USA TECHNOLOGIES INC, SB-2, 1997-07-08

USA TECHNOLOGIES INC
SB-2, 1997-07-08
EQUIPMENT RENTAL & LEASING, NEC

Previous: SIMIONE CENTRAL HOLDINGS INC, 8-K, 1997-07-08

Next: USA TECHNOLOGIES INC, 8-K, 1997-07-08

<PAGE>

As filed with the Securities and Exchange Commission on July 8, 1997

Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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)

200 Plant Avenue
Wayne, Pennsylvania 19087
(Address of principal executive offices and zip code)

George R. Jensen, Jr.
Chief Executive Officer
USA Technologies, Inc.
200 Plant Avenue
Wayne, Pennsylvania 19087
(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
1760 Market Street, Suite 1300
Philadelphia, PA 19103-4132
(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: [ ]

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. [ ]

<PAGE>

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. [ ]

<TABLE>
<CAPTION>
============================================================================================
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 Offering Price Fee
- ---------- ---------- --------------- -------------- ------------
Common Stock,
no par value 1,974,000 shares $.40 $ 789,600 $272.28

</TABLE>

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.

<PAGE>

PROSPECTUS

USA TECHNOLOGIES, INC.

COMMON STOCK

This Prospectus relates to up to 1,974,000 shares of Common Stock, no
par value (the "Common Stock"), of USA Technologies, Inc. (the "Company") which
may be sold from time to time by the shareholders of the Company (the "Selling
Shareholders") who purchased 1996-B Common Stock Purchase Warrants (the "1996-B
Warrants") or 1997 Common Stock Purchase Warrants (the "1997 Warrants") from the
Company. The 1996-B Warrants were issued pursuant to a warrant agreement dated
as of December 27, 1996, by and between the Company and American Stock Transfer
& Trust Company, the warrant agent (the "1996-B Warrant Agreement"). The 1997
Warrants were issued pursuant to a warrant agreement dated as of April 8, 1997,
by and between the Company and American Stock Transfer & Trust Company, the
warrant agent (the "1997 Warrant Agreement"). The 1996-B Warrants and 1997
Warrants are referred to jointly and severally herein as "Warrants."

The Common Stock which may be sold by the Selling Shareholders pursuant
to this Prospectus will be purchased from the Company by the Selling
Shareholders pursuant to the exercise of the Warrants.

The Company issued 374,000 1996-B Warrants to the Selling Shareholders
in January and February 1997 pursuant to the 1996-B Warrant Agreement in a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended (the "Act"), and applicable state securities law. Each 1996-B
Warrant entitles the holder thereof to purchase one share of Common Stock for
$.30 at any time through February 28, 2002, provided that the exercise price of
the 1996-B Warrants is $.20 per share through August 31, 1997. The exercise
price of the 1996-B Warrants may be reduced by the Company at any time, or from
time to time. As more fully discussed below, through May 31, 1997 no 1996-B
Warrants have been exercised. The 1996-B Warrants are exercisable at any time
through February 28, 2002, or such later date as the Company may determine. The
Company agreed, at its cost and expense, to register under the Act the Common
Stock underlying the 1996-B Warrants for resale by the Selling Shareholders. See
"Description of Securities - 1996-B Common Stock Purchase Warrants." The Common
Stock may be sold from time to time by the Selling Shareholders named herein
pursuant to this Prospectus. See "Selling Shareholders".

The Company issued 1,600,000 1997 Warrants to the Selling Shareholders
in April, May, June and July 1997 pursuant to the 1997 Warrant Agreement in a
transaction exempt from the registration requirements of the Act and applicable
state securities law. Each 1997 Warrant entitles the holder thereof to purchase
one share of Common Stock for $.40 at any time through May 31, 2002, provided
that the exercise price of the 1997 Warrants is $.20 per share through August
31, 1997. The exercise price of the 1997 Warrants may be reduced by the Company
at any time, or from time to time. As more fully discussed below, through May
31, 1997 no 1997 Warrants have been exercised. The 1997 Warrants are
exerciseable at any time through May 31, 2002, or such later date as the Company
may determine. The Company agreed, at its cost and expense, to register under
the Act the Common Stock underlying the 1997 Warrants for resale by the Selling
Shareholders. See "Description of Securities - 1997 Common Stock Purchase
Warrants." The Common Stock may be sold from time to time by the Selling
Shareholders named herein pursuant to this Prospectus. See "Selling
Shareholders".

As a condition to obtaining the Common Stock being offered hereby, the
Selling Shareholders must exercise the Warrants by tendering the per share
exercise price required under the 1996-B Warrant Agreement or 1997 Warrant
Agreement, respectively. Through May 31, 1997, none of the Warrants were
exercised. If all of the 374,000 1996-B Warrants are exercised at $.30 per
share, the Company would receive gross proceeds of $112,200, or if exercised at
.20 per share, the Company would receive gross proceeds of $74,800. If all of
the 1997 Warrants are exercised at $.40 per share, the Company would receive
gross proceeds of $640,000, or if exercised at $.20 per share, the Company would
receive gross proceeds of $320,000. There is no assurance that any or all of the
Warrants will be exercised by the Selling Shareholders, and if none of the
Warrants are exercised, the Company would not receive any gross proceeds. The
Company is responsible for all of the costs and expenses incident to the offer
and sale of the Common Stock by the Selling Shareholders pursuant to this
Prospectus other than any brokerage fees or commissions incurred by the Selling
Shareholders in connection therewith.
<PAGE>

The Common Stock offered by the Selling Shareholders pursuant to this
Prospectus may be sold from time to time by the Selling Shareholders. The sale
of the Common Stock offered hereby by the Selling Shareholders may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary brokers' transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such securities as
principals. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Shareholders.

The Company will not receive any of the proceeds from the sale of the
Common Stock by the Selling Shareholders. The Selling Shareholders will receive
all of the net proceeds from the sale of the Common Stock and will pay all
selling commissions, if any, applicable to the sale of the Common Stock.

The Common Stock is currently traded on the OTC Electronic Bulletin
Board under the symbol USTT and the bid price for the Common Stock on
June 30, 1997 was $.34 per share.

See "Risk Factors" on page 6 of this Prospectus for a discussion of
certain factors that should be considered by prospective investors in the Common
Stock offered hereby.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

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

The date of this Prospectus is July __, 1997.

<PAGE>

AVAILABLE INFORMATION

The Company has filed a registration statement on Form SB-2 (together
with any amendments thereto, the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") under the Act with respect to the
Common Stock. This Prospectus, which constitutes a part of the Registration
Statement, omits certain information contained in the Registration Statement and
reference is made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the Common
Stock. Statements contained in this Prospectus as to the contents of certain
documents filed with, or incorporated by reference in the Registration Statement
are not necessarily complete, and in each instance reference is made to such
document, each such statement being qualified in all respects by such reference.

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Such reports, and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at 7 World Trade Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission,
Washington, D.C. 20549. In addition, registration statements and certain other
filings made with the Commission through its Electronic Data Gathering, Analysis
and Retrieval system are publicly available through the Commission's site on the
Internet's World Wide Web, located at http: //www.sec.gov.

The Company 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.,
200 Plant Avenue, Wayne, Pennsylvania 19087, Attn: George R. Jensen, Jr., Chief
Executive Officer (telephone (610) 989-0340).

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

<PAGE>

PROSPECTUS SUMMARY

The following information does not purport to be complete and is
qualified in its entirety by and should be read in conjunction with the more
detailed information and Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus. Prospective investors should consider
carefully the factors discussed below under "Risk Factors".

The Company

USA Technologies, Inc., a Pennsylvania corporation (the "Company"), was
founded in January 1992. The Company changed its name from USA Entertainment
Center, Inc. to USA Technologies, Inc. on June 7, 1995 to more accurately
reflect the nature of its business. The Company is in the development stage and
is an owner and licensor of unattended, credit card activated control systems
for use in connection with copying machines, debit card purchase/revalue
stations, facsimile machines, personal computers, and computer printers. The
Company's customers are university libraries, public libraries, hotels and
retail locations. In September 1996, the Company commenced offering its control
systems to the hospitality industry under the name Business Express(TM). The
Company anticipates generating its revenues both from the sale of equipment
utilizing its control systems, from retaining a percentage of the revenues
generated from all credit card transactions conducted through its control
systems, and from monthly administrative fees paid by various locations
utilizing its control systems.

In order to activate the equipment attached to the Company's control
systems, the consumer must swipe a valid credit card through the control system.
The control system then transmits this request to the credit card processor. The
credit card processor verifies that the credit card is valid and authorizes the
transaction. The control system then activates the equipment for use by the
consumer. When the consumer has finished using the equipment, the control system
transmits a record of the transactions to the Company's computer center. On a
daily basis, the Company transmits the transaction information collected from
all of its installed control devices to the credit card processor. The credit
card processor electronically transfers the proceeds derived from these
transactions, less the credit card processor's charge, to the Company. The
Company then forwards a check to the location representing its share of the
proceeds.

As of May 31, 1997, the Company had installed at commercial locations a
total of 263 devices and revenues have been nominal. See "Business." As of May
31, 1997, 34 Business Express(TM) units containing 109 control systems have been
installed in hotels located throughout the United States and Canada. Of the 34
units which have been installed, 27 have included the purchase of equipment from
the Company and the licensing of its control systems and 7 were installed on a
revenue-sharing basis and included only the licensing of its control systems.
See "Business -- Business Express(TM)."

The Company has entered into an agreement with International Business
Machines Corporation ("IBM") pursuant to which the Company has been approved as
an IBM Business Partner - Personal Computer Reseller. The Company has also
entered into similar agreements with Dell Computer Corporation and
Hewlett-Packard Company. See "Business -- Procurement."

In March 1997, the Company entered into a co-marketing agreement with
Minolta Corporation pursuant to which the Company and Minolta will work together
in order to market and sell the Business Express(TM) featuring the Minolta
copier to the hospitality industry. The Company has also entered into a
co-marketing agreement with Lexmark International, Inc., pursuant to which the
Company and Lexmark will work together to market and sell the Business
Express(TM) featuring the Lexmark printer to the hospitality industry. See
"Business -- Marketing."

In May 1997, the Company entered into an agreement with a newly formed
Canadian company pursuant to which it would sell to such purchaser 10 Business
Express(TM) business centers. The purchaser has indicated to the Company that it
intends to install the units within existing and proposed Wal-Mart stores in
Canada. The total purchase price for the 10 units would be $1,118,261 (payable
in Canadian dollars). Fifty percent of the purchase price for each unit would be
payable prior to installation and the balance would be payable upon
installation. The agreement also appoints USA as the purchaser's agent in
connection with the processing, collection, and disbursement of all revenue from
credit card sales in connection with the units. The agreement states that the
Business Express(TM) units shall be installed at the purchaser's discretion.
Although the purchaser has indicated to the Company that it presently intends to
install 7 of the units during the 1997 calendar year, the actual dates of
installation have not been finalized and are subject to change in the
purchaser's discretion.

The Company's executive offices are located at 200 Plant Avenue, Wayne,
Pennsylvania 19087, and its telephone number is (610) 989-0340.

<PAGE>
Description Of The Securities

Issuer ............................ USA Technologies, Inc.

Securities Offered ................ Up to 1,974,000 shares of
Common Stock by the Selling
Shareholders. See "Selling
Shareholders."

Common Stock Outstanding
as of March 31, 1997 .... 26,760,227 shares. On a fully
converted basis, there would be
47,614,228 shares outstanding
consisting of 3,973,300 shares
issuable upon exercise of
outstanding options and purchase
rights, 374,000 shares issuable
upon exercise of the 1996-B
Warrants issued in January and
February 1997 ("1996-B
Warrants"), 1,998,000 shares
issuable upon exercise of the
1996 Common Stock Purchase
Warrants issued in 1996 ("1996
Warrants"), 1,414,000 shares
issuable upon the exercise of
the 1995 Warrants issued by the
Company in 1995 ("1995
Warrants"), 9,567,060 shares
issuable upon conversion of the
Preferred Stock at the 12 to 1
conversion rate, and 3,527,641
shares issuable upon conversion
of accrued and unpaid dividends
on the Preferred Stock at the
$.83 per share conversion price
(if these conversions do not
occur prior to December 31,
1997, there would be 7,972,550
shares issuable upon conversion
of Preferred Stock at the 10 to
1 conversion rate and 2,927,942
shares issuable upon conversion
of accrued and unpaid dividends
on the Preferred Stock at the
$1.00 per share conversion
price).

Preferred Stock Outstanding
as of March 31, 1997 .... 797,255 shares. Each share of
Series A Convertible Preferred
Stock, no par value, of the
Company ("Preferred Stock") is
convertible by the holder
thereof at any time into 10
shares of Common Stock, provided
that through December 31, 1997,
each share of Preferred Stock is
convertible into 12 shares of
Common Stock. The holders of
Preferred Stock are entitled to
an annual cumulative cash
dividend of $1.50 per share. The
outstanding shares of Preferred
Stock are convertible into
9,567,060 shares of Common Stock
through December 31, 1997 and
7,972,550 shares of Common Stock
at any time thereafter. At the
time of conversion, all accrued
and unpaid dividends are
converted into Common Stock at
the rate of $1.00 per share of
Common Stock, provided that
through December 31, 1997, all
accrued and unpaid dividends are
converted into Common Stock at
the rate of $.83 per share of
Common Stock. See "Description

<PAGE>

of Securities - Series A
Convertible Preferred Stock."

Common Stock OTC Bulletin
Board Symbol ............ USTT

Use of Proceeds................... The Company will receive no cash
proceeds from the sale of the
Common Stock being offered by the
Selling Shareholders hereby. The
Company would, however, receive
$.20 per Warrant exercised by the
Selling Shareholders prior to
August 31, 1997 and $.30 per
1996-B Warrant and $.40 per 1997
Warrant exercised by the Selling
Shareholders thereafter (or such
lower exercise price as the
Company may determine). Through
May 31, 1997, none of the
Warrants have been exercised by
the Selling Shareholders. If all
of the remaining 374,000 1996-B
Warrants are exercised at $.30
per share, the Company would
receive gross proceeds of
$112,200, or if exercised at $.20
per share, the Company would
receive gross proceeds of
$74,800. If all of the 1,600,000
1997 Warrants are exercised at
$.40 per share, the Company would
receive gross proceeds of
$640,000, or if exercised at $.20
per share, the Company would
receive gross proceeds of
$320,000. The Company plans to
use these proceeds to finance
working capital and operating
expenses. There is no assurance
that any or all of the Warrants
will be exercised by the Selling
Shareholders, and if none of the
Warrants are exercised, the
Company would not receive any
gross proceeds. The Selling
Shareholders will receive all of
the net proceeds from the sale of
the Common Stock. The Company
will incur expenses of
approximately $40,000 in
connection with the registration
of the Common Stock underlying
the Warrants. See "Description of
Securities - 1996-B Common Stock
Purchase Warrants" and
"Description of Securities - 1997
Common Stock Purchase Warrants."

<PAGE>
RECENT TRANSACTIONS

In May 1997 the Company entered into an agreement with a newly formed
Canadian company pursuant to which it would sell to such purchaser 10 Business
Express (TM) business centers. The purchaser has indicated to the Company that
it intends to install the units within existing and proposed Wal-Mart stores in
Canada. The total purchase price for the 10 units would be $1,118,261 (payable
in Canadian dollars). Fifty percent of the purchase price for each unit would be
payable prior to installation and the balance would be payable upon
installation. The agreement also appoints USA as the purchaser's agent in
connection with the processing, collection, and disbursement of all revenue from
credit card sales in connection with the units. The agreement states that the
Business Express (TM) units shall be installed at the purchaser's discretion.
Although the purchaser has indicated to the Company that it presently intends to
install 7 of the units during the 1997 calendar year, the actual dates of
installation have not been finalized and are subject to change in the
purchaser's discretion.

The Debentures have a five year term and earn interest at the rate of
6% per year, such interest payable in Common Stock or cash at the option of the
Company at the time of conversion. At any time after August 7, 1997, the
Debentures are convertible into shares of Common Stock at the lesser of one
hundred percent (100%) of the average closing bid price of the Common Stock for
the five trading days immediately preceding June 23, 1997 or sixty-five percent
(65%) of the average closing bid price of the Common Stock for the five trading
days immediately preceding the conversion. At any time after June 23, 1998, the
Company has the right to require the conversion of the Debentures at the lesser
of one hundred percent (100%) of the average closing bid price of the Common
Stock for the five trading days immediately preceding June 23, 1997 or
sixty-five percent (65%) of the average closing bid price of the Common Stock
for the five trading days immediately preceding the conversion. The Debentures
do not have any voting rights. The Debentures were issued by the Company
pursuant to Regulation S promulgated under the Securities Act of 1933, as
amended (the "Act").

Upon completion of the sale of the Debentures, GEMA received 8% of the
gross proceeds (i.e. $40,000) as a management/documentation fee. In addition,
affiliates and/or consultants to GEMA received non-redeemable warrants to
purchase up to 2,000,000 shares of the Company's Common Stock at a price of $.20
per share at any time prior to June 22, 2002. These warrants have been issued by
the Company pursuant to Regulation S. As a condition of the issuance of the
Debentures, GEMA required the Company to sign an escrow agreement pursuant to
which the Company issued 2,500,000 shares of restricted Common Stock registered
in the name of Lurio & Associates, as Escrow Agent. Such shares were issued in
order to ensure that they would be available if and when the holders of the
Debentures elect to convert their Debentures.

In June 1997, the Company reduced the exercise price of the 10,000
options issued to Mr. Feeney in November 1996 from $.50 to $.45. In June 1997,
the Company reduced the exercise price of the 100,000 options issued to Mr.
Lawlor in July 1996 and the 50,000 options issued to Mr. Harvey in November 1996
from $.65 to $.45.

In June 1997, the Company issued to Mr. Kolls options to acquire up to
100,000 shares of Common Stock at $.45 per share, to Mr. Sterling options to
acquire up to 100,000 shares of Common Stock at $.45 per share and to Mr.
Herbert options to acquire up to 100,000 shares of Common Stock at $.45 per
share. See "Management - Executive Stock Options." In June 1997, the Company
also issued to Mr. Feeney options to acquire up to 5,000 shares of Common Stock
at $.45 per share.

4
<PAGE>

In June 1997, the Company extended the consulting agreement with Jerome
M. Wenger which had expired on March 31, 1997 for an additional four months, and
authorized the issuance of 160,000 shares of Common Stock as compensation for
the services to be rendered to the Company pursuant to this agreement. Pursuant
thereto, 80,000 shares of such Common Stock shall be immediately issuable to Mr.
Wenger and the remaining 80,000 shares shall be issued at the rate of 40,000
shares per month in June 1997 and July 1997. The Company has agreed to register
these shares under the Act and such shares will be freely tradeable thereunder.
See "Description of Securities." In connection with the issuance of such shares,
the Company will record consulting expense of approximately $50,000,
approximately $36,000 of which was recorded during the quarter ending June 30,
1997.

In June 1997, the Company authorized the issuance of 17,000 shares of
Common Stock to a consultant, Robert Flaherty, as compensation for services. The
Company has agreed to register these shares under the Act and such shares will
be freely tradeable thereunder. In connection with the issuance of such shares,
the Company recorded consulting expense of approximately $7,000 in June 1997.
See "Description of Securities."

In June 1997, the Company authorized the issuance of 125,000 shares of
Common Stock to a consultant, Rick Joshi, as compensation for services. The
Company has agreed to register these shares under the Act and such shares will
be freely tradeable thereunder. In connection with the issuance of such shares,
the Company recorded consulting expense of approximately $50,000 in June 1997.
See "Description of Securities."

The Company is aware that, if all of the options and warrants
outstanding as of June 30, 1997 were exercised for shares of Common Stock, and
all of the shares of Preferred Stock and accrued dividends thereon as of June
30, 1997 were converted into shares of Common Stock, the Company would not have
a sufficient number of authorized shares of Common Stock to complete these
transactions. However, as of June 30, 1997, 775,000 of the issued and
outstanding options to purchase shares of Common Stock have not vested and,
thus, cannot be exercised. As of December 31, 1997, 462,500 of these options
will remain unvested and not be eligible for exercise. The Company is planning
to take the appropriate steps to increase its authorized number of shares of
Common Stock prior to the vesting of these options so that it should have a
sufficient number of authorized shares of Common Stock to satisfy the covenants
contained in its Articles of Incorporation, the issued and outstanding option
certificates, and the various warrant agreements. See "Risk Factors - Excessive
Share Issuance, Number of Authorized Shares," and "Description of Securities -
Authorized Shares Exceeded."

For the two months ended May 31, 1997, the Company incurred an
operating loss of approximately $475,000 (unaudited) and for the quarter ended
June 30, 1997, the Company's preliminary estimate is that it will incur an
operating loss of approximately $750,000 (unaudited). Such estimate includes the
effects of the above listed transactions.

5
<PAGE>

RISK FACTORS

The securities described herein are speculative and involve a high
degree of risk. Each prospective investor in the Common Stock should carefully
consider the following risk factors inherent in and affecting the business of
the Company and the Common Stock before investing in the Common Stock.

1. Development Stage Company; Limited Operating History; Significant
Cumulative Operating Losses; Auditor Report Modification for Going Concern.
Since its founding in January 1992, the Company has been in the development
stage and has been engaged almost exclusively in research and development
activities focused on designing, developing, and marketing its credit card
activated control systems. From inception through May 31, 1997 the Company
has generated funds primarily through the sales of its securities. The auditor's
report includes a modification that indicates that the Company's existence may
be dependent on its ability to continue to raise capital and generate sufficient
revenue from operations. See "Financial Statements." The Company installed its
first product, the Golfer's Oasis(TM) in June 1994. This product line did not
achieve the anticipated market acceptance and was also very capital intensive.
There are currently no units in operation and net revenues through December 31,
1996 were nominal. The Copy Express(TM) was first installed in January 1995, and
as of May 31, 1997, there were only 67 units in operation and net revenues
therefrom were nominal. The Credit Card Vending Express(TM) was first installed
in March 1995, and as of the date hereof, there are no units in operation. The
Company's Debit Express(TM) was first installed in April 1995, and as of May
31, 1997, there were only 32 units in operation and net revenues were nominal.
The Public PC(TM) (formerly known as the Credit Card Computer Express(TM)) was
first installed in April 1996, and as of May 31, 1997, there were only 55
units in operation and net revenues were nominal. The Business Express(TM) was
first installed in September 1996, and as of May 31, 1997, there were only 109
control systems in operation at 34 locations and net revenues were nominal.

For its fiscal years ended June 30, 1995, and June 30, 1996, the
Company incurred operating losses of $1,645,750 and $2,451,697, respectively.
For the nine months ended March 31, 1997, the Company incurred a net loss of
$2,313,492 (unaudited). From its inception on January 16, 1992 through March 31,
1997, the Company has incurred an accumulated deficit of $9,637,686 (unaudited).
For the two months ended May 31, 1997, the Company incurred an operating loss of
approximately $475,000 (unaudited) and for the quarter ended June 30, 1997 the
Company's preliminary estimate is that it will incur an operating loss of
approximately $750,000 (unaudited). Such operating losses are anticipated to
continue through at least June 30, 1998. See "Management's Discussion And
Analysis of Financial Condition And Results of Operations."

As of March 31, 1997, the Company's working capital was approximately
$582,155, of which $420,760 was invested in inventory. The Company anticipates
generating additional cash to finance future operating expenses by selling
additional securities and through increased revenues. As of May 31, 1997, 263
of the Company's control devices have been installed and net revenues have been
nominal. Accordingly, the Company has an extremely limited operating history
upon which an evaluation of the Company's prospects can be made. Such prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business as well as the risks,
expenses and difficulties encountered by a development stage company. There is
currently no basis upon which to assume that the Company's business will prove
financially profitable or generate more than nominal operating revenues. In
addition, there can be no assurances that the Company will be able to continue
to sell additional securities. If the Company either fails to generate increased
revenues or fails to sell additional securities, investors may lose all or a
substantial portion of their investment.

6
<PAGE>

2. Dependence Upon Key Personnel. The Company is dependent on certain
key management personnel, particularly its President and Chief Executive
Officer, George R. Jensen, Jr. The loss of services of Mr. Jensen or other
executive officers would have a material adverse effect upon the Company's
business. See "Management - Officer Terminations." The Company has entered into
an employment agreement with Mr. Jensen that expires in June 1998 and one-year
employment agreements with the other executive officers each of which contain
non-compete agreements. The Company has 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 its Vice President-Research and Development,
Haven Brock Kolls, Jr. The Company does not have and does not presently intend
to obtain key man life insurance coverage on any of its other executive
officers.

3. Uncertainty of New Product Development; Unproven Commercial
Viability. While a number of products or services such as gasoline and public
telephones are currently provided through unattended, credit card activated
terminals on a widespread basis, the commercial viability of any of the
Company's products has not been established. Although commercial production and
installation of the Company's products has commenced on a very limited basis,
there can be no assurance that the Company's products will be successful or
become profitable. Likewise, there can be no assurance that the demand for the
Company's products will be sufficient to enable the Company to become
profitable. In any such event, investors may lose all or substantially all of
their investment in the Company.

4. Dependence on Proprietary Technology; Patent Issues. The Company's
success is dependent in part on its ability to obtain patent protection for its
products, maintain trade secret protection and operate without infringing the
proprietary rights of others. To date, the Company has filed ten patent
applications, and intends to file applications for additional patents covering
its future products although there can be no assurance that it would do so. In
addition, there can be no assurance that the Company will maintain or prosecute
these applications. The United States Government has granted one of its patents
during April 1997 and another of its patents during June 1997. See "Business --
Patents, Trademarks and Proprietary Information." There can be no assurance that
any of the remaining patent applications will be granted, that the Company will
develop additional products that are patentable or do not infringe the patents
of others, or that any patents issued to the Company will provide the Company
with any competitive advantages or adequate protection for its products. In
addition, there can be no assurance that any patents issued to the Company will
not be challenged, invalidated or circumvented by others. There can be no
assurance that any of the Company's products would not infringe the patents of
others. If any of the Company's products is found to have infringed any patent,
there can be no assurance that the Company will be able to obtain licenses to
continue to manufacture and license such product or that the Company will not
have to pay damages as a result of such infringement. Even if a patent
application is granted for any of the Company's products, there can be no
assurance that the patented technology will be a commercial success or result in
any profits to the Company.

7
<PAGE>

5. Competition. The Company is not aware of any other business offering an
unattended, credit card activated control system for use in connection with
printers, copiers or general use of personal computers. There are companies
presently offering unattended, credit card activated control systems in
connection with facsimile machines, and use of the Internet and e-mail. In
addition, the businesses which have developed unattended, credit card activated
control systems currently used in connection with gasoline dispensing, public
telephones, prepaid telephone cards, ticket dispensing machines, or vending
machines are capable of developing control systems in direct competition with
the Company. 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. The Company is
aware of one business which enables the use of any "off the shelf" facsimile
machine as a public facsimile machine by utilizing the telephone to record
credit card information and then directly placing the telephone onto the
facsimile machine. Any such increased competition may result in lower
percentages of gross revenues being retained by the Company in connection with
its devices, 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 which make available use of the Internet and use of personal
computers to hotel guests in their hotel rooms on an as-needed basis. Although
these services are not credit card activated, such services would compete with
the Company's Business Express(TM), and the location may not order the Business
Express(TM), or if ordered, the hotel guest may not use it.

6. Dependence on Third-Party Suppliers. The Company is dependent on
third-party suppliers for the various component parts of its control systems.
Although the Company believes there are alternative sources for these component
parts, the failure of such suppliers to supply such component parts or the
absence of readily available alternative sources could have a material adverse
effect on the Company, including delaying the implementation of the Company's
business plan to achieve profitability. The Company does not have supply
contracts with any of such third-party suppliers and intends to purchase
components pursuant to purchase orders placed from time to time. See
"Business-Procurement".

7. Cash Dividends Not Likely. There can be no assurance that the
proposed operations of the Company will result in significant revenues or any
level of profitability. Any earnings which may be generated by the Company would
be used, for the foreseeable future, to finance the growth of the Company's
business. Accordingly, while payment of dividends rests within the discretion of
the Board of Directors, no cash dividends on the Common Stock have been declared
or paid by the Company to date, and the Company does not presently intend to pay
cash dividends on the Common Stock for the foreseeable future. Although the
Company paid a special stock dividend in August 1995 consisting of 3 shares of
Common Stock for each share of outstanding Preferred Stock, there can be no
assurance that cash dividends will ever be paid on the Common Stock. See
"Description of Securities-Series A Convertible Preferred Stock." The Articles
of Incorporation of the Company prohibit the declaration of any dividends on the
Common Stock unless and until all unpaid and accumulated dividends on the
Preferred Stock have been declared and paid. Through May 31, 1997, the unpaid
and cumulative dividends on the Preferred Stock equal $2,878,600. The unpaid and
accumulated dividends are either payable in cash by the Company when and if
declared by the Board of Directors of the Company, or may be converted by the
holder thereof into shares of Common Stock at the rate of $1.00 per share at the
time of conversion of the underlying share of Preferred Stock, provided that the
rate of conversion of such dividends is $.83 per share through December 31,
1997. Through May 31, 1997, $119,019 of unpaid and cumulative dividends on the
Preferred Stock have been converted to 126,863 shares of Common Stock. See
"Description of Securities- Series A Convertible Preferred Stock."

8
<PAGE>

8. Need For Market Acceptance; Location Risk. There can be no assurance
that demand for the Company's products will be sufficient to enable the Company
to become profitable. Likewise, no assurance can be given that the Company will
be able to install the credit card activated control systems at enough locations
or sell equipment utilizing its control systems to enough locations to achieve
significant revenues or that its operations can be conducted profitably. As of
May 31, 1997, the Company had installed only 263 control systems at various
public locations and revenues have been nominal. Alternatively, the locations at
which the Company's control systems are installed may not be successful
locations due to infrequent use of the equipment. In such event, the revenues of
the Company would be adversely affected. The Company may in the future lose
locations utilizing its products to competitors, or may not be able to install
its products at its competitor's locations.

9. No Assurance of Active Public Market. The Common Stock is currently
traded on the OTC Electronic Bulletin Board of the National Association of
Securities Dealers, Inc. Although there is limited trading in the Common Stock,
there is no established trading market therefore. Unless and until there is an
established trading market for the Common Stock, holders of the Common Stock
could find it difficult to dispose of, or to obtain accurate quotations as to
the price of, the Common Stock. See "Description of Securities - Shares Eligible
For Future Sale" and "Market For Common Stock."

10. Risks of Low-Priced Stocks. The Common Stock is subject to the
so-called penny stock rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as an investor with a net
worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. These regulations may adversely affect the ability of broker-dealers to
sell the Common Stock.

The Commission has adopted regulations that define a penny stock to be
any equity security that has a market price (as defined) of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's

9
<PAGE>

presumed control over the market.

As of the date hereof, the Common Stock qualifies as a penny stock and
is subject to the above regulations. The above regulations could adversely
affect the market liquidity for the Common Stock and could limit the ability of
broker-dealers to sell the Common Stock as well as the ability of holders of the
Common Stock to sell the Common Stock in the secondary market.

11. Charge to Income in the Event of Release of Escrow Shares. In
January 1994, at the time of the Company's initial public offering, and as a
condition of effectiveness of the offering in Pennsylvania, the Pennsylvania
Securities Commission requested that Mr. Jensen place in escrow with Corestates
Bank (formerly Meridian Bank), as escrow agent, all of the 7,593,000 shares of
Common Stock beneficially owned by him until June 30, 1998. Any additional
shares of Common Stock acquired by him will also be held in escrow. Subject to
the provisions of the escrow agreement, Mr. Jensen has agreed not to sell,
pledge, or transfer, directly or indirectly, any of the Common Stock held in
escrow.

The escrow agreement provides that it shall be terminated prior to June
30, 1998, and all of Mr. Jensen's shares of Common Stock currently held in
escrow shall be released and returned to him in the event of any dissolution,
merger, consolidation, sale of assets, stock sale, liquidation, tender offer,
exchange offer, or otherwise of or to the Company or its shareholders. In
connection with any such event, Mr. Jensen would not receive any consideration
for his shares of Common Stock unless and until each shareholder (other than Mr.
Jensen) has received an amount equal to $1.00 per share of Common Stock.

Mr. Jensen has agreed that 4,365,000 shares of his escrowed Common
Stock would be canceled by the Company and would no longer be issued and
outstanding unless one of the following occurs (i) the bid price of the Common
Stock equals or exceeds $1.75 for 30 consecutive trading days at any time during
the period of July 1, 1996 through June 30, 1998; or (ii) the Company's
cumulative operating income (before taxes, dividends, or extraordinary items)
per share of Common Stock (on a fully diluted basis) at any time after July 1,
1994 through June 30, 1998, equals or exceeds $.18. Mr. Jensen has agreed that
an amount equal to 1,030,000 shares of his escrowed Common Stock (rather than
4,365,000 shares) would be canceled if at any time after July 1, 1994 and prior
to June 30, 1998, the Company's cumulative operating income per share of Common
Stock is at least $.12 but less than $.18.

Subject to the terms of the escrow agreement, Mr. Jensen's Common Stock
will be held in escrow until the earlier of the satisfaction of any of the above
conditions (in which event no shares, or only 1,030,000 shares, would be
canceled), or June 30, 1998. Unless and until any such shares would be canceled,
and subject to the restrictions on sale or transfer pursuant to the escrow
agreement, Mr. Jensen has retained all rights pertaining to such shares,
including voting rights.

If the Company attains the aforementioned earning thresholds or the
Company's Common Stock attains the aforementioned prices required for the
release of certain shares of Common Stock currently held in escrow and which are
subject to cancellation, such release will require the Company to recognize
additional compensation expense. In the event such shares are released, they
will be considered outstanding for purposes of calculating per share information
concerning the Company. Accordingly, the Company will, in the event of the
release of such Common Stock, recognize during the period in which the earning
thresholds are met or such per share prices obtained, what could be a
substantial charge that would have the effect of substantially increasing the
Company's loss or reducing or eliminating earnings, if any, at such time. Such
charge will not be deductible for income tax purposes. Although the amount of
compensation expense recognized by the Company will not affect the Company's
total stockholders' equity or cash flow, it may have a depressive effect on the
market price of the Company's securities. If the required earnings threshold was
achieved at March 31, 1997, the compensatory charge to the Company's
operations during the nine months ended March 31, 1997 would have been
$1,746,000 (assuming the fair market value approximated $.40 per share on
March 31, 1997). This charge would not have affected the Company's cash flow
or total shareholders' equity. The net loss per share of Common Stock would have
been ($.26). See "Principal Shareholders - Escrow and Cancellation
Arrangements."

10
<PAGE>

In January 1994, at the time of the Company's initial public offering,
and as a condition of effectiveness of the offering in Pennsylvania, the
Pennsylvania Securities Commission also requested that all of the Directors and
executive officers of the Company (in addition to Mr. Jensen) place in escrow
all of the shares of Common Stock owned or to be owned by them until January 5,
1997. As set forth above, Mr. Jensen's shares of Common Stock are to remain in
escrow until June 30, 1998. The escrow agreement provided that such escrowed
shares could not be sold, pledged or transferred. On January 5, 1997 all of such
shares of Common Stock were released from escrow, returned to their respective
owner, and are no longer subject to the terms of the escrow agreement. An
aggregate of 1,009,500 shares of Common Stock were released from escrow and only
Mr. Jensen's shares remain in escrow.

Pennsylvania is a so-called "merit review" state pursuant to which
state regulators had broad discretion to impose conditions upon the Company in
connection with its initial public offering in Pennsylvania. The staff of the
Pennsylvania Securities Commission believed that the amount of Common Stock and
options to acquire Common Stock that had been issued to the Directors and
executive officers by the Company at the time of the initial public offering
exceeded the amount permitted by its informal guidelines, and therefore
requested the cancellation arrangements relating to Mr. Jensen's shares
described above. In addition, the staff believed that all such Common Stock
constituted "promotional securities" and requested that all such Common Stock be
placed in escrow for three years (and that Mr. Jensen's shares be subject to the
escrow arrangement for a longer period).

12. Uncertainty of Company to Continue as a Going Concern. The
Company's independent auditors have included an explanatory paragraph in their
report on the Company's financial statements to the effect that the Company's
ability to continue as a going concern is in substantial doubt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Financial Statements." If the Company ceases to continue as a
going concern, the investors in the Common Stock would lose all or substantially
all of their investment in their Common Stock.

