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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|                                             |  |                                                                                         
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)                                   |  |                                                                                         
|(X)                                          |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 
|                                             |  |                                                                                         
|For the quarterly period ended June 30, 2002
|                                             |  |                                                                                         
|or                                          
|                                             |  |                                                                                         
|(   )                                        |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|                                             |  |                                                                                         
|For the transition period from to           

Commission file number: 0-26580

AMERICAN COIN MERCHANDISING, INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 84-1093721                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

5660 Central Avenue, Boulder, Colorado 80301
(Address of principal executive offices)
(Zip Code)

(303) 444-2559
(Registrants telephone number)

Securities registered under Section 12(b) of the Exchange Act:

Ascending Rate Cumulative Trust Preferred Securities, liquidation amount $10 per security

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No

As of August 10, 2002, the registrant had 1,000 shares of its $0.01 par
value common stock outstanding. None of the registrants common stock is held
by non-affiliates of the registrant.





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TABLE OF CONTENTS



|                               |                                                                                                |                                                           |  |  |  |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION.
|                               | ITEM 1. FINANCIAL STATEMENTS                                                                  
|                               |                                                                                                | Consolidated Condensed Balance Sheets                    
|                               |                                                                                                | Consolidated Condensed Statements Of Operations          
|                               |                                                                                                | Consolidated Condensed Statements Of Stockholders Equity
|                               |                                                                                                | Consolidated Condensed Statements Of Cash Flows          
|                               |                                                                                                | NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS     
|                               | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|                               | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                           
|PART II. OTHER INFORMATION    
|                               | ITEM 6. Exhibits and Reports on Form 8-k.                                                     
|EX-99.1 Certifications        



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC.

INDEX

|                                 |  |                                                                                       |  |                                                                                                                                                                                                                                        |    |      |   | 
|-------------------------------- |  | ------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                                 |  |                                                                                       |  |                                                                                                                                                                                                                                        |    | Page
|                                 |  |                                                                                       |  |                                                                                                                                                                                                                                        |    |     
|PART I    FINANCIAL INFORMATION. |  |                                                                                       |  |                                                                                                                                                                                                                                       
|Item 1.                          |  | Financial Statements                                                                  |  |                                                                                                                                                                                                                                        |    |     
|                                 |  |                                                                                       |  | Consolidated Condensed Balance Sheets
June 30, 2002 (successor) and December 31, 2001 (predecessor)                                                                                                                                    |    |      | 3 | 
|                                 |  |                                                                                       |  | Consolidated Condensed Statements of Operations for the Three
Months and Five Months Ended June 30, 2002 (successor), One Month
Ended January 31, 2002 (predecessor) and Three Months and Six
Months Ended June 30, 2001 (predecessor) |    |      | 4 | 
|                                 |  |                                                                                       |  | Consolidated Condensed Statements of Stockholders Equity for the
Five Months Ended June 30, 2002 (successor) and One Month Ended
January 31, 2002 (predecessor)                                                                       |    |      | 5 | 
|                                 |  |                                                                                       |  | Consolidated Condensed Statements of Cash Flows for the Five
Months Ended June 30, 2002 (successor), One Month Ended January
31, 2002 (predecessor) and Six Months Ended June 30, 2001
(predecessor)                                   |    |      | 6 | 
|                                 |  |                                                                                       |  | Notes to Consolidated Condensed Financial Statements                                                                                                                                                                                   |    |      | 7 | 
|Item 2.                          |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  |                                                                                                                                                                                                                                        | 10 |     
|Item 3.                          |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                                                                                                                                        | 15 |     
|                                 |  |                                                                                       |  |                                                                                                                                                                                                                                        |    |      |   | 
|PART II    OTHER INFORMATION.    |  |                                                                                       |  |                                                                                                                                                                                                                                       
|                                 |  |                                                                                       |  |                                                                                                                                                                                                                                        |    |      |   | 
|Item 6.                          |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                                                                                                                                        | 16 |     





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##### Table of Contents






PART I. FINANCIAL INFORMATION.




|        |  |                     
|------- |  | --------------------
|ITEM 1. |  | FINANCIAL STATEMENTS




AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands, except per share data)

