##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

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: 001-14780

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.)

397 South Taylor Avenue
Louisville, Colorado 80027
(Address of principal executive offices)
(Zip Code)

(303) 444-2559
(Registrants telephone number, including area code)

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 preceding 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 [   ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [   ] NO [X]

As of August 13, 2003, the registrant had 1,000 shares of its $0.01 par value
common stock outstanding.





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TABLE OF CONTENTS



|                                                 |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                   
|                                                 | Item 1. FINANCIAL STATEMENTS                                                                 
|                                                 |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                 |                                                                                               | NOTES TO CONDENSED CONSOLIDATED 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                           
|                                                 | Item 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                      
|                                                 | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                      
|INDEX TO EXHIBITS                               
|EX-31.1 Certification Pursuant to Section 302   
|EX-31.2 Certification Pursuant to Section 302   
|EX-32 Certification Pursuant to 18 USC Sec. 1350



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES

INDEX

|         |  |                                                                                       |  |                                                                                                                                                                                                                                                                                     |    |      |   | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|         |  |                                                                                       |  |                                                                                                                                                                                                                                                                                     |    | Page
|         |  |                                                                                       |  |                                                                                                                                                                                                                                                                                     |    |     
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                                                                                                                                                                                                     |    |     
|Item 1.  |  | Financial Statements                                                                  |  |                                                                                                                                                                                                                                                                                     |    |     
|         |  |                                                                                       |  | Condensed Consolidated Balance SheetsJune 30, 2003 and
December 31, 2002                                                                                                                                                                                                           |    |      | 3 | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of OperationsThree Months Ended
June 30, 2003 (successor), Three Months Ended June 30, 2002 (successor),
Six Months Ended June 30, 2003 (successor), Five Months Ended June 30,
2002 (successor), One Month Ended January 31, 2002 (predecessor) |    |      | 4 | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Cash FlowsSix Months Ended
June 30, 2003 (successor), Five Months Ended June 30, 2002 (successor),
One Month Ended January 31, 2002 (predecessor)                                                                                             |    |      | 5 | 
|         |  |                                                                                       |  | Notes to Condensed Consolidated Financial Statements                                                                                                                                                                                                                                |    |      | 6 | 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results
of Operations |  |                                                                                                                                                                                                                                                                                     | 12 |     
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                                                                                                                                                                                     | 20 |     
|Item 4.  |  | Controls and Procedures                                                               |  |                                                                                                                                                                                                                                                                                     | 20 |     
|PART II. |  | OTHER INFORMATION                                                                     |  |                                                                                                                                                                                                                                                                                     |    |     
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                                                                                                                                                                                     | 21 |     

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. FINANCIAL STATEMENTS




AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)

|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |         | 
|-------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ------------ | ------ | ------ | ------- | 
|                                                                                                                                 |                                                                               |                                            |         | June 30, |         | December 31,
|                                                                                                                                 |                                                                               |                                            |         | 2003     |         | 2002        
|                                                                                                                                 |                                                                               |                                            |         |          |         |             
|ASSETS                                                                                                                           |                                                                               |                                            |         |          |         |              |        |       
|Current assets:                                                                                                                  |                                                                               |                                            |         |          |         |              |        |       
|                                                                                                                                 | Cash and cash equivalents                                                     |                                            | $       | 4,021    |         |              | $      | 4,178  |        
|                                                                                                                                 | Trade accounts and other receivables, net                                     |                                            |         | 1,224    |         |              |        | 1,069  |        
|                                                                                                                                 | Inventories, net                                                              |                                            |         | 19,707   |         |              |        | 11,512 |        
|                                                                                                                                 | Prepaid expenses and other assets                                             |                                            |         | 4,203    |         |              |        | 3,035  |        
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|                                                                                                                                 |                                                                               | Total current assets                       |         |          | 29,155  |              |        |        | 19,794  | 
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|Property and equipment, at cost:                                                                                                 |                                                                               |                                            |         |          |         |              |        |       
|                                                                                                                                 | Vending machines                                                              |                                            |         | 60,426   |         |              |        | 40,738 |        
|                                                                                                                                 | Vehicles                                                                      |                                            |         | 4,403    |         |              |        | 4,622  |        
|                                                                                                                                 | Office equipment, furniture and fixtures                                      |                                            |         | 5,640    |         |              |        | 4,485  |        
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|                                                                                                                                 |                                                                               |                                            | 70,469  |          |         |              | 49,845 |       
|                                                                                                                                 | Less accumulated depreciation                                                 |                                            |         | (12,940  | )       |              |        | (7,870 | )      
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|                                                                                                                                 |                                                                               | Property and equipment, net                |         |          | 57,529  |              |        |        | 41,975  | 
|Placement fees, net of accumulated amortization of $3,886 in 2003 and $1,154 in
2002                                             |                                                                               |                                            | 2,045   |          |         |              | 2,080  |       
|Costs in excess of assets acquired and other intangible assets, net of
accumulated amortization of $325 in 2003 and $103 in 2002 |                                                                               |                                            | 83,279  |          |         |              | 65,693 |       
|Other assets, net of accumulated amortization of $2,127 in 2003 and $638 in 2002                                                 |                                                                               |                                            | 9,707   |          |         |              | 6,831  |       
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|                                                                                                                                 |                                                                               | Total assets                               |         | $        | 181,715 |              |        | $      | 136,373 | 
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                             |                                                                               |                                            |         |          |         |              |        |       
|Current liabilities:                                                                                                             |                                                                               |                                            |         |          |         |              |        |       
|                                                                                                                                 | Current portion of long-term debt                                             |                                            | $       | 5,449    |         |              | $      | 4,718  |        
|                                                                                                                                 | Accounts payable                                                              |                                            |         | 11,648   |         |              |        | 3,656  |        
|                                                                                                                                 | Accrued commissions                                                           |                                            |         | 3,275    |         |              |        | 3,392  |        
|                                                                                                                                 | Other accrued expenses                                                        |                                            |         | 3,208    |         |              |        | 1,961  |        
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|                                                                                                                                 |                                                                               | Total current liabilities                  |         |          | 23,580  |              |        |        | 13,727  | 
|Long-term debt, net of current portion                                                                                           |                                                                               |                                            | 103,815 |          |         |              | 79,593 |       
|Other liabilities                                                                                                                |                                                                               |                                            | 996     |          |         |              | 789    |       
|Fair value of interest rate collar agreement                                                                                     |                                                                               |                                            | 1,292   |          |         |              | 1,248  |       
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|                                                                                                                                 |                                                                               | Total liabilities                          |         |          | 129,683 |              |        |        | 95,357  | 
|Company obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely junior subordinated debentures  |                                                                               |                                            | 13,000  |          |         |              | 12,974 |       
|Stockholders equity:                                                                                                            |                                                                               |                                            |         |          |         |              |        |       
|                                                                                                                                 | Common stock, $.01 par value; 1,000 shares authorized, issued and outstanding |                                            |         |         |         |              |        |       |        
|                                                                                                                                 | Additional paid-in capital                                                    |                                            |         | 41,129   |         |              |        | 28,629 |        
|                                                                                                                                 | Accumulated deficit                                                           |                                            |         | (2,097   | )       |              |        | (587   | )      
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|                                                                                                                                 |                                                                               | Total stockholders equity                 |         |          | 39,032  |              |        |        | 28,042  | 
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        
|                                                                                                                                 |                                                                               | Total liabilities and stockholders equity |         | $        | 181,715 |              |        | $      | 136,373 | 
|                                                                                                                                 |                                                                               |                                            |         |          |         |              |        |        |        

See accompanying notes to condensed consolidated financial statements.

