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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K/A
 Amendment No. 1
  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
    
    87-0398535(State of incorporation)
    
    (I.R.S. EmployerIdentification Number)7350 Dean Martin Drive, Suite 309
    
    89139Las Vegas, NV
    
    (Zip code)(Address of principal executive offices)
 Registrants telephone number, including area code
(702) 987-7169
Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $0.001 Par Value
    
    The 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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EXPLANATORY NOTERESTATEMENT OF FINANCIAL INFORMATION
  Restatement of Consolidated Financial Statements




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##### 



CASH SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K/A
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 32.2EXHIBIT 10.11EXHIBIT 21EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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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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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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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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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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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
 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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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
  Restatement of
Consolidated Financial Statements
 2006
    
    2005
    
    2004
    
    2003
    
    2002Statement of Operations Data:
    
    (Restated)Commissions Revenue
    
    
    96,039
    
    
    
    63,166
    
    
    
    48,411
    
    
    
    32,728
    
    
    
    15,347Total Operating Expenses
    
    
    100,317
    
    
    
    68,901
    
    
    
    44,613
    
    
    
    30,386
    
    
    
    15,862Income (Loss) from Operations
    
    
    (4,278
    )
    
    
    (5,735
    )
    
    
    3,798
    
    
    
    2,342
    
    
    
    (515
    )Total Other Income (Expense)
    
    
    (3,453
    )
    
    
    (387
    )
    
    
    (248
    )
    
    
    (545
    )
    
    
    (456
    )Income (Loss) before Income Taxes
    
    
    (7,731
    )
    
    
    (6,122
    )
    
    
    3,549
    
    
    
    1,797
    
    
    
    (971
    )Provision for (Benefit from) Income Taxes
    
    
    2,288
    
    
    
    (2,357
    )
    
    
    1,366
    
    
    
    142
    
    
    
    Net Income (Loss)
    
    
    (10,019
    )
    
    
    (3,765
    )
    
    
    2,183
    
    
    
    1,655
    
    
    
    (971
    )Net Income (Loss) per Common Share  Basic
    
    
    (0.57
    )
    
    
    (0.23
    )
    
    
    0.14
    
    
    
    0.13
    
    
    
    (0.08
    )Net Income (Loss) per Common Share  Diluted
    
    
    (0.57
    )
    
    
    (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
 2006
    
    2005
    
    2004
    
    2003
    
    2002Balance Sheet Data (at end of period):
    
    (Restated)Current assets
    
    
    56,012
    
    
    
    43,990
    
    
    
    27,367
    
    
    
    5,393
    
    
    
    1,178Current liabilities
    
    
    42,415
    
    
    
    33,158
    
    
    
    12,077
    
    
    
    4,544
    
    
    
    2,437Working capital
    
    
    13,597
    
    
    
    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
    
    
    76,516
    
    
    
    51,435
    
    
    
    31,615
    
    
    
    7,702
    
    
    
    3,148Long-term liabilities
    
    
    20,035
    
    
    
    1,092
    
    
    
    797
    
    
    
    436
    
    
    
    19Stockholders equity
    
    
    14,065
    
    
    
    17,185
    
    
    
    18,741
    
    
    
    2,723
    
    
    
    692
 
 Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  14




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Overview
  Credit Card Cash Advances and POS Debit Card Transactions
    ATM Cash Withdrawals
  Check Cashing Solutions
  Joint Venture and Cashclub Product
    Internal Transaction Processing
   15




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Results of Operations
  Percentage of Revenues
    
    Year-to-Year % Change2006
    
    2005
    
    2004
    
    06 vs. 05
    
    05 vs. 04(Restated)Commissions Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    52.0
    %
    
    
    30.5
    %Total Operating Expenses
    
    
    104.5
    %
    
    
    109.1
    %
    
    
    92.2
    %
    
    
    45.6
    %
    
    
    54.4
    %Income (loss) from Operations
    
    
    -4.5
    %
    
    
    -9.1
    %
    
    
    7.8
    %
    
    
    25.4
    %
    
    
    -251.0
    %Total Other Income (Expense)
    
