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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 March 31, 2003

or

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | 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
(State or other jurisdiction of
incorporation or organization) |  | 84-1093721
(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    o

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

As of May 12, 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                               
|CERTIFICATIONS                           
|INDEX TO EXHIBITS                        
|EX-99.1 Written Statements of CEO and CFO



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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March 31, 2003 and
December 31, 2002.                                                                                                                |  | 3   
|        |  | Condensed Consolidated Statements of OperationsThree Months Ended
March 31, 2003 (successor), Two Months Ended March 31, 2002 (successor),
One Month Ended January 31, 2002 (predecessor) |  | 4   
|        |  | Condensed Consolidated Statements of Cash FlowsThree Months Ended
March 31, 2003 (successor), Two Months Ended March 31, 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                                                                                                      |  | 10  
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                 |  | 15  
|Item 4. |  | Controls and Procedures                                                                                                                                                                    |  | 15  
|PART II |  | OTHER INFORMATION                                                                                                                                                                          |  |     
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                                                           |  | 16  

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 per share data)

|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |              |         |  |  | 
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------ | ------------------------------------ | ------- | ------- | --------- | ------ | ------------ | ------- |  |  | 
|                                                                                                                                 |                                                                          |                                            |                                      |         |         | March 31, |        | December 31,
|                                                                                                                                 |                                                                          |                                            |                                      |         |         | 2003      |        | 2002        
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          |                                            |                                      | ASSETS  |         |           |        |              |         |  |  | 
|Current assets:                                                                                                                  |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 | Cash and cash equivalents                                                |                                            | $                                    | 3,204   |         |           | $      | 4,178        |        
|                                                                                                                                 | Trade accounts and other receivables, net                                |                                            |                                      | 1,078   |         |           |        | 1,069        |        
|                                                                                                                                 | Inventories, net                                                         |                                            |                                      | 11,840  |         |           |        | 11,512       |        
|                                                                                                                                 | Prepaid expenses and other assets                                        |                                            |                                      | 4,165   |         |           |        | 3,035        |        
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          | Total current assets                       |                                      |         | 20,287  |           |        |              | 19,794  | 
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|Property and equipment, at cost:                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 | Vending machines                                                         |                                            |                                      | 42,470  |         |           |        | 40,738       |        
|                                                                                                                                 | Vehicles                                                                 |                                            |                                      | 4,537   |         |           |        | 4,622        |        
|                                                                                                                                 | Office equipment, furniture and fixtures                                 |                                            |                                      | 4,627   |         |           |        | 4,485        |        
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          |                                            | 51,634                               |         |         |           | 49,845 |             
|                                                                                                                                 | Less accumulated depreciation                                            |                                            |                                      | (10,382 | )       |           |        | (7,870       | )      
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          | Property and equipment, net                |                                      |         | 41,252  |           |        |              | 41,975  | 
|Placement fees, net of accumulated amortization of $3,244 in 2003 and $2,599 in
2002                                             |                                                                          |                                            | 1,948                                |         |         |           | 2,080  |             
|Costs in excess of assets acquired and other intangible assets, net of
accumulated amortization of $277 in 2003 and $221 in 2002 |                                                                          |                                            | 65,637                               |         |         |           | 65,693 |             
|Other assets, net of accumulated amortization of $1,769 in 2003 and $1,409 in 2002                                               |                                                                          |                                            | 7,167                                |         |         |           | 6,831  |             
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          | Total assets                               |                                      | $       | 136,291 |           |        | $            | 136,373 | 
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |         |         |           |        |              |         |  | 
|Current liabilities:                                                                                                             |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 | Current portion of long-term debt                                        |                                            | $                                    | 4,728   |         |           | $      | 4,718        |        
|                                                                                                                                 | Accounts payable                                                         |                                            |                                      | 7,004   |         |           |        | 3,656        |        
|                                                                                                                                 | Accrued commissions                                                      |                                            |                                      | 3,350   |         |           |        | 3,392        |        
|                                                                                                                                 | Other accrued expenses                                                   |                                            |                                      | 1,265   |         |           |        | 1,961        |        
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          | Total current liabilities                  |                                      |         | 16,347  |           |        |              | 13,727  | 
|Long-term debt, net of current portion                                                                                           |                                                                          |                                            | 77,415                               |         |         |           | 79,593 |             
