##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File No. 1-31955
 CASH SYSTEMS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State of incorporation)
    
    87-0398535(I.R.S. Employer
Identification Number)7350 Dean Martin Drive, Suite 309
Las Vegas, NV(Address of principal executive offices)
    
    89139(Zip code)
 Registrants telephone number, including area code
(702) 987-7169
Securities registered pursuant to Section 12(b) of the Act:
 Title of Each 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
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



CASH SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 2007
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
    
    
    21PART IIIItem 10: Directors, Executive Officers, and Corporate Governance
    
    
    21Item 11: Executive Compensation
    
    
    21Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    21Item 13: Certain Relationships and Related Transactions, and Director Independence
    
    
    21Item 14: Principal Accountant Fees and Services
    
    
    21PART IVItem 15: Exhibits and Financial Statement Schedules
    
    
    21Signatures
    
    
    25Exhibit IndexEXHIBIT 21EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 21EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



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




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##### Table of Contents



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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##### Table of Contents



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




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##### Table of Contents



Proprietary Rights
  Dependence on Major Customers
  Major Customers 2007
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    25
    %Chickasaw Nation
    
    
    10
    %Total
    
    
    35
    %
 Major Customers 2006
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    27
    %
 Major Customers 2005
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    29
    %Ho-Chunk Nation
    
    
    10
    %Total
    
    
    39
    %
   Employees
   Available Information
  
 Item 1A. RISK FACTORS
  Risks Related to Our Business
 We have operating losses in consecutive years
  The report of our independent registered public accounting firm includes a going concern
uncertainty explanatory paragraph and we will need additional funding to support our operations
during 2008
  Our senior secured convertible notes contain financial and other restrictive covenants that limit
our ability to raise financing and 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.
  Our common stock may be delisted from The NASDAQ Global Market, which could negatively impact the
price of our common stock and would constitute an event of default under our senior secured
convertible notes.
  Our pursuit of strategic alternatives may lead to uncertainty or may not be successful.
  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.
   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.
  Major Customers 2007
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    25
    %Chickasaw Nation
    
    
    10
    %Total
    
    
    35
    %
 Major Customers 2006
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    27
    %
 Major Customers 2005
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    29
    %Ho-Chunk Nation
    
    
    10
    %Total
    
    
    39
    %
  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 unexpected increase in returned checks could adversely affect our check cashing business.
  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.
   Effective internal and disclosure controls are necessary for us to provide reliable financial
reports and effectively prevent fraud and to operate successfully as a public company. If we cannot
provide reliable financial reports or prevent fraud, our reputation and operating results would be
harmed.
  9




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##### Table of Contents



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




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




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##### Table of Contents



Item 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 Item 2.
    
    PROPERTIES
  BuildingSquareLocation
    
    Use
    
    FeetLas Vegas, Nevada
    
    Administrative, sales, finance and IT offices
    
    
    8,300Burnsville, Minnesota
    
    Call center, technical support and warehousing
    
    
    8,717San 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 Range2007
    
    2006Quarter Ended
    
    High
    
    Low
    
    High
    
    LowMarch 31
    
    $
    6.96
    
    
    $
    5.03
    
    
    $
    9.00
    
    
    $
    6.21June 30
    
    
    6.81
    
    
    
    5.50
    
    
    
    7.90
    
    
    
    6.30September 30
    
    
    7.38
    
    
    
    5.32
    
    
    
    7.63
    
    
    
    5.91December 31
    
    
    6.37
    
    
    
    4.06
    
    
    
    7.29
    
    
    
    5.85
 Holders
  Dividends
  12




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##### Table of Contents



Stock Performance Graph
  Total Return To Shareholders
(Includes reinvestment of dividends)
 ANNUAL RETURN PERCENTAGEYears EndingCompany / Index
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06
    
    12/31/07Cash Systems, Inc.
    
    
    258.50
    
    
    
    27.48
    
    
    
    -4.05
    
    
    
    -16.88
    
    
    
    -39.37S&P SmallCap 600 Index
    
    
    38.79
    
    
    
    22.65
    
    
    
    7.68
    
    
    
    15.12
    
    
    
    -0.30Nasdaq U.S. Index
    
    
    50.36
    
    
    
    8.41
    
    
    
    2.20
    
    
    
    10.27
    
    
    
    9.92Dow Jones U.S. Gambling Index
    
    
    54.64
    
    
    
    33.09
    
    
    
    1.44
    
    
    
    45.71
    
    
    
    14.80
 Base
    
    INDEXED RETURNSPeriod
    
    Years EndingCompany / Index
    
    12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06
    
    12/31/07Cash Systems, Inc.
    
    
    100
    
    
    
    358.50
    
    
    
    457.00
    
    
    
    438.50
    
    
    
    364.50
    
    
    
    221.00S&P SmallCap 600 Index
    
    
    100
    
    
    
    138.79
    
    
    
    170.22
    
    
    
    183.30
    
    
    
    211.01
    
    
    
    210.38Nasdaq U.S. Index
    
    
    100
    
    
    
    150.36
    
    
    
    163.00
    
    
    
    166.58
    
    
    
    183.68
    
    
    
    201.91Dow Jones U.S. Gambling Index
    
    
    100
    
    
    
    154.64
    
    
    
    205.81
    
    
    
    208.77
    
    
    
    304.21
    
    
    
    349.24
 
 Issuer Repurchases of Equity Securities
  13




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##### Table of Contents



Recent Sales of Unregistered Securities
  
 Item 6. SELECTED FINANCIAL DATA
  2007
    
    2006
    
    2005
    
    2004
    
    2003Statement of Operations Data:Commissions Revenue
    
    
    104,857
    
    
    
    95,737
    
    
    
    63,166
    
    
    
    48,411
    
    
    
    32,728Total Operating Expenses
    
    
    110,698
    
    
    
    100,015
    
    
    
    68,902
    
    
    
    44,613
    
    
    
    30,386Income (Loss) from Operations
    
    
    (5,841
    )
    
