##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from              to
 Commission File No. 1-31955
 CASH SYSTEMS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State of incorporation)
    
    87-0398535(I.R.S. Employer
Identification Number)
 7350 Dean Martin Drive, Suite 309
Las Vegas, NV(Address of principal executive offices)
    
    89139(Zip code)
 Registrants telephone number, including area code
 (702) 987-7169
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each ClassCommon
Stock, $0.001 Par Value
    
    Name of Each Exchange on Which RegisteredThe NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act:
 None
 o þ
 o þ
 þ o
 o
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



CASH SYSTEMS, INC.
 ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 2006
 TABLE OF CONTENTS
 PagePART IItem 1: Business
    
    
    3Item 1A: Risk Factors
    
    
    6Item 1B: Unresolved Staff Comments
    
    
    12Item 2: Properties
    
    
    12Item 3: Legal Proceedings
    
    
    12Item 4: Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5: Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    12Item 6: Selected Financial Data
    
    
    14Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 7A: Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 8: Financial Statements and Supplementary Data
    
    
    20Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    20Item 9A: Controls and Procedures
    
    
    20Item 9B: Other Information
    
    
    22PART IIIItem 10:
Directors, Executive Officers, and Corporate Governance
    
    
    22Item 11: Executive Compensation
    
    
    22Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    22Item 13:
Certain Relationships and Related Transactions, and Director
Independence
    
    
    22Item 14: Principal Accountant Fees and Services
    
    
    22PART IVItem 15: Exhibits and Financial Statement Schedules
    
    
    22Signatures
    
    
    26Exhibit IndexEX-10.11EXHIBIT 21EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART I
 
 Item 1. BUSINESS
 General
      Industry and Products
  Credit Card Cash Advances and POS Debit Card Transactions
    ATM Cash Withdrawals
  Check Cashing Solutions
  Joint Venture and Cashclub Product
    3




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The Casino Gaming Market
     Customers
   Regulation
 Gaming Regulation
    
    
    provide to the relevant gaming authorities such information about himself or
herself as the authorities may require;
    
    respond to written or oral questions that the gaming authorities may propound; and
    
    consent to the performance of any background check that the gaming authorities
may require, including the investigation of any criminal record.
  4




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Financial Services Regulation
 Anti-Money Laundering
   Fund Transfers
 Privacy Regulations
 ATM Operations
 Check Cashing
 Network and Card Association Regulation
 Competition
  5




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##### Table of Contents



Proprietary Rights
  Dependence on Major Customer
  Employees
  Available Information
  
 Item 1A. RISK FACTORS
  Risks Related to Our Business
 Competition in the market for cash access products and services is intense, and if we
are unable to compete effectively, we could face price reductions and decreased demand for our
services.
  
    
    commission structures that are more beneficial to gaming establishments than ours;
    
    longer operating histories;
    
    pre-existing relationships with potential customers; and
    
    significantly greater financial, marketing and other resources, which allow them
to respond more quickly to new or changing opportunities.
   We have operating losses in consecutive years.
  6




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The cash access industry is subject to change, and we must keep pace with the changes to
successfully compete.
  The loss of our sponsorship into the Visa U.S.A., Visa International and MasterCard card
associations could have a material adverse effect on our business.
  Because of our dependence on certain customers, the loss of a top customer could have a
material adverse effect on our revenues and profitability.
  If we are unable to maintain our current customers on terms that are favorable to us,
our business, financial condition and operating results may suffer a material adverse effect.
  An unexpectedly high level of chargebacks could adversely affect our business.
  If we are unable to protect our intellectual property, we may lose a valuable
competitive advantage or be forced to incur costly litigation to protect our rights.
   7




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Our products and services are complex, depend on a myriad of complex networks and
technologies and may be subject to software or hardware errors or failures that could lead to an
increase in our costs, reduce our revenues or damage our reputation.
   Changes in interchange rates may affect our costs of revenues.
  We
are subject to extensive rules and regulations of card associations,
including MasterCard International and Visa
U.S.A.
   We are subject to regulatory and political risk associated with the majority of our
customers being Native American, Sovereign Nations.
  8




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##### Table of Contents



We are subject to the performance of third-parties whom we contract through as vendors to some
Tribal casinos.
  Our joint development activities may result in products that are not commercially
successful or that are not available in a timely fashion.
   We depend on our key personnel.
   Our senior secured convertible notes contain financial and other restrictive covenants that limit
our ability to engage in activities that may be in our long-term best interests.
  If we are obligated for any reason to repay our outstanding senior secured convertible notes, we
would be required to deplete our working capital and/or raise additional funds. If we are unable to
repay our senior secured convertible notes, the holders of these notes would be entitled to
foreclose on substantially all of our assets which secure the repayment of such notes.
  Effective internal and disclosure controls are necessary for us to provide reliable
financial reports and effectively prevent fraud and to operate successfully as a public company. If
we cannot provide reliable financial reports or prevent fraud, our reputation and operating results
would be harmed.
  9




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##### Table of Contents



Risks Related to the Industry
 Economic downturns, a decline in the popularity of gaming or changes in the demographic
profile of gaming patrons could reduce the number of gaming patrons that use our services or the
amounts of cash that they access using our services.
    We are subject to extensive governmental gaming regulation.
     10




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Many of the financial services that we provide are subject to extensive rules and
regulations.
    Being a public company may strain our resources, divert managements attention and
affect our ability to attract and retain qualified directors.
  11




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##### Table of Contents



Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
  BuildingSquareLocation
    
    Use
    
    FeetLas Vegas, Nevada
    
    Administrative, sales, finance and IT offices
    
    
    8,300Burnsville, Minnesota
    
    Call center, technical support and warehousing
    
    
    5,300San Diego, California
    
    Call center, technical support and warehousing
    
    
    5,725
  
 Item 3. LEGAL PROCEEDINGS
  
 Item. 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 Item 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Market Information
   Price Range2006
    
    2005Quarter Ended
    
    High
    
    Low
    
    High
    
    LowMarch 31
    
    $
    9.00
    
    
    $
    6.21
    
    
    $
    9.47
    
    
    $
    6.75June 30
    
    
    7.90
    
    
    
    6.30
    
    
    
    8.28
    
    
    
    6.20September 30
    
    
    7.63
    
    
    
    5.91
    
    
    
    9.25
    
    
    
    6.10December 31
    
    
    7.29
    
    
    
    5.85
    
    
    
    8.77
    
    
    
    5.81
 Holders
  Dividends
  12




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##### Table of Contents



Stock Performance Graph
  Total Return To Shareholders
(Includes reinvestment of dividends)
 ANNUAL RETURN PERCENTAGEYears EndingCompany / Index
    
    12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06Cash Systems, Inc.
    
    
    16.28
    
    
    
    258.50
    
    
    
    27.48
    
    
    
    -4.05
    
    
    
    -16.88S&P SmallCap 600 Index
    
    
    -14.63
    
    
    
    38.79
    
    
    
    22.65
    
    
    
    7.68
    
    
    
    15.12Nasdaq U.S. Index
    
    
    -30.87
    
    
    
    49.52
    
    
    
    8.83
    
    
    
    2.13
    
    
    
    9.87Dow Jones U.S. Gambling Index
    
    
    10.05
    
    
    
    54.64
    
    
    
    33.09
    
    
    
    1.44
    
    
    
    45.71
 INDEXED RETURNSBase
    

    Years EndingPeriodCompany / Index
    
    12/31/01
    
    12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06Cash Systems, Inc.
    