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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)

|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |        |  
|-------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------ | ----- | --------- | ------ | ----------- | ----- | -------- | ------ | -------- | ------ | ----------- | ------ | - | ----- | ------ | ------ | - | ----- | ------ | ------ | -
|                                             |                                                          |                                                  |       | Successor |        | Predecessor
|                                             |                                                          |                                                  |       |           |        |            
|                                             |                                                          |                                                  |       | Three     |        | Three       |       | Six      |        | Five     |        | One        
|                                             |                                                          |                                                  |       | Months    |        | Months      |       | Months   |        | Months   |        | Month      
|                                             |                                                          |                                                  |       | Ended     |        | Ended       |       | Ended    |        | Ended    |        | Ended      
|                                             |                                                          |                                                  |       | June 30,  |        | June 30,    |       | June 30, |        | June 30, |        | January 31,
|                                             |                                                          |                                                  |       | 2003      |        | 2002        |       | 2003     |        | 2002     |        | 2002       
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |            
|Revenue:                                     |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |       
|                                             | Vending                                                  |                                                  | $     | 48,441    |        |             | $     | 33,492   |        |          | $      | 85,557      |        |   | $     | 57,585 |        |   | $     | 10,880 |       
|                                             | Franchise and other                                      |                                                  |       | 1,023     |        |             |       | 598      |        |          |        | 1,902       |        |   |       | 948    |        |   |       | 199    |       
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|                                             |                                                          | Total revenue                                    |       |           | 49,464 |             |       |          | 34,090 |          |        |             | 87,459 |   |       |        | 58,533 |   |       |        | 11,079 |  
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|Cost of revenue:                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |       
|                                             | Vending, excluding related depreciation
and amortization |                                                  |       | 34,534    |        |             |       | 22,623   |        |          |        | 60,067      |        |   |       | 38,481 |        |   |       | 7,568  |       
|                                             | Depreciation and amortization                            |                                                  |       | 3,404     |        |             |       | 3,145    |        |          |        | 6,556       |        |   |       | 5,236  |        |   |       | 1,013  |       
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|                                             |                                                          | Total cost of vending                            |       |           | 37,938 |             |       |          | 25,768 |          |        |             | 66,623 |   |       |        | 43,717 |   |       |        | 8,581  |  
|                                             | Franchise and other                                      |                                                  |       | 518       |        |             |       | 50       |        |          |        | 1,052       |        |   |       | 325    |        |   |       | 192    |       
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|                                             |                                                          | Total cost of revenue                            |       |           | 38,456 |             |       |          | 25,818 |          |        |             | 67,675 |   |       |        | 44,042 |   |       |        | 8,773  |  
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|                                             |                                                          | Gross profit                                     |       |           | 11,008 |             |       |          | 8,272  |          |        |             | 19,784 |   |       |        | 14,491 |   |       |        | 2,306  |  
|General and administrative expenses          |                                                          |                                                  | 8,441 |           |        |             | 6,026 |          |        |          | 15,038 |             |        |   | 9,990 |        |        |   | 3,617 |       
|Depreciation and amortization                |                                                          |                                                  | 292   |           |        |             | 269   |          |        |          | 501    |             |        |   | 453   |        |        |   | 96    |       
|Restructuring charge                         |                                                          |                                                  | 320   |           |        |             |      |          |        |          | 320    |             |        |   |      |        |        |   |      |       
|Loss on debt refinancing                     |                                                          |                                                  |      |           |        |             |      |          |        |          |       |             |        |   |      |        |        |   | 1,727 |       
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|                                             |                                                          | Operating earnings (loss)                        |       |           | 1,955  |             |       |          | 1,977  |          |        |             | 3,925  |   |       |        | 4,048  |   |       |        | (3,134 | )
|Interest expense, net                        |                                                          |                                                  | 3,438 |           |        |             | 2,880 |          |        |          | 6,316  |             |        |   | 4,606 |        |        |   | 390   |       
|Change in fair value of interest rate collar |                                                          |                                                  | (8    | )         |        |             | 600   |          |        |          | 44     |             |        |   | 600   |        |        |   |      |       
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|                                             |                                                          | Loss before income taxes                         |       |           | (1,475 | )           |       |          | (1,503 | )        |        |             | (2,435 | ) |       |        | (1,158 | ) |       |        | (3,524 | )
|Income tax benefit                           |                                                          |                                                  | 560   |           |        |             | 576   |          |        |          | 925    |             |        |   | 445   |        |        |   | 1,339 |       
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|                                             |                                                          | Net loss                                         |       | $         | (915   | )           |       | $        | (927   | )        |        | $           | (1,510 | ) |       | $      | (713   | ) |       | $      | (2,185 | )
|                                             |                                                          |                                                  |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        |       
|                                             |                                                          | Basic and diluted loss per share
of common stock |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       | $      | (0.33  | )
|                                             |                                                          | Basic and diluted weighted average
common shares |       |           |        |             |       |          |        |          |        |             |        |   |       |        |        |   |       |        | 6,545  |  

See accompanying notes to condensed consolidated financial statements.

