CKNN Cash Systems (MM)

Cash Systems, Inc. (NASDAQ: CKNN), a provider of cash access solutions for the gaming industry, today announced fourth quarter and full year 2007 financial results. Fourth quarter 2007 and subsequent company highlights include: The approval of the Company�s powercash operating system by the Gaming Laboratories International Inc. (GLI). The introduction of powercash at Fantasy Springs Resort Casino. The signing of a Letter of Intent to provide Cash Systems� powercash product to American Gaming Group LLC's first casino project, The Wildwood Casino. Cash Systems also announced that it had secured an agreement to provide its full line of cash access services including all-in-1atm services, casinopc for cash advance services, and ecash checking to The Wildwood Casino. The announcement that powercash is compatible with and will be available on the Bally Technologies, Inc.�s (NYSE: BYI) new iVIEW� Display Manager� (DM). A new multi-year contract with Gold River Casino where Cash Systems will provide its full line of cash access services including all-in-1atm services, casinopc for cash advance services, and ecash checking. An extension of the multi-year contract with Choctaw Nation of Oklahoma for its Choctaw Casinos and the addition of another Choctaw Casino location where Cash Systems will provide its casinopc for cash advance services, ecash checking and full service booth operation. Fourth Quarter Financial Results Revenue for the fourth quarter was $26.1 million, an increase of 4%, compared to $25.1 million in the fourth quarter of fiscal 2006. The Company reported a loss from operations of ($4.3) million, which included bad debt expense of ($4.1) million related to an increase in the volume of returned checks in the check guarantee business and a ($450) thousand non-cash impairment charge related to the low probability of renewal of a contract at an IGS location, in the fourth quarter of fiscal 2007. This compares to income from operations of $1.2 million in fiscal 2006. Net loss was ($5.6) million, or ($0.31) per diluted share, compared to net loss of ($5.2) million or ($0.29) per diluted share, in the fourth quarter of 2006. Michael Rumbolz, President and Chief Executive Officer of Cash Systems, Inc. stated, �With our current set of product innovations, we are very confident in our technology path, and we are continuing to make progress with powercash and are encouraged by customer feedback. Based on our product advancement combined with some of the limitations of our capital structure, the Board of Directors has determined to explore strategic alternatives to maximize shareholder value.� Fiscal 2007 Financial Results Revenue for fiscal 2007 was $104.9 million, an increase of 9.6%, compared to $95.7 million in fiscal 2006. The Company reported a loss from operations of ($5.8) million, which includes ($5.4) million in bad debt expense and ($1.1) million for our check guarantee service related to an increase in returned checks, compared to a loss from operations of ($4.3) million in the prior year. Net loss was ($15.4) million, which included a ($4.3) million loss on extinguishment of debt, compared to ($10.0) million in fiscal 2006. The Company reported net loss per diluted share of ($0.84), compared to net loss of earnings per diluted share of ($0.57) in the prior year. Amendment and Exchange of Senior Secured Notes On March 14, 2008, the Company entered into a Second Amendment and Exchange Agreement (the �Amendment�) with respect to its outstanding senior secured convertible notes (the �Notes�). The Amendment includes an increase in the aggregate principal amount of the Notes to $24.2 million from $22 million, a decrease in the conversion price to $2.51 and warrant strike price to $2.49, which may be further reduced by the note holders based on 120% of the volume weighted average trading price of the Company�s stock for the next 20 trading days. The amendment also states an increase in the aggregate principal amount of the Notes that the note holders may require the Company to redeem as of October 10, 2008 to $12.1 million from $8 million. Board Authorized Pursuit of Strategic Alternatives The Company also announced today that its Board of Directors has decided to explore strategic alternatives to maximize shareholder value. Deutsche Bank, which the Company engaged earlier this year to