    
    -3.5
    %
    
    
    -0.6
    %
    
    
    -0.5
    %
    
    
    792.6
    %
    
    
    55.8
    %Income (Loss) before Income Taxes
    
    
    -8.0
    %
    
    
    -9.7
    %
    
    
    7.3
    %
    
    
    26.3
    %
    
    
    -272.5
    %Provision for (Benefit from)
Income Taxes
    
    
    2.4
    %
    
    
    -3.7
    %
    
    
    2.8
    %
    
    
    200.7
    %
    
    
    -272.5
    %Net income (Loss)
    
    
    -10.4
    %
    
    
    -6.0
    %
    
    
    4.5
    %
    
    
    -168.3
    %
    
    
    -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.
  
    
    Due to the restatement of our consolidated financial
statements, it was noted that controls related to the application of cash settlements from
processors to the corresponding receivable were 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.
    
    We have altered our procedures to ensure cash received from our
network processors are applied against the corresponding receivable on
the date of actual receipt. In addition, we have enhanced transparency
in the reconciliation of cash applications to accounts receivable by
separating our reports by network processor which enables transactions
to be properly matched. Finally, we are now tracking resubmitted
transactions within our accounts receivable rollforward procedures to ensure proper accounting treatment.
  20




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
    
    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.
  
    
    Due to the restatement of our consolidated financial statements, it was noted that
controls related to the application of cash settlements from processors to the
corresponding receivable were insufficient.
       
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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.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
 SUPPLEMENTARY INFORMATION
 
   
 23




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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 atBeginning of
    
    Costs and
    
    
    
    
    
    
    
    
    
    Balance atDescription
    
    Year
    
    Expenses
    
    Deductions
    
    
    
    
    
    Year EndALLOWANCE DEDUCTED FROM ASSET TO WHICH IT APPLIESReserve on other receivables
    
    
    49,336
    
    
    
    1,670,464
    
    
    
    
    
    
    
    2006
    
    
    
    1,719,800
    
    
    
    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/A.(c)
    
    Additional Financial Statements.Not applicable. 25




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##### Table of Contents



SIGNATURES
  CASH SYSTEMS, INC.DATE: May 14, 2007
    /s/ Michael D. RumbolzMichael D. RumbolzChief Executive Officer  DATE: May 14, 2007
    /s/ Michael D. RumbolzMichael D. RumbolzChief Executive Officer and
Director
(Principal executive officer) DATE: May 14, 2007
    /s/ Andrew CashinAndrew CashinChief Financial Officer
(Principal financial and accounting officer) DATE: May 14, 2007
    /s/ Patrick R. CruzenPatrick R. CruzenDirector DATE: May 14, 2007
    /s/ Don R. KornsteinDon R. KornsteinDirector DATE: May 14, 2007
    /s/ Donald D. SnyderDonald D. SnyderDirector DATE: May 14, 2007
    /s/ Patricia W. BeckerPatricia W. BeckerDirector 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 (as restated) and 2005
    
    
    F-3Consolidated Statements of Operations for the Years Ended December 31, 2006 (as restated), 2005 and 2004
    
    
    F-4Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2006 (as restated), 2005 and 2004
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2006 (as restated), 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
  To the
    Shareholders, Audit Committee and Board of Directors
    Cash Systems, Inc. and Subsidiaries
    Las Vegas, Nevada
                F-2




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##### Table of Contents



CASH SYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31, 2006 and 2005
 December 31,2006(As restated, see
    
    December 31,Note 2)
    
    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)
    
    
    13,212,907
    
    
    
    7,683,417Settlements due from ATM processors (Note 5)
    
    
    12,144,380
    
    
    
    4,492,620Other current assets (Note 4)
    
    
    5,093,771
    
    
    
    3,006,880Total Current Assets
    
    
    56,011,587
    
    
    
    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
    
    $
    76,515,548
    
    
    $
    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)
    
    
    12,902,828
    
    
    
    1,273,065Total Current Liabilities
    
    
    42,415,457
    
    
    
    33,158,150LONG-TERM LIABILITIESLong-term debt, net (Note 17)
    
    
    19,258,386
    
    
    
    Derivative warrant instrument (Note 17)
    
    
    777,011
    
    
    