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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |   |        |        |  
|------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------------------------- | -- | --------- | ------ | ----------- | --- | ----------- | ------ | ------- | - | ------ | ------ | -
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    | Successor |        | Predecessor
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |            
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    | Six       |        | Five        |     | One        
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    | Months    |        | Months      |     | Month      
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    | Ended     |        | Ended       |     | Ended      
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    | June 30,  |        | June 30,    |     | January 31,
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    | 2003      |        | 2002        |     | 2002       
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |            
|Cash flows from operating activities:            |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |        
|                                                 | Net loss                                                                                                                |                                                                | $                                                   | (1,510                                                   | )  |           | $      | (713        | )   |             | $      | (2,185  | )
|                                                 | Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation and amortization |                                                                |                                                     | 7,750                                                    |    |           |        | 6,393       |     |             |        | 1,146   |  
|                                                 |                                                                                                                         | Change in fair value of interest rate collar, net of
cash paid |                                                     |                                                          | 44 |           |        |             | 600 |             |        |         |  |       
|                                                 |                                                                                                                         | Changes in operating assets and liabilities:                   |                                                     |                                                          |    |           |        |             |     |             |        |         |   |       
|                                                 |                                                                                                                         |                                                                |                                                     | Trade accounts and other receivables                     |    |           | (155   | )           |     |             | (15    | )       |   |        | 96     |  
|                                                 |                                                                                                                         |                                                                |                                                     | Inventories                                              |    |           | (1,460 | )           |     |             | (1,563 | )       |   |        | 1,233  |  
|                                                 |                                                                                                                         |                                                                |                                                     | Prepaid expenses and other assets                        |    |           | (2,959 | )           |     |             | (1,631 | )       |   |        | (5,468 | )
|                                                 |                                                                                                                         |                                                                |                                                     | Accounts payable, accrued expenses and other
liabilities |    |           | 3,835  |             |     |             | 3,042  |         |   |        | (1,260 | )
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |  
|                                                 |                                                                                                                         |                                                                | Net cash provided by (used in) operating activities |                                                          |    | 5,545     |        |             |     | 6,113       |        |         |   | (6,438 | )     
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |  
|Cash flows from investing activities:            |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |        
|                                                 | Purchases of property and equipment, net                                                                                |                                                                |                                                     | (7,528                                                   | )  |           |        | (5,104      | )   |             |        | (436    | )
|                                                 | Acquisitions                                                                                                            |                                                                |                                                     | (34,375                                                  | )  |           |        |            |     |             |        |        |  
|                                                 | Placement fees                                                                                                          |                                                                |                                                     | (1,252                                                   | )  |           |        | (1,041      | )   |             |        | (300    | )
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |  
|                                                 |                                                                                                                         |                                                                | Net cash used in investing activities               |                                                          |    | (43,155   | )      |             |     | (6,145      | )      |         |   | (736   | )     
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |  
|Cash flows from financing activities:            |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |        
|                                                 | Net (payments) borrowings on current credit facilities                                                                  |                                                                |                                                     | 25,237                                                   |    |           |        | (2,023      | )   |             |        | 82,703  |  
|                                                 | Net payments on previous credit facility                                                                                |                                                                |                                                     |                                                         |    |           |        |            |     |             |        | (44,500 | )
|                                                 | Principal payments on long-term debt                                                                                    |                                                                |                                                     | (284                                                     | )  |           |        | (82         | )   |             |        | (16     | )
|                                                 | Net issuance (purchase) of common stock net of offering
costs                                                           |                                                                |                                                     |                                                         |    |           |        |            |     |             |        | (31,825 | )
|                                                 | Equity contribution from parent                                                                                         |                                                                |                                                     | 12,500                                                   |    |           |        |            |     |             |        |        |  
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |  
|                                                 |                                                                                                                         |                                                                | Net cash provided by (used in) financing activities |                                                          |    | 37,453    |        |             |     | (2,105      | )      |         |   | 6,362  |       
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |  
|                                                 |                                                                                                                         |                                                                | Net decrease in cash and cash equivalents           |                                                          |    | (157      | )      |             |     | (2,137      | )      |         |   | (812   | )     
|Cash and cash equivalents at beginning of period |                                                                                                                         |                                                                | 4,178                                               |                                                          |    |           | 3,254  |             |     |             | 4,066  |        
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |  
|Cash and cash equivalents at end of period       |                                                                                                                         | $                                                              | 4,021                                               |                                                          |    | $         | 1,117  |             |     | $           | 3,254  |        
|                                                 |                                                                                                                         |                                                                |                                                     |                                                          |    |           |        |             |     |             |        |         |  

See accompanying notes to condensed consolidated financial statements.

5



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##### Table of Contents






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

(1) Description of Business and Basis of Presentation

American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc., Folz
Vending, Inc. and American Coin Merchandising Trust I (the Company) and its
franchisees own and operate more than 159,000 coin-operated amusement vending
machines. Over 17,000 of these machines dispense plush toys, watches, jewelry,
novelties, and other items and the majority of the other machines dispense bulk
gum, candy and novelty items. The Company also operates kiddie rides, video
games and other amusement equipment. 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, 2003, the Company had 37 field offices with operations in 49 states and
Puerto Rico. The Company also sells products and amusement vending equipment to
franchisees and third parties. At June 30, 2003, there were seven franchisees
operating in 10 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 Cadigan Investment Partners, Inc. (f/k/a Knightsbridge
Holdings, LLC) for approximately $110.7 million. Of this amount, approximately
$28 million was paid in cash. The Company has recorded approximately $63.1
million of costs in excess of assets acquired as a result of the ACMI Holdings,
Inc. acquisition that was accounted for using the purchase method of
accounting. The transaction was approved at a stockholders meeting held on
February 5, 2002. 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 periods
and those subsequent to the acquisition are denoted as successor periods.

The accompanying condensed consolidated 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 accounting principles generally accepted in the United States of America
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,
2003 presentation. These condensed consolidated financial statements should be
read in connection with the consolidated financial statements and notes thereto
included in the Companys annual report on Form 10-K for the year ended
December 31, 2002.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and 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, valuation of long-lived and intangible
assets and costs in excess of assets acquired, and placement fees and other
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 could differ significantly from those
estimates.

In the opinion of the Company, the accompanying condensed consolidated
financial statements include all adjustments (consisting of normal recurring
accruals and adjustments) required to present fairly the Companys financial
position at June 30, 2003 and December 31, 2002, and the results of its
operations and cash flows for the three months ended June 30, 2003, the three
months ended June 30, 2002, the six months ended June 30, 2003, the five months
ended June 30, 2002 and the one month ended January 31, 2002.

The operating results for the periods ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003.

6



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##### Table of Contents



(2) Acquisitions

On April 15, 2003, the Company, through a wholly owned subsidiary,
completed the acquisition of substantially all of the assets of Folz Vending
Co., Inc. and its wholly owned subsidiary Folz Novelty Co., Inc. (collectively
Folz) for $22.3 million. The acquisition was funded through additional
borrowings under the Companys amended and restated credit facility, the
issuance of additional senior subordinated notes and an equity contribution
received from its parent company, ACMI Holdings, Inc.

The components of the purchase price and its preliminary allocation to the
assets and liabilities are as follows:

|                                                               |                                       |   |                                   |                      |  |        |        | 
|-------------------------------------------------------------- | ------------------------------------- | - | --------------------------------- | -------------------- |  | ------ | ------ | 
|Sources of funding:                                            |                                       |   |                                   |                     
|                                                               | Borrowings under credit facility      |   | $                                 | 3,289                | 
|                                                               | Issuance of senior subordinated notes |   |                                   | 6,500                | 
|                                                               | Equity contribution                   |   |                                   | 12,500               | 
|                                                               |                                       |   |                                   |                      | 
|                                                               |                                       |   |                                   | Total purchase price |  |        | 22,289 | 
|Allocation of purchase price:                                  |                                       |   |                                   |                     
|                                                               | Assets acquired                       |   |                                   |                      | 
|                                                               |                                       |   | Inventories                       |                      |  | 6,147  |       
|                                                               |                                       |   | Prepaid expenses and other assets |                      |  | 319    |       
|                                                               |                                       |   | Property and equipment            |                      |  | 9,211  |       
|                                                               |                                       |   | Other assets                      |                      |  | 187    |       
|                                                               | Liabilities assumed                   |   |                                   |                      | 
|                                                               |                                       |   | Accounts payable                  |                      |  | (2,745 | )     
|                                                               |                                       |   | Accrued commissions               |                      |  | (838   | )     
|                                                               |                                       |   | Other accrued expenses            |                      |  | (1,181 | )     
|                                                               |                                       |   |                                   |                      | 
|Costs in excess of assets acquired and other untangible assets |                                       | $ | 11,189                            |                     
|                                                               |                                       |   |                                   |                      | 

The allocation of the purchase price was based on preliminary estimates of
fair value of the assets acquired and may be subject to additional adjustment.
The Company has not completed its valuation of costs in excess of assets
acquired and other untangible assets, but expects to do so in the next few
months.

The following pro forma information is presented for illustrative purposes
only and is not necessarily indicative of future operating results. Such
information is subject to the assumptions set forth in the notes to the pro
forma financial statements.