13. Dilution, Issuance of Additional Securities By The Company. As of
March 31, 1997, the Company has issued outstanding options to acquire up to
3,816,000 shares of Common Stock, has issued 1996-B Warrants which are
convertible into 374,000 shares of Common Stock, has issued 1996 Warrants which
are convertible into 1,998,000 shares of Common Stock, has issued 1995 Warrants
which are convertible into 1,414,000 shares of Common Stock, and has issued
797,255 shares of Preferred Stock which are convertible into 9,567,060 shares of
Common Stock through December 31, 1997. In the event any or all of such
securities are exercised or converted, the number of issued and outstanding
shares of Common Stock would be increased. In such event, the percentage of
Common Stock held by each holder of Common Stock prior to such exercise or
conversion would be reduced and such exercise or conversion may have a dilutive
effect on the market price of the Common Stock. If all of such securities would
be exercised or converted into Common Stock, an additional 17,169,060 shares of
Common Stock would be issued and outstanding as of March 31, 1997, for a total
of 43,929,287 shares of Common Stock issued and outstanding. The Company may in
the future issue additional options, warrants or other securities convertible or
exchangeable into Common Stock. See "Recent Developments."

During the fiscal years ended June 30, 1995 and June 30, 1996, the
Company issued an additional 1,623,112 shares of Common Stock, an additional
498,403 shares of Preferred Stock, options to acquire up to 2,965,000 shares of
Common Stock and warrants to acquire up to 10,300,000 shares of Common Stock.
Assuming the exercise or conversion of all such securities, the issued and
outstanding shares of Common Stock would be increased by 19,872,142 shares. As
of March 31, 1997, such additional shares would represent approximately 42%
of all the issued and outstanding Common Stock on a fully converted basis.

14. Excessive Share Issuances, Number of Authorized Shares. As of June
30, 1997, on a fully converted basis, the Company would have 55,238,966 shares
of Common Stock issued and outstanding. This amount exceeds the authorized
number of shares of Common Stock of 55,000,000 by 238,966 shares, thus violating
various covenants contained in the Company's Articles of Incorporation, the
issued and outstanding option certificates, and the various warrant agreements.
In addition, the Company has authorized the issuance of 40,000 shares of Common
Stock to Jerome Wenger, a consultant, in July 1997.

All of the outstanding warrant agreements contain a covenant which
states that there have been reserved, and the Company shall at all times keep
reserved out of the authorized and unissued shares of Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the warrants.
11
<PAGE>

All of the option certificates contain a covenant which states that
"the Company shall at all times keep reserved out of the authorized and unissued
shares of Common Stock a number of shares of Common Stock sufficient to provide
for the exercise of the right of purchase represented by the options." Of the
issued and outstanding options to purchase 3,971,000 shares of Common Stock, as
of June 30, 1997 a total of 775,000 of these options have not vested and thus
are not eligible for exercise. As of December 31, 1997, a total of 462,500 of
these options will remain unvested and not be eligible for exercise.

The Company's Articles of Incorporation state that the Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock a sufficient number of shares to effect the conversion of the
shares of the Preferred Stock.

On and after January 1, 1998, each share of Preferred Stock would be
convertible into 10 shares of Common Stock instead of 12 shares of Common Stock,
as currently provided. On and after January 1, 1998, the accrued and unpaid
dividends on the Preferred Stock would be convertible into Common Stock at the
rate of $1.00 per share of Common Stock as opposed to the present conversion
rate of $.83 per share of Common Stock. Based on the 861,705 shares of Preferred
Stock outstanding on June 30, 1997 and the accrued dividends thereon, the change
in these conversion rates on January 1, 1998 would result in a reduction of
2,305,046 shares of the fully diluted Common Stock. However, to the extent that
the holders of Preferred Stock convert their shares before such date, this
anticipated reduction in the outstanding shares of Common Stock would be reduced
or eliminated. Furthermore, based on the 861,705 shares of Preferred Stock
outstanding on the date hereof, an additional $646,279 dividend will accrue on
August 1, 1997 entitling the holders of Preferred Stock to acquire 778,650
additional shares of Common Stock. Although the Company has not made any
covenants to the holders of the Preferred Stock to reserve shares of Common
Stock for issuance upon conversion of the accrued dividends on the Preferred
Stock, these additional dividends are automatically convertible into Common
Stock at the time of the conversion of the related shares of Preferred Stock.

The Company could remedy the violation of the above covenants by
increasing the number of authorized shares of Common Stock. Any such increase
must be approved by the Board of Directors of the Company and then approved by a
majority vote of the shareholders of the Company. There can be no assurance that
a majority of the shareholders would approve such a proposal. At this time, the
Company has no intention of presenting such a proposal to the shareholders.

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sales of the
Common Stock by the Selling Shareholders. See "Selling Shareholders" for a list
of those Shareholders entitled to receive net proceeds from the sales of the
Common Stock. The Company would, however, receive $.20 upon the exercise of each
Warrant by a Selling Shareholder on or before August 31, 1997, and $.30 upon the
exercise of each 1996-B Warrant or $.40 upon the exercise of each 1997 Warrant
by a Selling Shareholder thereafter. See "Description of Securities - 1996-B
Common Stock Purchase Warrants" and "Description of Securities - 1997 Common
Stock Purchase Warrants." Through May 31, 1997, none of the Warrants have been
exercised. The Company anticipates using the proceeds from the sale of the
Warrants to finance working capital and operating expenses. There is no
assurance that any or all of the Warrants will be exercised by the Selling
Shareholders. The Selling Shareholders will receive all of the net proceeds from
the sale of the Common Stock pursuant to this Prospectus. The Company will incur
costs of approximately $40,000 in connection with the registration of the Common
Stock underlying the Warrants. See "Description of Securities - 1996-B Common
Stock Purchase Warrants" and "Description of Securities - 1997 Common Stock
Purchase Warrants."

12
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Since January 1992, the Company, a development stage corporation, has
been engaged almost exclusively in research and development activities focused
on designing, developing, and marketing its unattended, credit card activated
control systems. From inception through March 31, 1997, the Company has had
nominal operating revenues and has generated funds primarily through the sale of
its securities. Through March 31, 1997, the Company has received, net of
expenses of such sales, the amount of $4,460,585 in connection with private
placements, $1,746,200 from the exercise of the 1995 Warrants and the 1996
Warrants, and $2,345,104 in connection with its initial public offering. The
Company has incurred operating losses since its inception, resulting in an
accumulated deficit of $9,637,686 at March 31, 1997 and such losses are expected
to continue through at least June 30, 1998.

The Company's independent auditors have included an explanatory
paragraph in their report on the Company's June 30, 1996 financial statements
discussing issues which raise substantial doubt about the Company's ability to
continue as a going concern. The Company believes that the funds available at
June 30, 1996 combined with the revenues to be generated during the remainder of
fiscal year 1997, the potential capital to be raised from the exercise of the
1995 and 1996 Warrants and other capital offerings, and the ability to defer
anticipated expenditures, if required, will provide for the Company to continue
as a going concern. There can be no assurance, however, that any significant
revenues will be generated during the 1997 fiscal year or that sufficient
capital can be raised by the Company. In such event, the Company may cease to be
a going concern and investors in the Common Stock may lose all of their
investment. See "Risk Factors - Development Stage Company; Limited Operating
History; Significant Cumulative Operating Losses."

Results of Operations

Fiscal Year Ended June 30, 1996. For the fiscal year ended June 30,
1996, the Company had a net loss of $2,451,692. Overall this loss reflects the
continuing development stage activities of the Company. The Company's Preferred
Stock provides for an annual cumulative dividend of $1.50 per share payable to
the shareholders of record on February 1 and August 1 each year. The $3,405,997
loss applicable to common shares or $.23 loss per common share was derived by
adding the $2,451,697 net loss and the $954,300 of cumulative preferred
dividends for the year ending June 30, 1996 and dividing by the weighted average
shares outstanding.

Revenues for the fiscal year ended June 30, 1996 remained at a nominal
level reflecting the disappointing performance of the Credit Card Copy
Express(TM) product line. Expenses for the fiscal year ended June 30,1996 were
$2,536,544, representing a $868,546 or 52% increase over the prior year. The
primary contributors to this increase were general and administrative expense
and compensation.

At June 30, 1996, cash was $1,773,356 compared to $376,191 on June 30,
1995. Such increase reflects the net proceeds received by the Company in
connection with a private placement offering that closed in June 1996 which
raised net proceeds of $1,249,264. In addition, during fiscal year 1996,
3,686,000 1995 Warrants were exercised for aggregate proceeds to the Company of
$1,105,800. At June 30, 1996, inventory was $426,391 compared to zero on June
30, 1995. Such inventory was purchased by the Company in connection with the
marketing of its Public PC(TM) (formerly known as Credit Card Computer
Express(TM)) product. The increase of accounts payable and accrued expenses
reflects the increased operating expenses incurred by the Company.

General and administrative expense of $1,449,889 increased sharply by
$751,289 or 108% which reflects both a general increase in spending to support
the expansion of operations as well as several non-operational factors.
Specifically, the major contributors to this increase were (a) $187,122 increase
in travel and lodging which was concentrated in the operations area and reflects
installation of the Company's control devices, (b) $103,355 increase in
professional fees due to financial consultant and legal fees, including
increased patent activity, (c) $93,888 increase in product development expense
primarily due to the programming and configuration of the Company's Public
PC(TM) (formerly known as the Credit Card Computer Express(TM)), (d) $313,548
increase in consulting expense, $247,205 of which is a non-cash compensation
expense attributable to the issuance of Common Stock to an outside consultant
for services rendered, and (e) the balance of the increase includes public
relations and technical services. Telephone, office expense, and postage
increased moderately.

13
<PAGE>

Compensation expense was $903,398, an increase of $215,013 or 31% over
the previous fiscal year. This increase was concentrated in the marketing
function and corporate staffing, and also including $27,343 of expense to
initiate an employee medical benefits plan.

Depreciation expense of $72,016 increased by $56,548, which is
attributable to the increased depreciable asset base. Advertising remained
consistent with the previous year.

A provision for losses on equipment was charged to operations in the
amount of $44,100 which represents the final charge for the discontinuance of
the Golfer's OasisTM product line.

Interest expense returned to normal levels with the elimination of the
public offering interest cost reflected in the prior year.

Fiscal Year Ended June 30, 1995. For the fiscal year ended June 30,
1995, the Company had a net loss of $1,645,750. Overall this loss reflects the
continuing development stage activities of the Company including the costs
associated with the de-emphasis of the Golfer's Oasis(TM) product line. The
Company's Preferred Stock provides for an annual cumulative dividend of $1.50
per share payable to the shareholders of record on February 1 and August 1 each
year. In addition, in August 1995 the Company paid a special stock dividend of 3
shares of Common Stock for each share of Preferred Stock issued and outstanding
on August 1, 1995, consisting of an aggregate of 1,908,600 shares of Common
Stock. The $2,149,624 loss applicable to common shares or $.19 loss per common
share was derived by adding the $1,645,750 net loss and the $503,784 of
cumulative preferred dividends for the year ending June 30, 1995 and dividing by
the weighted average shares outstanding.

Revenues for the fiscal year ended June 30, 1995 remained at a nominal
level reflecting the disappointing performance of the Golfer's Oasis(TM) and the
slower than anticipated introduction of the Credit Card Copy Express(TM) product
line. Expenses for the fiscal year ended June 30,1995 were $1,667,998,
representing a $413,914 or 33% increase over the prior year. The primary
contributors to this increase were general and administrative expense and a
provision for loss on obsolete equipment.

General and administrative expense of $698,600 increased sharply by
$314,689 which reflects both a general increase in spending to support the
expansion of operations as well as several non-operational factors.
Specifically, the major contributors to this increase were (a) $120,000 increase
in consulting fees which includes a non-recurring charge of $99,750 for the
non-cash compensation expense associated with the 150,000 shares of Common Stock
issued to an outside consultant, (b) $47,000 increase in rent, which includes a
non-recurring charge of $44,000 for the planned lease termination for the
Jacksonville facility, (c) 25,000 increase in equipment rental expense
associated with the Jacksonville location, (d) $69,000 increase in professional
fees due to legal, accounting, and public relations activities, (e) increase of
$12,000 in telephone expense, and (f) an increase of $12,000 in postage.

Compensation expense remained level with the prior year. At year end
the Company had thirteen full time employees representing a net addition of only
one. However the composition of the staff has shifted in support of the new
product development.

A provision for losses on obsolete equipment of $148,615 was recorded
to reflect the Company's decision to deemphasize the Golfer's Oasis(TM) product
line. It is management's opinion that the new products already developed
represent a better utilization of the Company's resources and will yield returns
higher than the capital intensive Golfer's Oasis(TM). All of the software and
technology related to this control system has been incorporated into and will be
marketed under the Credit Card Vending Express(TM) line. This charge to expense
represents the cost of liquidating the machines, parts, and components in excess
of the Company's current requirements.

Advertising and interest expense were both level with the prior year.
The majority of the interest expense, however, is related to the Company's
initial public offering which closed in February 1995 and therefore will not
continue. Research and development expense decreased significantly in 1995 by
$73,125 primarily due to the transition of projects from outside contracts to
in-house personnel which is accounted for under Compensation. Depreciation
increased by $7,410 as a function of the increased asset base.

14
<PAGE>

Nine Months Ended March 31, 1997. The nine month period ended March 31,
1997 resulted in a net loss of $2,313,492 or $.17 loss per Common share as
compared to a net loss of $1,696,410 or $.18 loss per Common share for the
comparable nine month period ended March 31, 1996. On an overall basis these
continuing and increasing losses reflect the development stage nature of the
Company and the significantly higher spending levels associated with the
introduction of the Company's latest proprietary product, the Business
ExpressTM. Losses are projected to continue until and unless sufficient revenue
is generated from the Company's products.

Revenue from operations was $280,994 compared to $61,565 for the
comparable nine months ended March 31, 1996. This is also the first period to
reflect the Company's sale of equipment utilizing its control systems. Prior
thereto, the Company's operating revenues consisted solely of licensing and
transaction processing revenues. Equipment sales for the nine months totaled
$189,514. Licensing and processing revenue increased to $77,441 from $36,302 for
the same period in 1996. Despite this modest increase and change in approach to
the market, revenue is still well below the level required to be profitable.

Expenses for the period were $2,594,486 which represents an increase
over the prior year of $836,511 or 48%. Generally this increased expense level
reflects continuing developmental activity for the Company's newest product, the
Business ExpressTM, as well as the associated costs of market introduction. The
major contributors to the increased expense level are discussed below. This
increase also includes a non-cash charge of $125,500 for the issuance of Common
Stock in exchange for consulting services, and a non-cash charge of $31,705 to
provide for losses on equipment.

General and administrative expenses of $1,482,870 increased by $439,267
or 42%. The increase in this expense category was concentrated in Product
Development and Travel Expense, both of which resulted directly from the
development and introduction of the Business ExpressTM. In addition,
Professional Fees increased, and Rent increased primarily due to the accrual of
continuing rent expense on the Company's former leased facilities.

15
<PAGE>

Compensation expense of $732,621 increased by $82,922 or 11.3% due to
an increase in staffing levels in the Marketing area and increased sales
commission payments related to increased equipment sales.

Depreciation increased from $15,318 to $74,819 reflecting the increased
depreciable capital asset base.

Advertising increased from $45,115 to $83,988 as a result of the
promotional expense related to the introduction of the Business ExpressTM.

Plan of Operations

As of March 31, 1997, the Company had a total of 183 credit card
activated control systems installed at public locations as follows:

Copy Express(TM) 49, Debit Express(TM) 35, Public PC(TM) (formerly
known as Credit Card Computer Express(TM) 41, Fax Express(TM) 12, and Business
Express(TM) 46.

During the 1996 fiscal year, the Company has shifted its emphasis to
products capable of generating new incremental revenue for equipment operators
(i.e. Public PC(TM), Business Express(TM)), as opposed to in the past simply
providing a better method of payment (i.e. Copy Express(TM)).

The Company completed development of the Business Express(TM) in August
1996 and as of March 31, 1997 there were 15 units in operation containing 46 of
the Company's control systems.

During 1997 fiscal year, the Company commenced selling equipment
utilizing the Company's control systems in addition to the licensing
arrangements previously employed. This shift in approach reduces the Company's
dependancy on licensing revenue and simultaneously reduces the Company's capital
asset requirements.

Plans for the remainder of the 1997 fiscal year include progressing
from the development stage to the operating mode. In October 1996, the Company
relocated its principal offices to a 7,000 square foot facility which will
provide assembly and warehousing space for the anticipated increased production
of the Business Express(TM).

Unless certain earnings are achieved by the Company or the price of the
Common Stock attains certain prices prior to June 30, 1998, a maximum of
4,365,000 shares of Mr. Jensen's shares of Common Stock will be cancelled. See
"Risk-Factors - Charge to Income in the Event of Release of Escrow Shares" and
"Management - Escrow And Cancellation Provisions." If such shares are not
cancelled and are released from escrow, the Company would recognize during the
period when such shares are released a substantial charge to operations. Such
charge could have the effect of substantially increasing the Company's loss or
reducing or eliminating any earnings. If such shares would have been released
during the nine months ended March 31, 1997, there would have been a
compensatory charge of approximately $1,746,000 against operations, assuming the
fair market value of the Common Stock approximated $.40 per share on March
31, 1997. The net loss per share would have been ($.26), in contrast to the
reported loss per share of ($.17) for the nine months ended March 31, 1997.

16
<PAGE>

Liquidity and Capital Resources

During the fiscal year ended June 30, 1996, the Company completed a
number of equity transactions. Net proceeds of $1,957,255 were realized from the
private placement offering of units consisting of Preferred Stock and 1995
Warrants, which closed August 31, 1995. In February 1996, the exercise price for
the 1995 Warrants was reduced from $.50 per share to $.30 per share and net
proceeds of $1,105,800 were generated from the 1995 Warrants exercised. In April
1996, a private placement offering of units consisting of Preferred Stock and
1996 Warrants generated an additional $1,249,264 of net proceeds. As of June 30,
1996 total working capital was $1,957,255, including cash on hand of $1,773,356.

During the fiscal year ended June 30, 1996, net cash of $2,392,538 was
used by operating activities, primarily compensation and general and
administrative expenses. Net cash of $108,904 was used by investing activities
principally for the purchase of property and equipment. The net cash provided
by financing activities of $3,898,607 was principally due to the net proceeds
generated from the issuance of Common Stock and Preferred Stock of $3,953,899.

The Company's independent auditors have included an explanatory
paragraph in their report on the Company's June 30, 1996 financial statements
discussing issues which raise substantial doubt about the Company's ability to
continue as a going concern. The Company believes that the funds available at
June 30, 1996 combined with the revenues to be generated during fiscal year
1997, the potential capital to be raised from the exercise of the 1995 and 1996
Warrants, and the ability to defer anticipated expenditures, if required, will
provide for the Company to continue as a going concern. There can be no
assurance, however, that any significant revenues will be generated during the
1997 fiscal year or that sufficient capital can be raised by the Company. In
such event, the Company may cease to be a going concern and investors in the
Common Stock may lose all of their investment. See "Risk Factors - Development
Stage Company; Limited Operating History; Significant Cumulative Operating
Losses."

For the nine month period ended March 31, 1997, there was a net
decrease in cash of $1,391,422. This was attributable primarily to sustaining a
$2,313,492 operating loss and capital expenditures of $17,856, offset by
$769,684 raised through the issuance of Common Stock.

The Board of Directors approved a reduction in the exercise price of
the 5,200,000 1996 Warrants. Effective November 1, 1996 the exercise price was
reduced from $.50 to $.20 per share through February 28, 1997. This resulted in
the exercise of 2,345,000 1996 Warrants for gross proceeds to the Company of
$469,000 as of December 31, 1996. Subsequent to December 31, 1996 and through
March 31, 1997, an additional 857,000 1996 Warrants were exercised at $.20 per
share generating an additional $171,400.

In addition, in December 1996, the Board of Directors authorized a
$200,000 private placement offering of 20 units at a unit price of $10,000. The
offering closed in February 1997, with sales of $93,500 or 9.35 units. Each unit
consisted of 1,000 shares of Preferred Stock and 40,000 1996-B Warrants.

As of March 31, 1997, working capital was approximately $582,155 of
which $420,760 was invested in inventory. Subsequent to March 31, 1997, the
Company raised net proceeds of approximately $360,000 from a private placement
offering commenced in April 1997 of 40 units at a unit price of $10,000. Each
unit consisted of 2,000 shares of Preferred Stock and 40,000 1997 Warrants.
Subsequent to March 31, 1997, the Company also raised net proceeds of
approximately $460,000 from the sale of Convertible Debentures issued by the
Company pursuant to Regulation S promulgated under the Act. The Company also
anticipates that it will raise additional funds from the exercise of outstanding
warrants during the balance of 1997. The Company believes that these funds
together with increased revenues from its business would be sufficient to fund
operations through March 1, 1998. There can be no assurance that additional
sales of securities could be made by the Company or that increased revenues
would result from its business. In such event, the Company may cease to be a
going concern or may have to reduce its operations or operating procedures. See
"Risk Factors."

17
<PAGE>

Commitment

During February 1996, the Company entered into a commitment to acquire
250 control systems for $142,000. As of June 30, 1996, 174 units were received
and accordingly $99,000 was included in accounts payable. As of the date hereof,
all remaining units under this commitment were received and all outstanding
balances related to this commitment were paid.

In October 1996, the Company entered into a lease for approximately
7,000 square feet in Wayne, Pennsylvania for a monthly rental of $5,000 plus
utilities and operating expenses. The lease expires on October 15, 1999. The
Company is obligated to continue to pay rent under its lease for its previous
Wayne, Pennsylvania office space through August 1997. Through March 31, 1997,
all unpaid rent related to this lease has been accrued in the March 31, 1997
financial statements.

BUSINESS

The Company anticipates generating its revenues from the sale of
equipment utilizing its control systems, from retaining a portion of the
revenues generated from all credit card transactions conducted through its
control systems, and from monthly administrative fees paid by various locations
utilizing its control systems. The Company has recently entered into joint
marketing agreements with Minolta Corporation ("Minolta"), and Lexmark
International, Inc. ("Lexmark"), and has been designated as authorized equipment
resellers by Hewlett-Packard Company ("Hewlett-Packard"), International Business
Machines Corporation ("IBM") and Dell Computer Corporation ("Dell"). The Company
believes that the Company would benefit from the association of its control
systems with the well known brands of business equipment manufactured by these
companies.

As of May 31, 1997, there were 263 of the Company's control systems
installed at locations throughout the United States and Canada and revenues have
been nominal.

The Control Systems

The Company has developed unattended, credit card activated control
systems that are being utilized in connection with photocopying machines, debit
card purchase/revalue stations, personal computers, facsimile machines and
computer printers.

<PAGE>

In order to activate the equipment attached to the Company's control
systems, the consumer must swipe a valid credit card through the control system.
The control system then transmits this request to the credit card processor. The
credit card processor verifies that the credit card is valid and authorizes the
transaction. The control system then activates the equipment for use by the
consumer. Each control system acts as an off-line terminal that has the ability
to communicate with the Company. When the consumer has finished using the
equipment, the control system transmits a record of the transaction to the
Company's computer center and prints a record of the transaction for the
consumer. On a daily basis, the Company transmits the transaction information
collected from all of its installed control devices to the credit card
processor. The credit card processor electronically transfers the proceeds
derived from these transactions, less the credit card processor's charge, to the
Company. The Company then forwards a check to the location of the equipment
representing the location's share of the proceeds along with a report reflecting
the usage of each piece of equipment attached to the control systems.

The Company has been certified by First Data Corp., a leading credit
card processor in the United States. First Data has extended to the Company a
fixed rate percentage processing charge in connection with the credit card
transactions conducted through the Company's control systems. This charge is
payable by the Company (and not by the locations) out of its share of the gross
proceeds.

For the years ended June 30, 1995 and 1996, the Company has spent
approximately $130,000 and $224,000, respectively, for the development of its
technology. These amounts include the expense of outside consultants and
contractors as well as compensation paid to the Company's employees and included
in Compensation in the financial statements.

Industry Trends

With trends over the last twenty years indicating an ever increasing
customer reliance on the use of credit cards as a method of payment, the Company
believes the future of purchasing retail products and services is in credit
cards rather than cash. Consumers are constantly searching for ways to purchase
quality products and services in the most convenient manner. Examples of this
trend include the increasing use of unattended, Automated Teller Machines
("ATM's") in banking transactions and the use of unattended, self-service
gasoline pumps with credit and debit card payment capabilities. In addition,
consumers are becoming more accustomed to using credit cards as a method of
payment in an ever increasing array of retail and service settings. Almost every
department store, restaurant and supermarket accepts credit card payments.
Consumers are increasingly using mail order, telephone and the Internet to order
goods and services and are using credit cards to pay for these goods and
services. In response to this increasing consumer demand for convenience and
this increasing consumer acceptance of credit cards as a method of payment, the
Company has focused its efforts towards developing and marketing its unattended,
credit card activated control systems.

The Copy Express(TM)

Traditionally, customers wishing to use a photocopying machine have
either used a prepaid, stored value card or cash. In most circumstances, this
places a burden on employees of the facility to provide a number of services
unrelated to their primary jobs, such as providing change, coin collecting, coin
counting and coin reloading. By utilizing the Copy Express(TM) control system,
the location's attendant no longer is required to interact with the customers
for these purposes.

The Copy Express(TM) control system provides a cashless method to pay
for the use of photocopying machines. The device is attached to the photocopying
machine, computer printer, or microfilm/fiche printer in a similar manner as
attaching a standard coin acceptor. The device can be attached to either
existing or new equipment. The control system enables customers to photocopy
documents with the use of a credit card.

To date, the Company has licensed the control systems to university and
public libraries to be attached to their photocopying machines. The Company
receives a fixed percentage of the proceeds generated from any transactions and
the location receives the balance of the proceeds. As of May 31, 1997, there
were 67 Copy Express(TM) control systems (includes 14 Fax Express(TM)) installed
at the following university and public libraries: Adams State University;
Anaheim Public Library; Bradley University Library; Bucks County Community
College; Clarkson University; Colorado Christian University; Denver Public
Library; Drexel University; Georgetown University Law Center; Michigan State

19
<PAGE>

University; New England Law School; Nova Southeastern University; Penn State
Erie; Princeton University; University of Chicago; University of Houston;
University of Maryland, Baltimore County; University of Pittsburgh; University
of Texas; and Villanova University.

The Debit Express(TM)

Many "closed" environments such as universities utilize a private card
system to store cash value known as a debit or "stored value" card. Pursuant
thereto, customers transfer lump sum cash values onto a magnetic stripe or
imbedded chip card that can be used to activate equipment within the closed
environment. As the cardholder uses the card to purchase products or services
the cash value is deducted from the total value on the card.

The Company's Debit Express(TM) enables customers to purchase or
revalue their debit cards with a credit card and eliminates the need for cash or
for an attendant to handle cash, provide change or process credit card
transactions. The Debit Express(TM) eliminates any reliance on cash by allowing
customers to use a credit card to purchase or place additional value on a debit
card.

To date, the Company has licensed the control system to university
libraries to be attached to their debit card purchase/revaluate machines. The
Company receives a fixed percentage of the proceeds generated from any
transactions and the location receives the balance of the proceeds. As of May
31, 1997, there were 32 Debit Express(TM) control systems installed at the
following university libraries: APS-Chapman; APS-Torrance; Boston College;
Bradley University Library; Cleveland State University; Coinmach; Communications
Expo; Fresno State University; Nova Southeastern University; Ohio University;
Princeton University; Stanford University; University of Chicago; University of
Georgia Law Library; University of Texas; and University of Wisconsin Green Bay.

The Public PC(TM)

The Company's Public PC(TM) (formerly known as the Credit Card Computer
Express(TM)) is an unattended, credit card activated control system which can be
used in connection with general use of a personal computer, as well as for the
use of on-line services, including the Internet, and for the use of a laser
printer. The Company believes that the growing dependence on personal computers
and related services that are accessed through personal computers, such as the
Internet and e-mail, has created an environment where there is a need for access
to personal computers by the general public on an "as needed" basis. The
Company's control system enables locations such as public libraries, hotels and
convention centers, airports and retail locations to offer the use of personal
computers to the public on an "as needed" basis utilizing credit cards as a
method of payment. The Public PC(TM) is designed so that an attendant is not
required to process credit card transactions, provide change, or calculate
charges for the use of the equipment.

The Company licenses its control system to locations to be attached to
their personal computers. Alternatively, the Company may supply the location
with a computer system owned by the Company and license the control system to
the location for use with the Company's equipment. The Company receives a fixed
percentage of the proceeds generated from any transactions and the location
receives the balance thereof.

During fiscal 1997, the Company commenced selling personal computers
and laser printers to the locations in addition to only licensing the control
system. See "Business -- Marketing." In connection with any such sales, the
Company would realize revenues from the sale of the equipment and also receive a
percentage of the proceeds generated from any credit card transactions. In
addition, in some cases, the Company receives a negotiated monthly
administrative fee.

As of May 31, 1997, there were 55 Public PC(TM) control systems
installed at the following public libraries, hotels and retail locations: Adams
County Library; Atlanta Airport; Communications Expo; Delaware County Law
Library; Marriott Philadelphia; Plainfield Public Library; San Francisco Public
Library; Sheraton Society Hill Philadelphia; Valley Cottage Library; WebBooth;
West Coast Video; and Winter Haven Library.

<PAGE>
The Business Express(TM)

The Company believes that the hotel/motel hospitality industry continues to
expand, but has become more competitive as the industry increases its efforts to
attract the business traveler. The Company also believes that business travelers
and conference attendees account for the majority of hotel occupancy, stay
longer and spend more per visit than the leisure traveler. For these reasons,
the Company believes that the hospitality industry has become very responsive to
the needs of the business traveler. The Business Express(TM) enables a hotel or
conference center to offer an unattended business center to its guests. The
Business Express(TM) is credit card activated, therefore eliminating the need
for an attendant to provide change, process credit cards, or calculate the
charges for the use of the equipment.

The Business Express(TM) utilizes the Company's existing control
systems for use in connection with computers, photocopying machines, computer
printers, and facsimile equipment, and combines them into a branded product. A
typical Business Express(TM) unit could include a personal computer and laser
printer, a photocopying machine and a facsimile machine, the corresponding
control systems, as well as work station furniture. However, a location can
custom order its unit to include any combination of equipment and corresponding
control system. Furthermore, the location could add additional equipment in the
future.

The Company assists the location in the design of the unit, including
selecting a layout and furniture for the equipment. To date, the Company has
sold business equipment to the locations, has supplied Company owned equipment
to the certain locations and has supplied control systems to the location for
use with location owned equipment. In all such cases, the Company licenses the
control systems to the locations and receives a fixed percentage of the proceeds
generated from any transactions. In connection with sales of business equipment,
the Company also receives revenues and in some cases receives a monthly
administrative fee.

During August 1996, the Company assembled the Business Express(TM)
prototype and during September 1996 installed the first test site. As of March
31, 1997, the Company had 46 control systems located at the following 15
locations: Best Western, New York, New York; Courtyard by Marriott, Wayne,
Pennsylvania; Doubletree Club Hotel, Louisville, Kentucky; Eisenhower Inn and
Conference Center, Gettysburg, Pennsylvania; Embassy Suites, Hunt Valley,
Maryland; Galleria Park Hotel, San Francisco, California; Holiday Inn, Dallas,
Texas; Holiday Inn, New Albany, Indiana; Ramada Inn, East Brunswick, New Jersey;
Sheraton Great Valley, Malvern, Pennsylvania; Sheraton Rancho Cordova, Rancho
Cordova, California; St. Clair Inn, St. Clair, Michigan; Thomas Edison Inn, Port
Huron, Michigan; Union League of Philadelphia, Philadelphia, Pennsylvania; and
Westin Ottawa, Ottawa, Ontario. Through May 31, 1997, an additional 63 control
systems were installed at five Doubletree Club Hotels located in Jacksonville,
Florida, Miami, Florida, Philadelphia, Pennsylvania, San Antonio, Texas, and Des
Plaines, Illinois; at Clarion Plaza Hotels located in Miami, Florida and
Richardson, Texas; at Holiday Inn Hotels in Bethlehem, Pennsylvania, St Louis,
Missouri and Santa Cruz, California; the Biltmore Hotel in Santa Clara,
California; Marriot located at the Philadelphia Airport; Marriot, Portland,
Maine; Novotel located at the Toronto Airport; Quality Inn, Jacksonville,
Florida; Quality Hotel and Suites, New York, New York; Ramada Emily Morgan, San
Antonio, Texas; Ramada Inn, Lewiston, Maine; and Wyndham Hotel, Phoenix,
Arizona.

Marketing

The Company is currently marketing its products through its full-time sales
staff consisting of 4 persons, either directly to locations or through facility
management companies servicing the locations.

In March 1997, the Company entered into a co-marketing agreement with
Minolta Corporation ("Minolta") pursuant to which the Company and Minolta would
work together to market and sell the Business Express(TM) featuring the Minolta
copier to the hospitality industry. The agreement is on a nonexclusive basis and
can be terminated by either party on thirty days notice.

In March 1997, the Company entered into a co-marketing agreement with
Lexmark International, Inc. ("Lexmark") pursuant to which the Company and
Lexmark would work together to market and sell the Business Express(TM)
featuring the Lexmark printer to the hospitality industry. The agreement is on a
nonexclusive basis and can be terminated by either party on thirty days notice.

In December 1996, the Company entered into an agreement with
International Business Machines Corporation ("IBM") pursuant to which it was
appointed an IBM Business Partner-Personal Computer Reseller. This agreement
will allow the Company to purchase IBM personal computers at a wholesale price
for resale to its customers as a configured Public PC(TM) that is credit card
activiated. The agreement can be terminated by either party on thirty days
notice.

During February 1996, the Company entered into an agreement with Dell
Marketing, L.P., a subsidiary of Dell Computer Corporation ("Dell"), pursuant to
which the Company was appointed as a Dell authorized

<PAGE>

"Remarketer/Integrator". This agreement allows the Company to purchase Dell
personal computers at a wholesale price for resale to its customers. The
agreement can be terminated by either party upon thirty days notice. To date,
the Company has ordered 54 computers from Dell, all of which have been paid for
and received by the Company.

In December 1996, the Company was designated as an authorized
"Hewlett-Packard Value-Added Reseller," pursuant to which the Company may
purchase Hewlett-Packard facsimile machines at a wholesale price for resale to
its customers. The agreement can be terminated by either party upon thirty days
notice.

The Company believes these agreements are an important component of the
Company's effort to market the Business Express(TM) to the hospitality industry
because they provide instant brand name recognition. In addition, each of these
companies offers maintenance and service agreements relating to the equipment
directly to the location, thus removing the need for the Company to provide
maintenance services or warranties to any of the equipment (other than the
control systems).

Procurement

The Company's control systems consist of a card reader, printer,
amplifier, circuit board and micro chip in a specially designed housing. The
control systems are currently manufactured to the Company's design
specifications by an independent contractor, LMC Autotech Technologies, L.P.
("LMC"). In February 1996, the Company contracted for the purchase of 250
control devices, for a total purchase price of $142,000. As of the date hereof,
all units ordered under this contract have been received and all amounts due
under this contract have been paid by the Company. The Company anticipates that
LMC will be able to meet its future control system supply needs.

The Company anticipates obtaining computer hardware and other business
equipment (other than the Company's control systems) from Dell, Hewlett-Packard,
Minolta, Lexmark or IBM pursuant to the agreements entered into with each of
these companies. See "Business -- Marketing."

Competition

The Company believes that there are currently no other businesses
offering an unattended, credit card activated control system for use in
connection with printers, copiers or general use personal computers. There are
other companies presently offering unattended, credit card activated control
devices in connection with facsimile machines, Internet and e-mail access, and
debit card purchase/revalue stations. 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, or vending machines, are capable of utilizing their
control systems in direct competition with the Company. 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 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 which make available use of the Internet and use of personal
computers to hotel guests in their hotel rooms on an "as-needed" basis. Although
these services are not credit card activated, such services would compete with
the Company's Business Express(TM), and the locations may not order the Business
Express(TM), or if ordered, the hotel guest may not use it. See "Risk Factors --
Competition."