    Total Liabilities
    
    
    62,450,854
    
    
    
    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)
    
    
    25,943,860
    
    
    
    19,046,379Accumulated deficit
    
    
    (11,897,090
    )
    
    
    (1,878,678
    )Total Stockholders Equity
    
    
    14,064,694
    
    
    
    17,184,580TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    76,515,548
    
    
    $
    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
    
    
    2004(As restated,see Note 2)Commissions on credit card cash advances, ATMs
and check cashing services
    
    $
    96,038,632
    
    
    $
    63,165,958
    
    
    $
    48,411,008Operating expensesCommissions
    
    
    53,212,678
    
    
    
    31,520,324
    
    
    
    23,227,573Processing costs
    
    
    18,108,006
    
    
    
    14,292,699
    
    
    
    8,536,613Check cashing costs
    
    
    4,679,523
    
    
    
    4,913,081
    
    
    
    2,843,857Armored carrier services
    
    
    795,034
    
    
    
    536,121
    
    
    
    458,554Payroll, benefits and related taxes
    
    
    11,180,077
    
    
    
    8,751,192
    
    
    
    5,103,017Professional fees
    
    
    2,105,741
    
    
    
    2,430,129
    
    
    
    732,893Other general and administrative expenses
    
    
    7,246,414
    
    
    
    5,198,925
    
    
    
    2,947,897Depreciation and amortization
    
    
    2,989,067
    
    
    
    1,259,337
    
    
    
    762,987Total operating expenses
    
    
    100,316,540
    
    
    
    68,901,808
    
    
    
    44,613,391Income (Loss) from operations
    
    
    (4,277,908
    )
    
    
    (5,735,850
    )
    
    
    3,797,617Other income (expense)Interest expense
    
    
    (3,548,747
    )
    
    
    (636,937
    )
    
    
    (269,050
    )Interest and other income
    
    
    96,057
    
    
    
    250,113
    
    
    
    20,683Total other income (expense)
    
    
    (3,452,690
    )
    
    
    (386,824
    )
    
    
    (248,367
    )Income (loss) before income taxes
    
    
    (7,730,598
    )
    
    
    (6,122,674
    )
    
    
    3,549,250Provision for (benefit from) income taxes
    
    
    2,287,814
    
    
    
    (2,357,200
    )
    
    
    1,365,832Net income (loss)
    
    $
    (10,018,412
    )
    
    $
    (3,765,474
    )
    
    $
    2,183,418Net income (loss) per common share:Basic
    
    $
    (0.57
    )
    
    $
    (0.23
    )
    
    $
    0.14Diluted
    
    $
    (0.57
    )
    
    $
    (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
    
    
    
    EarningsPaid-in
    
    Deferred
    
    (AccumulatedCommon Stock
    
    Capital
    
    Consulting
    
    Deficit)Shares
    
    Amount
    

(As restated, see Note 2)
    
    Services
    

(As restated, see Note 2)
    

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
    
    
    
    
    
    
    
    
    
    
    
    472,950Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,018,412
    )
    
    
    (10,018,412
    )Balance
 December 31, 2006  Restated
    
    
    17,923,913
    
    
    $
    17,924
    
    
    $
    25,943,860
    
    
    
    
    
    
    $
    (11,897,090
    )
    
    $
    14,064,694
  F-5




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##### Table of Contents



CASH SYSTEMS, INC. AND SUBSIDIARIES
 
   2006
    
    2005
    
    2004(As restated, see Note 2)Cash flows from operating activities:Net income
(loss)
    
    
    (10,018,412
    )
    
    
    (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
    
    
    
    
    
    
    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
    
    
    
    Settlements due from credit card processors
    
    
    (5,529,490
    )
    
    
    638,396
    
    
    
    (8,321,813
    )Settlements due from ATM processors
    
    
    (7,651,760
    )
    
    
    (4,492,620
    )
    
    
    Other current assets
    
    
    (2,086,891
    )
    
    
    (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
    )
    
    
    
    
    
    
    (27,267
    )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
    
    
    11,481,265
    
    
    
    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
    
    
    
    Proceeds from long-term debt, net of debt issuance costs
    
    
    18,210,465
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (713,035
    )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