|Other liabilities                                                                                                                |                                                                          |                                            | 795                                  |         |         |           | 789    |             
|Fair value of interest rate collar agreement                                                                                     |                                                                          |                                            | 1,300                                |         |         |           | 1,248  |             
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          | Total liabilities                          |                                      |         | 95,857  |           |        |              | 95,357  | 
|Company obligated mandatorily redeemable preferred securities of subsidiary trust
holding solely junior subordinated debentures  |                                                                          |                                            | 12,987                               |         |         |           | 12,974 |             
|Stockholders equity:                                                                                                            |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 | Common stock, $.01 par value; 1 share authorized, issued and outstanding |                                            |                                      |        |         |           |        |             |        
|                                                                                                                                 | Additional paid-in capital                                               |                                            |                                      | 28,629  |         |           |        | 28,629       |        
|                                                                                                                                 | Accumulated deficit                                                      |                                            |                                      | (1,182  | )       |           |        | (587         | )      
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          | Total stockholders equity                 |                                      |         | 27,447  |           |        |              | 28,042  | 
|                                                                                                                                 |                                                                          |                                            |                                      |         |         |           |        |             
|                                                                                                                                 |                                                                          | Total liabilities and stockholders equity |                                      | $       | 136,291 |           |        | $            | 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     |        | Two         |       | One        
|                                             |                                                          |                                                  |       | Months    |        | Months      |       | Month      
|                                             |                                                          |                                                  |       | Ended     |        | Ended       |       | Ended      
|                                             |                                                          |                                                  |       | March 31, |        | March 31,   |       | January 31,
|                                             |                                                          |                                                  |       | 2003      |        | 2002        |       | 2002       
|                                             |                                                          |                                                  |       |           |        |             |       |            
|Revenue:                                     |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             | Vending                                                  |                                                  | $     | 37,115    |        |             | $     | 24,093      |        |  | $     | 10,880 |       
|                                             | Franchise and other                                      |                                                  |       | 880       |        |             |       | 350         |        |  |       | 199    |       
|                                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             |                                                          | Total revenue                                    |       |           | 37,995 |             |       |             | 24,443 |  |       |        | 11,079 |  
|                                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|Cost of revenue:                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             | Vending, excluding related depreciation and amortization |                                                  |       | 25,532    |        |             |       | 15,858      |        |  |       | 7,568  |       
|                                             | Depreciation and amortization                            |                                                  |       | 3,122     |        |             |       | 2,091       |        |  |       | 1,013  |       
|                                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             |                                                          | Total cost of vending                            |       |           | 28,654 |             |       |             | 17,949 |  |       |        | 8,581  |  
|                                             | Franchise and other                                      |                                                  |       | 534       |        |             |       | 275         |        |  |       | 192    |       
|                                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             |                                                          | Total cost of revenue                            |       |           | 29,188 |             |       |             | 18,224 |  |       |        | 8,773  |  
|                                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             |                                                          | Gross profit                                     |       |           | 8,807  |             |       |             | 6,219  |  |       |        | 2,306  |  
|General and administrative expenses          |                                                          |                                                  | 6,598 |           |        |             | 3,964 |             |        |  | 3,617 |       
|Depreciation and amortization                |                                                          |                                                  | 239   |           |        |             | 184   |             |        |  | 96    |       
|Loss on debt refinancing                     |                                                          |                                                  |      |           |        |             |      |             |        |  | 1,727 |       
|                                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             |                                                          | Operating earnings (loss)                        |       |           | 1,970  |             |       |             | 2,071  |  |       |        | (3,134 | )
|Interest expense, net                        |                                                          |                                                  | 2,878 |           |        |             | 1,726 |             |        |  | 390   |       
|Change in fair value of interest rate collar |                                                          |                                                  | 52    |           |        |             |      |             |        |  |      |       
|                                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             |                                                          | (Loss) earnings before income taxes              |       |           | (960   | )           |       |             | 345    |  |       |        | (3,524 | )
|Income tax benefit (expense)                 |                                                          |                                                  | 365   |           |        |             | (131  | )           |        |  | 1,339 |       
|                                             |                                                          |                                                  |       |           |        |             |       |             |        |  |       |       
|                                             |                                                          | Net (loss) earnings                              |       | $         | (595   | )           |       | $           | 214    |  |       | $      | (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 except per share data)