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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(Amounts in thousands)

|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |        |        | 
|--------------------------------- | ------------------- | ------------------------- | ------ | -------------- | ------ | ---------- | ------ | ---------- | ------ | ----------- | ------ | ----------- | ---- | - | ---- | ---- | ---- | - | ------- | ------ | ------ | 
|                                  |                     |                           |        | Consolidated   |        |            |        |            |        | Elimination |        |             |      |   |      |      |      |  
|                                  |                     |                           |        | American Coin  |        |            |        |            |        | of          |        | Adjustments |      |   |      |     
|                                  |                     |                           |        | Merchandising, |        | Historical |        | Operations |        | for the     |        |             |      |  
|                                  |                     |                           |        | Inc.           |        | Combined   |        | Not        |        | Acquisition |        |             |      |  
|                                  |                     |                           |        | As Reported    |        | Folz       |        | Acquired   |        | of Folz     |        | Pro Forma  
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |            
|                                  |                     |                           |        | (a)            |        | (b)        |        | (c)        |        |             |        |             |      |   |      |     
|Total revenue                     |                     | $                         | 87,459 |                |        | $          | 14,527 |            |        | $           | (1,153 | )           |      | $ |     |      |      | $ | 100,833 |       
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|Cost of revenue:                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|                                  | Vending             |                           |        | 60,067         |        |            |        | 11,634     |        |             |        | (958        | )    |   |      |     |      |   |         | 70,743 |       
|                                  | Depreciation        |                           |        | 6,556          |        |            |        | 541        |        |             |        | (36         | )    |   |      | (133 | )(d) |   |         | 6,928  |       
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|                                  |                     | Total cost of vending     |        |                | 66,623 |            |        |            | 12,175 |             |        |             | (994 | ) |      |      | (133 | ) |         |        | 77,671 | 
|                                  | Franchise and other |                           |        | 1,052          |        |            |        |           |        |             |        |            |      |   |      |     |      |   |         | 1,052  |       
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|                                  |                     | Total cost of revenue     |        |                | 67,675 |            |        |            | 12,175 |             |        |             | (994 | ) |      |      | (133 | ) |         |        | 78,723 | 
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|Gross profit                      |                     |                           | 19,784 |                |        |            | 2,352  |            |        |             | (159   | )           |      |   | 133  |      |      |   | 22,110  |       
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|General and administrative        |                     |                           | 15,038 |                |        |            | 2,254  |            |        |             | (234   | )           |      |   |     |      |      |   | 17,058  |       
|Depreciation and amortization     |                     |                           | 501    |                |        |            | 103    |            |        |             |       |             |      |   | (26  | )(d) |      |   | 578     |       
|Restructuring                     |                     |                           | 320    |                |        |            |       |            |        |             |       |             |      |   |     |      |      |   | 320     |       
|Loss on debt refinancing          |                     |                           |       |                |        |            |       |            |        |             |       |             |      |   |     |      |      |   |        |       
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|                                  |                     | Operating earnings (loss) |        |                | 3,925  |            |        |            | (5     | )           |        |             | 75   |   |      |      | 159  |   |         |        | 4,154  | 
|Interest expense                  |                     |                           | 6,316  |                |        |            | 136    |            |        |             |       |             |      |   | 267  | (e)  |      |   | 6,719   |       
|Change in fair value of collar    |                     |                           | 44     |                |        |            |       |            |        |             |       |             |      |   |     |      |      |   | 44      |       
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|(Loss) earnings before income tax |                     |                           | (2,435 | )              |        |            | (141   | )          |        |             | 75     |             |      |   | (108 | )    |      |   | (2,609  | )     
|Income tax benefit (expense)      |                     |                           | 925    |                |        |            | (10    | )          |        |             |       |             |      |   | 76   | (f)  |      |   | 991     |       
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       
|Net (loss) earnings               |                     | $                         | (1,510 | )              |        | $          | (151   | )          |        | $           | 75     |             |      | $ | (32  | )    |      | $ | (1,618  | )     
|                                  |                     |                           |        |                |        |            |        |            |        |             |        |             |      |   |      |      |      |   |         |       



| | (a) |  | Includes the Folz operations from the April 15, 2003 acquisition
date.                                                                                                                                                                                                                                                                                                                                                                     
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Reflects Folz historical operations from January 1, 2003 through
April 15, 2003, the date of the Folz acquisition.                                                                                                                                                                                                                                                                                                                         
|
| | (c) |  | Represents the elimination of financial information related to Folz
operations that were not part of the purchase transaction but were
included in the historical combined Folz financial statements.                                                                                                                                                                                                                                      
|
| | (d) |  | Represents the adjustments to depreciation expense as a result of the
impact of conforming the depreciation lives to those of the Company and
recalculating depreciation based on the estimated fair value, which
approximates the net book value of the assets.                                                                                                                                                                           
|
| | (e) |  | Represents the elimination of historical Folz interest expense and
the increase in interest expense as a result of the increased borrowings
under the Companys credit facilities to finance the purchase. Interest
expense on such borrowings is calculated using as assumed weighted
average rate of 12.5%.                                                                                                                              
|
| | (f) |  | Represents additional income tax expense for (i) the income of Folz,
as no federal income tax expense has historically been included in the
Folz financial statements because Folzs primary operating entity has
elected to be treated as an S Corporation for tax purposes, and (ii) the
tax benefits of increased interest expense. Income tax expense is
computed using the Registrants historical statutory income tax rate of
38.0%.

8



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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(Amounts in thousands)

|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |        |        | 
|--------------------------------- | ------------------- | ------------------------- | ------ | -------------- | ------ | ---------- | ------ | ---------- | ------ | -------------- | ------ | ----------- | ------ | - | ---- | ---- | ---- | - | ------ | ------ | ------ | 
|                                  |                     |                           |        | Consolidated   |        |            |        |            |        | Elimination of |        | Adjustments |        |   |      |     
|                                  |                     |                           |        | American Coin  |        | Historical |        | Operations |        | for the        |        |             |        |  
|                                  |                     |                           |        | Merchandising, |        | Combined   |        | Not        |        | Acquisition    |        |             |        |  
|                                  |                     |                           |        | Inc.           |        | Folz       |        | Acquired   |        | of Folz        |        | Pro Forma  
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |            
|                                  |                     |                           |        | (a)            |        |            |        |            |        | (b)            |        |             |        |   |      |      |      |  
|Total revenue                     |                     | $                         | 69,612 |                |        | $          | 26,626 |            |        | $              | (1,978 | )           |        | $ |     |      |      | $ | 94,260 |       
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|Cost of revenue:                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|                                  | Vending             |                           |        | 46,049         |        |            |        | 20,606     |        |                |        | (1,595      | )      |   |      |     |      |   |        | 65,060 |       
|                                  | Depreciation        |                           |        | 6,249          |        |            |        | 1,076      |        |                |        | (85         | )      |   |      | (353 | )(c) |   |        | 6,887  |       
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|                                  |                     | Total cost of vending     |        |                | 52,298 |            |        |            | 21,682 |                |        |             | (1,680 | ) |      |      | (353 | ) |        |        | 71,947 | 
|                                  | Franchise and other |                           |        | 517            |        |            |        |           |        |                |        |            |        |   |      |     |      |   |        | 517    |       
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|                                  |                     | Total cost of revenue     |        |                | 52,815 |            |        |            | 21,682 |                |        |             | (1,680 | ) |      |      | (353 | ) |        |        | 72,464 | 
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|Gross profit                      |                     |                           | 16,797 |                |        |            | 4,944  |            |        |                | (298   | )           |        |   | 353  |      |      |   | 21,796 |       
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|General and administrative        |                     |                           | 13,607 |                |        |            | 3,886  |            |        |                | (231   | )           |        |   |     |      |      |   | 17,262 |       
|Depreciation and amortization     |                     |                           | 549    |                |        |            | 203    |            |        |                |       |             |        |   | (71  | )(c) |      |   | 681    |       
|Loss on debt refinancing          |                     |                           | 1,727  |                |        |            |       |            |        |                |       |             |        |   |     |      |      |   | 1,727  |       
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|                                  |                     | Operating earnings (loss) |        |                | 914    |            |        |            | 855    |                |        |             | (67    | ) |      |      | 424  |   |        |        | 2,126  | 
|Interest expense                  |                     |                           | 4,996  |                |        |            | 444    |            |        |                | (5     | )           |        |   | 251  | (d)  |      |   | 5,686  |       
|Change in fair value of collar    |                     |                           | 600    |                |        |            |       |            |        |                |       |             |        |   |     |      |      |   | 600    |       
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|(Loss) earnings before income tax |                     |                           | (4,682 | )              |        |            | 411    |            |        |                | (62    | )           |        |   | 173  |      |      |   | (4,160 | )     
|Income tax benefit (expense)      |                     |                           | 1,784  |                |        |            |       |            |        |                |       |             |        |   | (203 | )(e) |      |   | 1,581  |       
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       
|Net (loss) earnings               |                     | $                         | (2,898 | )              |        | $          | 411    |            |        | $              | (62    | )           |        | $ | (30  | )    |      | $ | (2,579 | )     
|                                  |                     |                           |        |                |        |            |        |            |        |                |        |             |        |   |      |      |      |   |        |       



