CKN Cash Systems

Cash Systems, Inc. (AMEX:CKN), a provider of cash access solutions for the gaming industry, today announced financial results for the second quarter 2005. Revenue for the second quarter increased 35% to $16.0 million from $11.8 million in the second quarter of fiscal 2004. The increase reflects the continued expansion of products and services to gaming customers. Operating expenses for the second quarter increased 73% to $18.7 million from $10.8 million in the prior year period. The increase in operating expenses in the second quarter of 2005 compared to the second quarter of 2004 is primarily due to: -- An allowance of $1.6 million pre tax for potentially uncollectible settlements due from processors. -- A reserve of $300,000 pre tax, or $0.01 per share after tax, for bad debt expense in check cashing operations. -- Professional consulting fees of $800,000 relating to Sarbanes Oxley 404 compliance, accounting, systems and remediation efforts during the quarter. -- Increased casino commissions, processing expense and payroll costs commensurate with the growth in revenue. Net loss was ($1.7 million) or ($0.10) per diluted share, compared to net income of $0.6 million or $0.04 per diluted share in the prior year period. Michael Rumbolz, President and Chief Executive Officer of Cash Systems, Inc. stated, "This company has undergone a significant transformation in the last six months as we made necessary investments in many aspects of the business. While these investments have impacted our near-term operating results today, we believe we made the right decisions in solidifying our systems, operations, team and infrastructure so that we can effectively capitalize on the significant growth opportunities we have identified." Liquidity The Company finished the second quarter of 2005 with cash and cash equivalents of $15.4 million, compared to $13.0 million at December 31, 2004. Current cash balances and operating cash flow are expected to provide the Company with sufficient resources to meet its existing obligations, currently planned capital expenditure requirements and funding for internal growth initiatives. Guidance The Company expects revenue of approximately $60.0 - $62.0 million in fiscal 2005 compared to previous guidance of $64.0 - $66.0 million. The decrease in revenue guidance is primarily due to a slower than expected rollout at certain customers, which will continue into the second half of 2005. Additionally, the Company now expects diluted losses per share of ($0.10) in 2005, compared to prior guidance of income per diluted share of $0.19 - $0.22. These estimates include the following costs and expenses: -- The allowance for potentially uncollectible settlements due from processors of $1.6 million pretax, or approximately $0.06 per share after tax. -- The reserve of $300,000 pretax, or $0.01 per share after tax, related to bad debt in the check cashing business. -- An increase in Sarbanes Oxley and consulting remediation costs to $1.6 million, up from previous estimates of $800,000 - $1.0 million, which impacts guidance by $0.03 per share, after tax. -- The remainder of the difference reflects the Company's reduced revenue forecast and the resulting impact that has on revenue mix, as well as higher ongoing general and administrative costs as the Company completes infrastructure-related investments. The Company's guidance for 2005 does not assume the addition of new contracts. Earnings Conference Call The Company will conduct a conference call to discuss financial results on August 15, 2005 at 5:00 p.m. ET. The call can be accessed live over the phone by dialing 1-800-565-5442 or for international callers by dialing 1-913-312-1298. A simultaneous webcast of the call will be available by visiting http://www.cashsystemsinc.com/ir/companyoverview.asp. A replay 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 password is 9087364. The replay will be available from August 15, 2005, through August 22, 2005. About Cash Systems, Inc. Minneapolis-based Cash Systems, Inc. has grown from a regional ATM provider to one of the primary cash access companies serving the gaming industry. Cash Systems' products include its proprietary cash advance systems, ATMs and check cashing solutions. Cash Systems' gaming clients are comprised of both Native American, public and private entities. Please visit http://www.cashsystemsinc.com for more information. Forward-Looking Statements 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 10-KSB and 10-Q. 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. -0- *T CASH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, 2005 2004 (Unaudited) (Audited) ------------ ------------ ASSETS CURRENT ASSETS Cash $15,443,725 $13,043,874 Due from related party 83,675 183,560 Current portion of prepaid commissions 494,434 348,601 Current portion of loans receivable 2,147,359 1,849,420 Other receivables - 645,006 Deferred income taxes 1,738,000 336,000 Settlements due from credit card processors, net of allowance of $1,558,000 and $0,respectively 1,069,722 1,889,856 Other current assets 3,535,307 2,638,759 ------------ ------------ Total Current Assets 24,512,222 20,935,076 ------------ ------------ PROPERTY AND EQUIPMENT, NET 4,750,481 3,373,170 OTHER ASSETS Long-term prepaid commissions, net of current portion 349,527 523,827 Long-term loans receivable, net of current portion 79,904 350,835 ------------ ------------ Total Other Assets 429,431 874,662 ------------ ------------ TOTAL ASSETS $29,692,134 $25,182,908 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Checks issued in excess of cash in bank $ 7,177,555 $ 