|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |         |       |        |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------------------------- | ----- | --------- | ------ | ----------- | ----- | ----------- | ----- | ------- | ----- | ------ | ------ | -
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       | Successor |        | Predecessor
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |            
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       | Three     |        | Two         |       | One        
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       | Months    |        | Months      |       | Month      
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       | Ended     |        | Ended       |       | Ended      
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       | March 31, |        | March 31,   |       | January 31,
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       | 2003      |        | 2002        |       | 2002       
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |            
|Cash flows from operating activities:            |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|                                                 | Net (loss) earnings                                                                                  |                                                                | $                                                    | (595                                                     | )     |           | $      | 214         |       |             | $     | (2,185  | )    
|                                                 | Adjustments to reconcile net (loss) earnings to net cash provided
by (used in) operating activities |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |         |      
|                                                 |                                                                                                      | Depreciation and amortization                                  |                                                      |                                                          | 3,751 |           |        |             | 2,556 |             |       |         | 1,146 |       
|                                                 |                                                                                                      | Change in fair value of interest rate collar, net of cash paid |                                                      |                                                          | 52    |           |        |             |      |             |       |         |      |       
|                                                 |                                                                                                      | Changes in operating assets and liabilities:                   |                                                      |                                                          |       |           |        |             |       |             |       |         |       |       
|                                                 |                                                                                                      |                                                                |                                                      | Trade accounts and other receivables                     |       |           | (9     | )           |       |             | 71    |         |       |        | 96     |  
|                                                 |                                                                                                      |                                                                |                                                      | Inventories                                              |       |           | (328   | )           |       |             | 1,561 |         |       |        | 1,233  |  
|                                                 |                                                                                                      |                                                                |                                                      | Prepaid expenses and other assets                        |       |           | (1,458 | )           |       |             | (932  | )       |       |        | (5,468 | )
|                                                 |                                                                                                      |                                                                |                                                      | Accounts payable, accrued expenses and other liabilities |       |           | 2,248  |             |       |             | 711   |         |       |        | (1,260 | )
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|                                                 |                                                                                                      |                                                                | Net cash provided by (used in) operating activities  |                                                          |       | 3,661     |        |             |       | 4,181       |       |         |       | (6,438 | )     
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|Cash flows from investing activities:            |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|                                                 | Acquisitions of property and equipment, net                                                          |                                                                |                                                      | (1,954                                                   | )     |           |        | (1,347      | )     |             |       | (436    | )    
|                                                 | Placement fees                                                                                       |                                                                |                                                      | (513                                                     | )     |           |        | (409        | )     |             |       | (300    | )    
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|                                                 |                                                                                                      |                                                                | Net cash used in investing activities                |                                                          |       | (2,467    | )      |             |       | (1,756      | )     |         |       | (736   | )     
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|Cash flows from financing activities:            |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|                                                 | Net (payments) borrowings on current credit facilities                                               |                                                                |                                                      | (2,027                                                   | )     |           |        | (1,003      | )     |             |       | 82,703  |      
|                                                 | Net payments on previous credit facility                                                             |                                                                |                                                      |                                                         |       |           |        |            |       |             |       | (44,500 | )    
|                                                 | Principal payments on long-term debt                                                                 |                                                                |                                                      | (141                                                     | )     |           |        | (33         | )     |             |       | (16     | )    
|                                                 | Net purchase of common stock net of offering costs                                                   |                                                                |                                                      |                                                         |       |           |        |            |       |             |       | (31,825 | )    
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|                                                 |                                                                                                      |                                                                | Net cash (used in) provided by financing activities  |                                                          |       | (2,168    | )      |             |       | (1,036      | )     |         |       | 6,362  |       
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|                                                 |                                                                                                      |                                                                | Net (decrease) increase in cash and cash equivalents |                                                          |       | (974      | )      |             |       | 1,389       |       |         |       | (812   | )     
|Cash and cash equivalents at beginning of period |                                                                                                      |                                                                | 4,178                                                |                                                          |       |           | 3,254  |             |       |             | 4,066 |        
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        
|Cash and cash equivalents at end of period       |                                                                                                      | $                                                              | 3,204                                                |                                                          |       | $         | 4,643  |             |       | $           | 3,254 |        
|                                                 |                                                                                                      |                                                                |                                                      |                                                          |       |           |        |             |       |             |       |        

See accompanying notes to condensed consolidated financial statements.