    
    100
    
    
    
    116.28
    
    
    
    416.86
    
    
    
    531.40
    
    
    
    509.88
    
    
    
    423.84S&P SmallCap 600 Index
    
    
    100
    
    
    
    85.37
    
    
    
    118.48
    
    
    
    145.32
    
    
    
    156.48
    
    
    
    180.14Nasdaq U.S. Index
    
    
    100
    
    
    
    69.13
    
    
    
    103.36
    
    
    
    112.49
    
    
    
    114.88
    
    
    
    126.22Dow Jones U.S. Gambling Index
    
    
    100
    
    
    
    110.05
    
    
    
    170.18
    
    
    
    226.49
    
    
    
    229.75
    
    
    
    334.78
 Comparison of Cumulative Total Return
 
 Issuer Repurchases of Equity Securities
  13




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Recent Sales of Unregistered Securities
  
 Item 6. SELECTED FINANCIAL DATA
  Year Ended December 312006
    
    2005
    
    2004
    
    2003
    
    2002(In thousands, except per share amounts)Statement of Operations Data:Commissions Revenue
    
    $
    96,039
    
    
    $
    63,166
    
    
    $
    48,411
    
    
    $
    32,728
    
    
    $
    15,347Total Operating Expenses
    
    
    102,101
    
    
    
    68,901
    
    
    
    44,613
    
    
    
    30,386
    
    
    
    15,862Income (Loss) from Operations
    
    
    (6,062
    )
    
    
    (5,735
    )
    
    
    3,798
    
    
    
    2,342
    
    
    
    (515
    )Total Other Income (Expense)
    
    
    (3,453
    )
    
    
    (387
    )
    
    
    (248
    )
    
    
    (545
    )
    
    
    (456
    )Income (Loss) before Income Taxes
    
    
    (9,515
    )
    
    
    (6,122
    )
    
    
    3,549
    
    
    
    1,797
    
    
    
    (971
    )Provision for (Benefit from)
Income Taxes
    
    
    2,373
    
    
    
    (2,357
    )
    
    
    1,366
    
    
    
    142
    
    
    
    Net Income (Loss)
    
    
    (11,888
    )
    
    
    (3,765
    )
    
    
    2,183
    
    
    
    1,655
    
    
    
    (971
    )Net Income (Loss) per Common
Share  Basic
    
    
    (0.68
    )
    
    
    (0.23
    )
    
    
    0.14
    
    
    
    0.13
    
    
    
    (0.08
    )Net Income (Loss) per Common
Share  Diluted
    
    
    (0.68
    )
    
    
    (0.23
    )
    
    
    0.14
    
    
    
    0.12
    
    
    
    (0.08
    )Weighted Average Common Shares
outstanding  Basic
    
    
    17,578
    
    
    
    16,606
    
    
    
    15,073
    
    
    
    12,741
    
    
    
    12,070Weighted Average Common Shares
outstanding  Diluted
    
    
    17,578
    
    
    
    16,606
    
    
    
    16,131
    
    
    
    13,501
    
    
    
    12,070
 As of December 312006
    
    2005
    
    2004
    
    2003
    
    2002(Dollars in thousands)Balance Sheet Data
(at end of period):Current assets
    
    $
    58,719
    
    
    $
    43,990
    
    
    $
    27,367
    
    
    $
    5,393
    
    
    $
    1,178Current liabilities
    
    
    46,907
    
    
    
    33,158
    
    
    
    12,077
    
    
    
    4,544
    
    
    
    2,437Working capital
    
    
    11,812
    
    
    
    10,832
    
    
    
    15,290
    
    
    
    849
    
    
    
    (1,259
    )Current ratio
    
    
    1.3 to 1
    
    
    
    1.3 to 1
    
    
    
    2.3 to 1
    
    
    
    1.2 to 1
    
    
    
    0.5 to 1Total assets
    
    
    79,223
    
    
    
    51,435
    
    
    
    31,615
    
    
    
    7,702
    
    
    
    3,148Long-term liabilities
    
    
    20,036
    
    
    
    1,092
    
    
    
    797
    
    
    
    436
    
    
    
    19Stockholders equity
    
    
    12,280
    
    
    
    17,185
    
    
    
    18,741
    
    
    
    2,723
    
    
    
    692
 
 Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  Overview
  Credit Card Cash Advances and POS Debit Card Transactions
   14




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ATM Cash Withdrawals
  Check Cashing Solutions
  Joint Venture and Cashclub Product
    Internal Transaction Processing
   15




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Results of Operations
  Year-to-Year % ChangePercentage of Revenues
    
    Increase (Decrease)2006
    
    2005
    
    2004
    
    06 vs. 05
    
    05 vs. 04Commissions Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    52.0
    %
    
    
    30.5
    %Total Operating Expenses
    
    
    106.3
    %
    
    
    109.1
    %
    
    
    92.2
    %
    
    
    48.2
    %
    
    
    54.4
    %Income (loss) from Operations
    
    
    (6.3
    )%
    
    
    (9.1
    )%
    
    
    7.8
    %
    
    
    5.7
    %
    
    
    (251.0
    )%Total Other Income (Expense)
    
    
    (3.6
    )%
    
    
    (0.6
    )%
    
    
    (0.5
    )%
    
    
    792.6
    %
    
    
    55.8
    %Income (Loss) before Income Taxes
    
    
    (9.9
    )%
    
    
    (9.7
    )%
    
    
    7.3
    %
    
    
    (55.4
    )%
    
    
    (272.5
    )%Provision for (Benefit from)
Income Taxes
    
    
    2.5
    %
    
    
    (3.7
    )%
    
    
    2.8
    %
    
    
    200.7
    %
    
    
    (272.5
    )%Net income (Loss)
    
    
    (12.4
    )%
    
    
    (6.0
    )%
    
    
    4.5
    %
    
    
    (215.7
    )%
    
    
    (272.5
    )%
 2006 Compared With 2005
           2005 Compared With 2004
      16




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Liquidity and Capital Resources
       Contractual Obligations and Commitments
  Payments Due by Period
 Less Than
    
    
    
    
    
    
    
    
    

    More ThanTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    

    5 YearsOperating Leases
    
    $
    503,125
    
    
    $
    219,442
    
    
    $
    283,683
    
    
    $
    
    
    
    
    $
    Senior Convertible
Notes
    
    $
    20,000,000
    
    
    $
    
    
    
    $
    
    
    
    $
    20,000,000
    
    
    
    $
    Convertible Note Interest
    
    $
    6,171,388
    
    
    $
    1,299,765
    
    
    $
    2,599,530
    
    
    $
    2,272,093
    
    
    
    $
    Total
    
    $
    26,674,513
    
    
    $
    1,519,207
    
    
    $
    2,883,213
    
    
    $
    22,272,093
    
    
    
    $
    
    17




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Off
Balance Sheet Arrangements
  Critical Accounting Policies
        Share-Based Payment
 Recently Issued Accounting Pronouncements
   18




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Forward-Looking Statements
   
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Market Risks
  19




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Interest Rate Risk
    
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
  
 Item 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Internal Control Over Financial Reporting
 Managements Report on Internal Control Over Financial Reporting
   Internal Control  Integrated Framework
    
    
    Due to the adjustments found during the financial audit,
it was noted that controls surrounding monthly review of
the balance sheet and use of the monthly close checklist
were inadequate.
    