---



##### 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
 Restatement of Consolidated Financial Statements
     As of December 31, 2006As Reported
    
    
    Adjustment
    
    
    As restatedTotal Current Assets
    
    
    58,718,650
    
    
    
    (2,707,063
    )
    
    
    56,011,587Property and Equipment, net
    
    
    7,407,903
    
    
    
    
    
    
    
    7,407,903Total Other Assets
    
    
    13,096,058
    
    
    
    
    
    
    
    13,096,058Total Assets
    
    
    79,222,611
    
    
    
    (2,707,063
    )
    
    
    76,515,548Total Current Liabilities
    
    
    46,907,077
    
    
    
    (4,491,620
    )
    
    
    42,415,457Long-term debt, net
    
    
    19,258,386
    
    
    
    
    
    
    
    19,258,386Derivative warrant instrument
    
    
    777,011
    
    
    
    
    
    
    
    777,011Total Liabilities
    
    
    66,942,474
    
    
    
    (4,491,620
    )
    
    
    62,450,854Common stock
    
    
    17,924
    
    
    
    
    
    
    
    17,924Additional paid-in capital
    
    
    26,029,119
    
    
    
    (85,259
    )
    
    
    25,943,860Accumulated deficit
    
    
    (13,766,906
    )
    
    
    1,869,816
    
    
    
    (11,897,090
    )Total Stockholders Equity
    
    
    12,280,137
    
    
    
    1,784,557
    
    
    
    14,064,694Total Liabilities and
Stockholders Equity
    
    
    79,222,611
    
    
    
    (2,707,063
    )
    
    
    76,515,548
 For the year ended December 31, 2006As Reported
    
    
    Adjustment
    
    
    As restatedCommissions on credit card cash
advances, ATMs and check cashing services
    
    
    96,038,632
    
    
    
    
    
    
    
    96,038,632Total operating expenses
    
    
    102,101,097
    
    
    
    (1,784,557
    )
    
    
    100,316,540Income (Loss) from operations
    
    
    (6,062,465
    )
    
    
    1,784,557
    
    
    
    (4,277,908
    )Total other income (expense)
    
    
    (3,452,690
    )
    
    
    
    
    
    
    (3,452,690
    )Income (loss) before income taxes
    
    
    (9,515,155
    )
    
    
    1,784,557
    
    
    
    (7,730,598
    )Provision for (benefit from) income taxes
    
    
    2,373,073
    
    
    
    (85,259
    )
    
    
    2,287,814Net income (loss)
    
    
    (11,888,228
    )
    
    
    1,869,816
    
    
    
    (10,018,412
    )Net income (loss) per common share:Basic
    
    
    (0.68
    )
    
    
    0.11
    
    
    
    (0.57
    )Diluted
    
    
    (0.68
    )
    
    
    0.11
    
    
    
    (0.57
    )Weighted average common shares outstanding:Basic
    
    
    17,577,650
    
    
    
    
    
    
    
    17,577,650Diluted
    
    
    17,577,650
    
    
    
    
    
    
    
    17,577,650
 For
the year ended December 31, 2006As Reported
    
    
    Adjustment
    
    
    As restatedCash flows provided from (used in) operating activities
    
    
    (4,853,759
    )
    
    
    
    
    
    
    (4,853,759
    )Cash flows used in investing activities
    
    
    (14,692,128
    )
    
    
    
    
    
    
    (14,692,128
    )Cash flows provided from financing activities
    
    
    18,671,621
    
    
    
    
    
    
    
    18,671,621Increase/(Decrease) in cash
    
    
    (874,266
    )
    
    
    
    
    
    
    (874,266
    )Cash, beginning of year
    
    
    25,754,499
    
    
    
    
    
    
    
    25,754,499Cash, end of year
    
    
    24,880,233
    
    
    
    
    
    
    
    24,880,233
 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(Restated)(In 000s except per share amounts)Net Income (Loss)
    
    $
    (10,018
    )
    
    $
    (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
    
    $
    (0.57
    )
    
    $
    (0.23
    )
    
    $
    0.14Net income (loss) per diluted share
    
    $
    (0.57
    )
    
