| CASH SYSTEMS INC Item 1A RISK FACTORS Our business faces significant risks |
| These risks include those described below and may include additional risks and uncertainties not presently known by us or that we currently deem immaterial |
| Our financial condition, results of operations and business prospects could be materially and adversely affected by any of these risks, and the trading price of our common stock could decline |
| These risks should be read in conjunction with the other information contained in this Annual Report on Form 10-K Risks Related to Our Business Competition in the market for cash access products and services is intense, and if we are unable to compete effectively, we could face price reductions and decreased demand for our services |
| Some of our current and potential competitors have a number of significant advantages over us, including: • 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 |
| In addition, some of our potential competitors have greater name recognition and marketing power |
| Furthermore, some of our current competitors have established, and in the future potential competitors may establish, cooperative relationships with each other or with third parties or adopt aggressive pricing policies to gain market share |
| As a result of the intense competition in this industry, we could encounter significant pricing pressures and lose customers |
| These pricing pressures could result in significantly lower average service charges for our Cash Access Services or higher commissions payable to gaming establishments |
| We may not be able to offset the effects of any service charge reductions with an increase in the number of customers, cost reductions or otherwise |
| In addition, the gaming industry is always subject to market consolidation, which could result in increased pricing pressure and additional competition |
| To the extent that competitive pressures in the future force us to reduce our pricing to establish or maintain relationships with gaming establishments, our revenues could decline |
| 8 _________________________________________________________________ [60]Table of Contents The cash access industry is subject to change, and we must keep pace with the changes to successfully compete |
| The demand for our products and services is affected by changing technology, evolving industry standards and the introduction of new products and services |
| Cash access services are based on existing financial services and payment methods, which are also continually evolving |
| Our future success will depend, in part, upon our ability to successfully develop and introduce new cash access services based on emerging financial services and payment methods, which may, for example, be based on stored value cards, Internet-based payment methods or the use of portable consumer devices such as personal digital assistants and cellular telephones, and to enhance our existing products and services on a timely basis to respond to changes in patron preferences and industry standards |
| We cannot be sure that the products, services or technologies that we choose to develop will achieve market acceptance or obtain any necessary regulatory approval or that products, services or technologies that we choose not to develop will not threaten our market position |
| If we are unable, for technological or other reasons, to develop new products or services, enhance or sell existing products or services in a timely and cost-effective manner in response to technological or market changes, our business, financial condition and results of operations may be materially adversely affected |
| The loss of our sponsorship into the Visa USA, Visa International and MasterCard card associations could have a material adverse effect on our business |
| We cannot provide cash access services involving VISA cards and MasterCard cards in the United States without sponsorship into the Visa USA and MasterCard card associations |
| Harris Bank currently sponsors us into the card associations |
| In the event we lose our sponsorship by Harris Bank into the card associations, we would need to obtain sponsorship into the card associations through another member of the card associations that is capable of supporting our transaction volume |
| We may not be able to obtain alternate sponsorship |
| Our inability to obtain alternate sponsorship on favorable terms or at all would have a material adverse effect on our business and operating results |
| Because of our dependence on certain customers, the loss of a top customer could have a material adverse effect on our revenues and profitability |
| During each of the years ended December 31, 2005, 2004 and 2003, two of our customers each accounted for more than 10prca of our total revenues |
| The two customers, The Seminole Tribe of Florida and Ho-Chunk Nation, together accounted for 39dtta3prca, 44dtta5prca, and 27dtta6prca of our total revenues in 2005, 2004 and 2003, respectively |
| We contract with The Seminole Tribe of Florida through a third party affiliated with The Seminole Tribe of Florida, and we contract with Ho-Chunk Nation directly |
| We have provided Cash Access Services to The Seminole Tribe of Florida since November 2001 and to Ho-Chunk Nation since May 2003 |
| There can be no assurance that these contracts will be renewed after their terms expire |
| In addition, loss or financial hardship experienced by, or a substantial decrease in revenues from, any one of our two top customers could have a material adverse effect on our business, financial condition and results of operations |
| Consolidation among operators of gaming establishments may also result in the loss of a top customer to the extent that customers of ours are acquired by our competitors’ customers |
| 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 |
| We enter into contracts with our gaming establishment customers to provide our cash access products and related services |
