. The note was in the original amount of $1,770,000 and bears interest at
the  rate of  6.9%  per  annum  and  was  originally  payable  in  three  annual
installments  plus  accrued  interest  beginning  on June 1,  2002.  The note is
secured,  subject  to  certain  subordination,  by  all  inventories,   accounts
receivable,  and substantially all of the assets acquired from Bayview Ventures,
Inc.                                                                            

Effective April 30, 2002, the terms of the note payable were amended. An initial
payment of $250,000 was made June 30, 2002.  Subsequent  payments are to be made
based on 50% of excess cash flow  defined as earnings  before  interest,  taxes,
depreciation  and  amortization  less fixed  charges  (interest  expense for the
period of determination  plus minimum rent payments under operating  leases) and
total capital expenditures.  The calculation is to be completed by the tenth day
of the subsequent month and reviewed and agreed to by the note holder.  Payments
will be made immediately thereafter.  During the six months ended June 30, 2003,
the  Company  made no  principal  payments  on this debt.  Included  in accounts
payable at June 30, 2003 is $81,536 of accrued interest due on the note.        

The term of the note agreement was modified in both May and June 2003,  pursuant
to which the maturity date of the note payable was extended to be July 14, 2003.

Bayview Ventures, Inc. agreed to modify the repayment terms of the principal and
accrued  interest on the note  payable in  connection  with the  acquisition  of
certain assets of the Company by USA Technologies, Inc. ("USAT").               

In accordance  with the modified  terms,  in July 2003, the Company paid Bayview
Ventures,  Inc. approximately $631,000 and 1,200,000 shares of USAT common stock
having an agreed upon value of $333,333.  The remaining  balance owed to Bayview
Ventures, Inc. (including both principal and accrued interest) of $333,333 is to
be repaid no later than November 8, 2003.                                       

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4. EMPLOYMENT AGREEMENTS                                                        

The Company has an employment  agreement  with the sole  stockholder  of Bayview
Ventures, Inc. Under the terms of the agreement,  the Company is required to pay
a royalty to Bayview  Ventures,  Inc.,  based upon the sale of its devices.  The
Company is also  required to pay the employee an annual base salary of $126,240.
During the six months ended June 30, 2003 and 2002,  royalties earned by Bayview
Ventures,  Inc. were $172,107 and $190,123,  respectively.  Royalties payable to
Bayview Ventures, Inc. as of June 30, 2003 totaled $153,462.                    

5. SUPPLIER AGREEMENT                                                           

Effective July 1, 2001, the Company  entered into an agreement with an unrelated
entity for the manufacture of the Company's  electronic devices. The agreement's
initial term is two years, and the agreement automatically renews for subsequent
one-year   periods  unless  either  party  provides   written   notification  of
termination.  In  connection  with the  agreement,  the  Company is  required to
provide the entity with  thirteen-week  production  forecasts and the Company is
obligated to purchase the manufactured  devices and reimburse the entity,  under
certain  terms of the  agreement.  During the six months ended June 30, 2003 and
2002, the Company purchased $844,068 and $740,864, respectively from the entity.

6. AGREEMENTS WITH UTILITY ORGANIZATIONS                                        

The Company has an agreement with the Bonneville  Power  Administration  ("BPA")
that expired  April 30, 2003 to provide and install  BPA's  electronic  devices.
Under the terms of this agreement,  the Company is to receive a negotiated price
per  unit  and  installation  fee per  unit,  for  each  device  installed.  The
Bonneville Power  Administration  contract provides for total purchase price and
fees of $3,000,000. The agreement was not renewed.                              

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7. CONTINGENCIES                                                                

In February 2003, a fire occurred in a facility in Idaho, in which the Company's
product was installed days before the fire. The insurance  company  representing
the company that occupied the facility is  investigating  the cause of the fire.
The Company has informed their insurance carrier of the incident and the Company
is currently in the process of investigating  the matter and to what extent,  if
any, the Company may be held  responsible.  The outcome of this  contingency  is
currently  unknown.  Any  potential  liability  may be covered by the  Company's
insurance  carrier.  No liability for the outcome of this  contingency  has been
recorded in the accompanying financial statements.                              

The Company occupied premises in California  through June 1, 2002, at which time
the premises were vacated. The landlord is seeking rent from the Company for the
period from June 2002 through  October  2003 (lease  termination  date),  in the
aggregate  amount of approximately  $62,000.  The Company does not believe it is
responsible  for this amount,  as it never formally  assumed the lease.  Bayview
Ventures,  Inc.  was the  original  lessee.  At June 30,  2003,  the Company has
accrued  $26,000,  which  represents the Company's best estimate of its expected
liability to settle the matter.                                                 

8. SALE OF OPERATIONS                                                           

On July 11,  2003,  the Company sold  substantially  all of its fixed assets and
intellectual  property  (including  patents  and  trademarks),  as well as other
various assets,  to USAT in exchange for 20,000,000 shares of USAT common stock.
Additionally,  USAT paid  approximately  $631,000  to  Bayview  Ventures,  Inc.,
representing the amount currently due to Bayview Ventures,  Inc. pursuant to its
note  payable from the Company.  Pursuant to the sale  agreement,  the shares of
USAT common stock received by the Company cannot be sold for a one-year  period,
after which time a monthly  limitation  will be placed on the maximum  number of
shares, that may be sold.                                                       

The long-lived  assets covered by the sales  agreement have been reported in the
accompanying balance sheets as assets held for sale.  Management determined that
the plan of sale  criteria in SFAS No. 144 was met in April 2003,  at which time
depreciation  and amortization of these assets ceased and the assets began to be
reported at the lower of their carrying amount or fair value less cost to sell. 

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 USA TECHNOLOGIES INC.

 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION                                                           

The Pro Forma  Consolidated  Balance Sheet as of June 30, 2003 and the Pro Forma
Consolidated  Statements  of  Operations  for the years  ended June 30, 2003 and
2002, are based on the historical financial statements of USA Technologies, Inc.
(USAT) and Bayview  Technology  Group,  LLC  (Bayview).  The  acquisition of the
operating  assets of Bayview has been accounted for using the purchase method of
accounting.  The Pro Forma  Consolidated  Balance  Sheet as of June 30, 2003 has
been prepared assuming the Bayview acquisition was completed on June 30, 2003.  

The Pro Forma Consolidated Statements of Operations for the years ended June 30,
2003 and 2002 have been  prepared  assuming  that the  Bayview  acquisition  was
completed on July 1, 2002 and July 1, 2001, respectively.                       

The  Unaudited  Pro Forma  financial  statement  information  is  presented  for
informational  purposes  only.  The Pro  Forma  Consolidated  Balance  Sheet and
Consolidated  Statements of  Operations do not purport to represent  what USAT's
actual  financial  position  or  results of  operations  would have been had the
acquisition of Bayview occurred as of such dates, or to project USAT's financial
position  or results  of  operations  for any  period or date,  nor does it give
effect to any  matters  other  than those  described  in the notes  thereto.  In
addition,  the  allocations of purchase  price to the assets and  liabilities of
Bayview are  preliminary  and the final  allocations may differ from the amounts
reflected  herein.  The  Unaudited  Pro  Forma  Consolidated  Balance  Sheet and
Unaudited Pro Forma  Consolidated  Statements  of  Operations  should be read in
conjunction  with  USAT's  financial  statements  and  notes  thereto,  and  the
historical financial statements of Bayview which are included elsewhere herein. 

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USA Technologies Inc. 
Pro Forma Consolidated Balance Sheet
 June 30, 2003
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                                               Acquisition                     
                                                                 Bayview          USAT         Adjustments          Pro Forma  
                                                                 -------          ----         -----------          ---------  
                                                                                                                               
Assets:                                                                                                                        
Current assets:                                                                                                                
  Cash and cash equivalents                                      $   54,201    $ 2,384,455        $ (833,448)      $ 1,603,208 
  Accounts receivable, net                                        1,295,947        414,796        (1,295,947)          414,796 
  Inventory                                                         381,486        457,900          (347,486)          497,900 
  Subscriptions receivable                                                -      1,013,400                 -         1,013,400 
  Prepaid expenses and other current assets                          16,324        201,383               653           218,360 
  Investment                                                              -        904,049                 -           904,049 
                                                                 ------------------------------------------------------------- 
Total current assets                                              1,747,958      5,375,983        (2,472,228)        4,651,713 

Property and equipment, net                                         223,820        943,784                 -         1,167,604 
Software development costs                                                -        998,660                 -           998,660 
Goodwill                                                          1,820,758      7,945,580        (1,502,108)        8,264,230 
Intangible assets                                                   689,641      2,591,500         8,810,359        12,091,500 
Other assets                                                         16,977         37,174           (16,977)           37,174 
                                                                 ------------------------------------------------------------- 
Total assets                                                     $4,499,154    $17,892,681        $4,819,046       $27,210,881 
                                                                 ============================================================= 

Liabilities and shareholder's equity:                                                                                          
   Current liabilities                                                                                                         
   Accounts payable                                              $  737,569    $ 2,266,156        $ (697,569)      $ 2,306,156 
   Accrued expenses                                                 259,401      2,720,743          (259,401)        2,720,743 
   Current portion of long-term debt                              1,029,568        830,674        (1,029,568)          830,674 
   Convertible Senior Notes                                               -        349,942                 -           349,942 
                                                                 ------------------------------------------------------------- 
Total current liabilities                                         2,026,538      6,167,515        (1,986,538)        6,207,515 

Convertible Senior Notes, less current portion                            -      7,808,469                 -         7,808,469 
Long-term debt, less current portion                                621,257        224,614          (621,257)          224,614 
                                                                 ------------------------------------------------------------- 
Total liabilities                                                 2,647,795     14,200,598        (2,607,795)       14,240,598 

Shareholders'/Members' equity:                                                                                                 
  Series A convertible preferred stock, no par value;                                                                          
    1,800,000 shares authorized; 524,452 issued and                                                                            
    outstanding at June 30, 2003                                          -      3,715,246                 -         3,715,246 
  Bayview Members' Equity, 95,000 units issued and outstanding at                                                              
    June 30, 2003                                                 1,851,359              -        (1,851,359)                - 
  USA Common Stock, no par value; 400,000,000 shares                                                                           
    authorized; 218,741,042 shares issued and outstanding shares at                                                            
    June 30, 2003                                                         -     78,790,405         9,278,200        88,068,605 
  Accumulated deficit                                                     -    (78,813,568)                -       (78,813,568)
                                                                 ------------------------------------------------------------- 
Total shareholders'/members' equity                               1,851,359      3,692,083        7,426,841         12,970,283 
                                                                 ------------------------------------------------------------- 
Total liabilities and shareholders'/members' equity              $4,499,154    $17,892,681       $ 4,819,046       $27,210,881 
                                                                 ============================================================= 

SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

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USA Technologies, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended June 30, 2003
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                        Acquisition               
                                             Bayview           USAT     Adjustments     Pro Forma 
                                             -------           ----     -----------     --------- 
                                                                                                  
Revenue                                    $ 5,634,122    $ 2,853,068            -   $  8,487,190 