|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |         |  |  | 
|---------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------ | ------- | --------- | ------ | ------------ | ------- |  |  | 
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         | Successor |        | Predecessor 
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |             
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         | June 30,  |        | December 31,
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         | 2002      |        | 2001        
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |             
|                                                                                                                                   |                                                                                                                      |                                            |                                      | ASSETS |         |           |        |              |         |  |  | 
|Current assets:                                                                                                                    |                                                                                                                      |                                            |                                      |        |         |           |        |             
|                                                                                                                                   | Cash and cash equivalents                                                                                            |                                            | $                                    | 1,117  |         |           | $      | 4,066        |        
|                                                                                                                                   | Trade accounts and other receivables, net                                                                            |                                            |                                      | 657    |         |           |        | 738          |        
|                                                                                                                                   | Income tax receivable                                                                                                |                                            |                                      | 725    |         |           |        | 725          |        
|                                                                                                                                   | Inventories, net                                                                                                     |                                            |                                      | 12,311 |         |           |        | 11,981       |        
|                                                                                                                                   | Prepaid expenses and other assets                                                                                    |                                            |                                      | 3,060  |         |           |        | 2,736        |        
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|                                                                                                                                   |                                                                                                                      | Total current assets                       |                                      |        | 17,870  |           |        |              | 20,246  | 
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|Property and equipment, at cost:                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |             
|                                                                                                                                   | Vending machines                                                                                                     |                                            |                                      | 39,078 |         |           |        | 71,758       |        
|                                                                                                                                   | Vehicles                                                                                                             |                                            |                                      | 4,775  |         |           |        | 5,683        |        
|                                                                                                                                   | Office equipment, furniture and fixtures                                                                             |                                            |                                      | 4,296  |         |           |        | 5,534        |        
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|                                                                                                                                   |                                                                                                                      |                                            | 48,149                               |        |         |           | 82,975 |             
|                                                                                                                                   | Less accumulated depreciation                                                                                        |                                            |                                      | (3,926 | )       |           |        | (38,943      | )      
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|                                                                                                                                   |                                                                                                                      | Property and equipment, net                |                                      |        | 44,223  |           |        |              | 44,032  | 
|Placement fees, net of accumulated amortization of $1,154 in 2002 and $4,758 in 2001                                               |                                                                                                                      |                                            | 2,204                                |        |         |           | 2,218  |             
|Costs in excess of assets acquired and other intangible assets, net of accumulated
amortization of $103 in 2002 and $8,481 in 2001 |                                                                                                                      |                                            | 61,311                               |        |         |           | 34,660 |             
|Other assets, net of accumulated amortization of $638 in 2002 and $1,274 in 2001                                                   |                                                                                                                      |                                            | 7,663                                |        |         |           | 2,206  |             
|Deferred tax assets                                                                                                                |                                                                                                                      |                                            | 450                                  |        |         |           |       |             
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|                                                                                                                                   |                                                                                                                      | Total assets                               |                                      | $      | 133,721 |           |        | $            | 103,362 | 
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|                                                                                                                                   |                                                                                                                      |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |        |         |           |        |              |         |  | 
|Current liabilities:                                                                                                               |                                                                                                                      |                                            |                                      |        |         |           |        |             
|                                                                                                                                   | Current portion of long-term debt                                                                                    |                                            | $                                    | 5,584  |         |           | $      | 7,700        |        
|                                                                                                                                   | Accounts payable                                                                                                     |                                            |                                      | 7,030  |         |           |        | 4,322        |        
|                                                                                                                                   | Accrued commissions                                                                                                  |                                            |                                      | 2,457  |         |           |        | 2,766        |        
|                                                                                                                                   | Other accrued expenses                                                                                               |                                            |                                      | 1,815  |         |           |        | 1,807        |        
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|                                                                                                                                   |                                                                                                                      | Total current liabilities                  |                                      |        | 16,886  |           |        |              | 16,595  | 
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|Long-term debt, net of current portion                                                                                             |                                                                                                                      |                                            | 75,474                               |        |         |           | 37,276 |             
|Other liabilities                                                                                                                  |                                                                                                                      |                                            | 706                                  |        |         |           | 627    |             
|Fair value of interest rate collar agreement                                                                                       |                                                                                                                      |                                            | 419                                  |        |         |           |       |             
|Deferred tax liabilities                                                                                                           |                                                                                                                      |                                            |                                     |        |         |           | 1,457  |             
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|                                                                                                                                   |                                                                                                                      | Total liabilities                          |                                      |        | 93,485  |           |        |              | 55,955  | 
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|Company obligated mandatorily redeemable preferred securities of subsidiary trust
holding solely junior subordinated debentures    |                                                                                                                      |                                            | 12,949                               |        |         |           | 15,644 |             
|Stockholders equity:                                                                                                              |                                                                                                                      |                                            |                                      |        |         |           |        |             
|                                                                                                                                   | Common stock, $.01 par value (Authorized 1 shares; issued and
outstanding 1 shares in 2002 and 6,538 shares in 2001) |                                            |                                      |       |         |           |        | 66           |        
|                                                                                                                                   | Additional paid-in-capital                                                                                           |                                            |                                      | 28,000 |         |           |        | 22,136       |        
|                                                                                                                                   | Retained earnings (accumulated deficit)                                                                              |                                            |                                      | (713   | )       |           |        | 9,561        |        
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|                                                                                                                                   |                                                                                                                      | Total stockholders equity                 |                                      |        | 27,287  |           |        |              | 31,763  | 
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        
|Commitments                                                                                                                        |                                                                                                                      |                                            |                                      |        |         |           |        |             
|                                                                                                                                   |                                                                                                                      | Total liabilities and stockholders equity |                                      | $      | 133,721 |           |        | $            | 103,362 | 
|                                                                                                                                   |                                                                                                                      |                                            |                                      |        |         |           |        |              |        

See accompanying notes to consolidated condensed financial statements.

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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
Consolidated Condensed Statements Of Operations
(in thousands, except per share data)

|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |        | 
|------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------- | ----- | ------------------ | ------ | ----------- | ----- | ----------- | ------ | ----------- | ----- | ----------- | ------ | --------- | ------ | ---------- | ------ | - | ------ | ------ | ------ | 
|                                                                          |                                                          |                                                   |       | Successor          |        | Predecessor |       | Successor   |        | Predecessor
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |            
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       | Five Months |        | One Month |        | Six Months
|                                                                          |                                                          |                                                   |       | Three Months Ended |        | Ended       |       | Ended       |        | Ended      
|                                                                          |                                                          |                                                   |       | June 30,           |        | June 30,    |       | January 31, |        | June 30,   
|                                                                          |                                                          |                                                   |       | 2002               |        | 2001        |       | 2002        |        | 2002        |       | 2001       
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |            
|Revenue:                                                                  |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |       
|                                                                          | Vending                                                  |                                                   | $     | 33,492             |        |             | $     | 34,435      |        |             | $     | 57,585      |        |           | $      | 10,880     |        |   | $      | 68,193 |       
|                                                                          | Franchise and other                                      |                                                   |       | 598                |        |             |       | 538         |        |             |       | 948         |        |           |        | 199        |        |   |        | 1,176  |       
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Total revenue                                     |       |                    | 34,090 |             |       |             | 34,973 |             |       |             | 58,533 |           |        |            | 11,079 |   |        |        | 69,369 | 
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|Cost of revenue:                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |       
|                                                                          | Vending, excluding related depreciation
and amortization |                                                   |       | 22,623             |        |             |       | 22,979      |        |             |       | 38,481      |        |           |        | 7,568      |        |   |        | 45,263 |       
|                                                                          | Depreciation and amortization                            |                                                   |       | 3,145              |        |             |       | 2,960       |        |             |       | 5,236       |        |           |        | 1,013      |        |   |        | 5,909  |       
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Total cost of vending                             |       |                    | 25,768 |             |       |             | 25,939 |             |       |             | 43,717 |           |        |            | 8,581  |   |        |        | 51,172 | 
|                                                                          | Franchise and other                                      |                                                   |       | 50                 |        |             |       | 564         |        |             |       | 325         |        |           |        | 192        |        |   |        | 1,087  |       
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Total cost of revenue                             |       |                    | 25,818 |             |       |             | 26,503 |             |       |             | 44,042 |           |        |            | 8,773  |   |        |        | 52,259 | 
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Gross profit                                      |       |                    | 8,272  |             |       |             | 8,470  |             |       |             | 14,491 |           |        |            | 2,306  |   |        |        | 17,110 | 
|General and administrative expenses                                       |                                                          |                                                   | 6,026 |                    |        |             | 5,680 |             |        |             | 9,990 |             |        |           | 3,617  |            |        |   | 11,333 |       
|Depreciation and amortization                                             |                                                          |                                                   | 269   |                    |        |             | 777   |             |        |             | 453   |             |        |           | 96     |            |        |   | 1,529  |       
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Operating earnings (loss)                         |       |                    | 1,977  |             |       |             | 2,013  |             |       |             | 4,048  |           |        |            | (1,407 | ) |        |        | 4,248  | 
|Other expense:                                                            |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |       
|                                                                          | Interest expense, net                                    |                                                   |       | 2,880              |        |             |       | 1,679       |        |             |       | 4,606       |        |           |        | 390        |        |   |        | 3,527  |       
|                                                                          | Change in fair value of interest rate collar             |                                                   |       | 600                |        |             |       |            |        |             |       | 600         |        |           |        |           |        |   |        |       |       
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Earnings (loss) before income taxes               |       |                    | (1,503 | )           |       |             | 334    |             |       |             | (1,158 | )         |        |            | (1,797 | ) |        |        | 721    | 
|Income tax (expense) benefit                                              |                                                          |                                                   | 576   |                    |        |             | 127   |             |        |             | 445   |             |        |           | 683    |            |        |   | 274    |       
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Earnings (loss) before extraordinary loss         |       |                    | (927   | )           |       |             | 207    |             |       |             | (713   | )         |        |            | (1,114 | ) |        |        | 447    | 
|Extraordinary loss on debt refinancing, net of
income tax benefit of $656 |                                                          |                                                   |      |                    |        |             |      |             |        |             |      |             |        |           | (1,071 | )          |        |   |       |       
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Net earnings (loss)                               |       | $                  | (927   | )           |       | $           | 207    |             |       | $           | (713   | )         |        | $          | (2,185 | ) |        | $      | 447    | 
|                                                                          |                                                          |                                                   |       |                    |        |             |       |             |        |             |       |             |        |           |        |            |        |   |        |        |       
|                                                                          |                                                          | Basic earnings (loss) per share of
common stock   |       |                    |        |             |       | $           | 0.03   |             |       |             |        |           |        | $          | (0.33  | ) |        | $      | 0.07   | 
|                                                                          |                                                          | Diluted earnings (loss) per share of
common stock |       |                    |        |             |       |             | 0.03   |             |       |             |        |           |        |            | (0.33  | ) |        |        | 0.07   | 
|                                                                          |                                                          | Basic weighted average common shares              |       |                    |        |             |       |             | 6,522  |             |       |             |        |           |        |            | 6,545  |   |        |        | 6,518  | 
|                                                                          |                                                          | Diluted weighted average common shares            |       |                    |        |             |       |             | 6,638  |             |       |             |        |           |        |            | 6,545  |   |        |        | 6,590  | 