Patents, Trademarks and Proprietary Information

The Company has applied for federal registration of its trademarks
Business Express(TM), Computer Express(TM), Fax Express(TM), TransAct(TM), Copy
Express(TM), C3X(TM), Printer Express(TM), and Debit Express(TM). There can be
no assurance, however, that any of such applications will be granted or that the
Company will continue to maintain or prosecute all of such applications.

<PAGE>

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 or that others
will not capitalize on certain of the Company's technology.

The Company has applied for ten United States letters patent related to
its cashless vending technology, and has applied for certain corresponding
foreign letters patent in connection therewith. In April 1997, the United States
Patent Office granted the Company's patent entitled "Credit Card and Bank Issued
Debit Card Operated System and Method for Controlling and Monitoring Access of
Computer and Copy Equipment." In June 1997, the United States Patent Office
granted the Company's patent number 5,637,845 entitled "Credit and Bank Issued
Debit Card Operated System and Method For Controlling a Prepaid Card
Encoding/Dispensing Machine." As of the date hereof, the remaining eight
applications are pending and have not been granted. There can be no assurance
that the Company will continue to maintain and prosecute the remaining pending
applications. See "Risk Factors - Dependence on Proprietary Technology; Patent
Issues."

Employees

As of May 31, 1997, the Company has sixteen full-time employees.

Properties

The Company leases its principal executive offices, consisting of
approximately 7,000 square feet, at 200 Plant Avenue, Wayne, Pennsylvania for a
monthly rental of $5,000 plus utilities and operating expenses. The lease
expires on October 15, 1999. Effective October 1996, the Company canceled its
lease in Jacksonville, Florida, and has no further obligation thereunder. The
Company is obligated to continue to pay rent under the lease for its previous
Wayne, Pennsylvania executive offices through August 1997. Through March 31,
1997, all unpaid rent related to this lease has been accrued in the March 31,
1997 financial statements.

Legal Proceedings

The Company is not a party to any material legal proceedings.

<PAGE>

MANAGEMENT

Directors and Executive Officers

The Directors and executive officers of the Company, together with
their ages and business backgrounds are as follows.

Name Age Position(s) Held
---- --- ----------------

George R. Jensen, Jr. 48 President, Chief Executive
Officer, Chairman of the
Board of Directors
Stephen P. Herbert 34 Executive Vice President - Sales
and Marketing, Director
Haven Brock Kolls, Jr. 31 Vice President - Research and
Development
Keith L. Sterling 45 Executive Vice President -
Operations, Secretary, Director
Leland P. Maxwell 50 Senior Vice President, Chief
Financial Officer, Treasurer
Director
Peter G. Kapourelos 77 Director
William W. Sellers 76 Director
Henry B. duPont Smith 36 Director
William L. Van Alen, Jr. 64 Director

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 the President, Chief Executive Officer,
and Director of the Company since January 1992. Mr. Jensen is the founder, and
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 $33 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

24
<PAGE>

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 of the Company in April 1996,
and joined the Company on a full-time basis on May 6, 1996. Prior to joining the
Company 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 the Company 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.

Keith L. Sterling joined the Company on a full-time basis as Executive
Vice President-Operations and Secretary on July 1, 1993 and was elected to the
Board of Directors on May 12, 1995. On December 1, 1996, Mr. Sterling was
appointed Chief Financial Officer and Treasurer on an interim basis through
February 24, 1997. Mr. Sterling is part owner, and from October 1987 to July 1,
1993, was the Chief Executive Officer of Radnor Commonwealth Equities, Inc., a
Washington, D.C. asset-based investment/consulting firm. He co-founded that firm
in 1987. From 1980 to 1987, Mr Sterling held various positions with MHB
Companies, Inc., a national investment-development company headquartered in
Houston, Texas, including Executive Vice President. Mr. Sterling graduated with
a Bachelor of Science degree in Economics from Susquehanna University.

The former Chief Financial Officer of the Company resigned effective
December 1, 1996. See "Officer Terminations."

Leland P. Maxwell joined the Company on a full-time basis on February
24, 1997 as Chief Financial Officer, Senior Vice President and Treasurer. Prior
to joining the Company, Mr. Maxwell was the corporate controller for Klearfold,
Inc., a privately-held manufacturer of specialty consumer packaging. From 1992
to 1996, Mr. Maxwell was the regional controller for Jefferson Smurfit/Container
Corporation of America, a plastic packaging manufacturer, and from 1986 to 1992
was the divisional accounting manager. Prior thereto, he held financial
positions with Safeguard Business Systems and Smithkline-Beecham. Mr. Maxwell
received a Bachelor of Arts degree in History from Williams College and a Master
of Business Administration-Finance from The Wharton School of the University of
Pennsylvania. Mr. Maxwell is a Certified Public Accountant.

25
<PAGE>

Peter G. Kapourelos joined the Board of Directors of the Company in May
1993. Mr. Kapourelos has been a branch manager of Advantage Capital Corporation,
a subsidiary of Primerica Corporation, since 1972. He has been a member of the
Millionaire Production Club since 1972. Mr. Kapourelos is currently the Vice
President for American Capital High Yield Bond Fund and of the American Capital
Equity Income Fund, which are publicly traded mutual funds.

William W. Sellers joined the Board of Directors of the Company 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.

Henry B. duPont Smith joined the Board of Directors of the Company in
May 1994. Since January 1992, Mr. Smith has been a Vice President of The
Rittenhouse Trust Company and since September 1991 has been a Vice President of
Rittenhouse Financial Services, Inc. From September 1991 to December 1992, he
was a registered representative of Rittenhouse Financial Securities, Inc. Mr.
Smith was an Assistant Vice President of Mellon Bank, N.A. from March 1988 to
July 1991, and an investment officer of Provident National Bank from March 1985
to March 1988. Mr. Smith received a Bachelor of Arts degree in Accounting in
1984 from Franklin & Marshall College.

William L. Van Alen, Jr., joined the Board of Directors of the Company
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.

26
<PAGE>

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, 1994, June 30, 1995 and June 30, 1996 to the individual acting in the
capacity of Chief Executive Officer of the Company. No individual who was
serving as an executive officer of the Company at the end of the fiscal years
ended June 30, 1994, June 30, 1995 or June 30, 1996 received salary and bonus in
excess of $100,000 in any such fiscal year.

Summary Compensation Table

Fiscal
Name and Principal Position Year Annual Compensation
- --------------------------- ------- ---------------------
Salary Bonus
------ -----

George R. Jensen, Jr. 1996 $90,000 $0
Chief Executive Officer, 1995 $90,000 $0
President 1994 $90,000(1) $0

(1) During the 1994 fiscal year, Mr. Jensen actually received, in addition to
his salary for the 1994 fiscal year, the amount of $50,000 for accrued but
unpaid salary attributable to the 1993 fiscal year.

Executive Employment Agreements

The Company has entered into an employment agreement with Mr. Jensen
which expires June 30, 1998. The Agreement is automatically renewed from year to
year unless canceled by Mr. Jensen or the Company. The Agreement provides for an
annual base salary of $100,000 per year. 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 Company has entered into a one-year employment agreement with Mr.
Herbert which expires on April 30, 1998. The Agreement 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 $90,000 per year, provided,
however, that Mr. Herbert's base salary shall never be less than ninety percent
of that of the Chief Executive Officer of the Company. Mr. Herbert is entitled
to receive such bonus or bonuses as the Board of Directors may award to him. The
Agreement

27
<PAGE>

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.

Mr. Sterling has entered into a one-year employment agreement with the
Company which expires on June 30, 1998. The Agreement is automatically renewed
from year to year thereafter unless cancelled by Mr. Sterling or the Company.
The Agreement provides for an annual base salary of $90,000 and provides that Mr
Sterling is entitled to receive such bonus or bonuses as the Board of Directors
may award to him. The Agreement requires Mr. Sterling 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.

Mr. Sullivan had entered into a one-year employment agreement with the
Company which was to expire on June 30, 1997. Effective December 1, 1996, Mr.
Sullivan resigned as an officer and Chief Financial Officer of the Company. Mr.
Sullivan was engaged as a part-time consultant to the Company through February
28, 1997. Mr. Sullivan's employment agreement was cancelled effective
December 1, 1996. See "Management - Officer Terminations."

Mr. Kolls has entered into a one-year employment agreement with the
Company which expires on April 30, 1998, 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 $90,000 per year. 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
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.

Mr. Maxwell has entered into a one-year employment agreement with the
Company which expires on February 28, 1998, and is automatically renewed from
year to year thereafter unless cancelled by Mr. Maxwell or the Company. The
Agreement provides for an annual base salary of $85,000 per year, provided, that
Mr. Maxwell's base salary shall never be less than eighty-five percent of that
of the Chief Executive Officer of the Company. Mr. Maxwell is also entitled to
receive such bonus or bonuses as the Board of Directors may award to him. The
Agreement requires Mr. Maxwell 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.

Director Compensation and Stock Options

Members of the Board of Directors do not currently receive any cash
compensation for serving on the Board of Directors.

In April 1993, Messrs. Kapourelos and Sellers each purchased 100,000
shares of Common Stock from the Company at a purchase price of $.001 per share.
In June 1993, Mr. Van Alen purchased 100,000 shares of Common Stock from the
Company at a purchase price of $.001 per share.

28
<PAGE>

In July 1993, the Company issued to each of Messrs. Kapourelos,
Sellers, and Van Alen fully vested options to purchase 100,000 shares of Common
Stock at an exercise price of $.25 per share. The options must be exercised on
or before June 30, 1998.

In March 1995, the Company issued to Mr. Smith fully vested options to
purchase 100,000 shares of Common Stock, to Mr. Sellers fully vested options to
purchase 55,000 shares of Common Stock, to Mr. Kapourelos fully vested options
to purchase 70,000 shares of Common Stock, and to Mr. Van Alen fully vested
options to purchase 25,000 shares of Common Stock. The exercise price of these
options is $.25 per share and they must be exercised on or before February 29,
2000.

The Company paid to William W. Sellers the amount of $80,000 for
consulting services rendered by Mr. Sellers to the Company during the fiscal
year ended June 30, 1996.

The Company paid to Peter G. Kapourelos the amount of $24,000 for
consulting services rendered by Mr. Kapourelos to the Company during the fiscal
year ended June 30, 1996.

Executive Stock Options

In July 1993, the Company issued to Keith L. Sterling and Edward J.
Sullivan, a former officer of the Company, options to purchase shares of Common
Stock at an exercise price of $.25 per share. The options must be exercised
within five years of the vesting thereof. Mr. Sterling received options to
acquire 200,000 shares of Common Stock, 100,000 of which vested on June 30,
1994, and 100,000 of which vested on June 30, 1995. Mr. Sullivan was granted
options to acquire 100,000 shares of Common Stock, 50,000 of which vested on
June 30, 1994, and 50,000 of which vested on June 30, 1995.

In August 1994, the Company issued to Mr. Kolls options to acquire
50,000 shares of Common Stock at an exercise price of $.25 per share, 25,000 of
which vested on April 30, 1995, and 25,000 of which vested on April 30, 1996.

In August 1994, the Company issued to Mr. Barry Slawter, a former
officer of the Company, options to acquire 200,000 shares of Common Stock at an
exercise price of $.25 per share, 50,000 of which vested on February 1, 1995,
50,000 of which vested on May 1, 1995, 50,000 of which vested on August 1, 1995,
and 50,000 of which vested on November 1, 1995. The options must be exercised
within five years after vesting.

29
<PAGE>
In March 1995, the Company issued to Mr. Sterling fully vested
options to acquire 100,000 shares of Common Stock at $.25 per share exercisable
on or before February 29, 2000.

In March 1995, the Company issued to Mr. Kolls options to acquire
150,000 shares of Common Stock, at an exercise price of $.25 per share, 75,000
of which vested on April 30, 1995, and 75,000 of which vested on April 30, 1996.
These options must be exercised within five years after vesting.

In June 1995, the Company issued to Mr. Slawter fully vested options to
acquire 10,000 shares of Common Stock at an exercise price of $.25 per share.
Such options must be exercised within five years.

In March 1996, the Company issued to Mr. Kolls options to acquire up to
50,000 shares of Common Stock at an exercise price of $.65 per share, all of
which will vest if he is employed on April 30, 1997. In November 1996, the
exercise price of the options was reduced to $.45. The options must be
exercised within five years of vesting.

In April 1996, the Company issued to Mr. Herbert options to acquire up
to 400,000 shares of Common Stock at an exercise price of $.65 per share. In
November 1996, the exercise price of the options was reduced to $.45. Subject to
Mr. Herbert's continued employment with the Company, the options will become
vested over a three year period, 200,000 during the first year, and 100,000
during each year thereafter, in quarterly intervals. The options must be
exercised within five years of vesting.

In May 1996, the Company issued to Mr. Sterling options to acquire up
to 50,000 shares of Common Stock at an exercise price of $.65 per share, all of
which will vest if he is employed by the Company on June 30, 1997. In November
1996, the exercise price of the options was reduced to $.45. The options must be
exercised within five years of vesting.

In May 1996, the Company issued to Mr. Sullivan, a former officer of
the Company, options to acquire up to 50,000 shares of Common Stock at an
exercise price of $.65 per share, all of which were to vest if he was employed
by the Company on June 30, 1997. In December 1996, in conjunction with Mr.
Sullivan's separation of employment with the Company, the Company agreed that
21,000 of these options became vested at such time and the remainder would be
cancelled. See "Managment - Officer Terminations." The options must be exercised
within five years of vesting.

In February 1997, the Company issued to Mr. Maxwell options to acquire
up to 200,000 shares of Common Stock at an exercise price of $.45 per share.
Subject to Mr. Maxwell's continued employment with the Company, the options will
become vested over a two year period at the rate of 25,000 options per quarter.
The options must be exercised within five years of vesting.

In June 1997, the Company issued to Mr. Kolls options to acquire up to
100,000 shares of Common Stock at an exercise price of $.45 per share. Subject
to Mr. Kolls' continued employment with the Company, the options will become
vested over a one year period at the rate of 25,000 options per quarter.

In June 1997, the Company issued to Mr. Sterling options to acquire up
to 100,000 shares of Common Stock at an exercise price of $.45 per share.
Subject to Mr. Sterling's continued employment with the Company, the options
will become vested over a one year period at the rate of 25,000 options per
quarter.

In June 1997, the Company issued to Mr. Herbert options to acquire up
to 100,000 shares of Common Stock at an exercise price of $.45 per share.
Subject to Mr. Herbert's continued employment with the Company, the options will
become vested over a one year period at the rate of 25,000 options per quarter.

The Board of Directors is responsible for awarding stock options. Such
awards are made in the subjective discretion of the Board. The exercise price of
all the above options represents on the date of issuance of such options an
amount equal to or in excess of the market value of the Common Stock issuable
upon the exercise of the options. All of the foregoing options are non-qualified
stock options and not part of a qualified stock option plan and do not
constitute incentive stock options as such term is defined under Section 422 of
the Internal Revenue Code, as amended, and are not part of an employee stock
purchase plan as defined in Section 423 thereunder.

30
<PAGE>

Officer Terminations

The employment agreement of Barry Slawter, a former officer of the
Company, expired on June 30, 1996, and Mr. Slawter is no longer an employee or
officer of the Company. Mr. Slawter has fully vested options to acquire up to
210,000 shares of Common Stock at $.25 each.

Effective December 1, 1996, Edward J. Sullivan resigned as an officer
and Chief Finanical Officer of the Company. Mr. Sullivan was engaged as a
part-time consultant to the Company through February 28, 1997. The Company has
agreed that 21,000 of the 50,000 options granted to Mr. Sullivan during May 1996
have become vested as of December 1, 1996 and the balance thereof have been
cancelled. The employment agreement of Mr. Sullivan was cancelled effective
December 1, 1996. Mr. Sullivan has fully vested options to acquire up to
100,000 shares of Common Stock at $.25 each and 21,000 shares of Common Stock at
$.65 each.

PRINCIPAL SHAREHOLDERS

Common Stock

The following table sets forth, as of March 31, 1997, the beneficial
ownership of the Common Stock of each of the Company's directors and executive
officers, 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 additional
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.

31
<PAGE>

Number of Shares
Name and Address of Common Stock Percent
of Beneficial Owner Beneficially Owned(1) of Class(2)
------------------- --------------------- -----------
George R. Jensen, Jr. 7,753,000 shares(3) 16.5%
10 Fox Chase Road
Malvern, Pennsylvania 19355

Stephen P. Herbert 150,000 shares (4) *
536 West Beach Tree Lane
Strafford, Pennsylvania 19087

Haven Brock Kolls, Jr. 221,500 shares(5) *
150 Westridge Gardens
Phoenixville, Pennsylvania 19460

Keith L. Sterling 400,000 shares(6) *
114 South Valley Road
Paoli, Pennsylvania 19033

Peter G. Kapourelos 313,000 shares(7) *
1515 Richard Drive
West Chester, Pennsylvania 19380

William W. Sellers 982,500 shares(8) 2.1%
394 East Church Road
King of Prussia, Pennsylvania 19406

Henry B. duPont Smith 400,000 shares(9) *
350 Mill Bank Road
Bryn Mawr, Pennsylvania 19010

William L. Van Alen, Jr. 225,000 shares(10) *
Cornerstone Entertainment, Inc.
P.O. Box 727
Edgemont, Pennsylvania 19028

All Directors and Executive Officers
As a Group (9 persons) 10,445,000 shares(11) 22.2%

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

(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, or shares of Common Stock issuable
upon exercise of options currently exercisable, or exercisable within 60 days
of March 31, 1997, are deemed to be beneficially owned for purposes hereof.

32
<PAGE>

(2) 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 9,567,060 shares of Common Stock, that all of the options or purchase
rights to acquire Common Stock which have been issued and are fully vested as of
March 31, 1997 (or within 60-days of March 31, 1997) have been converted into
3,423,300 shares of Common Stock. Of the 3,973,300 options or purchase rights to
acquire Common Stock issued as of March 31, 1997, only 550,000 of such options
do not become vested within 60-days thereof, and such options are excluded from
this table. For purposes of computing such percentages it has also been assumed
that all of the remaining 1995 Warrants have been exercised for 1,414,000 shares
of Common Stock, all of the remaining 1996 Warrants have been exercised for
1,998,000 shares of Common Stock, that all of the 1996-B Warrants have been
exercised for 374,000 shares of Common Stock, and all of the accrued and unpaid
dividends on the Preferred Stock as of March 31, 1997 have been converted into
3,527,641 shares of Common Stock. Therefore, for purposes of computing the
percentages under this table, there are 47,064,228 shares of Common Stock issued
and outstanding.

(3) Includes 6,000,000 shares of Common Stock held by Mr. Jensen with his
minor children as joint tenants with right of survivorship. Includes 160,000
shares of Common Stock issuable upon conversion of the 16,000 shares of
Preferred Stock owned by him. An aggregate of 4,365,000 shares of Common Stock
(or under certain circumstances 1,030,000 shares of Common Stock) beneficially
owned by Mr. Jensen are subject to cancellation and are included in this
table. See "Escrow and Cancellation Arrangements."

(4) Includes 150,000 shares of Common Stock issuable to Mr. Herbert upon the
exercise of options. Does not include 250,000 shares of Common Stock issuable
pursuant to options not presently exercisable and not exercisable within 60
days of March 31, 1997.

(5) Includes 5,000 shares of Common Stock issuable upon the conversion of 500
shares of Preferred Stock beneficially owned by Mr. Kolls. Includes 200,000
shares of Common Stock issuable upon exercise of options. Does not include
50,000 shares of Common Stock issuable pursuant to options not presently
exercisable and not exercisable within 60-days of March 31, 1997.

(6) All shares of Common Stock held by Mr. Sterling on the date hereof are
held with his spouse as joint tenants with right of survivorship. Includes
300,000 shares of Common Stock issuable upon exercise of options. Does not
include 50,000 shares of Common Stock issuable pursuant to options not
presently exercisable and not exercisable within 60-days of March 31, 1997.

33
<PAGE>

(7) Includes 10,000 shares of Common Stock issuable upon the conversion of
1,000 shares of Preferred Stock beneficially owned by Mr. Kapourelos. Includes
30,000 shares of Common Stock held on the date hereof by Mr. Kapourelos with
his spouse as joint tenants with right of survivorship. Includes 170,000
shares of Common Stock issuable upon exercise of options.

(8) Includes 147,250 shares of Common Stock issuable upon the conversion of
14,725 shares of Preferred Stock beneficially owned by Mr. Sellers. Includes
an aggregate of 141,750 shares of Common Stock issuable upon exercise of the
1995 Warrants beneficially owned by him. Of such 1995 Warrants, 60,000 are
owned by the Sellers Pension Plan of which Mr. Sellers is a trustee, 30,000
are owned by Sellers Process Equipment Company of which he is a Director, and
15,000 are owned by his wife. Includes an aggregate of 120,000 1996 Warrants
beneficially owned by him, of which 80,000 are owned by the Sellers Pension
Plan and 40,000 are owned by his wife. Includes 6,000 shares of Common Stock
owned by Sellers Pension Plan, 4,500 shares of Common Stock owned by Sellers
Process Equipment Company, and 28,000 shares of Common Stock owned by Mr.
Seller's wife. Includes 155,000 shares of Common Stock issuable upon exercise
of options.

(9) Includes 120,000 shares of Common Stock issuable upon conversion of the
12,000 shares of Preferred Stock beneficially owned by Mr. Smith. Includes
100,000 shares of Common Stock issuable upon exercise of options. Includes
80,000 shares of Common Stock issuable upon conversion of the 1996 Warrants
held by trusts for the benefit of Mr. Smith's children of which he is a
trustee.

(10) Includes 125,000 shares of Common Stock issuable to Mr. Van Alen upon
exercise of options.

(11) Includes all shares of Common Stock described in footnotes (2) through
(10) above.

Preferred Stock

The following table sets forth, as of March 31, 1997 the beneficial
ownership of the Preferred Stock by the Company's directors and executive
officers, 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.

34
<PAGE>

Number of Shares
Name and Address of of Preferred Stock Percent
Beneficial Owner Beneficially Owned of Class(l)
- ------------------- ------------------ -----------

George R. Jensen, Jr.
10 Fox Chase Road
Malvern, Pennsylvania 19355 16,000 2.0%

Haven Brock Kolls, Jr.
150 West Ridge Gardens
Phoenixville, Pennsylvania 19460 500 *

Peter G. Kapourelos
1515 Richard Drive
West Chester, Pennsylvania 19380 1,000 *

William W. Sellers
394 East Church Road
King Of Prussia, Pennsylvania 19406 14,725(2) 1.8%

Henry B. duPont Smith
350 Mill Bank Road
Bryn Mawr, Pennsylvania 19010 12,000(3) 1.5%

All Directors and
Executive Officers
As a Group (9 persons) (4) 44,225 5.5%
- --------------
*Less than one percent (1%)

(1) There were 797,255 shares of Preferred Stock issued and outstanding as of
March 31, 1997.

(2) Includes 4,000 shares of Preferred Stock owned by Sellers Pension Plan of
which Mr. Seller is a trustee, 1,000 shares of Preferred Stock owned by Sellers
Process Equipment Company of which Mr. Sellers is a Director, and 2,000 shares
of Preferred Stock owned by his wife.

(3) Includes 2,000 shares of Preferred Stock held by trusts for the benefit of
Mr. Smith's children of which he is a trustee.

(4) As of March 31, 1997, Messrs. Van Alen, Herbert, Maxwell and Sterling did
not beneficially own any shares of Preferred Stock.

Escrow And Cancellation Arrangements

In January 1994, at the time of the Company's initial public offering,
and as a condition of effectiveness of the offering in Pennsylvania, the
Pennsylvania Securities Commission requested that Mr. Jensen place in escrow
with CoreStates Bank (formerly Meridian Bank), as escrow agent, all of the
7,593,000 shares of Common Stock beneficially owned by him until June 30, 1998.
Any additional shares of Common Stock acquired by him will also be held in
escrow. Subject to the provisions of the escrow agreement, Mr. Jensen has

35
<PAGE>

agreed not to sell, pledge, or transfer, directly or indirectly, any of the
Common Stock held in escrow.

Mr. Jensen has agreed that 4,365,000 shares of his escrowed Common
Stock would be canceled by the Company and would no longer be issued and
outstanding unless one of the following occurs: (i) the bid price of the Common
Stock equals or exceeds $1.75 for 30 consecutive trading days at any time during
the period of July 1, 1996 through June 30, 1998; or (ii) the Company's
cumulative operating income (before taxes, dividends, or extraordinary items)
per share of Common Stock (on a fully diluted basis) at any time after July 1,
1994, through June 30, 1998, equals or exceeds $.18. Mr. Jensen has agreed that
an amount equal to 1,030,000 shares of his escrowed Common Stock (rather than
4,365,000 shares) would be canceled if at any time after July 1, 1994 and
prior to June 30, 1998, the Company's cumulative operating income per share of
Common Stock is at least $.12 but less than $.18. See "Risk Factors - Charge to
Income in the Event of Release of Escrow Shares."

Subject to the terms of the escrow agreement, Mr. Jensen's Common Stock
will be held in escrow until the earlier of the satisfaction of any of the above
conditions (in which event no shares, or only 1,030,000 shares, would be
canceled), or June 30, 1998. Unless and until any such shares would be canceled,
and subject to the restrictions on sale or transfer pursuant to the escrow
arrangement, Mr. Jensen has retained all rights pertaining to such shares,
including voting rights.

Prior to the date hereof, Mr. Jensen cancelled an aggregate of
2,305,000 shares of Common Stock which had been owned by him and which had been
held in escrow pursuant to the above arrangements. See "Certain Transactions."
Prior to such cancellation, a maximum of 6,670,000 shares (rather than 4,365,000
shares as currently provided) were subject to cancellation.

Convertible Debenture Escrow Agreement

At the time of the issuance of an aggregate of $500,000 of Debentures
in June 1997, the Company issued an aggregate of 2,500,000 shares of Common
Stock to Lurio & Associates, as Escrow Agent, to be held pursuant to the terms
of an escrow agreement. The shares of Common Stock are being issued and held in
escrow in order to ensure that they are available to the holders of the
Debentures upon any conversion of the Debentures. See "Description of Securities
-- Convertible Debentures and Related Warrants."

36
<PAGE>
CERTAIN TRANSACTIONS

In August 1995, pursuant to the special stock dividend paid by the Company
to holders of Preferred Stock, the Company issued 48,000 shares of Common Stock
to Mr. Jensen, 1,500 shares of Common Stock to Mr. Kolls, 3,000 shares of Common
Stock to Mr. Kapourelos, 11,175 shares of Common Stock to Mr. Sellers, and
30,000 shares of Common Stock to Mr. Smith. See "Description of Securities -
Series A Convertible Preferred Stock."

In February 1996, Mr. Jensen cancelled 305,000 shares of Common Stock
owned by him and which had been held in escrow. See "Principal Shareholders -
Escrow And Cancellation Arrangements".

In March 1996, the Company issued to Mr. Kolls options to acquire up to
50,000 shares of Common Stock at $.65 per share. See "Management-Executive Stock
Options."

In April 1996, the Company issued to Mr. Herbert options to acquire up
to 400,000 shares of Common Stock at $.65 per share. In May 1996, the Company
issued to Mr. Sterling options to acquire up to 50,000 shares of Common Stock at
$.65 per share and issued to Edward J. Sullivan, a former officer of the
Company, options to acquire up to 50,000 shares of Common Stock at $.65 per
share. See "Management - Executive Stock Options" and "Management - Officer
Terminations."

At June 30, 1996 and 1995 and December 31, 1996, approximately $14,000,
$19,000 and $30,000, respectively, of the Company's accounts payable are due to
several shareholders for various legal and technical services performed.

During July 1996, the Company formalized certain agreements with
William W. Sellers and Peter G. Kapourelos, two Directors of the Company, who
performed consulting services during fiscal year 1996. During the year ended
June 10, 1996, $98,600 was paid for such services performed. See "Management -
Director Compensation and Stock Options."

In November 1996, the Company reduced the exercise price of the 50,000
options issued to Mr. Kolls in March 1996, the 400,000 options issued to Mr.
Herbert in April 1996 and the 50,000 options issued to Mr. Sterling in May 1996
from $.65 to $.45.

In December 1996, in conjunction with the cancellation of Mr.
Sullivan's employment agreement, the Company agreed that 21,000 of the 50,000
options granted to Mr. Sullivan during May 1996 became vested as of December 1,
1996 and the balance thereof were cancelled.

In February 1997, the Company issued to Mr. Maxwell options to purchase
up to 200,000 shares of Common Stock at $.45 per share.

In June 1997, the Company issued to Mr. Kolls options to acquire up to
100,000 shares of Common Stock at $.45 per share, to Mr. Sterling options to
acquire up to 100,000 shares of Common Stock at $.45 per share and to Mr.
Herbert option to acquire up to 100,000 shares of Common Stock at $.45 per
share. See "Management - Executive Stock Options."

Mr. Jensen may be deemed a "promoter" of the Company as such term is
defined under the Federal securities laws.

SELLING SHAREHOLDERS

Each of the Selling Shareholders listed below is, as of the date
hereof, the holder of Warrants to acquire the number of shares of Common Stock
set forth opposite such Selling Shareholder's name. The 1996-B Warrants were
issued by the Company to the Selling Shareholders in January and February 1997
pursuant to a transaction exempt from the registration requirements of the Act
and various state securities laws. The 1996-B Warrants are exercisable at any
time through February 28, 2002, unless such period is extended by the Company.
The 1997 Warrants were issued by the Company to the Selling Shareholders in
April, May and June 1997 pursuant to a transaction exempt from the registration
requirements of the Act and various state securities laws. The 1997 Warrants are
exercisable at any time through May 31, 2002, unless such period is extended by
the Company.

Through the date hereof, the Selling Shareholders have not exercised
any Warrants. The issuance by the Company of the Common Stock to the Selling
Shareholders upon exercise of the Warrants is pursuant to the 1996-B Warrant
Agreement or 1997 Warrant Agreement, respectively, in transactions exempt from
the registration requirements of the Act and various state securities laws. The
Company has agreed, at its expense, to register the Common Stock for resale by
the Selling Shareholders under the Act. The Company expects to incur expenses of
approximately $40,000 in connection with the registration. The Common Stock may
be sold from time to time by the Selling Shareholders pursuant to this
Prospectus. See "Plan of Distribution".

37
<PAGE>
The following table sets 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 the Company, 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.
<TABLE>
<CAPTION>
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering (1)
- ------------------- -------------------- ---------------------
1996 B Warrants Number Percent
--------------- ------ -------
<S> <C> <C> <C>
Ms. Vanda G. Adams 10,000
Mr. William S. Campbell 20,000
William R. Crothers 20,000
Mr. Benjamin H. Deacon 20,000
Sheri-Lynn Demaris 20,000
Mr. Robert R. Frey 4,000
Harold N. Gray 20,000
Ms. Jane C. Macelree 40,000
Lily L. McCartney Trust 20,000
Robert F. McCartney Trust 20,000
Mr. Eric Pagh 20,000
Ms. Noma Ann Roberts 20,000
Dr. Karl F. Rugart 20,000
Richard S. Schonwald 40,000
Mr. G. Morraw Smith 40,000
Mr. & Mrs. Clark D. Stull 40,000
-------
Total 374,000

1997 Warrants
-------------
Mr. Charles A. Mayer 8,000
Ms. Harriette Klann 40,000
Mr. and Mrs. Richard W. Moffitt 20,000
Mr. Edwin R. Boynton 40,000
Ernst & Company FBO Fred Karagosian 40,000
Mr. & Mrs. Daniel P. Mannix V 160,000
Daniel P. Mannix, as Custodian for Alexandra G. Mannix 40,000
Ms. Janet J. Hewes 40,000
Delaware Charter Gty. & Trust Co. for Paul M. Russell 40,000
Ernst & Company FBO Fred Karagosian 20,000
John DiSante 20,000
Vot Investments 20,000
Ernst & Company FBO Arthur Rogovin 20,000
Robert H. Potts 40,000
Noma Ann Roberts 40,000
Clifton B. Currin, Trustee 16,000
Louis E. Direnzo 40,000
Austin B. Hepburn 20,000 1,293,900(2) 2.6%
Elinor M. Steinhilber 20,000
Wilbur E. Hudson 10,000
Harvey J. Eliason 6,000
Susan E. Cohen 40,000
Gail D. Zimmerman 40,000
G. Keith Funk, Jr. 10,000
Susan E. Cohen 20,000
Henry C. Carlson 8,000
William P. Dunham 40,000
S. W. Ryan & Co. Inc. 30,000
Vanda G. Adams 10,000
Warren Palitz 40,000
Helen E. Seltzer 4,000
Sonja Pettingill 4,000
Risky Investment Group 40,000
Ernst & Company FBO D. Henry and Diane Tintorer 40,000

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C> <C>
W. F. Harrity 40,000
Mr. John Berukoff 10,000
Joan B. Stuart 12,000
Evalyn Kadish 20,000
Stephen S. Turesky 20,000
Gurumantra S. Khalsa 8,000
Richard Fradkin 20,000
Roy T. Pirhala 10,000
Peggy Longstreth Bayer 8,000
Clark D. & Carolyn S. Stull, Jr. 20,000
Rosalind Robbins 40,000
Eric Robbins 40,000
William C. Martindale, Jr. 20,000
Andrew B. Hebenstreit 40,000
Father R. S. H. Green 800
Nancy Hansen 20,000
Adele H. Hepburn 30,000 1,293,900(2) 2.6%
Patricia Jill Smith custodian for Burton Jensen 11,200
Bullseye Marketing Inc. 200,000
Nancy Haun 4,000
---------
Total 1,600,000
</TABLE>
38

<PAGE>

- ---------------
(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 the securities, and includes any shares of Common Stock
which a person has the right to acquire within 60-days of the date hereof.

(2) Adele and Austin Hepburn are husband and wife, and together would
beneficially own an aggregate of 1,293,900 shares of Common Stock following the
sale of all their Common Stock underlying their 1997 Warrants. Adele Hepburn
is a Director of Public Relations of the Company.

MARKET FOR COMMON STOCK

The Common Stock is currently traded on the OTC Electronic Bulletin
Board under the symbol USTT. Such trading began on March 8, 1995. As of the
date hereof, there is no established trading market for the Common Stock. See
"Risk Factors - No Assurance of Active Public Market" and "Risk Factors - Risks
of Low-Priced Stocks."

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

Fiscal High Low
- ------ ---- ---
1995
Third Quarter (March 8, 1995 to March 31, 1995) $ .75 $.50
Fourth Quarter (through June 30, 1995) $1.25 $.25

1996

First Quarter (through September 30, 1995) $ .55 $.25
Second Quarter (through December 31, 1995) $1.00 $.40
Third Quarter (through March 31, 1996) $1.40 $.37
Fourth Quarter (through June 30, 1996) $1.68 $.50

1997

First Quarter (through September 30, 1996) $ .63 $.38
Second Quarter (through December 31, 1996) $ .57 $.29
Third Quarter (through March 31, 1997) $ .43 $.28
Fourth Quarter (through June 30, 1997) $ .50 $.20

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

On June 30, 1997, there are 3,971,000 shares of Common Stock issuable
upon exercise of outstanding options (305,000 of which were issued subsequent to
March 31, 1997), and 157,300 shares of Common Stock issuable upon exercise of
outstanding purchase rights. All of these shares of Common Stock, if issued on
the date hereof, would be "restricted securities" as defined under Rule 144
under the Act. See "Description of Securities-Shares Eligible for Future Sale."
Of the 3,971,000 options, 100,000 are exercisable at $.50 per share, 1,236,000
are exercisable at $.45 per share, 2,565,000 are exercisable at $.25 per share,
and 70,000 are exercisable at $.05 per share. In connection with the options
exercisable at $.25 and the options that were originally exercisable at $.65 per
share, the Company had

39
<PAGE>
agreed, at its cost and expense, to file a registration statement under the Act
and applicable state securities laws covering all of the Common Stock underlying
the options during or before July 1997. The Company has decided to indefinitely
postpone the filing of such registration statement. All of the aforesaid options
have been issued by the Company to employees, Directors, officers, and
consultants.

As of June 30, 1997, there were 1,414,000 shares of Common Stock
issuable upon exercise of the outstanding 1995 Warrants, which when and if
issued would be freely tradeable under the Act. See "Description of Securities -
1995 Common Stock Purchase Warrants."