    
    (4,278
    )
    
    
    (5,736
    )
    
    
    3,798
    
    
    
    2,342Total Other Income (Expense)
    
    
    (9,542
    )
    
    
    (3,453
    )
    
    
    (387
    )
    
    
    (248
    )
    
    
    (545
    )Income (Loss) before Income Taxes
    
    
    (15,383
    )
    
    
    (7,731
    )
    
    
    (6,123
    )
    
    
    3,549
    
    
    
    1,797Provision for (Benefit from) Income Taxes
    
    
    
    
    
    
    2,288
    
    
    
    (2,357
    )
    
    
    1,366
    
    
    
    142Net Income (Loss)
    
    
    (15,383
    )
    
    
    (10,018
    )
    
    
    (3,765
    )
    
    
    2,183
    
    
    
    1,655Net Income (Loss) per Common Share  Basic
    
    
    (0.84
    )
    
    
    (0.57
    )
    
    
    (0.23
    )
    
    
    0.14
    
    
    
    0.13Net Income (Loss) per Common Share  Diluted
    
    
    (0.84
    )
    
    
    (0.57
    )
    
    
    (0.23
    )
    
    
    0.14
    
    
    
    0.12Weighted Average Common Shares outstanding
 Basic
    
    
    18,353
    
    
    
    17,578
    
    
    
    16,606
    
    
    
    15,073
    
    
    
    12,741Weighted Average Common Shares outstanding
 Diluted
    
    
    18,353
    
    
    
    17,578
    
    
    
    16,606
    
    
    
    16,131
    
    
    
    13,501
 2007
    
    2006
    
    2005
    
    2004
    
    2003Balance Sheet Data (at end of period):Current assets
    
    
    52,251
    
    
    
    55,923
    
    
    
    43,990
    
    
    
    27,367
    
    
    
    5,393Current liabilities
    
    
    56,702
    
    
    
    42,415
    
    
    
    33,158
    
    
    
    12,077
    
    
    
    4,544Working capital (deficit)
    
    
    (4,451
    )
    
    
    13,508
    
    
    
    10,832
    
    
    
    15,290
    
    
    
    849Current ratio
    
    
    0.9 to 1
    
    
    
    1.3 to 1
    
    
    
    1.3 to 1
    
    
    
    2.3 to 1
    
    
    
    1.2 to 1Total assets
    
    
    68,876
    
    
    
    76,516
    
    
    
    51,435
    
    
    
    31,615
    
    
    
    7,702Long-term liabilities
    
    
    9,900
    
    
    
    20,035
    
    
    
    1,092
    
    
    
    797
    
    
    
    436Stockholders equity
    
    
    2,274
    
    
    
    14,065
    
    
    
    17,185
    
    
    
    18,741
    
    
    
    2,723
 
 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 Agreement and Powercash Product
     Internal Transaction Processing
   Recent Developments
 Second Amended and Restated Notes and Warrants
      Going Concern
  Strategic Alternatives
  15




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##### Table of Contents



Results of Operations
  Percentage of Revenues
    
    Year-to-Year % Change2007
    
    2006
    
    2005
    
    07 vs. 06
    
    06 vs. 05Commissions Revenue
    
    
    100
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    9.5
    %
    
    
    51.6
    %Total Operating Expenses
    
    
    105.6
    %
    
    
    104.5
    %
    
    
    109.1
    %
    
    
    10.7
    %
    
    
    45.2
    %Loss from Operations
    
    
    -5.6
    %
    
    
    -4.5
    %
    
    
    -9.1
    %
    
    
    36.5
    %
    
    
    25.4
    %Total Other Income (Expense)
    
    
    -9.1
    %
    
    
    -3.5
    %
    
    
    -0.6
    %
    
    
    176.4
    %
    
    
    792.6
    %Loss before Income Taxes
    
    
    -14.7
    %
    
    
    -8.0
    %
    
    
    -9.7
    %
    
    
    99.0
    %
    
    
    26.3
    %Provision for Income Taxes
    
    
    0.0
    %
    
    
    2.4
    %
    
    
    -3.7
    %
    
    
    100.0
    %
    
    
    197.1
    %Net Loss
    
    
    -14.7
    %
    
    
    -10.4
    %
    
    
    -6.0
    %
    
    
    -53.5
    %
    
    
    -166.1
    %
 2007 Compared With 2006
       2006 Compared With 2005
           16




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Liquidity and Capital Resources
    Going Concern
  Contractual Obligations and Commitments
  Payments Due by Period
 Less Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsOperating Leases
    
    $
    470,907
    
    
    $
    211,113
    
    
    $
    259,794
    
    
    $
    
    
    
    $
    Amended and Restated Notes
    
    $
    24,200,000
    
    
    $
    12,100,000
    
    
    $
    12,100,000
    
    
    $
    
    
    
    $
    Amended and Restated
Notes Interest
    
    $
    6,819,337
    
    
    $
    1,782,090
    
    
    $
    5,037,247
    
    
    $
    
    
    
    $
    Total
    
    $
    31,490,244
    
    
    $
    14,093,203
    
    
    $
    17,397,041
    
    
    $
    
    
    
    $
    
  17




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##### Table of Contents



Letter of Credit
  Off Balance Sheet Arrangements
  Critical Accounting Policies
  Accounting Changes and Error
Corrections
       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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##### Table of Contents



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
 Evaluation of disclosure controls and procedures
   Managements report on internal control over financial reporting
   Internal Control  Integrated Framework
   
    
    Inadequate reserve on receivable from collection agency as a result of improper
treatment, oversight and adherence to the contract resulting in an overstatement of other
current assets and understatement of check cashing costs of $1.6 million.
    
    Improper recording of commissions revenue and commissions expense at gross rather than
net as a result of review and adherence to accounting treatment of the contract resulting
in an overstatement of revenues and an overstatement of commissions expense of $1.7
million.
    
