Cash Systems (MM) (NASDAQ:CKNN)
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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