| | (a) |  | The Companys historical condensed statement of operations for the
six months ended June 30, 2002 provided herein combines the operating
results for the five months ended June 30, 2002 with the operating
results for the one month ended January 31, 2002. The combining of
successor and predecessor periods is not acceptable under accounting
principles generally accepted in the United States of America; however,
the Company believes that this presentation is meaningful in the context
of this pro forma presentation.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Represents the elimination of financial information related to Folz
entities that were not part of the purchase transaction but were
included in the historical combined Folz financial statements.                                                                                                                                                                                                                                                                                                                                 
|
| | (c) |  | Represents the adjustments to depreciation expense as a result of the
impact of conforming the depreciation lives to those of the Company and
recalculating depreciation based on the estimated fair value, which
approximates the net book value of the assets.                                                                                                                                                                                                                                                                    
|
| | (d) |  | Represents the elimination of historical Folz interest expense and
the increase in interest expense as a result of the increased borrowings
under the Companys credit facilities to finance the purchase. Interest
expense on such borrowings is calculated using as assumed weighted
average rate of 12.5%.                                                                                                                                                                                                                       
|
| | (e) |  | Represents additional income tax expense for (i) the income of Folz,
as no federal income tax expense has historically been included in the
Folz financial statements because Folzs primary operating entity has
elected to be treated as an S Corporation for tax purposes, and (ii) the
tax benefits of increased interest expense. Income tax expense is
computed using the Registrants historical statutory income tax rate of
38.0%.                                                                                         

9



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##### Table of Contents



The Company also made several smaller acquisitions during the second
quarter of 2003. On May 30, 2003, the Company purchased certain amusement
vending assets from, and assumed certain liabilities of, GamePlan, Inc. and
Pinball Wizard, Inc. (collectively GamePlan) for $8.6 million. On May 30,
2003, the Company acquired certain amusement vending assets from a former
franchisee for $709,000. On June 19, 2003, the Company purchased certain assets
consisting of kiddie rides from another operator for $1.4 million. The Company
utilized its credit facility to fund all of these acquisitions.

(3) Restructuring Charge

In June 2003, the Company recorded a restructuring charge associated with
the termination of certain administrative and sales employees that resulted
from reorganizing certain functions after the acquisition of Folz. As of June
30, 2003, no amounts had been charged against the $320,000 restructuring
accrual. The restructuring accrual is included in other accrued expenses in the
accompanying condensed consolidated balance sheets and follows the guidance of
Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for
Costs Associated with Exit or Disposal Activities.

(4) Stock Based Compensation

The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans. No stock-based employee compensation cost has been
recognized, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
Had compensation cost for the Companys stock-based compensation plans been
determined consistent with SFAS No. 123, Accounting for Stock-Based
Compensation, the Companys net (loss) earnings and basic and diluted (loss)
earnings per share would have been increased or reduced to the pro forma
amounts indicated below (amounts in thousands, except per share data):

|                                 |             |  |           |      |             |  |          |      |          |  |             |        |   |  |   |      |   |  |   |        |  
|-------------------------------- | ----------- |  | --------- | ---- | ----------- |  | -------- | ---- | -------- |  | ----------- | ------ | - |  | - | ---- | - |  | - | ------ | -
|                                 |             |  | Successor |      | Predecessor
|                                 |             |  |           |      |            
|                                 |             |  | Three     |      | Three       |  | Six      |      | Five     |  | One        
|                                 |             |  | Months    |      | Months      |  | Months   |      | Months   |  | Month      
|                                 |             |  | Ended     |      | Ended       |  | Ended    |      | Ended    |  | Ended      
|                                 |             |  | June 30,  |      | June 30,    |  | June 30, |      | June 30, |  | January 31,
|                                 |             |  | 2003      |      | 2002        |  | 2003     |      | 2002     |  | 2002       
|                                 |             |  |           |      |             |  |          |      |          |  |            
|Net (loss) earnings              |             |  |           |      |             |  |          |      |          |  |             |        |   |  |   |      |   |  |   |       
|                                 | As reported |  | $         | (915 | )           |  | $        | (927 | )        |  | $           | (1,510 | ) |  | $ | (713 | ) |  | $ | (2,185 | )
|                                 | Pro forma   |  | $         | (941 | )           |  | $        | (947 | )        |  | $           | (1,561 | ) |  | $ | (747 | ) |  | $ | (2,400 | )
|Basic and diluted loss per share |             |  |           |      |             |  |          |      |          |  |             |        |   |  |   |      |   |  |   |       
|                                 | As reported |  |           |      |             |  |          |      |          |  |             |        |   |  |   |      |   |  | $ | (0.33  | )
|                                 | Pro forma   |  |           |      |             |  |          |      |          |  |             |        |   |  |   |      |   |  | $ | (0.37  | )

(5) Supplemental Disclosures of Cash Flow Information

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

|                             |                   |  |           |       |             |  |             |       |  |  |   |     | 
|---------------------------- | ----------------- |  | --------- | ----- | ----------- |  | ----------- | ----- |  |  | - | --- | 
|                             |                   |  | Successor |       | Predecessor
|                             |                   |  |           |       |            
|                             |                   |  | Six       |       | Five        |  | One        
|                             |                   |  | Months    |       | Months      |  | Month      
|                             |                   |  | Ended     |       | Ended       |  | Ended      
|                             |                   |  | June 30,  |       | June 30,    |  | January 31,
|                             |                   |  | 2003      |       | 2002        |  | 2002       
|                             |                   |  |           |       |             |  |            
|Cash paid during the period: |                   |  |           |       |             |  |             |       |  |  |   |    
|                             | Interest paid     |  | $         | 4,693 |             |  | $           | 3,553 |  |  | $ | 560 | 
|                             | Income taxes paid |  | $         | 56    |             |  | $           | 72    |  |  | $ | 3   | 

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(6) Income Taxes

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

(7) Cost in Excess of Assets Acquired and Other Intangible Assets

The Company periodically reviews and evaluates its cost 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 cost
in excess of assets acquired is no longer amortized but instead is assessed for
impairment at least annually. In accordance with SFAS No. 142, the Company
evaluated its costs in excess of assets acquired and other intangible assets
for possible impairment during the quarter ended March 31, 2003, and concluded
that there were no indications of impairment.