Operating expenses:                                                                               
     Cost of sales                           2,406,578      2,971,443            -      5,378,021 
     General and administrative              1,407,380      7,194,684            -      9,903,041 
     Compensation                            1,300,977      4,973,210            -      4,973,210 
     Depreciation and amortization             134,951      1,251,716      897,477      2,284,144 
     Loss on exchange of debt                        -      1,521,654            -      1,521,654 
                                           -----------    -----------   ----------   ------------ 
Total operating expenses                     5,249,886     17,912,707      897,477     24,060,070 
                                           -----------    -----------   ----------   ------------ 
                                               384,236    (15,059,639)    (897,477)   (15,572,880)

Other income (expense):                                                                           

     Interest income                                 -         18,691            -         18,691 
     Loss on Investment                              -     (1,945,951)           -     (1,945,951)
     Interest expense                         (114,544)    (4,978,600)     114,544     (4,978,600)
                                           -----------    -----------   ----------   ------------ 
Total other income (expense)                  (114,544)    (6,905,860)     114,544     (6,905,860)
                                           -----------    -----------   ----------   ------------ 
Net income (loss)                              269,692    (21,965,499)    (782,933)   (22,478,740)
Cumulative preferred dividends                       -       (793,586)           -       (793,586)
                                           -----------    -----------   ----------   ------------ 
(Loss) income applicable to common shares  $   269,692   $(22,759,085)   $(782,933)  $(23,272,326)
                                           ===========    ===========   ==========   ============ 

Loss per common share (basic and diluted)                      $(0.20)                     $(0.18)
                                                               ======                      ====== 
Weighted average number of common shares                                                          
  outstanding (basic and diluted)                         111,790,358    20,170,000   131,960,358 
                                                          ===========    ==========   =========== 

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USA Technologies, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended June 30, 2002
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                         Acquisition                
                                              Bayview          USAT      Adjustments     Pro Forma  
                                              -------          ----      -----------     ---------  
                                                                                                    
Revenues                                   $  4,900,086   $  1,682,701             -   $  6,582,787 

Operating expenses:                                                                                 
      Cost of sales                           2,459,033      4,062,901             -      6,373,960 
      General and administrative              1,141,883      7,868,064             -      9,131,534 
      Compensation                            1,085,481      4,654,662             -      5,740,143 
      Depreciation and amortization             154,723        440,238(5)    836,852      1,431,813 
                                           ------------   ------------    ----------   ------------ 
Total operating expenses                      4,841,120     17,025,865       836,852     22,677,450 
                                           ------------   ------------    ----------   ------------ 
                                                 58,966    (15,343,164)     (836,852)   (16,094,663)

Other income (expense):                                                                             
      Interest income                                 -         15,791             -         15,791 
      Interest expense                         (119,254)    (1,987,434)(4)   119,254     (1,987,434)
                                           ------------   ------------    ----------   ------------ 
Total other income (expense)                   (119,254)    (1,971,643)      119,254     (1,998,030)
                                           ------------   ------------    ----------   ------------ 

Net loss                                        (60,288)   (17,314,807)     (717,598)   (18,092,693)
Cumulative preferred dividends                        -       (822,561)            -       (822,561)
                                           ------------   ------------    ----------   ------------ 
Loss applicable to common shares           $    (60,288)  $(18,137,368)   $ (717,598)  $(18,915,254)
                                           ============   ============    ==========   ============ 

Loss per common share (basic and diluted)                       $(0.50)                      $(0.34)
                                                                ======                       ====== 
Weighted average number of common shares                                                            
      outstanding (basic and diluted)                       35,994,157    20,170,000     56,164,157 
                                                           ===========    ==========    =========== 


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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS                  

(1) To record the  acquisition of the operating  assets of Bayview as defined in
the asset  purchase  agreement  consisting  primarily  of the  patents and other
intellectual  property relating to Bayview's energy conservation devices for the
vending industry and customer accounts. The purchase price is assumed to be paid
by the issuance of  20,000,000  shares of USA  Technologies,  Inc.  Common Stock
($9,200,000)  and  payment  of  $631,247  in  cash.  Costs  associated  with the
acquisition  include the issuance of 170,000  shares of USA  Technologies,  Inc.
Common  Stock  ($78,200)  and an estimate  of  $150,000  for payment of services
rendered  to USAT in  connection  with  the  acquisition.  The  total  estimated
investment  of  $10,059,447  plus an estimated  liability of $40,000  assumed is
allocated  among the  assets  acquired  -  property  and  equipment  ($223,820),
inventory ($40,000), prepaid expenses ($16,977), intangibles assets ($9,500,000)
and goodwill ($318,650).                                                        

(2) The cash  portion  of the  purchase  price  and  costs  associated  with the
acquisition are assumed to have been paid from USAT cash as of June 30, 2003.   

(3) To eliminate  amortization  of intangible  assets recorded by Bayview and to
record  amortization of intangible  assets acquired in the acquisition as if the
acquisition  had  occurred  on July 1,  2002.  Acquired  intangible  assets  are
comprised of patents,  non-compete  and consulting  agreements and trademark and
tradenames and are amortized over five and ten years.                           

(4) To eliminate  interest  expense  recorded by Bayview as the related debt was
not assumed by USAT under the asset purchase agreement.                         

(5) To eliminate  amortization  of intangible  assets recorded by Bayview and to
record  amortization of intangible  assets acquired in the acquisition as if the
acquisition  had  occurred on July 1, 2001.  Also to eliminate  amortization  of
goodwill  recorded by Bayview  pertaining  to periods  prior to the  adoption of
Financial  Accounting  Standards  Board  Statement  No. 142,  Goodwill and other
Intangible Assets, as to which goodwill is no longer amortized.                 

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PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 24. Indemnification of Officers and Directors.                             

Section 1746 of the  Pennsylvania  Business  Corporation Law of 1988, as amended
("BCL"),  authorizes  a  Pennsylvania  corporation  to indemnify  its  officers,
directors, employees and agents under certain circumstances against expenses and
liabilities  incurred in legal  proceedings  involving  such persons  because of
their holding or having held such positions with the corporation and to purchase
and  maintain  insurance  of such  indemnification.  Our  By-laws  substantively
provide that we will indemnify our officers, directors,  employees and agents to
the fullest extent provided by Section 1746 of the BCL.                         

Section 1713 of the BCL permits a Pennsylvania  corporation,  by so providing in
its  By-laws,  to eliminate  the  personal  liability of a director for monetary
damages  for any action  taken  unless the  director  has  breached or failed to
perform  the  duties  of his  office  and  the  breach  or  failure  constitutes
self-dealing,   willful  misconduct  or  recklessness.   In  addition,  no  such
limitation  of  liability is available  with  respect to the  responsibility  or
liability of a director  pursuant to any criminal  statute or for the payment of
taxes  pursuant  to  Federal,  state or local law.  Our  By-laws  eliminate  the
personal  liability of the directors to the fullest extent  permitted by Section
1713 of the BCL.                                                                

Item 25. Other Expenses of Issuance and Distribution.                           

The following is an itemized  statement of the estimated amounts of all expenses
payable by the  Registrant in  connection  with the  registration  of the common
stock, other than underwriting discounts and commissions.                       

Securities and Exchange Commission - Registration Fee .     $ 1,080.54          
Printing and Engraving Expenses   . . . . . . . . . . .     $ 3,919.46          
Accounting Fees and Expenses      . . . . . . . . . . .     $12,500.00          
Legal Fees and Expenses   . . . . . . . . . . . . . . .     $12,500.00          
                                                  ----------
   Total  . . . . . . . . . . . . . . . . . .     $30,000.00
                                                  ==========

Item 26. Recent Sales of Unregistered Securities.                               

During  the three  years  immediately  preceding  the date of the filing of this
registration  statement,  the  following  securities  were issued by USA without
registration under the Securities Act of 1933, as amended ("Act"):              

Private Placements.                                                             

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During July 2001, the Company issued to La Jolla Cove Investors,  Inc. a warrant
to purchase up to 500,000  shares of Common Stock.  The warrant can be exercised
at any time in whole or in part within one year following the  effectiveness  of
the  registration  statement  covering  the resale of the shares  issuable  upon
exercise of the warrant. The exercise price of the warrant is the lower of $1.00
or 80% of the lowest closing bid price of the Common Stock during the 20 trading
days prior to  exercise.  The Company has agreed to prepare and file at its cost
and  expense a  registration  statement  covering  the resale of La Jolla of the
shares  underlying the warrant.  At the time of the issuance of the warrant,  La
Jolla paid to the Company a non-refundable fee of $50,000 to be credited towards
the exercise price under the warrant.  A broker-dealer  received a commission of
$3,500 in  connection  with this  warrant.  The  offering of the warrant and the
underlying shares was exempt from  registration  pursuant to Section 4(2) of the
Act. La Jolla is an accredited investor and we obtained  appropriate  investment
representation  and the securities  contained  appropriate  restrictive  legends
under the Act.                                                                  

During  August  2001,  the  Company  issued to La Jolla a  $225,000  Convertible
Debenture bearing 9 3/4 percent interest with a maturity date of August 2, 2003.
Interest  is payable  by the  Company  monthly  in  arrears.  The  Debenture  is
convertible  at  any  time  after  the  earlier  of  the  effectiveness  of  the
registration  statement  referred to below or 90 days following  issuance at the
lower of $1.00 per share or 80% of the  lowest  closing  bid price of the Common
Stock during the 20 days  preceding  exercise.  If on the date of conversion the
closing  bid price of the shares is $.40 or below,  the  Company  shall have the
right to prepay the portion  being  converted  at 150% of the  principal  amount
being  converted.  In such event,  La Jolla shall have the right to withdraw its
conversion  notice. At the time of conversion of the Debenture,  the Company has

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agreed to issue to La Jolla warrants to purchase an amount of Common Stock equal
to ten  times the  number  of shares  actually  issued  upon  conversion  of the
Debenture.  The warrants  are  exercisable  at any time for two years  following
issuance and at the related  conversion price of the Debenture.  The Company has
agreed to prepare and file at its expense a registration  statement covering the
resale of the shares of Common  Stock  underlying  the  Debenture as well as the
related warrants issuable upon conversion of the Debenture. La Jolla paid to the
Company the sum of $100,000 at the time of the issuance of the Debenture and has
agreed to pay  $125,000 at the time of the  effective  date of the  registration
statement.  The convertible  debenture was issued pursuant to the exemption from
registration  set forth in Section  4(2) of the Act.  La Jolla is an  accredited
investor  and  we  obtained  appropriate   investment   representation  and  the
securities contained appropriate restrictive legends under the Act.             