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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. and
American Coin Merchandising Trust I (the Company) and its franchisees own and
operate more than 34,000 coin-operated amusement vending machines. Over 15,000
of these machines dispense plush toys, watches, jewelry, novelties, and other
items. The Companys amusement vending machines are placed in supermarkets,
mass merchandisers, bowling centers, truck stops, bingo halls, bars,
restaurants, warehouse clubs and similar locations. At March 31, 2003, the
Company had 35 field offices with operations in 49 states and Puerto Rico. The
Company also sells products to franchisees and amusement vending equipment to
third parties. At March 31, 2003, there were eight franchisees operating in 11
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 and
those subsequent to the acquisition are denoted as successor.

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 March 31,
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, costs in excess of assets acquired and other
intangible assets, 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 March 31, 2003 and December 31, 2002, and the results of its
operations and cash flows for the three months ended March 31, 2003, the two
months ended March 31, 2002 and the one month ended January 31, 2002.

The operating results for the three months ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2003.

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(2) 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 Statement of Financial Accounting Standards (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     |      | Two         |  | One        
|                                 |             |  | Months    |      | Months      |  | Month      
|                                 |             |  | Ended     |      | Ended       |  | Ended      
|                                 |             |  | March 31, |      | March 31,   |  | January 31,
|                                 |             |  | 2003      |      | 2002        |  | 2002       
|                                 |             |  |           |      |             |  |            
|Net (loss) earnings              |             |  |           |      |             |  |             |     |  |  |   |       
|                                 | As reported |  | $         | (595 | )           |  | $           | 214 |  |  | $ | (2,185 | )
|                                 | Pro forma   |  | $         | (620 | )           |  | $           | 201 |  |  | $ | (2,400 | )
|Basic and diluted loss per share |             |  |           |      |             |  |             |     |  |  |   |       
|                                 | As reported |  |           |      |             |  |             |     |  |  | $ | (0.33  | )
|                                 | Pro forma   |  |           |      |             |  |             |     |  |  | $ | (0.37  | )

(3) Supplemental Disclosures of Cash Flow Information

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

|                             |                   |  |           |       |             |  |             |     |  |  |   |     | 
|---------------------------- | ----------------- |  | --------- | ----- | ----------- |  | ----------- | --- |  |  | - | --- | 
|                             |                   |  | Successor |       | Predecessor
|                             |                   |  |           |       |            
|                             |                   |  | Three     |       | Two         |  | One        
|                             |                   |  | Months    |       | Months      |  | Month      
|                             |                   |  | Ended     |       | Ended       |  | Ended      
|                             |                   |  | March 31, |       | March 31,   |  | January 31,
|                             |                   |  | 2003      |       | 2002        |  | 2002       
|                             |                   |  |           |       |             |  |            
|Cash paid during the period: |                   |  |           |       |             |  |             |     |  |  |   |    
|                             | Interest paid     |  | $         | 2,353 |             |  | $           | 490 |  |  | $ | 560 | 
|                             | Income taxes paid |  |           | 28    |             |  |             | 11  |  |  |   | 3   | 

(4) Income Taxes

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

(5) 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.

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(6) Long-Term Debt

At March 31, 2003, the Company had a $65.0 million senior secured credit
facility comprised of a $10.0 million revolving credit facility and $55.0
million of term loans comprised of a $25.0 million term loan A and a $30.0
million term loan B. Under the revolving credit facility, the Company could
borrow up to $10.0 million through February 11, 2007, and at March 31, 2003
there was $5.8 million outstanding, including $770,000 of letters of credit,
and $2.3 million available under the revolving credit facility. Under both term
loan A and B, the Company was required to make quarterly principal installments
that increased in amount through February 11, 2007 for term loan A and February
11, 2008 for term loan B. The revolving facility and the term loans bear
interest at a floating rate at the Companys option, equal to either LIBOR plus
the applicable margin or a base rate that is equal to the higher of the prime
rate or the federal funds rate plus one-half percent plus the applicable
margin. The effective rate of interest on both facilities at March 31, 2003 was
5.9%. The credit agreement governing the Companys credit facility provides
that certain financial ratios be met and places restrictions on, among other
things, the incurrence of additional debt financing and certain payments to the
Companys parent company.