(8) Long-Term Debt

The Company amended and restated its senior secured credit facility on
April 15, 2003, in conjunction with the acquisition of Folz. The amended senior
secured credit facility is comprised of a $12.0 million revolving credit
facility and provides for up to $70.0 million of term debt. The $70.0 million
of outstanding term debt is comprised of a $26.3 million term loan A, a $37.2
million term loan B, a $2.7 million term loan C and a $3.8 million term loan D.
At June 30, 2003, there was $6.5 million outstanding on the revolver, $770,000
utilized by letters of credit, and $4.7 million available under the revolving
credit facility. The revolving credit facility expires on March 31, 2007. Under
the term loan facilities, the Company is required to make quarterly principal
installments that increase in amount until the March 31, 2008 termination of
the facilities. 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 the credit facility at June 30, 2003 was 6.6%.

In connection with the Folz acquisition, the Company also issued an
additional $6.5 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;
provided however, the minimum cash interest payable on these notes is 13% with
the balance of interest payable in the form of additional payment in kind
notes. As of June 30, 2003, total senior subordinated notes outstanding were
$32.8 million including $1.3 million of payment in kind notes the Company
issued in lieu of cash interest on these notes.

(9) 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, and the Company is obligated under terms of its debt
agreements to limit the variability of a portion of its interest payments.
Accordingly, 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 was $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 above the cap rate.

SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, 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 does not qualify for hedge
accounting treatment under SFAS No. 133. Accordingly the Company records this
instrument at fair value and recognizes realized and unrealized gains and
losses in other expense in the condensed consolidated statements of operations.
The Company paid $174,000 during the quarter since LIBOR was below the floor
rate under the interest rate collar. This amount is included in interest
expense in the condensed consolidated statements of operations. The fair value
of the interest rate collar is obtained from bank

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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, 2003 is a liability of $1.3 million.
The fair value recorded at December 31, 2002 was a liability of $1.2 million.
Accordingly, the change in fair value of this non-hedging derivative instrument
is reflected as a net expense of $44,000 for the six months ending June 30,
2003. The Company does not speculate using derivative instruments.




Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact, including, without limitation, the statements
under Managements Discussion and Analysis of Financial Condition and Results
of Operations are forward-looking statements. Forward-looking statements may
include the words believes, expects, plans, intends, anticipates,
continues or other similar expressions. These statements are based on the
Companys current expectations of future events and are subject to a number of
risks and uncertainties that may cause the Companys actual results to differ
materially from those described in the forward-looking statements. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. These risks and uncertainties are
disclosed from time to time in the Companys filings with the Securities and
Exchange Commission and in oral statements made by or with the approval of
authorized personnel. The Company assumes no obligation to update any
forward-looking statements as a result of new information or future events or
developments.

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 combining of successor and predecessor periods is not
acceptable under accounting principles generally accepted in the United States
of America. This combined financial data should not be viewed as a substitute
for the Companys results of operations determined in accordance with accepted
accounting principles generally accepted in the United States of America. The
combined Company results for the three-month period ended June 30, 2003 are
comparable to the three-month period ended June 30, 2002.

General

The Company and its franchisees own and operate coin-operated amusement
vending equipment. The majority of the Companys revenues are derived from
skill-crane machines (Shoppes) that dispense plush toys, watches, jewelry,
novelties and other items. Subsequent to the acquisition of Folz as defined
below, the Company now operates a significant number of machines that dispense
bulk gum, candy and novelty items. The Company also operates kiddie rides,
video games and other amusement equipment. A large portion 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 and bulk vending equipment in operation during the period.
Management believes that the Companys business is 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 costs.

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 Cadigan Investment Partners, Inc. (f/k/a 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.

On April 15, 2003, the Company, through a wholly owned subsidiary of the
Company, completed the acquisition of substantially all of the assets of Folz
Vending Co., Inc. and its wholly owned subsidiary Folz Novelty Co., Inc.
(collectively Folz) for $22.3 million. The acquisition was funded through
additional borrowings under the Companys amended and restated credit facility,
the issuance of $6.5 million of additional senior subordinated notes and a
$12.5

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million equity contribution received from its parent Company ACMI
Holdings, Inc. In addition to the Folz acquisition, the Company made a number
of other smaller asset acquisitions during the second quarter of 2003 in the
aggregate amount of $10.7 million, all funded through the Companys credit
facility.

Franchise and other revenue represent the Companys percentage of gross
vending revenue generated by Shoppes owned and operated by franchisees.
Franchise and other revenue also includes product and amusement vending
equipment sold to franchisees and non-franchisees to vend in the Shoppes and
sales of amusement vending equipment to third parties.

RESULTS OF OPERATIONS

Three-Month Period Ended June 30, 2003 Compared to June 30, 2002

Revenue

Total revenue for the three months ended June 30, 2003 increased 45.1% to
$49.5 million from $34.1 million for the same period in 2002.

Vending revenue increased $14.9 million or 44.6% for the three months
ended June 30, 2003 to $48.4 million from $33.5 million for the comparable
period in 2002, primarily as a result of an increase in the number of coin
operated amusement vending machines in place. Total amusement vending equipment
in place increased from approximately 26,000 machines at June 30, 2002 to
approximately 159,000 machines at June 30, 2003, including an increase in
Shoppes from 14,000 to 17,000. These increases are the result of the Folz,
GamePlan and other asset acquisitions completed during the quarter ended June
30, 2003 and internal growth.

The Company has recently experienced growth primarily through its recent
acquisitions, 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.
There is no assurance, however, that the Company will be able to place and
service additional Shoppes.

Franchise and other revenue increased $425,000 or 71.1% for the second
quarter of 2003 to $1.0 million from $600,000 for the same period in 2002, due
primarily to increased sales of amusement vending equipment to third parties.
The Company acquired certain skill-crane manufacturing and kiddie ride assets
during the third quarter of 2002. The Company anticipates franchise and other
revenue will vary in the future based upon demand and production availability.

Cost of Revenue and Gross Profit

The cost of vending operations (including depreciation and amortization)
for the three months ended June 30, 2003 increased $12.2 million or 47.2% to
$37.9 million from $25.8 million for the comparable period in 2002 primarily
due to the Companys acquisition activities. The vending operations
contribution to gross profit for the second quarter of 2003 increased $2.8
million to $10.5 million compared to the comparable period in 2002. The vending
gross profit achieved during the second quarter of 2003 was 21.7% of vending
revenue, which represents a 6.1 percentage point decrease from the gross profit
percentage achieved during the second quarter of 2002. The decrease in vending
gross profit percentage is due primarily from the change in the mix to include
more lower margin bulk vending revenues after the Folz acquisition.

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 such products from third-party vendors. 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

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economic disruptions and labor strikes that could disrupt the supply of
products from such manufacturers. While the Company believes that there are a
sufficient number of alternative sources of supply, no assurance can be given
that in the event of any such disruption, alternative sources will be
available, or that the Company will be able to obtain favorable pricing from
such sources.

For the second quarter of 2003, gross profit on franchise and other
revenue decreased to $505,000 as compared to $548,000 for the second quarter of
2002. The decrease in gross profit dollars results from the timing of amusement
vending equipment sales to third parties.