During the period from March 2001  through  September  2001,  we sold a total of
739.54 units in the 2001-B Private  Placement  Offering at a price of $6,000 per
unit.  Each unit  consisted of 10,000  shares of common stock and 20,000  2001-B
common  stock  purchase  warrants.  The  offering  was  sold  to 193  accredited
investors, and did not involve any general advertising or solicitation,  and was
therefore  exempt from  registration  under Rule 506 of Regulation D promulgated
under the Act.                                                                  

During the period from September 2001 through  October 19, 2001, we sold for our
2001-C  offering an aggregate  of  4,212,350  shares of common stock at $.50 per
share for a total of $2,106,175.  For each share of common stock purchased, each
investor also received a 2001-C warrant. The offering was sold to 102 accredited
investors, and did not involve any general advertising or solicitation,  and was
therefore  exempt from  registration  under Rule 506 of Regulation D promulgated
under the Act.                                                                  

During  October 2001,  the Company  issued  200,000  shares to Ratner & Prestia,
P.C.,  an  accredited  investor.  The  offering  did  not  involve  any  general
advertising or solicitation,  and was therefore exempt from  registration  under
Section  4(2) of the Act.  The  proceeds  from the sales of the  shares  will be
applied by Ratner & Prestia towards the unpaid  professional fees due to them by
the Company.  The investor is an accredited investor and we obtained appropriate
investment  representation and the securities contained appropriate  restrictive
legends under the Act.                                                          

During the period from  November  2001 through  June 30, 2002,  the Company sold
$4,814,593  principal  amount of 12%  Convertible  Senior Notes due December 31,
2004.  Each Senior Note is  convertible  into shares of common stock at $.40 per
share anytime through maturity.  The notes were sold to 230 accredited investors
and the offer and sale  thereof  did not  involve  any  general  advertising  or
solicitation and the offer and sale was therefore exempt from registration under
Rule 506 of the Regulation D promulgated under the Act.                         

In January  2002,  the Company  issued  shares of common stock to the  following
executive officers as a bonus: George R. Jensen, Jr.- 320,000 shares; Stephen P.
Herbert- 300,000 shares; H. Brock Kolls-200,000 shares;  Leland  Maxwell-130,000
shares;  and Michael  Lawlor-  130,000  shares.  The  issuance of the shares was
exempt from  registration  under Section 4(2) of the Act. All of these investors
are accredited and we obtained  appropriate  investment  representations and the
securities contained appropriate restrictive legends under the Act.             

In  May  2002,  we  acquired  Stitch  Networks  Corporation.   Pursuant  to  the
transaction,  Stitch become our wholly-owned  subsidiary.  In exchange for their
Stitch stock, the Stitch stockholders received an aggregate of 22,762,341 of our
shares of common stock and warrants to purchase up to 8,000,000 of our shares of
common stock at $.40 per share at any time through June 30, 2002. We also issued
to the former  option  holders of Stitch  options to  purchase  up to  2,475,318
shares at $.165  per share at any time for five  years  following  closing.  The

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offer and sale of the shares, warrants, and options was exempt from registration
under Section 4(2) of the Act.                                                  

The Stitch  stockholders  acquiring  our shares and warrants are all  accredited
investors  and  we  obtained  appropriate  investment  representations  and  the
securities  contained  appropriate   restrictive  legends  under  the  Act.  The
thirty-three  former option holders of Stitch receiving our options consisted of
directors,  officers or key employees of Stitch,  all of whom were sophisticated
investors.  In  connection  with  the  issuance  of  the  options,  we  obtained
appropriate investment  representations and the securities contained appropriate
restrictive legends under the Act.                                              

In April 2002,  the Company  agreed to issue  400,000  shares of Common Stock to
Alex  Consulting,  Inc., a consultant to the Company.  The offer and sale of the
shares was exempt from registration  under Section 4(2) of the Act. The investor
is an accredited investor and we obtained appropriate investment  representation
and the securities contained appropriate restrictive legends under the Act.     

In April 2002,  the Company  agreed to issue  90,000  shares of Common  Stock to
Larry  Gershman,  a consultant to the Company.  The offer and sale of the shares
was exempt from  registration  under Section 4(2) of the Act. The investor is an
accredited investor and we obtained  appropriate  investment  representation and
the securities contained appropriate restrictive legends under the Act.         

In April 2002,  the Company  agreed to issue to Technology  Partners  (Holdings)
LLC, our  investment  banker,  a total of 150,000  shares of Common  Stock.  The
shares  are to be  issued at the rate of  25,000  per month  under the six month
extension of their  consultant  agreement.  The offer and sale of the shares was
exempt from  registration  under  Section  4(2) of the Act.  The  investor is an
accredited investor and we obtained  appropriate  investment  representation and
the securities contained appropriate restrictive legends under the Act.         

During  September 2002, the Company sold 2,000,000  shares of restricted  Common
Stock at $.12 per share for  aggregate  proceeds of $240,000 to an investor.  In
addition,  in October  2002,  the Company  granted to the  investor  warrants to
purchase up to  2,000,000  shares at $.10 per share  through  November  30, 2002
(later extended to March 31, 2003),  and if all of these warrants are exercised,
the investor has been granted  another  identical  warrant for 2,000,000  shares
exercisable at any time through March 31, 2003. The offer and sale of the shares
was exempt from  registration  under Section 4(2) of the Act. The investor is an
accredited investor and we obtained  appropriate  investment  representation and
the securities contained appropriate restrictive legends under the Act.         

Commencing  during June 2002 and through  October 2002,  the Company sold to 186
accredited  investors  $4,144,008  principal  amount  of 12%  Senior  Notes  due
December  31,  2005 and  8,288,016  shares of  Common  Stock.  For each  $10,000
invested,  the  subscriber  received a $10,000 note and 20,000  shares of Common
Stock.  The Company has received  signed  subscription  documents for the 2002-A
Private  Placement of Senior Notes for $4,114,008,  of which $2,585,000 has been
deposited  and the  remainder  for  services.  The notes were sold to accredited
investors and the offer and sale thereof did not involve any general advertising
or solicitation  and the offer and sale was therefore  exempt from  registration
under Rule 506 of the Regulation D promulgated under the Act.                   

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La Jolla  Cove  Investors  converted  Debentures  and  exercised  warrants.  The
investor utilized  previously  remitted funds to the Company which was reflected
as  a  deposit  in  the  June  30,  2002  consolidated   financial   statements.
Specifically,  from inception through June 30, 2003, La Jolla converted $325,000
of 9 3/4 percent Convertible Debentures,  for which the Company issued 2,800,903
shares of stock, and exercised  10,543,673  warrants to purchase Common Stock at
an average  price of $.16 per  share.  The  Company  had  previously  executed a
Securities  Purchase  Agreement  with La  Jolla  for the  purchase  of  $225,000
(increased by $100,000 on June 18, 2002) of Convertible Debentures bearing 9 3/4
percent  interest with a maturity date of August 3, 2003  (extended to August 2,
2004 on June 18, 2002).  Interest is payable by the Company  monthly in arrears.
The Debenture is convertible at any time after the earlier of the  effectiveness
of the  registration  statement or 90 days following  issuance,  at the lower of
$1.00 per share or 80% (later lowered to 72%) of the lowest closing bid price of
the Common Stock during the 30 days  preceding  exercise.  The offer and sale of
the shares was exempt from registration under Section 4(2) of the Act.          

In July 2002 the  Company  agreed to issue an  aggregate  of  234,600  shares to
employees as part of those employees`  severance  payments at the time of and as
part of the  employee`s  termination  of  employment.  The offer and sale of the
shares was exempt from registration  under Section 4(2) of the Act. All of these
eight former employees were sophisticated and were afforded access to all public
filings as well as to any other  information  reasonably  obtainable  by USA. We
received  investment  representations  from all of these  investors  and all the
securities contained appropriate restrictive legends under the Act.             

In July 2002, the Company agreed to issue to Karl Mynyk, a former  employee,  an
aggregate  of 125,000  shares in  settlement  of  litigation  between he and the
Company.  The shares  were  valued at $.20 per share.  The offer and sale of the
shares was exempt from registration  under Section 4(2) of the Act. Mr. Mynyk is
a sophisticated  investor,  was afforded access to all public filings as well as
to any other information  reasonably  obtainable by USA. We received  investment
representations  from him and the securities contained  appropriate  restrictive
legends under the Act.                                                          

In October 2002 and January 2003, the Company issued 529,324 and 593,634 shares,
respectively,  (valued at $.20 per share) to the holders of the senior  notes in
lieu  of the  cash  quarterly  interest  payments  due for  the  quarters  ended
September  2002 and December  2002,  respectively.  In  addition,  for these two
quarters the Company granted warrants to purchase up to 1,122,958 shares at $.20
per share at any time  prior to  December  31,  2004.  The offer and sale of the
shares and  warrants  was exempt from  registration  under Rule 506  promulgated
under the Act. All of these securities were sold to accredited investors and the
offer and sale did not involve any general advertising or solicitation.         

In October 2002, the Company issued to Edwin P. Boynton 50,000 shares in lieu of
the  100,000  options  granted to him in April  2002.  The offer and sale of the
shares was exempt from registration under Section 4(2) of the Act. Mr. Boyton is
an  accredited  investor and a Director of the Company,  we obtained  investment
representations  from him and the securities contained  appropriate  restrictive
legends under the Act.                                                          

In October  2002,  the Company sold to an  investor,  Kazi  Management  VI, Inc.
3,571,429  shares of Common  Stock at $.07 per share and  issued  the  following
warrants:  (1)  warrants to purchase up to  7,142,858  shares of Common Stock at
$.07 at any time for a five year  period;  and (2)  warrants  to  purchase up to
7,142,858 shares at $.07 per share and up to 5,000,000 shares at $.10 per share,
exercisable over a one year period.  The offer and sale of the shares was exempt
from  registration  under Section 4(2) of the Act. The investor is an accredited
investor  and  we  obtained  appropriate  investment  representations  from  the
investor and the securities contained appropriate  restrictive legends under the
Act.                                                                            

In  October   2002,   the   Company   sold  to  an   investor,   Alpha   Capital
Aktiengesellscharft,  1,500,000 shares at $.10 per share and granted warrants to
purchase  up to  750,000  shares at $.15 per  share at any time for five  years.

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Within seven days  following the  effectiveness  of the  registration  statement
covering these shares, and provided that a Non-Registration Event (as defined in
our agreement  with Alpha) has not  occurred,  the Company has agreed to sell to
the investor an additional 1,500,000 shares at $.10 per share and grant warrants
to purchase up to 750,000 shares at the then closing price per share at any time
for five years. The securities were sold to an accredited investor and the offer
and sale thereof did not involve any general advertising or solicitation and the
offer and sale was  therefore  exempt  from  registration  under Rule 506 of the
Regulation D promulgated under the Act.                                         

In October  2002,  the Company  granted to the  holders of the 12% senior  notes
warrants to purchase  that number of shares equal to 75% of the dollar amount of
the  notes  held by such  holder.  The  total  number  of  warrants  issued  was
10,360,025  and are  exercisable  at any time prior to October 31, 2003.  If the
holder exercises all of such holder`s warrants, the holder shall receive another
identical  warrant  exercisable  at any time prior to  October  31,  2003.  From
November 2002 through June 30, 2003, 14,025,804 of these warrants were exercised
at $.10 per share for a total of $1,402,851.  The offer and sale of the warrants
and these shares was exempt from  registration  under Rule 506 promulgated under
the Act. All of the noteholders are accredited investors and already the holders
of our notes. The warrants and the shares all contained appropriate  restrictive
legends under the Act.                                                          

On October 31, 2002,  eight employees of and two consultants to USA entered into
subscription agreements with USA to receive an aggregate of 1,480,000 shares for
services to be  rendered  to USA.  The shares were valued at $.125 per share and
were  exempt  from  registration  under  Section  4(2)  of the  Act.  All of the
employees  and  consultants  were  sophisticated  investors,   made  appropriate
investment  representations,  were afforded access to all public filings and all
other information that USA could reasonably obtain, and the securities contained
appropriate restrictive legends under the Act.                                  