The Company has issued $26.0 million of senior subordinated notes due in
2009. Interest on these notes is payable on a quarterly basis at the rate of
17% per annum; however, at the option of the Company the minimum cash interest
due on these notes is 13% with the balance of interest due being paid in the
form of additional notes or payment in kind notes in an aggregate amount equal
to the amount of interest that would be payable with respect to the notes, if
such interest were paid in cash. The note purchase agreement provides that
certain financial ratios be met and places restrictions on, among other things,
the incurrence of additional senior subordinated indebtedness and certain
restricted payments.

(7) 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. To
meet this objective, the Company entered into an interest rate collar
instrument on March 28, 2002, with the Royal Bank of Scotland PLC. The Company
paid $181,000 to obtain the agreement which hedges against increases in LIBOR
rates through March 31, 2005. The initial notional amount 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.

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 is not allowed 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 $185,000 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 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 March 31, 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 an expense
during the quarter totaling $52,000. The Company does not speculate using
derivative instruments.

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(8) Subsequent Events

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 $22.0 million subject to certain post-closing
adjustments. 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 million equity contribution
received from its parent Company ACMI Holdings, Inc.

In conjunction with the acquisition of Folz, the Company amended and
restated its senior secured credit facility. Under the amended credit facility,
the Company may borrow up to $12.0 million under a revolving credit facility
through March 31, 2007. The amended credit facility also provides for up to
$70.0 million of term loans. The Company is required to make quarterly
principal installments on the $26.3 million of term A and $37.2 million of term
B borrowings under the amended credit facility. The quarterly principal
installments increase in amount through March 31, 2007 for the term A loan and
March 31, 2008 for the term B loan. 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. If not utilized for additional acquisition activity by May 31, 2003,
the $6.5 million currently available pursuant to the term loans under the
amended credit facility will expire.

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

Except for the historical information contained herein, the following
discussion contains forward-looking statements within the meaning of the
Private Securities Litigation Act of 1995 that involve risks and uncertainties.
The Companys actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section and the Companys Form 10-K for the
year ended December 31, 2002.

In order to provide a meaningful basis of comparing the Companys
operating results, the operating results for the two months ended March 31,
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 March 31, 2003 are
compared to the comparable period in 2002.

General

The Company and its franchisees own and operate coin-operated amusement
vending equipment. Over 15,000 of these machines are skill-crane machines
(Shoppes) that dispense plush toys, watches, jewelry, novelties and other
items. The majority of the Companys revenue and gross profit is derived from
Company-owned Shoppes. The Companys revenue and gross profit in a particular
period is directly related to the number of Shoppes in operation during the
period. Management believes that the Companys business is somewhat seasonal,
with average revenue per machine per week greater during the Easter and
Christmas periods. Vending revenue represents cash receipts from customers
using vending machines and is recognized when collected. The cost of vending
revenue is comprised of the cost of vended products, location commissions,
depreciation, and direct service 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.

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 sold to franchisees and
non-franchisees to vend in the Shoppes and sales of amusement vending equipment
to third parties.

Revenue

Total revenue for the first three months of 2003 increased 7.0% to $38.0
million from $35.5 million for the same period in 2002.

Vending revenue increased $2.1 million or 6.1% for the first three months
of 2003 to $37.1 million from $35.0 million for the comparable period in 2002,
primarily as a result of a 10.9% increase in the average number of Shoppes in
place during the first three months of 2003 compared to the average number in
place during the same period in 2002.

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

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additional Shoppes in individual locations of such accounts. There is no
assurance, however, that the Company, its franchisees and their suppliers will
be able to place and adequately service additional Shoppes.

Franchise and other revenue increased $331,000 to $880,000 for the first
three months of 2003 as compared to 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 for the first three months of 2003
increased $2.1 million or 8.0% to $28.7 million from $26.5 million for the
comparable period in 2002. The vending operations contribution to gross profit
for the first three months of 2003 increased $18,000 to $8.5 million compared
to the same period in 2002. The vending gross profit achieved during the first
quarter of 2003 was 22.8% of vending revenue, which represents a 1.3 percentage
point decrease from the gross profit percentage achieved during the first
quarter of 2002. The decrease in vending margin results primarily from the cost
of vending equipment operating leases entered into during the fourth quarter of
2002, machine related costs, and increased fuel and operating costs of the
Companys route and service vehicles partially offset by lower cost of product
vended for certain machine types.