    Due to the adjustments found during the financial audit,
it was noted that controls surrounding the review of
spreadsheets used to record activity with our third party
check guarantor and collections agency were insufficient.
    
    Due to the adjustments found during the financial audit,
it was noted that controls surrounding the review and
approval of journal entries was insufficient.
 Remediation Plan
   
    
    We have communicated the significant deficiencies which
have aggregated to a material weakness to our Finance
department personnel and have implemented procedures to enhance the
design and operation of the controls listed above such as
performing cut-off procedures and sample auditing of
spreadsheets used to record activity with our third party
check guarantor and collections agency.
  20




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##### Table of Contents




    
    Due to adjustments found during the financial audit, it was noted that controls
surrounding monthly review of the balance sheet and use of the monthly close checklist
were inadequate.
    
    Due to the adjustments found during the financial audit, it was noted that controls
surrounding the review of spreadsheets used to record activity with our third party check
guarantor and collections agency were insufficient.
    
    Due to the adjustments found during the financial audit, it was noted that controls
surrounding the review an approval of journal entries was insufficient.
      
 21




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##### Table of Contents



Changes in Internal Control
  
 Item 9B. OTHER INFORMATION
  
 PART III
 
 Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 Item 11. EXECUTIVE COMPENSATION
  
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
  
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Financial Statements.
 Financial Statement Schedules.
 22




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
SUPPLEMENTARY INFORMATION
 
   
 23




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##### Table of Contents



Financial Statement Schedule:
 II  Valuation and Qualifying Accounts
  SCHEDULE II
CASH SYSTEMS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 2006, 2005, and 2004
 Balance at Beginning of
    
    
    Costs and
    
    
    
    
    
    
    Balance atDescription
    
    Year
    
    
    Expenses
    
    
    Deductions
    
    
    Year EndALLOWANCE DEDUCTED
FROM ASSET TO WHICH IT
APPLIESReserve on other receivables
    

    $
    49,336
    
    
    $
    1,269,356
    
    
    
    
    
    
    
    2006
    
    
    $
    1,318,692
    
    
    $
    49,336
    
    
    
    
    
    
    
    2005
    
    
    $
    49,336
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    Reserve on credit card
chargebacks payable
    
    $
    64,332
    
    
    $
    

    
    
    $
    64,322
    
    
    
    2006
    
    
    $
    
    
    
    $
    64,332
    
    
    
    
    
    
    
    2005
    
    
    $
    64,332
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    Reserve on holdback reserve
from Credit Card Processors
    
    $
    195,000
    
    
    $
    585,825
    
    
    
    
    
    
    
    2006
    
    
    $
    780,825
    
    
    $
    195,000
    
    
    
    
    
    
    
    2005
    
    
    $
    195,000
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    Reserve on
receivable for check guarantees
    
    $
    
    
    
    $
    820,212

    
    
    
    
    
    
    
    2006
    
    
    $
    820,212
    
    
    
    

    
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    2004
    
    
    
    
 (3) List of Exhibits.
 ExhibitNumber
    
    Description2.1
    
    Asset Purchase Agreement dated November 17, 2005 between Cash Systems, Inc. and
Borrego Springs Bank, N.A., as amended (1)3.1
    
    Amended and Restated Certificate of Incorporation of Cash Systems, Inc.(2)3.2
    
    Amended and Restated Bylaws of Cash Systems, Inc.(3)10.1
    
    Executive Employment Agreement dated January 1, 2005 between Cash Systems, Inc.
and Michael D. Rumbolz(4)10.2
    
    First Amendment to Executive Employment Agreement dated December 29, 2006 between
Cash Systems, Inc. and Michael D. Rumbolz(12)10.3
    
    Executive Employment Agreement dated March 23, 2006 between Cash Systems, Inc. and
Andrew Cashin (11)10.4
    
    Executive Employment Agreement dated January 1, 2005 between Cash Systems, Inc.
and Craig Potts(4)10.5
    
    Executive Employment Agreement dated June 6, 2005 between Cash Systems, Inc. and
John Glaser(5)10.6
    
    Executive Employment Agreement dated October 18, 2005 between Cash Systems, Inc.
and Christopher D. Larson10.7
    
    2001 Stock Option Plan, as amended(6)10.8
    
    Form of Incentive Stock Option Agreement under the 2001 Stock Option Plan(6)10.9
    
    Form of Nonqualified Stock Option Agreement under the 2001 Stock Option Plan(5)10.10
    
    2005 Equity Incentive Plan(7)10.11
    
    Form of Incentive Stock Option Agreement under the 2005 Equity Incentive Plan10.12
    
    Form of Nonqualified Stock Option Agreement under the 2005 Equity Incentive Plan(5)10.13
    
    Form of Restricted Stock Agreement under the 2005 Equity Incentive Plan(5)10.14
    
    Common Stock Purchase Agreement dated November 17, 2005 between Cash Systems, Inc.
and The Viejas Band of Kumeyaay Indians(1)10.15
    
    Registration Rights Agreement dated November 17, 2005 between Cash Systems, Inc.
and The Viejas Band of Kumeyaay Indians(1)10.16
    
    Credit Agreement dated November 10, 2005 between Cash Systems, Inc. and Bank of
America, N.A.(8)10.17
    
    Security Agreement dated November 10, 2005 between Cash Systems, Inc. and Bank of
America, N.A.(8)10.18
    
    Securities Purchase Agreement dated as of October 6, 2006, by and between Cash
Systems, Inc. and the buyers named therein(10)10.19
    
    Form of Security Agreement(10)10.20
    
    Form of Senior Secured Convertible Note(10)10.21
    
    Form of Warrant(10)21
    
    Subsidiaries of Cash Systems, Inc.23
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 24




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##### Table of Contents



(1)
    
    Previously filed as an exhibit to the Current
Report on Form 8-K of Cash Systems, Inc., a Delaware
corporation (the Company), filed March 6, 2006, and
incorporated herein by this reference.(2)
    
    Previously filed as an exhibit to the Companys
Registration Statement on Form 8-A (SEC Registration
No. 001-31955), and incorporated herein by this
reference.(3)
    
    Previously filed as an exhibit to the Companys
Annual Report on Form 10-KSB for the year ended
December 31, 2002, and incorporated herein by this
reference.(4)
    
    Previously filed as an exhibit to the Companys
Current Report on Form 8-K, filed December 29, 2004,
and incorporated herein by this reference.(5)
    
    Previously filed as an exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005, and incorporated herein by this
reference.(6)
    
    Previously filed as an exhibit to the Companys
Annual Report on Form 10-KSB for the year ended
December 31, 2004, and incorporated herein by this
reference.(7)
    
    Previously filed as an exhibit to the Companys
Definitive Proxy Statement on Schedule 14A, filed May
2, 2005, and incorporated herein by this reference.(8)
    