See accompanying notes to consolidated condensed financial statements.

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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
Consolidated Condensed Statements Of Stockholders Equity
(In thousands, except per share data)

|                  |                                         |                               |    |              |   |         |        |                    |   |              |       |                     |   |   |        |         |   | 
|----------------- | --------------------------------------- | ----------------------------- | -- | ------------ | - | ------- | ------ | ------------------ | - | ------------ | ----- | ------------------- | - | - | ------ | ------- | - | 
|                  |                                         |                               |    |              |   |         |        |                    |   |              |       | Retained Earnings   |   |   |        |        
|                  |                                         |                               |    |              |   |         |        | Additional Paid-In |   | (Accumulated |       | Total Stockholders'
|                  |                                         |                               |    | Common Stock |   | Capital |        | Deficit)           |   | Equity      
|                  |                                         |                               |    |              |   |         |        |                    |   |             
|December 31, 2001 |                                         | $                             | 66 |              |   | $       | 22,136 |                    |   | $            | 9,561 |                     |   | $ | 31,763 |        
|                  | Exercise of employee stock options      |                               |    |             |   |         |        | 29                 |   |              |       |                    |   |   |        | 29      |  
|                  | Net loss                                |                               |    |             |   |         |        |                   |   |              |       | (2,185              | ) |   |        | (2,185  | )
|                  | Impact of acquisition acquisition       |                               |    | (66          | ) |         |        | (22,165            | ) |              |       | (7,376              | ) |   |        | (29,607 | )
|                  |                                         |                               |    |              |   |         |        |                    |   |              |       |                     |   |   |        |        
|                  |                                         | Balances prior to acquisition |    |              |  |         |        |                    |  |              |       |                     |  |   |        |         |  | 
|                  | Issuance of equity in Successor Company |                               |    |             |   |         |        | 28,000             |   |              |       |                    |   |   |        | 28,000  |  
|                  | Net loss                                |                               |    |             |   |         |        |                   |   |              |       | (713                | ) |   |        | (713    | )
|                  |                                         |                               |    |              |   |         |        |                    |   |              |       |                     |   |   |        |        
|June 30, 2002     |                                         | $                             |   |              |   | $       | 28,000 |                    |   |              | (713  | )                   |   | $ | 27,287 |        
|                  |                                         |                               |    |              |   |         |        |                    |   |              |       |                     |   |   |        |        

See accompanying notes to consolidated condensed financial statements.

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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
Consolidated Condensed Statements Of Cash Flows
(In thousands)

|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |       |        |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------ | -------------------------------------------- | ------------------------------------------------ | -------------------------------------------------------- | ----- | ----------- | ------ | ----------- | ----- | ---------- | ------ | ------ | ----- | ------ | ------ | -
|                                                 |                                                                                            |                                              |                                                  |                                                          |       | Successor   |        | Predecessor
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |            
|                                                 |                                                                                            |                                              |                                                  |                                                          |       | Five Months |        | One Month   |       | Six Months
|                                                 |                                                                                            |                                              |                                                  |                                                          |       | Ended       |        | Ended       |       | Ended     
|                                                 |                                                                                            |                                              |                                                  |                                                          |       | June 30,    |        | January 31, |       | June 30,  
|                                                 |                                                                                            |                                              |                                                  |                                                          |       | 2002        |        | 2002        |       | 2001      
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |           
|Operating activities:                            |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |       
|                                                 | Net earnings (loss)                                                                        |                                              | $                                                | (713                                                     | )     |             | $      | (2,185      | )     |            | $      | 447    |      
|                                                 | Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities: |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      
|                                                 |                                                                                            | Depreciation and amortization                |                                                  |                                                          | 6,393 |             |        |             | 1,146 |            |        |        | 7,708 |       
|                                                 |                                                                                            | Change in fair value of interest rate collar |                                                  |                                                          | 600   |             |        |             |      |            |        |        |      |       
|                                                 |                                                                                            | Changes in operating assets and liabilities: |                                                  |                                                          |       |             |        |             |       |            |        |        |       |       
|                                                 |                                                                                            |                                              |                                                  | Trade accounts and other receivables                     |       |             | (15    | )           |       |            | 96     |        |       |        | (194   | )
|                                                 |                                                                                            |                                              |                                                  | Inventories                                              |       |             | (1,563 | )           |       |            | 1,233  |        |       |        | (2,101 | )
|                                                 |                                                                                            |                                              |                                                  | Prepaid expenses and other assets                        |       |             | (1,631 | )           |       |            | (5,468 | )      |       |        | (248   | )
|                                                 |                                                                                            |                                              |                                                  | Accounts payable, accrued expenses and other liabilities |       |             | 3,042  |             |       |            | (2,013 | )      |       |        | 548    |  
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      
|                                                 |                                                                                            |                                              | Net cash provided (used) by operating activities |                                                          |       | 6,113       |        |             |       | (7,191     | )      |        |       | 6,160  |       
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      
|Investing activities:                            |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |       
|                                                 | Acquisitions of property and equipment, net                                                |                                              |                                                  | (5,104                                                   | )     |             |        | (436        | )     |            |        | (2,559 | )    
|                                                 | Acquisition of franchisee                                                                  |                                              |                                                  |                                                         |       |             |        |            |       |            |        | (273   | )    
|                                                 | Placement fees                                                                             |                                              |                                                  | (1,041                                                   | )     |             |        | (300        | )     |            |        | (1,241 | )    
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      
|                                                 |                                                                                            |                                              | Net cash used in investing activities            |                                                          |       | (6,145      | )      |             |       | (736       | )      |        |       | (4,073 | )     
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      
|Financing activities:                            |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |       
|                                                 | Net borrowings on current credit facilities                                                |                                              |                                                  | (2,023                                                   | )     |             |        | 82,703      |       |            |        |       |      
|                                                 | Net payments on previous credit facility                                                   |                                              |                                                  |                                                         |       |             |        | (44,500     | )     |            |        | (1,500 | )    
|                                                 | Principal payments on long-term debt                                                       |                                              |                                                  | (82                                                      | )     |             |        | (16         | )     |            |        | (909   | )    
|                                                 | Net issuance (purchase) of common stock net of offering costs                              |                                              |                                                  |                                                         |       |             |        | (31,072     | )     |            |        | 38     |      
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      
|                                                 |                                                                                            |                                              | Net cash provided (used) in financing activities |                                                          |       | (2,105      | )      |             |       | 7,115      |        |        |       | (2,371 | )     
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      
|                                                 |                                                                                            |                                              | Net decrease in cash and cash equivalents        |                                                          |       | (2,137      | )      |             |       | (812       | )      |        |       | (284   | )     
|Cash and cash equivalents at beginning of period |                                                                                            |                                              | 3,254                                            |                                                          |       |             | 4,066  |             |       |            | 2,986  |       
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      
|Cash and cash equivalents at end of period       |                                                                                            | $                                            | 1,117                                            |                                                          |       | $           | 3,254  |             |       | $          | 2,702  |       
|                                                 |                                                                                            |                                              |                                                  |                                                          |       |             |        |             |       |            |        |        |      