As of June 30, 1997, there were 1,998,000 shares of Common Stock
issuable upon exercise of the outstanding 1996 Warrants, which when and if
issued would be freely tradeable under the Act. See "Description of Securities -
1996 Common Stock Purchase Warrants."

As of June 30, 1997, there were 374,000 shares of Common Stock
issuable upon exercise of the outstanding 1996-B Warrants, which when and if
issued would be freely tradeable under the Act. See "Description of Securities -
1996-B Common Stock Purchase Warrants."

As of July 3, 1997, there were 1,600,000 shares of Common Stock
issuable upon exercise of the outstanding 1997 Warrants, which when and if
issued would be freely tradeable under the Act. See "Description of Securities -
1997 Common Stock Purchase Warrants."

As of June 30, 1997, there were 2,000,000 shares of Common Stock
issuable upon the exercise of outstanding warrants issued to affiliates and/or
consultants to GEMA in connection with the sale of Convertible Debentures and an
undetermined amount of Common Stock issuable upon conversion of such Convertible
Debentures. See "Description of Securities - Convertible Debentures and Related
Warrants."

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 June 30, 1997, such accumulated unpaid
dividends amounted to $2,839,750. See "Risk Factors - Cash Dividends Not
Likely."

DESCRIPTION OF SECURITIES

General

The Company is authorized to issue up to 55,000,000 shares of Common
Stock, no par value ("Common Stock"), and 1,200,000 shares of undesignated
Preferred Stock all of which have been designated as Series A Convertible
Preferred Stock, no par value ("Preferred Stock").

During March 1997, the Company's Shareholders approved an increase in
the authorized number of shares of Common Stock to 55,000,000 shares; an
increase in the authorized number of shares of Series A Preferred Stock to
1,200,000 shares; an increase from 10 to 12 the number of shares of Common Stock
into which each share of Series A Preferred Stock may be converted during the
period from March 24, 1997 to December 31, 1997 and a decrease in the conversion
price at which the Series A Preferred Stock cumulative but unpaid dividends may
be converted into shares of Common Stock from $1.00 to $.83 per share of Common
Stock during the period from March 24, 1997 to December 31, 1997.

As of March 31, 1997, there were 26,760,227 shares of Common Stock
issued and outstanding and 797,255 shares of Preferred Stock issued and
outstanding which are convertible into 9,567,060 shares of Common Stock through
December 31, 1997 and into 7,972,550 shares of Common Stock thereafter. As of
March 31, 1997, a total of 28,295 shares of Preferred Stock have been converted
into 282,950 shares of Common Stock and accrued and unpaid dividends thereon
have been converted into 69,677 shares of Common Stock. As of March 31, 1997,
there were 849 record owners of the Common Stock and 950 record owners of the
Preferred Stock. As of March 31, 1997, there were 1,414,000 1995 Warrants,
1,998,000 1996 Warrants and 374,000 1996-B Warrants issued and outstanding.

As of March 31, 1997, the Company has issued to its directors,
executive officers, consultants, and employees options to acquire up to 221,000
shares of Common Stock at $.65 per share, options to acquire up to 110,000
shares of Common Stock at $.50 per share, options to acquire up to 700,000
shares of Common Stock at $.45 per share, options to acquire up to 2,565,000
shares of Common Stock at $.25 per share, and options to acquire up to 220,000
shares of Common Stock at $.05 per share. See "Management--Executive Stock
Options", "Management - Director Compensation and Stock Options" and "Management
- - Officer Terminations." The Company has also issued purchase rights to acquire
up to 157,300 shares of Common Stock at $1.00 per share. All options to purchase
Common Stock were granted at prices at or above the market value on the date of
the grant.

40
<PAGE>
In April 1997, the Company commenced a private placement offering of
110 units at a unit price of $10,000. Each unit consists of 2,000 shares of
Preferred Stock and 40,000 1997 Warrants. On May 15, 1997, the Company reduced
this offering to a maximum of 40 units at a unit price of $10,000. The offering
was concluded on July 3, 1997. The Company sold 40 units of this offering,
generating gross proceeds of $400,000.

In April 1997, Kelly Capital Corporation exercised options to purchase
150,000 shares of Common Stock at $.05 per share. This transaction generated
proceeds to the Company of $7,500. All of such shares were issued by the Company
in reliance on Section 4(2) of the Act.

The Debentures have a five year term and earn interest at the rate of
6% per year, such interest payable in Common Stock or cash at the option of the
Company at the time of conversion. The Debentures do not have any voting rights
and were issued by the Company pursuant to Regulation S promulgated under the
Act. Upon completion of the sale of the Debentures, GEMA received 8% of the
gross proceeds (i.e. $40,000) as a management/documentation fee. In addition,
affiliates and/or consultants to GEMA received non-redeemable warrants to
purchase up to 2,000,000 shares of the Company's Common Stock at a price of $.20
per share at any time prior to June 22, 2002. These warrants have been issued by
the Company pursuant to Regulation S.

The Company has entered into an escrow agreement, pursuant to which the
Company issued 2,500,000 shares of restricted Common Stock registered in the
name of Lurio & Associates, as Escrow Agent. Such shares were issued in order to
ensure that they would be available if and when the holders of the Debentures
elect to convert any Debentures.

In June 1997, the Company extended the consulting agreement with Jerome
M. Wenger which had expired on March 31, 1997 for an additional four months, and
authorized the issuance of 160,000 shares of Common Stock as compensation for
the services to be rendered to the Company pursuant to this agreement. Pursuant
thereto, 80,000 shares of such Common Stock shall be immediately issuable to Mr.
Wenger and the remaining 80,000 shares shall be issued at the rate of 40,000
shares per month in June 1997 and July 1997. The Company has agreed to register
these shares under the Act and such shares will be freely tradeable thereunder.
In connection with the issuance of such shares, the Company will record
consulting expense of approximately $50,000, approximately $36,000 of which was
recorded during the quarter ending June 30, 1997.

In June 1997, the Company authorized the issuance of 17,000 shares of
Common Stock to a consultant, Robert Flaherty, as compensation for services.
Such services included the preparation of public relations reports for the
Company. The Company has agreed to register these shares under the Act and such
shares will be freely tradeable thereunder. In connection with the issuance of
such shares, the Company recorded consulting expense of
approximately $7,000 in June 1997.

In June 1997, the Company authorized the issuance of 125,000 shares of
Common Stock to a consultant, Rick Joshi, as compensation for services. Such
services included the preparation of public relations reports for the Company.
The Company has agreed to register these shares under the Act and such shares
will be freely tradeable thereunder. In connection with the issuance of such
shares, the Company recorded consulting expense of approximately $50,000 in June
1997.

<PAGE>

Pursuant to the request of the Pennsylvania Securities Commission, Mr.
Jensen has agreed that unless certain conditions are satisfied, either 4,365,000
or, alternatively, 1,030,000 shares of the Common Stock beneficially owned by
him would be cancelled by the Company. In the event that any of Mr. Jensen's
shares of Common Stock are cancelled, such cancelled shares would no longer be
issued and outstanding shares of Common Stock. Unless and until any such shares
would be cancelled, and subject to the restrictions on sale or transfer pursuant
to the escrow arrangement, Mr. Jensen has retained all rights pertaining to such
shares, including voting rights. See "Risk Factors - Charge to Income in the
Event of Release of Escrow Shares" and "Principal Shareholders-Escrow and
Cancellation Arrangements."

Authorized Shares Exceeded

As of the date hereof, on a fully converted basis, the Company would
have 55,238,966 shares of Common Stock issued and outstanding. This amount
exceeds the authorized number of shares of Common Stock of 55,000,000 by 238,966
shares, thus violating various covenants contained in the Company's Articles of
Incorporation, the issued and outstanding option certificates, and the various
warrant agreements. In addition, the Company has authorized the issuance of
40,000 shares of Common Stock to Jerome Wenger, a consultant, in July 1997.

All of the option certificates contain a covenant which states that
"the Company shall at all times keep reserved out of the authorized and unissued
shares of Common Stock a number of shares of Common Stock sufficient to provide
for the exercise of the right of purchase represented by the options." Of the
issued and outstanding options to purchase 3,971,000 shares of Common Stock, as
of June 30, 1997, 775,000 of these options have not vested and thus are not
eligible for exercise. As of December 31, 1997, 462,500 of these options will
remain unvested and not be eligible for exercise.

On and after January 1, 1998, each share of Preferred Stock would be
convertible into 10 shares of Common Stock instead of 12 shares of Common Stock,
as currently provided. On and after January 1, 1998, the accrued and unpaid
dividends on the Preferred Stock would be convertible into Common Stock at the
rate of $1.00 per share of Common Stock as opposed to the present conversion
rate of $.83 per share of Common Stock. Based on the 861,705 shares of Preferred
Stock outstanding on the date hereof and the accrued dividends thereon, the
change in these conversion rates on January 1, 1998 would result in a reduction
of 2,305,046 shares of the fully diluted Common Stock. However, to the extent
that the holders of Preferred Stock convert their shares before such date, this
anticipated reduction in the outstanding shares of Common Stock would be reduced
or eliminated. Furthermore, based on the 861,705 shares of Preferred Stock
outstanding on the date hereof, an additional $646,279 dividend will accrue on
August 1, 1997 entitling the holders of Preferred Stock to acquire 778,650
additional shares of Common Stock. Although the Company has not made any
covenants to the holders of the Preferred Stock to reserve shares of Common
Stock for issuance upon conversion of the accrued dividends on the Preferred
Stock, these additional dividends are automatically convertible into Common
Stock at the time of the conversion of the related shares of Preferred Stock.

42
<PAGE>

Common Stock

The holder of each share of Common Stock is entitled to one vote on all
matters submitted to a vote of the shareholders of the Company, including the
election of directors. There is no cumulative voting for directors.

The holders of Common Stock are 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 Preferred Stock have been
paid.

Upon any liquidation, dissolution or winding up of the Company, holders
of shares of Common Stock are entitled to receive pro rata all of the assets of
the Company available for distribution, subject to the liquidation preference of
the Preferred Stock of $10.00 per share and any unpaid and accumulated dividends
on the Preferred Stock. The holders of the Common Stock do not have any
preemptive rights to subscribe for or purchase shares, obligations, 1995
Warrants, 1996 Warrants, 1996-B Warrants, 1997 Warrants or other securities of
the Company.

Series A Convertible Preferred Stock

The holders of shares of Preferred Stock 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 Preferred Stock equals 10 votes, provided that
through December 31, 1997, each share of Preferred Stock equals 12 votes). The
shares of Preferred Stock are entitled to vote on all matters submitted to the
vote of the shareholders of the Company, including the election of directors.

The holders of Preferred Stock 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 Preferred Stock
are February 1 and August 1 of each year. Any and all accumulated and unpaid
cash dividends on the 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 March 31, 1997 the
accumulated and unpaid dividends on the Preferred Stock were $2,927,942.

Each share of Preferred Stock is convertible at any time into 10 shares
of fully issued and non-assessable Common Stock, provided that the conversion
rate for each share of Preferred Stock is 12 shares of Common Stock through
December 31, 1997. Accrued and unpaid dividends earned on shares of Preferred
Stock being converted into Common Stock are also convertible into Common Stock
at the rate $1.00 per share of Common Stock at the time of conversion and
whether or not such dividends have then been declared by the Company, provided
that the conversion rate is reduced to $.83 per share of Common Stock through
December 31, 1997. As of March 31, 1997, a total of 28,295 shares of Preferred
Stock have been converted into Common Stock and accrued and unpaid dividends
thereon have been converted into 69,677 shares of Common Stock. The conversion
rate of the 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 the Company.
Upon any liquidation, dissolution, or winding-up of the Company, the holders of
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.

The Company has the right, at any time on or after January 1, 1998, to
redeem all or any part of the issued and outstanding Preferred Stock for the sum
of $11.00 per share plus any and all unpaid and accumulated dividends thereon.
Upon notice by the Company of such call, the holders of the Preferred Stock so
called will have the opportunity to convert their shares of Preferred Stock and
any unpaid and accumulated dividends thereon (whether or not such dividends have
been declared by the Company as of such date) into shares of Common Stock.

The Company paid a special stock dividend consisting of 3 shares of
Common Stock for each share of Preferred Stock issued and outstanding on August
1, 1995. The stock dividend consisted of an aggregate of 1,908,600 shares of
Common Stock.

Convertible Debentures and Related Warrants

43
<PAGE>

The Debentures mature five years from issuance and earn interest at the
rate of 6% per year, such interest payable in Common Stock or cash at the option
of the Company at the time of conversion. At any time after 45 days from
issuance, the Debentures are convertible into shares of Common Stock at the
lesser of one hundred percent (100%) of the average closing bid price of the
Common Stock for the five trading days immediately preceding the date of
issuance or sixty-five percent (65%) of the average closing bid price of the
Common Stock for the five trading days immediately preceding the conversion. At
any time one year after issuance, the Company has the right to require the
redemption of the Debentures at the lesser of one hundred percent (100%) of the
average closing bid price of the Common Stock on the date of issuance or
sixty-five percent (65%) of the average closing bid price of the Common Stock
for the five trading days immediately preceding the conversion. If the
Debentures have not been redeemed or converted prior to their maturity date, the
entire principal amount of the Debentures shall be automatically converted into
shares of Common Stock on and as of the such date. The number of shares into
which the Debentures shall be converted shall be calculated in accordance with
the conversion formula described above. All interest accrued on the Debentures
through the Maturity Date shall be satisfied, at the Company's option, either
through the issuance of shares of Common Stock or the payment of cash. Any right
of the holder of a Debenture to payment of principal or interest from the
Company under the Debenture shall be subordinated to the claims and rights of
the holders of (1) all existing and future secured financing and all existing
and future unsecured institutional financing, (2) all future purchase money
financing which is secured by an encumbrance against all or any portion of the
properties and/or assets of the Company, and (3) any refinancing of the type of
indebtedness referred to in (1) and (2) above. The foregoing subordination shall
not apply to any payment of principal or interest to a holder of the Debentures
while the Company is solvent and not in default with respect to the indebtedness
referred to in (1), (2) and (3) above. The Debentures do not have any voting
rights. The Debentures were issued by the Company pursuant to Regulation S
promulgated under the Act.

The Company entered into an escrow agreement, pursuant to which the
Company issued 2,500,000 shares of restricted Common Stock registered in the
name of Lurio & Associates, as Escrow Agent. Such shares are being issued in
order to ensure that they would be available if and when the holders of the
Debentures elect to convert.

1997 Common Stock Purchase Warrants

Each 1997 Warrant entitles its holder to immediately purchase one share
of Common Stock. The exercise price is $.20 per share through August 31, 1997
and $.40 per share thereafter, subject to reduction at any time by the Company.
The 1997 Warrants are exercisable at any time prior to July 3, 2002, or such
later date as may be determined by the Company.

44
<PAGE>

The 1997 Warrants have been issued pursuant to a warrant agreement (the
"1997 Warrant Agreement") by and between the Company and American Stock Transfer
& Trust Company, the warrant agent.

The exercise price of the 1997 Warrants and the number of shares of Common
Stock issuable upon exercise of the 1997 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 of the assets of the Company,
or other similar transaction, the Warrant holders shall, at the option of the
Company, 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 1997 Warrants do not confer upon the holder any voting or any other
rights of a shareholder of the Company. Upon notice to the 1997 Warrant holders,
the Company has the right, at any time and from time to time, to reduce the
exercise price or to extend the expiration date of the 1997 Warrants.

1996-B Common Stock Purchase Warrants

Each 1996-B Warrant entitles its holder to immediately purchase one share
of Common Stock. The exercise price is $.20 per share through August 31, 1997
and $.30 per share thereafter, subject to reduction at any time by the Company.
The 1996-B Warrants are exercisable at any time prior to February 28, 2002 or
such later date as may be determined by the Company. As of May 31, 1997, none
of the 1996-B Warrants have been exercised and 374,000 remain outstanding.

The 1996-B Warrants have been issued pursuant to a warrant agreement dated
as of February 28, 1997 (the "1996-B Warrant Agreement") by and between the
Company and American Stock Transfer & Trust Company, the warrant agent.

The exercise price of the 1996-B Warrants and the number of shares of
Common Stock issuable upon exercise of the 1996-B 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 of the assets of the
Company, or other similar transaction, the Warrant holders shall, at the option
of the Company, 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 1996-B Warrants do not confer upon the holder any voting or any other
rights of a shareholder of the Company. Upon notice to the 1996-B Warrant
holders, the Company has the right, at any time and from time to time, to reduce
the exercise price or to extend the expiration date of the 1996-B Warrants.

45
<PAGE>

1996 Common Stock Purchase Warrants

Each 1996 Warrant entitles its holder to purchase one share of Common Stock
at an exercise price of $.50, or such lower price as may be determined by the
Company from time to time. The 1996 Warrants are exercisable at any time through
May 31, 2001, or such later date as may be determined by the Company ("1996
Warrant Termination Date"). The exercise price of the 1996 Warrants had been
reduced by the Company to $.20 during the period of time from November 1, 1996
through February 28, 1997. As of May 31, 1997, an aggregate of 3,202,000 1996
Warrants have been exercised, all at $.20, and 1,998,000 remain unexercised.

The 1996 Warrants have been issued pursuant to a 1996 Warrant Agreement
dated as of May 1, 1996, by and between the Company and American Stock Transfer
& Trust Company, the warrant agent.

The Company has, at its expense, registered for resale the Common Stock
underlying the 1996 Warrants under the Act, and has exempted from registration
such Common Stock for resale in those states in which the holders of the 1996
Warrants are located.

The exercise price of the 1996 Warrants and the number of shares of Common
Stock issuable upon exercise of the 1996 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 the Company, or
other similar transaction, the 1996 Warrant holders shall, at the option of the
Company, be required to exercise the 1996 Warrants immediately prior to the
closing of the transaction, or such 1996 Warrants shall automatically expire.
Upon such exercise, the 1996 Warrant holders shall participate on the same basis
as the holders of Common Stock in connection with the transaction.

The 1996 Warrants do not confer upon the holder any voting or any other
rights of a shareholder of the Company. Upon notice to the 1996 Warrant holders,
the Company has the right, at any time and from time to time, to reduce the
exercise price or to extend the 1996 Warrant Termination Date.

1995 Common Stock Purchase Warrants

Each 1995 Warrant entitles its holder to purchase one share of Common Stock
at an exercise price of $.50, or such lower exercise price as may be determined
by the Company from time to time. The exercise price of the 1995 Warrants had
been reduced by the Company to $.30 during the period of time from February 12,
1996 through June 30, 1996. As of the date hereof, a total of 3,686,000 1995
Warrants have been exercised, all at $.30, generating gross proceeds of
$1,105,800. There are 1,414,000 unexercised 1995 Warrants as of May 31, 1997.
The 1995 Warrants are exercisable at any time through January 31, 2001, or such
later date as may be determined by the Company ("1995 Warrant Termination
Date").

The 1995 Warrants have been issued pursuant to a 1995 Warrant Agreement
dated as of June 21, 1995, by and between the Company and American Stock
Transfer & Trust Company, the warrant agent.

The Company has registered for resale the Common Stock underlying the 1995
Warrants under the Act, and has registered or exempted from registration such
Common Stock for resale in those states in which the holders of the 1995
Warrants are located.

The exercise price of the 1995 Warrants and the number of shares of Common
Stock issuable upon exercise of the 1995 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 the Company, or
other similar transaction, the 1995 Warrant holders shall, at the option of the
Company, be required to exercise the 1995 Warrants immediately prior to the
closing of the transaction, or such Warrants shall automatically expire. Upon
such exercise, the 1995 Warrant holders shall participate on the same basis as
the holders of Common Stock in connection with the transaction.

The 1995 Warrants do not confer upon the holder any voting or any other
rights of a shareholder of the Company. Upon notice to the 1995 Warrant holders,
the Company has the right, at any time and from time to time, to reduce the
exercise price or to extend the 1995 Warrant Termination Date.

46
<PAGE>

Shares Eligible for Future Sale

Of the 26,760,227 shares of Common Stock issued and outstanding on
March 31, 1997, 13,940,627 are freely transferable without restriction or
further registration under the Act (other than shares held by "affiliates" of
the Company), and the remaining 12,819,600 were "restricted securities" subject
to resale under Rule 144 promulgated under the Act. As of March 31, 1997, there
were 797,255 shares of Preferred Stock issued and outstanding, 284,955 of which
are freely transferable without further registration or restriction under the
Act (other than shares held by "affiliates" of the Company), and the remaining
512,300 are "restricted securities" subject to resale under Rule 144
promulgated under the Act. The 797,255 shares of Preferred Stock issued and
outstanding on March 31, 1997 were convertible into 9,567,060 shares of Common
Stock. Of such shares of Common Stock, 6,147,600 would be fully transferable
without registration or restriction under the Act and 3,419,460 would be
"restricted securities" within the meaning of Rule 144.

As set forth in the prior paragraph, as of March 31, 1997 there were
12,819,600 shares of Common Stock and 512,300 shares of Preferred Stock which
were "restricted securities" and cannot be resold without registration, except
in reliance upon Rule 144 or another applicable exemption from registration. All
of such shares of Common Stock are currently subject to resale pursuant to Rule
144. Of such shares of Preferred Stock, 502,950 are currently subject to sale
pursuant to Rule 144 and the remaining 9,350 would become eligible for sale
under Rule 144 during January and February 1998.

47
<PAGE>

The Company is unable to predict the effect that sales made under Rule 144 or
otherwise may have on the market price of the Common Stock or Preferred Stock
prevailing at the time of any such sales.

As of March 31, 1997, there are outstanding options to acquire
3,816,000 shares of Common Stock, 220,000 of which are exercisable at $.05 per
share, 2,565,000 of which are exercisable at $.25 per share, 700,000 of which
are exercisable at $.45 per share, 110,000 of which are exercisable at $.50 per
share and 221,000 of which are exercisable at $.65 per share. All of the
foregoing options have been issued to officers, directors, employees or
consultants of the Company. There are also outstanding purchase rights to
acquire 157,300 shares of Common Stock at $1.00 per share. All of such Common
Stock, if issued on the date hereof, would be "restricted securities" as defined
in Rule 144 promulgated under the Act. In connection with the options
exercisable at $.25 and $.65 per share, the Company had planned, at its cost and
expense, to file a registration statement under the Act and applicable state
securities laws covering the resale of the Common Stock underlying the options.
In March 1997, the Board of Directors decided to indefinitely postpone the
preparation and filing of such registration statement. As of March 31, 1997,
there are also 1,414,000 shares of Common Stock issuable by the Company to the
holders of the outstanding unexercised 1995 Warrants, 1,998,000 shares of
Common Stock issuable by the Company to the holders of the outstanding
unexercised 1996 Warrants and 374,000 shares of Common Stock issuable by the
Company to the holders of the outstanding unexercised 1996-B Warrants. Such
Common Stock, if issued, will be freely tradeable under the Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of the
Company, 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 Securities and Exchange Commission. 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 the Company. 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 Company, 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

As permitted by the Pennsylvania Business Corporation Law of 1988
("BCL"), the Company's By-laws provide that Directors of the Company 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

48
<PAGE>

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 the Company's 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 the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission 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 the Common Stock, Preferred Stock,
1995 Warrants, 1996 Warrants, 1996-B Warrants and 1997 Warrants is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.

PLAN OF DISTRIBUTION

The Common Stock is being registered to permit public secondary trading
of the Common Stock by the Selling Shareholders from time to time after the date
of this Prospectus. The Company has 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 order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In

49
<PAGE>

addition, in certain states, the Common Stock may not be sold unless it has been
registered or qualified for resale by the Selling Shareholder in the applicable
state or an exemption from the registration or qualification requirement is
available and complied with.

LEGAL MATTERS

The validity of the Common Stock has been passed upon for the Company
by Lurio & Associates, Philadelphia, Pennsylvania. Lurio & Associates is the
beneficial owner of an aggregate of 2,500,000 shares of Common Stock which were
issued to the firm as Escrow Agent in connection with the issuance of an
aggregate of $500,000 of Debentures in June 1997. The shares of Common Stock are
being issued and held in escrow in order to ensure that they are available to
the holders of the Debentures upon any conversion of the Debentures. See
"Description of Securities -- Convertible Debentures and Related Warrants."

EXPERTS

The financial statements of USA Technologies, Inc. at June 30, 1996 and
1995, and for each of the two years in the period ended June 30, 1996, and for
the period January 16, 1992 (inception) through June 30, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon (which contain an
explanatory paragraph with respect to the Company's ability to continue as a
going concern as discussed in Note 2 to the financial statements) appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

50
<PAGE>

INDEX TO FINANCIAL STATEMENTS

USA TECHNOLOGIES, INC.
(A Development Stage Corporation)

Report of Independent Auditors F-2

Balance Sheets F-3

Statements of Operations F-4

Statement of Shareholders' Equity F-5

Statements of Cash Flows F-8

Notes to Financial Statements F-10

F-1

<PAGE>

Report of Independent Auditors

To the Board of Directors and Shareholders
USA Technologies, Inc.

We have audited the accompanying balance sheets of USA Technologies, Inc. (A
Development Stage Corporation) as of June 30, 1996 and 1995, and the related
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended June 30, 1996 and the period January 16, 1992
(inception) through June 30, 1996. 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 generally accepted auditing
standards. 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 financial position of USA Technologies, Inc. at June
30, 1996 and 1995, and the results of its operations and its cash flows for each
of the two years in the period ended June 30, 1996 and for the period January
16, 1992 (inception) through June 30, 1996, in conformity with 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's recurring losses from operations from
its inception and its accumulated deficit through June 30, 1996, 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
August 9, 1996, except for Note 12, as
to which the date is September 10, 1996

F-2

<PAGE>

USA Technologies, Inc.
(A Development Stage Corporation)

Balance Sheets

June 30, March 31,
1996 1995 1997
------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 1,773,356 $ 376,191 $ 381,934
Trade receivables - - 135,443
Inventory 426,391 - 420,760
Stock subscriptions receivable 106,350 50,000 -
Prepaid expenses and deposits 3,614 3,137 4,012
------------------------------------------------------
Total current assets 2,309,711 429,328 942,149

Property and equipment, at cost, net 235,214 207,383 201,186
Other assets 42,446 4,832 10,000
------------------------------------------------------
Total assets $ 2,587,371 $ 641,543 $ 1,153,335
======================================================

Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 301,849 $ 193,815 $ 252,633
Accrued expenses 41,559 19,352 89,988
Current obligation under capital lease 9,048 4,777 17,373
Note payable - 4,166 -
------------------------------------------------------
Total current liabilities 352,456 222,110 359,994

Obligation under capital lease, less current portion 21,209 - 28,812
Accrued rent 13,516 25,000 25,525
------------------------------------------------------
Total liabilities 387,181 247,110 414,331

Shareholders' equity:
Preferred Stock, no par value:
Authorized shares - 1,200,000
Series A Convertible issued and outstanding
shares - 796,025 and 491,100 at June 30, 1996
and 1995, respectively and 797,255 at March 31,
1997 (unaudited) (Liquidation preference of
$9,718,740 at June 30, 1996 and $10,900,492 at
March 31, 1997 (unaudited) 6,776,132 4,057,372 6,800,530
Common Stock, no par value:
Authorized shares - 55,000,000
Issued and outstanding shares - 23,023,976 and
18,254,300 at June 30, 1996 and 1995,
respectively and 26,760,227 at March 31,
1997 (unaudited) 2,720,201 909,172 3,576,160
Deficit accumulated during the development
stage (7,296,143) (4,572,111) (9,637,686)
------------------------------------------------------
Total shareholders' equity 2,200,190 394,433 739,004
------------------------------------------------------
Total liabilities and shareholders' equity $ 2,587,371 $ 641,543 $ 1,153,335
======================================================
</TABLE>
See accompanying notes.

F-3
<PAGE>

USA Technologies, Inc.
(A Development Stage Corporation)

Statements of Operations
<TABLE>
<CAPTION>

Costs and expenses:
Cost of Goods Sold - - 158,867 - - 158,867
General and administrative 1,449,889 698,600 1,482,870 1,043,603 2,865,523 4,348,393
Compensation 903,398 688,385 732,621 649,699 2,465,776 3,198,397
Depreciation and amortization 72,016 15,468 74,819 15,318 98,394 173,213
Advertising 61,392 67,740 83,988 45,115 353,002 436,990
Provision for losses on equipment 44,100 148,615 46,541 - 400,715 447,256
Interest 5,749 49,190 14,780 4,240 126,611 141,391
Costs incurred in connection with 0
abandoned private placement - - - - 50,000 50,000
-------------------------------------------------------------------------------------------
Total costs and expenses 2,536,544 1,667,998 2,594,486 1,757,975 6,360,021 8,954,507
-------------------------------------------------------------------------------------------

Net loss (2,451,697) (1,645,750) (2,313,492) (1,696,410) $ (6,242,959) $(8,556,451)
===========================================================================================

Cumulative preferred dividends (954,300) (503,874) (1,169,452) (954,300)
-----------------------------------------------------------
Loss applicable to common shares $ (3,405,997) $ (2,149,624) $ (3,482,944) $(2,650,710)
===========================================================
Loss per common share $ (.23) $ (.19) $ (0.17) $ (0.18)
===========================================================
Weighted average number of common
shares outstanding 14,908,904 11,428,486 20,114,083 14,760,322
===========================================================

</TABLE>

See accompanying notes.

F-4

<PAGE>

USA Technologies, Inc.
(A Development Stage Corporation)

Statements of Shareholders' Equity

<TABLE>
<CAPTION>
Deficit
Series A Accumulated
Convertible During the
Preferred Common Development
Stock Stock Stage Total
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 16, 1992, inception $ - $ - $ - $ -
Issuance of stock:
April 1992-10,500,000 shares of Common Stock
at $.001 per share - 10,500 - 10,500
May 1992-10,000 shares of Convertible Preferred
Stock at $9.98 per share 99,800 - - 99,800
June 1992-100,000 shares of Common Stock
at $.001 per share - 100 - 100
Net loss - - (1,848) (1,848)
--------------------------------------------------------------------
Balance, June 30, 1992 99,800 10,600 (1,848) 108,552
Issuance of stock:
September 1992-15,000 shares of Convertible
Preferred Stock at $9.97 per share 149,550 - - 149,550
September 1992- 450,000 shares of Common
Stock at $.001 per share - 450 - 450
April 1993-400,000 shares of Common
Stock at $.001 per share - 400 - 400
June 1993-695,000 shares of Common
Stock at $.001 per share - 695 - 695
June 1993-142.2 units (142,200 shares, net of
offering costs, of Convertible Preferred
Stock at $9.97 per share and 4,266,000 shares of
Common Stock at $.001 per share) 1,266,439 3,815 - 1,270,254
Net loss - - (899,547) (899,547)
--------------------------------------------------------------------
Balance, June 30, 1993 1,515,789 15,960 (901,395) 630,354
September 1993 - 110,000 shares of Common
Stock at $.001 per share - 110 - 110
February 1994 - 79,522 units (79,522 shares, net of
offering costs, of Convertible Preferred Stock at
$9.99 per share and 556,654 shares of Common
Stock at $.001 per share) 624,824 438 - 625,262
March 1994 - 34,960 units (34,960 shares, net of
offering costs, of Convertible Preferred Stock at
$9.99 per share and 244,720 shares of Common
Stock at $.001 per share) 288,591 202 - 288,793
June 1994 - 15,940 units (15,940 shares, net of
offering costs, of Convertible Preferred Stock at
$9.99 per share and 111,580 shares of Common
Stock at $.001 per share) 75,196 52 - 75,248
Net loss - - (1,244,117) (1,244,117)
--------------------------------------------------------------------
Balance, June 30, 1994 2,504,400 16,762 (2,145,512) 375,650
</TABLE>

- continued -

F-5

<PAGE>

USA Technologies, Inc.
(A Development Stage Corporation)

Statements of Shareholders' Equity (continued)

<TABLE>
<CAPTION>
Deficit
Series A Accumulated
Convertible During the
Preferred Common Development
Stock Stock Stage Total
-----------------------------------------------------------------

<S> <C> <C> <C> <C>
July 1994 --5,092 units (5,092 shares, net of offering
costs, of Convertible Preferred Stock at $9.99 per
share and 35,644 of Common Stock at $.001 per
share) $ 37,248 $ 26 $ - $ 37,274
August 1994--9,132 units (9,132 shares, net of offering
costs, of Convertible Preferred Stock at $9.99 per
share and 63,924 of Common Stock at $.001 per
share) 66,801 47 - 66,848
September 1994--4,935 units (4,935 shares, net of
offering costs, of Convertible Preferred Stock
at $9.99 per share and 34,545 of Common Stock at
$.001 per share) 36,098 25 - 36,123
October 1994--12,205 units (12,205 shares, net of
offering costs, of Convertible Preferred Stock at
$9.99 per share and 85,435 of Common Stock at $.001
per share) 88,895 62 - 88,957
October 1994--cancellation of 900,000 shares of Common
Stock - - - -
November 1994--11,478 units (11,478 shares, net of
offering costs, of Convertible Preferred Stock at
$9.99 per share and 80,346 of Common Stock at $.001
per share) 83,600 59 - 83,659
December 1994--16,430 units (16,430 shares, net of
offering costs, of Convertible Preferred Stock at
$9.99 per share and 115,010 of Common Stock at $.001
per share) 119,668 84 - 119,752
January 1995--12,225 units (12,225 shares, net of
offering costs, of Convertible Preferred Stock at
$9.99 per share and 85,575 of Common Stock at $.001
per share) 102,244 71 - 102,315
February 1995--98,081 units (98,081 shares, net of
offering costs, of Convertible Preferred Stock at
$9.99 per share and 686,567 of Common Stock at
$.001 per share) 820,298 575 - 820,873
March 1995--cancellation of 1,100,000 shares of Common
Stock - - - -
April 1995 - June 1995 - issuance of 150,000 shares of
Common Stock in exchange for consulting services - 99,750 - 99,750
June 1995--24.9 units (24,900 shares, net of offering
costs, of Convertible Preferred Stock at $10 per
share) of which 5 units were subscribed 206,382 - - 206,382
June 1995 - issuance of options to purchase 10,000
shares of Common Stock at $.25 per share in exchange
for services - 2,600 - 2,600
June 1995 - conversion of 1,000 shares of Convertible
Preferred Stock to 10,000 shares of Common Stock (8,262) 8,262 - -
Net loss - - (1,645,750) (1,645,750)
Common stock dividend to be distributed - 3 shares of
Common Stock for each outstanding share of
Convertible Preferred Stock on August 1, 1995
(1,473,300 shares as of June 30, 1995) - 780,849 (780,849) -
------------------------------------------------------------------
Balance, June 30, 1995 4,057,372 909,172 (4,572,111) 394,433
</TABLE>

- continued -

F-6
<PAGE>
USA Technologies, Inc.
(A Development Stage Corporation)

Statements of Shareholders' Equity (continued)
<TABLE>
<CAPTION>
Deficit
Series A Accumulated
Convertible During the
Preferred Common Development
Stock Stock Stage Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
July 1995 - 145.1 units (145,100 shares, net of
offering costs, of Convertible Preferred Stock $ 1,441,185 $ - $ - $ 1,441,185
at $10 per share)
July 1995 - September 1995 - issuance of 100,000
shares of Common Stock in exchange for - 50,000 - 50,000
consulting services
July 1995 - Common Stock options exercised - 180,000
shares at $.05 per share - 9,000 - 9,000
August 1995 - Common stock dividend distributed -3
shares of Common Stock for each outstanding
share of Preferred Stock on August 1, 1995 - 230,709 (230,709) -
(435,300 shares)
October 1995 - Common Stock options exercised-100,000
shares at $.05 per share - 5,000 - 5,000
January 1996 - issuance of 30,000 shares of Common
Stock in exchange for consulting services - 14,205 - 14,205
February 1996 - issuance of 50,000 shares of
Convertible
Preferred Stock at $4.00 per share 200,000 - - 200,000
February 1996 - Common Stock warrants exercised-
145,500 at $.40 per warrant - 58,200 - 58,200
March 1996 - Common Stock warrants exercised-
125,500 at $.40 per warrant - 50,200 - 50,200
March 1996 - issuance of 300,000 shares of Common
Stock in exchange for consulting services - 183,000 - 183,000
March 1996 - cancellation of 305,000 shares of
Common Stock - - - -
April 1996 - Common Stock warrants exercised -
264,000 at $.30 per warrant - 79,200 - 79,200
May 1996 - Common Stock warrants exercised -
381,000 at $.30 per warrant - 114,300 - 114,300
Refund to warrant holders due to the reduction of
the 1995 Common Stock warrant exercise price
from $.40 per warrant to $.30 per warrant - (27,100) - (27,100)
May 1996 - conversion of 20,175 shares of
Convertible Preferred Stock to 201,750 shares of (171,689) 171,689 - -
Common Stock
May 1996 - conversion of $41,626 of cumulative preferred
dividends into 41,626 shares of Common
Stock at $1.00 per share - 41,626 (41,626) -
June 1996 - Common Stock warrants exercised -
2,770,000 at $.30 per warrant - 831,000 - 831,000
June 1996 - 130 units (130,000 shares, net of
offering costs, of Convertible Preferred Stock
at $10 per share) 1,249,264 - - 1,249,264
Net loss - - (2,451,697) (2,451,697)
-------------------------------------------------------------------------