| Most of our contracts have a term ranging from three to five years in duration and provide that we are the only provider of cash access products to these establishments during the term of the contract |
| In most of the contracts, either party may cancel the agreement for “cause” if a breach is not cured within thirty days |
| In addition, some of the contracts are terminable upon 30 days advance notice and some either become nonexclusive or terminable by our gaming establishment customers in the event that we fail to satisfy specific covenants set forth in the contracts, such as covenants related to our ongoing product development |
| We are typically required to renegotiate the terms of our customer contracts upon their expiration, and in some circumstances we may be forced to modify the terms of our contracts before they expire |
| Assuming constant transaction volume, increases in 9 _________________________________________________________________ [61]Table of Contents commissions or other incentives paid to gaming establishments would reduce our operating results |
| We may not succeed in renewing these contracts when they expire, which would result in a complete loss of revenue from that customer |
| We are not in compliance with certain financial performance covenants under our line of credit with Bank of America, NA and do expect to be in compliance with the covenants as of March 31, 2006 |
| Our two-year line of credit of up to dlra13 million with Bank of America, NA contains strict financial covenants |
| Among other things, these covenants require us to maintain certain net income and net worth levels and a certain ratio of net income to fixed expenses as of each quarter end |
| At December 31, 2005, we were not in compliance with two covenants related to funded debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and minimum EBITDA We sought and were granted a waiver of these two covenants at December 31, 2005 |
| We anticipate that we will not be in compliance with these two covenants again at March 31, 2006, and we cannot assure you we will receive another waiver from Bank of America, NA In the event that we fail to comply with the covenants contained in the credit agreement and Bank of America, NA does not waive such non-compliance or agree to amend the terms of the credit agreement to bring us into compliance, Bank of America, NA would be entitled to accelerate the maturity of the outstanding balance |
| If we are unable to secure alternative financing or raise additional capital to repay this outstanding balance, Bank of America, NA would be entitled to foreclose on substantially all of our assets which secure the repayment of such outstanding balance |
| An unexpectedly high level of chargebacks could adversely affect our business |
| When gaming patrons use our Cash Access Services, we either dispense cash or produce a negotiable instrument that can be endorsed and exchanged for cash |
| If a completed cash access transaction is subsequently disputed by a cardholder or accountholder and if we are unsuccessful in establishing the validity of the transaction, the transaction becomes a chargeback and we may not be able to collect payment for such transaction |
| If, in the future, we incur an unexpectedly high level of chargebacks, we may suffer a material adverse effect to our business, financial condition or results of operations |
| 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 |
| We use technology in operating our business, and our success depends on developing and protecting our intellectual property |
| We rely on copyright, patent, trademark and trade secret laws, as well as the terms of license agreements with third parties, to protect our intellectual property |
| We also rely on other confidentiality and contractual agreements and arrangements with our employees, affiliates, business partners and customers to establish and protect our intellectual property and similar proprietary rights |
| We have been issued a patent for system and method for performing a quasi-cash transaction, US Patent Nodtta 6cmam951cmam302 |
| We have seven patent applications pending |
| For example, although we currently have seven inventions that are the subject of patent applications pending in the United States Patent and Trademark Office, we can provide no assurance that these applications will become issued patents |
| If they do not become issued patents, our competitors would not be prevented from using these inventions |
| We also license various technology and intellectual property rights from third parties |
| We rely heavily on third parties to maintain and protect these technology and intellectual property rights |
| If our licensors or business partners fail to protect their intellectual property rights in technology that we license and we are unable to protect these rights, the value of our licenses may diminish significantly |
| It is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights |
| In addition, we may not be able to deter current and former employees, consultants, and other parties from breaching confidentiality agreements and misappropriating proprietary information |
| If we are unable to adequately protect our technology or our exclusively licensed rights, or if we are unable to continue to obtain or maintain licenses for technology from third parties, it could have a material adverse effect on the value of our intellectual property, similar proprietary rights, our reputation, and our results of operations |
| 10 _________________________________________________________________ [62]Table of Contents In the future, we may have to rely on litigation to enforce our intellectual property rights and contractual rights |
| In addition, we may face claims of infringement that could interfere with our ability to use technology or other intellectual property rights that are material to our business operations |
| If litigation that we initiate is unsuccessful, we may not be able to protect the value of some of our intellectual property |