During the 2003 fiscal year and through  August 7, 2003,  the Company  issued an
aggregate of 85,601,130 shares to 398 accredited investors at $.10 per share for
an aggregate of $8,560,113. Of the $8,560,130, $8,345,674 were for cash proceeds
and $214,439 were for services  rendered or to be rendered.  The offer and sales
of the shares was exempt  from  registration  under Rule 506  promulgated  under
Section 4(2) of the Act. All of the investors were either pre-existing  security
holders or business  associates.  The offer and sale thereof did not involve any
general  advertising or solicitation  and the securities  contained  appropriate
restrictive  legends  under the Act. In connection  with the  offering,  we paid
$64,000 to Sloan  Securities,  Inc., a  broker-dealer,  in  connection  with the
8,000,000  shares  sold by Sloan on our  behalf.  We have agreed to use our best
efforts to register all of these shares for resale under the Act for a period of
one year.                                                                       

In February,  2003, Jubilee Investment Trust, PLC ("Jubilee"),  a United Kingdom
investment trust made an equity  investment in USA Technologies at U.S.$0.20 per
share.  Jubilee  is a newly  established  investment  trust  set up to invest in
securities traded on a range of public markets, primarily in the United Kingdom.
USA  Technologies  issued to Jubilee  15,000,000  shares of Common  Stock of USA
Technologies  at a price  per  share of  U.S.$0.20  with an  aggregate  value of
U.S.$2,850,000.  In full  payment  for the shares of USA  Technologies,  Jubilee
issued to USA  Technologies an equivalent of their shares  (1,870,091  shares of
Jubilee at a price per share  valued at One British  Pound which was the initial
public offering price per share for the Jubilee shares).  The exchange rate used

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by the parties for the transaction was One British Pound equals U.S.$1.6042. The
shares to be issued to Jubilee by USA Technologies  will not be registered under
the  Securities  Act of 1933,  as  amended.  Jubilee  has agreed not to sell USA
Technologies`  shares  for a period of two (2) years  from the date of  issuance
unless USA Technologies  agrees otherwise.  The shares were issued to Jubilee by
USA pursuant to the exemption from registration set forth in Section 4(2) of the
Act.                                                                            

In March 2003, we issued a warrant to La Jolla Cove Investors,  Inc. to purchase
up to  9,000,000  shares at $.10 per  share.  The  warrants  expire as  follows:
3,000,000  on the  three  month  anniversary  of the  date of  this  prospectus;
3,000,000  on the 6  month  anniversary  of the  date of  this  prospectus;  and
3,000,000  on the 9  month  anniversary  of the  date of  this  prospectus.  The
warrants  may not be  exercised  without  our  consent  on any date on which the
closing  price of our shares is less than $.40.  We have agreed to register  the
shares  underlying  the  warrants  for resale  under the Act for a period of one
year.  The warrants were offered and sold to La Jolla  pursuant to the exemption
from  registration  set forth in Section 4(2) of the Act.  During  October 2003,
these warrants were rescinded and cancelled by agreement of USA and La Jolla.   

In April 2003, we issued  530,818  shares and warrants to purchase up to 530,818
shares  to the  holders  of our  senior  notes  who  elected  to  receive  these
securities in lieu of the cash interest  payment due for the quarter ended March
31,  2003.  The  shares  were  purchased  at the rate of $.20 per  share and the
warrants are exercisable at $.20 per share at any time through June 30, 2004. We
have agreed to register the shares and the shares  underlying the warrants under
the Act for resale for a period of 2 years. The securities were offered and sold
under the exemption from  registration  set forth in Rule 506 promulgated  under
the  Act.  All  of  the  noteholders  are  accredited   investors  and  existing
security holders of USA and there was no general solicitation or advertising.   

During April 2003, we agreed to issue to Steve Illes,  an existing  shareholder,
an aggregate  of 1,000,000  shares for $.10 per share and agreed to issue to him
warrants  to  purchase  up to  4,000,000  shares  at $.10 per  share at any time
through  August 31,  2003.  The offer and sale of the shares  and  warrants  was
exempt  from  registration  under  Section  4(2) of the  Act.  Mr.  Illes  is an
accredited investor, made appropriate investment  representations,  was afforded
access to all public filings and all other information that USA could reasonably
obtain, and the securities contained  appropriate  restrictive legends under the
Act.  We have  agreed to  register  the  shares and the  shares  underlying  the
warrants for resale under the Act for a period of one year.                     

During May 2003, we issued to Providence  Investment  Management,  an accredited
investor,  an aggregate of  2,500,000  shares for $.10 per share.  The offer and
sale of the shares was exempt from  registration  under Section 4(2) of the Act.
Providence  Investment  Management is an accredited  investor,  made appropriate
investment  representations,  was afforded  access to all public filings and all
other information that USA could reasonably obtain, and the securities contained
appropriate  restrictive legends under the Act.  Providence  approached us about
the investment and we did not solicit Providence. We have agreed to register the
shares for resale under the Act for a period of one year.                       

During  July 2003,  we issued an  aggregate  of  10,500,000  shares to George R.
Jensen,  Jr., our Chairman and Chief Executive Officer, as part of the amendment
to his  employment  agreement.  The offer and sale of the shares was exempt from

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registration  under  Section  4(2)  of the  Act.  Mr.  Jensen  is an  accredited
investor,  made appropriate investment  representations,  was afforded access to
all public filings and all other  information that USA could reasonably  obtain,
and the securities contained appropriate  restrictive legends under the Act. Mr.
Jensen has entered into a lock up agreement  pursuant to which he shall not sell
2,500,000 of the shares for a one year period and  8,000,000 of the shares for a
two year period.                                                                

In July 2003,  we issued  661,224  shares and warrants to purchase up to 661,224
shares  to the  holders  of our  senior  notes  who  elected  to  receive  these
securities in lieu of the cash  interest  payment due for the quarter ended June
30,  2003.  The  shares  were  purchased  at the rate of $.20 per  share and the
warrants are exercisable at $.20 per share at any time through June 30, 2004. We
have agreed to register the shares and the shares  underlying the warrants under
the Act for resale for a period of 2 years. The securities were offered and sold
under the exemption from  registration  set forth in Rule 506 promulgated  under
the Act. All of the noteholders are accredited  investors and existing  security
holders of USA, and there was no general solicitation or advertising.           

On July 11, 2003, we issued 20,000,000  shares to Bayview  Technology Group LLC,
as part of our  purchase  of  substantially  all of the assets of  Bayview.  The
securities were offered and sold under the exemption from registration set forth
in Rule 506 promulgated  under the Act. Bayview was introduced to us through our
consultant   Robert  McGarrah,   and  there  was  no  general   solicitation  or
advertising.  Bayview  has agreed  not to sell any of the shares  until July 11,
2004,  at which time Bayview  shall be  permitted  to sell during each  calendar
month thereafter (on a  non-cumulative  basis) the greater of (i) 250,000 shares
of the Stock,  or (ii) that number of shares of the Stock equal to five  percent
(5%) of the immediately  prior calendar  month's trading volume of the shares of
Common  Stock of USA.  USA has agreed to use its best efforts to register all of
the shares for resale by Bayview under the  Securities  Act of 1933, as amended,
for a period of one year (from July 11, 2004 through July 11, 2005).            

During  September  2003, we issued to  Wellington  Management  Company,  LLP, on
behalf of several of its clients, an aggregate of 18,000,000 shares for $.25 per
share.  The offer and sale of the  shares  was exempt  from  registration  under
Section 4(2) of the Act. All of these  clients are  accredited  investors.  This
investor  approached us regarding  this  investment  and we did not solicit this
investor.  We have agreed to register  the shares for resale under the Act for a
period of one year.                                                             

During September 2003, we issued to George O'Connell, an accredited investor and
existing  shareholder,  an aggregate of 1,000,000 shares for $.25 per share. The
offer and sale of the shares was exempt from registration  under Section 4(2) of
the Act. We have agreed to  register  the shares for resale  under the Act for a
period of one year.                                                             

During  September  2003, we issued to Prophecy Asset  Management,  an accredited
investor,  an aggregate of 750,000 shares for $.25 per share. The offer and sale
of the shares was exempt from  registration  under Section 4(2) of the Act. This
investor  approached us regarding  this  investment  and we did not solicit this
investor.  We have agreed to register  the shares for resale under the Act for a
period of one year.                                                             

During September 2003, we issued to Fulcrum Global Partners,  LLC, an accredited
investor,  an aggregate of 260,000 shares for $.25 per share. The offer and sale
of the shares was exempt from  registration  under Section 4(2) of the Act. This
investor  approached us regarding  this  investment  and we did not solicit this
investor.  We have agreed to register  the shares for resale under the Act for a
period of one year.                                                             

In October 2003, we issued 577,457 shares and 577,457 warrants to purchase up to
shares  to the  holders  of our  senior  notes  who  elected  to  receive  these
securities  in lieu of the  cash  interest  payment  due for the  quarter  ended
September 30, 2003.  The shares were purchased at the rate of $.20 per share and

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the  warrants  are  exercisable  at $.20 per share at any time  through June 30,
2004.  We have  agreed to  register  the shares and the  shares  underlying  the
warrants under the Act for resale for a period of 2 years.  The securities  were
offered and sold under the  exemption  from  registration  set forth in Rule 506
promulgated  under the Act. All of the noteholders are accredited  investors and
existing security holders, and there was no general solicitation or advertising.

      In October 2003, we issued to Alpha Capital Atkiengesellschaft,  a current
shareholder,  an  aggregate  of  500,000  shares due to Alpha as a result of the
occurrence of a Non-Registration Event as defined under our agreement with Alpha
because we failed to register within 120 days of issuance the securities  issued
to Alpha in November 2002. The  securities  were sold to an accredited  investor
and the offer and sale  thereof  did not  involve  any  general  advertising  or
solicitation and the offer and sale was therefore exempt from registration under
Section 4(2) under the Act.                                                     

During the quarter  ended June 30,  2003,  the Company  issued an  aggregate  of
8,497,819  shares to 464 holders of warrants at $0.10 per share for an aggregate
of $849,783.  The offer and sales of the shares was exempt from the registration
requirements of the Act under Rule 506 promulgated  thereunder.  In this regard,
the  offer  and  sale  thereof  did  not  involve  any  general  advertising  or
solicitation and the securities contained appropriate  restrictive legends under
the Act.  The Company  agreed to use its best efforts to register the shares for
resale under the Act.                                                           

During the quarter  ended June 30,  2003,  the Company  issued an  aggregate  of
4,462,918  shares to 13 holders of its  Convertible  Senior Notes at the rate of
$0.20 per share for aggregate  conversions  of $892,584.  The offer and sales of
the shares was exempt from the  registration  requirements of the Act under Rule
506 promulgated  thereunder.  In this regard,  the offer and sale thereof was to
existing  security  holders  and did not  involve  any  general  advertising  or
solicitation and the securities contained appropriate  restrictive legends under
the Act.                                                                        

During the  quarter  ended June 30,  2003,  50 holders of  $2,196,000  principal
amount of the Senior  Notes  maturing in December  2003  elected to extend these
notes until December 31, 2006 and to have the conversion rate reduced from $1.25
per share to $0.20 per share. The note exchange was exempt from the registration
requirements of the Act pursuant to Section 3(a)(9) thereof.                    

