##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2005oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934For 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. Employer
    Identification Number)7350 Dean Martin Drive,
    Suite 309
    Las Vegas, NV

89139(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:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, $0.001 Par Value
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE:




---



##### 



CASH
    SYSTEMS, INC.
    ANNUAL REPORT ON
    FORM 10-K
    FOR YEAR ENDED DECEMBER 31, 2005
    TABLE OF CONTENTS
  PagePART IItem 1:

Business


3Item 1A:

Risk Factors


8Item 1B:

Unresolved Staff
    Comments


16Item 2:

Properties


16Item 3:

Legal
    Proceedings


16Item 4:

Submission of
    Matters to a Vote of Security Holders


16PART IIItem 5:

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


17Item 6:

Selected Financial
    Data


18Item 7:

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


19Item 7A:

Quantitative and
    Qualitative Disclosures About Market Risk


26Item 8:

Financial
    Statements and Supplementary Data


26Item 9:

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


26Item 9A:

Controls and
    Procedures


26Item 9B:

Other
    Information


29PART IIIItem 10:

Directors and
    Executive Officers of the Registrant


30Item 11:

Executive
    Compensation


30Item 12:

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


30Item 13:

Certain
    Relationships and Related Transactions


30Item 14:

Principal
    Accountant Fees and Services


30PART IVItem 15:

Exhibits and
    Financial Statement Schedules


30Signatures


34Exhibit IndexExhibit 10.4Exhibit 21Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2   2




---



##### Table of Contents



PART I  ITEM 1.
    BUSINESS  General
            Industry
    and Products
    Credit
    Card Cash Advances and POS Debit Card Transactions
  point-of-sale
  his/her his/her he/she
 3




---



##### Table of Contents



ATM
    Cash Withdrawals
    Check
    Cashing Solutions
    The
    Casino Gaming Market
         4




---



##### Table of Contents



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.     5




---



##### Table of Contents



Financial
    Services Regulation
  Anti-Money Laundering
      Fund Transfers
  Privacy Regulations
 6




---



##### Table of Contents



ATM Operations
  Check Cashing
  Network and Card Association Regulation
  Competition
  and/or
    Proprietary
    Rights
    Dependence
    on Major Customers
   7




---



##### Table of Contents



Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
 Item 1A.  RISK
    FACTORS  Form 10-K.
  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.     8




---



##### Table of Contents



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.
   9




---



##### Table of Contents



We are
    not in compliance with certain financial performance covenants
    under our line of credit with Bank of America, N.A. and do
    expect to be in compliance with the covenants as of
    March 31, 2006.
    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.
     10




---



##### Table of Contents



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.
      We may
    not realize all of the expected benefits, and we may incur
    additional costs related to, our acquisition of Indian Gaming
    Services.
    Changes
    in interchange rates may affect our costs of
    revenues.
   11




---



##### Table of Contents



We are
    subject to extensive rules and regulations of MasterCard
    International and Visa U.S.A., which may harm our
    business.
  and/or
      We are
    subject to regulatory and political risk associated with the
    majority of our customers being Native American, Sovereign
    Nations, which may harm our business.
  make-up
 12




---



##### 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.
      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.
     13




---



##### 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, which may
    harm our business.
   14




---



##### Table of Contents



Many
    of the financial services that we provide are subject to
    extensive rules and regulations, which may harm our
    business.
     15




---



##### Table of Contents



Being
    a public company may strain our resources, divert
    managements attention and affect our ability to attract
    and retain qualified directors.
    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


5,300     Item 3.
    LEGAL
    PROCEEDINGS    Item.
    4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   16




---



##### Table of Contents



PART II  Item 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Dividends
    Market
    Information
      Price Range2005


2004Quarter Ended

High


Low


High


LowMarch 31

$
9.47


$
6.75


$
8.20


$
5.55June 30


8.28



6.20



6.80



4.95September 30


9.25



6.10



6.51



5.27December 31


8.77



5.81



9.14



6.75   Holders
    Recent
    Sales of Unregistered Securities
     17




---



##### Table of Contents



Equity
    Compensation Plans
    Number of SecuritiesRemaining Availablefor Future IssuanceNumber of Securities to


Weighted Average


Under Equitybe Issued Upon Exercise


Exercise Price of


Compensation Plansof Outstanding Options,


Outstanding Options,


(Excluding SecuritiesWarrants and Rights


Warrants and Rights


Reflected in Column(a))(a)