    Failure of controls related to review and proper accounting treatment of other contracts
and debt agreements of $8 million resulting in an understatement of current liabilities and
overstatement of long-term debt.
 Remediation Plan
   
    
    The Company changed its method for estimating reserves for
uncollectible accounts relating to the receivable from collection
agency. We adopted a more conservative policy whereby the Company
increased its reserve for uncollectible accounts to 74% for current
receivables and 95% for receivables greater than 180 days old. The
Company will continue to monitor and adjust its reserve for
uncollectible accounts based on historical data and current market
conditions as well as work with its collection agency to continue to
refine data and enhance contract related procedures.
    
    Although the Companys internal controls detected the improper
recording of commissions revenue and commissions expense and the
quarterly effect of the adjustment was deemed immaterial through
internal investigation and analysis, the Companys internal controls
did not detect the error on a timely basis. Accordingly, the Company
has taken measures to re-train its accounting personnel, restrict
revenue recording responsibilities, and augment existing quarterly
analytic controls.
    
    Although failure of controls related to commission contracts were
found to be immaterial and the Company believes that the debt
reclassification finding would have been detected by normal year end
review procedures, the Companys internal controls require remediation
in this area. Accordingly, the Company has held meetings and trained
personnel as appropriate to establish procedures for and heighten
overall awareness on contract and debt agreement related matters.
  20




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##### Table of Contents



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.
 21




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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, 2007, 2006, and 2005
 Balance atBeginning of
    
    Costs and
    
    
    
    
    
    
    
    
    
    Balance atDescription
    
    Year
    
    Expenses
    
    Deductions
    
    
    
    
    
    Year EndALLOWANCE DEDUCTED FROM ASSET TO
WHICH IT APPLIESReserve on other receivables
    
    
    1,719,800
    
    
    
    
    
    
    
    1,248,871
    
    
    
    2007
    
    
    
    470,92949,336
    
    
    
    1,670,464
    
    
    
    
    
    
    
    2006
    
    
    
    1,719,800
    
    
    
    49,336
    
    
    
    
    
    
    
    2005
    
    
    
    49,336Reserve on credit card
chargebacks payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2007
    
    
    
    64,332
    
    
    
    
    
    
    
    64,322
    
    
    
    2006
    
    
    
    
    
    
    
    64,332
    
    
    
    
    
    
    
    2005
    
    
    
    64,332Reserve on holdback reserve from
Credit Card Processors
    
    
    780,825
    
    
    
    
    
    
    
    780,825
    
    
    
    2007
    
    
    
    195,000
    
    
    
    585,825
    
    
    
    
    
    
    
    2006
    
    
    
    780,825
    
    
    
    195,000
    
    
    
    
    
    
    
    2005
    
    
    
    195,000Reserve on receivable from
collection agency and check
guarantees
    
    
    820,212
    
    
    
    5,314,193
    
    
    
    
    
    
    
    2007
    
    
    
    6,134,405
    
    
    
    820,212
    
    
    
    
    
    
    
    2006
    
    
    
    820,212
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    Reserve on receivable for casinos
    
    
    
    
    
    
    374,888
    
    
    
    
    
    
    
    2007
    
    
    
    374,888
    
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    
 (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 7, 2007 between Cash Systems, Inc. and Michael D. Rumbolz(16)10.4
    
    Executive Employment Agreement dated March 23, 2006 between Cash Systems, Inc. and Andrew Cashin (11)10.5
    
    Executive Employment Agreement dated June 6, 2005 between Cash Systems, Inc. and John Glaser (5)10.6
    
    2001 Stock Option Plan, as amended (6)10.7
    
    Form of Incentive Stock Option Agreement under the 2001 Stock Option Plan (6)10.8
    
    Form of Nonqualified Stock Option Agreement under the 2001 Stock Option Plan (5)10.9
    
    2005 Equity Incentive Plan (7)10.10
    
    Form of Incentive Stock Option Agreement under the 2005 Equity Incentive Plan (5)10.11
    
    Form of Nonqualified Stock Option Agreement under the 2005 Equity Incentive Plan (5)10.12
    
    Form of Restricted Stock Agreement under the 2005 Equity Incentive Plan (9)10.13
    
    Common Stock Purchase Agreement dated November 17, 2005 between Cash Systems, Inc. and The Viejas Band of
Kumeyaay Indians (1)10.14
    
    Registration Rights Agreement dated November 17, 2005 between Cash Systems, Inc. and The Viejas Band of
Kumeyaay Indians (1)10.15
    
    Securities Purchase Agreement dated as of October 6, 2006, by and between Cash Systems, Inc. and the
buyers named therein (10)10.16
    
    Form of Security Agreement (10)10.17
    
    Form of Senior Secured Convertible Note (10)10.18
    
    Form of Warrant (10)10.19
    
    Amendment and Exchange Agreement dated August 20, 2007 between Cash Systems, Inc. and Portside Growth and
Opportunity Fund (14)10.20
    
    Amendment and Exchange Agreement dated August 20, 2007 between Cash Systems, Inc. and Highline Capital
Partners, LP (14)10.21
    
    Amendment and Exchange Agreement dated August 20, 2007 between Cash Systems, Inc. and Highline Capital
Partners QP, LP (14)10.22
    
    Amendment and Exchange Agreement dated August 20, 2007 between Cash Systems, Inc. and Highline Capital
International, Ltd. (14)10.23
    
    Amendment and Exchange Agreement dated August 20, 2007 between Cash Systems, Inc. and Highbridge
International LLC (14)10.24
    
    Form of Amended and Restated Senior Secured Convertible Note (14)10.25
    
    Form of Amended and Restated Warrant to Purchase Common Stock (14)10.26
    
    Waiver dated August 9, 2007 between Cash Systems, Inc. and Portside Growth and Opportunity Fund. (15)10.27
    
    Waiver dated August 9, 2007 between Cash Systems, Inc. and Highbridge International LLC. (15)10.28
    
    Waiver dated August 9, 2007 between Cash Systems, Inc. and Highline Capital Partners, LP. (15)10.29
    