During the  quarter  ended June 30,  2003,  56 holders of  $1,296,397  principal
amount of the Senior  Notes  maturing in December  2004  elected to extend these
notes until December 31, 2007 and to have the conversion rate reduced from $0.40
per share to $0.20 per share.  The shares were issued solely in exchange for our
securities and we paid no commissions in connection  with the  transaction.  The
note exchange was exempt from the registration  requirements of the Act pursuant
to Section 3(a)(9) thereof.                                                     

During the quarter  ended June 30,  2003,  the Company  issued  3,340  shares of
Common Stock upon the conversion of 3,340 shares of Series A Preferred Stock and
issued 4,008 shares of Common Stock upon the conversion of $40,080 of cumulative
dividends accrued and unpaid on these shares of Preferred Stock. The shares were
issued  solely in exchange  for our  securities  and we paid no  commissions  in
connection with the transaction. The shares of Common Stock were issued pursuant
to the exemption from registration set forth in Section 3(a)(9) of the Act.     

During the quarter ended  September 30, 2003, the Company issued an aggregate of
535,258  shares of Common  Stock to 7 holders of warrants at $0.10 per share for
an  aggregate  of $53,526.  The Company  issued  105,000  shares for  consulting
services  rendered or to be rendered to the Company,  to the following  warrants
holders  upon  exercise of their  warrants:  Rachel  Glicksman-  72,000  shares;
Charlotte  Given-30,000 shares; and Gary Nash- 3,000 shares. These warrants were
exercised at $.10 per share and no cash payment was required in connection  with
their exercise. The shares issued for services were recorded at the market price
on the date of grant.  The offer and sales of the  shares  was  exempt  from the
registration  requirements of the Act under Rule 506 promulgated thereunder.  In
this regard, the offer and sale thereof was to existing security holders and did
not involve any general advertising or solicitation and the securities contained
appropriate  restrictive  legends  under the Act. The Company  agreed to use its
best efforts to register the shares for resale under the Act.                   

During the quarter ended  September 30, 2003, the Company issued an aggregate of
7,500,834  shares of Common Stock to 31 holders of its Convertible  Senior Notes
upon  their  conversion  at the rate of $0.20  per  share  for an  aggregate  of
$1,500,167.  The offer and sales of the shares was exempt from the  registration
requirements of the Act under Rule 506 promulgated  thereunder.  In this regard,
the offer and sale thereof was to existing  security holders and did not involve
any general advertising or solicitation and the securities contained appropriate
restrictive legends under the Act.                                              

During the quarter ended September 30, 2003, 54 holders of $1,116,000  principal
amount of the Senior  Notes  maturing in December  2003  elected to extend these
notes until December 31, 2006 and to have the conversion rate reduced from $1.25
per share to $0.20 per share. The note exchange was exempt from the registration
requirements of the Act pursuant to Section 3(a)(9) thereof.                    

During the quarter ended  September  30, 2003, 23 holders of $708,096  principal
amount of the Senior  Notes  maturing in December  2004  elected to extend these
notes until December 31, 2007 and to have the conversion rate reduced from $0.40
per share to $0.20 per share. The note exchange was exempt form the registration
requirements of the Act pursuant to Section 3(a)(9) thereof.                    

From February  through June 2004, the Company sold  28,290,833  shares of Common
Stock  to 34  accredited  investors  at  $.15  per  share  for an  aggregate  of
$4,243,625.  During  June 2004,  the  Company  granted to each  investor  in the
offering a warrant to purchase one-half of a share for each share subscribed for
by such  investor in the  offering.  The Company  issued  warrants to purchase a
total of 14,145,417  shares.  The warrants are  exercisable at $.20 per share at
any time through  December  31, 2004.  We have agreed to register the shares and
the shares  underlying the warrants under the Act for resale for a period of two
years. The offer and sales of the shares was exempt from registration under Rule
506 promulgated  under Section 4(2) of the Act. All of the investors were either
pre-existing security holders or business associates. The offer and sale thereof
did not involve any  general  advertising  or  solicitation  and the  securities
contained appropriate restrictive legends under the Act.                        

In January  2004,  we issued  538,592  shares and  538,592  warrants to purchase
shares  to the  holders  of our  senior  notes  who  elected  to  receive  these
securities  in lieu of the  cash  interest  payment  due for the  quarter  ended
December 31, 2003.  The shares were  purchased at the rate of $.20 per share and
the warrants are  exercisable  at $.20 per share at any time through  August 30,
2004.  We have  agreed to  register  the shares and the  shares  underlying  the
warrants under the Act for resale for a period of 2 years.  The securities  were
offered and sold under the  exemption  from  registration  set forth in Rule 506
promulgated  under the Act. All of the noteholders are accredited  investors and
existing security holders, and there was no general solicitation or advertising.

In June 2004,  we issued  warrants to purchase up to 3,716,496  shares of Common
Stock to the holders of our senior notes who elected to receive warrants in lieu
of the cash interest payment due for the quarters ended June 30, 2002, September
30, 2002,  December 31, 2002, March 31, 2003, June 30, 2003,  September 30, 2003
and  December 31, 2003.  The warrants are  exercisable  at $.20 per share at any
time through December 31, 2004. We have agreed to register the shares underlying
the warrants  under the Act for resale for a period of 2 years.  The  securities
were offered and sold under the exemption  from  registration  set forth in Rule
506 promulgated  under the Act. All of the noteholders are accredited  investors
and existing  security holders of USA, and there was no general  solicitation or
advertising.                                                                    

In January  2004,  we issued to  CEOCAST,  Inc.  a total of  150,000  shares for
services to be rendered  to the  Company.  The offer and sale of the shares were
exempt from  registration  under Section 4(2) of the Act. The Company  agreed to
use its best efforts to register the shares for resale under the Act.           

On June 18, 2004, we entered into a Common Stock  Purchase  Agreement with Steve
Illes.  During the one year period following the date of the  effectiveness of a
registration  statement  covering the shares,  Illes has agreed to purchase from
USA shares of Common Stock,  provided that the aggregate  purchase price can not
exceed  $7,500,000.  Under the Agreement,  Illes is permitted to purchase Common
Stock from USA at any time at the price per share of $.30. In addition,  USA has
the right at any time to require Illes to purchase  Common Stock from USA at the
lower of: (i) $.30;  or (ii) 90% of the  closing bid price per share on the date
prior to the date of the delivery by USA to Illes of notice of his obligation to
purchase.  USA can require Illes to purchase  shares under the Agreement only if
the shares  have been  registered  by the  Company for resale by Illes under the
Act. During any calendar  month,  Illes is not permitted to purchase and can not
be required by USA to purchase  Common Stock for an aggregate  purchase price in
excess of $700,000.  We have agreed to register for resale the shares  purchased
by Illes  under  the  Agreement  for a period  of one year  from the date of the
effectiveness of the initial  registration  statement  covering the shares to be
purchased  by  Illes.  We have  agreed  to pay to Illes a due  diligence  fee of
$45,000.  The securities were offered and sold to Illes under the exemption from
registration set forth under Rule 506 promulgated under the Act. Mr. Illes is an
existing  shareholder  and an  accredited  investor,  and there  was no  general
solicitation or advertising.                                                    

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II. Stock Options                                                               

In  August  2001,  we  issued  to Larry  Gershman,  a  marketing  and  financial
consultant,  fully vested warrants to purchase an aggregate of 150,000 shares of
our common stock at $.70 per share  exercisable  at any time  through  August 2,
2003.  In  September  2001,  we issued  fully  vested  options to the  following
employees or  consultants:  Adele  Hepburn - 200,000  options;  Frances  Young -
100,000  options;  and George  O`Connell  - 100,000  options.  The  options  are
exercisable at $.70 per share at any time through June 30, 2003.                

In November  2001,  the Company  authorized  issuance of 1,080,000  fully vested
options to purchase its Common Stock to its  Executive  Officers,  provided that
they were employed by the Company as of January 2, 2002.  The amounts of options
authorized were: George R. Jensen,  Jr. - 320,000 options;  Stephen P. Herbert -
300,000  options;  Haven Brock Kolls 200,000  options;  Leland Maxwell - 130,000
options;  and Michael  Lawlor - 130,000  options.  Each option is exercisable at
$.40 per share at any time and on or before June 30, 2003.  These options vested
during March, 2002.                                                             

In November  2001,  the Company  issued the  following  fully vested  options to
purchase an aggregate of 650,000 shares:  Gary Oakland - 100,000 options;  Adele
Hepburn - 300,000 options;  and Frances Young - 250,000  options.  These options
vested during March, 2002.                                                      

In April 2002,  the  Company  granted to H. Brock  Kolls an  aggregate  of fully
vested options to purchase up to 50,000 shares exercisable at $.40 per share for
a three year period following issuance.                                         

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On April 28,  2004 the  Company  issued to Mary West Young  options to  purchase
300,000  shares of Common Stock for $.30 per share which vest ratably over a two
year period.                                                                    

The  issuance of all of the  foregoing  options  was made in  reliance  upon the
exemption  provided by Section 4(2) of the Act as all of the options were issued
to officers, directors,  employees or consultants of USA, each of such issuances
were  separate  transactions  not part of any  plan,  and none of the  issuances
involved any general solicitation or advertising.                               

Item 27. Exhibits.                                                              

Exhibit                                                                         
Number        Description                                                       
--------------------------------------------------------------------------------

2.1           Asset  Purchase  Agreement  dated July 11, 2003 by and between USA
              and Bayview  Technology  Group LLC  (Incorporated  by reference to
Exhibit 2.1 to Form 8-K filed July 14, 2003)        

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3.1           Amended  and  Restated  Articles  of  Incorporation  of USA  filed
              January 26, 2004  (Incorporated  by reference to Exhibit 3.1.19 to
Form 10-QSB filed on February 12, 2004).            

3.2           By-Laws of USA  (Incorporated  by reference to Exhibit 3.2 to Form
SB-2 Registration Statement No. 33-70992).          

4.1           Warrant  Agreement  dated  as of June  21,  1995  between  USA and
              American  Stock  Transfer  and  Trust  Company   (Incorporated  by
              reference  to Exhibit 4.1 to Form SB-2  Registration Statement No.
33-98808, filed October 31, 1995).                  

4.2           Form of Warrant Certificate  (Incorporated by reference to Exhibit
              4.2 to Form  SB-2  Registration  Statement,  No.  33-98808,  filed
October 31, 1995).                                  