(b)


(c)Equity compensation plans approved
    by security holders


2,105,500


$
6.02



394,500Equity compensation plans not
    approved by security holders


82,500


$
1.50



TOTAL


2,188,000


$
5.85



394,500   Purchase
    of Equity Securities
    Item 6.
    SELECTED
    FINANCIAL DATA    Year Ended
    December 312005


2004


2003


2002


2001(In thousands, except per share
    amounts)Statement of Operations Data:Commissions Revenue

$
63,166


$
48,411


$
32,728


$
15,347


$
8,101Total Operating Expenses


68,901



44,613



30,386



15,862



8,375Income (Loss) from Operations


(5,735
)


3,798



2,342



(515
)


(274
)Total Other Income (Expense)


(387
)


(248
)


(545
)


(456
)


(502
)Income (Loss) before Income Taxes


(6,122
)


3,549



1,797



(971
)


(776
)Provision for (Benefit from)
    Income Taxes


(2,357
)


1,366



142







Net Income (Loss)


(3,765
)


2,183



1,655



(971
)


(776
)Net Income (Loss) per Common
    Share  Basic


(0.23
)


0.14



0.13



(0.08
)


(0.07
)Net Income (Loss) per Common
    Share  Diluted


(0.23
)


0.14



0.12



(0.08
)


(0.07
)Weighted Average Common Shares
    outstanding  Basic


16,606



15,073



12,741



12,070



10,538Weighted Average Common Shares
    outstanding  Diluted


16,606



16,131



13,501



12,070



10,538   18




---



##### Table of Contents



As of December 312005


2004


2003


2002


2001(Dollars in thousands)Balance Sheet Data (at end of
    period):Current assets

$
43,990


$
27,367


$
5,393


$
1,178


$
238Current liabilities


33,158



12,077



4,544



2,437



2,064Working capital


10,832



15,290



849



(1,259
)


(1,826
)Current ratio


1.3 to 1



2.3 to 1



1.2 to 1



0.5 to 1



0.1 to 1Total assets


51,435



31,615



7,702



3,148



1,922Long-term liabilities


1,092



797



436



19



55Stockholders equity


17,185



18,741



2,723



692



(198
)   Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion is intended to help the reader
    understand our results of operations and financial condition and
    is provided as a supplement to, and should be read in
    conjunction with, our financial statements, the accompanying
    notes to the financial statements, and the other information
    included or incorporated by reference herein.
  Overview
    Credit
    Card Cash Advances and POS Debit Card Transactions
  point-of-sale
  his/her his/her he/she
 19




---



##### Table of Contents



ATM
    Cash Withdrawals
    Check
    Cashing Solutions
           20




---



##### Table of Contents



Results
    of Operations
  year-to-year
  Year-to-Year
    % ChangePercentage of Revenues


Increase (Decrease)2005


2004


2003


05 vs. 04


04 vs. 03Commissions Revenue


100.0
%


100.0
%


100.0
%


30.5
%


47.9
%Total Operating Expenses


109.1
%


92.2
%


92.8
%


54.4
%


46.8
%Income (loss) from Operations


(9.1
)%


7.8
%


7.2
%


(251.0
)%


62.2
%Total Other Income (Expense)


(0.6
)%


(0.5
)%


(1.7
)%


55.8
%


(54.5
)%Income (Loss) before Income Taxes


(9.7
)%


7.3
%


5.5
%


(272.5
)%


97.6
%Provision for (Benefit from)
    Income Taxes


(3.7
)%


2.8
%


0.4
%


(272.5
)%


862.0
%Net income (Loss)


(6.0
)%


4.5
%


5.1
%


(272.5
)%


32.0
%   2005
    Compared With 2004
           21




---



##### Table of Contents



2004
    Compared With 2003
        Liquidity
    and Capital Resources
         22




---



##### Table of Contents



Contractual
    Obligations and Commitments
    Payments
    Due by Period
  Less Than








More ThanTotal


1 Year


1-3 Years


3-5 Years


5 YearsOperating Leases

$
452,275


$
126,575


$
270,953


$
54,747


$
Line of Credit

$
5,200,000


$
5,200,000


$



$



$
Total

$
5,652,275


$
5,326,575


$
270,953


$
54,747


$
               Off
    Balance Sheet Arrangements
   23




---



##### Table of Contents



Critical
    Accounting Policies
            No. 99-19,
    Recently
    Issued Accounting Pronouncements
  Share-Based Payments
 24