    Waiver dated August 9, 2007 between Cash Systems, Inc. and Highline Capital Partners QP, LP. (15)10.30
    
    Waiver dated August 9, 2007 between Cash Systems, Inc. and Highline Capital International, Ltd. (15)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
 23




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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 Quarterly Report on
Form 10-Q for the quarter ended March 31, 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.(13)
    
    Previously filed as an exhibit to the Companys Annual Report on Form
10-K, filed March 16, 2006 and incorporated herein by this reference.(14)
    
    Previously filed as an exhibit to the Companys Current Report on
Form 8-K, filed August 21, 2007 and incorporated herein by this
reference.(15)
    
    Previously filed as an exhibit to the Companys Current Report on
Form 8-K, filed August 9, 2007 and incorporated herein by this
reference.(16)
    
    Previously filed as an exhibit to the Companys Current Report on
Form 8-K, filed March 7, 2007, and incorporated herein by this
reference. (b)
    
    Exhibits.Reference is made to the Exhibit
Index and exhibits filed as a part of this
Annual Report on Form 10-K.(c)
    
    Additional Financial Statements.Not
applicable.
 24




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##### Table of Contents



SIGNATURES
  CASH SYSTEMS, INC.DATE: April 1, 2008
    /s/ Michael D. RumbolzMichael D. RumbolzChief Executive Officer  DATE: April 1, 2008
    /s/ Michael D. RumbolzMichael D. RumbolzChief Executive Officer and Director
(Principal executive officer) DATE: April 1, 2008
    /s/ Andrew CashinAndrew CashinChief Financial Officer
(Principal financial and accounting officer) DATE: April 1, 2008
    /s/ Patrick R. CruzenPatrick R. CruzenDirector DATE: April 1, 2008
    /s/ Patricia W. BeckerPatricia W. BeckerDirector DATE: April 1, 2008
    /s/ Donald D. SnyderDonald D. SnyderDirector 25




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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, 2007 and 2006
    
    F-3Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005
    
    F-4Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2007, 2006 and 2005
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
 F-1




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##### Table of Contents




    
    Inadequate reserve on receivable from collection agency as a result of improper
treatment, oversight and adherence to the contract resulting in an overstatement
of other current assets and understatement of check cashing costs of $1.6 million.
    
    Improper recording of commissions revenue and commissions expense at gross
rather than net as a result of review and adherence to accounting treatment of the
contract resulting in an overstatement of revenues and an overstatement of
commissions expense of $1.7 million.
    
    Failure of controls related to review and proper accounting treatment of other
contracts and debt agreements of $8 million resulting in an understatement of
current liabilities and overstatement of long-term debt.
    /S/ Virchow, Krause & Company, LLP 
 F-2




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##### Table of Contents



CASH SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
 December 31,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETSCash (Note 3)
    
    $
    16,617,643
    
    
    $
    24,792,098Restricted cash (Note 9)
    
    
    625,059
    
    
    
    Current portion of prepaid commissions (Note 2)
    
    
    394,096
    
    
    
    285,019Current portion of loans receivable (Note 2, 8)
    
    
    331,005
    
    
    
    395,277Settlements due from credit card processors (Note 5)
    
    
    14,779,241
    
    
    
    13,212,907Settlements due from ATM processors (Note 5)
    
    
    12,094,482
    
    
    
    12,144,380Other current assets (Note 4)
    
    
    7,409,494
    
    
    
    5,093,771Total Current Assets
    
    
    52,251,020
    
    
    
    55,923,452PROPERTY AND EQUIPMENT, NET (Note 2, 6)
    
    
    7,087,436
    
    
    
    7,407,903OTHER ASSETSGoodwill (Note 7)
    
    
    4,077,700
    
    
    
    4,077,700Intangible assets, net (Note 7)
    
    
    4,289,024
    
    
    
    6,060,448Long-term prepaid commissions, net of current portion (Note 2)
    
    
    385,876
    
    
    
    640,722Long-term loans receivable, net of current portion (Note 2, 8)
    
    
    265,504
    
    
    
    86,564Restricted cash (Note 9)
    
    
    211,317
    
    
    
    438,135Other
    
    
    308,061
    
    
    
    1,880,624Total Other Assets
    
    
    9,537,482
    
    
    
    13,184,193TOTAL ASSETS
    
    $
    68,875,938
    
    
    $
    76,515,548LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESChecks issued in excess of cash in bank (Note 10)
    
    $
    15,205,390
    
    
    $
    21,235,168Short-term debt, net (Note 16)
    
    
    12,100,000
    
    
    
    Accounts payable  trade
    
    
    1,754,781
    
    
    
    4,059,972Credit card cash advance fees payable
    
    
    1,667,462
    
    
    
    1,812,283ATM commissions payable
    
    
    2,028,940
    
    
    
    1,946,749Credit card chargebacks payable
    
    
    326,563
    
    
    
    102,403Check cashing commissions payable
    
    
    223,785
    
    
    
    356,054Other accrued expenses (Note 11)
    
    
    23,395,403
    
    
    
    12,902,828Total Current Liabilities
    
    
    56,702,324
    
    
    
    42,415,457LONG-TERM LIABILITIESLong-term debt, net (Note 15)
    
    
    9,900,000
    
    
    
    19,258,386Derivative warrant instrument (Note 15)
    
    
    
    
    
    
    777,011Total Liabilities
    
    
    66,602,324
    
    
    
    62,450,854STOCKHOLDERS EQUITYCommon stock, par value of $0.001, 50,000,000
shares authorized, 18,776,913 and 17,991,413 shares issued,
18,446,163 and 17,923,913 shares outstanding (Note 13)
    
    
    18,447
    
    
    
    17,924Additional paid-in capital (Note 13)
    
    
    29,535,292
    
    
    
    25,943,860Accumulated deficit
    
    
    (27,280,125
    )
    
    
    (11,897,090
    )Total Stockholders Equity
    
    
    2,273,614
    
    
    