    Previously filed as an exhibit to the Companys
Current Report on Form 8-K, filed November 17, 2005,
and incorporated herein by this reference.(9)
    
    Previously filed as an exhibit to the Companys
Current Report on Form 8-K, filed January 4, 2007 and
incorporated herein by this reference.(10)
    
    Previously filed as an exhibit to the Companys
Current Report on Form 8-K, filed October 10, 2006 and
incorporated herein by this reference.(11)
    
    Previously filed as an exhibit to the Companys
Current Report on Form 8-K, filed March 29, 2006 and
incorporated herein by this reference.(12)
    
    Previously filed as an exhibit to the Companys
Current Report on Form 8-K, filed January 4, 2007 and
incorporated herein by this reference.(b) Exhibits.Reference is made to the Exhibit Index and exhibits filed as a part of
this Annual Report on Form 10-K.(c) Additional Financial Statements.Not applicable. 25




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##### Table of Contents



SIGNATURES
  
  
 26




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##### Table of Contents



CASH SYSTEMS, INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    F-3Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-4Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 F-2




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##### Table of Contents



CASH SYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005
 December 31,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETSCash
    
    $
    24,880,233
    
    
    $
    25,754,499Current
portion of prepaid commissions (Note 2)
    
    
    285,019
    
    
    
    501,343Current
portion of loans receivable (Note 8)
    
    
    395,277
    
    
    
    874,133Deferred
income taxes (Note 15)
    
    
    
    
    
    
    1,677,000Settlements due from credit card processors (Note 5)
    
    
    11,027,242
    
    
    
    7,683,417Settlements due from ATM processors (Note 5)
    
    
    16,636,000
    
    
    
    4,492,620Other current assets (Note 4)
    
    
    5,494,879
    
    
    
    3,006,880Total Current Assets
    
    
    58,718,650
    
    
    
    43,989,892PROPERTY AND EQUIPMENT, NET (Note 6)
    
    
    7,407,903
    
    
    
    5,258,980OTHER ASSETSGoodwill (Note 7)
    
    
    4,077,700
    
    
    
    Intangible assets, net (Note 7)
    
    
    6,060,448
    
    
    
    20,560Long-term
deferred income taxes (Note 15)
    
    
    
    
    
    
    629,000Long-term prepaid commissions, net of current portion
(Note 2)
    
    
    640,722
    
    
    
    341,019Long-term loans receivable, net of current portion (Note 8)
    
    
    86,564
    
    
    
    47,941Restricted cash (Note 9)
    
    
    350,000
    
    
    
    Other
(Note 2)
    
    
    1,880,624
    
    
    
    55,338Total Other Assets
    
    
    13,096,058
    
    
    
    1,093,858TOTAL ASSETS
    
    $
    79,222,611
    
    
    $
    50,342,730LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESChecks issued in excess of cash in bank (Note 10)
    
    $
    21,235,168
    
    
    $
    21,768,860Line of credit  bank (Note 13)
    
    
    
    
    
    
    5,200,000Accounts payable  trade
    
    
    4,059,972
    
    
    
    2,541,396Credit card cash advance fees payable
    
    
    1,812,283
    
    
    
    859,063ATM commissions payable
    
    
    1,946,749
    
    
    
    1,184,498Credit card chargebacks payable
    
    
    102,403
    
    
    
    226,184Check cashing commissions payable
    
    
    356,054
    
    
    
    105,084Other accrued expenses (Note 11)
    
    
    17,394,448
    
    
    
    1,273,065Total Current Liabilities
    
    
    46,907,077
    
    
    
    33,158,150LONG-TERM LIABILITIESLong-term
debt, net (Note 17)
    
    
    19,258,386
    
    
    
    Derivative
warrant instrument (Note 17)
    
    
    777,011
    
    
    
    Total Liabilities
    
    
    66,942,474
    
    
    
    33,158,150STOCKHOLDERS EQUITYCommon stock, par value of $0.001, 50,000,000
shares authorized, 17,991,413 and 16,879,738 shares issued,
17,923,913 and 16,879,738 shares outstanding (Note 14)
    
    
    17,924
    
    
    
    16,879Additional paid-in capital (Note 14)
    
    
    26,029,119
    
    
    
    19,046,379Accumulated deficit
    
    
    (13,766,906
    )
    
    
    (1,878,678
    )Total Stockholders Equity
    
    
    12,280,137
    
    
    
    17,184,580TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    79,222,611
    
    
    $
    50,342,730
  F-3




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##### Table of Contents



CASH SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2006, 2005 and 2004
 Years EndedDecember 31,2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Commissions on credit card cash advances, ATMs and check
cashing services
    
    $
    96,038,632
    
    
    
    100.0
    %
    
    $
    63,165,958
    
    
    
    100.0
    %
    
    $
    48,411,008
    
    
    
    100.0
    %Operating expensesCommissions
    
    
    53,212,678
    
    
    
    55.4
    %
    
    
    31,520,324
    
    
    
    49.9
    %
    
    
    23,227,573
    
    
    
    48.0
    %Processing costs
    
    
    18,108,006
    
    
    
    18.9
    %
    
    
    14,292,699
    
    
    
    22.7
    %
    
    
    8,536,613
    
    
    
    17.6
    %Check cashing costs
    
    
    4,679,523
    
    
    
    4.9
    %
    
    
    4,913,081
    
    
    
    7.8
    %
    
    
    2,843,857
    
    
    
    5.9
    %Armored carrier services
    
    
    795,034
    
    
    
    0.8
    %
    
    
    536,121
    
    
    
    0.8
    %
    
    
    458,554
    
    
    
    1.0
    %Payroll, benefits and related taxes
    
    
    11,180,077
    
    
    
    11.6
    %
    
    
    8,751,192
    
    
    
    13.9
    %
    
    
    5,103,017
    
    
    
    10.5
    %Professional fees
    
    
    2,105,741
    
    
    
    2.2
    %
    
    
    2,430,129
    
    
    
    3.8
    %
    
    
    732,893
    
    
    
    1.5
    %Other general and administrative expenses
    
    
    9,030,971
    
    
    
    9.4
    %
    
    
    5,198,925
    
    
    
    8.2
    %
    
    
    2,947,897
    
    
    
    6.1
    %Depreciation and amortization
    
    
    2,989,067
    
    
    
    3.1
    %
    
    
    1,259,337
    
    
    
    2.0
    %
    
    
    762,987
    
    
    
    1.6
    %Total operating expenses
    
    
    102,101,097
    
    
    
    106.3
    %
    
    
    68,901,808
    
    
    
    109.1
    %
    
    
    44,613,391
    
    
    
    92.2
    %Income (Loss) from operations
    
    
    (6,062,465
    )
    
    
    -6.3
    %
    
    
    (5,735,850
    )
    
    
    -9.1
    %
    
    
    3,797,617
    
    
    
    7.8
    %Other income (expense)Interest expense
    
    
    (3,548,747
    )
    
    
    -3.7
    %
    
    
    (636,937
    )
    
    
    -1.0
    %
    
    
    (269,050
    )
    
    
    -0.5
    %Interest and other income
    
    
    96,057
    
    
    
    0.1
    %
    
    
    250,113
    
    
    