---



##### Table of Contents



Forward-Looking
    Statements
  Form 10-K,
  Form 10-K.
 25




---



##### Table of Contents



Item 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS  Market
    Risks
    Interest
    Rate Risk
      Item 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K page F-1
  Item 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURES    Item 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
  Rule 13a-15(b) Rule 13a-15(e)
  Form 10-K
 26




---



##### Table of Contents



Internal
    Control Over Financial Reporting
  Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f)
    Rule 13a-15(c) Internal Control  Integrated
    Framework
        
    During testing it was noted that monthly and quarterly
    reconciliations were not performed on a timely basis and in some
    instances did not have adequate backup support.
    During testing it was noted that monthly entries were posted
    after the related period financial close checklist had been
    signed by the Controller.
    During testing it was noted that we did not have consistent
    procedures in place for reviewing and approving journal entries
    prior to posting or in an acceptable period of time after
    posting. 27




---



##### Table of Contents




    During testing it was noted that our financial close checklist
    utilized by the Controller was not being used in a timely manner
    to ensure that all transactions are recorded and the general
    ledger is final for reporting purposes.  Remediation
    Plan
      
    As of January 2006, we have resolved certain accounting system
    issues.
    We are in the process of evaluating the accounting personnel
    responsible for financial reporting and control as well as the
    consultants hired to implement these procedures.
    Management plans to have our independent registered public
    accounting firm, perform an engagement to determine if our
    material weakness continues to exist in 2006.      Report of
    Independent Registered Public Accounting Firm
          28




---



##### Table of Contents



Changes
    in Internal Control
   29




---



##### Table of Contents



Item 9B.
    OTHER
    INFORMATION   PART III  Item 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT    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    Item 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  Item 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial
    Statements. page F-1 Form 10-K.
  Financial Statement Schedules.
 30




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
    SUPPLEMENTARY INFORMATION
      page F-2.
      31




---



##### 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, 2005, 2004 AND 2003
  Balance at


Costs and





Balance atDescription

Beginning of Year


Expenses


Deductions


Year EndALLOWANCE DEDUCTED FROM ASSET TO
    WHICH IT APPLIESReserve on other receivables





$
49,336







2005


$
49,336











2004















2003



Reserve on credit card chargebacks
    payable





$
64,332







2005


$
64,332











2004















2003



Reserve on holdback reserve from
    Credit Card Processors





$
195,000







2005


$
195,000











2004















2003



   (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

Executive Employment Agreement
    dated January 1, 2005 between Cash Systems, Inc. and Craig
    Potts(4)10
.3

Executive Employment Agreement
    dated June 6, 2005 between Cash Systems, Inc. and John
    Glaser(5)10
.4

Executive Employment Agreement
    dated October 18, 2005 between Cash Systems, Inc. and
    Christopher D. Larson10
.5

2001 Stock Option Plan, as
    amended(6)10
.6

Form of Incentive Stock Option
    Agreement under the 2001 Stock Option Plan(6)10
.7

Form of Nonqualified Stock Option
    Agreement under the 2001 Stock Option Plan(5)10
.8

2005 Equity Incentive Plan(7)10
.9

Form of Incentive Stock Option
    Agreement under the 2005 Equity Incentive Plan(5)10
.10

Form of Nonqualified Stock Option
    Agreement under the 2005 Equity Incentive Plan(5)10
.11

Common Stock Purchase Agreement
    dated November 17, 2005 between Cash Systems, Inc. and The
    Viejas Band of Kumeyaay Indians(1) 32




---



##### Table of Contents



ExhibitNumber

Description10
.12

Registration Rights Agreement
    dated November 17, 2005 between Cash Systems, Inc. and The
    Viejas Band of Kumeyaay Indians(1)10
.13

Credit Agreement dated
    November 10, 2005 between Cash Systems, Inc. and Bank of
    America, N.A.(8)10
.14

Security Agreement dated
    November 10, 2005 between Cash Systems, Inc. and Bank of
    America, N.A.(8)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     (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.  Exhibits. Form 10-K.
  Additional Financial Statements.
 33




---



##### Table of Contents



SIGNATURES              (Power of
    Attorney)
  attorneys-in-fact Form 10-K attorneys-in-fact attorneys-in-fact
                              34