    14,064,694TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    68,875,938
    
    
    $
    76,515,548
  F-3




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##### Table of Contents



CASH SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2007, 2006 and 2005
 Years EndedDecember 31,2007
    
    
    2006
    
    
    2005Commissions on credit card cash advances, ATMs and check cashing services
    
    $
    104,857,398
    
    
    $
    95,736,615
    
    
    $
    63,165,958Operating expensesCommissions
    
    
    59,989,237
    
    
    
    52,910,661
    
    
    
    31,520,324Processing costs
    
    
    18,186,612
    
    
    
    18,108,006
    
    
    
    14,292,699Check cashing costs
    
    
    6,626,288
    
    
    
    4,060,656
    
    
    
    4,870,436Armored carrier services
    
    
    1,104,755
    
    
    
    795,034
    
    
    
    536,121Payroll, benefits and related taxes
    
    
    11,954,436
    
    
    
    11,180,077
    
    
    
    8,751,192Professional fees
    
    
    1,240,366
    
    
    
    2,105,741
    
    
    
    2,430,129Other general and administrative expenses
    
    
    8,026,580
    
    
    
    7,865,281
    
    
    
    5,241,570Depreciation and amortization
    
    
    3,570,137
    
    
    
    2,989,067
    
    
    
    1,259,337Total operating expenses
    
    
    110,698,411
    
    
    
    100,014,523
    
    
    
    68,901,808Loss from operations
    
    
    (5,841,013
    )
    
    
    (4,277,908
    )
    
    
    (5,735,850
    )Other income (expense)Interest expense
    
    
    (5,283,039
    )
    
    
    (3,548,747
    )
    
    
    (636,937
    )Loss on extinguishment of debt
    
    
    (4,338,087
    )
    
    
    
    
    
    
    Interest and other income
    
    
    79,104
    
    
    
    96,057
    
    
    
    250,113Total other income (expense)
    
    
    (9,542,022
    )
    
    
    (3,452,690
    )
    
    
    (386,824
    )Loss before income taxes
    
    
    (15,383,035
    )
    
    
    (7,730,598
    )
    
    
    (6,122,674
    )Benefit from income taxes
    
    
    
    
    
    
    2,287,814
    
    
    
    (2,357,200
    )Net Loss
    
    $
    (15,383,035
    )
    
    $
    (10,018,412
    )
    
    $
    (3,765,474
    )Net Loss per common share:Basic
    
    $
    (0.84
    )
    
    $
    (0.57
    )
    
    $
    (0.23
    )Diluted
    
    $
    (0.84
    )
    
    $
    (0.57
    )
    
    $
    (0.23
    )Weighted average common shares outstanding:Basic
    
    
    18,352,603
    
    
    
    17,577,650
    
    
    
    16,606,335Diluted
    
    
    18,352,603
    
    
    
    17,577,650
    
    
    
    16,606,335
  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, 2007, 2006 and 2005
 RetainedAdditional
    
    
    EarningsCommon Stock
    
    
    Paid-in
    
    
    (AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit)
    
    
    TotalBalance  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
    
    
    17,923,913
    
    
    $
    17,924
    
    
    $
    25,943,860
    
    
    $
    (11,897,090
    )
    
    $
    14,064,694Derivative liability reclass to APIC
    
    
    
    
    
    
    
    
    
    
    656,879
    
    
    
    
    
    
    
    656,879Value of additional warrants
(modification) included in debt
extinguishment
    
    
    
    
    
    
    
    
    
    
    314,724
    
    
    
    
    
    
    
    314,724Compensation expense of restricted
stock awards
    
    
    
    
    
    
    
    
    
    
    490,572
    
    
    
    
    
    
    
    490,572Exercise of stock options for cash
    
    
    496,000
    
    
    
    496
    
    
    
    1,765,484
    
    
    
    
    
    
    
    1,765,980Compensation expense associated
with option grants
    
    
    
    
    
    
    
    
    
    
    363,800
    
    
    
    
    
    
    
    363,800Vested par value of restricted stock
    
    
    26,250
    
    
    
    27
    
    
    
    (27
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,383,035
    )
    
    
    (15,383,035
    )Balance  December 31, 2007
    
    
    18,446,163
    
    
    $
    18,447
    
    
    $
    29,535,292
    
    
    $
    (27,280,125
    )
    
    $
    2,273,614
  F-5




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##### Table of Contents



CASH SYSTEMS, INC. AND SUBSIDIARIES
 Years EndedDecember 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (15,383,035
    )
    
    $
    (10,018,412
    )
    
    $
    (3,765,474
    )Adjustments to reconcile net loss to cash flows from
operating activities:Depreciation and amortization
    
    
    3,570,137
    
    
    
    2,989,067
    
    
    
    1,259,337Share-based compensation expense
    
    
    854,372
    
    
    
    703,678
    
    
    
    260,350Tax benefit associated with employee stock option exercises
    
    
    
    
    
    
    
    
    
    
    393,950Loss on extinguishment of debt
    
    
    4,338,087
    
    
    
    
    
    
    
    Amortization of debt issuance costs and original issue discount
    
    
    318,035
    
    
    
    171,264
    
    
    
    5,031Deferred income taxes
    
    
    
    
    
    
    2,306,000
    
    
    
    (2,767,000
    )Change in interest receivable on loans receivable
    
    
    
    
    
    
    25,281
    
    
    
    (18,137
    )Impairment of intangible asset
    
    
    449,444
    
    
    
    
    
    
    
    Change in reserve related to receivable from collection agency
    
    
    5,314,193
    
    
    
    820,212
    
    
    
    Changes in operating assets and liabilities:Related parties receivable
    
    
    
    
    
    
    
    
    
    
    183,560Prepaid commissions
    
    
    (109,077
    )
    
    
    216,324
    
    
    
    (152,742
    )Other receivables
    
    
    
    
    
    
    
    
    
    
    645,006Settlements due from credit card processors
    
    
    (1,566,334
    )
    