See accompanying notes to consolidated condensed financial statements.

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##### Table of Contents






AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc. and
American Coin Merchandising Trust I (the Company) and its franchisees own and
operate more than 26,000 coin-operated amusement vending machines. Over 14,000
of these machines dispense plush toys, watches, jewelry, novelties, and other
items. The Companys amusement vending machines are placed in supermarkets,
mass merchandisers, bowling centers, truck stops, bingo halls, bars,
restaurants, warehouse clubs and similar locations. At June 30, 2002, the
Company had 33 field offices with operations in 47 states. The Company also
sells products to franchisees. At June 30, 2002, there were 9 franchisees
operating in 12 territories. All significant intercompany balances and
transactions have been eliminated in consolidation.

On February 11, 2002 the Company was acquired by ACMI Holdings, Inc., a
newly formed corporation organized by two investment firms, Wellspring Capital
Management LLC and Knightsbridge Holdings, LLC. The transaction was approved at
a stockholders meeting held on February 5, 2002. Stockholders received $8.50
in cash for each outstanding share of the Companys common stock. The Companys
common stock is no longer publicly traded. The Companys mandatorily redeemable
preferred securities remain outstanding and continue to trade on the American
Stock Exchange. Periods prior to the acquisition (deemed to be February 1,
2002) are denoted as predecessor and those subsequent to the acquisition are
denoted as successor.

The accompanying consolidated condensed financial statements have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Certain amounts for prior periods have
been reclassified to conform to the June 30, 2002 presentation. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these consolidated condensed
financial statements be read in connection with the financial statements and
notes thereto included in the Companys annual report on Form 10-K for the year
ended December 31, 2001.

In the opinion of the Company, the accompanying consolidated condensed
financial statements include all adjustments (consisting of normal recurring
accruals and adjustments) required to present fairly the Companys financial
position at June 30, 2002 and December 31, 2001, and the results of its
operations and cash flows for the three months and five months ended June 30,
2002, one month ended January 31, 2002 and the three months and six months
ended June 30, 2001.

The operating results for the periods in 2002 are not necessarily
indicative of the results that may be expected for the 11-month period ended
December 31, 2002.

1. Acquisition

On February 11, 2002, the Company was acquired by ACMI Holdings, Inc., a
newly formed corporate organized by two investment firms, Wellspring Capital
Management LLC and Knightsbridge Holdings, LLC for approximately $110.7
million. Of this amount, approximately $28 million was paid in cash. The
Company has recorded approximately $61.4 million of costs in excess of assets
acquired as a result of the ACMI Holdings acquisition that was accounted for
using the purchase method of accounting.

3. Supplemental Disclosures of Cash Flow Information

A schedule of supplemental cash flow information follows (in thousands):

|                             |                   |  |             |       |             |  |            |     |  |  |   |       | 
|---------------------------- | ----------------- |  | ----------- | ----- | ----------- |  | ---------- | --- |  |  | - | ----- | 
|                             |                   |  | Successor   |       | Predecessor
|                             |                   |  |             |       |            
|                             |                   |  | Five Months |       | One Month   |  | Six Months
|                             |                   |  | Ended       |       | Ended       |  | Ended     
|                             |                   |  | June 30,    |       | January 31, |  | June 30,  
|                             |                   |  | 2002        |       | 2002        |  | 2001      
|                             |                   |  |             |       |             |  |           
|Cash paid during the period: |                   |  |             |       |             |  |            |     |  |  |   |      
|                             | Interest paid     |  | $           | 3,553 |             |  | $          | 560 |  |  | $ | 2,525 | 
|                             | Income taxes paid |  |             | 72    |             |  |            | 3   |  |  |   | 45    | 

7



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

4. Earnings (loss) per share

Basic and diluted earnings (loss) per share are computed by dividing net
earnings (loss) by the weighted average number of common shares outstanding
during the period and by all dilutive potential common shares outstanding
during the period, respectively.