3,331,381 Accounts payable - trade 661,055 436,322 Credit card cash advance fees payable 818,177 655,036 ATM commissions payable 902,713 629,328 Credit card chargebacks payable 80,000 80,000 Check cashing commissions payable 118,362 102,801 Due to related party - 211,846 Other accrued expenses 318,331 197,869 ------------ ------------ Total Current Liabilities 10,076,193 5,644,583 ------------ ------------ LONG-TERM LIABILITIES Deferred income taxes 1,026,000 797,000 ------------ ------------ Total Liabilities 11,102,193 6,441,583 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, par value of $0.001, 50,000,000 shares authorized, 16,635,738 and 16,173,445 shares issued and outstanding 16,637 16,173 Additional paid-in capital 18,117,292 16,838,356 Retained earnings 456,012 1,886,796 ------------ ------------ Total Stockholders' Equity 18,589,941 18,741,325 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,692,134 $25,182,908 ============ ============ CASH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Commissions on credit card cash advances, ATMs and check cashing services $16,036,555 $11,840,293 $29,686,868 $22,846,927 Operating expenses Commissions 7,788,440 5,663,557 14,544,912 10,812,776 Processing costs 4,619,875 2,126,273 7,127,478 4,234,488 Check cashing costs 1,755,308 654,171 2,656,607 1,273,164 Armored carrier services 128,880 95,931 244,138 200,210 Payroll, benefits and related taxes 1,916,467 1,324,665 3,503,163 2,530,262 Professional fees 794,050 154,805 1,035,815 365,680 Compensation expense related to warrants and options - 23,196 - 68,180 Other 1,403,138 639,665 2,205,493 1,470,797 Depreciation and amortization 316,904 125,494 600,136 250,988 ------------ ------------ ------------ ------------ Total operating expenses 18,723,062 10,807,757 31,917,742 21,206,545 ------------ ------------ ------------ ------------ Income (loss) from operations (2,686,507) 1,032,536 (2,230,874) 1,640,382 ------------ ------------ ------------ ------------ Other income (expense) Interest expense (115,817) (46,853) (224,234) (147,651) Interest income 89,539 1,161 128,724 1,256 ------------ ------------ ------------ ------------ Total other income (expense) (26,278) (45,692) (95,510) (146,395) ------------ ------------ ------------ ------------ Income (loss) before income taxes (2,712,785) 986,844 (2,326,384) 1,493,987 Provision for (benefit from) income taxes (1,044,400) 395,000 (895,600) 598,000 ------------ ------------ ------------ ------------ Net income (loss) $(1,668,385) $ 591,844 $(1,430,784) $ 895,987 ============ ============ ============ ============ Net income (loss) per common share: Basic $ (0.10) $ 0.04 $ (0.09) $ 0.06 ============ ============ ============ ============ Diluted $ (0.10) $ 0.04 $ (0.09) $ 0.06 ============ ============ ============ ============ Weighted average common shares outstanding: Basic 16,527,573 15,396,353 16,434,676 14,408,792 ============ ============ ============ ============ Diluted 16,527,573 16,487,811 16,434,676 15,620,035 ============ ============ ============ ============ CASH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ------------------------- 2005 2004 ------------ ------------ Cash flows from operating activities: Net income (loss) $(1,430,784) $ 895,987 Adjustments to reconcile net income (loss) to cash flows from operating activities: Depreciation and amortization 600,136 250,988 Compensation expense related to non-employee stock options - 68,180 Tax benefit associated with employee stock option exercises 390,000 - Deferred income taxes (1,173,000) 36,000 Allowance for uncollectible settlements due from credit card processors 1,558,000 - Interest receivable on loans receivable (107,088) - Changes in operating assets and liabilities: Due from related party 99,885 25,000 Prepaid commissions (145,833) (736,363) Other receivables 645,006 (10,904) Settlements due from credit card processors, net (737,866) - Other current assets (896,548) (207,510) Long-term prepaid commissions 174,300 Long-term receivable - 453,295 Accounts payable - trade 224,733 (1,320,000) Credit card cash advance fees payable 163,141 47,917 ATM commissions payable 273,385 154,173 Credit card chargebacks payable - 27,661 Check cashing commissions payable 15,561 45,416 Due to related party (211,846) - Other accrued expenses 120,462 486,674 ------------ ------------ Cash flows provided from (used in) operating activities (438,356) 216,514 ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (1,977,447) (849,247) Loans receivable, net 80,080 - ------------ ------------ Cash flows used in investing activities (1,897,367) (849,247) ------------ ------------ Cash flows from financing activities: Checks issued in excess of cash in bank 3,846,174 (686,118) Payments on long-term debt - (713,035) Issuance of common stock, net of expenses - 11,357,715 Exercise of stock options 698,500 78,000 Exercise of warrants 190,900 48,000 ------------ ------------ Cash flows provided by financing activities 4,735,574 10,084,562 ------------ ------------ Increase in cash 2,399,851 9,451,829 Cash, beginning of period 13,043,874 3,035,747 ------------ ------------ Cash, end of period $15,443,725 $12,487,576 ============ ============ SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for financing costs and interest expense, net of amortization of original issue discount $ 224,234 $ 176,971 ============ ============ Cash received from income taxes $ 609,322 $ - ============ ============ NONCASH INVESTING AND FINANCING ACTIVITIES: Reclassification of other current assets to proceeds from issuance of common stock $ - $ 11,604 ============ ============ *T