4.3           1996  Warrant  Agreement  dated as of May 1, 1996  between USA and
              American  Stock  Transfer  and  Trust  Company   (Incorporated  by
              reference to Exhibit 4.3 to Form SB-2  Registration  Statement No.
333-09465).                                         

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4.4           Form of 1996  Warrant  Certificate  (Incorporated  by reference to
           Exhibit 4.4 to Form SB-2 Registration Statement No. 333-09465).

4.5           Form of 1997 Warrant  (Incorporated by reference to Exhibit 4.1 to
              Form SB-2 Registration Statement No. 333-38593,  filed February 4,
1998).                                              

4.6           Form of 12% Senior Note  (Incorporated by reference to Exhibit 4.6
to Form SB-2 Registration Statement No. 333-81591). 

4.7           Warrant  Certificate of I. W. Miller Group, Inc.  (Incorporated by
              reference to Exhibit 4.7 to Form SB-2  Registration  Statement No.
84513).                                             

4.8           Warrant  Certificate of Harmonic Research,  Inc.  (Incorporated by
              reference to Exhibit 4.8 to Form SB-2  Registration  Statement No.
333-84513).                                         

4.9           Registration  Rights Agreement dated August 3, 2001 by and between
              the Company and La Jolla Cove  Investors,  Inc.  (Incorporated  by
              reference to Exhibit 4.9 to Form 10-KSB filed on October 1, 2001).

4.10          Securities  Purchase  Agreement  dated  August 3, 2001 between the
              Company  and  La  Jolla  Cove  Investors,  Inc.  (Incorporated  by
              reference  to  Exhibit  4.10 to Form  10-KSB  filed on  October 1,
2001).                                              

4.11          Form of  Conversion  Warrants  to be issued by the  Company  to La
              Jolla Cove Investors,  Inc.  (Incorporated by reference to Exhibit
4.11 to Form 10-KSB filed on October 1, 2001).      

4.12          $225,000  principal  amount  9 3/4%  Convertible  Debenture  dated
              August 3, 2001 issued by the  Company to La Jolla Cove  Investors,
              Inc.  (Incorporated  by  reference  to Exhibit 4.12 to Form 10-KSB
filed on October 1, 2001).                          

4.13          Warrant  certificate  dated July 11,  2001 from the  Company to La
              Jolla Cove Investors,  Inc.  (Incorporated by reference to Exhibit
4.13 to Form 10-KSB filed on October 1, 2001).      

4.14          August 2, 2001  letter from La Jolla Cove  Investors,  Inc. to the
              Company  (Incorporated by reference to Exhibit 4.14 to Form 10-KSB
filed on October 1, 2001).                          

4.15          Subscription  Agreement  dated October 26, 2001 by and between the
              Company and Ratner & Prestia,  P.C.  (Incorporated by reference to
            Exhibit 4.15 to Form SB-2 Registration Statement No. 333-72302).

4.16          Subscription  Agreement  dated October 26, 2002 by and between the
              Company and Ratner & Prestia,  P.C.  (Incorporated by reference to
             Exhibit 4.16 to Form SB-2 Registration Statement No. 333-101032).

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4.17          Stock Purchase Agreement dated October 26, 2002 by and between the
              Company and Kazi Management VI, Inc. (Incorporated by reference to
             Exhibit 4.17 to Form SB-2 Registration Statement No. 333-101032).

4.18          Warrant  Certificate  (no. 189) dated October 26, 2002 in favor of
              Kazi  Management  VI, Inc.  (Incorporated  by reference to Exhibit
     4.18 to Form SB-2 Registration Statement No. 333-101032).

4.19          Registration  Rights  Agreement  dated  October  26,  2002  by and
              between the Company and Kazi  Management,  Inc.  (Incorporated  by
              reference to Exhibit 4.19 to Form SB-2 Registration  Statement No.
333-101032).                                        

4.20          Warrant  Certificate  (no. 190) dated October 26, 2002 in favor of
              Kazi  Management  VI, Inc.  (Incorporated  by reference to Exhibit
     4.20 to Form SB-2 Registration Statement No. 333-101032).

4.21          Subscription  Agreement  dated November 4, 2002 by and between the
              Company  and Alpha  Capital  Aktiengesellschaft  (Incorporated  by
              reference to Exhibit 4.21 to Form SB-2 Registration  Statement No.
333-101032).                                        

4.22          Form of Common Stock  Purchase  Warrant dated  November 4, 2002 in
              favor  of  Alpha  Capital   Aktiengesellschaft   (Incorporated  by
              reference to Exhibit 4.22 to Form SB-2 Registration  Statement No.
333-101032).                                        

4.23          Warrant  Certificate (No. 196) dated March 17, 2003 in favor of La
              Jolla Cove  Investors, Inc. (Incorporated  by reference to Exhibit
     4.23 to Form SB-2 Registration Statement No. 333-101032).

4.24          Form of 2004 Senior Note  (Incorporated  by  reference  to Exhibit
     4.24 to Form SB-2 Registration Statement No. 333-101032).

4.25          Form of 2005 Senior Note  (Incorporated  by  reference  to Exhibit
     4.25 to Form SB-2 Registration Statement No. 333-101032).

4.26          Stock Purchase  Agreement dated May 2, 2003 by and between USA and
              Providence  Investment  Management  (Incorporated  by reference to
             Exhibit 4.26 to Form SB-2 Registration Statement No. 333-101032).

4.27          Stock Purchase  Agreement dated March, 2003 by and between USA and
              Steve Illes  (Incorporated  by  reference  to Exhibit 4.27 to Form
SB-2 Registration Statement No. 333-101032).        

4.28          Stock Purchase  Agreement dated September 23, 2003 by and between 
             USA and Wellington  Management  Company,  LLC.  (Incorporated  by
             reference  to Exhibit  4.28 to Form  10-KSB  filed on October 14,
2003).                                              

4.29          Stock Purchase  Agreement  dated September 26, 2003 by and between
            USA and George O'Connell.  (Incorporated by reference to Exhibit
4.29 to Form 10-KSB filed on October 14, 2003).     

4.30          Stock Purchase  Agreement  dated September 24, 2003 by and between
             USA and Fulcrum Global Partners,  LLC. (Incorporated by reference
      to Exhibit 4.30 to Form 10-KSB filed on October 14, 2003).

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4.31          Stock Purchase  Agreement  dated September 2003 by and between USA
             and Prophecy Asset Management, Inc. (Incorporated by reference to
   Exhibit 4.31 to Form 10-KSB filed on October 14, 2003).

4.32          Letter  Agreement  between USA and La Jolla Cove  Investors  dated
              October 9, 2003.  (Incorporated  by  reference  to Exhibit 4.32 to
Form SB-2 Registration Statement No. 333-101032)    

4.33          Letter Agreement  between USA and Alpha Capital  Atkiengesellschaf
              dated October 3, 2003.  (Incorporated by reference to Exhibit 4.33
to Form SB-2 Registration Statement No. 333-101032) 

4.34          Form of 2004-A Warrant Certificate.                               

4.35          Common  Stock  Purchase  Agreement  between  the Company and Steve
Illes dated June 18, 2004.                          

5.1           Opinion of Lurio & Associates, P.C.                               

10.1          Employment  and  Non-Competition  Agreement  between USA and Adele
              Hepburn dated as of January 1, 1993  (Incorporated by reference to
           Exhibit 10.7 to Form SB-2 Registration Statement No. 33-70992).

10.1.1        First  Amendment  to  Employment  and  Non-Competition  Agreement 
              between  USA and Adele  Hepburn  dated as of  February  4,   2004.
              (Incorporated by reference to Exhibit 10.1.1 to Form 10-QSB  filed
on February 12, 2004).                              

10.2          Adele  Hepburn  Common  Stock  Options  dated  as of July 1,  1993
              (Incorporated   by  reference  to  Exhibit   10.12  to  Form  SB-2
Registration Statement No. 33-70992).               

10.3          Certificate  of  Appointment  of American  Stock  Transfer & Trust
              Company as  Transfer  Agent and  Registrar  dated  October 8, 1993
              (Incorporated   by  reference  to  Exhibit   10.23  to  Form  SB-2
Registration Statement No. 33-70992).               

10.4          Employment and Non-Competition  Agreement between USA and H. Brock
              Kolls  dated  as of May 1,  1994  (Incorporated  by  reference  to
            Exhibit 10.32 to Form SB-2 Registration Statement No. 33-70992).

10.4.1        First  Amendment  to  Employment  and  Non-Competition   Agreement
              between   USA  and  H.  Brock  Kolls  dated  as  of  May  1,  1994
              (Incorporated  by  reference  to  Exhibit  10.13.1  to  Form  SB-2
Registration Statement No. 333-09465).              

10.4.2        Third  Amendment  to  Employment  and  Non-Competition   Agreement
              between  USA  and  H.  Brock  Kolls   dated   February   22,  2000
              (Incorporated   by   reference   to  Exhibit   10.3  to  Form  S-8
Registration Statement No. 333-341006).             

10.4.3        Fourth  Amendment  to  Employment  and  Non-Competition  Agreement
              between  USA   and  H.  Brock   Kolls   dated   April  15,   2002.
              (Incorporated by reference to Exhibit 10.4.3  to Form 10-QSB filed
on February 12, 2004).                              

10.4.4        Fifth  Amendment  to  Employment  and  Non-Competition   Agreement
between USA and H. Brock Kolls dated April 20, 2004.

10.5          H.  Brock  Kolls  Common  Stock  Options  dated as of May 1,  1994
              (Incorporated   by  reference  to  Exhibit   10.42  to  Form  SB-2
Registration Statement No. 33-70992).               

10.5.1        H. Brock Kolls  Common  Stock  Options  dated as of March 20, 1996
              (Incorporated   by  reference  to  Exhibit   10.19  to  Form  SB-2
Registration Statement No. 33-70992)                

10.6          Barry  Slawter  Common Stock  Options  dated as of August 25, 1994
              (Incorporated   by  reference  to  Exhibit   10.43  to  Form  SB-2
Registration Statement No. 33-70992).               

10.7          Employment and  Non-Competition  Agreement between USA and Michael
              Lawlor  dated June 7, 1996  (Incorporated  by reference to Exhibit
     10.28 to Form SB-2 Registration Statement No. 333-09465).

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10.7.1        First  Amendment  to  Employment  and  Non-Competition   Agreement
              between  USA  and  Michael   Lawlor   dated   February   22,  2000
              (Incorporated   by   reference   to  Exhibit   10.5  to  Form  S-8
Registration Statement No. 333-34106).              

10.7.2        Separation  Agreement between USA and Michael Lawlor dated May 13,
              2003.  (Incorporated by reference to Exhibit 10.7.2 to Form 10-KSB
filed on October 14, 2003).                         

10.8          Michael Lawlor Common Stock Option Certificate dated as of June 7,
              1996  (Incorporated  by  reference  to Exhibit  10.29 to Form SB-2
Registration Statement No.333-09465).               

10.9          Employment and  Non-Competition  Agreement between USA and Stephen
              P.  Herbert  dated April 4, 1996  (Incorporated  by  reference  to
             Exhibit 10.30 to Form SB-2 Registration Statement No. 333-09465).