---



##### Table of Contents



35




---



##### 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, 2005 and 2004

F-3Consolidated
    Statements of Operations for the Years Ended December 31,
    2005, 2004 and 2003

F-4Consolidated
    Statements of Stockholders Equity for the Years Ended
    December 31, 2005, 2004 and 2003

F-5Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2005, 2004 and 2003

F-6Notes to
    Consolidated Financial Statements

F-7  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                F-2




---



##### Table of Contents



CASH
    SYSTEMS, INC. AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS
    December 31, 2005 and 2004  2005


2004ASSETSCURRENT ASSETSCash and cash equivalents

$
30,247,119


$
13,043,874Related parties receivable






183,560Current portion of prepaid
    commissions


501,343



348,601Current portion of loans receivable


874,133



1,849,420Other receivables






645,006Deferred income taxes


1,677,000



336,000Settlements due from credit card
    processors


7,683,417



8,321,813Other current assets


3,006,880



2,638,759Total Current Assets


43,989,892



27,367,033PROPERTY AND EQUIPMENT, NET


5,258,980



3,373,170OTHER ASSETSDeferred income taxes


1,721,000



Long-term prepaid commissions, net
    of current portion


341,019



523,827Long-term loans receivable, net of
    current portion


47,941



350,835Other


75,898



Total Other Assets


2,185,858



874,662TOTAL ASSETS

$
51,434,730


$
31,614,865LIABILITIES AND
    STOCKHOLDERS EQUITYCURRENT LIABILITIESChecks issued in excess of cash in
    bank

$
21,768,860


$
9,763,338Line of
    credit  bank


5,200,000



Accounts
    payable  trade


2,541,396



436,322Credit card cash advance fees
    payable


859,063



655,036ATM commissions payable


1,184,498



629,328Credit card chargebacks payable,
    net of reserve of $64,332 and $0


226,184



80,000Check cashing commissions payable


105,084



102,801Due to related party






211,846Other accrued expenses


1,273,065



197,869Total Current Liabilities


33,158,150



12,076,540LONG-TERM LIABILITIESDeferred income taxes


1,092,000



797,000Total Liabilities


34,250,150



12,873,540STOCKHOLDERS EQUITYCommon stock, par value of $0.001,
    50,000,000 shares authorized, 16,879,738 and
    16,173,445 shares issued and outstanding


16,879



16,173Additional paid-in capital


19,046,379



16,838,356Retained earnings (accumulated
    deficit)


(1,878,678
)


1,886,796Total Stockholders Equity


17,184,580



18,741,325TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY

$
51,434,730


$
31,614,865    F-3




---



##### Table of Contents



CASH
    SYSTEMS, INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF OPERATIONS

For the
    Years Ended December 31, 2005, 2004 and 2003  2005


2004


2003Amount


%


Amount


%


Amount


%Commissions on credit card cash
    advances, ATMs and check cashing services

$
63,165,958



100.0
%

$
48,411,008



100.0
%

$
32,728,186



100.0
%Operating expensesCommissions


31,520,324



49.9
%


23,227,573



48.0
%


16,208,769



49.5
%Processing costs


14,292,699



22.7
%


8,536,613



17.6
%


6,334,685



19.3
%Check cashing costs


4,913,081



7.8
%


2,843,857



5.9
%


1,169,372



3.6
%Armored carrier services


536,121



0.8
%


458,554



1.0
%


447,090



1.4
%Payroll, benefits and related taxes


8,562,842



13.6
%


5,103,017



10.5
%


2,986,705



9.1
%Professional fees


2,430,129



3.8
%


732,893



1.5
%


516,880



1.6
%Compensation expense related to
    warrants and options


260,350



0.4
%


91,377



0.2
%


185,105



0.6
%Other general and administrative
    expenses


5,126,925



8.1
%


2,856,520



5.9
%


1,968,225



6.0
%Depreciation and amortization


1,259,337



2.0
%


762,987



1.6
%


569,658



1.7
%Total operating expenses


68,901,808



109.1
%


44,613,391



92.2
%


30,386,489



92.8
%Income (loss) from operations


(5,735,850
)


(9.1
)%


3,797,617



7.8
%


2,341,697



7.2
%Other income (expense)Interest expense


(636,937
)


(1.0
)%


(269,050
)


(0.5
)%


(411,812
)


(1.3
)%Amortization of original issue
    discount






0.0
%






0.0
%


(133,843
)