assist with strategic matters, will serve as the Company�s financial advisor in this process. There can be no assurances that this process will result in any specific transaction. The Company does not intend to disclose developments regarding its exploration of strategic alternatives unless and until its Board of Directors approve a definitive transaction. Annual Report on Form 10-K In connection with the preparation and filing of the Annual Report on Form 10-K for the year ended December�31, 2007 (the �Form 10-K�), the Company expects its independent registered public accountants will indicate in their audit opinion that there is substantial doubt about the Company�s ability to continue as a going-concern. The qualification is primarily due to concerns as to the Company�s ability to generate or obtain liquidity to satisfy the right of the note holders to require the Company to redeem up to $12.1 million in principal amount of the Notes on October 10, 2008. Due to the extra time required for the Company to sign a note agreement amendment, the Company expects to file a Form 12b-25 to report its inability to file its Form 10-K by the initial filing deadline, March�17, 2008. Management anticipates the Form 10-K, along with the audited financial statements, will be filed on or prior to the 15th calendar day following the initial due date of the Form 10-K pursuant to Rule 12b-25 of the Securities Exchange Act of 1934, as amended. Earnings Conference Call The Company will conduct a conference call to discuss its fourth quarter and full year 2007 financial results on Monday, March 17, 2008 at 5:00 p.m. ET. A webcast of the call will be available by visiting the investor relations section of the company's website at http://www.cashsystemsinc.com/ir. The call can also be accessed live over the phone by dialing (888) 271-8601 or for international callers by dialing (913) 981-5560. A replay of the call will be available one hour after the call and can be accessed by dialing (888) 203-1112 or (719) 457-0820 for international callers; the pin number is 2649660. The replay will be available from March 17, 2008 through March 24, 2008. About Cash Systems, Inc. Cash Systems, Inc., located in Las Vegas, with additional offices in San Diego and Minneapolis, is a provider of cash-access and related services to the retail and gaming industries. Cash Systems' products include its proprietary cash advance systems, ATMs and check cashing solutions. Please visit http://www.cashsystemsinc.com for more information. This press release may contain forward-looking statements, including the Company's beliefs about its business prospects and future results of operations. These statements involve risks and uncertainties. Among the important additional factors that could cause actual results to differ materially from those forward-looking statements are risks associated with the overall economic environment, the successful execution of the Company's plan of operation, changes in the Company's anticipated earnings, continuation of current contracts, gaming and other applicable regulations, and other factors detailed in the Company's filings with the Securities and Exchange Commission, including its most recent Forms 10K and 10Q. In addition, the factors underlying Company forecasts are dynamic and subject to change and therefore those forecasts speak only as of the date they are given. The Company does not undertake to update any forecasts that it may make available to the investing public. � Cash Systems, Inc. Consolidated Balance Sheets (Unaudited) � December 31, December 31, � 2007 � � 2006 � ASSETS � CURRENT ASSETS Cash $ 16,617,643 $ 24,880,233 Restricted Cash 625,059 Current portion of prepaid commissions 394,096 285,019 Current portion of loans receivable 331,005 395,277 Settlements due from credit card processors 14,779,241 13,212,907 Settlements due from ATM processors 12,094,482 12,144,380 Other current assets � 7,409,494 � � 5,093,771 � Total Current Assets � 52,251,020 � � 56,011,587 � � PROPERTY AND EQUIPMENT, NET 7,087,436 7,407,903 � OTHER ASSETS Goodwill 4,077,700 4,077,700 Intangible assets, net 4,289,024 6,060,448 Long-term prepaid commissions, net of current portion 385,876 640,722 Long-term loans receivable, net of current portion 265,504 86,564 Restricted cash 211,317 350,000 Other � 308,061 � � 1,880,624 � Total Other Assets � 