10.9.1        First  Amendment  to  Employment  and  Non-Competition   Agreement
              between  USA and  Stephen  P.  Herbert  dated  February  22,  2000
              (Incorporated   by   reference   to  Exhibit   10.2  to  Form  S-8
Registration Statement No. 333-34106).              

10.9.2        Second  Amendment  to  Employment  and  Non-Competition  Agreement
              between  Stephen P.  Herbert and the Company  dated April 15, 2002
              (Incorporated   by  reference  to  Exhibit  10.9.2  to  Form  SB-2
Registration Statement No. 333-101032).             

10.9.3        Third  Amendment  to  Employment  and  Non-Competition   Agreement
              between   Stephen  P.   Herbert   and  USA  dated  July  25,  2003
              (Incorporated   by  reference  to  Exhibit  10.9.3  to  Form  SB-2
Registration Statement No. 333-101032).             

10.9.4        Fourth  Amendment to  Employment  and   Non-Competition  Agreement
              between  USA and  Stephen  P.  Herbert   dated  February  4, 2004.
              (Incorporated by reference to Exhibit  10.9.4 to Form 10-QSB filed
on February 12, 2004).                              

10.10         Stephen P. Herbert Common Stock Option  Certificate dated April 4,
              1996  (Incorporated  by  reference  to Exhibit  10.31 to Form SB-2
Registration Statement No. 333-09465).              

10.11         RAM Group Common Stock Option  Certificate  dated as of August 22,
              1996  (Incorporated  by  reference  to Exhibit  10.34 to Form SB-2
Registration No. 33-98808).                         

10.12         RAM Group Common Stock Option  Certificate dated as of November 1,
              1996  (Incorporated  by  reference  to Exhibit  10.35 to Form SB-2
Registration No. 33-98808).                         

10.13         Joseph  Donahue  Common  Stock  Option  Certificate  dated  as  of
              September 2, 1996  (Incorporated  by reference to Exhibit 10.37 to
Form SB-2 Registration No. 33-98808).               

10.14         Employment and Non-Competition Agreement between USA and Leland P.
              Maxwell  dated  February  24, 1997  (Incorporated  by reference to
 Exhibit 10.39 to Form SB-2 Registration No. 33-98808)

10.14.1       Second  Amendment  to  Employment  and  Non-Competition  Agreement
              between  USA  and  Leland  P.  Maxwell  dated  February  22,  2000
              (Incorporated   by   reference   to  Exhibit   10.4  to  Form  S-8
Registration Statement No.                          
333-34106)                                          

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10.14.2       Separation  Agreement  between USA and Leland P. Maxwell dated May
              9, 2003.  (Incorporated  by reference  to Exhibit  10.14.2 to Form
10-KSB filed on October 14, 2003).                  

10.15         Leland P. Maxwell Common Stock Option  Certificate  dated February
              24, 1997  (Incorporated by reference to Exhibit 10.40 to Form SB-2
Registration No. 33-98808).                         

10.16         Letter  between  USA and GEM  Advisers,  Inc.  signed May 15, 1997
              (Incorporated  by  reference  to Exhibit 10.1 to Form 8-K filed on
May 22, 1997).                                      

10.17         H. Brock Kolls Common Stock Option Certificate dated as of June 9,
              1997  (Incorporated  by  reference  to Exhibit  10.43 to Form SB-2
Registration Statement 333-30853).                  

10.18         Stephen Herbert Common Stock Option  Certificate  dated as of June
              9, 1997  (Incorporated  by reference to Exhibit 10.44 to Form SB-2
Registration Statement No. 333-30853).              

10.19         Michael Feeney Common Stock Option Certificate dated as of June 9,
              1997  (Incorporated  by  reference  to Exhibit  10.46 to Form SB-2
Registration Statement No. 333-30853).              

10.20         Joint Venture  Agreement  dated September 24, 1997 between USA and
              Mail Boxes Etc.  (Incorporated  by reference  to Exhibit  10.47 to
Form 10-KSB filed on September 26, 1997).           

10.21         Employment and Non-competition Agreement between USA and George R.
              Jensen,  Jr. dated November 20, 1997 (Incorporated by reference to
 Exhibit 10.1 to Form 8-K filed on November 26, 1997).

10.21.1       First  Amendment  to  Employment  and  Non-Competition   Agreement
              between USA and George R. Jensen,  Jr., dated as of June 17, 1999.
              (Incorporated   by  reference  to  Exhibit  4.21.1  to  Form  SB-2
Registration Statement No. 333-94917)               

10.21.2       Second  Amendment  to  Employment  and  Non-Competition  Agreement
              between USA and George R.  Jensen,  Jr.  dated  February  22, 2000
              (Incorporated   by   reference   to  Exhibit   10.1  to  Form  S-8
Registration Statement No. 333-34106).              

10.21.3       Third  Amendment  to  Employment  and  Non-Competition   Agreement
              between  USA and George R.  Jensen,  Jr.  dated  January  16, 2002
              (Incorporated  by  reference  to  Exhibit  10.21.3  to  Form  SB-2
Registration Statement No. 333-101032).             

10.21.4       Fourth  Amendment  to  Employment  and  Non-Competiton   Agreement
              between  USA  and  George  R.   Jensen,   Jr.,   dated  April  15,
              2002(Incorporated  by  reference  to Exhibit  10.21.4 to Form SB-2
Registration Statement No. 333-101032).             

10.21.5       Fifth Amendment to Employment and Non-Competiton Agreement between
              USA and George R. Jensen, Jr., dated July 16, 2003(Incorporated by
              reference to Exhibit 10.21.5 to Form SB-2  Registration  Statement
No. 333-101032).                                    

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10.21.6       Sixth  Amendment  to  Employment  and  Non-Competition   Agreement
              between USA and George R.  Jensen,  Jr.  dated   February 4, 2004.
              (Incorporated  by  reference  to Exhibit  10.21.6 to Form   10-QSB
filed on February 12, 2004).                        

10.22         Agreement  between USA and Promus  Hotels,  Inc. dated May 8, 1997
              (incorporated   by  reference  to  Exhibit   10.49  to  Form  SB-2
             Registration Statement No. 333-38593, filed on February 4, 1998).

10.23         Agreement between USA and Choice Hotels International,  Inc. dated
              April 24, 1997 (Incorporated by reference to Exhibit 10.50 to Form
              SB-2 Registration  Statement No.  333-38593,  filed on February 4,
1998).                                              

10.24         Agreement  between USA and PNC  Merchant  Services  dated July 18,
              1997  (Incorporated  by  reference  to Exhibit  10.51 to Form SB-2
             Registration Statement No. 333-38593, filed on February 4, 1998).

10.25         Separation Agreement between USA and Keith L. Sterling dated April
              8, 1998  (Incorporated  by reference to Exhibit to Exhibit 10.1 to
Form 10-QSB filed May 12, 1998).                    

10.26         Phillip A. Harvey  Common  Stock  Option  Certificate  dated as of
              April 22, 1999 (Incorporated by reference to Exhibit 10.35 to Form
SB-2 Registration Statement No. 333-81591).         

10.27         Consulting  Agreement between Ronald Trahan and USA dated November
              16, 1998  (incorporated by Reference to Exhibit 28 to Registration
           Statement No. 333-67503 on Form S-8 filed on November 18, 1998)

10.28         Consulting  Agreement between Mason Sexton and USA dated March 10,
              1999  (incorporated  by  reference  to Exhibit 28 to  Registration
         Statement No. 333-74807 on Form S-8 filed on March 22, 1999).

10.29         Financial Public Relations  Agreement between USA and I. W. Miller
              Group,  Inc.  dated August 1, 1999  (Incorporated  by reference to
             Exhibit 10.38 to Form SB-2 Registration Statement No. 333-84513).

10.30         Consulting Agreement between Harmonic Research, Inc. and USA dated
              August 3, 1999 (Incorporated by reference to Exhibit 10.39 to Form
SB-2 Registration Statement No. 333-84513).         

10.31         Investment  Agreement  between USA and Swartz Private Equity,  LLC
              dated  September  15, 2000  (incorporated  by reference to Exhibit
10.1 to Form 8-K dated September 21, 2000).         

10.32         Commitment  Warrant  issued to  Swartz  Private  Equity  LLC dated
              August 23, 2000 (incorporated by reference to Exhibit 10.2 to Form
8-K dated September 21, 2000).                      

10.33         Warrant  Anti-Dilution  Agreement  between USA and Swartz  Private
              Equity, LLC dated September 15, 2000 (incorporated by reference to
Exhibit 10.3 to Form 8-K dated September 21, 2000). 

10.34         Registration  Rights  Agreement  between  USA and  Swartz  Private
              Equity  dated  September  15, 2000  (incorporated  by reference to
Exhibit 10.4 to Form 8-K dated September 21, 2000). 

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10.35         Agreement  for  Wholesale  Financing  and Addendum  for  Scheduled
              Payment  Plan  with  IBM  Credit  Corporation  dated  May 6,  1999
              (incorporated by reference to Exhibit 10.40 to Form 10-KSB for the
fiscal year ended June 30, 1999).                   

10.36         Agreement  and Plan of Merger dated April 10,  2002,  by and among
              the Company, USA Acquisitions,  Inc., Stitch Networks Corporation,
              David H. Goodman,  Pennsylvania  Early Stage  Partners,  L.P., and
              Maytag Holdings, Inc. (Incorporated by reference to Exhibit 2.1 to
Form 10-QSB for the quarter ended March 31, 2002).  

10.37         Cancellation  of subscription  Agreement  between USA and Ratner &
              Prestia,  P.C. dated March 20, 2003  (Incorporated by reference to
              Exhibit 10.37 to Form SB-2 Registration Statement No. 333-101032).

10.38         Agreement  between USA and Mars  Electronics,  Inc. dated March 8,
              2002  (Incorporated  by  reference  to Exhibit  10.38 to Form SB-2
Registration Statement No. 333-101032).             

10.39         Strategic  Alliance  Agreement  between USA and ZiLOG  Corporation
              dated October 15, 2002 (Incorporated by reference to Exhibit 10.39
to Form SB-2 Registration Statement No. 333-101032).

10.40         Vending  Placement,  Supply  and  Distribution  Agreement  between
              Stitch  Networks  Corporation,   Eastman  Kodak  Company,   Maytag
              Corporation   and   Dixie-Narco,    Inc.   dated   December   2000
              (Incorporated   by  reference  to  Exhibit   10.40  to  Form  SB-2
Registration Statement No. 333-101032).             

10.41         Design and  Manufacturing  Agreement between USA and RadiSys dated
              June 27, 2000  (Incorporated by reference to Exhibit 10.41 to Form
SB-2 Registration Statement No. 333-101032).        

10.42         Loan Agreement between Stitch Networks  Corporation and US Bancorp
              dated May 22, 2001  (Incorporated by reference to Exhibit 10.42 to
Form SB-2 Registration Statement No. 333-101032).   