    
    (5,529,490
    )
    
    
    638,396Settlements due from ATM processors
    
    
    49,898
    
    
    
    (7,651,760
    )
    
    
    (4,492,620
    )Other current assets
    
    
    (7,629,916
    )
    
    
    (2,907,103
    )
    
    
    (368,121
    )Long-term prepaid commission
    
    
    254,846
    
    
    
    (299,703
    )
    
    
    182,808Restricted cash
    
    
    (398,241
    )
    
    
    (438,135
    )
    
    
    Other assets
    
    
    (23,096
    )
    
    
    (171,618
    )
    
    
    Accounts payable  trade
    
    
    (2,305,191
    )
    
    
    1,518,576
    
    
    
    2,105,074Credit card cash advance fees payable
    
    
    (144,821
    )
    
    
    953,220
    
    
    
    204,027ATM commissions payable
    
    
    82,191
    
    
    
    762,251
    
    
    
    555,170Credit card chargebacks payable
    
    
    224,160
    
    
    
    (123,781
    )
    
    
    146,184Check cashing commissions payable
    
    
    (132,269
    )
    
    
    250,970
    
    
    
    2,283Due to related party
    
    
    
    
    
    
    
    
    
    
    (211,846
    )Other accrued expenses
    
    
    10,492,575
    
    
    
    11,481,265
    
    
    
    1,075,196Cash flows used in operating activities
    
    
    (1,744,042
    )
    
    
    (4,941,894
    )
    
    
    (4,119,568
    )Cash flows from investing activities:Purchase of certain assets of Indian Gaming Services
    
    
    
    
    
    
    (12,369,202
    )
    
    
    Purchases of property and equipment
    
    
    (1,927,690
    )
    
    
    (2,737,878
    )
    
    
    (3,145,147
    )Proceeds (advances) from loans receivable, net
    
    
    (114,668
    )
    
    
    414,952
    
    
    
    1,296,318Patent acquisition costs
    
    
    
    
    
    
    
    
    
    
    (20,560
    )Cash flows used in investing activities
    
    
    (2,042,358
    )
    
    
    (14,692,128
    )
    
    
    (1,869,389
    )Cash flows from financing activities:Checks issued in excess of cash in bank
    
    
    (6,029,778
    )
    
    
    (533,692
    )
    
    
    12,005,522Line of credit  bank, net
    
    
    
    
    
    
    (5,200,000
    )
    
    
    5,139,631Payment of debt issuance costs
    
    
    (124,257
    )
    
    
    (1,789,535
    )
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    20,000,000
    
    
    
    Issuance of common stock, net of expenses
    
    
    
    
    
    
    4,470,160
    
    
    
    Exercise of stock options
    
    
    1,765,980
    
    
    
    1,701,250
    
    
    
    1,363,529Exercise of stock warrants
    
    
    
    
    
    
    23,438
    
    
    
    190,900Cash flows provided from (used in) financing activities
    
    
    (4,388,055
    )
    
    
    18,671,621
    
    
    
    18,699,582Increase (Decrease) in cash
    
    
    (8,174,455
    )
    
    
    (962,401
    )
    
    
    12,710,625Cash, beginning of year
    
    
    24,792,098
    
    
    
    25,754,499
    
    
    
    13,043,874Cash, end of year
    
    $
    16,617,643
    
    
    $
    24,792,098
    
    
    $
    25,754,499SUPPLEMENTAL CASH FLOWS INFORMATION:Cash paid for financing costs and interest expense, net of
amortization of original issue discount and debt issuance costs
    
    $
    4,787,004
    
    
    $
    2,985,128
    
    
    $
    518,920Cash received from income taxes
    
    $
    72,927
    
    
    $
    287,452
    
    
    $
    609,322NONCASH INVESTING AND FINANCING ACTIVITIES:Reclassification of warrant derivative liability to additional paid
in capital (Note 13)
    
    $
    777,011
    
    
    
    
    
    
    
    Derivative warrant instrument
    
    
    
    
    
    $
    777,011
    
    
    
    
  F-6




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##### Table of Contents



CASH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
 1. Nature of Business
  2. Summary of Significant Accounting Policies
 Accounting Principles
  Principles of Consolidation
  Use of Estimates
  Change in Accounting Estimate
 Accounting Changes and Error
Corrections
  Years Ended December 31,2007(Prior to change)
    
    Change
    
    2007(In 000s except per share amounts)Loss from operations
    
    $
    (2,669
    )
    
    $
    (3,172
    )
    
    $
    (5,841
    )Net loss
    
    
    (12,211
    )
    
    
    (3,172
    )
    
    
    (15,383
    )Weighted average common
and dilutive shares
outstanding
    
    
    18,353
    
    
    
    18,353
    
    
    
    18,353Net loss per basic share
    
    $
    (0.67
    )
    
    $
    (0.17
    )
    
    $
    (0.84
    )Net loss per diluted share
    
    $
    (0.67
    )
    
    $
    (0.17
    )
    
    $
    (0.84
    )
 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
       F-9




---



##### Table of Contents



Net Loss per Common Share
   Years Ended December 31,2007
    
    2006
    
    2005(In 000s except per share amounts)Net loss
    
    $
    (15,383
    )
    
    $
    (10,018
    )
    
    $
    (3,765
    )Weighted average common shares outstanding
    
    
    18,353
    
    
    
    17,578
    
    
    
    16,606Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    Weighted average common and dilutive shares outstanding
    
    
    18,353
    
    
    
    17,578
    
    
    
    16,606Net loss per basic share
    
    $
    (0.84
    )
    
    $
    (0.57
    )
    
    $
    (0.23
    )Net loss per diluted share
    
    $
    (0.84
    )
    
    $
    (0.57
    )
    
    $
    (0.23
    )
  Stock-Based Compensation
       F-10




---



##### Table of Contents



Pro Forma Information under SFAS 123 for Periods Prior to Fiscal 2006
  Year Ended December 31,2005(In 000s except loss per shareamounts)Reported net loss
    