(0.4
)%Interest and other income


250,113



0.4
%


20,683



0.0
%


617



0.0
%Total other income (expense)


(386,824
)


(0.6
)%


(248,367
)


(0.5
)%


(545,038
)


(1.7
)%Income (loss) before income taxes


(6,122,674
)


(9.7
)%


3,549,250



7.3
%


1,796,659



5.5
%Provision for (benefit from)
    income taxes


(2,357,200
)


(3.7
)%


1,365,832



2.8
%


142,000



0.4
%Net income (loss)

$
(3,765,474
)


(6.0
)%

$
2,183,418



4.5
%

$
1,654,659



5.1
%Net income (loss) per common share:Basic

$
(0.23
)





$
0.14






$
0.13Diluted

$
(0.23
)





$
0.14






$
0.12Weighted average common shares
    outstanding:Basic


16,606,335







15,072,768







12,740,653Diluted


16,606,335







16,131,136







13,500,976    F-4




---



##### Table of Contents



CASH
    SYSTEMS, INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY

For the
    Years Ended December 31, 2005, 2004 and 2003  RetainedAdditional


Deferred


EarningsCommon Stock


Paid-in


Consulting


(AccumulatedShares


Amount


Capital


Services


Deficit)


TotalBalance  December 31,
    2002


12,600,195


$
12,600


$
2,750,478


$
(119,742
)

$
(1,951,281
)

$
692,055Conversion of notes payable into
    common stock


52,060



52



108,881











108,933Deferred consulting services
    related to stock options issued to non-employee










272,722



(272,722
)






Cashless exercise of stock warrants


182,980



183



(183
)










Issuance of common stock, net of
    cash expenses of $33,036


57,500



58



81,906











81,964Deferred compensation expense














185,105







185,105Net Income


















1,654,659



1,654,659Balance  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
)

$
17,184,580    F-5




---



##### Table of Contents



CASH
    SYSTEMS, INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENT OF CASH FLOW

For the
    Years Ended December 31, 2005, 2004 and 2003  2005


2004


2003Cash flows from operating
    activities:Net income (loss)

$
(3,765,474
)

$
2,183,418


$
1,654,659Adjustments to reconcile net income
    (loss) to cash flows from operating activities:Depreciation and amortization


1,259,337



762,987



523,430Compensation expense related to
    warrants and options


260,350



91,377



185,105Tax benefit associated with
    employee stock option exercises


393,950



906,000



Amortization of original issue
    discount










133,843Amortization of debt issuance costs


5,031







46,228Deferred income taxes


(2,767,000
)


406,000



55,000Interest receivable on loans
    receivable


(18,137
)


(16,294
)


Changes in operating assets and
    liabilities:Related parties receivable


183,560



(158,560
)


(25,000
)Prepaid commissions


(152,742
)


13,399



(307,833
)Other receivables


645,006



(27,267
)


(101,156
)Settlements due from credit card
    processors


638,396



(8,321,813
)


Other current assets


(368,121
)


(1,596,586
)


(1,017,204
)Long-term prepaid commission


182,808



(523,827
)


Long-term receivable






453,295



(282,402
)Accounts
    payable  trade


2,105,074



(1,298,331
)


1,472,579Credit card cash advance fees
    payable


204,027



(88,387
)


102,989ATM commissions payable


555,170



297,384



27,252Credit card chargebacks payable


146,184



(23,957
)


(261,253
)Check cashing commissions payable


2,283



11,655



91,146Due to related party


(211,846
)


211,846



Other accrued expenses


1,075,196



(23,488
)


130,976Cash flows provided from (used in)
    operating activities


373,052



(6,741,149
)


2,428,359Cash flows from investing
    activities:Purchases of property and equipment


(3,145,147
)


(2,280,366
)


(1,167,484
)Loans receivable, net


1,296,318



(2,183,961
)


Patent acquisition costs


(20,560
)






Cash flows used in investing
    activities


(1,869,389
)


(4,464,327
)


(1,167,484
)Cash flows from financing
    activities:Checks issued in excess of cash in
    bank


12,005,522



9,077,220



686,118Proceeds from line of
    credit  bank


5,200,000







Debt issuance costs


(60,369
)






Payments on long-term debt






(713,035
)