    0.4
    %
    
    
    20,683
    
    
    
    0.0
    %Total other income (expense)
    
    
    (3,452,690
    )
    
    
    -3.6
    %
    
    
    (386,824
    )
    
    
    -0.6
    %
    
    
    (248,367
    )
    
    
    -0.5
    %Income (loss) before income taxes
    
    
    (9,515,155
    )
    
    
    -9.9
    %
    
    
    (6,122,674
    )
    
    
    -9.7
    %
    
    
    3,549,250
    
    
    
    7.3
    %Provision for (benefit from) income taxes
    
    
    2,373,073
    
    
    
    2.5
    %
    
    
    (2,357,200
    )
    
    
    -3.7
    %
    
    
    1,365,832
    
    
    
    2.8
    %Net income (loss)
    
    $
    (11,888,228
    )
    
    
    -12.4
    %
    
    $
    (3,765,474
    )
    
    
    -6.0
    %
    
    $
    2,183,418
    
    
    
    4.5
    %Net income (loss) per common share:Basic
    
    $
    (0.68
    )
    
    
    
    
    
    $
    (0.23
    )
    
    
    
    
    
    $
    0.14Diluted
    
    $
    (0.68
    )
    
    
    
    
    
    $
    (0.23
    )
    
    
    
    
    
    $
    0.14Weighted average common shares outstanding:Basic
    
    
    17,577,650
    
    
    
    
    
    
    
    16,606,335
    
    
    
    
    
    
    
    15,072,768Diluted
    
    
    17,577,650
    
    
    
    
    
    
    
    16,606,335
    
    
    
    
    
    
    
    16,131,136
  F-4




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##### Table of Contents



CASH SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 For the Years Ended December 31, 2006, 2005 and 2004
 RetainedAdditional
    
    
    Deferred
    
    
    EarningsCommon Stock
    
    
    Paid-in
    
    
    Consulting
    
    
    (AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Services
    
    
    Deficit)
    
    
    TotalBalance  December 31, 2003
    
    
    12,892,735
    
    
    $
    12,893
    
    
    $
    3,213,804
    
    
    $
    (207,359
    )
    
    $
    (296,622
    )
    
    $
    2,722,716Cashless exercise of stock
warrants
    
    
    51,460
    
    
    
    51
    
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of stock warrants for
cash
    
    
    144,750
    
    
    
    145
    
    
    
    222,105
    
    
    
    
    
    
    
    
    
    
    
    222,250Exercise of stock options for
cash
    
    
    584,500
    
    
    
    584
    
    
    
    1,386,616
    
    
    
    
    
    
    
    
    
    
    
    1,387,200Issuance of common stock for
cash, net of cash expenses of $1,270,634
    
    
    2,500,000
    
    
    
    2,500
    
    
    
    11,225,864
    
    
    
    
    
    
    
    
    
    
    
    11,228,364Deferred consulting services
related to options issued to
non-employee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,377
    
    
    
    
    
    
    
    91,377Elimination of deferred
consulting services relating to
unvested non-employee options
upon cancellation of related
contract
    
    
    
    
    
    
    
    
    
    
    (115,982
    )
    
    
    115,982
    
    
    
    
    
    
    
    Tax benefit associated with
employee stock option exercises
    
    
    
    
    
    
    
    
    
    
    906,000
    
    
    
    
    
    
    
    
    
    
    
    906,000Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,183,418
    
    
    
    2,183,418Balance  December 31, 2004
    
    
    16,173,445
    
    
    $
    16,173
    
    
    $
    16,838,356
    
    
    $
    
    
    
    $
    1,886,796
    
    
    $
    18,741,325Cashless exercise of stock
warrants
    
    
    93,593
    
    
    
    94
    
    
    
    (94
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of stock warrants for
cash
    
    
    90,450
    
    
    
    90
    
    
    
    190,810
    
    
    
    
    
    
    
    
    
    
    
    190,900Exercise of stock options for
cash
    
    
    522,250
    
    
    
    522
    
    
    
    1,363,007
    
    
    
    
    
    
    
    
    
    
    
    1,363,529Compensation expense associated
with accelerated vesting of
stock options
    
    
    
    
    
    
    
    
    
    
    260,350
    
    
    
    
    
    
    
    
    
    
    
    260,350Tax benefit associated with
employee stock option exercises
    
    
    
    
    
    
    
    
    
    
    393,950
    
    
    
    
    
    
    
    
    
    
    
    393,950Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,765,474
    )
    
    
    (3,765,474
    )Balance  December 31, 2005
    
    
    16,879,738
    
    
    $
    16,879
    
    
    $
    19,046,379
    
    
    $
    
    
    
    $
    (1,878,678
    )
    
    $
    17,184,580Issuance of common stock
associated with private
placement
    
    
    710,000
    
    
    
    710
    
    
    
    4,469,450
    
    
    
    
    
    
    
    
    
    
    
    4,470,160Compensation expense associated
with modification of stock
options
    
    
    
    
    
    
    
    
    
    
    124,000
    
    
    
    
    
    
    
    
    
    
    
    124,000Compensation expense of
restricted stock awards
    
    
    
    
    
    
    
    
    
    
    106,728
    
    
    
    
    
    
    
    
    
    
    
    106,728Cashless exercise of stock
warrants
    
    
    24,050
    
    
    
    24
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of stock warrants for
cash
    
    
    15,625
    
    
    
    16
    
    
    
    23,422
    
    
    
    
    
    
    
    
    
    
    
    23,438Exercise of stock options for
cash
    
    
    294,500
    
    
    
    295
    
    
    
    1,700,955
    
    
    
    
    
    
    
    
    
    
    
    1,701,250Compensation
expense associated with option grants
    
    
    
    
    
    
    
    
    
    
    472,950
    
    
    
    
    
    
    
    
    
    
    
    472,950Tax benefit associated with
employee stock option exercises
    
    
    
    
    
    
    
    
    
    
    85,259
    
    
    
    
    
    
    
    
    
    
    
    85,259Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,888,228
    )
    
    
    (11,888,228
    )Balance  December 31, 2006
    
    
    17,923,913
    
    
    $
    17,924
    
    
    $
    26,029,119
    
    
    
    
    
    
    $
    (13,766,906
    )
    
    $
    12,280,137
  F-5




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##### Table of Contents



CASH SYSTEMS, INC. AND SUBSIDIARIES
 
 
 2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    (11,888,228
    )
    
    $
    (3,765,474
    )
    
    $
    2,183,418Adjustments to reconcile net income (loss) to cash flows from
operating activities:Depreciation and amortization
    
    
    2,989,067
    
    
    
    1,259,337
    
    
    
    762,987Share-based compensation expense
    
    
    703,678
    
    
    
    260,350
    
    
    
    91,377Tax benefit associated with employee stock option exercises
    
    
    85,259
    
    
    
    393,950
    
    
    
    906,000Amortization of debt issuance costs and original issue discount
    
    
    171,264
    
    
    
    5,031
    
    
    
    Deferred income taxes
    
    
    2,306,000
    
    
    
    (2,767,000
    )
    
    
    406,000Interest receivable on loans receivable
    
    
    25,281
    
    
    
    (18,137
    )
    