    $
    (3,765
    )Reported stock-based compensation, net of tax
    
    
    156Pro forma stock-based compensation, net of tax
    
    
    (4,539
    )Pro forma net loss
    
    $
    (8,304
    )Net loss per share:Basic  as reported
    
    $
    (0.23
    )Basic  pro forma
    
    $
    (0.50
    )Diluted  as reported
    
    $
    (0.23
    )Diluted  pro forma
    
    $
    (0.50
    )
  F-11




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##### Table of Contents



Advertising Expenses
  Liquidity and Capital Resources
    Going Concern
  3. Funding Arrangement
 Vault Cash Agreements
     Site Funded ATMs
  4. Other Current Assets
  2007
    
    
    2006Receivable from casinos, net of reserve of $374,888 and $0, respectively
    
    $
    2,652,348
    
    
    $
    515,060Receivable from bank
    
    
    543,449
    
    
    
    2,357,363Income taxes receivable
    
    
    12,830
    
    
    
    65,497Prepaid expenses
    
    
    545,552
    
    
    
    464,194Receivable from collection agency, net of reserve of $6,134,405 and
$820,212, respectively
    
    
    3,113,202
    
    
    
    1,396,831Other receivables, net of reserve of $470,929 and $1,719,799, respectively
    
    
    542,113
    
    
    
    294,826Total other current assets
    
    $
    7,409,494
    
    
    $
    5,093,771
 Receivable from casinos
  Receivable from bank
  F-12




---



##### Table of Contents



Receivable from collection agency
   Other receivables
  5. Settlements due from processors
 Settlements due from credit card processors
  Settlements due from ATM processors
  6. Property and Equipment
  2007
    
    
    2006Furniture and equipment
    
    $
    9,575,057
    
    
    $
    9,808,926Vehicles
    
    
    106,113
    
    
    
    106,113Computer software
    
    
    4,850,284
    
    
    
    2,696,620Leasehold improvements
    
    
    185,253
    
    
    
    178,754Less: Accumulated depreciation and amortization
    
    
    (7,629,271
    )
    
    
    (5,382,510
    )Total property and equipment, net
    
    $
    7,087,436
    
    
    $
    7,407,903
  Long-Lived Assets
  7. Goodwill and Intangible Assets
     As of December 31, 2007EstimatedCarrying
    
    
    Accumulated
    
    
    
    
    
    
    UsefulAmount
    
    
    Amortization
    
    
    Net
    
    
    LivesPatents
    
    $
    20,560
    
    
    $
    8,224
    
    
    $
    12,336
    
    
    5 yearsCustomer relationships (relates to IGS)
    
    
    7,110,000
    
    
    
    2,856,645
    
    
    
    4,253,355
    
    
    1 1/2 to 7 1/2 yearsEmployment and non-compete agreements
(relates to IGS)
    
    
    60,000
    
    
    
    36,667
    
    
    
    23,333
    
    
    3 years$
    7,190,560
    
    
    $
    2,901,536
    
    
    $
    4,289,024
  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




---



##### Table of Contents



Fiscal year2008
    
    $
    878,6572009
    
    
    801,9912010
    
    
    798,6572011
    
    
    743,0302012
    
    
    640,000Thereafter
    
    
    426,689Total expected amortization expense
    
    $
    4,289,024
 8. Loans Receivable
      2008
    
    $
    331,0052009
    
    
    227,0082010
    
    
    38,496Total
    
    $
    596,509
 9. Restricted Cash
   10. Checks Issued in Excess of Cash in Bank
  11. Other Accrued Expenses
  2007
    
    
    2006Accrued payroll and related items
    
    $
    676,820
    
    
    $
    611,688Accrued interest
    
    
    722,085
    
    
    
    544,041Amounts due casinos
    
    
    8,484,213
    
    
    
    3,251,046Amounts due for ATM processing
    
    
    13,473,093
    
    
    
    8,409,320Other
    
    
    39,192
    
    
    
    86,733Total other accrued expenses
    
    $
    23,395,403
    
    
    $
    12,902,828
   12. Commitments and Contingencies
 Legal Proceedings
  F-14




---



##### Table of Contents



Major Customers
  Major Customers 2007
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    25
    %Chickasaw Nation
    
    
    10
    %Total
    
    
    35
    %
 Major Customers 2006
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    27
    %
 Major Customers 2005
    
    % of Total RevenueThe Seminole Tribe of Florida
    
    
    29
    %Ho-Chunk Nation
    
    
    10
    %Total
    
    
    39
    %
   Operating Leases
   2008
    
    $
    211,1132009
    
    
    167,6022010
    
    
    92,192Total
    
    $
    470,907
 13. Equity Transactions
             F-15




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##### Table of Contents



Stock Options
    Weighted
    
    
    AggregateNumber of
    
    
    Average
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    ValueBalance 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
    
    
    $
    2,523,060Granted
    
    
    100,000
    
    
    $
    6.36Options exercised
    
    
    (496,000
    )
    
    $
    3.56Expirations and cancellations
    
    
    (315,000
    )
    
    $
    6.61Balance at December 31, 2007
    
    
    1,170,000
    
    
    $
    7.02
    
    
    $
    9,600Weighted average fair value of options granted during fiscal year 2007
    
    $
    3.64Weighted average fair value of options granted during fiscal year 2006
    
    $
    3.94Weighted average fair value of options granted during fiscal year 2005
    
    $
    4.25At December 31, 2007:Options vested and exercisable
    
    
    1,170,000
    
    
    $
    7.02Shares available under the 2005 Plan
    
    
    273,000At 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
    
    
    394,500
   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$2.50
    
    
    5,000
    
    
    
    5.26
    
    
    $
    2.50
    
    
    
    5,000
    
    
    $
    2.50$5.55
    
    
    115,000
    
    
    
    6.17
    
    
    $
    5.55
    
    
    
    115,000
    
    
    $
    5.55$6.24 to $8.05
    
    
    1,050,000
    
    
    