(484,535
)Issuance of common stock, net of
    expenses






11,239,968



99,999Exercise of stock options


1,363,529



1,387,200



Exercise of warrants


190,900



222,250



Proceeds from long-term debt and
    common stock warrants










490,000Net payments on notes
    payable  officers










(101,646
)Payments on capital lease
    obligations










(9,311
)Cash flows provided from financing
    activities


18,699,582



21,213,603



680,625Increase in cash and cash
    equivalents


17,203,245



10,008,127



1,941,500Cash and cash equivalents,
    beginning of year


13,043,874



3,035,747



1,094,247Cash and cash equivalents, end
    of year

$
30,247,119


$
13,043,874


$
3,035,747SUPPLEMENTAL CASH FLOWS
    INFORMATION:Cash paid for financing costs and
    interest expense, net of amortization of original issue discount

$
518,920


$
263,071


$
403,210Cash received from income taxes


609,322



1,003,769



NONCASH INVESTING AND FINANCING
    ACTIVITIES:Reclassification of other current
    assets to proceeds from issuance of common stock

$



$
11,604


$
18,035Note receivable issued in
    connection with sale of ATMs






242,000



Conversion of notes payable into
    common stock










108,933    F-6




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
    2005, 2004 and 2003
  1.
    Nature of
    Business    2.
    Summary
    of Significant Accounting Policies  Accounting
    Principles
    Principles
    of Consolidation
    Use of
    Estimates
    Cash
    Concentrations
    Cash
    and Cash Equivalents
    Software
    Development Costs
  (SOP 98-1), SOP 98-1,
 F-7




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Debt
    Issuance Costs
    Stock
    Issuance Costs
    Loans
    Receivable
    Prepaid
    Commissions
    Patents
    Revenue
    Recognition
     F-8




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         No. 99-19,
    Income
    Taxes
    Property
    and Equipment
      Comprehensive
    Income
  available-for-sale
 F-9




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Fair
    Value of Financial Instruments
    Short-term
    Assets and Liabilities:
    Recent
    Accounting Pronouncements
  FIN No. 46R
    SFAS No. 123R
  Share-Based Payments
  SFAS No. 154
    Segment
    Reporting
   F-10




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reclassifications
    Stock-Based
    Compensation
      Years Ended
    December 31,2005


2004


2003(In 000s except income (loss)
    per share amounts)Reported net income (loss)

$
(3,765
)

$
2,183


$
1,655Reported stock-based compensation,
    net of tax


156







Pro forma stock-based
    compensation, net of tax


(4,539
)


(1,648
)


(479
)Pro forma net income (loss)

$
(8,304
)

$
535


$
1,176Net income (loss) per share:Basic  as reported

$
(0.23
)

$
.14


$
0.13Basic  pro forma

$
(0.50
)

$
.04


$
0.09Diluted  as
    reported

$
(0.23
)

$
.14


$
0.12Diluted  pro forma

$
(0.50
)

$
.04


$
0.09      F-11




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Net
    Income (loss) per Common Share
      Years Ended
    December 31,2005


2004


2003(In 000s except per share
    amounts)Net Income (Loss)

$
(3,765
)

$
2,183


$
1,655Weighted average common shares
    outstanding


16,606



15,073



12,741Effect of dilutive securities






1,058



760Weighted average common and
    dilutive shares outstanding


16,606



16,131



13,501Net income (loss) per basic share

$
(0.23
)

$
0.14


$
0.13Net income (loss) per diluted share

$
(0.23
)

$
0.14


$
0.12     Advertising
    Expenses
    3.
    Funding
    Arrangement  Fidelity
    Bank Agreement
   F-12




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Site
    Funded ATMs
    4.
    Other
    Current Assets    2005


2004Receivable from casinos

$
819,593


$
521,048Income taxes receivable


260,714



862,937Prepaid expenses


224,801



161,636Receivable for check guarantees


301,535



695,229Holdback reserve from credit card
    processor, net of reserve of $195,000 and $0


585,825



255,778Other receivables, net of reserve
    of approximately $49,000 and $0


814,412



142,131Total other current assets

$
3,006,880


$
2,638,759   Receivable
    from casinos
    Receivable
    for check guarantees
    Holdback
    reserve from credit card processor
     F-13




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   5.  Settlements
    due from credit card processors
    6.
    Property
    and Equipment    2005


2004Furniture and equipment

$
5,244,619


$
3,320,399Vehicles


65,169



65,169Computer software


3,328,657



2,256,144Leasehold improvements


148,375



Less: Accumulated depreciation and
    amortization


(3,527,840
)