    
    (16,294
    )Changes in operating assets and liabilities:Related parties receivable
    
    
    
    
    
    
    183,560
    
    
    
    (158,560
    )Prepaid commissions
    
    
    216,324
    
    
    
    (152,742
    )
    
    
    13,399Other receivables
    
    
    
    
    
    
    645,006
    
    
    
    (27,267
    )Settlements due from credit card processors
    
    
    (3,343,825
    )
    
    
    638,396
    
    
    
    (8,321,813
    )Settlements due from ATM processors
    
    
    (12,143,380
    )
    
    
    (4,492,620
    )
    
    
    Other current assets
    
    
    (2,487,999
    )
    
    
    (368,121
    )
    
    
    (1,596,586
    )Long-term prepaid commission
    
    
    (299,703
    )
    
    
    182,808
    
    
    
    (523,827
    )Long-term receivable
    
    
    
    
    
    
    
    
    
    
    453,295Restricted cash
    
    
    (350,000
    )
    
    
    
    
    
    
    Other assets
    
    
    (171,618
    )
    
    
    
    
    
    
    Accounts payable  trade
    
    
    1,518,576
    
    
    
    2,105,074
    
    
    
    (1,298,331
    )Credit card cash advance fees payable
    
    
    953,220
    
    
    
    204,027
    
    
    
    (88,387
    )ATM commissions payable
    
    
    762,251
    
    
    
    555,170
    
    
    
    297,384Check cashing commissions payable
    
    
    250,970
    
    
    
    2,283
    
    
    
    11,655Credit card chargebacks payable
    
    
    (123,781
    )
    
    
    146,184
    
    
    
    (23,957
    )Due to related party
    
    
    
    
    
    
    (211,846
    )
    
    
    211,846Other accrued expenses
    
    
    15,972,885
    
    
    
    1,075,196
    
    
    
    (23,488
    )Cash flows provided from (used in) operating activities
    
    
    (4,853,759
    )
    
    
    (4,119,568
    )
    
    
    (6,741,149
    )Cash flows from investing activities:Purchase of certain assets of Indian Gaming Services
    
    
    (12,369,202
    )
    
    
    
    
    
    
    Purchases of property and equipment
    
    
    (2,737,878
    )
    
    
    (3,145,147
    )
    
    
    (2,280,366
    )Loans receivable, net
    
    
    414,952
    
    
    
    1,296,318
    
    
    
    (2,183,961
    )Patent acquisition costs
    
    
    
    
    
    
    (20,560
    )Cash flows used in investing activities
    
    
    (14,692,128
    )
    
    
    (1,869,389
    )
    
    
    (4,464,327
    )Cash flows from financing activities:Checks issued in excess of cash in bank
    
    
    (533,692
    )
    
    
    12,005,522
    
    
    
    9,077,220Line of credit  bank, net
    
    
    (5,200,000
    )
    
    
    5,139,631
    
    
    
    Payments on long-term debt
    
    
    
    
    
    
    
    
    
    
    (713,035
    )Proceeds from long-term debt, net of debt issuance costs
    
    
    18,210,465
    
    
    
    
    
    
    
    Issuance of common stock, net of expenses
    
    
    4,470,160
    
    
    
    
    
    
    
    11,239,968Exercise of stock options
    
    
    1,701,250
    
    
    
    1,363,529
    
    
    
    1,387,200Exercise of warrants
    
    
    23,438
    
    
    
    190,900
    
    
    
    222,250Cash flows provided from financing activities
    
    
    18,671,621
    
    
    
    18,699,582
    
    
    
    21,213,603Increase/(Decrease) in cash
    
    
    (874,266
    )
    
    
    12,710,625
    
    
    
    10,008,127Cash, beginning of year
    
    
    25,754,499
    
    
    
    13,043,874
    
    
    
    3,035,747Cash, end of year
    
    $
    24,880,233
    
    
    $
    25,754,499
    
    
    $
    13,043,874SUPPLEMENTAL CASH FLOWS INFORMATION:Cash paid for financing costs and interest expense, net of
amortization of original issue discount and debt issuance
costs
    
    $
    2,985,128
    
    
    $
    518,920
    
    
    $
    263,071Cash received from income taxes
    
    
    287,452
    
    
    
    609,322
    
    
    
    1,003,769NONCASH INVESTING AND FINANCING ACTIVITIES:Reclassification of other current assets to proceeds from
issuance of common stock
    
    $
    
    
    
    $
    
    
    
    $
    11,604Note receivable issued in connection with sale of ATMs
    
    
    
    
    
    
    
    
    
    
    242,000Derivative warrant instrument
    
    
    777,011
    
    
    
    
    
    
    
    
  F-6




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##### Table of Contents



CASH SYSTEMS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2006, 2005 and 2004
 1. Nature of Business
  2. Summary of Significant Accounting Policies
 Accounting Principles
  Principles of Consolidation
  Use of Estimates
  Cash Concentrations
  Income Taxes
  Software Development Costs
  Goodwill and Intangible Assets
  F-7




---



##### Table of Contents



Debt Issuance Costs
  Loans Receivable
  Prepaid Commissions
  Patents
  Revenue Recognition
       Segment Reporting
  Research and Development
  Reclassifications
  Property and Equipment
  F-8




---



##### Table of Contents



Fair Value of Financial Instruments
  Short-term Assets and Liabilities:
  Long-term debt:
  Recently Issued Accounting Pronouncements
 FIN No. 48
  SFAS No. 157
  F-9




---



##### Table of Contents



Net
Income (Loss) per Common Share
   Years Ended December 31,2006
    
    2005
    
    2004(In 000s except per share amounts)Net Income (Loss)
    
    $
    (11,888
    )
    
    $
    (3,765
    )
    
    $
    2,183Weighted average common shares outstanding
    
    
    17,578
    
    
    
    16,606
    
    
    
    15,073Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    1,058Weighted average common and dilutive shares outstanding
    
    
    17,578
    
    
    
    16,606
    
    
    
    16,131Net income (loss) per basic share
    
    $
    (0.68
    )
    
    $
    (0.23
    )
    
    $
    0.14Net income (loss) per diluted share
    
    $
    (0.68
    )
    
    $
    (0.23
    )
    
    $
    0.14
  Stock-Based Compensation
 Share-Based Payment Accounting for
Stock Issued to Employees
  Accounting for Stock-Based Compensation
       F-10




---



##### Table of Contents



Pro Forma Information under SFAS 123 for Periods Prior to Fiscal 2006
  F-11




---



##### Table of Contents



Years Ended December 31,2005
    
    
    2004(In 000s except income (loss) per share amounts)Reported net income (loss)
    
    $
    (3,765
    )
    
    $
    2,183Reported stock-based compensation, net of tax
    
    
    156
    
    
    
    Pro forma stock-based compensation, net of tax
    
    
    (4,539
    )
    
    
    (1,648
    )Pro forma net income (loss)
    
    $
    (8,304
    )
    
    $
    535Net income (loss) per share:Basic  as reported
    
    $
    (0.23
    )
    
    $
    .14Basic  pro forma
    
    $
    (0.50
    )
    
    $
    .04Diluted  as reported
    
    $
    (0.23
    )
    
    $
    .14Diluted  pro forma
    
    $
    (0.50
    )
    