|                                                 |                                                           |   |             |       |              |   |            |         |  |   |           |        | 
|------------------------------------------------ | --------------------------------------------------------- | - | ----------- | ----- | ------------ | - | ---------- | ------- |  | - | --------- | ------ | 
|                                                 |                                                           |   | Predecessor
|                                                 |                                                           |   |            
|                                                 |                                                           |   | One Month   |       | Three Months |   | Six Months
|                                                 |                                                           |   | Ended       |       | Ended        |   | Ended     
|                                                 |                                                           |   | January 31, |       | June 30,     |   | June 30,  
|                                                 |                                                           |   | 2002        |       | 2001         |   | 2001      
|                                                 |                                                           |   |             |       |              |   |           
|Net earnings (loss)                              |                                                           | $ | (2,185,000  | )     |              | $ | 207,000    |         |  | $ | 447,000   |       
|                                                 |                                                           |   |             |       |              |   |            |         |  |   |           |       
|Common shares outstanding at beginning of period |                                                           |   | 6,537,629   |       |              |   | 6,521,702  |         |  |   | 6,513,919 |       
|                                                 | Effect of shares issued during the period                 |   |             | 7,278 |              |   |            | 111     |  |   |           | 4,012  | 
|                                                 |                                                           |   |             |       |              |   |            |         |  |   |           |       
|Basic weighted average common shares             |                                                           |   | 6,544,907   |       |              |   | 6,521,813  |         |  |   | 6,517,931 |       
|                                                 | Incremental shares from assumed conversionsstock options |   |             |      |              |   |            | 116,675 |  |   |           | 72,148 | 
|                                                 |                                                           |   |             |       |              |   |            |         |  |   |           |       
|Diluted weighted average common shares           |                                                           |   | 6,544,907   |       |              |   | 6,638,488  |         |  |   | 6,590,079 |       
|                                                 |                                                           |   |             |       |              |   |            |         |  |   |           |       
|Basic earnings (loss) per share                  |                                                           | $ | (0.33       | )     |              | $ | 0.03       |         |  | $ | 0.07      |       
|                                                 |                                                           |   |             |       |              |   |            |         |  |   |           |       
|Diluted earnings (loss) per share                |                                                           | $ | (0.33       | )     |              | $ | 0.03       |         |  | $ | 0.07      |       
|                                                 |                                                           |   |             |       |              |   |            |         |  |   |           |       

5. Income taxes

Income taxes for interim periods are computed using the anticipated
effective tax rate for the year.

6. Costs in excess of assets acquired and other intangible assets

The Company periodically reviews and evaluates its costs in excess of
assets acquired and other intangible assets for potential impairment. Effective
January 1, 2002, the beginning of the Companys fiscal year 2002, the Company
adopted SFAS No. 142, Goodwill and Other Intangible Assets, under which costs
in excess of assets acquired is no longer amortized but instead will be
assessed for impairment at least annually. In accordance with SFAS No. 142,
this evaluation will not need to be completed until the first quarter of fiscal
year 2003 due to the Companys recent acquisition.

The following table reconciles net earnings for the three months and six
months ended June 30, 2001 to the pro forma net earnings excluding the
amortization of costs in excess of assets acquired (in thousands, except share
data).

|                                                           |                                                                         |   |          |     |          |   |       |     | 
|---------------------------------------------------------- | ----------------------------------------------------------------------- | - | -------- | --- | -------- | - | ----- | --- | 
|                                                           |                                                                         |   | Three    |     | Six     
|                                                           |                                                                         |   | Months   |     | Months  
|                                                           |                                                                         |   | Ended    |     | Ended   
|                                                           |                                                                         |   | June 30, |     | June 30,
|                                                           |                                                                         |   | 2001     |     | 2001    
|                                                           |                                                                         |   |          |     |         
|Net earnings before cumulative affect of accounting change |                                                                         | $ | 207      |     |          | $ | 447   |    
|                                                           | Amortization of costs in excess of assets acquired, net of income taxes |   |          | 310 |          |   |       | 620 | 
|                                                           |                                                                         |   |          |     |          |   |       |    
|Net earnings                                               |                                                                         | $ | 517      |     |          | $ | 1,067 |    
|                                                           |                                                                         |   |          |     |          |   |       |    
|Basic and diluted earnings per share of common stock       |                                                                         | $ | 0.08     |     |          | $ | 0.16  |    
|Basic weighted average common shares                       |                                                                         |   | 6,522    |     |          |   | 6,518 |    
|Diluted weighted average common shares                     |                                                                         |   | 6,638    |     |          |   | 6,590 |    

7. Long-term debt

The Companys $65.0 million senior secured credit facility is comprised of
a $10.0 million revolving credit facility and $55.0 million of term loans
comprised of a $25.0 million term loan A and a $30.0 million term loan B. Under
the revolving credit facility, the Company may borrow up to $10.0 million
through February 11, 2007, and at June 30, 2002, there was $1.4 million
outstanding and $8.6 million available under the revolving credit facility.
Under both term loans A and B, the Company is required to make quarterly
principal installments that increase in amount through February 11, 2007 for
term loan A and February 11, 2008 for term loan B. The revolving facility and
the term loans

8Table of Contents

AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

bear interest at a floating rate at the Companys option equal to either
LIBOR plus the applicable margin or a base rate that is equal to the higher of
the prime rate or the federal funds rate plus one-half percent plus the
applicable margin. The effective rate of interest on both facilities at June
30, 2002 was 6.2%. The credit facility provides that certain financial ratios
be met and places restrictions on, among other things, the incurrence of
additional debt financing and certain payments to the Companys parent company.
The Company was in compliance with such financial ratios and restrictions at
June 30, 2002.

The Company has also issued $25.0 million of senior subordinated notes due
in 2009. Interest on these notes is payable on a quarterly basis at the rate of
17% per annum; however, at the option of the Company the minimum cash interest
due on these notes is 13% with the balance of interest due being paid in the
form of additional notes or payment in kind notes in an aggregate amount equal
to the amount of interest that would be payable with respect to the notes, if
such interest were paid in cash. The note agreement provides that certain
financial ratios be met and places restrictions on, among other things, the
incurrence of additional senior subordinated indebtedness and certain
restricted payments. The Company was in compliance with such financial ratios
and restrictions at June 30, 2002.

8. Interest Rate Collar

The Company uses variable rate debt to finance its operations. These debt
obligations expose the Company to variability in interest payments due to
changes in interest rates. If interest rates increase, interest expense
increases. Conversely, if interest rates decrease, interest expense also
decreases.

Management believes it is prudent to limit the variability of a portion of
its interest payments, as well as the Company is obligated under terms of its
debt agreements to limit the variability of a portion of its interest payments.
To meet this objective, the Company entered into an interest rate collar
instrument on March 28, 2002, with the Royal Bank of Scotland PLC. The Company
paid $181,000 to obtain the agreement which hedges against increases in LIBOR
rates through March 31, 2005. The initial notional amount is $27.5 million
amortizing over a three-year period. The initial floor rate is 3.0% increasing
1.0% per year over the life of the agreement and the initial cap rate is 4.0%
increasing 1.0% per year over the life of the agreement. The Company is the
floor rate payee and the Royal Bank of Scotland PLC is the cap rate payee. No
payments are made if LIBOR falls between the floor and cap rate. This agreement
reduces the risk of interest rate increases to the Company.

Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, (SFAS 133) requires that all
derivative instruments be reported in the statement of financial position as
assets or liabilities and measured at fair value. The Companys interest rate
collar instrument is not allowed hedge accounting treatment under SFAS 133,
accordingly the Company records this instrument at fair value and recognizes
realized and unrealized gains and losses in other expense in the statement of
operations. The Company paid $67,000 during the quarter since LIBOR was below
the floor rate under the interest rate collar. This amount is included in
interest expense in the statement of operations. The Company does not speculate
using derivative instruments.

The fair value of the interest rate collar is obtained from bank quotes.
These values represent the estimated amount the Company would receive or pay to
terminate the agreement taking into consideration current interest rates. The
fair value at June 30, 2002 is a liability of $419,000. The fair value recorded
at the beginning of the quarter was an asset of $181,000. Accordingly, the
change in fair value of this nonhedging derivative instrument is reflected as
an expense during the quarter totaling $600,000.

9



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|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the following
discussion contains forward-looking statements within the meaning of the
Private Securities Litigation Act of 1995 that involve risks and uncertainties.
The Companys actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section and the Companys Form 10-K for the
year ended December 31, 2001.

In order to provide a meaningful basis of comparing the Companys
operating results, the operating results for the five months ended June 30,
2002 have been combined with the operating results for the one-month ended
January 31, 2002. The combined Company results for the six-month period ended
June 30, 2002 are compared to the comparable period in 2001. The combining of
successor and predecessor periods is not acceptable under accounting principles
generally accepted in the United States. This combined financial data should
not be viewed as a substitute for the Companys results of operations
determined in accordance with generally accepted accounting principles.

General

Substantially all of the Companys revenue and gross profit is derived
from Company-owned Shoppes. The Companys revenue and gross profit in a
particular period is directly related to the number of Shoppes in operation
during the period. Management believes that the Companys business is somewhat
seasonal, with average revenue per machine per week greater during the Easter
and Christmas periods. Vending revenue represents cash receipts from customers
using vending machines and is recognized when collected. The cost of vending
revenue is comprised of the cost of vended products, location commissions,
depreciation, and direct service cost.

On February 11, 2002 the Company was acquired by ACMI Holdings, Inc., a
newly formed corporation organized by two investment firms, Wellspring Capital
Management LLC and Knightsbridge Holdings, LLC. The transaction was approved at
a stockholders meeting held on February 5, 2002. Stockholders received $8.50
in cash for each outstanding share of the Companys common stock. The Companys
common stock is no longer publicly traded. The Companys mandatorily redeemable
preferred securities remain outstanding and continue to trade on the American
Stock Exchange.

Franchise and other revenue represents the Companys percentage of gross
vending revenue generated by Shoppes owned and operated by franchisees, as well
as product sold to franchisees and non-franchisee customers. Product sold to
franchisees and non-franchisees consists of goods to vend in the Shoppes.

Revenue

Total revenue for the first six months of 2002 increased to $69.6 million
from $69.4 million for the same period in 2001. For the second quarter of 2002,
total revenue declined 2.5% to $34.1 million as compared to $35.0 million for
the same period in 2001.

Vending revenue increased $272,000 for the first six months of 2002 to
$68.5 million from $68.2 million for the comparable period in 2001, primarily
as a result of a 5.3% increase in the average number of amusement vending
equipment in place during the first six months of 2002 compared to the average
number in place during the same period in 2001. For the second quarter of 2002,
vending revenue declined $943,000 to $33.5 million as compared to the same
period in 2001. The average number of amusement vending equipment in place
during the second quarter of 2002 increased 7.0% as compared to the second
quarter of 2001. The increase in placements was offset by lower weekly skill
crane averages in 2002 compared to 2001.

The Company has recently experienced growth, however, there can be no
assurance that the Company will continue to grow at historical rates or at all.
The Companys ability to generate increased revenue and achieve higher levels
of profitability will depend upon its ability and the ability of its
franchisees to place additional Shoppes as well as to maintain or increase the
average financial performance of the Shoppes. The Companys ability to place
additional Shoppes depends on a number of factors beyond the Companys control,
including general business and economic conditions. Installation of additional
Shoppes will also depend, in part, upon the Companys ability to secure
additional national and regional supermarket, mass merchandiser and restaurant
chain accounts and to obtain approval to place additional Shoppes in individual
locations of such accounts. The Company, its franchisees and their suppliers
also may be unable to place and adequately service additional Shoppes.

Franchise and other revenue decreased $29,000 to $1.1 million for the
first six months of 2002 as compared to the same period in 2001. The Company
anticipates franchise and other revenue to remain at this level or decrease in
the future.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Cost of Revenue and Gross Profit

The cost of vending operations for the first six months of 2002 increased
$1.1 million or 2.2% to $52.3 million from $51.2 million for the comparable
period in 2001. The vending operations contribution to gross profit for the
first six months of 2002 decreased $854,000 to $16.2 million compared to gross
profit from vending operations realized in the same period in 2001. The vending
gross profit achieved during the first six months of 2002 was 23.6% of vending
revenue, which represents a 1.4 percentage point decrease from the gross profit
percentage achieved during the first six months of 2001. For the second quarter
of 2002, the cost of vending decreased $171,000 to $25.8 million from $25.9
million for the comparable period in 2001. Vending gross profit realized during
the second quarter of 2002 was $7.7 million or 23.1% of vending revenue as
compared to $8.5 million or 24.7% for the second quarter of 2001. The decrease
in vending margin results primarily from increased machine maintenance, direct
labor, and placement fees.

The cash vending gross profit (vending revenue minus cost of vended
product, location commissions and direct service cost) achieved during the
first six months of 2002 was 32.7% of vending revenue, which is 0.9 percentage
points lower than the cash vending gross profit achieved during the first six
months of 2001. The cash vending gross profit for the current quarter is 0.6
percentage points lower than the cash vending gross profit achieved during the
first quarter of 2002. The Company attributes this decrease primarily to
increased machine maintenance and direct labor.

Substantially all the Companys plush toys and other products dispensed
from the Shoppes are produced by foreign manufacturers. A majority is purchased
directly by the Company from manufacturers in China. The Company purchases its
other products indirectly from vendors who obtain a significant percentage of
such products from foreign manufacturers. As a result, the Company is subject
to changes in governmental policies, the imposition of tariffs, import and
export controls, transportation delays and interruptions, political and
economic disruptions and labor strikes that could disrupt the supply of
products from such manufacturers.

Gross profit on franchise and other revenue for the first six months of
2002 increased to $630,000 or 54.9% of franchise and other revenue, as compared
to $89,000 or 7.6% of franchise and other revenue for the first six months of
2001. For the second quarter of 2002, gross profit on franchise and other
revenue increased to $548,000, as compared to a $26,000 deficit for the second
quarter of 2001. The increase in gross profit results primarily from reduced
freight related costs. The Company anticipates franchise and other revenue to
remain at this level or decrease in the future.