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

For the first quarter of 2003, gross profit on franchise and other revenue
increased to $346,000 or 39.3% of franchise and other revenue, as compared to
$82,000 or 15.0% of franchise and other revenue for the first quarter of 2002.
The increase in gross profit results from the addition of amusement vending
equipment sales to third parties.

Operating Expenses

General and administrative expenses (including depreciation and
amortization) decreased $1.0 million to $6.8 million for the first three months
of 2003, and decreased as a percentage of revenue to 18.0% as compared to 22.1%
for the comparable period in 2002. General and administrative expense for the
first quarter of 2002, excluding $1.8 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 first quarter of 2003 as compared to 2002,
excluding transaction expenses, was a result of escalating employee health care
costs and the expansion or addition of personnel in the sales and marketing and
logistics areas to better manage the Companys current and expected future
operations.

The loss on debt refinancing of $1.7 million for the quarter ended March
31, 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.

Operating Earnings (Loss)

Operating earnings for the first three months of 2003 increased to $2.0
million, or 5.2% of total revenue, as compared to an operating loss of $1.1
million for the comparable period in 2002. The operating loss in 2002 results
primarily from transaction related costs totaling $1.8 million and the loss on
debt refinancing of $1.7 million. Operating earnings for the first three months
of 2002, excluding transaction related costs and the loss on debt refinancing
of $1.7 million were $2.4 million or 6.8% of total revenue.

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Interest Expense, Net

Interest expense for the first three months of 2003 increased $762,000 to
$2.9 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 and changes in the underlying
interest rates.

Net Earnings (Loss)

The net loss for the first three months of 2003 was $595,000 compared to a
net loss of $2.0 million for the comparable period in 2002. The 2002 net loss
resulted from transaction related costs and the loss on debt refinancing. Net
earnings for the first three months of 2002 excluding transaction related costs
and the loss on debt refinancing were $186,000.

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. The preparation of these financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period.

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

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

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

Property and Equipment.Property and equipment is stated at cost. Major
replacements and improvements are capitalized. When assets are sold, retired or
otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and the gain or loss is recognized. Repair and
maintenance costs, 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.

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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 projected discounted cash flow method
using a discount rate determined by our management to be commensurate with the
risk inherent in the Companys current business model.

In 2002, 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.

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 $3.7 million for the three
months ended March 31, 2003 while net cash used in operating activities was
$2.3 million for the three months ended March 31, 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 $2.5 million for both the three
months ended March 31, 2003 and 2002, respectively. Capital expenditures for
the three months ended March 31, 2003 and 2002 amounted to $2.0 million and
$1.8 million, respectively, of which $1.8 million and $1.5 million,
respectively, was for the acquisition of amusement vending equipment.

Net cash used in financing activities was $2.2 million for the three
months ended March 31, 2003 and net cash provided by financing activities was
$5.3 million for the three months ended March 31, 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 and other debt
obligations.

At March 31, 2003, the Company had a $65.0 million senior secured credit
facility comprised of a $10.0 million revolving credit facility and $55.0
million of term loans comprised of a $25.0 million term loan A and a $30.0
million term loan B. Under the revolving credit facility, the Company could
borrow up to $10.0 million through February 11, 2007, and at March 31, 2003
there was $5.9 million outstanding, including $770,000 of letters of credit,
and $2.3 million available under the revolving credit facility. Under both term
loan A and B, the Company was required to make quarterly principal installments
that increased in amount through February 11, 2007 for term loan A and February
11, 2008 for term loan B. The revolving facility and the term loans bear
interest at a floating rate at the Companys option, equal to either LIBOR plus
the applicable margin or a base rate that is equal to the higher of the prime
rate or the federal funds rate plus one-half percent plus the applicable
margin. The effective rate of interest on both facilities at March 31, 2003 was
5.9%. 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.