(2,268,542
)Total property and equipment, net

$
5,258,980


$
3,373,170     Long-Lived
    Assets
    7.
    Loans
    Receivable     F-14




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                  2006

$
874,1332007


47,941Total

$
922,074   8.
    Checks
    Issued in Excess of Cash in Bank   F-15




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    9.
    Line of
    Credit  Bank      10.
    Related
    Party Transactions       F-16




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   11.
    Commitments
    and Contingencies  Operating
    Leases
  month-to-month
    2006

$
126,5752007


88,2282008


90,0122009


92,7122010


54,747Total

$
452,274   Casino
    Contracts
    Legal
    Proceedings
     F-17




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Letter
    of Credit
    12.
    Income
    Taxes    2005


2004


2003Current:Federal

$



$
33,832


$
20,000State


15,800



20,000



67,000Deferred


(2,767,000
)


406,000



55,000Tax benefit of stock option
    exercises, credited to additional paid-in capital


394,000



906,000



$
2,357,200


$
1,365,832


$
142,000       2005


2004Deferred income tax assets:Net operating loss and credit
    carryforwards

$
3,144,000


$
131,000Stock option acceleration


100,000



Stock options issued for services






122,000Other


154,000



83,0003,398,000



336,000Deferred income tax liabilities:Depreciation and amortization


(1,067,000
)


(797,000
)Other


(25,000
)


Net deferred income taxes

$
2,306,000


$
(461,000
)     2005


2004


2003Federal statutory tax rate


34.0
%


34.0
%


34.0
%State taxes, net of federal benefit


4.5
%


4.5
%


6.5
%Permanent differences and other










(2.7
)%Change in valuation allowance










(29.9
)%Effective tax rate


38.5
%


38.5
%


7.9
%  F-18




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   13.
    Common
    Stock          Form S-3
                Stock
    Options
   F-19




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Number of


Weighted AverageOptions


Exercise PriceBalance at December 31, 2002


415,000


$
1.28Granted


1,083,500


$
3.05Options exercised






Expirations and cancellations






Balance 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


$
6.02Weighted average fair value of
    options granted during fiscal year 2005

$
4.25Weighted average fair value of
    options granted during fiscal year 2004

$
5.20Weighted average fair value of
    options granted during fiscal year 2003

$
2.73At 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


742,250At December 31, 2003:Options vested and exercisable


833,250


$
1.62Shares available for options


25,500    F-20




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Options Outstanding


Options ExercisableWeighted AverageNumber


Remaining


Weighted Average





Weighted AverageExercise Price

Outstanding


Contractual Life


Exercise Price


Number Exercisable


Exercise Price$1.25 to $1.88


156,000



6.33


$
1.68



156,000


$
1.68$2.00 to $2.60


30,000



7.33


$
2.58



30,000


$
2.58$4.00 to $5.55


554,500



8.05


$
4.96



554,500


$
4.96$6.00 to $8.05


1,365,000



9.33


$
7.02



1,365,000


$
7.02$1.25 to $8.05


2,105,500



8.74


$
6.02



2,105,500


$
6.02   Stock
    Warrants
    Weighted AverageNumber of Warrants


Exercise PriceBalance at December 31, 2002


805,504


$
1.63Granted


63,200


$
2.45Converted to stock under cashless
    transaction


(371,084
)

$
1.79Warrants exercised






Balance 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


$
1.50Weighted average fair value of
    warrants granted during fiscal year 2005 and 2004


Weighted average fair value of
    warrants granted during fiscal year 2003

$
1.27     Exercise Price

Number Outstanding


Remaining Contractual Life
    Years$1.50


82,500



1.20     14.
    Subsequent
    Events   F-21




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          15.
    Selected
    Quarterly Data (unaudited)  Quarters
    during the Year Ended December 31, 2005
  March 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, 2004
  March 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-22




---



##### Table of Contents



CASH
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Quarters
    during the Year Ended December 31, 2003
  March 31


June 30


September 30


December 31Commission on cash advance and
    automated teller machines

$
7,001,425


$
7,872,149


$
9,075,784


$
8,778,828Income from operations

$
629,645


$
562,144


$
564,537


$
585,371Net income

$
482,326


$
415,029


$
426,841


$
330,463Net income per common 
    share  Basic

$
0.04


$
0.03


$
0.03


$
0.03Net income per common 
    share  Diluted

$
0.04


$
0.03


$
0.03


$
0.02  F-23