Operating Expenses

General and administrative expenses and depreciation and amortization
increased $1.3 million to $14.2 million for the first six months of 2002, and
increased as a percentage of total revenue to 20.3% as compared to 18.5% for
the comparable period in 2001. For the second quarter of 2002, general and
administrative expenses and depreciation and amortization decreased $162,000,
and remained level with the second quarter of 2001 as a percentage of total
revenue at 18.5%. The increase for the first six months of 2002 is due
primarily to costs related to the acquisition by ACMI Holdings, Inc. totaling
$1.9 million. General and administrative expense and depreciation and
amortization for the first six months of 2002, excluding transaction related
costs, decreased $594,000 to $12.3 million or 17.6% as a percentage of revenue
compared to the comparable period.

Operating Earnings

Operating earnings for the first six months of 2002 declined to $2.6, or
3.8% of total revenue, as compared to $4.2 million, or 6.1% of total revenue
for the comparable period in 2001. The decrease in operating earnings results
primarily from transaction related costs totaling $1.9 million. Operating
earnings for the second quarter of 2002 were consistent with the comparable
period of 2001. Operating earnings for the first six months of 2002, excluding
transaction related costs were $4.5 million or 6.5% of total revenue.

Interest Expense, Net

Interest expense for the first six months of 2002 increased $1.5 million
to $5.0 million as compared to the same period in 2001. Interest expense for
the second quarter of 2002 increased $1.2 million to $2.9 million as compared
to the same period in 2001. The Companys interest expense is directly related
to its level of borrowings and changes in the underlying interest rates.

Change in Fair Value of Interest Rate Collar

The Companys interest rate collar instrument is not allowed hedge
accounting treatment under SFAS 133, accordingly the Company records this
instrument at fair value and recognizes realized and unrealized gains and
losses in

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

other expenses in the statement of operations. The change in fair value on
this interest rate collar totaled $600,000 during the three and six months
ended June 30, 2002.

Extraordinary Loss

The extraordinary loss of $1.1 million, net of tax benefit, for the six
months ended June 30, 2002 relates to the refinancing of the Companys $55.0
million credit facility in February 2002, which was scheduled to mature in
December 2003. The extraordinary loss results from the write-off of loan
origination fees related to the previous credit facility.

Net Earnings (Loss) and Net Earnings (Loss) Per Share

The net loss for the first six months of 2002 was $2.9 million as compared
to net earnings of $447,000 for the comparable period in 2001. The net loss for
the second quarter of 2002 was $927,000, as compared to net earnings of
$207,000 for the comparable period in 2001. Net loss for the first six months
of 2002 excluding transaction related costs, change in fair value of interest
rate collar and the extraordinary loss was $299,000. The net loss for the six
months ended June 30, 2002 excluding transaction related costs, change in fair
value of interest rate collar and the extraordinary loss results primarily from
increased interest expense.

Critical Accounting Policies

Managements Discussion and Analysis of Financial Condition and Results of
Operations discusses the Companys consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period.

On an on-going basis, management evaluates its estimates and judgments,
including those related to income taxes, inventory, property and equipment and
costs in excess of assets acquired and other intangible assets. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. Management believes the following critical accounting policies,
among others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.

Deferred Taxes

The Company recognizes deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. The Company regularly reviews its deferred tax
assets for recoverability and has historically established valuation allowances
based on its taxable income, projected future taxable income, and the expected
timing of the reversals of existing temporary differences. If the Company
operates at a loss or is unable to generate sufficient future taxable income,
or if there is a material change in the actual effective tax rates or time
period within which the underlying temporary differences become taxable or
deductible, the Company could be required to establish a valuation allowance
against all or a significant portion of our deferred tax assets resulting in a
substantial increase in our effective tax rate and a material adverse impact on
our operating results. This could be mitigated by the reversal of future
taxable temporary differences in property, plant and equipment that could
create taxable income to help utilize the deferred tax assets.

Inventory

The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.

Property and Equipment

Property and equipment is stated at cost. Major replacements and
improvements are capitalized. When assets are sold, retired or otherwise
disposed of, the cost and related accumulated depreciation are eliminated from
the accounts and the gain or loss is recognized. Repair and maintenance costs
are generally charged to expense as incurred. Vending machines are depreciated
using the straight-line method over useful lives ranging from three to ten
years.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Valuation of long-lived and intangible assets and costs in excess of assets acquired

The Company assesses the impairment of identifiable intangibles,
long-lived assets and related costs in excess of assets acquired whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors considered important that could trigger an impairment
review include significant underperformance relative to expected historical or
projected future operating results, changes in the manner of our use of the
acquired assets and the strategy for our overall business and negative industry
or economic trends.

When the Company determines that the carrying value of costs in excess of
assets acquired and other intangible assets may not be recoverable based upon
the existence of one or more of the above indicators of impairment, the Company
measures any impairment based on the projected discounted cash flow method
using a discount rate determined by our management to be commensurate with the
risk inherent in the Companys current business model.

In 2002, Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets became effective and as a result, the
Company ceased to amortize approximately $33.3 million of costs in excess of
assets acquired. The Company has recorded approximately $2.0 million of
amortization related to these assets during 2001 and would have amortized
approximately $2.0 during 2002. In lieu of amortization, the Company is
required to perform an initial impairment review of our costs in excess of
assets acquired and an annual impairment review thereafter. The Company expects
to complete its initial review during the first quarter of 2003.

The Company currently does not expect to record an impairment charge upon
completion of the initial impairment review. However, there can be no assurance
that at the time the review is completed an impairment charge will not be
recorded, which may be material.

Liquidity and Capital Resources

The Companys primary sources of liquidity and capital resources
historically have been cash flows from operations, borrowings under the
Companys credit facilities and issuance of its equity securities. These
sources of cash flows have been offset by cash used for acquisitions,
investment in amusement vending equipment and payment of long-term borrowings.

Net cash used in operating activities was $1.1 million for the six months
ended June 30, 2002 and net cash provided by operating activities was $6.2
million for the six months ended June 30, 2001. The primary use of cash for
operating activities was loan fees associated with refinancing the Companys
credit facility during the first quarter of 2002. The Company anticipates that
cash will continue to be provided by operations as additional amusement vending
equipment is placed in service. Cash required in the future is expected to be
funded by existing cash and cash provided by operations and borrowings under
the Companys credit facility.

Net cash used in investing activities was $6.9 million and $4.1 million
for the six months ended June 30, 2002 and 2001, respectively. Capital
expenditures for the six months ended June 30, 2002 and 2001 amounted to $5.5
million and $2.6 million, respectively, of which $5.0 million and $2.0 million,
respectively, was for the acquisition of amusement vending equipment.

Net cash provided by financing activities was $5.0 million for the six
months ended June 30, 2002 and net cash used in financing activities was $2.4
million for the six months ended June 30, 2001. Financing activities consist
primarily of borrowings and payments on the Companys credit facility and
purchase of common stock in conjunction with the acquisition by ACMI Holdings,
Inc., and the repayment of the Companys previous credit facility and other
debt obligations.