| In the event a claim of infringement against us is successful, we may be required to pay royalties or license fees to continue to use technology or other intellectual property rights that we had been using or we may be unable to obtain necessary licenses from third parties at a reasonable cost or within a reasonable time |
| Any litigation of this type, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources |
| Although we believe that our intellectual property rights are sufficient to allow us to conduct our business without incurring liability to third parties, our products and services may infringe on the intellectual property rights of third parties and our intellectual property rights may not have the value we believe them to have |
| 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 |
| Our products and services, and the networks and third-party services upon which our products and services are based, are complex and may contain undetected errors or may suffer unexpected failures |
| The computer networks that we rely upon in providing our products and services are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss of data, public release of confidential data and the inability to complete gaming patron transactions |
| The occurrence of these errors or failures, disruptions or unauthorized access could adversely affect our sales to customers, diminish the use of our cash access products and services by gaming patrons, cause us to incur significant repair costs, result in our liability, divert the attention of our development personnel from product development efforts, and cause us to lose credibility with current or prospective customers or gaming patrons |
| We have formed relationships with and rely heavily on the services and technology of a number of third-party companies and consultants to operate our systems and ensure the integrity of our technology |
| Although we do not anticipate severing relations with any of these parties, any of these providers may cease providing these services or technology in an efficient, cost-effective manner, or altogether, or be unable to adequately expand their services to meet our needs |
| In the event of an interruption in, or the cessation of, services or technology by an existing third-party provider, we may not be able to make alternative arrangements for the supply of the services or technology that are critical to the operation of our business and this could have a material adverse effect on our business |
| We may not realize all of the expected benefits, and we may incur additional costs related to, our acquisition of Indian Gaming Services |
| On February 28, 2006, we acquired Indian Gaming Services, a San Diego-based cash access provider to the gaming industry, for a cash purchase price of dlra12 million funded through a private placement of our common stock and bank borrowings |
| We expect the acquisition to be accretive in 2006 |
| However, it is too early to conclude whether we will realize the anticipated benefits of this acquisition |
| At the same time, the costs associated with the acquisition may be higher than expected |
| In addition, the process of integrating the business may result in operating difficulties and expenditures and may require significant management attention that would otherwise be available for ongoing development of other aspects of our business |
| We pay credit card associations interchange fees for services they provide in settling transactions routed through their networks |
| In addition, we pay fees to participate in various ATM or debit networks |
| The amounts of these interchange fees are fixed by the card associations and networks in their sole discretion, and are subject to increase in their discretion from time to time |
| Many of our contracts enable us to pass through to our customers the amount of any increase in interchange or processing fees, but competitive pressures might prevent us from doing so |
| To the extent that we are unable to pass through to our customers the amount of any increase in interchange or processing fees, our costs of revenues would increase and our net income would decrease, assuming no change in 11 _________________________________________________________________ [63]Table of Contents transaction volumes |
| Any such decrease in net income could have a material adverse effect on our financial condition and results of operations |
| We are subject to extensive rules and regulations of MasterCard International and Visa USA, which may harm our business |
| A significant portion of our Cash Access Services are processed as transactions subject to the extensive rules and regulations of the two leading card associations, MasterCard International and Visa USA From time to time, we receive correspondence from these card associations regarding our compliance with their rules and regulations |
| In the ordinary course of our business, we engage in discussions with our sponsoring bank and/or the card associations regarding our compliance with their rules and regulations |
| The rules and regulations of the card associations may not always expressly address some of the contexts and settings in which we process cash access transactions, or do so in a manner subject to varying interpretations |
| From time to time we also face technical compliance issues, eg the format of data submission files |
| We expect to continue to face and resolve issues such as these in the ordinary course of business, which we do not believe will result in a material adverse impact on our operations |
| The card associations modify their rules and regulations from time to time |
| In the event that the card associations or our sponsoring bank determine that the manner in which we process certain card transactions is not in compliance with existing rules and regulations, or if the card associations adopt new rules or regulations that prohibit or restrict the manner in which we process certain card transactions, we may be forced to modify the manner in which we operate which may increase our costs, or cease processing certain types of cash access transactions altogether, either of which could have a material negative impact on our business |