10.43         Letter  dated  October 16, 2003 from Lurio &  Associates,  P.C. to
              Gary L. Blum, Esquire (Incorporated  by reference to Exhibit 10.43
to Form SB-2 Registration Statement No. 33-101032). 

10.44         Termination  Agreement  dated  December  31,  2003 by and  between
              Eastman Kodak Company, Maytag Corporation,  Dixie-Narco,  Inc. and
              Stitch  Networks  Corporation.   (Incorporated  by   reference  to
    Exhibit 10.6 to Form 10-QSB filed on February 12, 2004).

10.45         Option Certificate (No. 198) dated April 28, 2004 in favor of Mary
West Young.                                         

10.46         Employment and  Non-Competition  Agreement  between  USA  and Mary
West Young dated April 28, 2004.                    

**23.1        Consent of Ernst & Young, LLP                                     

**23.2        Consent of Anton Collins Mitchell, LLP                            

-------------                                                                   
** Filed Herewith                                                               

Item 28. Undertakings.                                                          

The undersigned registrant hereby undertakes:                                   

(1) To file,  during  any  period in which  offers or sales  are being  made,  a
post-effective amendment to this registration statement:                        

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(i) To include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;                                                                        

(ii) To  reflect  in the  prospectus  any  facts or  events  arising  after  the
effective date of the registration  statement (or the most recent post-effective
amendment  thereof)  which,  individually  or  in  the  aggregate,  represent  a
fundamental  change in the information set forth in the registration  statement.
Notwithstanding the foregoing,  any increase or decrease in volume of securities
offered (if the total dollar value of  securities  offered would not exceed that
which  was  registered)  and any  deviation  from  the  low or  high  and of the
estimated  maximum  offering  range may be reflected  in the form of  prospectus
filed with the  Commission  pursuant  to Rule 424(b) if, in the  aggregate,  the
changes in volume  and price  represent  no more than 20  percent  change in the
maximum  aggregate  offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.                             

(iii)  To  include  any  material  information  with  respect  to  the  plan  of
distribution  not  previously  disclosed  in the  registration  statement or any
material change to such  information in the  registration  statement.  Provided,
however,  that  paragraphs  (1)(i) and  (1)(ii) do not apply if the  information
required to be included in a  post-effective  amendment by those  paragraphs  is
contained in periodic reports filed by the registrant  pursuant to Section 13 or
Section 15(d) of the Securities  Exchange Act of 1934 that are  incorporated  by
reference in the registration statement.                                        

(2) That, for the purpose of determining  any liability under the Securities Act
of  1933,  each  such  post-effective  amendment  shall  be  deemed  to be a new
registration  statement  relating to the  securities  offered  therein,  and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.                                                          

(3) To remove from  registration by means of a  post-effective  amendment any of
the securities  being  registered  which remain unsold at the termination of the
offering.                                                                       

Insofar as indemnification  for liabilities  arising under the Securities Act of
1933 may be permitted to  directors,  officers  and  controlling  persons of the
registrant pursuant to the foregoing  provisions,  or otherwise,  the registrant
has been advised that in the opinion of the SEC such  indemnification is against
public policy as expressed in the Act and is, therefore,  unenforceable.  In the
event that a claim for indemnification  against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling  person of the registrant in the  successful  defense of any action,
suit or proceeding) is asserted by such director,  officer or controlling person
in connection with the securities being registered,  the registrant will, unless
in the  opinion  of its  counsel  the matter  has been  settled  by  controlling
precedent,  submit to a court of appropriate  jurisdiction  the question whether
such  indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.                       

For purposes of determining any liability under the Securities Act of 1933, each
filing of the  registrant`s  annual report pursuant to Section 13(a) or 15(d) of
the Securities  Exchange Act of 1934 that is  incorporated  by reference in this
registration  statement  shall  be  deemed  to be a new  registration  statement
relating to the securities  offered herein,  and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.      

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SIGNATURES

Pursuant to the  requirements  of the  Securities  Act of 1933, as amended,  the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the  requirements  for filing this  Amendment No. 1 to Form SB-2 and has duly
caused this Amendment No. 1 to Registration  Statement on Form SB-2 to be signed
on its  behalf  by the  undersigned,  thereunto  duly  authorized,  in  Malvern,
Pennsylvania, on August 5, 2004.                                                

              USA TECHNOLOGIES, INC.

             By: /s/ George R. Jensen, Jr.
                            ------------------------------------
              George R. Jensen, Jr.,
                            Chairman and Chief Executive Officer

Pursuant to the  requirements  of the Securities  Act of 1933, as amended,  this
Amendment No. 1 to the Registration  Statement has been duly signed below by the
following persons in the capacities and dates indicated.                        

Signatures                         Title                         Date           
-----------                        -----                         ----           

/s/ George R. Jensen, Jr.       Chairman of the Board,       August 5, 2004     
----------------------------    and Chief Executive                             
George R. Jensen, Jr.       Officer (Principal and Chief                
           Executive Officer) Director

/s/ Mary West Young             Chief Financial Officer      August 5, 2004     
----------------------------    (Principal Accounting                           
Mary West Young                 Officer)                                        

/s/ Stephen P. Herbert          President, Chief             August 5, 2004     
----------------------------    Operating Officer,                              
Stephen P. Herbert             Director                                       

*                               Director                     August 5, 2004     
-----------------------------                                                   
William W. Sellers                                                              

*                               Director                     August 5, 2004     
----------------------------                                                    
William L. Van Alen, Jr.                                                        

*                               Director                     August 5, 2004     
----------------------------                                                    
Steven Katz                                                                     

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*                               Director                     August 5, 2004     
----------------------------                                                    
Douglas M. Lurio                                                                

*     Attorney-in-Fact  pursuant to the Power of Attorney previously provided as
part of the Registration Statement.                                             

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Exhibit Index                                                                   

Exhibit                                                                         
Number            Description                                                   
------------------------------------------------------------------------------  

23.1           Consent of Ernst & Young, LLP                                    

23.2           Consent of Anton Collins Mitchell, LLP                           

89

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘SB-2/A’ Filing		Date		First		Last			Other Filings
		4/30/11		95
		4/24/11		95
		8/29/10		95
		12/31/08		27		37			10-Q,  4
		12/31/07		12		143			10-Q
		11/15/07		95					8-K
		10/26/07		93		95
		5/14/07		82
		12/31/06		12		143			10-Q,  8-K
		6/30/06		50		95			10-K,  8-K
		5/31/06		98
		12/31/05		12		138			10-Q
		12/1/05		95		98
		7/11/05		142
		6/30/05		8		50			10-K
		6/2/05		95
		4/30/05		44
		4/24/05		95
		4/18/05		95
		4/12/05		44					3,  4
		12/31/04		12		143			10-Q
		12/22/04		95
		8/30/04		28		143
Filed on:		8/5/04		1		156
		8/3/04		4		7
		8/2/04		139
		7/11/04		142
		6/30/04		2		143			10KSB,  SB-2
		6/29/04		98					SB-2
		6/22/04		95					4
		6/18/04		25		149
		5/31/04		7		63
		5/11/04		98
		4/28/04		145		153
		4/22/04		95
		4/21/04		98
		4/20/04		43		149
		3/31/04		7		98			10QSB
		2/12/04		146		153			10QSB,  SC 13G
		2/4/04		149		152			4
		1/26/04		146
		1/1/04		43		44
		12/31/03		2		153			10QSB,  4
		11/28/03		92		95
		11/23/03		95
		11/8/03		112		127
		11/6/03		25		98
		10/31/03		89		140			SB-2,  SB-2/A
		10/16/03		153
		10/14/03		148		151			10KSB
		10/9/03		149
		10/3/03		149					8-K
		9/30/03		28		143			10QSB,  NT 10-Q
		9/26/03		98		148			8-K
		9/24/03		98		148			8-K/A
		9/23/03		148
		9/16/03		98
		9/13/03		89
		9/12/03		67		98
		9/4/03		100
		8/31/03		88		141
		8/17/03		95
		8/7/03		140					4
		8/3/03		139
		8/2/03		95		144
		7/25/03		150
		7/16/03		151
		7/14/03		46		145			4,  8-K
		7/11/03		22		145			8-K/A
		7/10/03		48					8-K
		7/1/03		98					4
		6/30/03		7		144			10KSB,  NT 10-K
		6/1/03		112		126
		5/31/03		93					4
		5/13/03		150
		5/9/03		151
		5/2/03		148
		4/30/03		116		128
		4/14/03		13		27
		4/1/03		15		76
		3/31/03		17		143			10QSB,  NT 10-Q
		3/20/03		153
		3/17/03		148
		1/24/03		82
		1/1/03		96
		12/31/02		28		143			10QSB,  4,  NT 10-Q
		11/30/02		94		138
		11/4/02		148
		10/31/02		140
		10/26/02		147		148
		10/15/02		153					10KSB
		9/30/02		28		143			10QSB,  4,  NT 10-K
		8/3/02		112
		7/8/02		24		86
		7/1/02		14		134
		6/30/02		7		143			10KSB,  NT 10-K
		6/18/02		91		139
		6/15/02		109
		6/1/02		113		129
		5/20/02		116					10QSB
		5/14/02		48		85			8-K
		4/30/02		113		127
		4/15/02		149		151
		4/10/02		75		153
		3/31/02		56		153			10QSB,  NT 10-Q
		3/21/02		44					8-K
		3/8/02		153
		1/16/02		151
		1/2/02		144
		1/1/02		106		109
		12/31/01		56		118			10QSB,  NT 10-Q
		12/15/01		110
		10/26/01		147					SB-2
		10/19/01		137
		10/1/01		147					10-K,  NT 10-K
		9/30/01		56					10QSB
		8/3/01		112		147
		8/2/01		147
		7/11/01		147
		7/1/01		15		134
		6/30/01		15		109			10-K,  NT 10-K
		6/1/01		99		118
		5/31/01		99		111
		5/30/01		115
		5/22/01		153
		1/1/01		99		105
		12/31/00		48					10QSB
		9/21/00		152					8-K
		9/15/00		152					8-K
		8/23/00		152
		6/30/00		96					10KSB,  10KSB/A
		6/27/00		153
		2/22/00		149		151
		8/3/99		152
		8/1/99		152
		6/30/99		153					10KSB
		6/17/99		151
		5/6/99		153
		4/22/99		152
		3/22/99		152					S-8
		3/10/99		152
		11/18/98		152					S-8
		11/16/98		152
		5/12/98		152					10QSB
		4/8/98		152
		2/4/98		147		152			SB-2/A
		1/1/98		91
		11/26/97		151					8-K
		11/20/97		151
		9/26/97		151					10KSB
		9/24/97		151
		7/18/97		152
		6/9/97		151
		5/22/97		151
		5/15/97		151					10QSB
		5/8/97		152
		4/24/97		152
		2/24/97		150		151
		11/1/96		150
		9/2/96		150
		8/22/96		150
		6/7/96		149		150
		5/6/96		39
		5/1/96		146
		4/4/96		150
		3/20/96		149
		10/31/95		146
		6/21/95		146
		8/25/94		149
		5/1/94		149
		10/8/93		149
		7/1/93		149
		1/1/93		149
		1/16/92		74
									List all Filings