Operating Expenses

General and administrative expenses (including depreciation and
amortization) increased $2.4 million to $8.7 million for the three months ended
June 30, 2003, but decreased as a percentage of revenue to 17.7% as compared to
18.5% for the comparable period in 2002. General and administrative expense for
the second quarter of 2002, excluding $1.9 million of transaction related
costs, were $6.1 million or 17.2% as a percentage of revenue. The increase in
general and administrative expenses for the second quarter of 2003 as compared
to 2002, excluding transaction expenses in 2002, was primarily due to the addition of
personnel to support the acquired operations and additional personnel in the
sales and marketing and logistics and support areas to better manage the
Companys current and expected future operations.

Restructuring Charge

In June 2003, the Company recorded a restructuring charge associated with
the termination of certain administrative and sales employees that resulted
from reorganizing certain functions after the acquisition of Folz. As of June
30, 2003, no amounts had been charged against the $320,000 restructuring
accrual. The restructuring accrual is included in other accrued expenses in the
accompanying condensed consolidated balance sheet.

Operating Earnings (Loss)

Operating earnings for the three months ended June 30, 2003 were $2.0
million, or 4.0% of total revenue, as compared to operating earnings of $2.0
million or 5.8% of total revenue for the comparable period in 2002. Operating
earnings excluding the restructuring charge were $2.3 million or 4.6% of
revenue for the quarter ended June 30, 2003.

Interest Expense, Net

Interest expense for the second quarter of 2003 increased $558,000 to $3.4
million as compared to the same period in 2002. The Companys interest expense
is directly related to a higher level of borrowings after the ACMI Holdings,
Inc. transaction in February of 2002, the Folz and GamePlan acquisitions during
the second quarter of 2003 and changes in the underlying interest rates.

Net Earnings (Loss)

The net loss for the second quarter of 2003 was $913,000 compared to a net
loss of $927,000 for the comparable period in 2002.

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Six-Month Period Ended June 30, 2003 Compared to June 30, 2002

Revenue

For the six months ended June 30, 2003, total revenues increased 25.6% to
$87.5 million from $69.6 million in the prior year period.

For the six months ended June 30, 2003, vending revenue increased to $85.6
million compared to $68.5 million for the prior year period, primarily as a
result of the increase in the number of coin operated amusement vending
machines in place. As a result of the Folz, GamePlan and other asset
acquisitions, and internal growth during the period, total equipment placed
increased from approximately 26,000 machines at June 30, 2002 to 159,000
machines at June 30, 2003 including an increase in Shoppes from 14,000 to
17,000.

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. There is no assurance, however, that the Company
will be able to place and service additional Shoppes.

Franchise and other revenues increased 65.8% to $1.9 million for the six
months ended June 30, 2003 compared to $1.1 million for the same period in 2002
due primarily to increased sales of amusement vending equipment to third
parties. The Company acquired certain skill-crane manufacturing and kiddie ride
assets during the third quarter of 2002. The Company anticipates franchise and
other revenue will vary in the future based upon demand and production
availability.

Cost of Revenue and Gross Profit

The cost of vending operations (including depreciation and amortization)
for the six months ended June 30, 2003 increased $14.3 million or 27.4% to
$66.6 million from $52.3 million for the comparable period in 2002 primarily
due to the Companys acquisition activities. The vending operations
contribution to gross profit for the six months ended June 30, 2003 increased
$2.8 million to $18.9 million compared to the comparable period in 2002. The
vending gross profit achieved during the six months ended June 30, 2003 was
22.1% of vending revenue, which represents a 1.5 percentage point decrease from
the gross profit percentage achieved during the six months ended June 30, 2002.
The decrease in vending gross profit percentage results primarily from the
change in the mix to include more lower margin bulk vending revenues after the
Folz acquisition.

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 such products from third-party vendors. 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. While the Company believes that there are a
sufficient number of alternative sources of supply, no assurance can be given
that in the event of any such disruption, alternative sources will be
available, or that the Company will be able to obtain favorable pricing from
such sources.

For the six months ended June 30, 2003, gross profit on franchise and
other revenue increased to $850,000 compared to $630,000 for the six months
ended June 30, 2002. The increase in gross profit results from the addition of
amusement vending equipment sales to third parties.

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Operating Expenses

General and administrative expenses (including depreciation and
amortization) increased $1.3 million to $15.5 million for the six months ended
June 30, 2003, and decreased as a percentage of revenue to 17.8% as compared to
22.1% for the comparable period in 2002. General and administrative expense for
the six months ended June 30, 2002, excluding $1.9 million of transaction
related costs, were $12.2 million or 17.6% as a percentage of revenue. The
increase in general and administrative expenses for the six months ended June
30, 2003 as compared to 2002, excluding transaction expenses in 2002, was primarily due
to the additional of personnel to support the acquired operations and
additional personnel in the sales and marketing, logistics and support areas to
better manage the Companys current and expected future operations.

The loss on debt refinancing of $1.7 million 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
loss results from the write-off of loan origination fees related to the
previous credit facility. Prior to the January 1, 2003 adoption of SFAS No.
145, Recission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections, gains and losses from
extinguishments of debt were recorded as extraordinary items, net of tax. The
2002 loss on debt refinancing has been reclassified in the accompanying
condensed consolidated statements of operations in accordance with SFAS No.
145.

Restructuring Charge

In June 2003, the Company recorded a restructuring charge associated with
the termination of certain administrative and sales employees that resulted
from reorganizing certain functions after the acquisition of Folz. As of June
30, 2003, no amounts had been charged against the $320,000 restructuring
accrual. The restructuring accrual is included in other accrued expenses in the
accompanying condensed consolidated balance sheet.

Operating Earnings (Loss)

Operating earnings for the six months ended June 30, 2003 increased to
$3.9 million, or 4.5% of total revenue, as compared to operating income of
$914,000 or 1.3% of total revenue for the comparable period in 2002. Operating
earning in 2003 include $320,000 of restructuring charges. The operating
earnings in 2002 include transaction related costs totaling $1.9 million and
the loss on debt refinancing of $1.7 million.

Interest Expense, Net

Interest expense for the six months ended June 30, 2003 increased $1.3
million to $6.3 million as compared to the same period in 2002. The Companys
interest expense is directly related to a higher level of borrowings after the
ACMI Holdings, Inc. transaction in February of 2002, the Folz and GamePlan
acquisitions during the second quarter of 2003 and changes in the underlying
interest rates.

Net Earnings (Loss)

For the six months ended June 30, 2003, the net loss was $1.5 million
compared to a net loss of $2.9 million for the comparable period in 2002. The
2002 net loss resulted primarily from transaction related costs and the loss on
debt refinancing.

Critical Accounting Policies

Managements Discussion and Analysis of Financial Condition and Results of
Operations discusses the Companys condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. 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.

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On an on-going basis, management evaluates its estimates and judgments,
including those related to income taxes, inventory, property and equipment,
valuation of long-lived and intangible assets and costs in excess of assets
acquired. 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.

Income 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, unless they increase the life or utility of the equipment,
are generally charged to expense as incurred. Vending machines are depreciated
using the straight-line method over estimated useful lives ranging from three
to ten years, which may be different from actual expense.

Valuation of Long-Lived and Intangible Assets and Costs in Excess of
Assets Acquired.The Company assesses the impairment of identifiable
intangibles and long-lived assets whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Costs in excess of
assets acquired are reviewed for impairment annually or 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 fair value of the projected discounted
cash flows using a discount rate determined by our management to be
commensurate with the risk inherent in the Companys current business model.