| As an example of the card associations amending their regulations, we are now required to comply with the Payment Card Industry (PCI) Data Security Standard |
| We have developed and are currently implementing a detailed plan to achieve compliance with the PCI Data Security Standard |
| If we are not found to be in compliance with this standard, we may be subject to substantial penalties and fines |
| The card associations’ rules and regulations are always subject to change, and the associations modify their rules and regulations from time to time |
| Our inability to anticipate changes in rules, regulations or the interpretation or application thereof may result in substantial disruption to our business |
| In the event that the card associations or our sponsoring bank determine that the manner in which we process certain types of card transactions is not in compliance with existing rules and regulations, or if the card associations adopt new rules or regulations that prohibit or restrict the manner in which we process certain types of card transactions, we may be forced to pay a fine, modify the manner in which we operate our business or stop processing certain types of cash access transactions altogether, any of which could have a material negative impact on our business and operating results |
| We also process transactions involving the use of the Discover Card |
| The rules and regulations of the proprietary credit card network that services this card present risks to us that are similar to those posed by the rules and regulations of MasterCard International and Visa USA We are subject to regulatory and political risk associated with the majority of our customers being Native American, Sovereign Nations, which may harm our business |
| Approximately 60prca of our current business is with Native American Tribal operated casinos |
| The Tribes are sovereign nations which may determine their own rules, regulations and dispute processes |
| The only limitation on the Tribal jurisdiction is the Gaming Compact, adopted by the particular state within which the Tribe’s casino is located, which the Tribe has signed to authorize the opening of its casiNodtta Our contracts with the Tribal casinos are subject to approval by the Tribal Council, the political governing body of the Tribe, and the Tribal Gaming Commission |
| Any change in the make-up of the Tribal Council membership, due to elections, resignations, or other means may result in a termination or non-renewal of our contract or license, or both |
| The Tribal Gaming Commissions have authority to regulate all aspects of casino operations, including vendor selection and licensing |
| Failure to maintain compliance with all requirements of the Tribal Gaming Commission may result in the loss of our license and subsequently the loss of the contract |
| 12 _________________________________________________________________ [64]Table of Contents We are subject to the performance of third-parties whom we contract through as vendors to some Tribal casinos |
| Some of our Tribal contracts are with other vendors who themselves contract directly with the Tribal casinos for Cash Access Services |
| The loss of the contract by these third parties, for any reason, may result in our loss of the contract |
| Our joint development activities may result in products that are not commercially successful or that are not available in a timely fashion |
| We have engaged in joint development projects with third parties in the past and we expect to continue doing so in the future |
| Joint development can magnify several risks for us, including the loss of control over development of aspects of the jointly developed products and over the timing of product availability |
| Accordingly, we face increased risk that joint development activities will result in products that are not commercially successful or that are not available in a timely fashion |
| In addition to joint development activities, from time to time we consider acquiring additional technologies, products and intellectual property |
| We periodically enter into discussions with third parties regarding such potential acquisitions |
| We cannot assure you that we will enter into any such acquisition agreements in the near future or at all |
| We have no present understanding or agreements with respect to any acquisitions |
| We depend on our key personnel |
| We are highly dependent on the involvement of Michael Rumbolz, our Chief Executive Officer, and other members of our senior management team |
| All of our executive officers have separate employment and non-compete agreements with us |
| Rumbolz or other members of our senior management team would have a material adverse effect on our business |
| Our success depends to a significant degree upon the performance and continued service of key managers involved in the development and marketing of our products and services to gaming establishments |
| Our future success depends upon our ability to attract, train and retain such personnel |
| We may need to increase the number of key managers as we further develop our products and services and as we penetrate other geographic markets |
| Our ability to enter into contracts with gaming establishments depends in large part on the relationships that our key managers have formed with management-level personnel of gaming establishments |
| Competition for individuals with such relationships is intense, and we cannot be certain that we will be successful in recruiting and retaining such personnel |
| In addition, employees may leave our company and subsequently compete with us |
| Our sales efforts are particularly hampered by the defection of personnel with long-standing relationships with management-level personnel of gaming establishments |
| 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 |
| We have discovered a material weakness in our internal controls as defined under standards adopted by the Public Company Accounting Oversight Board, or PCAOB, that require remediation |