- continued -
</TABLE>

F-7

<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance, June 30, 1996 6,776,132 2,720,201 (7,296,143) 2,200,190
October 1996-issuance of 250,000 shares
of Common Stock in exchange for
consulting services (unaudited) - 117,500 - 117,500
October 1996-issuance of 15,000 shares
of Common Stock in exchange for
consulting services (unaudited) - 8,000 - 8,000
November 1996-conversion of 2,030 shares of
Convertible Preferred Stock to 20,300 shares
of Common Stock (unaudited) (17,275) 17,275 - -
November 1996-conversion of $4,868 of
cumulative preferred dividends into 4,868
shares of Common Stock at $.001 per share) (unaudited) - 4,868 (4,868) -
December 1996-Common Stock warrants
exercised- 2,345,000 at $.20 per warrant (unaudited) - 469,000 - 469,000
January/February 1997 - sale of 9,350 shares
of Convertible Preferred Stock at
$10.00 per share (unaudited) 93,500 93,500
January/February/March 1997 - Common Stock warrants
exercised - 857,000 at $.20 per warrant, net
of offering costs (unaudited) 107,106 107,106
March 1997 - issuance of 160,000 shares in exchange
for consulting services (unaudited) 57,200 57,200
January-March 1997-conversion of 6,090 shares of
Convertible Preferred Stock to 60,900 shares
of Common Stock (unaudited) (51,827) 51,827 0
January-March 1997-conversion of $23,183 of
cumulative preferred dividends into 23,183
shares of Common Stock at $1.00 per share
(unaudited) 23,183 (23,183)
Net loss (unaudited) (2,313,492) (2,313,492)
-------------------------------------------------------------------------
Balance, March 31, 1997 (unaudited) $ 6,800,530 $ 3,576,160 $ (9,637,686) $ 739,004
=========================================================================
</TABLE>
See accompanying notes.
F-8
<PAGE>

USA Technologies, Inc.
(A Development Stage Corporation)

Statements of Cash Flows

January 16, 1992
(date of inception)
Nine months ended through
Year ended June 30 March 31, June 30, March 31,
1996 1995 1997 1996 1996 1997
---------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating activities
Net loss $(2,451,697) $(1,645,750) $(2,313,492) $(1,696,410) $(6,242,959) $(8,556,451)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 72,016 15,468 74,819 15,318 98,394 173,213
Provision for losses on equipment 44,100 148,615 - - 383,756 383,756
Compensation charges incurred in
connection with the issuance
of Common Stock and Common Stock
options 247,205 102,350 182,700 247,205 349,555 532,255
Changes in operating assets and
liabilities:
Trade receivables - - (135,443) - - (135,443)
Inventory (426,391) - 5,631 - (426,391) (420,760)
Prepaid expenses, deposits, and
other assets (38,746) 1,900 32,048 38,763 (53,395) (21,347)
Accounts payable 150,252 72,404 (49,216) 66,268 402,121 352,905
Accrued expenses 10,723 (48,728) 59,703 5,250 5,803 65,506
---------------------------------------------------------------------------------------
Net cash used by operating activities (2,392,538) (1,353,741) (2,143,250) (1,323,606) (5,483,116) (7,626,366)

Investing activities
Purchase of property and equipment (112,443) (213,370) (17,586) (445,511) (723,105) (740,961)
Proceeds from sale of property and equipment 3,539 - - 51,000 3,539 3,539
---------------------------------------------------------------------------------------
Net cash used by investing activities (108,904) (213,370) (17,856) (394,511) (719,566) (737,422)
---------------------------------------------------------------------------------------

Financing activities
Net proceeds from issuance of Common Stock 1,013,450 949 682,456 122,400 1,031,161 1,713,617
Net proceeds from issuance of Convertible
Preferred Stock 2,940,449 1,511,234 93,500 1,641,185 6,956,083 7,049,583
Repayment of note payable-other (4,166) (4,565) - (2,330) (2,298) (2,298)
Proceeds (Payments) on capital lease
obligation (8,908) - (6,272) (4,777) (8,908) (15,180)
Change in accounts payable and accrued
expenses relating to the private
placement offering (42,218) 42,218 - - - -
Change in accounts payable relating to the
initial public offering - (50,746) - - - -
---------------------------------------------------------------------------------------
Net cash provided by financing activities 3,898,607 1,499,090 769,684 1,756,478 7,976,038 8,745,722
---------------------------------------------------------------------------------------

Net increase (decrease) in cash 1,397,165 (68,021) (1,391,422) 38,361 1,773,356 381,934
Cash at beginning of period 376,191 444,212 1,773,356 376,191 - -
---------------------------------------------------------------------------------------
Cash at end of period $ 1,773,356 $ 376,191 $ 381,934 $ 414,552 $ 1,773,356 $ 381,934
=======================================================================================
</TABLE>

F-9

<PAGE>

USA Technologies, Inc.
(A Development Stage Corporation)

Statements of Cash Flows (continued)

January 16, 1992
(Date of Inception)
through
-------------------------
Year ended June 30 Nine Months ended March 31 June 30, March 31,
1996 1995 1997 1996 1996 1997
------------------------- ----------------------------- -------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Supplemental disclosure
of cash flow information

Cash paid during the year
for interest $ - $ 92,483 $ - $ - $ 92,483 $ 92,483
========================= =========================== =========================

Common stock dividend $ 230,709 $ 780,849 $ - $ 230,709 $1,011,558 $1,011,558
========================= =========================== =========================

Stock subscription receivable $ 106,350 $ 50,000 $ - $ - $ - $ -
========================= =========================== =========================

Conversion of Convertible
Preferred Stock to Common Stock $ 171,689 $ 8,262 $ 69,102 $ - $ 179,951 $ 249,053
========================= =========================== =========================

Conversion of Cumulative Preferred
Dividends to Common Stock $ 41,626 $ - $ 28,051 $ - $ 41,626 $ 69,677
========================= =========================== =========================

Capital lease obligation $ 34,338 $ - $ 27,972 $ - $ - $ -
========================= =========================== =========================

</TABLE>

See accompanying notes.

F-10

<PAGE>

USA Technologies, Inc.
(A Development Stage Corporation)

Notes to Financial Statements

June 30, 1996

1. Business

USA Technologies, Inc. a Pennsylvania corporation (the "Company"), was
incorporated on January 16, 1992. In May 1995, the Company changed its name from
USA Entertainment Center, Inc. to USA Technologies, Inc. to more accurately
reflect its business. Substantially all of the Company's activities to date have
been devoted to raising capital, developing markets, and starting up operations.
The Company intends to become the leading provider and licenser of credit card
activated control systems for the vending, copying, debit card, and personal
computer industries. The Company's products make available credit card payment
technology in connection with the sale of various products and services.

Through June 30, 1996 and 1995 and March 31, 1997, respectively, the Company
installed 77, 42 and 61 Credit Card Copy ExpressTM control systems; 24, 9 and 35
Credit Card Debit ExpressTM control systems, and at June 30, 1996 and March 31,
1997, 21 and 41 Computer ExpressTM control systems at various colleges,
universities and public libraries. The Company generally retains twenty to
thirty percent of the gross revenues in connection with the machines. Through
June 30, 1996 and March 31, 1997, the total gross revenues received by the
Company from these systems has been nominal.

The Company has also licensed and installed refreshments centers which utilize
the Credit Card Vending ExpressTM control system. The Company licensed its
Credit Card Vending ExpressTM technology to an apparel manufacturer to be used
in connection with the sale from a vending machine of T-shirts, windbreakers,
and tote bags. The Company generally retains 20% of the gross revenues from such
systems. Through June 30, 1996, the total gross revenues to the Company from
these machines were nominal. Subsequent to June 30, 1996, the apparel
manufacturer terminated its agreement with the Company effective September 30,
1996.

F-11

<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

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 that might
be necessary should the Company be unable to continue in existence. The Company
has been in the development stage since its inception in 1992 and has incurred
losses from operations since its inception through June 30, 1996 amounting to
$6.2 million. The Company's working capital has been substantially reduced due
to operating losses incurred subsequent to June 30, 1996. Such losses are
expected to continue in fiscal year 1997. Additionally, the Company has
implemented a plan to sell its proprietary control systems, and accordingly, the
Company will require additional capital to maintain the required inventory
levels. These factors combined with the significant working capital required in
the future raise substantial doubt about the Company's ability to continue as a
going concern. Management believes that actions presently being taken will
provide for the Company to continue as a going concern. Such actions include the
generation of revenues from operations, raising capital from the exercise of the
1995 and 1996 Common Stock purchase warrants, and/or the deferral of anticipated
expenditures in order to satisfactorily meet its obligations.

Interim Financial Information

The financial statements and disclosures included herein for the nine months
ended March 31, 1997 and 1996, and for the date of inception through March 31,
1997 are unaudited. These financial statements and disclosures have been
prepared by the Company in accordance with generally accepted accounting
principles and reflect all adjustments consisting of adjustments of a normal and
recurring nature which, in the opinion of management, are necessary for a fair
presentation of the Company's financial position and the results of its
operations and cash flows.

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles 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.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over three to seven years for financial statement purposes
and accelerated methods for income tax reporting purposes.

F-12

<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

2. Accounting Policies (continued)

Revenue Recognition

License fee revenue is recognized upon the usage of the Company's credit card
activated control systems. Revenue from the sale of equipment is recognized upon
installation and customer acceptance.

Research and Development

Research and development costs are charged to operations as incurred. Such
research and development costs amounted to approximately $224,000 and $130,000
for the years ended June 30, 1996 and 1995, respectively, and approximately
$393,000 for the period January 16, 1992 (date of inception) to June 30, 1996.
These costs are reflected in general and administrative and compensation in the
accompanying financial statements.

Income Taxes

The Company provides for income taxes using the asset and liability approach
whereby deferred tax assets and liabilities are recorded based on the difference
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes. Such differences result from differences in the
timing of recognition by the Company of certain accrued expenses, and the
periods of amortization and depreciation of certain assets.

Loss Per Common Share

Loss per common share is based on the weighted average number of common shares
outstanding during the year. No exercise of stock options, purchase rights,
stock purchase warrants, or the conversion of preferred stock and cumulative
preferred dividends was assumed because the exercise of these securities would
be antidilutive. The 4,365,000 common shares held in escrow (Note 11) are not
considered outstanding for purposes of calculating the loss per common share for
all periods presented.

Accounting for Stock Options

During the fiscal year ended June 30, 1997, the Company will adopt the Financial
Accounting Standards Board Statement No. 123 (SFAS 123), "Accounting for Stock
Based Compensation." SFAS 123 provides companies with a choice to follow the
provision of SFAS 123 in the determination of stock-based compensation expenses
or to continue with the provisions of APB 25, "Accounting for Stock Issued to
Employees." The Company will continue to follow APB 25 and will provide pro
forma disclosures as required by SFAS 123. SFAS 123 will not have an impact on
the Company's financial condition or results of operations.

F-13

<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

3. Property and Equipment

Property and equipment consist of the following:
<TABLE>
<CAPTION>

June 30
1996 1995 March 31, 1997
---------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Control systems $ 261,387 $ 161,323 $ 269,888
Furniture and equipment 55,582 52,919 73,437
Vehicles 10,259 17,333 10,259
---------------------------------------------------------
327,228 231,575 353,584
Less accumulated depreciation 92,014 24,192 152,398
---------------------------------------------------------
$ 235,214 $ 207,383 $ 201,186
=========================================================
</TABLE>

The Company discontinued the Golfers OasisTM vending machine control systems
and an agreement was entered into with the manufacturer of the machines to
repurchase certain of the machines at an amount significantly below the purchase
amount. Accordingly, the Company has recorded a charge for the permanent
impairment to the carrying value of the related assets of $44,160 and $149,000,
respectively, during the years ended June 30, 1996 and 1995.

4. Accrued Expenses

Accrued expenses consist of the following:
<TABLE>
<CAPTION>

June 30
1996 1995 March 31, 1997
--------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Accrued rent $ 34,104 $ 19,000 $ 25,850
Accrued payroll - - 21,082
Accrued other 7,455 352 43,056
--------------------------------------------------------
$ 41,559 $ 19,352 $ 89,988
======================================= =================
</TABLE>

F-14

<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

5. Related Party Transactions

During July 1996, the Company formalized certain agreements with two Directors
of the Company who performed consulting services during fiscal year 1996. During
the year ended June 30, 1996, $98,600 was paid for such services performed.

At June 30, 1996 and 1995 and March 31, 1997, approximately $14,000, $19,000
and $48,000, respectively, of the Company's accounts payable are due to several
shareholders for various legal and technical services performed.

6. Commitments

The Company conducts its operations from various facilities under operating
leases. Rental expense under such arrangements was approximately $69,000 and
$72,000, respectively during the years ended June 30, 1996 and 1995 and $233,000
for the period January 16, 1992 (date of inception) to June 30, 1996.

The Company closed its storage facility in Jacksonville, Florida during the year
ended June 30, 1995. Accordingly, a $44,000 charge to operations was recorded
during 1995 representing the future minimum lease payments due under the related
leases net of anticipated sub-lease payments.

During fiscal year 1996, the Company entered into an agreement to lease $34,400
of computer equipment which has been accounted for as a capital lease. This
computer equipment is included in control systems at June 30, 1996. Lease
amortization of $5,700 is included in depreciation expense for the year ended
June 30, 1996.

F-15
<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

6. Commitments (continued)

Future minimum lease payments subsequent to June 30, 1996 under capital and
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>

Capital Operating
Leases Leases
-----------------------------------
<S> <C> <C>
1997 $15,753 $ 89,000
1998 15,753 20,000
1999 10,502 3,000
-----------------------------------
Total minimum lease payments 42,008 $112,000
=================
Less amount representing interest (25% per annum) 11,751
------------------
Present value of net minimum lease payments 30,257
Less current obligation under capital lease 9,048
------------------
Obligation under capital lease, less current portion $21,209
==================
</TABLE>

During February 1996, the Company entered into an agreement with a vendor
whereby it committed to acquire 250 control system units. As of June 30, 1996,
174 units were received and approximately $99,000 was included in accounts
payable in connection with this obligation. An additional $43,000 will be
payable upon the delivery of the remaining 76 units during fiscal year 1997.

During February 1996, the Company entered into an agreement with a consulting
firm whereby the Company committed to pay this firm $50,000, and issued 300,000
shares of the Company's Common Stock which were registered with the Securities
and Exchange Commission. Subsequent to June 30, 1996, the Company extended its
agreement with this consulting firm providing for the issuance of an additional
250,000 shares of its Common Stock. Through June 30, 1996, $22,000 of the
commitment was paid in accordance with the agreement. An additional $28,000 is
payable at $4,000 per month from July 15, 1996 through January 15, 1997.

The Company has several employment agreements with its officers, none of which
extend beyond one year.

F-16

<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

7. Income Taxes

At June 30, 1996 and 1995, the Company had a net tax operating loss carryforward
of approximately $5,176,000 and $2,565,000, respectively, to offset future
taxable income expiring through 2011. At June 30, 1996 and 1995, respectively,
the Company recorded a deferred tax asset of $2,537,000 and $1,564,000, which
were reduced by a valuation allowance of same amounts. The deferred tax assets
arose primarily from the use of different accounting methods for financial
statement and income tax reporting purposes principally related to the
accounting for preoperating costs and research and development costs and net
operating loss carryforwards.

As of June 30, 1993, the timing and manner in which the Company can utilize
operating loss carryforwards and future tax deductions for capitalized items in
any year was limited by provisions of the Internal Revenue Code regarding
changes in ownership of corporations. The Company believes that such limitation
will have an impact on the ultimate realization of its carryforwards and future
tax deductions (generated through June 30, 1993). Cumulative losses generated
for income tax purposes from June 30, 1994 through June 30, 1996, are not
expected to be subject to the limitation.

8. Preferred Stock

The Preferred Stock authorized 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 ten votes and is convertible at any time into ten shares of Common
Stock. Series A Convertible Preferred Stock provides for an annual cumulative
dividend of $1.50 per share payable to the shareholders of record on February 1
and August 1 of each year. Cumulative unpaid dividends at June 30, 1996 and
1995, and March 31, 1997 amounted to $1,758,490, $845,816 and $2,927,942
(unaudited), respectively. Cumulative unpaid dividends are convertible into
common shares at $.83 per common share through December 31, 1997 and at $1.00
per common share any time thereafter at the option of the shareholder. During
the year ended June 30, 1996 and the nine months ended March 31, 1997, certain
holders of the Preferred Stock converted 20,175 and 8,120 shares, respectively,
into 201,750 and 81,200 shares, respectively, of Common Stock. Certain of these
shareholders also converted cumulative preferred dividends of $41,626 into
41,626 shares of Common Stock in fiscal year 1996 and $28,051 into 28,051 shares
of Common Stock during the nine months ended March 31, 1997. 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 of all accrued and unpaid dividends. 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.

F-17
<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

9. Stock Transactions

During April 1996, the Company's shareholders approved the increase in the
number of the Company's authorized common stock to 45,000,000 and to increase
the number of designated shares of Series A Convertible Preferred Stock from
700,000 to 1,000,000.

During April 1996, the Company's Board of Directors authorized a $1,300,000
private placement offering of 130 units at a unit price of $10,000 and each unit
included 40,000 1996 Common Stock purchase warrants and 1,000 shares of Series A
Convertible Preferred Stock. As of June 30, 1996, all 130 units were sold,
generating net proceeds of $1,249,264 ($1,300,000 less offering costs of
$50,736). During August 1996, the Company filed a Registration Statement Form
SB-2 to register the Common Stock underlying the 1996 Common Stock purchase
warrants with the Securities and Exchange Commission. The 5,200,000 1996
warrants issued are exercisable at any time on or before May 31, 2001, unless
such date is extended by the Company. Each warrant entitles the holder to
purchase one share of Common Stock for $.40 through December 31, 1996 and for
$.50 at any time thereafter through May 31, 2001. The exercise price of the 1996
warrants may be reduced by the Company at any time, or from time to time. At
June 30, 1996 there are 5,200,000 1996 warrants outstanding.

During February 1996, the Company filed a Registration Statement with the
Securities and Exchange Commission in connection with an agreement with a
consulting company whereby the Company issued and registered for sale 300,000
shares of its Common Stock in exchange for consulting and advisory services to
be rendered to the Company. A charge of $183,000, reflecting the estimated fair
value of the shares issued, is recorded in general and administrative expenses
in connection with this agreement.

During February 1996, the Company sold 50,000 shares of its Series A Convertible
Preferred Stock for $200,000 to a private investment company pursuant to
Regulation S under the Securities Act of 1933.

During June 1995, the Company's Board of Directors authorized a $1,500,000
private placement offering of 150 units at a unit price of $10,000 and each unit
included 30,000 1995 Common Stock purchase warrants and 1,000 shares of Series A
Convertible Preferred Stock. As of June 30, 1995, 24.9 units were sold
generating net proceeds of $206,382. During July 1995, the Company obtained
approval to extend the private placement offering to $1,700,000 and 170 units.
This private placement offering closed on July 31, 1995 and a total of 170 units

F-18

<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

9. Stock Transactions (continued)

were sold generating net proceeds of $1,647,567 ($1,700,000 less offering costs
of $52,433). The subscriptions receivable at June 30, 1995 recorded in
connection with this offering were received during July 1995. The 1995 Common
Stock purchase warrants are exercisable at any time on or before January 31,
2001, unless such date is extended by the Company. Each warrant entitles the
holder to purchase one share of Common Stock for $.50. The exercise price of the
1995 warrants may be reduced by the Company at any time, or from time to time.

During the period February 1996 through April 1996, 271,000 of the 1995 Common
Stock purchase warrants were exercised at a reduced amount of $.40 per warrant
generating gross proceeds of $108,400. Subsequent to April 30, 1996, the
exercise price of the 1995 warrants was further reduced to $.30 until June 30,
1996. Such further reduction was made retroactive to those holders who had
already exercised the 1995 warrants at $.40. Accordingly, the Company returned
$27,100 to such holders. Subsequent to April 30, 1996 and through June 30, 1996,
2,814,000 of the 1995 warrants had been exercised at $.30. Through June 30,
1996, a total of 3,686,000 1995 warrants had been exercised for a total gross
proceeds to the Company of $1,105,800. Of this amount, $106,350 was not received
as of June 30, 1996 and is accordingly reflected as a subscription receivable
(Note 12). At June 30, 1996, the Company had 1,414,000 of 1995 Common Stock
purchase warrants outstanding.

During May 1995, the Company's shareholders approved the payment of a stock
dividend of 3 shares of Common Stock, for each outstanding share of Series A
Convertible Preferred Stock at the close of business on August 1, 1995. The
effects of this stock dividend have been reflected in shareholders' equity in
the accompanying financial statements as if the stock dividend had occurred on
June 30, 1995 for the 636,200 Series A Convertible shares issued and outstanding
on June 30, 1995.

During May 1995, the Company filed a registration statement on Form S-8,
pursuant to which 250,000 (subsequently amended to 280,000) shares of Common
Stock will be issued to a consultant in consideration for services rendered for
the period April 1, 1995 through August 31, 1995. During the years ended June
30, 1996 and 1995, the Company issued 150,000 and 130,000, respectively, shares
under this agreement. Professional fees of $64,205 and $99,750, respectively,
were charged to operations during the years ended June 30, 1996 and 1995
representing the estimated fair value of the shares issued.

F-19

<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

9. Stock Transactions (continued)

During December 1993, the Company commenced an offering of public securities in
an effort to raise, before offering costs, a minimum of $500,000 and a maximum
of $3,000,000. The offering permitted a minimum of 50,000 units or a maximum of
300,000 units at $10.00 per unit. Each unit consisted of 1 share of Series A
Convertible Preferred Stock and 7 shares of Common Stock. The offering
terminated on February 28, 1995 and, a total of 300,000 units were sold
generating net proceeds of $ 2,345,104 ($3,000,000 less offering costs of
$654,896).

During October 1992, the Company's Board of Directors authorized private
offering of $2,000,000 for up to 200 units at a unit price of $10,000 which
includes 30,000 shares of Common Stock and 1,000 shares of Series A Convertible
Preferred Stock. The Company allocated $9.97 per share to the Series A
Convertible Preferred Stock due to the Preferred Stock's senior position. The
private offering closed on June 30, 1993 from which the Company issued 142.2
units and raised $1,270,254 of net proceeds ($1,422,000 less offering costs of
$151,746).

During July 1993, the Company granted 157,300 Common Stock purchase rights at
$1.00 per share to certain consultants and to a broker dealer in connection with
this private placement offering. These rights were immediately vested and are
exercisable for a period of five years.

During July 1992, the Company's Board of Directors authorized a $1,500,000
private placement offering of 150 units of Common and Preferred Stock. The
offering was canceled effective September 1992. Approximately $50,000 of costs
incurred in connection with the canceled offering were charged to operations
during the year ended June 30, 1993.

10. Stock Options

Except as noted below, the Company's Board of Directors has granted options to
employees and consultants to purchase common shares at or above fair market
value. During June 1995, the Company issued 10,000 options at $.25 per share
which was below fair market value and, accordingly, recorded a $2,600 charge to
compensation expense in conjunction with the issuance.

F-20
<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

10. Stock Options (continued)

The following table summarizes all stock option activity:

Common Shares
Under Price
Options Granted Per Share
----------------------------------------------

Balance at June 30, 1993 - $ -
Granted 875,000 $ .25
-----------------------
Balance at June 30, 1994 875,000
Canceled (100,000) $ .25
Granted 2,290,000 $ .05 -$.25
-----------------------
Balance at June 30, 1995 3,065,000
Granted 550,000 $ .65
Exercised (280,000) $ .05
-----------------------
Balance at June 30, 1996 3,335,000 $ .05 -$.65
Granted (unaudited) 510,000 $ .45 -$.65
Canceled (unaudited) (29,000) $ .65
-----------------------
Balance at March 31, 1997
(unaudited) 3,816,000 $ .05 -$.65
=======================

At June 30, 1996 and 1995 and March 31, 1997, respectively, 2,785,000, 2,890,000
and 3,266,000, respectively, of these options were exercisable.

11. Escrow and Cancellation Arrangements

At the request of the Pennsylvania Securities Commission, all of the executive
officers and directors of the Company serving at the commencement of the initial
public offering of the Company agreed to place in escrow 10,700,000 shares of
Common Stock (subsequently amended to 8,603,675 by the cancellation of 2,305,000
shares by the President of the Company during June 1995 and February 1996 and
the addition of 208,675 shares by officers and directors in August 1995,
February 1996, and May 1996) beneficially owned by them until January 5, 1997.
Under certain circumstances as outlined by the Pennsylvania Securities
Commission, the President's shares may be held in escrow for an additional
period of time, but not later than June 30, 1998. Any additional shares of
Common Stock acquired by the executive officers and directors will also be held
in escrow. The executive officers and directors have agreed not to sell, pledge,
or transfer, directly or indirectly, any of the Common Stock held in escrow or

F-21

<PAGE>

USA Technologies, Inc.

(A Development Stage Corporation)

Notes to Financial Statements (continued)

11. Escrow and Cancellation Arrangements (continued)

any options to acquire stock they may own. Additionally, the President of the
Company has agreed that 4,365,000 shares of his escrowed Common shares would be
canceled by the Company and would no longer be issued and outstanding unless
certain performance measures as specified by the Commission are achieved. If the
performance measures are achieved, the common shares released from escrow will
result in a compensatory charge to the Company's operations. The charge will be
based on the fair value of the Company's common shares on the date the shares
are released from escrow. During the nine months ended March 31, 1997,
there was no such charge to operations. The 4,365,000 shares are not considered
outstanding for purposes of calculating the loss per common share for all
periods presented.

12. Subsequent Events

During July 1996, the Company granted options to an employee to purchase up to
100,000 shares of Common Stock at $.65 per share. These options vest at the rate
of 12,500 every three months over a two-year period. The Board of Directors
determined the options price to be granted at or above the fair market value of
the underlying common shares on the date of grant.

In August, 1996, the Company authorized the issuance of 265,000 shares of Common
Stock to two consultants. The Company issued and registered these shares in
October, 1996 under the Act and such shares are freely tradeable thereunder.

During August 1996, the Company granted fully vested options to a consultant to
purchase 50,000 shares of Common Stock at $.50 per share. The Board of Directors
determined the option price of the underlying shares to be at or above the fair
market value on the date of grant.

During August 1996, the Company's Board of Directors authorized the issuance of
265,000 shares of Common Stock to two consultants.

On September 10, 1996, the Company received $106,350 of subscriptions receivable
relating to the 1995 Common Stock Purchase warrants exercised as described in
Note 9.

13. Events (Unaudited) Subsequent to the Date of the Report of Independent
Auditors

During September 1996, the Company granted to an employee options to purchase up
to 50,000 shares of Common Stock at $.45 per share. In November 1996, the
Company granted to an employee options to purchase up to 50,000 shares of Common
Stock at $.65 per share, to a consultant options to purchase up to 50,000 shares
of Common Stock at $.50 per share, and to an employee options to purchase up to
10,000 shares of Common Stock at $.50 per share. During November 1996, the
Company authorized the issuance of 160,000 shares of Common Stock to a
consultant as compensation for services to be rendered to the Company. Such
shares of Common Stock shall be issued to the Consultant at the rate of 40,000
shares per month, commencing December 1996, and continuing each month
thereafter. The Company plans to register such shares under the Act pursuant to
a Form S-8 to be filed with the Securities and Exchange Commission. During
February 1997 and June 1997 the Company granted to employees 200,000 and 305,000
options, respectively, to purchase Common Stock at $.45 per share. All of the
above options were granted at an exercise price determined by the Board of
Directors to be equal to or greater than the fair market value of the underlying
shares on the date of grant. All of the options are exercisable at anytime
within five years from the date of vesting.

During November 1996 and June 1997, the Company reduced from $.65 to $.45 the
exercise price of options to purchase up to 650,000 shares of Common Stock
issued to employees of the Company in March 1996 through November 1996. The new
exercise price of these options was equal to or greater than the fair market
value of the Common Stock on the date of such reduction.

During November 1996, the Company authorized a reduction of the exercise price
of the 1996 Warrants from $.40 to $.20 during the period November 1, 1996
through February 28, 1997, after which the exercise price will increase to $.50.
From November 1, 1996 through December 31, 1996, 2,345,000 1996 Warrants have
been exercised resulting in gross proceeds to the Company of $469,000.

During November 1996, the Company's Board of Directors authorized a $200,000
private placement offering of 20 units at a unit price of $10,000. Each unit
includes 1,000 shares of Series A Convertible Preferred Stock and 30,000 1996-B
Common Stock purchase warrants. Each warrant is exercisable into one share of
Common Stock through June 30, 1997 at $.20 and thereafter at $.30 for five years
after the termination of the offering. As of February 28, 1997, 10 units have
been sold, generating gross proceeds of $100,000.

F-22

<PAGE>

During March 1997, the Company's Board of Directors authorized a $1,100,000
private placement offering of 110 units at a unit price of $10,000. Each unit
includes 2,000 shares of Series A Convertible Preferred Stock and 40,000 1997
Common Stock purchase warrants. Each warrant is exercisable into one share of
Common Stock through August 31, 1997 at $.20 and thereafter at $.40 for five
years after the termination of the offering. Through June 1997, the Company sold
40 units of this offering at a unit price of $10,000, generating gross proceeds
of $400,000. The Company terminated this offering on July 3, 1997.

During March 1997, the Company's Shareholders approved an increase in the
authorized number of shares of Common Stock to 55,000,000 shares; an increase in
the authorized number of shares of Series A Preferred Stock to 1,200,000 shares;
an increase from 10 to 12 the number of shares of Common Stock into which each
share of Series A Preferred Stock may be converted during the period from March
24, 1997 to December 31, 1997 and a decrease in the conversion price at which
the Series A Preferred Stock cumulative but unpaid dividends may be converted
into shares of Common Stock from $1.00 to $.83 per share of Common Stock during
the period from March 24, 1997 to December 31, 1997.

During April 1997, options were exercised to purchase 150,000 shares of
Common Stock at $.05 per share generating proceeds to the Company of $7,500.

During June 1997, the Company issued an aggregate of $500,000 of
Convertible Debentures (the "Debentures") pursuant to an agreement with Gem
Advisors Inc. (GEMA) which provided GEMA with the exclusive right to place the
Debentures with qualified purchasers. The Debentures have a five year term and
earn interest at the rate of 6% per year, payable in common stock or cash at the
option of the Company at the time of conversion. The Debentures do not have any
voting rights and were issued by the Company pursuant to Regulation S
promulgated under the Securities Act of 1933, as amended. Upon completion of the
sale of the Debentures, GEMA retained 8% of the gross proceeds (i.e. $40,000) as
a management/documentation fee. In addition, affiliates and/or consultants to
GEMA received non-redeemable warrants to purchase up to 2,000,000 shares of the
Company's common stock at a price of $.20 per share at any time prior to June
22, 2002.

The Company has entered into an escrow agreement, pursuant to which the
Company issued 2,500,000 shares of restricted Common Stock registered in the
name of an escrow agent. Such shares were issued in order to ensure that they
would be available if and when the holders of the Debentures elect to convert
any Debentures.

During June 1997, the Company extended a consulting agreement which had
expired on March 31, 1997 for an additional four months, and authorized the
issuance of 160,000 shares of Common Stock as compensation for the services to
be rendered to the Company pursuant to this agreement. 80,000 shares of such
Common Stock shall be immediately issuable to the consultant and the remaining
80,000 shares shall be issued at the rate of 40,000 shares per month in June
1997 and July 1997. The Company has agreed to register these shares under the
Act and such shares will be freely tradeable thereunder. In connection with the
issuance of such shares, the Company will record consulting expense of
approximately $50,000, $36,000 of which will be recorded during the quarter
ending June 30, 1997.

During June 1997, the Company authorized the issuance of 142,000 shares
of Common Stock to two consultants, as compensation for services. Such services
included the preparation of public relations reports for the Company. In
connection with the issuance of such shares, the Company recorded consulting
expense of approximately $57,000 during the quarter ended June 30, 1997.

F-23

<PAGE>

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which the Prospectus relates or an offer to sell or the solicitation of an offer
to buy such securities in any circumstances in which such offer or solicitation
is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is current as of any time subsequent to its date.

TABLE OF CONTENTS

Available Information. . . . . . . . . . . . . . . . . . i

Prospectus Summary . . . . . . . . . . . . . . . . . . . 1

Recent Transaction . . . . . . . . . . . . . . . . . . . 4

Risk Factors . . . . . . . . . . . . . . . . . . . . . . 6

Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 12

Management's Discussion And Analysis of
Financial Condition And Results
of Operations. . . . . . . . . . . . . . . . . . 13

Business . . . . . . . . . . . . . . . . . . . . . . . . 18

Management . . . . . . . . . . . . . . . . . . . . . . . 24

Principal Shareholders . . . . . . . . . . . . . . . . . 31

Certain Transactions . . . . . . . . . . . . . . . . . . 37

Selling Shareholders . . . . . . . . . . . . . . . . . . 37

Market for Common Stock. . . . . . . . . . . . . . . . . 39

Description of Securities. . . . . . . . . . . . . . . . 40

Plan of Distribution . . . . . . . . . . . . . . . . . . 49

Legal Matters . . . . . . . . . . . . . . . . . . . . . 50

Experts. . . . . . . . . . . . . . . . . . . . . . . . . 50

Financial Statements . . . . . . . . . . . . . . . . . . F-1

<PAGE>

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. The Company's Bylaws
substantively provide that the Company will indemnify its 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. The Company's 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 . $ 272.28
Blue Sky fees and expenses. . . . . . . . . . . . . . . $ 3,000.00
Printing and Engraving Expenses . . . . . . . . . . . . $10,000.00
Accounting Fees and Expenses. . . . . . . . . . . . . . $12,000.00
Legal Fees and Expenses . . . . . . . . . . . . . . . . $12,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . $ 2,727.72
----------

Total . . . . . . . . . . . . . . . . . . $40,000.00
----------

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 the Company
without registration under the Securities Act of 1933, as amended ("Act"):

II-1

<PAGE>

I. Private Placements.

During June and July 1995, the Company sold 170 Units at $10,000 each
pursuant to a private placement under Rule 506 of Regulation D promulgated under
the Act. Each Unit consisted of 1,000 shares of Preferred Stock and 30,000 1995
Common Stock Purchase Warrants. An aggregate of 170,000 shares of Preferred
Stock and 5,100,000 1995 Common Stock Purchase Warrants were sold to 226
accredited investors. In connection therewith, William W. Sellers, a Director of
the Company, purchased an aggregate of 2,225 shares of Preferred Stock and
66,750 1995 Common Stock Purchase Warrants.

During May 1996, the Company sold 130 units at $10,000 each pursuant to
a private placement under Rule 506 of Regulation D promulgated under the Act.
Each unit consisted of 1,000 shares of Preferred Stock and 40,000 1996 Common
Stock Purchase Warrants. An aggregate of 130,000 shares of Preferred Stock and
5,200,000 1996 Common Stock Purchase Warrants were issued to 100 accredited
investors and 33 non-accredited investors. In connection therewith, William W.
Sellers, a Director of the Company, purchased 4,000 shares of Preferred Stock
and 160,000 1996 Common Stock Purchase Warrants.