    $
    .04
  Advertising Expenses
  3. Funding Arrangement
 Vault Cash Agreements
     Site Funded ATMs
  4. Other Current Assets
  2006
    
    
    2005Receivable from casinos
    
    $
    515,060
    
    
    $
    819,593Receivable from bank
    
    
    2,357,363
    
    
    
    Income taxes receivable
    
    
    65,497
    
    
    
    260,714Prepaid expenses
    
    
    464,194
    
    
    
    224,801Receivable
for check guarantees, net of reserve of $820,212 and $0, respectively
    
    
    1,396,831
    
    
    
    301,535Holdback reserve from credit card
processor, net of reserve of $780,825
and $195,000, respectively
    
    
    
    
    
    
    585,825Other receivables, net of reserve of
$1,318,692 and $49,000, respectively
    
    
    695,934
    
    
    
    814,412Total other current assets
    
    $
    5,494,879
    
    
    $
    3,006,880
 Receivable from casinos
  Receivable from bank
  F-12




---



##### Table of Contents



Receivable for check guarantees
  Holdback reserve from credit card processor
  5. Settlements due from processors
 Settlements due from credit card processors
  Settlements due from ATM processors
  6. Property and Equipment
  2006
    
    
    2005Furniture and equipment
    
    $
    9,808,926
    
    
    $
    5,244,619Vehicles
    
    
    106,113
    
    
    
    65,169Computer software
    
    
    2,696,620
    
    
    
    3,328,657Leasehold improvements
    
    
    178,754
    
    
    
    148,375Less: Accumulated depreciation and amortization
    
    
    (5,382,510
    )
    
    
    (3,527,840
    )Total property and equipment, net
    
    $
    7,407,903
    
    
    $
    5,258,980
  Long-Lived Assets
  7. Goodwill and Intangible Assets
  As of December 31, 2006EstimatedCarrying
    
    
    Accumulated
    
    
    
    
    
    
    UsefulAmount
    
    
    Amortization
    
    
    Net
    
    
    LivesPatents
    
    $
    20,560
    
    
    
    4,112
    
    
    
    16,448
    
    
    5 yearsCustomer relationships (relates to IGS)
    
    
    7,110,000
    
    
    
    1,109,333
    
    
    
    6,000,667
    
    
    1 1/2 to 7 1/2 yearsEmployment and non-compete agreements (relates to IGS)
    
    
    60,000
    
    
    
    16,667
    
    
    
    43,333
    
    
    3 years$
    7,190,560
    
    
    
    1,130,112
    
    
    
    6,060,448
 F-13




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##### Table of Contents



Fiscal year2007
    
    
    1,321,9912008
    
    
    1,255,3242009
    
    
    874,7692010
    
    
    798,657Thereafter
    
    
    1,809,707Total expected amortization expense
    
    $
    6,060,448
 8. Loans Receivable
       2007
    
    $
    395,2772008
    
    
    68,3172009
    
    
    18,247Total
    
    $
    481,841
 9. Restricted Cash
  10. Checks Issued in Excess of Cash in Bank
  11. Other Accrued Expenses
  December 31,
    
    
    December 31,2006
    
    
    2005Accrued payroll and related items
    
    $
    611,688
    
    
    $
    658,591Accrued interest
    
    
    544,041
    
    
    
    212,874Amounts due casinos
    
    
    3,251,046
    
    
    
    380,000Amounts due
for ATM processing
    
    
    12,900,940
    
    
    
    Other
    
    
    86,733
    
    
    
    21,600Total other accrued expenses
    
    $
    17,394,448
    
    
    $
    1,273,065
   12. Commitments and Contingencies
 Legal Proceedings
  F-14




---



##### Table of Contents



Regulatory Bond
  Major Customer
  Employment Agreement
  Operating Leases
   2007
    
    $
    219,4422008
    
    
    136,2242009
    
    
    92,7122010
    
    
    54,747Total
    
    $
    503,125
 13. Line of Credit  Bank
  14. Equity Transactions
            F-15




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##### Table of Contents



Stock Options
    AggregateNumber of
    
    
    Weighted Average
    
    IntrinsicOptions
    
    
    Exercise Price
    
    ValueBalance at December 31, 2003
    
    
    1,498,500
    
    
    $
    2.56Granted
    
    
    955,000
    
    
    $
    6.45Options exercised
    
    
    (584,500
    )
    
    $
    2.34Expirations and cancellations
    
    
    (111,250
    )
    
    $
    5.42Balance at December 31, 2004
    
    
    1,757,750
    
    
    $
    4.55Granted
    
    
    870,000
    
    
    $
    6.94Options exercised
    
    
    (522,250
    )
    
    $
    2.61Expirations and cancellations
    
    
    
    
    
    
    Balance at December 31, 2005
    
    
    2,105,500
    
    
    $
    6.02Granted
    
    
    120,000
    
    
    $
    6.60Options exercised
    
    
    (294,500
    )
    
    $
    5.78Expirations and cancellations
    
    
    (50,000
    )
    
    
    6.82Balance at December 31, 2006
    
    
    1,881,000
    
    
    $
    6.07
    
    $
    2,523,060Weighted average fair value of options granted during fiscal year 2006
    
    $
    3.94Weighted average fair value of options granted during fiscal year 2005
    
    $
    4.25Weighted average fair value of options granted during fiscal year 2004
    
    $
    5.20At December 31, 2006:Options vested and exercisable
    
    
    1,881,000
    
    
    $
    6.07Shares
available under the 2005 Plan
    
    
    342,500At December 31, 2005:Options vested and exercisable
    
    
    2,105,500
    
    
    $
    6.02Shares available for options
    
    
    394,500At December 31, 2004:Options vested and exercisable
    
    
    897,750
    
    
    $
    3.60Shares available for options
    
    
    742,250
   F-16




---



##### Table of Contents



CASH SYSTEMS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Options Outstanding
    
    
    Options ExercisableWeightedAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Contractual
    
    
    Average
    
    
    Number
    
    
    AverageExercise Price
    
    Outstanding
    
    
    Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$1.25 to $1.83
    
    
    156,000
    
    
    
    4.77
    
    
    $
    1.68
    
    
    
    156,000
    
    
    $
    1.68$2.50 to $2.60
    
    
    30,000
    
    
    
    6.33
    
    
    $
    2.58
    
    
    
    30,000
    
    
    $
    2.58$4.00 to $6.00
    
    
    435,000
    
    
    
    7.04
    
    
    $
    4.84
    
    
    
    435,000
    
    
    $
    4.84$6.18 to $8.05
    
    
    1,260,000
    
    
    
    7.25
    
    
    $
    7.12
    
    
    
    1,260,000
    
    
    $
    7.12$1.25 to $8.05
    
    
    1,881,000
    
    
    
    6.98
    
    
    $
    6.07
    
    
    
    1,881,000
    
    
    $
    6.07
 Stock Warrants
  Weighted AverageNumber of Warrants
    
    
    Exercise PriceBalance at December 31, 2003
    
    
    497,620
    
    
    $
    1.62Granted
    
    
    
    
    
    
    Converted to stock under cashless transaction
    
    
    (66,920
    )
    