| Under the PCAOB standards, a “material weakness” is a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected |
| A “significant deficiency” is a control deficiency or combination of control deficiencies, that adversely affect a company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of a company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected |
| As a result of the material weakness we have identified in our internal controls, we also identified certain deficiencies in some of our disclosure controls and procedures that we believe require remediation |
| We cannot be certain that our efforts to improve our internal and disclosure controls will be successful or that we will be able to 13 _________________________________________________________________ [65]Table of Contents maintain adequate controls over our financial processes and reporting in the future |
| Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with Nasdaq |
| Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our securities |
| 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 |
| The strength and profitability of our business depends on consumer demand for gaming |
| During periods of economic contraction, our revenues may decrease while some of our costs remain fixed, resulting in decreased earnings |
| This is because the gaming activities in connection with which we provide our Cash Access Services are discretionary leisure activity expenditures and participation in leisure activities may decline during economic downturns because consumers have less disposable income |
| Even an uncertain economic outlook may adversely affect consumer spending in gaming operations, as consumers spend less in anticipation of a potential economic downturn |
| Reductions in tourism could also have a material adverse effect on our business, financial condition and results of operations |
| Changes in consumer preferences or discretionary consumer spending could harm our business |
| Gaming competes with other leisure activities as a form of consumer entertainment, and may lose relative popularity as new leisure activities arise or as other existing leisure activities become more popular |
| The popularity of gaming is also influenced by the social acceptance of gaming, which is dictated by prevailing social mores |
| To the extent that the popularity of gaming declines as a result of either of these factors, the demand for our Cash Access Services may decline and our business may be harmed |
| Aside from the general popularity of gaming, the demographic profile of gaming patrons changes over time |
| The gaming habits and use of Cash Access Services varies with the demographic profile of gaming patrons |
| For example, a local gaming patron may visit a gaming establishment regularly but limit his or her play to the amount of cash that he or she brings to the gaming establishment |
| In contrast, a vacationing gaming patron that visits the gaming establishment infrequently may play much larger amounts and have a greater need to use cash access services |
| To the extent that the demographic profile of gaming patrons either narrows or migrates towards gaming patrons who use Cash Access Services less frequently or for lesser amounts of cash, the demand for our Cash Access Services may decline and our business may be harmed |
| We are subject to extensive governmental gaming regulation, which may harm our business |
| We are subject to a variety of regulations in the jurisdictions in which we operate |
| Regulatory authorities at the federal, state, local and Native American Tribal Council levels have broad powers with respect to the licensing of gaming-related activities and may revoke, suspend, condition or limit our licenses, impose substantial fines and take other actions, any one of which could have a material adverse effect on our business, financial condition and results of operations |
| With a majority of our customers being Native American Tribal gaming operations we are subject to regulatory and contractual approval by Tribal authorities |
| As sovereign nations, the Tribal customers have broad powers and significant discretion regarding termination or renewal of the licenses and contracts |
| Any disputes arising regarding a license or contract must be resolved through the Tribal judicial system |
| We cannot assure you that any new gaming license or related approval that may be required in the future will be granted, or that our existing licenses will not be revoked, suspended or limited or will be renewed |
| If additional gaming-related regulations are adopted in a jurisdiction in which we operate, such regulations could impose restrictions or costs that could have a material adverse effect on our business |
| From time to time, various proposals are introduced in the legislatures of some of the jurisdictions in which we have existing or planned operations that, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the gaming industry and our company |
| Legislation of this type may be enacted in the future |
| 14 _________________________________________________________________ [66]Table of Contents Members of our board of directors, corporate officers, management team and the beneficial owners of five percent or more of our outstanding equity interests must also be approved by certain state or Tribal regulatory authorities |
| If the regulatory authorities were to find a person occupying any such position unsuitable, we would be required to sever our relationship with that person |
| Certain public issuances of securities and certain other transactions by us also require the approval of certain regulatory authorities |
| In addition, certain new products and services that we may develop cannot be offered in the absence of regulatory approval of the product or licensing of us, or both |
| For example, our cashless gaming product must have approval and cannot be used at any location until we receive approval from the appropriate authority in such location |