The Companys $65.0 million senior secured credit facility is comprised of
a $10.0 million revolving credit facility and $55.0 million of term loans
comprised of a $25.0 million term loan A and a $30.0 million term loan B. Under
the revolving credit facility, the Company may borrow up to $10.0 million
through February 11, 2007, and at June 30, 2002, there was $1.4 million
outstanding and $8.6 million available under the revolving credit facility.
Under both term loans A and B, the Company is required to make quarterly
principal installments that increase in amount through February 11, 2007 for
term loan A and February 11, 2008 for term loan B. The revolving facility and
the term loans bear interest at a floating rate at the Companys option equal
to either LIBOR plus the applicable margin or a base rate that is equal to the
higher of the prime rate or the federal funds rate plus one-half percent plus
the applicable margin. The effective rate of interest on both facilities at
June 30, 2002 was 6.2%. The credit facility provides that certain financial
ratios be met and places restrictions on, among other things, the incurrence of
additional debt financing and certain payments to the Companys parent company.
The Company was in compliance with such financial ratios and restrictions at
June 30, 2002.

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|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The Company has also issued $25.0 million of senior subordinated notes due
in 2009. Interest on these notes is payable on a quarterly basis at the rate of
17% per annum; however, at the option of the Company the minimum cash interest
due on these notes is 13% with the balance of interest due being paid in the
form of additional notes or payment in kind notes in an aggregate amount equal
to the amount of interest that would be payable with respect to the notes, if
such interest were paid in cash. The note agreement provides that certain
financial ratios be met and places restrictions on, among other things, the
incurrence of additional senior subordinated indebtedness and certain
restricted payments. The Company was in compliance with such financial ratios
and restrictions at June 30, 2002

Interest Rate Collar

As required under the Companys current credit facility, on March 28, 2002
the Company entered into an amortizing interest rate collar agreement with the
Royal Bank of Scotland PLC. The Company paid $181,000 to obtain the agreement
which hedges against increases in LIBOR rates through March 31, 2005. The
initial notional amount is $27.5 million amortizing over a three-year period.
The initial floor rate is 3.0% increasing 1.0% per year over the life of the
agreement and the initial cap rate is 4.0% increasing 1.0% per year over the
life of the agreement. The Company is the floor rate payee and the Royal Bank
of Scotland PLC is the cap rate payee. No payments are made if LIBOR falls
between the floor and cap rate.

Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, (SFAS 133) requires that all
derivative instruments be reported in the statement of financial position as
assets or liabilities and measured at fair value. The Companys interest rate
collar instrument is not allowed hedge accounting treatment under SFAS 133,
accordingly the Company records this instrument at fair value and recognizes
realized and unrealized gains and losses in other expense in the statement of
operations. The Company paid $67,000 during the quarter since LIBOR was below
the floor rate under the interest rate collar. This amount is included in
interest expense in the statement of operations. The Company does not speculate
using derivative instruments.

The fair value of the interest rate collar is obtained from bank quotes.
These values represent the estimated amount the Company would receive or pay to
terminate the agreement taking into consideration current interest rates. The
fair value at June 30, 2002 is a liability of $419,000. The fair value recorded
at the beginning of the quarter was an asset of $181,000. Accordingly, the
change in fair value of this nonhedging derivative instrument is reflected as
an expense during the quarter totaling $600,000.

Other

The Company may use a portion of its capital resources to effect
acquisitions of franchisees, other companies or other amusement vending assets.
Because the Company cannot predict the timing or nature of acquisition
opportunities, or the availability of acquisition financing, the Company cannot
determine the extent to which capital resources may be used. Company management
believes that funds generated from operations, borrowings available under its
credit facility, and the Companys ability to negotiate additional and enhanced
credit agreements will be sufficient to meet the Companys foreseeable
operating and capital expenditure requirements.

The Company currently has no commitments or agreements with respect to any
material acquisitions. However, if the Company concludes appropriate
opportunities are available, it may attempt to acquire businesses,
technologies, services or products that it believes are a strategic fit with
its business. If the Company undertakes such acquisitions, the process of
integrating the acquired business, technology, service or product may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of its business. Moreover, the Company may fail to realize the anticipated
benefits of any acquisition. Future acquisitions could also expose the Company
to unexpected future liabilities and result in impairment charges related to
intangible assets.

Impact of Recently Issued Accounting Standards

In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 145 (SFAS 145), Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS 145 updates, clarifies and simplifies existing
accounting pronouncements, including the rescission of Statement 4, which
required all gains and losses from extinguishments of debt to be aggregated
and, if material, classified as and extraordinary item, net of related income
tax effect. As a result, the criteria in Opinion 30 will now be used to
classify those gains and losses. The Company does not expect the impact of
adopting SFAS 145 to be significant.

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|        |  |                                                            
|------- |  | -----------------------------------------------------------
|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As described above, the Company entered into an interest rate collar
instrument for 50% of the principal amount of the term debt outstanding or a
notional amount of $27,500,000 for a three-year period ending March 31, 2005.
If the 3 month LIBOR rates were to increase (decrease) by 100 basis points,
then the additional interest payment related to the floor rate would increase
(decrease) by $67,000 per quarter.

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PART II. OTHER INFORMATION




|        |  |                                  
|------- |  | ---------------------------------
|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM  8-K

| |  |     |  |                                                                                                                                                                                                                                                                                                                                                    |                | 
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | 
| |  | (a) |  | Exhibits.                                                                                                                                                                                                                                                                                                                                         
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                    |                | 
| |  |     |  | 99.1                                                                                                                                                                                                                                                                                                                                               | Certifications
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                    |                | 
| |  | (b) |  | Reports on Form 8-K.                                                                                                                                                                                                                                                                                                                              
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                    |                | 
| |  |     |  | A report on Form 8-K was filed with the SEC on May 23, 2002 disclosing that on March 28, 2002 the Company had entered into an amortizing interest rate collar transaction with Royal Bank of Scotland PLC. Such transaction is governed by the Master Agreement, dated as of March 15, 2002, among the Royal Bank of Scotland PLC and the Company.

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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                |  |     |                                                            
|--------------- |  | --- | -----------------------------------------------------------
|                |  |     | AMERICAN COIN MERCHANDISING, INC                           
|                |  |     |                                                            
|August 14, 2002 |  | By: | /s/ W. John Cash                                           
|                |  |     |                                                            
|Date            |  |     | W. John Cash
Senior Vice President, Chief Financial Officer

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EXHIBIT INDEX

|        |  |               
|------- |  | --------------
|EXHIBIT |  |               
|NUMBER  |  | DESCRIPTION   
|        |  |               
|99.1    |  | Certifications