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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 $26.0 million of senior subordinated notes due in
2009. Interest on these notes is payable on a quarterly basis at the rate of
17% per annum; however, at the option of the Company the minimum cash interest
due on these notes is 13% with the balance of interest due being paid in the
form of additional notes or payment in kind notes in an aggregate amount equal
to the amount of interest that would be payable with respect to the notes, if
such interest were paid in cash. The note 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
amended and restated its credit facility. Under the amended credit facility,
the Company may borrow up to $12.0 million under a revolving credit facility
through March 31, 2007. The amended credit facility also provides for up to
$70.0 million of term loans. The Company is required to make quarterly
principal installments on the $26.3 million of term A and $37.2 million of term
B borrowings under the amended credit facility. The quarterly principal
installments increase in amount through March 31, 2007 for the term A loan and
March 31, 2008 for the term B loan. 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. In addition to the borrowings under the amended and restated credit
facility, the Company issued $6.5 million of senior subordinated notes due in
2009 and received a $12.5 million equity contribution by its parent company
ACMI Holdings, Inc. to fund the acquisition. If not utilized for additional
acquisition activity by May 31, 2003, the $6.5 million currently available
pursuant to the term loans under the amended credit facility will expire.

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

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

Impact of Recently Issued Accounting Standards

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 did not have a material impact on the Company.

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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. SFAS No. 146 did not have an impact on the Companys financial
results.

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. The Company is currently evaluating the fair value based method
and, accordingly, has not determined the impact that this standard will have on
its financial position or results of operations.

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 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.

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 January
31, 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 described above, the Company entered into an interest rate collar
instrument with an initial notional principal amount of $27.5 million of the
term debt outstanding for a three-year period ending March 31, 2005. 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 $65,000 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



| | (a) |  | Disclosure Controls and Procedures. The Companys chief executive
officer and chief financial officer, after evaluating the effectiveness
of the Companys disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a
date (the Evaluation Date) within 90 days before the filing date of
this quarterly report, have concluded that as of the Evaluation Date,
the Companys disclosure controls and procedures were effective and
designed to ensure that material information relating to the Company and
the Companys consolidated subsidiaries would be made known to them.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Changes in Internal Controls. There were no significant changes in
the Companys internal controls or in other factors that could
significantly affect those controls subsequent to the Evaluation Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                

15



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##### Table of Contents






PART II. OTHER INFORMATION




Item 6. EXHIBITS AND REPORTS ON FORM 8-K

|(a) |  | Exhibits
|--- |  | --------

|            |  |                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                 
|            |  |                                                                                                                                                             
|99.1        |  | Written Statements of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)



|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | A report on Form 8-K was filed with the SEC on March 17, 2003 disclosing
that the Company had agreed to acquire 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 was filed with the SEC on April 30, 2003 disclosing
that the Company has 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.

16



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##### Table of Contents






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: May 15, 2003 |  | By:                                            |  | /s/ RANDALL J. FAGUNDO

Randall J. Fagundo
Chief Executive Officer                    
|                   |  |                                                |  |                                                                                       
|Date: May 15, 2003 |  | By:                                            |  | /s/ KENNETH W. EDIC

Kenneth W. Edic
Senior Vice President and Chief Financial Officer

17



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##### Table of Contents






CERTIFICATIONS

I, Randall J. Fagundo, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of American Coin
Merchandising, Inc.;                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements and other financial
information included in this quarterly report fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                     
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have;                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                                                                       
|------------------ |  | ----------------------------------------------------------------------
|Date: May 15, 2003 |  |                                                                       
|                   |  |                                                                       
|                   |  | By: /s/ RANDALL J. FAGUNDO

Randall J. Fagundo
Chief Executive Officer

18



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##### Table of Contents



CERTIFICATIONS

I, Kenneth W. Edic, certify that:



|7.  |  | I have reviewed this quarterly report on Form 10-Q of American Coin
Merchandising, Inc.;                                                                                                                                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|8.  |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|   
|9.  |  | Based on my knowledge, the financial statements and other financial
information included in this quarterly report fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                     
|   
|10. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have;                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation date;                                                                                                                        



|11. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|12. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                                                                                           
|------------------ |  | ------------------------------------------------------------------------------------------
|Date: May 15, 2003 |  |                                                                                           
|                   |  |                                                                                           
|                   |  | By: /s/ KENNETH W. EDIC

Kenneth W. Edic
Senior Vice President and Chief Financial Officer

19



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##### Table of Contents






INDEX TO EXHIBITS

|            |  |                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                 
|            |  |                                                                                                                                                             
|99.1        |  | Written Statements of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

20