| These approvals could require that we and our officers, directors or beneficial owners obtain a license or be found suitable and that the product be approved after testing and review |
| We cannot assure you that we will obtain any such approvals in the future |
| In most jurisdictions in which we do business, we must obtain a non-gaming supplier’s or vendor’s license, qualification or approval |
| The obtaining of these licenses, qualifications or approvals and the regulations imposed on non-gaming suppliers and vendors are typically less stringent than for gaming-related suppliers and vendors |
| In some jurisdictions in which we do business, we must obtain a gaming-related supplier’s or vendor’s license, qualification or approval |
| If we must obtain a gaming-related supplier’s or vendor’s license, qualification or approval because of the introduction of new products (such as products related to cashless gaming) or because of a change in the laws or regulations, or interpretation thereof, our business could be materially adversely affected |
| This increased regulation of business could include, but is not limited to: requiring the licensure or finding of suitability of any equity owner, officer, director or key employee of the Company; the termination or disassociation with any equity owner, officer, director or key employee that fails to file an application or to obtain a license or finding of suitability; the submission of detailed financial and operating reports; submission of reports of material loans, leases and financing; and, requiring regulatory approval of certain commercial transactions such as the transfer or pledge of equity interests in the Company |
| Many of the financial services that we provide are subject to extensive rules and regulations, which may harm our business |
| All of our Cash Access Services are subject to the privacy provisions of state and federal law, including the Gramm-Leach-Bliley Act |
| Our POS debit card transactions and ATM withdrawal services are subject to the Electronic Fund Transfer Act |
| Our ATM services are subject to the applicable regulations in each jurisdiction in which we operate ATMs |
| Our ATM services may also be subject to local regulations relating to the imposition of daily limits on the amounts that may be withdrawn from ATM machines, the location of ATM machines and our ability to surcharge cardholders who use our ATM machines |
| The Cash Access Services we provide are subject to recordkeeping and reporting obligations under the Bank Secrecy Act and the USA PATRIOT Act of 2001 |
| In most gaming establishments, our Cash Access Services are provided through gaming establishment cashier personnel, in which case the gaming establishment is required to file Currency Transaction Reports, or CTRs, or Suspicious Activity Reports, or SARs |
| In a limited number of gaming establishments, we provide our Cash Access Services directly to gaming patrons at satellite cashiers or booths that we staff and operate, in which case we are required to file CTRs or SARs on a timely basis |
| If we fail to file these CTRs or SARs on a timely basis or if we are found to be noncompliant in any way with these laws, we could be subject to substantial civil and criminal penalties |
| In jurisdictions in which we serve as a check casher, we are subject to the applicable state licensing requirements and regulations governing check cashing activities and deferred deposit service providers |
| In the event that any regulatory authority determines that the manner in which we provide cash access services is not in compliance with existing rules and regulations, or the regulatory authorities adopt new rules or regulations that prohibit or restrict the manner in which we provide cash access services, we may be forced to modify the manner in which we operate, or stop processing certain types of cash access transactions altogether |
| We may also be required to pay substantial penalties and fines if we fail to comply with applicable rules and regulations |
| For example, if we fail to file CTRs or SARs on a timely basis or if we are found to be noncompliant in any way with either the Bank Secrecy Act and the USA PATRIOT Act of 2001, we could be subject to substantial civil and criminal penalties |
| In addition, our failure to comply with applicable rules and regulations could subject us to 15 _________________________________________________________________ [67]Table of Contents private litigation |
| Any such actions could have a material adverse effect on our business, financial condition and operating results |
| Following the events of September 11, 2001, the United States and other governments have imposed and are considering a variety of new regulations focused on the detection and prevention of money laundering and money transmitting to or from terrorists and other criminals |
| Compliance with these new regulations may impact our business operations or increase our costs |
| Finally, as we develop new products and services, we may become subject to additional regulations |
| Being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified directors |
| As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act of 2002 (“SOX”), and the rules and regulations of The Nasdaq National Market (“Nasdaq”) |
| We have been subject to the Exchange Act since 2001 and provisions of SOX since 2005, as a result of the change in ownership control |
| The requirements of these rules and regulations have increased our accounting, legal and financial compliance costs, made some activities more difficult, time-consuming or costly and have placed significant strain on our personnel, systems and resources |
| The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition |
| SOX requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting |
| In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required |
| As a result, management’s attention may be diverted from other business concerns, which could have a material adverse effect on our business, financial condition and operating results |