    7.62
    
    
    $
    7.20
    
    
    
    1,050,000
    
    
    $
    7.20$2.50 to $8.05
    
    
    1,170,000
    
    
    
    7.46
    
    
    $
    7.02
    
    
    
    1,170,000
    
    
    $
    7.02
 Stock Warrants
  WeightedNumber of
    
    
    AverageWarrants
    
    
    Exercise PriceBalance 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
    
    
    $
    7.51Granted
    
    
    487,500
    
    
    $
    7.38Warrants expired
    
    
    (338,125
    )
    
    $
    7.51Balance at December 31, 2007
    
    
    487,500
    
    
    $
    7.38Weighted average fair value of warrants granted during fiscal year 2007
    
    $
    1.5461Weighted average fair value of warrants granted during fiscal year 2006
    
    $
    2.9841Weighted average fair value of warrants granted during fiscal year 2005
    
    $
    
  Restricted Stock Awards
  F-17




---



##### Table of Contents



WeightedAverageGrantDate FairShares
    
    
    ValueUnvested as of December 31, 2005
    
    
    
    
    
    
    Granted
    
    
    67,500
    
    
    $
    6.67Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Unvested as of December 31, 2006
    
    
    67,500
    
    
    $
    6.67Granted
    
    
    289,500
    
    
    $
    6.05Vested
    
    
    (26,250
    )
    
    $
    6.47Forfeited
    
    
    
    
    
    
    Unvested as of December 31, 2007
    
    
    330,750
    
    
    $
    6.14
  14. Income Taxes
  2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    (18,186
    )
    
    
    15,800Deferred
    
    
    
    
    
    
    2,306,000
    
    
    
    (2,767,000
    )Tax benefit of
stock option
exercises, credited
to additional
paid-in capital
    
    
    
    
    
    
    
    
    
    
    394,000$
    
    
    
    $
    2,287,814
    
    
    $
    (2,357,200
    )
   2007
    
    
    2006
    
    
    2005Deferred income tax assets:Net operating loss and credit carryforwards
    
    $
    7,709,000
    
    
    $
    5,215,000
    
    
    $
    3,144,000Stock-based compensation
    
    
    487,000
    
    
    
    271,000
    
    
    
    Stock option acceleration
    
    
    14,000
    
    
    
    68,000
    
    
    
    100,000Loss on debt extinguishment
    
    
    1,537,000
    
    
    
    
    
    
    
    Reserve related to receivable from collection agency
    
    
    2,362,000
    
    
    
    
    
    
    
    Other
    
    
    420,000
    
    
    
    1,036,000
    
    
    
    154,00012,529,000
    
    
    
    6,590,000
    
    
    
    3,398,000Deferred income tax liabilities:Depreciation and amortization
    
    
    (1,049,000
    )
    
    
    (1,152,000
    )
    
    
    (1,067,000
    )Other
    
    
    
    
    
    
    
    
    
    
    (25,000
    )11,480,000
    
    
    
    5,438,000
    
    
    
    2,306,000Less: Valuation allowance
    
    
    (11,480,000
    )
    
    
    (5,438,000
    )
    
    
    Net deferred income tax assets
    
    $
    
    
    
    $
    
    
    
    $
    2,306,000
   2007
    
    2006
    
    2005Federal 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
    
    
    (0.8)
    %
    
    
    (2.2)
    %
    
    
    Change in valuation allowance
    
    
    39.3
    %
    
    
    70.3
    %
    
    
    Effective tax rate
    
    
    0.0
    %
    
    
    29.6
    %
    
    
    (38.5)
    %
 FIN No. 48
  F-18




---



##### Table of Contents



15. Senior Secured Convertible Notes
          Debtors Accounting for a Modification or Exchange of Debt
Instruments
    F-19




---



##### Table of Contents



16. Subsequent Events
 Consulting Agreement with Alpine Advisors LLC
  Amended Agreement with Native American Cash Systems Florida, Inc. (NACSF)
  Second Amended and Restated Notes and Warrants
      17. Selected Quarterly Data (unaudited)
  Quarters during the Year Ended December 31, 2007March 31
    
    June 30
    
    September 30
    
    December 31Commission on cash advance and
automated teller machines  as
filed per Form 10-Q
    
    $
    25,524,767
    
    
    $
    26,595,032
    
    
    $
    28,340,227
    
    
    $
    26,106,943Adjustments made during quarter
ended December 31, 2007
    
    $
    (368,622
    )
    
    $
    (456,192
    )
    
    $
    (884,757
    )
    
    $
    Commission on cash advance and
automated teller machines
    
    $
    25,156,145
    
    
    $
    26,138,840
    
    
    $
    27,455,470
    
    
    $
    26,106,943Loss from operations
    
    $
    (268,021
    )
    
    $
    (597,889
    )
    
    $
    (675,226
    )
    
    $
    (4,299,877
    )Net loss
    
    $
    (1,425,955
    )
    
    $
    (1,920,444
    )
    
    $
    (6,434,942
    )
    
    $
    (5,601,694
    )Net loss per common share  Basic
    
    $
    (0.08
    )
    
    $
    (0.10
    )
    
    $
    (0.35
    )
    
    $
    (0.31
    )Net loss per common share  Diluted
    
    $
    (0.08
    )
    
    $
    (0.10
    )
    
    $
    (0.35
    )
    
    $
    (0.31
    )
 Quarters during the Year Ended December 31, 2006March 31
    
    June 30
    
    September 30
    
    December 31Commission on cash advance and
automated teller machines  as
filed per Form 10-Q and Form 10-K/A
    
    $
    20,479,125
    
    
    $
    24,146,610
    
    
    $
    25,966,850
    
    
    $
    25,446,047Adjustments made during quarter
ended December 31, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (302,017
    )Commission on cash advance and
automated teller machines
    
    $
    20,479,125
    
    
    $
    24,146,610
    
    
    $
    25,966,850
    
    
    $
    25,144,030Loss 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
    )
 F-20