During January and February 1997, the Company sold 9.35 units at
$10,000 each pursuant to a private placement under Rule 506 of Regulation D
promulgated under the Act. Each unit consisted of 1,000 shares of Preferred
Stock and 40,000 1996-B Common Stock Purchase Warrants. An aggregate of 9,350
shares of Preferred Stock and 374,000 1996-B Common Stock Purchase Warrants were
sold to 16 accredited investors.

During April, May, June and July 1997, the Company sold 40 units at
$10,000 each pursuant to a private placement under Rule 506 of Regulation D
promulgated under the Act. Each unit consisted of 2,000 shares of Preferred
Stock and 40,000 1997 Common Stock Purchase Warrants. An aggregate of 80,000
shares of Preferred Stock and 1,600,000 1997 Common Stock Purchase Warrants
were sold to 44 accredited investors and 10 non-accredited investors.

During June 1997, the Company issued an aggregate of $500,000 of
Convertible Debentures (the "Debentures") pursuant to an agreement with Gem
Advisors Inc. ("GEMA") which provided GEMA with the exclusive right to place the
Debentures with qualified purchasers.

The Debentures have a five year term and earn interest at the rate of
6% per year, such interest payable in Common Stock or cash at the option of the
Company at the time of conversion. The Debentures do not have any voting rights
and were issued by the Company pursuant to Regulation S promulgated under the
Act. Upon completion of the sale of the Debentures, GEMA received 8% of the
gross proceeds (i.e. $40,000) as a management/documentation fee. In addition,
affiliates and/or consultants to GEMA received non-redeemable warrants to
purchase up to 2,000,000 shares of the Company's Common Stock at a price of $.20
per share at any time prior to June 23, 2002. These Warrants have been issued by
the Company pursuant to Regulation S.

II-2

<PAGE>

II. Stock Options

In August, 1994, the Company approved the issuance to Megan N. Cherney
options to purchase an aggregate of 100,000 shares of Common stock for $.25 per
share.

In August, 1994, the Company issued to Haven Brock Kolls, Jr., options
to purchase an aggregate of 50,000 shares of Common Stock for $.25 per share.

In August, 1994, the Company issued to Barry Slawter options to purchase
an aggregate of 200,000 shares of Common Stock for $.25 per share.

In March 1995, the Company issued to the following officers, directors,
consultants and employees, options to acquire an aggregate of 1,305,000 shares
of Common Stock at $.25 per share:

Number of shares of
Common Stock purchasable
Grantee Under the Options Granted
------- -------------------------
Henry B. duPont Smith 100,000
Keith L. Sterling 100,000
William W. Sellers 55,000
Peter G. Kapourelos 70,000
William L. Van Alen, Jr. 25,000
Adele Hepburn 500,000
Austin Hepburn 390,000
Robert Leiser 40,000
Doug Anette 25,000

In March 1995, the Company issued to two consultants, Howard Bronson
and Kelly Capital, options to acquire an aggregate of 500,000 shares of Common
Stock at $.05 per share.

In March 1995, the Company issued to H. Brock Kolls options to
purchase up to 150,000 shares of Common Stock at $.25 per share.

II-3

<PAGE>

In June 1995, the Company issued to Barry Slawter options to purchase
up to 10,000 shares of Common Stock at $.25 per share.

In March 1996, the Company issued to Haven Brock Kolls options to
purchase up to 50,000 shares of Common Stock at $.65 per share.

In April 1996, the Company issued to Stephen Herbert options to
purchase up to 400,000 shares of Common Stock at $.65 per share.

In May 1996, the Company issued to Keith Sterling options to purchase
up to 50,000 shares of Common Stock at $.65 per share.

In May 1996, the Company issued to Edward Sullivan options to purchase
up to 50,000 shares of Common Stock at $.65 per share.

In July 1996, the Company issued to Michael Lawlor options to purchase
up to 100,000 shares of Common Stock at $.65 per share.

In August 1996, the Company issued to RAM Group, a consultant, options
to purchase up to 50,000 shares of Common Stock at $.50 per share.

In September 1996, the Company issued to Joseph Donahue options to
purchase up to 50,000 shares of Common Stock at $.45 per share.

In November 1996, the Company issued to RAM Group, a consultant,
options to purchase up to 50,000 shares of Common Stock at $.50 per share.

In November 1996, the Company issued to Phillip A. Harvey options to
purchase up to 50,000 shares of Common Stock at $.65 per share.

In November 1996, the Company issued to Michael Feeney options to
purchase up to 10,000 shares of Common Stock at $.50 per share.

In February 1997, the Company issued to Leland P. Maxwell options to
purchase up to 200,000 shares of Common Stock at $.45 per share.

In June 1997, the Company issued to Haven Brock Kolls options to
purchase up to 100,000 shares of Common Stock at $.45 per share.

In June 1997, the Company issued to Keith Sterling options to
purchase up to 100,000 shares of Common Stock at $.45 per share.

In June 1997, the Company issued to Stephen Herbert options to
purchase up to 100,000 shares of Common Stock at $.45 per share.

In June 1997, the Company issued to Michael Feeney options to
purchase up to 5,000 shares of Common Stock at $.45 per share.

The issuance of all of the foregoing options was made in reliance upon
the exemption provided by Section 4(2) of the Act.

III. Common Stock-For Cash.

In July 1995, options to purchase 180,000 shares of Common Stock at $.05
per share were exercised by the holders thereof. All of such shares were issued
by the Company in reliance on Section 4(2) of the Act.

In February 1996, options to purchase 100,000 shares of Common Stock at
$.05 per share were exercised by the holders thereof. All of such shares were
issued by the Company in reliance on Section 4(2) of the Act.

In April 1997, options to purchase 150,000 shares of Common Stock at
$.05 per share were exercised by the holders thereof. All of such shares were
issued by the Company in reliance on Section 4(2) of the Act.

IV. Stock Dividend.

The Company issued a stock dividend consisting of 3 shares of Common
Stock for each share of Preferred Stock issued and outstanding on August 1,
1995. Based on the 636,200 shares of Preferred

II-4

<PAGE>

Stock issued and outstanding on such date, an aggregate of 1,908,600 shares of
Common Stock were distributed to the holders of the Preferred Stock. Pursuant
thereto, 48,000 shares were issued to Mr. Jensen, 1,500 shares were issued to
Mr. Kolls, 3,000 shares were issued to Mr. Kapourelos, 11,175 shares were issued
to Mr. Sellers, and 30,000 shares were issued to Mr. Smith. The issuance of this
Common Stock was made in reliance on the exemption provided by Section 4(2) of
the Act.

Item 27. Exhibits.

Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation of Company filed
on January 16, 1992 (Incorporated by reference
to Exhibit 3.1 to Form SB-2 Registration
Statement No. 33-70992)

3.1.1 First Amendment to Articles of Incorporation
of the Company filed on July 17, 1992
(Incorporated by reference to Exhibit 3.1.1
to Form SB-2 Registration Statement No. 33-70992)

3.1.2 Second Amendment to Articles of Incorporation
of the Company filed on July 27, 1992
(Incorporated by reference to Exhibit 3.1.2
to Form SB-2 Registration Statement No. 33-70992)

3.1.3 Third Amendment to Articles of Incorporation
of the Company filed on October 5, 1992
(Incorporated by reference to Exhibit 3.1.3
to Form SB-2 Registration Statement No. 33-70992)

3.1.4 Fourth Amendment to Articles of Incorporation
of the Company filed on October 18, 1993
(Incorporated by reference to Exhibit 3.1.4
to Form SB-2 Registration Statement No. 33-70992)

3.1.5 Fifth Amendment to Articles of Incorporation
of the Company filed on June 7, 1995 ( )

3.1.6 Sixth Amendment to Articles of Incorporation of the
Company filed on May 1, 1996 (Incorporated by reference to
Exhibit 3.1.6 to Form SB-2 Registration Statement No.
333-09465)

**3.1.7 Seventh Amendment to Articles of Incorporation of the
Company filed on March 24, 1997.

3.2 By-Laws of the Company (Incorporated by
reference to Exhibit 3.2 to Form SB-2
Registration Statement No. 33-70992)

II-5

<PAGE>

Exhibit
Number Description
- ------- -----------

**4.1 1996-B Warrant Agreement dated as of December 27, 1996
between the Company and American Stock Transfer
and Trust Company

**4.2 Form of 1996-B Warrant Certificate

**4.3 1997 Warrant Agreement dated as of April 8, 1997
between the Company and American Stock Transfer
and Trust Company

**5.1 Opinion of Lurio & Associates

10.1 Amended and Restated Employment and Non-
Competition Agreement between the Company and
George R. Jensen, Jr., dated as of July 1, 1992
(Incorporated by reference to Exhibit 10.3 to
Form SB-2 Registration Statement No. 33-70992)

10.1.2 First Amendment to Amended and Restated Employment and
Non-Competition Agreement between the Company and George
R. Jensen, Jr., dated as of April 29, 1996 (Incorporated by
reference to Exhibit 10.1.2 to Form SB-2 Registration
Statement No. 33-09465)

10.2 Employment and Non-Competition Agreement between
the Company and Keith L. Sterling dated as of
July 1, 1993 (Incorporated by reference to
Exhibit 10.4 to Form SB-2 Registration
Statement No. 33-70992)

10.2.1 First Amendment to Employment and Non-
Competition Agreement between the Company and
Keith L. Sterling dated as of April 29, 1996 (Incorporated
by reference to Exhibit 10.2.1 to Form SB-2 Registration
Statement No. 333-09465)

10.3 Employment and Non-Competition Agreement between
the Company and Edward J. Sullivan dated as of
July 1, 1993 (Incorporated by reference to
Exhibit 10.5 to Form SB-2 Registration
Statement No. 33-70992)

10.3.1 First Amendment to Employment and Non-
Competition Agreement between the Company
and Edward J. Sullivan dated as of April 29, 1996
(Incorporated by reference to Exhibit 10.3.1 to
Form SB-2 Registration Statement No. 333-09465)

10.4 Employment and Non-Competition Agreement between
the Company 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)

10.5 Robert L. Bartlett Common Stock Options dated
as of July 1, 1993 (Incorporated by reference
to Exhibit 10.9 to Form SB-2 Registration
Statement No. 33-70992)

II-6
<PAGE>

Exhibit
Number Description
- ------- -----------
10.6 Edward J. Sullivan Common Stock Options dated
as of July 1, 1993 (Incorporated by reference
to Exhibit 10.10 to Form SB-2 Registration
Statement No. 33-70992)

10.6.1 Edward J. Sullivan Common Stock Options dated
as of April 29, 1996 (Incorporated by reference to Exhibit
10.6.1 to Form SB-2 Registration Statement No. 333-09465)

10.7 Keith L. Sterling Common Stock Options dated
July 1, 1993 (Incorporated by reference to
Exhibit 10.11 to Form SB-2 Registration
Statement No. 33-70992)

10.7.1 Keith L. Sterling Common Stock Options dated
as of April 29, 1996 (Incorporated by reference to Exhibit
10.7.1 to Form SB-2 Registration Statement No. 333-09465)

10.8 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)

10.9 Gregory C. Rollins Common Stock Options dated
as of August 23, 1993 (Incorporated by reference
to Exhibit 10.13 to Form SB-2 Registration
Statement No. 33-70992)

10.10 Lease Agreement for Principal Executive Office
dated October 1, 1992 (Incorporated by reference
to Exhibit 10.14 to Form SB-2 Registration
Statement No. 33-70992)

10.10.1 First Amendment to Lease for Principal Executive
Office dated July 13, 1993 (Incorporated by
reference to Exhibit 10.14.1 to Form SB-2
Registration Statement No. 33-70992)

10.11 Application Sales Agreement of the Company to
Card Establishment Services, Inc. and letter
of acceptance thereof (Incorporated by
reference to Exhibit 10.15 to Form SB-2
Registration Statement No. 33-70992)

10.12 Non-Disclosure Agreement between USA
Entertainment Center, Inc. and Card
Establishment Services, Inc. (Incorporated
by reference to Exhibit 10.16 to Form SB-2
Registration Statement No. 33-70992)

II-7

<PAGE>

Exhibit
Number Description
- ------- -----------

10.13 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)

10.14 Form of Escrow Agreement between the Company,
Meridian Trust Company and various shareholders
dated as of December 28, 1993 (Incorporated by
reference to Exhibit 10.31 to Form SB-2
Registration Statement No. 33-70992)

10.14.1 Modification to Escrow Agreement dated as of
October 6, 1994 between the Company, Meridian
Trust Company and George R. Jensen, Jr.
(Incorporated by reference to Exhibit 10.31.1
to Form SB-2 Registration Statement No. 33-70992)

10.14.2 Joinder to Escrow Agreement dated as of
February 14, 1996 by each of Haven Brock Kolls,
Barry Slawter, and Henry B. duPont Smith (Incorporated by
reference to Exhibit 10.14.2 to Form SB-2 Registration
Statement No. 333-09465)

10.15 Employment and Non-Competition Agreement between
the Company 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)

10.15.1 First Amendment to Employment and Non-
Competition Agreement between the Company
and H. Brock Kolls dated as of March 20, 1996 (Incorporated
by reference to Exhibit 10.15.1 to Form SB-2 Registration
Statement No. 333-09465)

10.16 Agreement of Lease dated March 16, 1994, by and
between the Company and G.F. Florida Operating
Alpha, Inc. (Incorporated by reference to
Exhibit 10.33 to Form SB-2 Registration
Statement No. 33-70992)

10.17 Megan N. Cherney Common Stock Options dated as
of April 1, 1994 (Incorporated by reference to
Exhibit 10.41 to Form SB-2 Registration
Statement No. 33-70992)

10.18 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)

II-8

<PAGE>

Exhibit
Number Description
- ------- -----------

10.18.1 H. Brock Kolls Common Stock Options dated
as of March 20, 1996 (Incorporated by reference to Exhibit
10.18.1 to Form SB-2 Registration Statement No. 333-09465)

10.19 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)

10.20 Employment and Non-Competition Agreement
between the Company and Barry Slawter dated
as of July 12, 1994 (Incorporated by
reference to Exhibit 10.44 to Form SB-2
Registration Statement No. 33-70992)

10.21 Employment Agreement dated June 30, 1994 between
the Company and Megan N. Cherney (Incorporated
by reference to Exhibit 10.45 to Form SB-2
Registration Statement No. 33-70992)

10.22 First Amendment to Employment and Non-
Competition Agreement dated September 2, 1994
between Barry Slawter and the Company
(Incorporated by reference to Exhibit 10.46
to Form SB-2 Registration Statement No. 33-70992)

10.23 Consulting Agreement between Jerome M. Wenger
and the Company dated March 24, 1995
(incorporated by reference to Exhibit 28 to
the Form S-8 Registration Statement No. 33-92038
filed on May 6, 1995)

10.24 Amendment to Consulting Agreement between
Jerome M. Wenger and the Company dated May 19,
1995 (incorporated by reference to Exhibit
28.2 to Form S-8 filed on November 1, 1995)

10.25 First Amendment to Employment And Non-
Competition Agreement between the Company
and Barry Slawter dated September 28, 1995 (Incorporated by
reference to Exhibit 10.31 to Form SB-2 Registration
Statement No. 33-98808)

10.26 Remarketer/Integrator Agreement between
the Company and Dell Computer Corporation
dated February 8, 1996 (Incorporated by reference to Exhibit
10.26 to Form SB-2 Registration Statement No. 333-09465)

II-9

<PAGE>
Exhibit
Number Description
- ------- -----------

10.27 Letter Agreement between the Company and
Diversified Corporate Consulting Group, L.P.,
dated February 7, 1996 (Incorporated by
reference to Exhibit 28.2 to Form S-8
Registration Statement No. 333-2614)

10.28 Employment And Non-Competition Agreement
between the Company and Michael Lawlor dated June 7, 1996
(Incorporated by reference to Exhibit 10.28 to Form SB-2
Registration Statement No. 333-09455).

10.29 Michael Lawlor Common Stock Option
Certificate dated as of July 8, 1996 (Incorporated by
reference to Exhibit 10.29 to Form SB-2 Registration Statement
No. 333-09455).

10.30 Employment And Non-Competition Agreement
between the Company and Stephen P. Herbert
dated April 4, 1996 (Incorporated by reference to Exhibit
10.30 to Form SB-2 Registration Statement No. 333-09455).

10.31 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.
333-09455).

10.32 Letter between the Company and William W.
Sellers dated July 17, 1996 (Incorporated by reference to
Exhibit 10.32 to Form SB-2 Registration Statement No.
333-09455).

10.33 Letter between the Company and Peter G.
Kapourelos dated July 17, 1996 (Incorporated by reference to
Exhibit 10.33 to Form SB-2 Registration Statement No.
333-09455).

10.34 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).

10.35 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).

10.36 Philip A. Harvey Common Stock Option Certificate
dated as of November 1, 1996 (Incorporated by reference to
Exhibit 10.36 to Form SB-2 Registration No. 33-98808).

10.37 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).

II-10
<PAGE>

10.38 Separation and Consulting Agreement between the Company
and Edward J. Sullivan dated December 17, 1996 (Incorporated
by reference to Exhibit 10.1 to Form 8-K filed on December 19,
1996).

10.39 Employment and Non-Competition Agreement between the Company
and Leland P. Maxwell dated February 24, 1997. (Incorporated
by reference to Exhibit 10.39 to Form SB-2 Registration No.
33-98808).

10.40 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).

10.41 Letter between the Company and GEM Advisers, Inc. signed May
15, 1997. (Incorporated by reference to Exhibit 10.1 to Form
8-K filed on May 22, 1997).

10.42 Business Express Agreement between the Company and 1217909
Ontario Inc. dated May 20, 1997. (Incorporated by reference
to Exhibit 10.2 to Form 8-K filed on May 22, 1997).

**10.43 H. Brock Kolls Common Stock Option Certificate dated as of
June 9, 1997.

**10.44 Stephen Herbert Common Stock Option Certificate dated as of
June 9, 1997.

**10.45 Keith Sterling Common Stock Option Certificate dated as of
June 9, 1997.

**10.46 Michael Feeney Common Stock Option Certificate dated as of
June 9, 1997.

**23.1 Consent of Ernst & Young LLP, Independent
Auditors

23.2 Consent of Lurio & Associates (included
in Exhibit 5.1)
- --------------
** Filed herewith

II-11

<PAGE>

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:

(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

II-12

<PAGE>

the opinion of the Securities and Exchange Commission 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.

II-13

<PAGE>

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 Form SB-2 and has duly caused this
Registration Statement on Form SB-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Wayne, Pennsylvania, on July 8,
1997.

USA TECHNOLOGIES, INC.

By: /s/ George R. Jensen, Jr.
------------------------------------
George R. Jensen, Jr.,
President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been duly signed below by the following persons
in the capacities and dates indicated.

Signatures Title Date
---------- ----- ----
<S> <C> <C>

/s/ George R. Jensen, Jr. Chairman of the Board, July 8, 1997
- ---------------------------- President and Chief
George R. Jensen, Jr. Executive Officer
(Principal and Chief
Executive Officer)

/s/ Leland P. Maxwell Vice President, Chief July 8, 1997
- ---------------------------- Financial Officer,
Leland P. Maxwell Treasurer (Principal
Accounting Officer)

/s/ Stephen P. Herbert Vice President, July 8, 1997
- ---------------------------- Director
Stephen P. Herbert

/s/ Keith L. Sterling Vice President, Director July 8, 1997
- ----------------------------
Keith L. Sterling

/s/ William W. Sellers Director July 8, 1997
- ----------------------------
William W. Sellers

/s/ Peter G. Kapourelos Director July 8, 1997
- ----------------------------
Peter G. Kapourelos

/s/ Henry B. duPont Smith Director July 8, 1997
- ----------------------------
Henry B. duPont Smith

Director July _, 1997
- ----------------------------
William L. Van Alen, Jr.

</TABLE>

II-14

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description
- ------- -----------
<S> <C>
3.1.7 Seventh Amendment to Articles of Incorporation of the Company
filed on March 24, 1997

4.1 1996-B Warrant Agreement dated as of December 27, 1996
between the Company and American Stock Transfer
and Trust Company

4.2 Form of 1996-B Warrant Certificate

4.3 1997 Warrant Agreement dated as of April 8, 1997
between the Company and American Stock Transfer
and Trust Company

5.1 Opinion of Lurio & Associates

10.43 H. Brock Kolls Common Stock Option Certificate dated as of
June 9, 1997.

10.44 Stephen Herbert Common Stock Option Certificate dated as of
June 9, 1997.

10.45 Keith Sterling Common Stock Option Certificate dated as of
June 9, 1997.

10.46 Michael Feeney Common Stock Option Certificate dated as of
June 9, 1997.

23.1 Consent of Ernst & Young LLP, Independent
Auditors

</TABLE>
- ----------------

II-15

<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Microfilm Number_______________________________ Filed with the Department of State on March 24, 1997
----------------

Entity Number 2072587 /s/ XXXXXXXXXXXXX XXXXXXXXXXXXXXXXXX
--------------------------------- ------------------------------------------------------
Secretary of the Commonwealth

ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB: 15-1915 (Rev 90)

In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating to articles of amendment), the undersigned business
corporation, desiring to amend its Articles, hereby states that:

1. The name of the corporation is: USA Technologies, Inc.
-------------------------------------------------------------------------------------------------

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

2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered
office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to
the records of the Department):

(a)
--------------------------------------------------------------------------------------------------------------------------------
Number and Street City State Zip County

(b) c/o: Corporation Service Company Chester
---------------------------------------------------------------------------------------------------------------------------
Name of Commercial Registered Office Provider County

For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the
corporation is located for venue and official publication purposes.

3. The statute by or under which it was incorporated is: Business Corporation Law of 1988
---------------------------------------------------------------------------

4. The date of its incorporation is: January 16, 1992
-----------------------------------------------------------------------------------------------

5. (Check, and if appropriate complete, one of the following):

X The amendment shall be effective upon filing these Articles of Amendment in the Department of State.
---
The amendment shall be effective on: at
--- ---------------------------------------- ---------------------------------------------
Date Hour
6. (Check one of the following):

X The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. Section 1914(a) and (b).
---
The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. Section 1914(c).
---

7. (Check, and if appropriate complete, one of the following):

The amendment adopted by the corporation, set forth in full, is as follows:
---
------------------------------------------------------------------------------------------------------------------------------

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

X The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof.
---
</TABLE>
<PAGE>
DSCB:15-1915 (REV 90)2
<TABLE>
<CAPTION>
<S> <C>

8. (Check if the amendment restates the Articles):

The restated Articles of Incorporation supersede the original Articles and all amendments thereto.
---

IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer
thereof this 20th day of March , 1997.

USA TECHNOLOGIES, INC.
-----------------------------------------------------------------------
(Name of Corporation)

BY: /s/ George R. Jensen, Jr.
--------------------------------------------------------------------
(Signature)

TITLE: President
-----------------------------------------------------------------
</TABLE>
<PAGE>

EXHIBIT "A"

1. Paragraph (A) Classes of Stock of Article 4 of the Articles
of Incorporation of the Company shall be amended and restated to read in full as
follows:
(A) Classes of Stock. The aggregate number of shares which the
corporation shall have authority to issue is 56,200,000
shares, divided into 55,000,000 shares of Common Stock,
without par value, and 1,200,000 shares of Series Preferred
Stock, without par value.

2. The first sentence of Subparagraph (C) Designation of
Series A Convertible Preferred Stock of Article 4 of the Articles of
Incorporation of the Company shall be amended and restated to read in full as
follows:
(C) Designation of Series A Convertible Preferred Stock. There
is hereby established a series of the Series Preferred Stock
designated "Series A Convertible Preferred Stock" (herein
referred to as Series A Preferred Stock"), consisting of
1,200,000 shares having the relative rights, designations,
preferences, qualifications, privileges, limitations, and
restrictions applicable thereto as follows:

3. Subparagraph (C)3(a)(i) Conversion Rights of Article 4 of
the Articles of Incorporation of the Company shall be amended and restated to
read in full as follows:

(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of
this corporation or any transfer agent for the Series A
Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by
dividing $1.00 (provided, however, that such number shall be
$1.20 rather than $1.00 for each share of Series A Preferred
Stock converted into shares of Common Stock during the period
of time from March 24, 1997 through December 31, 1997) by the
Conversion Price at the time in effect for such share. The
initial Conversion Price per share for shares of Series A
Preferred Stock shall be $.10; provided, however, that the
Conversion Price for the Series A Preferred Stock (the
"Conversion Price") shall be subject to adjustment as set
forth in Subsection 3(c).

4 Subparagraph (C)3(a)(ii) Conversion Rights of Article 4 of
the Articles of

<PAGE>

Incorporation of the Company shall be amended and restated to read in full as
follows:

(ii) Upon conversion of any Series A Preferred Stock, any
accrued but unpaid dividends on such Series A Preferred Stock
may at the option of the holder of such Series A Preferred
Stock be converted into fully paid and nonassessable shares of
Common Stock at the price of $1.00 per share of Common Stock;
provided, however, that during the period of time from March
24, 1997 through December 31, 1997, the price shall be $.83
for each share of Common Stock. The price at which shares of
Common Stock may be acquired pursuant to this subparagraph
(ii) shall be appropriately increased or decreased from time
to time to reflect any split, subdivision or combination of
the issued and outstanding Common Stock, as the case may be.

<PAGE>

USA TECHNOLOGIES, INC.
1996-B COMMON STOCK PURCHASE WARRANTS
WARRANT AGREEMENT

WARRANT AGREEMENT dated as of the 27th day of December, 1996, by and
between USA TECHNOLOGIES, INC., a Pennsylvania corporation (hereinafter called
the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as warrant agent
(hereinafter called the "Warrant Agent").
WHEREAS, the Company at or about the same time that it is entering into
this Agreement, is issuing 1996-B Common Stock Purchase Warrants ("1996-B
Warrants") to purchase up to 374,000 shares of Common Stock, no par value of the
Company ("Common Stock"). Each Warrant represents the right to purchase from the
Company one (1) share of Common Stock at the purchase price ("Purchase Price")
of $.20 per share for a period commencing on December 27, 1996 and ending at
5:00 p.m., August 31, 1997, and $.30 per share commencing on September 1, 1997
and ending on 5:00 p.m., February 28, 2002, subject to the terms and conditions
hereinafter set forth; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange and replacement of the certificates
evidencing the Warrants (the "1996-B Warrant Certificate") and the exercise of
the Warrants, and to act as depository for the Warrant Certificates.
NOW, THEREFORE, in consideration of the premises and the

<PAGE>

mutual agreements herein set forth, the parties hereby agree as
follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the terms
and conditions hereinafter in this Agreement set forth, and the Warrant Agent
hereby accepts such appointment.
Section 2. Form of Warrant Certificates. The text of the Warrant
Certificates (and the form of election to purchase shares to be printed on the
reverse thereof) shall be substantially as set forth in Exhibit "A" attached
hereto, and may have such letters, numbers,or other marks of identification or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Warrant Agreement, or as may be
required to comply with any law or with any rules or regulations of any stock
exchange. The Warrant Certificates may bear such notice of restriction on
transfer and/or exercise as the Company's counsel may deem necessary or
appropriate for the Company to comply with all federal or state laws or
regulations, including securities laws. The Warrant Certificates shall be dated
as of the date of issuance thereof by the Warrant Agent, either upon initial
issuance or upon transfer or exchange, and on their face shall entitle the
holders thereof to purchase such number of shares of Common Stock at the
Purchase Price, subject to all of the terms and conditions hereof. Warrant
Certificates shall be numbered serially

<PAGE>

with the notation W96-B for the Warrants.
Section 3. Countersignature and Registration. The Warrant Agent shall
keep, or cause to be kept, at its principal office, books for the transfer and
registration of the Warrant Certificates issued hereunder. Such books shall show
the names and addresses of the respective holders of the Warrant Certificates,
the number of Warrants evidenced on its face by each of the Warrant
Certificates, and the date of each of the Warrant Certificates.
The Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, its President, or any Vice President, by facsimile
signature, and have affixed thereto a facsimile of the Company's seal which
shall be attested by the Secretary or an Assistant Secretary of the Company by
facsimile signature. The Warrant Certificates shall be countersigned manually or
by facsimile by the Warrant Agent (or by any successor to the Warrant Agent then
acting as Warrant Agent under this Agreement) and shall not be valid for any
purpose unless so countersigned. Warrant Certificates may be so countersigned,
however, by the Warrant Agent (or by its successor as Warrant Agent) and be
delivered by the Warrant Agent, notwithstanding that the persons whose manual or
facsimile signatures appear thereon as proper officers of the Company shall have
ceased to be such officers at the time of such countersignature or delivery.
Section 4. Transfers and Exchanges.

A. Subject to the provisions of Section 10 hereof, any Warrant

<PAGE>

Certificate, with or without other Warrant Certificates, may be transferred,
split up, combined, or exchanged for another Warrant Certificate or Warrant
Certificates, entitling the registered holder to purchase a like number of
shares of Common Stock as the Warrant Certificate or Warrant Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine, or exchange any Warrant Certificates
shall make such request in writing delivered to Warrant Agent, and shall
surrender the Warrant Certificate or Warrant Certificates to be transferred,
split up, combined,or exchanged at the principal office of Warrant Agent.
Subject to Section 4.B, Warrant Agent shall countersign and deliver to the
person entitled thereto a Warrant Certificate, or Warrant Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover all taxes and other governmental charges that may be imposed
in connection with any transfers, split up, combination, or exchange of Warrant
Certificates.
B. As a condition to the transfer, split up, combination, or exchange
of any Warrant Certificate or Warrant Certificates, pursuant to Section 4.A, the
holder and/or proposed holder of such Warrant Certificate or Warrant
Certificates, shall execute and deliver such representations, warranties, and
covenants, that may be required by applicable federal and state securities law,
or that the Company determines is reasonably necessary in connection with the
transfer, split up, combination or

<PAGE>

exchange of such Warrant Certificate or Warrant Certificates, and the Warrant
Certificate or Warrant Certificates to be issued by the Warrant Agent shall
contain such legends, or restrictive legends, or stop transfer instructions, as
shall be required by applicable federal or state securities laws, or as shall be
reasonably required by the Company.
Section 5. Exercise of the Warrants.
A. Subject to the provisions of this Agreement, each registered holder of a
Warrant Certificate shall have the right which may be exercised commencing at
the opening of business on December 27, 1996 (the "1996-B Warrant Date"), and
which shall terminate at 5:00 p.m. on February 28, 2002, or such later date or
dates as the Company may determine (the "1996-B Warrant Termination Date"), to
purchase from the Company, and the Company shall issue and sell to such
registered holder of the Warrant Certificate, the number of fully paid and
non-assessable shares of Common Stock specified in such Warrant Certificate,
upon surrender to the Company at the office of the Warrant Agent of such Warrant
Certificate, with the form of election to purchase on the reverse thereof duly
filled in and signed and upon payment to the Company of the Purchase Price,
determined in accordance with the provisions of Sections 8 and 9 of this
Agreement, for the number of Common Shares in respect of which such Warrants are
then exercised. Payment of such Purchase Price shall be made in cash or by
certified check or bank draft payable to the order of the Company. No adjustment
shall be made for any dividends on any Common Stock issuable upon exercise of a
Warrant.

<PAGE>

B. Upon the surrender of the Warrant Certificate, with the form of
election to purchase duly executed, and payment of the Purchase Price as
aforesaid, the Warrant Agent shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the registered holder of
such Warrant Certificate and in such name or names as such registered holder may
designate, a certificate or certificates for the number of full shares of Common
Stock so purchased upon the exercise of such Warrants. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
Common Stock as of the date of the surrender of such Warrant Certificate and
payment of the Purchase Price as aforesaid; provided, however, that if, at the
date of surrender of such Warrant Certificate and payment of such Purchase
Price, the transfer books for the Common Stock purchasable upon the exercise of
such Warrants shall be closed, the certificates for the Common Stock in respect
to which such Warrants are then exercised shall be issuable as of the next date
on which such books shall be opened, and until such date the Company shall be
under no duty to deliver any certificate for such Common Stock.
C. The rights of purchase represented by the Warrant Certificate shall
be exercisable, at the election of the registered holders thereof, either as an
entirety or from time to time for part only of the Common Stock specified
therein and, in the event that any Warrant Certificate is exercised in respect
of less than all of the Common Stock specified therein at any time prior to the

<PAGE>

Warrant Termination Date, a new Warrant Certificate or Warrant Certificates will
be issued to such registered holder for the remaining number of shares of Common
Stock specified in the Warrant Certificate so surrendered, and the Warrant Agent
is hereby irrevocably authorized to countersign and to deliver the required new
Warrant Certificate pursuant to the provisions of this Section and of Section 3
of this Agreement.
D. No Warrant is exercisable by a holder unless, at the time of
exercise by such holder, (1) there is either (a) a registration statement or
prospectus covering the shares of Common Stock underlying the Warrant that is
effective under (i) the Securities Act of 1933, as amended, and (ii) the
securities laws of the state of the address of record of such holder, or (b) an
exemption is available from registration for the exercise of the Warrant and
issuance of the shares of Common Stock in the opinion of counsel to the Company;
and (2) such exercise and issuance would otherwise be in compliance with
applicable law in the opinion of counsel to the Company. No Warrant may be,
directly or indirectly, transferred to, or exercised by, any person in any state
where such transfer or exercise would violate any law, including securities law,
of such state in the opinion of counsel to the Company.
E. Prior to the exercise of the Warrants evidenced thereby, the holder
of a Warrant Certificate shall not be entitled to any rights of a shareholder of
the Company with respect to the shares for which the Warrants are exercisable,
including, without limitation, the right to vote, to receive dividends or other

<PAGE>

distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
F. To the extent that any Warrant Certificates remain outstanding and
unexercised at 5:00 p.m. on the Warrant Expiration Date, such outstanding
Warrant Certificates, and any and all rights to purchase Common stock associated
therewith, shall automatically become null and void and shall have no further
force or effect whatsoever.
Section 6. Mutilated or Missing Warrants. In case any of the Warrant
Certificates shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such reasonable charges as the Company or
the Warrant Agent may prescribe.
Section 7. Reservation of Common Stock.
A. There have been reserved, and the Company shall at all times keep
reserved out of the authorized and unissued Common Stock, a number of shares of
Common Stock sufficient to provide for

<PAGE>

the exercise of the rights of purchase represented by the Warrants. The Company
agrees that all Common Stock issued upon exercise of the Warrants shall be, at
the time of delivery of the certificates for such Common Stock, validly issued
and outstanding, fully paid and non-assessable.
B. The Company will keep a copy of this Agreement on file with the
transfer agent for the Common Stock and with every subsequent transfer agent for
any Common Stock or of the Company's capital stock issuable upon the exercise of
the rights of purchase represented by the Warrants. The Warrant Agent is hereby
irrevocably authorized to requisition from such transfer agent stock
certificates required to honor outstanding Warrants. The Company will supply
such transfer agent with duly executed stock certificates for such purpose and
will itself provide or otherwise make available any cash which may be issuable
only if so provided in Section 10 of this Agreement.
C. All Warrant Certificates surrendered in the exercise of the rights
thereby evidenced shall be cancelled by the Warrant Agent and shall thereafter
be delivered to the Company, and such cancelled Warrant Certificates shall
constitute sufficient evidence of the number of shares of Common Stock which
have been issued upon the exercise of such Warrants. Promptly after the Warrant
Expiration Date, the Warrant Agent shall certify to the Company the total
aggregate amount of Warrant Certificates then outstanding, and thereafter no
Common Stock shall be subject to reservation in respect to such Warrants which
shall have expired.