9,537,482 � � 13,096,058 � � TOTAL ASSETS $ 68,875,938 � $ 76,515,548 � � � LIABILITIES AND STOCKHOLDERS' EQUITY � CURRENT LIABILITIES Checks issued in excess of cash in bank $ 15,205,390 $ 21,235,168 Short-term debt, net 12,100,000 Accounts payable - trade 1,754,781 4,059,972 Credit card cash advance fees payable 1,667,462 1,812,283 ATM commissions payable 2,028,940 1,946,749 Credit card chargebacks payable 326,563 102,403 Check cashing commissions payable 223,785 356,054 Other accrued expenses � 23,395,403 � � 12,902,828 � Total Current Liabilities � 56,702,324 � � 42,415,457 � � LONG-TERM LIABILITIES Long-term debt, net 9,900,000 19,258,386 Derivative warrant instrument � - � � 777,011 � Total Liabilities � 66,602,324 � � 62,450,854 � � STOCKHOLDERS' EQUITY Common 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 18,447 17,924 Additional paid-in capital 29,535,292 25,943,860 Accumulated deficit � (27,280,125 ) � (11,897,090 ) Total Stockholders' Equity � 2,273,614 � � 14,064,694 � � TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 68,875,938 � $ 76,515,548 � � Cash Systems, Inc. Consolidated Statements of Operations (Unaudited) � Twelve Months Ended December 31, � 2007 � � � 2006 � � � 2005 � Commissions on credit card cash advances, ATMs and check cashing services $ 104,857,398 $ 95,736,615 $ 63,165,958 � Operating expenses Commissions 59,989,237 52,910,661 31,520,324 Processing costs 18,186,612 18,108,006 14,292,699 Check cashing costs 6,626,288 4,060,656 4,870,436 Armored carrier services 1,104,755 795,034 536,121 Payroll, benefits and related taxes 11,954,436 11,180,077 8,751,192 Professional fees 1,240,366 2,105,741 2,430,129 Other general and administrative expenses 8,026,580 7,865,281 5,241,570 Depreciation and amortization � 3,570,137 � � � 2,989,067 � � � 1,259,337 � Total operating expenses � 110,698,411 � � 100,014,523 � � 68,901,808 � Loss 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 � � 250,113 � Total 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 16,606,335 � Diluted 18,352,603 17,577,650 16,606,335 � Cash Systems, Inc. and Subsidiaries Consolidated Statement of Cash Flow (Unaudited) � Twelve Months Ended December 31, � 2007 � � � 2006 � � � 2005 � Cash 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 1,259,337 Share-based compensation expense 854,372 703,678 260,350 Tax benefit associated with employee stock option exercises 393,950 Loss on extinguishment of debt 4,338,087 Amortization of debt issuance costs and original issue discount 318,035 171,264 5,031 Deferred 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 183,560 Prepaid commissions (109,077 ) 216,324 (152,742 ) Other receivables 645,006 Settlements due from credit card processors (1,566,334 ) (5,529,490 ) 638,396 Settlements 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 ) 182,808 Restricted cash (398,241 ) (438,135 ) Other assets (23,096 ) (171,618 ) Accounts payable - trade (2,305,191 ) 1,518,576 2,105,074 Credit card cash advance fees payable (144,821 ) 953,220 204,027 ATM commissions payable 82,191 762,251 555,170 Credit card chargebacks payable 224,160 (123,781 ) 146,184 Check cashing commissions payable (132,269 ) 250,970 2,283 Due to related party (211,846 ) Other accrued expenses � 10,492,575 � � 11,481,265 � � 1,075,196 � Cash 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 1,296,318 Patent 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 ) 12,005,522 Line of credit - bank, net (5,200,000 ) 5,139,631 Payment of debt issuance costs (124,257 ) (1,789,535 ) Proceeds from long-term debt, net of debt issuance costs 20,000,000 Issuance of common stock, net of expenses 4,470,160 Exercise of stock options 1,765,980 1,701,250 1,363,529 Exercise of stock warrants � � 23,438 � � 190,900 � Cash flows provided from (used in) financing activities � (4,388,055 ) � 18,671,621 � � 18,699,582 � � Increase (Decrease) in cash (8,174,455 ) (962,401 ) 12,710,625 � Cash, beginning of period � 24,792,098 � � 25,754,499 � � 13,043,874 � � Cash, end of period $ 16,617,643 � $ 24,792,098 � � 25,754,499 � � SUPPLEMENTAL 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 $ 518,920 Cash received from income taxes $ 287,452 $ 609,322 � NONCASH INVESTING AND FINANCING ACTIVITIES: Reclassification of warrant derivative liability to additional paid in capital $ 777,011 Derivative warrant instrument $ 777,011