    $
    (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 shareamounts)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
    
    
    2005(Restated)Receivable 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 $1,719,799 and $49,000, respectively
    
    
    294,826
    
    
    
    814,412Total other current assets
    
    $
    5,093,771
    
    
    $
    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
    
    
    2005(Restated)Accrued payroll and related items
    
    $
    611,688
    
    
    $
    658,591Accrued interest
    
    
    544,041
    
    
    
    212,874Amounts due casinos
    
    
    3,251,046
    
    
    
    380,000Amounts due for ATM processing
    
    
    8,409,320
    
    
    
    Other
    
    
    86,733
    
    
    
    21,600Total other accrued expenses
    
    $
    12,902,828
    
    
    $
    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
    Weighted
    
    
    AggregateNumber of
    
    
    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 OutstandingWeighted
    
    
    
    
    
    
    Options ExercisableAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Price
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    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
  WeightedNumber of
    
    
    AverageWarrants
    
    
    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
    
    $
    
  Number
    
    Remaining Contractual LifeExercise Price
    
    Outstanding
    
    Years$1.50
    
    
    25,625
    
    
    
    0.55$8.00
    
    
    312,500
    
    
    
    4.78
  Restricted Stock Awards
  F-17




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##### 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
    
    
    2004(Restated)Current: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
    
    
    
    
    
    
    394,000
    
    
    
    906,000$
    2,287,814
    
    
    $
    (2,357,200
    )
    
    $
    1,365,832
   2006
    
    
    2005
    
    
    2004(Restated)Deferred income tax assets:Net operating loss and credit carryforwards
    
    $
    5,215,000
    
    
    $
    3,144,000
    
    
    $
    131,000Stock-based compensation
    
    
    271,000
    
    
    
    
    
    
    
    122,000Stock option acceleration
    
    
    68,000
    
    
    
    100,000
    
    
    
    Other
    
    
    1,036,000
    
    
    
    154,000
    
    
    
    83,0006,590,000
    
    
    
    3,398,000
    
    
    
    336,000Deferred income tax liabilities:Depreciation and amortization
    
    
    (1,152,000
    )
    
    
    (1,067,000
    )
    
    
    (797,000
    )Other
    
    
    
    
    
    
    (25,000
    )
    
    
    5,438,000
    
    
    
    2,306,000
    
    
    
    (461,000
    )Less: Valuation allowance
    
    
    (5,438,000
    )
    
    
    
    
    
    
    Net deferred income tax assets
    
    $
    
    
    
    $
    2,306,000
    
    
    $
    (461,000
    )
   2006
    
    2005
    
    2004(Restated)Federal 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
    
    
    (2.2
    )%
    
    
    
    
    
    
    Change in valuation allowance
    
    
    70.3
    %
    
    
    
    
    
    
    Effective tax rate
    
    
    29.6
    %
    
    
    (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
    
    2004(Restated)Commissions on credit
card cash advances, ATMs and
check cashing services
    
    $
    99,126,859
    
    
    $
    80,103,077
    
    
    $
    61,613,669Net loss
    
    $
    (10,062,397
    )
    
    $
    (4,978,678
    )
    
    $
    1,452,367Net loss per common share:Basic
    
    $
    (0.57
    )
    
    $
    (0.30
    )
    
    $
    0.10Diluted
    
    $
    (0.57
    )
    
    $
    (0.30
    )
    
    $
    0.09
 17. Senior Convertible Secured Notes
      F-19




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##### 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 31(Restated)Commission on cash advance
and automated teller machines
    
    $
    20,479,125
    
    
    $
    24,146,610
    
    
    $
    25,966,850
    
    
    $
    25,446,047Income (loss) from operations
    
    $
    (1,455,912
    )
    
    $
    (438,118
    )
    
    $
    (3,624,728
    )
    
    $
    1,240,850Net loss
    
    $
    (1,219,515
    )
    
    $
    (804,142
    )
    
    $
    (2,786,847
    )
    
    $
    (5,207,908
    )Net loss per common share  Basic
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    (0.16
    )
    
    $
    (0.29
    )Net loss per common share  Diluted
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    (0.16
    )
    
    $
    (0.29
    )
 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