<PAGE>
Section 8. Purchase Price. The Purchase Price at which Common Stock
shall be purchasable pursuant to the Warrants shall be $.20 per share at any
time from the Warrant Date until 5:00 p.m. on August 31, 1997, and $.30 per
share at any time thereafter until the Warrant Expiration Date; provided, such
price shall be subject to adjustment as provided in Section 9 hereof. In
addition to the adjustments required by Section 9, the Company may, at any time
or from time to time prior to the Warrant Termination Date, reduce the Purchase
Price for such period or periods of time as the Company deems appropriate.
Section 9. Adjustments. Subject and pursuant to the provisions of this
Section 9, the Purchase Price, the number of shares of Common Stock covered by
each Warrant, and the number of Warrants outstanding, shall be subject to
adjustment from time to time only as set forth hereinafter:
A. In case the Company shall declare a Common Stock dividend on the
Common Stock, then the Purchase Price shall be proportionately decreased as of
the close of business on the date of record of said Common Stock dividend in
proportion to such increase of outstanding shares of Common Stock.
B. If the Company shall at any time subdivide its outstanding Common
Stock by recapitalization, reclassification or split-up thereof, the Purchase
Price immediately prior to such subdivision shall be proportionately decreased,
and, if the Company shall at any time combine the outstanding shares of Common
Stock by recapitalization, reclassification, or combination thereof, the

<PAGE>

Purchase Price immediately prior to such combination shall be proportionately
increased. Any such adjustment to the Purchase Price shall become effective at
the close of business on the record date for such subdivision or combination.
The Purchase Price shall be proportionately increased or decreased, as the case
may be, in proportion to such increase or decrease, as the case may be, of
outstanding shares of Common Stock.
C. Upon any adjustment of the Purchase Price as hereinabove provided,
the number of shares of Common Stock issuable upon exercise of the Warrants
remaining unexercised immediately prior to such adjustment, shall be changed to
the number of shares determined by dividing (i) the aggregate Purchase Price
payable for the purchase of all shares of Common Stock issuable upon exercise of
all the Warrants remaining unexercised immediately prior to such adjustment, by
(ii) the Purchase Price per share of Common Stock in effect immediately after
such adjustment. Pursuant to this formula, the total sum payable to the Company
upon the exercise of the Warrants remaining unexercised immediately prior to
such adjustment shall remain constant.
D. (i) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, person, or entity, or the sale of all or substantially all
of its assets to another corporation, person, or entity, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash, property, or assets with respect to or in

<PAGE>
exchange for Common Stock, and provided no election is made by the Company
pursuant to subsection (ii) hereof, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, the Company or such successor
or purchasing corporation, person, or entity, as the case may be, shall execute
with the Warrant Agent a supplemental Warrant Agreement providing that each
registered holder of a Warrant Certificate shall have the right thereafter and
until the Warrant Expiration Date to exercise such Warrants for the kind and
amount of stock, securities, cash, property, or assets receivable upon such
reorganization, reclassification, consolidation, merger, or sale by a holder of
the number of shares of Common Stock for the purchase of which such Warrant
might have been exercised immediately prior to such reorganization,
reclassification, consolidation, merger or sale, subject to subsequent
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9.
(ii) Notwithstanding subsection (i) hereof and in lieu thereof, the
Company may elect by written notice to the registered holder of the Warrant
Certificates, to require such registered holder to exercise all of the Warrants
remaining unexercised prior to any such reorganization, reclassification,
consolidation, merger or sale. If the holder of any Warrant Certificate shall
not exercise all or any part of the Warrants remaining unexercised prior to such
event, such unexercised Warrants shall automatically become null and void upon
the

<PAGE>
occurrence of any such event, and of no further force and effect. The Common
Stock issued pursuant to any such exercise shall be deemed to be issued and
outstanding immediately prior to any such event, and shall be entitled to be
treated as any other issued and outstanding share of Common Stock in connection
with such event.
E. The form of Warrant Certificate need not be changed because of any
change pursuant to this Section 9, and Warrant Certificates issued after such
change may state the same Purchase Price and the same number of shares of Common
Stock as is stated in the Warrant Certificates initially issued pursuant to this
Warrant Agreement. However, the Company may at any time in its sole discretion
(which shall be conclusive) make any change in the form of Warrant Certificates
that the Company may deem appropriate and that does not affect the substance
thereof; and any Warrant Certificates thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant Certificate or
otherwise, may be in the form as so changed.
Section 10. Fractional Interest.
A. The Company shall not be required to issue fractions of Warrants or
to distribute Warrant Certificates which evidence fractional Warrants.
B. Upon the exercise of the Warrants, the Company shall not be required
to issue fractional shares of its Common Stock, or to distribute certificates
which evidence fractional shares. In lieu of the issuance of any such fractional
shares on the exercise of the Warrants, and provided that the holder of the
Warrant

<PAGE>
Certificates being exercised has exercised all of the Warrants then held by such
holder, the Company shall pay cash to the registered holder of the Warrants in
an amount equal to the value of such fractional shares based on the market value
of the Common Stock on the last trading day prior to the exercise date. If the
holder of such Warrant Certificates has not exercised all of the Warrants then
held by such holder, the Company shall not be required to purchase any such
fraction.
Section 11. Notices to Warrant Holders.
Upon any adjustment of the Purchase Price, the number of shares of
Common Stock issuable on exercise of each Warrant, or the number of Warrants are
adjusted as provided in Section or if the Purchase Price is reduced by the
Company, or the Warrant Date or Warrant Expiration Date are adjusted by the
Company, then and in each such case the Company shall give written notice
thereof to the Warrant Agent, which notice shall state the Purchase Price
resulting from such adjustment, the increase or decrease, if any, in the number
of shares of Common Stock purchasable at such price upon the exercise of each
Warrant, and the increase or decrease, if any, in the number of Warrants,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
Section 12. Disposition of Proceeds on Exercise of Warrants.
A. The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and shall forward to the

<PAGE>

Company all monies received by the Warrant Agent for the purchase of shares of
Common Stock through the exercise of such Warrants.
B. The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrant Certificates during normal business hours.
Section 13. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation or company which may succeed to the business of the Warrant
Agent by any merger or consolidation or otherwise to which the Warrant Agent
shall be a party, or any corporation or company succeeding to the corporate
trust business of the Warrant Agent, shall be the successor Warrant Agent
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case at the time such successor to the
Warrant Agent shall succeed to the agency created by this Warrant Agreement, any
of the Warrant Certificates shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Warrant Agreement. In the event the name of the Warrant Agent shall be changed
and at such time any of the

<PAGE>

Warrant Certificates shall have been countersigned but not delivered, the
Warrant Agent may adopt the countersignature under its prior name and deliver
Warrant Certificates so countersigned; and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name; and in all such cases such Warrant Certificates shall have the full force
provided in the Warrant Certificates and in this Warrant Agreement.
Section 14. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Warrant Agreement upon the following
terms and conditions, by all of which the Company and the holders of Warrant
Certificates, by their acceptance thereof, shall be bound.
A. The statements of facts and recitals contained herein and in the
Warrant Certificates shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrant Certificates except as herein expressly provided.
B. The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
C. The Warrant Agent may consult at any time with

<PAGE>

counsel satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to any holder
of any Warrant Certificate in respect to any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the opinion or the advice
of such counsel.
D. The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
E. To the extent, and in the amounts agreed upon between the Company
and the Warrant Agent, the Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in connection with
this Warrant Agreement, to reimburse the Warrant Agent for all expenses, taxes
and governmental charges and other charges of any kind and nature incurred by
the Warrant Agent in connection with this Warrant Agreement. The Company also
agrees to indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable counsel fees, for
anything done or omitted by the Warrant Agent in connection with the Warrant
Agreement except as a result of the Warrant Agent's negligence, willful
misconduct, or bad faith.
F. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceedings or to take any

<PAGE>

other action likely to involve expenses unless the Company or one or more
registered holders of Warrant Certificates shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses which may be
incurred, but this provision shall not affect the power of the Warrant Agent to
take such action as the Warrant Agent may consider proper, whether with or
without any security or indemnity. All rights of action under this Warrant
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrant Certificates or production thereof
at any trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery or judgment shall be for the ratable benefit of
the registered holders of the Warrant Certificates, as their respective rights
or interests may appear.
G. The Warrant Agent shall act hereunder solely as agent and not in a
ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Warrant Agreement except
for its own negligence, willful misconduct or bad faith.
H. The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys,

<PAGE>

agents or employees or for any loss to the Company resulting from such neglect
or misconduct, provided reasonable care had been exercised in the selection and
continued employment thereof.
I. Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its President or Vice President or its Secretary or an Assistant
Secretary or its Treasurer or Assistant Treasurer (unless other evidence in
respect thereof be herein specifically prescribed); any resolution of the Board
of Directors may be evidenced to the Warrant Agent by a copy thereof certified
by the Secretary or an Assistant Secretary of the Company.
Section 15. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Warrant Agreement by giving to the
Company notice in writing, and to the holders of the Warrant Certificates notice
by mailing such notice to holders at their addresses appearing on the Warrant
register, of such resignation, specifying a date when such resignation shall
take effect. The Warrant Agent may be removed by like notice to the Warrant
Agent from the Company and by like mailing of notice to the holders of the
Warrant Certificates. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent. If the Company shall fail to make such appointment within a
period of 30 days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or

<PAGE>

incapacitated Warrant Agent or by the registered holder of a Warrant Certificate
(who shall, with such notice, submit his Warrant Certificate for inspection by
the Company), then the registered holder of any Warrant Certificate may apply to
any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Any successor warrant agent, whether appointed by the Company or
by such a court, shall be a bank or trust company, in good standing,
incorporated under the laws of the Commonwealth of Pennsylvania or any other
state in the United States of America. After appointment, the successor warrant
agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Warrant Agent without further act or deed;
but the former Warrant Agent shall deliver and transfer to the successor warrant
agent all cancelled Warrants, records and property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Failure to file or mail any notice provided for
in this Section, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be.
Section 16. Right of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Warrant
Certificates; and any registered holder of any Warrant Certificate, without the
consent of Warrant Agent or of the holder of any other Warrant Certificate, may,
in such holder's

<PAGE>

own behalf and for such holder's own benefit, enforce, and may institute and
maintain any suit, action, or proceeding against the Company to enforce,or
otherwise in respect of, such holder's right to exercise the Warrants evidenced
by such Warrant Certificate in the manner provided in such Warrant Certificate
and in this Agreement.
Section 17. Agreement of Warrant Certificate Holders. Every holder of a
Warrant Certificate, by accepting same, consents and agrees with Company,
Warrant Agent, and with every other holder of a Warrant Certificate that:
A. The Warrants are transferable only on the registry books of Warrant
Agent upon surrender of the Warrant Certificates at the principal office of
Warrant Agent and only as provided in Section 4; and
B. The Company and Warrant Agent may deem and treat the person in whose
name the Warrant Certificate is registered as the absolute owner thereof and of
the Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificates made by anyone other than the Company or
Warrant Agent) for all purposes whatsoever, and neither the Company nor Warrant
Agent shall be affected by any notice to the contrary.
Section 18. Identity of Transfer Agent. Forthwith upon the appointment
of any transfer agent for the Common Stock (other than Warrant Agent) or any
subsequent transfer agent for Common Stock or other shares of the Company's
capital stock issuable upon the exercise of the rights of purchase represented
by the Warrants,

<PAGE>

the Company will file with the Warrant Agent a statement setting forth the name
and address of such transfer agent.
Section 19. Notices. Any notice pursuant to this Warrant Agreement to
be given or made by the Warrant Agent or by the registered holder of any Warrant
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:

USA Technologies, Inc.
200 Plant Avenue
Wayne, Pennsylvania 19087
Attn: George R. Jensen, Jr., President

Any notice pursuant to this Agreement to be given or made by the Company or by
the registered holder of any Warrant Certificate to or on the Warrant Agent
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:

American Stock Transfer &
Trust Company
40 Wall Street
New York, New York 10005

Section 20. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend the Warrant Agreement without
the approval of any holders of Warrant Certificates in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder

<PAGE>

which the Company and the Warrant Agent may deem necessary or desirable and
which shall not be inconsistent with the provisions of the Warrant Certificates
and which shall not adversely affect the interests of the holders of Warrant
Certificates.
Section 21. Successors. All the covenants and provisions of this
Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 22. Interpretation. This Warrant Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the Commonwealth of Pennsylvania and for all purposes shall be
constructed in accordance with the laws of said Commonwealth.
Section 23. Benefits of this Agreement. Nothing in this Warrant
Agreement shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this Warrant
Agreement; but this Warrant Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the registered holders of the
Warrant Certificates.
Section 24. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed as of the day and year first above written.

USA TECHNOLOGIES, INC.

Attest: By: /s/ George R. Jensen, Jr.
---------------------------- --------------------------
George R. Jensen, Jr.,
President

AMERICAN STOCK TRANSFER &
TRUST COMPANY

Attest: /s/ Joe Alicia By: /s/ Joe Wolf
---------------------------- ---------------------------
Authorized Officer

<PAGE>
SEE LEGEND ON REVERSE
USA TECHNOLOGIES

NUMBER Warrants

W96-B-

USA TECHNOLOGIES, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA

Void After 5:00 p.m. Eastern Standard Time, on February 28, 2002
Warrants to Purchase Common Stock
of USA Technologies, Inc.

THIS CERTIFIES, that for value received

or registered assigns, is the owner of the number of Common Stock Purchase
Warrants set forth above (subject to adjustment as referred to below), each of
which represents the right at any time prior to the Expiration Date (as
hereinafter defined), to purchase one fully paid and nonassessable share of the
Common Stock, no par value ("Common Stock"), of USA Technologies, Inc., a
Pennsylvania corporation (the "Company"), at the price of $.20 per share through
August 31, 1997, and $.30 per share thereafter (subject to adjustment as
referred to below) (as it may be adjusted from time to time, the "Warrant
Price"), subject to the terms and conditions hereof and of the Warrant Agreement
(as hereinafter defined). Each such purchase to be made, and to be deemed
effective for the purpose of determining the date of exercise hereof, only upon
surrender of this Warrant Certificate to the Company at the office in New York,
New York, of the American Stock Transfer & Trust Company, as Warrant Agent (the
"Warrant Agent") (or any successor Warrant Agent), with the form of Election to
Exercise on the reverse hereof duly completed and executed and upon simultaneous
payment, to the Warrant Agent for the account of the Company, in cash or by
certified or bank cashier's check, of the exercise price as provided in the
Warrant Agreement and upon compliance with and subject to the conditions set
forth herein and in the Warrant Agreement. Each Warrant may be exercised on any
Business Day (as hereinafter defined) on or after December 27, 1996, and on or
before 5:00 p.m., Eastern Standard Time, on February 28, 2002 (the "Expiration
Date"). After the Expiration Date, any previously unexercised Warrants shall be
void, have no value, and be of no further effect.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement, dated as of December 27, 1996, (herein called the "Warrant
Agreement"), between the Company and the Warrant Agent and is subject to the
terms of the Warrant Agreement, to all of which terms every holder of this
Warrant Certificate consents by acceptance hereof. Reference is hereby made to
the Warrant Agreement for a more complete statement of the rights and
limitations of rights of the registered holder hereof, the rights and duties of
the Warrant Agent and the rights and obligations of the Company thereunder.
Copies of the Warrant Agreement are on file at the office of the Warrant Agent.
The number of shares of Common Stock which may be purchased upon the exercise
of the Warrants represented hereby and the purchase price per share upon such
exercise shall be subject to adjustment from time to time as provided in
Section 9 of the Warrant Agreement.
The Company shall not be required upon the exercise of the Warrants
represented hereby to issue fractions of shares but in lieu thereof the Company
shall pay in cash an appropriate amount for any fraction of a share based upon
the last reported sales price of the Common Stock on the trading day immediately
preceding the date of exercise (all as computed in the Warrant Agreement). If
the Warrants represented hereby shall be exercised in part, the registered
holder hereof shall be entitled to receive, upon surrender hereof, a new Warrant
Certificate for the number of Warrants not exercised as provided in the Warrant
Agreement
This Warrant Certificate may be exchanged at the office in New York,
New York of the Warrant Agent (or at the office of its successsor as Warrant
Agent), either separately or in combination with other Warrant Certificates, for
new Warrant Certificates representing the same aggregate number of Warrants as
were evidenced by the Warrant Certificate or Warrant Certificate exchanged, upon
compliance with and subject to the conditions set forth herein and in the
Warrant Agreement.

<PAGE>

This Warrant Certificate is transferable at the office in New York,
New York, of the Warrant Agent (or of its successor as Warrant Agent) by the
registered holder hereof in person or by attorney duly authorized in writing,
upon surrender of this Warrant Certificate and upon compliance with and subject
to the conditions set forth herein and in the Warrant Agreement. Upon any such
transfer, a new Warrant Certificate or new Warrant Certificates of different
denominations, representing in the aggregate a like number of Warrants, will be
issued to the transferee. Every holder of Warrants, by accepting this Warrant
Certificate, consents and agrees with the Company, the Warrant Agent and with
every subsequent holder of this Warrant Certificate that until the registration
of transfer of this Warrant Certificate is effected on the books of the Warrant
Agent, the Company and the Warrant Agent may deem and treat the person in whose
name this Warrant Certificate is registered as the absolute and lawful owner
of the Warrants represented hereby for all purposes whatsoever and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
This Warrant Certificate does not entitle the registered holder hereof
to any of the rights of a stockholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by its President, by manual or facsimile signature and a facsimile
of its corporate seal to be affixed or imprinted hereon, attested by its
Secretary, by manual or facsimile signature.

Dated: USA TECHNOLOGIES, INC. USA TECHNOLOGIES, INC.
CORPORATE SEAL
1992 BY
PENNSYLVANIA
*
Secretary

President

COUNTERSIGNED
AMERICAN STOCK TRANSFER & TRUST COMPANY
AS WARRANT AGENT
BY

AUTHORIZED OFFICER

<PAGE>

THE WARRANTS REPRESENTED BY THIS CERTIFICATE, AS WELL AS THE COMMON STOCK
UNDERLYING THE WARRANTS, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES STATUTES AND REGULATIONS. SUCH
WARRANTS AND THE COMMON STOCK UNDERLYING THE WARRANTS HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES STATUTES AND
REGULATIONS, UNLESS, IN THE OPINION OF COUNSEL TO THE COMPANY, SUCH
REGISTRATION IS NOT REQUIRED.

SUBSCRIPTION FORM
(To Be Executed Upon Exercise of Warrant)

The undersigned hereby irrevocably elects to exercise ________ Warrants
represented by this Warrant Certificate, and to purchase the securities issuable
upon the exercise of such Warrants, and requests that certificates for such
securities shall be issued in the name of
________________________________________________________________________________
(Name)
________________________________________________________________________________
(Address)
________________________________________________________________________________
(Social Security or other identifying number)

and be delivered to
________________________________________________________________________________
(Name)
________________________________________________________________________________
(Address)
________________________________________________________________________________

Notice: The signature on this subscription form must correspond with
the name as written upon the face of the within Warrant, or upon the assignment
form on the reverse thereof, in every particular, without alteration or
enlargement, or any change whatsoever and must be guaranteed by a bank, other
than a savings bank, or trust company having an office or correspondent in
New York, New York, or by a firm having membership on a registered national
securities exchange and an office in New York, New York.

Signature:_______________________________

_____________________________________
Signature Guarantee
<PAGE>

ASSIGNMENT

For value received,______________________________________ hereby sells,

assigns and transfers unto __________________________________________Warrants
represented by the within Warrant Certificate, together with all right, title
and interest herein, and does hereby irrevocably constitute and appoint

____________________________________________ attorney, to transfer this Warrant
Certificate on the books of the within-named company, with full power of
substitution.

Dated:______________________________, 19___

_________________________________________
Signature of Warrant Holder

_________________________________________
Printed Name of Warrant Holder

_________________________________________
Social Security Number

________________________________________
Signature Guarantee
________________________________________________________________________________
Notice: The signature on this subscription form must correspond with
the name as written upon the face of the within Warrant, or upon the assignment
form on the reverse thereof, in every particular, without alteration or
enlargement, or any change whatsoever and must be guaranteed by a bank, other
than a savings bank, or trust company having an office or correspondent in
New York, New York, or by a firm having membership on a registered national
securities exchange and an office in New York, New York.

IMPORTANT: SIGNATURE(S) MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF A
REGISTERED NATIONAL STOCK EXCHANGE, OR BY A COMMERCIAL BANK OR A TRUST COMPANY.

<PAGE>

USA TECHNOLOGIES, INC.
1997 COMMON STOCK PURCHASE WARRANTS
WARRANT AGREEMENT

WARRANT AGREEMENT dated as of the 8th day of April, 1997, by
and between USA TECHNOLOGIES, INC., a Pennsylvania corporation (hereinafter
called the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as warrant
agent (hereinafter called the "Warrant Agent").
WHEREAS, the Company at or about the same time that it is
entering into this Agreement, is issuing 1997 Common Stock Purchase Warrants
("1997 Warrants") to purchase up to 1,600,000 shares of Common Stock, no par
value of the Company ("Common Stock"). Each Warrant represents the right to
purchase from the Company one (1) share of Common Stock at the purchase price
("Purchase Price") of $.20 per share for a period commencing on April 8, 1997
and ending at 5:00 p.m., August 31, 1997, and $.40 per share commencing on
September 1, 1997 and ending on 5:00 p.m., on the fifth annual anniversary of
the termination date of the Units containing the Warrants (the "Termination
Date"), subject to the terms and conditions hereinafter set forth; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, registration, transfer, exchange and replacement of the
certificates evidencing the Warrants (the "1997 Warrant Certificate") and the
exercise of the Warrants, and to act as depository for the Warrant Certificates.

<PAGE>

NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the terms and conditions hereinafter in this Agreement set forth, and the
Warrant Agent hereby accepts such appointment.
Section 2. Form of Warrant Certificates. The text of the
Warrant Certificates (and the form of election to purchase shares to be printed
on the reverse thereof) shall be substantially as set forth in Exhibit "A"
attached hereto, and may have such letters, numbers,or other marks of
identification or designation and such legends, summaries, or endorsements
printed, lithographed, or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Warrant Agreement, or as
may be required to comply with any law or with any rules or regulations of any
stock exchange. The Warrant Certificates may bear such notice of restriction on
transfer and/or exercise as the Company's counsel may deem necessary or
appropriate for the Company to comply with all federal or state laws or
regulations, including securities laws. The Warrant Certificates shall be dated
as of the date of issuance thereof by the Warrant Agent, either upon initial
issuance or upon transfer or exchange, and on their face shall entitle the
holders thereof to purchase such number of shares of Common Stock at the
Purchase Price, subject to all of the terms and

<PAGE>

conditions hereof. Warrant Certificates shall be numbered serially
with the notation W97 for the Warrants.
Section 3. Countersignature and Registration. The Warrant
Agent shall keep, or cause to be kept, at its principal office, books for the
transfer and registration of the Warrant Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the
Warrant Certificates, the number of Warrants evidenced on its face by each of
the Warrant Certificates, and the date of each of the Warrant Certificates.
The Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President, or any Vice President, by
facsimile signature, and have affixed thereto a facsimile of the Company's seal
which shall be attested by the Secretary or an Assistant Secretary of the
Company by facsimile signature. The Warrant Certificates shall be countersigned
manually or by facsimile by the Warrant Agent (or by any successor to the
Warrant Agent then acting as Warrant Agent under this Agreement) and shall not
be valid for any purpose unless so countersigned. Warrant Certificates may be so
countersigned, however, by the Warrant Agent (or by its successor as Warrant
Agent) and be delivered by the Warrant Agent, notwithstanding that the persons
whose manual or facsimile signatures appear thereon as proper officers of the
Company shall have ceased to be such officers at the time of such
countersignature or delivery.
Section 4. Transfers and Exchanges.
A. Subject to the provisions of Section 10 hereof, any

<PAGE>

Warrant Certificate, with or without other Warrant Certificates, may be
transferred, split up, combined, or exchanged for another Warrant Certificate or
Warrant Certificates, entitling the registered holder to purchase a like number
of shares of Common Stock as the Warrant Certificate or Warrant Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine, or exchange any Warrant Certificates
shall make such request in writing delivered to Warrant Agent, and shall
surrender the Warrant Certificate or Warrant Certificates to be transferred,
split up, combined,or exchanged at the principal office of Warrant Agent.
Subject to Section 4.B, Warrant Agent shall countersign and deliver to the
person entitled thereto a Warrant Certificate, or Warrant Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover all taxes and other governmental charges that may be imposed
in connection with any transfers, split up, combination, or exchange of Warrant
Certificates.
B. As a condition to the transfer, split up, combination, or
exchange of any Warrant Certificate or Warrant Certificates, pursuant to Section
4.A, the holder and/or proposed holder of such Warrant Certificate or Warrant
Certificates, shall execute and deliver such representations, warranties, and
covenants, that may be required by applicable federal and state securities law,
or that the Company determines is reasonably necessary in connection with the
transfer, split up, combination or

<PAGE>

Section 5. Exercise of the Warrants.

A. Subject to the provisions of this Agreement, each registered holder of a
Warrant Certificate shall have the right which may be exercised commencing at
the opening of business on April 8, 1997 (the "1997 Warrant Date"), and which
shall terminate at 5:00 p.m., on the fifth annual anniversary of the termination
date of the offering of the Units containing the Warrants (the "Termination
Date"), or such later date or dates as the Company may determine (the "1997
Warrant Termination Date"), to purchase from the Company, and the Company shall
issue and sell to such registered holder of the Warrant Certificate, the number
of fully paid and non-assessable shares of Common Stock specified in such
Warrant Certificate, upon surrender to the Company at the office of the Warrant
Agent of such Warrant Certificate, with the form of election to purchase on the
reverse thereof duly filled in and signed and upon payment to the Company of the
Purchase Price, determined in accordance with the provisions of Sections 8 and 9
of this Agreement, for the number of Common Shares in respect of which such
Warrants are then exercised. Payment of such Purchase Price

<PAGE>

shall be made in cash or by certified check or bank draft payable to the order
of the Company. No adjustment shall be made for any dividends on any Common
Stock issuable upon exercise of a Warrant.
B. Upon the surrender of the Warrant Certificate, with the
form of election to purchase duly executed, and payment of the Purchase Price as
aforesaid, the Warrant Agent shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the registered holder of
such Warrant Certificate and in such name or names as such registered holder may
designate, a certificate or certificates for the number of full shares of Common
Stock so purchased upon the exercise of such Warrants. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
Common Stock as of the date of the surrender of such Warrant Certificate and
payment of the Purchase Price as aforesaid; provided, however, that if, at the
date of surrender of such Warrant Certificate and payment of such Purchase
Price, the transfer books for the Common Stock purchasable upon the exercise of
such Warrants shall be closed, the certificates for the Common Stock in respect
to which such Warrants are then exercised shall be issuable as of the next date
on which such books shall be opened, and until such date the Company shall be
under no duty to deliver any certificate for such Common Stock.
C. The rights of purchase represented by the Warrant
Certificate shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for

<PAGE>

part only of the Common Stock specified therein and, in the event that any
Warrant Certificate is exercised in respect of less than all of the Common Stock
specified therein at any time prior to the Warrant Termination Date, a new
Warrant Certificate or Warrant Certificates will be issued to such registered
holder for the remaining number of shares of Common Stock specified in the
Warrant Certificate so surrendered, and the Warrant Agent is hereby irrevocably
authorized to countersign and to deliver the required new Warrant Certificate
pursuant to the provisions of this Section and of Section 3 of this Agreement.
D. No Warrant is exercisable by a holder unless, at the time
of exercise by such holder, (1) there is either (a) a registration statement or
prospectus covering the shares of Common Stock underlying the Warrant that is
effective under (i) the Securities Act of 1933, as amended, and (ii) the
securities laws of the state of the address of record of such holder, or (b) an
exemption is available from registration for the exercise of the Warrant and
issuance of the shares of Common Stock in the opinion of counsel to the Company;
and (2) such exercise and issuance would otherwise be in compliance with
applicable law in the opinion of counsel to the Company. No Warrant may be,
directly or indirectly, transferred to, or exercised by, any person in any state
where such transfer or exercise would violate any law, including securities law,
of such state in the opinion of counsel to the Company.
E. Prior to the exercise of the Warrants evidenced thereby,
the holder of a Warrant Certificate shall not be entitled

<PAGE>

to any rights of a shareholder of the Company with respect to the shares for
which the Warrants are exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
F. To the extent that any Warrant Certificates remain
outstanding and unexercised at 5:00 p.m. on the 1997 Warrant Termination Date,
such outstanding Warrant Certificates, and any and all rights to purchase Common
stock associated therewith, shall automatically become null and void and shall
have no further force or effect whatsoever.
Section 6. Mutilated or Missing Warrants. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue and the Warrant Agent shall countersign and deliver
in exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such reasonable charges as the Company or
the Warrant Agent may prescribe.
Section 7. Reservation of Common Stock.

<PAGE>

A. There have been reserved, and the Company shall at all
times keep reserved out of the authorized and unissued Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the Warrants. The Company agrees that all Common Stock
issued upon exercise of the Warrants shall be, at the time of delivery of the
certificates for such Common Stock, validly issued and outstanding, fully paid
and non-assessable.
B. The Company will keep a copy of this Agreement on file with
the transfer agent for the Common Stock and with every subsequent transfer agent
for any Common Stock or of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Warrant
Agent is hereby irrevocably authorized to requisition from such transfer agent
stock certificates required to honor outstanding Warrants. The Company will
supply such transfer agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make available any cash which may
be issuable only if so provided in Section 10 of this Agreement.
C. All Warrant Certificates surrendered in the exercise of
the rights thereby evidenced shall be cancelled by the Warrant Agent and shall
thereafter be delivered to the Company, and such cancelled Warrant Certificates
shall constitute sufficient evidence of the number of shares of Common Stock
which have been issued upon the exercise of such Warrants. Promptly after the
Warrant Expiration Date, the Warrant Agent shall certify to the Company the

<PAGE>

total aggregate amount of Warrant Certificates then outstanding, and thereafter
no Common Stock shall be subject to reservation in respect to such Warrants
which shall have expired.
Section 8. Purchase Price. The Purchase Price at which Common
Stock shall be purchasable pursuant to the Warrants shall be $.20 per share at
any time from the Warrant Date until 5:00 p.m. on August 31, 1997, and $.40 per
share at any time thereafter until the 1997 Warrant Termination Date; provided,
such price shall be subject to adjustment as provided in Section 9 hereof. In
addition to the adjustments required by Section 9, the Company may, at any time
or from time to time prior to the 1997 Warrant Termination Date, reduce the
Purchase Price for such period or periods of time as the Company deems
appropriate.
Section 9. Adjustments. Subject and pursuant to the provisions
of this Section 9, the Purchase Price, the number of shares of Common Stock
covered by each Warrant, and the number of Warrants outstanding, shall be
subject to adjustment from time to time only as set forth hereinafter:
A. In case the Company shall declare a Common Stock dividend
on the Common Stock, then the Purchase Price shall be proportionately decreased
as of the close of business on the date of record of said Common Stock dividend
in proportion to such increase of outstanding shares of Common Stock.
B. If the Company shall at any time subdivide its outstanding
Common Stock by recapitalization, reclassification or split-up thereof, the
Purchase Price immediately prior to such

<PAGE>

subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock by recapitalization,
reclassification, or combination thereof, the Purchase Price immediately prior
to such combination shall be proportionately increased. Any such adjustment to
the Purchase Price shall become effective at the close of business on the record
date for such subdivision or combination. The Purchase Price shall be
proportionately increased or decreased, as the case may be, in proportion to
such increase or decrease, as the case may be, of outstanding shares of Common
Stock.
C. Upon any adjustment of the Purchase Price as hereinabove
provided, the number of shares of Common Stock issuable upon exercise of the
Warrants remaining unexercised immediately prior to such adjustment, shall be
changed to the number of shares determined by dividing (i) the aggregate
Purchase Price payable for the purchase of all shares of Common Stock issuable
upon exercise of all the Warrants remaining unexercised immediately prior to
such adjustment, by (ii) the Purchase Price per share of Common Stock in effect
immediately after such adjustment. Pursuant to this formula, the total sum
payable to the Company upon the exercise of the Warrants remaining unexercised
immediately prior to such adjustment shall remain constant.
D. (i) If any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company with
another corporation, person, or entity, or the sale of all or substantially all
of its assets to another

<PAGE>

corporation, person, or entity, shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, cash, property, or
assets with respect to or in exchange for Common Stock, and provided no election
is made by the Company pursuant to subsection (ii) hereof, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale, the
Company or such successor or purchasing corporation, person, or entity, as the
case may be, shall execute with the Warrant Agent a supplemental Warrant
Agreement providing that each registered holder of a Warrant Certificate shall
have the right thereafter and until the 1997 Warrant Termination Date to
exercise such Warrants for the kind and amount of stock, securities, cash,
property, or assets receivable upon such reorganization, reclassification,
consolidation, merger, or sale by a holder of the number of shares of Common
Stock for the purchase of which such Warrant might have been exercised
immediately prior to such reorganization, reclassification, consolidation,
merger or sale, subject to subsequent adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 9.
(ii) Notwithstanding subsection (i) hereof and in lieu
thereof, the Company may elect by written notice to the registered holder of the
Warrant Certificates, to require such registered holder to exercise all of the
Warrants remaining unexercised prior to any such reorganization,
reclassification, consolidation, merger or sale. If the holder of any Warrant

<PAGE>

Certificate shall not exercise all or any part of the Warrants remaining
unexercised prior to such event, such unexercised Warrants shall automatically
become null and void upon the occurrence of any such event, and of no further
force and effect. The Common Stock issued pursuant to any such exercise shall be
deemed to be issued and outstanding immediately prior to any such event, and
shall be entitled to be treated as any other issued and outstanding share of
Common Stock in connection with such event.
E. The form of Warrant Certificate need not be changed because
of any change pursuant to this Section 9, and Warrant Certificates issued after
such change may state the same Purchase Price and the same number of shares of
Common Stock as is stated in the Warrant Certificates initially issued pursuant
to this Warrant Agreement. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of Warrant
Certificates that the Company may deem appropriate and that does not affect the
substance thereof; and any Warrant Certificates thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
Section 10. Fractional Interest.
A. The Company shall not be required to issue fractions of
Warrants or to distribute Warrant Certificates which evidence fractional
Warrants.
B. Upon the exercise of the Warrants, the Company shall not be
required to issue fractional shares of its Common Stock, or

<PAGE>

to distribute certificates which evidence fractional shares. In lieu of the
issuance of any such fractional shares on the exercise of the Warrants, and
provided that the holder of the Warrant Certificates being exercised has
exercised all of the Warrants then held by such holder, the Company shall pay
cash to the registered holder of the Warrants in an amount equal to the value of
such fractional shares based on the market value of the Common Stock on the last
trading day prior to the exercise date. If the holder of such Warrant
Certificates has not exercised all of the Warrants then held by such holder, the
Company shall not be required to purchase any such fraction.
Section 11. Notices to Warrant Holders.
Upon any adjustment of the Purchase Price, the number of
shares of Common Stock issuable on exercise of each Warrant, or the number of
Warrants are adjusted as provided in Section or if the Purchase Price is reduced
by the Company, or the Warrant Date or 1997 Warrant Termination Date are
adjusted by the Company, then and in each such case the Company shall give
written notice thereof to the Warrant Agent, which notice shall state the
Purchase Price resulting from such adjustment, the increase or decrease, if any,
in the number of shares of Common Stock purchasable at such price upon the
exercise of each Warrant, and the increase or decrease, if any, in the number of
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
Section 12. Disposition of Proceeds on Exercise of Warrants.