In 2002, SFAS No. 142, Goodwill and Other Intangible Assets, became
effective and, as a result, the Company ceased to amortize costs in excess of
assets acquired. In lieu of amortization, the Company is required to perform an
annual impairment review of costs in excess of assets acquired.

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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 and debt 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 provided by operating activities was $5.5 million for the six
months ended June 30, 2003 while net cash used in operating activities was
$325,000 for the six months ended June 30, 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 $43.2 million for the six months
ended June 30, 2003 and $6.9 million for the six months ended June 30, 2002.
Capital expenditures for the six months ended June 30, 2003 and 2002 were $7.5
million and $5.5 million, respectively, of which $7.1 million and $5.0 million,
respectively, was for the acquisition of amusement vending equipment.

Net cash provided by financing activities was $37.5 million for the six
months ended June 30, 2003 and $4.3 million for the six months ended June 30,
2002. Financing activities consist primarily of borrowing on the Companys
current 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, other debt obligations and equity contributions of ACMI
Holdings, Inc.

At June 30, 2003, the Company had an $82.0 million senior secured credit
facility comprised of a $12.0 million revolving credit facility and $70.0
million of term loans comprised of a $26.3 million term loan A, a $37.2 million
term loan B, a $2.7 million term loan C and a $3.8 million term loan D. The
Company can borrow up to $12.0 million through March 31, 2007 under the terms
of the revolving credit facility. As of June 30, 2003, there was $6.5 million
of revolving loans outstanding, $770,000 of letters of credit outstanding, and
$4.7 million available under the revolving credit facility. Under the term loan
facilities, the Company is required to make quarterly principal installments
that increase in amount until the March 31, 2008 termination of the facilities.
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, 2003 was 6.6%. The credit agreement
governing the Companys senior secured credit facility requires certain
financial ratios to be met and places restrictions on, among other things, the
incurrence of additional debt financing and certain payments to the Companys
parent company.

As required under the Companys senior secured 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 was $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.

The Company has issued $32.8 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; provided however, the minimum cash interest payable on these
notes is 13% with the balance of interest payable in the form of payment in
kind notes. Included in the $32.8 million total for the senior subordinated
notes is $1.3 million of payment in kind notes issued in lieu of interest. The
note purchase agreement requires certain financial ratios to be met and places
restrictions on, among other things, the incurrence of additional senior
subordinated indebtedness and certain restricted payments.

In conjunction with the acquisition of Folz on April 15, 2003, the Company
received a $12.5 million equity contribution by its parent company ACMI
Holdings, Inc. to fund a portion of the acquisition.

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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 and borrowings available under
its credit facility 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

On January 1, 2003, the Company adopted SFAS No. 145, Recission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, which rescinded the required classification of gains and losses
from extinguishments of debt as an extraordinary item, net of tax, and
eliminated inconsistency between required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. The
adoption of this pronouncement resulted in a reclassification of $1.7 million
from an extraordinary item to operations.

On January 1, 2003, the Company adopted SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). Generally,
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized as incurred, whereas EITF Issue No. 94-3
requires such a liability to be recognized at the time that an entity committed
to an exit plan. As of June 30, 2003, the Company complied with SFAS No. 146
and recorded $320,000 of restructuring costs.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based CompensationTransition and Disclosurean amendment of FASB
Statement No. 123. This statement provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require more prominent disclosures
in both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The Company has adopted the expanded disclosure provisions of
SFAS No. 148.

In May 2003, the FASB released SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity and is effective at the beginning of the first interim period beginning
after June 15, 2003. For financial instruments created before the issuance
date, transition shall be achieved by reporting the cumulative effect of a
change in an accounting principle by initially measuring the financial
instruments at fair value. For manditorily redeemable financial instruments,
dividends and other amounts paid or accrued prior to reclassification of the
instrument as a liability shall not be reclassified as interest cost upon
transition. Restatement of financial statements for earlier years presented is
not permitted. This opinion will impact the classification of the Company
obligated manditorily redeemable preferred securities of subsidiary trust
holding solely junior subordinated debentures in the third quarter of 2003.

In April 2003, the FASB decided to require all companies to expense the
fair value of employee stock options by no later than 2005. While the FASB has
decided in principle to measure compensation at the date of grant, no guidance
has been given as to how the cost of employee stock options should be measured.
SFAS No. 123 requires use of an option-pricing model to determine fair value,
such as Black-Scholes. This FASB plans to issue an exposure draft later this
year

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that will provide more guidance. Until a final pronouncement is issued by
the FASB, management cannot determine what impact expensing stock options will
have on its results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 requires a liability to be
recognized at the time a company issues a guarantee for the fair value of the
obligations assumed under certain guarantee agreements. Additional disclosures
about guarantee agreements are also required in the interim and annual
financial statements, including a roll forward of the entitys product warranty
liabilities to the extent they are material. The provisions for initial
recognition and measurement of guarantee agreements are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002. The adoption of FIN 45 had no impact on the Companys consolidated
financial statements.

On January 1, 2003, the Company adopted FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. Interpretation No. 46 is an
interpretation of Accounting Research Bulletin No. 51, and addresses
consolidation by business enterprises of variable interest entities. This
interpretation requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. Variable interest entities
that effectively dispense risks will not be consolidated unless a single party
holds an interest or combination of interests that effectively recombines risks
that were previously dispersed. The Company is required to apply the provision
of Interpretation No. 46 to variable interest entities created after July 1,
2003. The adoption of this standard did not have an impact on the Companys
financial position or results of its operations.




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As required under the Companys senior secured 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 was $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. If the three-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 $63,000 per quarter. The Companys
outstanding debt obligations are at variable interest rates and consequently
the fair value approximates the carrying value.




Item 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures designed to
ensure that information required to be disclosed in reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the specified time periods.  As
of the end of the period covered by this report, the Companys Chief Executive Officer and Chief Financial
Officer evaluated, with the participation of the Companys management, the effectiveness of the Companys disclosure
controls and procedures.  Based on the evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective.  There were no changes in the Companys
internal control over financial reporting that occurred during the Companys most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

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PART II. OTHER INFORMATION




Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

|            |  |                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                           
|            |  |                                                                                                                       
|31.1        |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|31.2        |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|32          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K



| |  | A report on Form 8-K was filed with the SEC on April 30, 2003 disclosing
that the Company had completed the acquisition of substantially all of the
assets of Folz Vending Co., Inc. and its subsidiary Folz Novelty Co.,
Inc., pursuant to an Asset Purchase Agreement dated March 14, 2003.                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | A report on Form 8-K/A was filed with the SEC on June 30, 2003 providing
the required financial statements and pro forma financial information
related to the acquisition of substantially all of the assets of Folz
Vending Co., Inc. and its subsidiary Folz Novelty Co., Inc., pursuant to
an Asset Purchase Agreement dated March 14, 2003.

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SIGNATURES

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.                
|                      |  |                                                  
|                      |  | (Registrant)                                     
|                      |  |                                                  
|Date: August 14, 2003 |  | By: /s/ RANDALL J. FAGUNDO                       
|                      |  |                                                  
|                      |  | Randall J. Fagundo                               
|                      |  | Chief Executive Officer                          
|                      |  |                                                  
|Date: August 14, 2003 |  | By: /s/ KENNETH W. EDIC                          
|                      |  |                                                  
|                      |  | Kenneth W. Edic                                  
|                      |  | Senior Vice President and Chief Financial Officer

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INDEX TO EXHIBITS

|            |  |                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                           
|            |  |                                                                                                                       
|31.1        |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|31.2        |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|32          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002