    $
    1.52Warrants exercised
    
    
    (144,750
    )
    
    $
    1.54Balance at December 31, 2004
    
    
    285,950
    
    
    $
    1.69Granted
    
    
    
    
    
    
    Converted to stock under cashless transaction
    
    
    (113,000
    )
    
    $
    1.50Warrants exercised
    
    
    (90,450
    )
    
    $
    2.11Balance at December 31, 2005
    
    
    82,500
    
    
    $
    1.50Granted
    
    
    312,500
    
    
    
    8.00Converted to stock under cashless transaction
    
    
    (30,000
    )
    
    $
    1.50Warrants exercised
    
    
    (15,625
    )
    
    $
    1.50Warrants expired
    
    
    (11,250
    )
    
    $
    1.50Balance at December 31, 2006
    
    
    338,125
    
    
    $
    7.51Weighted average fair value of warrants
granted during fiscal year 2006
    
    $
    2.9841Weighted average fair value of warrants
granted during fiscal year 2005 and 2004
    
    $
    
  Exercise Price
    
    Number Outstanding
    
    Remaining Contractual Life Years$1.50
    
    

    
    25,625
    
    

    
    0.55$8.00
    
    

    
    312,500
    
    

    
    4.78
  Restricted Stock Awards
  F - 17




---



##### Table of Contents



WeightedAverageGrantDate FairShares
    
    
    ValueUnvested, beginning of year, December 31, 2005
    
    
    
    
    
    
    Granted
    
    
    67,500
    
    
    $
    6.67Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Unvested, end of year, December 31, 2006
    
    
    67,500
    
    
    $
    6.67
  15. Income Taxes
  2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    33,832State
    
    
    (18,186
    )
    
    
    15,800
    
    
    
    20,000Deferred
    
    
    2,306,000
    
    
    
    (2,767,000
    )
    
    
    406,000Tax benefit of
stock option
exercises, credited
to additional
paid-in capital
    
    
    85,259
    
    
    
    394,000
    
    
    
    906,000$
    2,373,073
    
    
    $
    (2,357,200
    )
    
    $
    1,365,832
   2006
    
    
    2005
    
    
    2004Deferred income tax assets:Net operating loss and credit
carryforwards
    
    $
    6,072,000
    
    
    $
    3,144,000
    
    
    $
    131,000Stock-based compensation
    
    
    271,000
    
    
    
    
    
    
    
    122,000Stock option acceleration
    
    
    68,000
    
    
    
    100,000
    
    
    
    Other
    
    
    882,000
    
    
    
    154,000
    
    
    
    83,0007,293,000
    
    
    
    3,398,000
    
    
    
    336,000Deferred income tax liabilities:Depreciation and amortization
    
    
    (1,152,000
    )
    
    
    (1,067,000
    )
    
    
    (797,000
    )Other
    
    
    
    
    
    
    (25,000
    )
    
    
    6,141,000
    
    
    
    2,306,000
    
    
    
    (461,000
    )Less: Valuation allowance
    
    
    (6,141,000
    )
    
    
    
    
    
    
    Net deferred income tax assets
    
    $
    
    
    
    $
    2,306,000
    
    
    $
    (461,000
    )
   2006
    
    
    2005
    
    
    2004Federal statutory tax rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    34.0
    %State taxes, net of federal benefit
    
    
    (4.5
    )%
    
    
    (4.5
    )%
    
    
    4.5
    %Permanent differences and other
    
    
    (1.1
    )%
    
    
    
    
    
    
    Change in valuation allowance
    
    
    64.5
    %
    
    
    
    
    
    
    Effective tax rate
    
    
    24.9
    %
    
    
    (38.5
    )%
    
    
    38.5
    %
 F - 18




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##### Table of Contents



16. Acquisition
   Cash consideration
    
    $
    12,000,000Costs associated with the transaction
    
    
    369,202$
    12,369,202
 Purchase Price Allocation
  Property, plant and equipment
    
    $
    1,270,000Identifiable intangible assets:Customer relationships
    
    
    7,110,000Employment and non-compete agreements
    
    
    60,000Goodwill
    
    
    4,077,700Liabilities assumed
    
    
    (148,498
    )$
    12,369,202
   Years EndedDecember 31,2006
    
    
    2005
    
    
    2004Commissions on
credit card cash
advances, ATMs and
check
cashing services
    
    $
    99,126,859
    
    
    $
    80,103,077
    
    
    $
    61,613,669Net loss
    
    $
    (11,932,213
    )
    
    $
    (4,978,678
    )
    
    $
    1,452,367Net loss per common share:Basic
    
    $
    (0.68
    )
    
    $
    (0.30
    )
    
    $
    0.10Diluted
    
    $
    (0.68
    )
    
    $
    (0.30
    )
    
    $
    0.09
 17. Senior Convertible Secured Notes
     F - 19




---



##### Table of Contents



18. Subsequent Events
 New Banking Relationship
  CEO
Contract Renewal
  19. Selected Quarterly Data (unaudited)
 Quarters during the Year Ended December 31, 2006March 31
    
    June 30
    
    September 30
    
    December 31Commission on cash
advance and
automated teller
machines
    
    $
    20,479,125
    
    
    $
    24,146,610
    
    
    $
    25,966,850
    
    
    $
    25,446,047Loss from operations
    
    $
    (1,455,912
    )
    
    $
    (438,118
    )
    
    $
    (3,624,728
    )
    
    $
    (543,707
    )Net loss
    
    $
    (1,219,515
    )
    
    $
    (804,142
    )
    
    $
    (2,786,847
    )
    
    $
    (7,077,724
    )Net loss per common
share  Basic
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    (0.16
    )
    
    $
    (0.40
    )Net loss per common
share  Diluted
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    (0.16
    )
    
    $
    (0.40
    )Quarters during the Year Ended December 31, 2005March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Commission on cash
advance and automated teller
machines
    
    $
    13,650,313
    
    
    $
    16,036,555
    
    
    $
    17,050,788
    
    
    $
    16,428,302Income (loss) from operations
    
    $
    455,633
    
    
    $
    (2,686,507
    )
    
    $
    (96,082
    )
    
    $
    (3,408,894
    )Net income (loss)
    
    $
    237,601
    
    
    $
    (1,668,385
    )
    
    $
    (71,108
    )
    
    $
    (2,263,582
    )Net income (loss) per common
share  Basic
    
    $
    0.01
    
    
    $
    (0.10
    )
    
    $
    (0.00
    )
    
    $
    (0.14
    )Net income (loss) per common
share  Diluted
    
    $
    0.01
    
    
    $
    (0.10
    )
    
    $
    (0.00
    )
    
    $
    (0.14
    )Quarters during the Year Ended December 31, 2004March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Commission on
cash advance and
automated teller
machines
    
    $
    11,006,634
    
    
    $
    11,840,293
    
    
    $
    12,773,387
    
    
    $
    12,790,694Income from operations
    
    $
    639,854
    
    
    $
    1,032,536
    
    
    $
    978,947
    
    
    $
    1,146,280Net income
    
    $
    304,143
    
    
    $
    591,844
    
    
    $
    582,744
    
    
    $
    704,687Net income per common
share  Basic
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.04Net income per common
share  Diluted
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.04
 F - 20