<PAGE>

A. The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and shall forward to the Company all monies
received by the Warrant Agent for the purchase of shares of Common Stock through
the exercise of such Warrants.
B. The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrant Certificates during normal
business hours.
Section 13. Merger or Consolidation or Change of Name of
Warrant Agent. Any corporation or company which may succeed to the business of
the Warrant Agent by any merger or consolidation or otherwise to which the
Warrant Agent shall be a party, or any corporation or company succeeding to the
corporate trust business of the Warrant Agent, shall be the successor Warrant
Agent hereunder without the execution or filing of any paper or any further act
on the part of any of the parties hereto. In case at the time such successor to
the Warrant Agent shall succeed to the agency created by this Warrant Agreement,
any of the Warrant Certificates shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrant

<PAGE>

Certificates shall have the full force provided in the Warrant Certificates and
in this Warrant Agreement. In the event the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name and deliver Warrant Certificates so
countersigned; and in case at that time any of the Warrant Certificates shall
not have been countersigned, the Warrant Agent may countersign such Warrant
Certificates either in its prior name or in its changed name; and in all such
cases such Warrant Certificates shall have the full force provided in the
Warrant Certificates and in this Warrant Agreement.
Section 14. Duties of Warrant Agent. The Warrant Agent
undertakes the duties and obligations imposed by this Warrant Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Warrant Certificates, by their acceptance thereof, shall be bound.
A. The statements of facts and recitals contained herein and
in the Warrant Certificates shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrant Certificates except as herein expressly provided.
B. The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the covenants

<PAGE>

contained in this Agreement or in the Warrant Certificates to be
complied with by the Company.
C. The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect to any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
D. The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken in reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties.
E. To the extent, and in the amounts agreed upon between the
Company and the Warrant Agent, the Company agrees to pay to the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in
connection with this Warrant Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in connection with this Warrant Agreement.
The Company also agrees to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and reasonable
counsel fees, for anything done or omitted by the Warrant Agent in connection
with the Warrant Agreement except as a result of the Warrant Agent's negligence,

<PAGE>

willful misconduct, or bad faith.
F. The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceedings or to take any other action likely to
involve expenses unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without any security or
indemnity. All rights of action under this Warrant Agreement or under any of the
Warrants may be enforced by the Warrant Agent without the possession of any of
the Warrant Certificates or production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any recovery or
judgment shall be for the ratable benefit of the registered holders of the
Warrant Certificates, as their respective rights or interests may appear.
G. The Warrant Agent shall act hereunder solely as agent and
not in a ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Warrant Agreement except
for its own negligence, willful misconduct or bad faith.
H. The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder

<PAGE>

either itself or by or through its attorneys, agents or employees, and the
Warrant Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys, agents or employees or for any loss
to the Company resulting from such neglect or misconduct, provided reasonable
care had been exercised in the selection and continued employment thereof.
I. Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its President or Vice President or its Secretary or an Assistant
Secretary or its Treasurer or Assistant Treasurer (unless other evidence in
respect thereof be herein specifically prescribed); any resolution of the Board
of Directors may be evidenced to the Warrant Agent by a copy thereof certified
by the Secretary or an Assistant Secretary of the Company.
Section 15. Change of Warrant Agent. The Warrant Agent may
resign and be discharged from its duties under this Warrant Agreement by giving
to the Company notice in writing, and to the holders of the Warrant Certificates
notice by mailing such notice to holders at their addresses appearing on the
Warrant register, of such resignation, specifying a date when such resignation
shall take effect. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company and by like mailing of notice to the holders of
the Warrant Certificates. If the Warrant Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Warrant Agent.

<PAGE>

If the Company shall fail to make such appointment within a period of 30 days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or by the
registered holder of a Warrant Certificate (who shall, with such notice, submit
his Warrant Certificate for inspection by the Company), then the registered
holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Any
successor warrant agent, whether appointed by the Company or by such a court,
shall be a bank or trust company, in good standing, incorporated under the laws
of the Commonwealth of Pennsylvania or any other state in the United States of
America. After appointment, the successor warrant agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed; but the former Warrant Agent
shall deliver and transfer to the successor warrant agent all cancelled
Warrants, records and property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance, act or deed necessary for the
purpose. Failure to file or mail any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
warrant agent, as the case may be.
Section 16. Right of Action. All rights of action in respect
of this Agreement are vested in the respective registered

<PAGE>

holders of the Warrant Certificates; and any registered holder of any Warrant
Certificate, without the consent of Warrant Agent or of the holder of any other
Warrant Certificate, may, in such holder's own behalf and for such holder's own
benefit, enforce, and may institute and maintain any suit, action, or proceeding
against the Company to enforce,or otherwise in respect of, such holder's right
to exercise the Warrants evidenced by such Warrant Certificate in the manner
provided in such Warrant Certificate and in this Agreement.
Section 17. Agreement of Warrant Certificate Holders. Every
holder of a Warrant Certificate, by accepting same, consents and agrees with
Company, Warrant Agent, and with every other holder of a Warrant Certificate
that:
A. The Warrants are transferable only on the registry books of
Warrant Agent upon surrender of the Warrant Certificates at the principal office
of Warrant Agent and only as provided in Section 4; and
B. The Company and Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the absolute owner
thereof and of the Warrants evidenced thereby (notwithstanding any notations of
ownership or writing on the Warrant Certificates made by anyone other than the
Company or Warrant Agent) for all purposes whatsoever, and neither the Company
nor Warrant Agent shall be affected by any notice to the contrary.
Section 18. Identity of Transfer Agent. Forthwith upon the
appointment of any transfer agent for the Common Stock (other

<PAGE>

than Warrant Agent) or any subsequent transfer agent for Common Stock or other
shares of the Company's capital stock issuable upon the exercise of the rights
of purchase represented by the Warrants, the Company will file with the Warrant
Agent a statement setting forth the name and address of such transfer agent.
Section 19. Notices. Any notice pursuant to this Warrant
Agreement to be given or made by the Warrant Agent or by the registered holder
of any Warrant Certificate to or on the Company shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Company with the Warrant Agent) as follows:

USA Technologies, Inc.
200 Plant Avenue
Wayne, Pennsylvania 19087
Attn: George R. Jensen, Jr., President

<PAGE>

supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company and the Warrant Agent
may deem necessary or desirable and which shall not be inconsistent with the
provisions of the Warrant Certificates and which shall not adversely affect the
interests of the holders of Warrant Certificates.
Section 21. Successors. All the covenants and provisions of
this Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 22. Interpretation. This Warrant Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the Commonwealth of Pennsylvania and for all purposes shall be
constructed in accordance with the laws of said Commonwealth.
Section 23. Benefits of this Agreement. Nothing in this
Warrant Agreement shall be construed to give to any person or corporation other
than the Company, the Warrant Agent and the registered holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this Warrant
Agreement; but this Warrant Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the registered holders of the
Warrant Certificates.
Section 24. Counterparts. This Agreement may be executed
in any number of counterparts and each of such counterparts shall

<PAGE>

for all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this
Warrant Agreement to be duly executed as of the day and year first above
written.

USA TECHNOLOGIES, INC.

Attest:_______________________________ By:___________________________________
George R. Jensen, Jr.,
President

AMERICAN STOCK TRANSFER &
TRUST COMPANY

Attest:_______________________________ By:___________________________________
Authorized Officer

<PAGE>
Exhibit 5.1
LURIO & ASSOCIATES

ATTORNEYS AT LAW
SUITE 1300
1760 MARKET STREET
PHILADELPHIA, PA 19103-4132

----------------
DOUGLAS M. LURIO** NEW JERSEY OFFICE
MARGARET SHERRY LURIO*
CRAIG F. ZAPPETTI*
411 COOPER STREET
215 / 665-9300 CAMDEN, NEW JERSEY 08102
FAX 215 / 665-8582 TEL. NO.: 609/225-9434

**MEMBER PENNSYLVANIA & FLORIDA BARS
*MEMBER PENNSYLVANIA & NEW JERSEY BARS

July 8, 1997

USA Technologies, Inc.
200 Plant Avenue
Wayne, PA 19087

Attn: Mr. George R. Jensen, Jr., President

Re: USA Technologies, Inc. -
Registration Statement on Form SB-2
-----------------------------------

Dear Mr. Jensen:

We have acted as counsel to USA Technologies, Inc., a Pennsylvania
corporation (the "Company"), in connection with a Registration Statement on Form
SB-2, filed with the Securities and Exchange Commission on the date hereof (the
"Registration Statement"). The Registration Statement covers 1,974,000 shares of
Common Stock ("Common Stock") issuable upon exercise of outstanding 1996-B
Common Stock Purchase Warrants and 1997 Common Stock Purchase Warrants of the
Company (the "1996-B Warrants" and the "1997 Warrants").

In rendering this opinion, we have examined (i) the Articles of
Incorporation, as amended, and By-Laws of the Company; (ii) the resolutions of
the Board of Directors evidencing the corporate proceedings taken by the Company
to authorize the issuance of the Common Stock pursuant to the Registration
Statement; (iii) the Registration Statement (including all exhibits thereto);
and (iv) such other documents as we have deemed appropriate or necessary as a
basis for the opinion hereinafter expressed.

In rendering the opinion expressed below, we assumed the authenticity
of all documents and records examined, the conformity with the original
documents of all documents submitted to us as copies and the genuineness of all
signatures.

Based upon and subject to the foregoing, and such legal considerations
as we deem relevant, we are of the opinion that, when resold as contemplated by
the Registration Statement, the Common Stock will be legally issued, fully paid
and nonassessable.

This opinion is subject to and is qualified by the matters referred to
in the Registration Statement under "Risk Factors -- Excessive Share Issuances"
and "Description of Securities -- Authorized Shares Exceeded". We express no
opinion regarding such matters and are unable to predict the effect of such
matters on the legality of the shares of Common Stock being resold pursuant to
the Registration Statement.

We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to references made to this firm under the heading
"Legal Matters" in the Prospectus contained in the Registration Statement and
all amendments thereto.

Sincerely,

/s/ LURIO & ASSOCIATES
---------------------------------
LURIO & ASSOCIATES

<PAGE>

THESE OPTIONS AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. THESE OPTIONS AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT UNDER SUCH ACT AND SUCH LAWS WITH RESPECT
TO THESE OPTIONS AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

OPTION CERTIFICATE 100,000 COMMON STOCK OPTIONS
NO. 156

USA TECHNOLOGIES, INC.

COMMON STOCK OPTIONS

(This Option will be void if not exercised
by the date provided below.)

1. Options. Subject to the terms and conditions hereof, this
certifies that HAVEN BROCK KOLLS is the owner of 100,000 Options (the "Options")
of USA Technologies, Inc. (the "Company"), a Pennsylvania corporation. Each
Option, when vested in accordance with Section 3 hereof, entitles the owner
hereof to purchase from the Company at any time prior to 5:00 p.m. on the fifth
annual anniversary of the vesting of such option (the "Termination Date"), one
fully paid and non-assessable share of the Company's Common Stock, without par
value (the "Common Stock"), subject to adjustment as provided in Section 8
hereof.

2. Option Price. The Options, when vested, shall be exercised
by delivery to the Company of the option price for each share of Common Stock
being purchased hereunder (the "Option Price"), this Certificate, and the
completed Election To Purchase Form which is attached hereto. The Option Price
shall be $.45 per share of Common Stock to be purchased pursuant to each Option.
The Option Price shall be subject to adjustment as provided in Section 8 hereof.
The Option Price is payable either in cash or by certified check or bank draft
payable to the order of the Company.

3. Vesting of Options.

a. Notwithstanding anything contained herein to the
contrary, the Options represented by this Certificate shall only become vested
and exercisable by KOLLS in accordance with the terms and conditions set forth
in this Section 3. If KOLLS is employed by the Company as of the date set forth
in Column "A" below, the number of Options set forth in Column "B" below shall
on such date become irrevocably and absolutely vested and exercisable.

<PAGE>

Column "A" Column "B"
---------- ----------
Vesting Date Options Vested
------------ --------------

September 30, 1997 25,000
December 31, 1997 25,000
April 30, 1998 25,000
June 30, 1998 25,000
-------
Total . . . . . . . . . . . . . . 100,000

b. The Employment And Non-Competition Agreement dated
May 1, 1994 between KOLLS and the Company, and the first amendment thereto dated
as of March 20, 1996, as well as any and all further supplements, amendments, or
modifications thereto (collectively, the "Employment Agreement"), is hereby
incorporated herein by reference. The terms and conditions thereof shall be used
to determine whether KOLLS is employed by the Company on any particular vesting
date. Therefore, and as set forth in the Employment Agreement, KOLLS's
employment would be considered terminated upon his death or disability under
Section 4 thereof, or upon notice given to KOLLS by the Company under Section 3
thereof, or upon notice given by the Company or KOLLS under Section 1(a)
thereof.

c. If pursuant hereto KOLLS shall not become vested in any
Option or Options, he shall only forfeit the Option or Options not so vested.
Any Option or Options previously vested pursuant hereto shall nevertheless
remain fully vested and exercisable all in accordance with the terms hereof.

4. Exercise. Upon the surrender of this Certificate and
payment of the Option Price as aforesaid, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
registered holder of this Option and in such name or names as the registered
holder may designate, a certificate or certificates for the number of full
shares of Common Stock so purchased upon the exercise of any Option. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Common Stock on and as of the date of the delivery to the Company
of this Certificate and payment of the Option Price as aforesaid. If, however,
at the date of surrender of this Certificate and payment of such Option Price,
the transfer books for the Common Stock purchasable upon the exercise of any
Option shall be closed, the certificates for the Common Stock in respect to
which any such Option are then exercised shall be issued and the owner of such
Common Stock shall become a record owner of such Common Stock on and as of the
next date on which such books shall be opened, and until such date the Company
shall be under no duty to deliver any certificate for such Common Stock.

<PAGE>

5. Partial Exercise. The rights of purchase represented by the
Options shall be exercisable, at the election of the registered holder hereof,
either as an entirety, or from time to time for any part of the Common Stock
specified herein and, in the event that the Options are exercised with respect
to less than all of the Common Stock specified herein at any time prior to the
Termination Date, a new Certificate will be issued to such registered holder for
the remaining number of Options not so exercised.

6. Termination Date. All of the Options must be exercised in
accordance with the terms hereof prior to the Termination Date. At and after the
Termination Date any and all unexercised rights hereunder shall become null and
void and the Options shall without any action on behalf of the Company become
null and void.

7. Lost, Mutilated Certificate. In case this Common Stock
Option Certificate shall become mutilated, lost, stolen or destroyed, the
Company shall issue in exchange and substitution for and upon cancellation of
the mutilated certificate, or in lieu of and in substitution for the Certificate
lost, stolen, or destroyed, a new Certificate of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such certificate and
indemnity, if requested, also satisfactory to the Company.

8. Adjustments. Subject and pursuant to the provisions of this
Section 8, the Option Price and number of shares of Common Stock subject to the
Options shall be subject to adjustment from time to time only as set forth
hereinafter:

a. In case the Company shall declare a Common Stock
dividend on the Common Stock, then the Option Price shall be proportionately
decreased as of the close of business on the date of record of said Common Stock
dividend in proportion to such increase of outstanding shares of Common Stock.

b. If the Company shall at any time subdivide its
outstanding Common Stock by recapitalization, reclassification or split-up
thereof, the Option Price immediately prior to such subdivision shall be
proportionately decreased, and, if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification, or
combination thereof, the Option Price immediately prior to such combination
shall be proportionately increased. Any such adjustment to the Option Price
shall become effective at the close of business on the record date for such
subdivision or combination. The Option Price shall be proportionately increased
or decreased, as the case may be, in

<PAGE>
proportion to such increase or decrease, as the case may be, of outstanding
shares of Common Stock.

c. Upon any adjustment of the Option Price as hereinabove
provided, the number of shares of Common Stock issuable upon exercise of the
Options remaining unexercised immediately prior to any such adjustment, shall be
changed to the number of shares determined by dividing (i) the appropriate
Option Price payable for the purchase of all shares of Common Stock issuable
upon exercise of all of the Options remaining unexercised immediately prior to
such adjustment by (ii) the Option Price per share of Common Stock in effect
immediately after such adjustment. Pursuant to this formula, the total sum
payable to the Company upon the exercise of the Options remaining unexercised
immediately prior to such adjustment shall remain constant.

d. (i) If any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation, person, or entity, or the sale of all or substantially
all of its assets to another corporation, person, or entity, shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash, property, or assets with respect to or in exchange for Common
Stock, and provided no election is made by the Company pursuant to subsection
(ii) hereof, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, the Company or such successor or purchasing
corporation, person, or entity, as the case may be, shall agree that the
registered holder of the Options shall have the right thereafter and until the
Termination Date to exercise such Options for the kind and amount of stock,
securities, cash, property, or assets receivable upon such reorganization,
reclassification, consolidation, merger, or sale by a holder of the number of
shares of Common Stock for the purchase of which such Options might have been
exercised immediately prior to such reorganization, reclassification,
consolidation, merger or sale, subject to such subsequent adjustments which
shall be equivalent or nearly equivalent as may be practicable to the
adjustments provided for in this Section 8.

(ii) Notwithstanding subsection (i) hereof and in lieu
thereof, the Company may elect by written notice to the registered holder
hereof, to require such registered holder to exercise all of the Options
remaining unexercised prior to any such reorganization, reclassification,
consolidation, merger or sale. If the holder of this Option shall not exercise
all or any part of the Options remaining unexercised prior to such event, such
unexercised Options shall automatically become null and void upon the occurrence
of any such event, and of no further force and effect. The Common Stock issued
pursuant to any such exercise shall be deemed to be issued and outstanding
immediately prior to any such event, and shall be entitled to be treated as any
other

<PAGE>

issued and outstanding share of Common Stock in connection with such event. If
an election is not made by the Company pursuant to this subsection (ii) in
connection with any such event, then the provisions of subsection (i) hereof
shall apply to such event.

e. Whenever the Option Price and number of shares of
Common Stock subject to this Option is adjusted as herein provided, the Company
shall promptly mail to the registered holder of this Option a statement signed
by an officer of the Company setting forth the adjusted Option Price and the
number of shares of Common Stock subject to this Option, determined as so
provided.

f. This form of Certificate need not be changed because of
any adjustment which is required pursuant to this Section 8. However, the
Company may at any time in its sole discretion (which shall be conclusive) make
any change in the form of this Certificate that the Company may deem appropriate
and that does not affect the substance hereof; and any Certificate thereafter
issued, whether in exchange or substitution for this Certificate or otherwise,
may be in the form as so changed.

9. Reservation. There has been reserved, and the Company
shall at all times keep reserved out of the authorized and unissued shares of
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the right of purchase represented by the Options. The Company agrees
that all shares of Common Stock issued upon exercise of the Options shall be, at
the time of delivery of the Certificates for such Common Stock, validly issued
and outstanding, fully paid and non-assessable.

10. Fractional Shares. The Company shall not issue any
fractional shares of Common Stock pursuant to any exercise of any Option and
shall pay cash to the holder of any Option in lieu of any such fractional
shares.

11. No Right. The holder of any Options shall not be entitled
to any of the rights of a shareholder of the Company prior to the date of
issuance of the Common Stock by the Company pursuant to an exercise of any
Option.

12. Securities Laws. As a condition to the issuance of any
Common Stock pursuant to the Options, the holder of such Common Stock shall
execute and deliver such representations, warranties, and covenants, that may be
required by applicable federal and state securities law, or that the Company
determines is reasonably necessary in connection with the issuance of such
Common Stock. In addition, the certificates representing the Common Stock shall
contain such legends, or restrictive legends, or stop transfer instructions, as
shall be required by applicable Federal or state securities laws, or as shall be
reasonably required by the Company.

13. Applicable Law. The Options and this Certificate

5
<PAGE>

shall be deemed to be a contract made under the laws of the Commonwealth of
Pennsylvania and for all purposes shall be construed in accordance with the laws
thereof regardless of its choice of law rules.

IN WITNESS WHEREOF, USA TECHNOLOGIES, INC., has executed and
delivered this Certificate and caused its corporate seal to be affixed hereto.

USA TECHNOLOGIES, INC.

Corporate Seal By:______________________________________
George R. Jensen, Jr.
Chief Executive Officer

Attest:______________________________________
Keith L. Sterling, Secretary

Dated: As of June 9, 1997

<PAGE>

USA TECHNOLOGIES, INC.
200 Plant Avenue
Wayne, Pennsylvania 19087
Attn: George R. Jensen, Jr.,
Chief Executive Officer

ELECTION TO PURCHASE

The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the attached Option Certificate No. 156 of the
Company. The undersigned desires to purchase shares of Common Stock provided for
therein and tenders herewith full payment of the Option Price for the shares of
Common Stock being purchased, all in accordance with the Certificate. The
undersigned requests that a Certificate representing such shares of Common Stock
shall be issued in the name of _________________________________________________
and be delivered to ___________________________________________________________.
If said number of shares of Common Stock shall not be all the shares purchasable
under the Certificate, then a new Certificate for the balance remaining of the
shares of Common Stock purchasable shall be registered in the name of, and
delivered, to the undersigned at the following address:_________________________
____________________________________________________________________.

Dated:______________, 19___ Signature:_______________________________

<PAGE>

OPTION CERTIFICATE 100,000 COMMON STOCK OPTIONS
NO. 157

USA TECHNOLOGIES, INC.

COMMON STOCK OPTIONS

(This Option will be void if not exercised
by the date provided below.)

1. Options. Subject to the terms and conditions hereof, this
certifies that STEPHEN P. HERBERT is the owner of 100,000 Options (the
"Options") of USA Technologies, Inc. (the "Company"), a Pennsylvania
corporation. Each Option, when vested in accordance with Section 3 hereof,
entitles the owner hereof to purchase from the Company at any time prior to 5:00
p.m. on the fifth annual anniversary of the vesting of such option (the
"Termination Date"), one fully paid and non-assessable share of the Company's
Common Stock, without par value (the "Common Stock"), subject to adjustment as
provided in Section 8 hereof.

3. Vesting of Options.

a. Notwithstanding anything contained herein to the
contrary, the Options represented by this Certificate shall only become vested
and exercisable by HERBERT in accordance with the terms and conditions set forth
in this Section 3. If HERBERT is employed by the Company as of the date set
forth in Column "A" below, the number of Options set forth in Column "B" below
shall on such date become irrevocably and absolutely vested and exercisable.

<PAGE>
Column "A" Column "B"
---------- ----------
Vesting Date Options Vested
------------ --------------

September 30, 1997 25,000
December 31, 1997 25,000
April 30, 1998 25,000
June 30, 1998 25,000
------
Total . . . . . . . . . . 100,000

b. The Employment And Non-Competition Agreement dated
March 8, 1996 between HERBERT and the Company, including any and all
supplements, amendments, or modifications thereto (the "Employment Agreement"),
is hereby incorporated herein by reference. The terms and conditions thereof
shall be used to determine whether HERBERT is employed by the Company on any
particular vesting date. Therefore, and as set forth in the Employment
Agreement, HERBERT's employment would be considered terminated upon his death or
disability under Section 4 thereof, or upon notice given to HERBERT by the
Company under Section 3 thereof, or upon notice given by the Company or HERBERT
under Section 1(a) thereof.

c. If pursuant hereto HERBERT shall not become vested in
any Option or Options, he shall only forfeit the Option or Options not so
vested. Any Option or Options previously vested pursuant hereto shall
nevertheless remain fully vested and exercisable all in accordance with the
terms hereof.

<PAGE>

provisions of subsection (i) hereof shall apply to such event.

e. Whenever the Option Price and number of shares of Common
Stock subject to this Option is adjusted as herein provided, the Company shall
promptly mail to the registered holder of this Option a statement signed by an
officer of the Company setting forth the adjusted Option Price and the number of
shares of Common Stock subject to this Option, determined as so provided.

11. No Right. The holder of any Options shall not be
entitled to any of the rights of a shareholder of the Company prior to the date
of issuance of the Common Stock by the Company pursuant to an exercise of any
Option.

13. Applicable Law. The Options and this Certificate shall be
deemed to be a contract made under the laws of the Commonwealth of Pennsylvania
and for all purposes shall be construed in accordance with the laws thereof
regardless of its choice of law rules.

<PAGE>

IN WITNESS WHEREOF, USA TECHNOLOGIES, INC., has executed and
delivered this Certificate and caused its corporate seal to be affixed hereto.

USA TECHNOLOGIES, INC.

Corporate Seal By:______________________________________
George R. Jensen, Jr.
Chief Executive Officer

Attest:______________________________________
Keith L. Sterling, Secretary

Dated: As of June 9, 1997

<PAGE>

USA TECHNOLOGIES, INC.
200 Plant Avenue
Wayne, Pennsylvania 19087
Attn: George R. Jensen, Jr.,
Chief Executive Officer

ELECTION TO PURCHASE

The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the attached Option Certificate No. 157 of the
Company. The undersigned desires to purchase shares of Common Stock provided for
therein and tenders herewith full payment of the Option Price for the shares of
Common Stock being purchased, all in accordance with the Certificate. The
undersigned requests that a Certificate representing such shares of Common Stock
shall be issued in the name of _________________________________________________
and be delivered to ___________________________________________________________.
If said number of shares of Common Stock shall not be all the shares purchasable
under the Certificate, then a new Certificate for the balance remaining of the
shares of Common Stock purchasable shall be registered in the name of, and
delivered, to the undersigned at the following address: ________________________
__________________________.

Dated: _____________, 19___ Signature:________________________________

<PAGE>

OPTION CERTIFICATE 100,000 COMMON STOCK OPTIONS
NO. 158

USA TECHNOLOGIES, INC.

COMMON STOCK OPTIONS

(This Option will be void if not exercised
by the date provided below.)

1. Options. Subject to the terms and conditions hereof, this
certifies that KEITH L. STERLING is the owner of 100,000 Options (the "Options")
of USA Technologies, Inc. (the "Company"), a Pennsylvania corporation. Each
Option, when vested in accordance with Section 3 hereof, entitles the owner
hereof to purchase from the Company at any time prior to 5:00 p.m. on the fifth
annual anniversary of the vesting of such option (the "Termination Date"), one
fully paid and non-assessable share of the Company's Common Stock, without par
value (the "Common Stock"), subject to adjustment as provided in Section 8
hereof.

3. Vesting of Options.

a. Notwithstanding anything contained herein to the
contrary, the Options represented by this Certificate shall only become vested
and exercisable by STERLING in accordance with the terms and conditions set
forth in this Section 3. If STERLING is employed by the Company as of the date
set forth in Column "A" below, the number of Options set forth in Column "B"
below shall on such date become irrevocably and absolutely vested and
exercisable.

<PAGE>

Column "A" Column "B"
---------- ----------
Vesting Date Options Vested
------------ --------------

September 30, 1997 25,000
December 31, 1997 25,000
April 30, 1998 25,000
June 30, 1998 25,000
------

Total . . . . . . . . . 100,000

b. The Employment And Non-Competition Agreement dated
July 1, 1993 between STERLING and the Company, and the First Amendment thereto
dated as of April 29, 1996, as well as any and all further supplements,
amendments, or modifications thereto (collectively, the "Employment Agreement"),
is hereby incorporated herein by reference. The terms and conditions thereof
shall be used to determine whether STERLING is employed by the Company on any
particular vesting date. Therefore, and as set forth in the Employment
Agreement, STERLING's employment would be considered terminated upon his death
or disability under Section 4 thereof, or upon notice given to STERLING by the
Company under Section 3 thereof, or upon notice given by the Company or STERLING
under Section 1(a) thereof.

c. If pursuant hereto STERLING shall not become vested in
any Option or Options, he shall only forfeit the Option or Options not so
vested. Any Option or Options previously vested pursuant hereto shall
nevertheless remain fully vested and exercisable all in accordance with the
terms hereof.

<PAGE>

proportion to such increase or decrease, as the case may be, of outstanding
shares of Common Stock.

<PAGE>

13. Applicable Law. The Options and this Certificate

<PAGE>

IN WITNESS WHEREOF, USA TECHNOLOGIES, INC., has executed and
delivered this Certificate and caused its corporate seal to be affixed hereto.

USA TECHNOLOGIES, INC.

Corporate Seal By:_______________________________________
George R. Jensen, Jr.
Chief Executive Officer

Attest:_______________________________________
Keith L. Sterling, Secretary

Dated: As of June 9, 1997

<PAGE>

USA TECHNOLOGIES, INC.
200 Plant Avenue
Wayne, Pennsylvania 19087
Attn: George R. Jensen, Jr.,
Chief Executive Officer

ELECTION TO PURCHASE

The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the attached Option Certificate No. 158 of the
Company. The undersigned desires to purchase shares of Common Stock provided for
therein and tenders herewith full payment of the Option Price for the shares of
Common Stock being purchased, all in accordance with the Certificate. The
undersigned requests that a Certificate representing such shares of Common Stock
shall be issued in the name of ________________________________________________
and be delivered to ___________________________________________________________.
If said number of shares of Common Stock shall not be all the shares purchasable
under the Certificate, then a new Certificate for the balance remaining of the
shares of Common Stock purchasable shall be registered in the name of, and
delivered, to the undersigned at the following address:_________________________
___________________________.

Dated:________, 19___ Signature:______________________________

<PAGE>

OPTION CERTIFICATE 5,000 COMMON STOCK OPTIONS
NO. 159

USA TECHNOLOGIES, INC.

COMMON STOCK OPTIONS

(These Options will be void if not exercised
by the Termination Date specified below.)

1. Options. Subject to the terms and conditions hereof, this
certifies that MICHAEL FEENEY is the owner of 5,000 Options (the "Options") of
USA Technologies, Inc., a Pennsylvania corporation (the "Company"). Each Option
entitles the holder hereof to purchase from the Company at any time prior to
5:00 p.m. on June 30, 2002 (the "Termination Date"), one fully paid and
non-assessable share of the Company's Common Stock, without par value (the
"Common Stock"), subject to adjustment as provided in Section 7 hereof.

2. Option Price. The Options shall be exercised by delivery to
the Company (prior to the Termination Date) of the option price for each share
of Common Stock being purchased hereunder (the "Option Price"), this
Certificate, and the completed Election To Purchase Form which is attached
hereto. The Option Price shall be $.45 per share of Common Stock. The Option
Price shall be subject to adjustment as provided in Section 7 hereof. The Option
Price is payable either in cash or by certified check or bank draft payable to
the order of the Company.

3. Exercise. Upon the surrender of this Certificate and
payment of the Option Price as aforesaid, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
registered holder of this Option and in such name or names as the registered
holder may designate, a certificate or certificates for the number of full
shares of Common Stock so purchased upon the exercise of any Option. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Common Stock on and as of the date of the delivery to the Company
of this Certificate and payment of the Option Price as aforesaid. If, however,
at the date

<PAGE>

of surrender of this Certificate and payment of such Option Price, the transfer
books for the Common Stock purchasable upon the exercise of any Option shall be
closed, the certificates for the Common Stock in respect to which any such
Option are then exercised shall be issued and the owner of such Common Stock
shall become a record owner of such Common Stock on and as of the next date on
which such books shall be opened, and until such date the Company shall be under
no duty to deliver any certificate for such Common Stock.

4. Partial Exercise. The rights of purchase represented by the
Options shall be exercisable, at the election of the registered holder hereof,
either as an entirety, or from time to time for any part of the Common Stock
specified herein and, in the event that the Options are exercised with respect
to less than all of the Common Stock specified herein at any time prior to the
Termination Date, a new Certificate will be issued to such registered holder for
the remaining number of Options not so exercised.

5. Termination Date. All of the Options must be exercised in
accordance with the terms hereof prior to the Termination Date. At and after the
Termination Date any and all unexercised rights hereunder shall become null and
void and all such unexercised Options shall without any action on behalf of the
Company become null and void.

6. Lost, Mutilated Certificate. In case this Common Stock
Option Certificate shall become mutilated, lost, stolen or destroyed, the
Company shall issue in exchange and substitution for and upon cancellation of
the mutilated certificate, or in lieu of and in substitution for the Certificate
lost, stolen, or destroyed, a new Certificate of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such certificate and
indemnity, if requested, also satisfactory to the Company.

7. Adjustments. Subject and pursuant to the provisions of this
Section 7, the Option Price and number of shares of Common Stock subject to the
Options shall be subject to adjustment from time to time only as set forth
hereinafter:

b. If the Company shall at any time subdivide its
outstanding Common Stock by recapitalization, reclassification or
split-up thereof, the Option Price immediately prior to such

<PAGE>

c. Upon any adjustment of the Option Price as
hereinabove provided, the number of shares of Common Stock issuable upon
exercise of the Options remaining unexercised immediately prior to any such
adjustment, shall be changed to the number of shares determined by dividing (i)
the appropriate Option Price payable for the purchase of all shares of Common
Stock issuable upon exercise of all of the Options remaining unexercised
immediately prior to such adjustment by (ii) the Option Price per share of
Common Stock in effect immediately after such adjustment. Pursuant to this
formula, the total sum payable to the Company upon the exercise of the Options
remaining unexercised immediately prior to such adjustment shall remain
constant.

d. (i) If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with another corporation, person, or entity, or the sale of all
or substantially all of its assets to another corporation, person, or entity,
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, cash, property, or assets with respect to or in
exchange for Common Stock, and provided no election is made by the Company
pursuant to subsection (ii) hereof, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, the Company or such successor
or purchasing corporation, person, or entity, as the case may be, shall agree
that the registered holder of the Options shall have the right thereafter and
until the Termination Date to exercise such Options for the kind and amount of
stock, securities, cash, property, or assets receivable upon such
reorganization, reclassification, consolidation, merger, or sale by a holder of
the number of shares of Common Stock for the purchase of which such Options
might have been exercised immediately prior to such reorganization,
reclassification, consolidation, merger or sale, subject to such subsequent
adjustments which shall be equivalent or nearly equivalent as may be practicable
to the adjustments provided for in this Section 7.

<PAGE>

reorganization, reclassification, consolidation, merger or sale. If the holder
of this Option shall not exercise all or any part of the Options remaining
unexercised prior to such event, such unexercised Options shall automatically
become null and void upon the occurrence of any such event, and of no further
force and effect. The Common Stock issued pursuant to any such exercise shall be
deemed to be issued and outstanding immediately prior to any such event, and
shall be entitled to be treated as any other issued and outstanding share of
Common Stock in connection with such event. If an election is not made by the
Company pursuant to this subsection (ii) in connection with any such event, then
the provisions of subsection (i) hereof shall apply to such event.

f. This form of Certificate need not be changed
because of any adjustment which is required pursuant to this Section 7. However,
the Company may at any time in its sole discretion (which shall be conclusive)
make any change in the form of this Certificate that the Company may deem
appropriate and that does not affect the substance hereof; and any Certificate
thereafter issued, whether in exchange or substitution for this Certificate or
otherwise, may be in the form as so changed.

8. Reservation. There has been reserved, and the Company shall
at all times keep reserved out of the authorized and unissued shares of Common
Stock, a number of shares of Common Stock sufficient to provide for the exercise
of the right of purchase represented by the Options. The Company agrees that all
shares of Common Stock issued upon exercise of the Options shall be, at the time
of delivery of the Certificates for such Common Stock, validly issued and
outstanding, fully paid and non-assessable.

9. Fractional Shares. The Company shall not issue any
fractional shares of Common Stock pursuant to any exercise of any Option and
shall pay cash to the holder of any Option in lieu of any such fractional
shares.

10. No Right. The holder of any Options shall not be entitled
to any of the rights of a shareholder of the Company prior to the date of
issuance of the Common Stock by the Company pursuant to an exercise of any
Option.

11. Securities Laws. As a condition to the issuance of any
Common Stock pursuant to the Options, the holder of such Common Stock shall
execute and deliver such representations, warranties, and covenants, that may be
required by applicable federal and state

<PAGE>

securities law, or that the Company determines is reasonably necessary in
connection with the issuance of such Common Stock. In addition, the certificates
representing the Common Stock shall contain such legends, or restrictive
legends, or stop transfer instructions, as shall be required by applicable
Federal or state securities laws, or as shall be reasonably required by the
Company or its transfer agent.

12. Applicable Law. The Options and this Certificate shall be
deemed to be a contract made under the laws of the Commonwealth of Pennsylvania
and for all purposes shall be construed in accordance with the laws thereof
regardless of its choice of law rules.

IN WITNESS WHEREOF, USA TECHNOLOGIES, INC., has executed and
delivered this Option Certificate and caused its corporate seal to be affixed
hereto as of the date written below.

USA TECHNOLOGIES, INC.

Corporate Seal By:
--------------------------------
George R. Jensen, Jr.,
Chief Executive Officer

Attest:
----------------------------
Keith L. Sterling, Secretary

Dated: As of June 9, 1997

<PAGE>

USA TECHNOLOGIES, INC.
200 Plant Avenue
Wayne, Pennsylvania 19087
Attn: George R. Jensen, Jr.,
Chief Executive Officer

ELECTION TO PURCHASE

The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the attached Option Certificate No. 159 of the
Company. The undersigned desires to purchase shares of Common Stock provided for
therein and tenders herewith full payment of the Option Price for the shares of
Common Stock being purchased, all in accordance with the Certificate. The
undersigned requests that a Certificate representing such shares of Common Stock
shall be issued to and registered in the name of, and delivered to, the
undersigned at the following address:__________________________________________
_______________________________________________________________________________
___________ . If said number of shares of Common Stock shall not be all the
shares purchasable under the Certificate, then a new Common Stock Option
Certificate for the balance remaining of the shares of Common Stock purchasable
shall be issued to and registered in the name of, and delivered to, the
undersigned at the address set forth above.

Dated: , 19 Signature:
-------------- ---- --------------------------

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated August 9, 1996, except for Note 12 as to which
the date is September 10, 1996, in the Registration Statement (Form SB-2 No.
333-00000) and related Prospectus of USA Technologies, Inc. dated July 8, 1997,
for the registration of 1,974,000 shares of its common stock.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania
July 8, 1997