##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

(X)     Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003

OR

(   )     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from  to

Commission File Number: 0-26580

AMERICAN COIN MERCHANDISING, INC.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 84-1093721
(IRS Employer Identification Number)

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes ( ) No (X)

As of
March 12, 2004, the registrant had 1,000 shares of its $0.01 par
value common stock outstanding. None of the registrants common stock is held
by non-affiliates of the registrant.





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TABLE OF CONTENTS



|                                                   |                                                                                                                      |  |  |  |  |  |  | 
|-------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                                                    
|                                                   | Item 2. Properties                                                                                                  
|                                                   | Item 3. Legal Proceedings                                                                                           
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                                         
|PART II                                           
|                                                   | Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                                                   | Item 6. Selected Financial Data                                                                                     
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                       
|                                                   | Item 7A. Quantitative and Qualitative Disclosure About Market Risk                                                  
|                                                   | Item 8. Financial Statements and Supplementary Data                                                                 
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|                                                   | Item 9A. Controls and Procedures                                                                                    
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                                         
|                                                   | Item 11. Executive Compensation                                                                                     
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters             
|                                                   | Item 13. Certain Relationships and Related Transactions                                                             
|                                                   | Item 14. Principal Accountant Fees and Services                                                                     
|PART IV                                           
|                                                   | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                           
|SIGNATURES                                        
|INDEX TO EXHIBITS                                 
|Amendment No. 1 to Restated Credit Agreement      
|Consent/Amendment No. 1 to Subordination Agreement
|Consent/Amendment No. 2 to Subordination Agreement
|Code of Ethics                                    
|Certification Pursuant to Section 302             
|Certification Pursuant to Section 302             
|Certification Pursuant to 18 U.S.C. Section 1350  



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC.

Annual Report on Form 10-K

December 31, 2003

Table of Contents

|        |  |                                                                                                              |  |          |    |      |  | 
|------- |  | ------------------------------------------------------------------------------------------------------------ |  | -------- | -- | ---- |  | 
|        |  |                                                                                                              |  |          |    | Page
|        |  |                                                                                                              |  | PART I   |    |      |  | 
|Item 1  |  | Business                                                                                                     |  |          | 3  |     
|Item 2  |  | Properties                                                                                                   |  |          | 10 |     
|Item 3  |  | Legal Proceedings                                                                                            |  |          | 10 |     
|Item 4  |  | Submission of Matters to a Vote of Security Holders                                                          |  |          | 10 |     
|        |  |                                                                                                              |  | PART II  |    |      |  | 
|Item 5  |  | Market
for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities |  |          | 11 |     
|Item 6  |  | Selected Financial Data                                                                                      |  |          | 11 |     
|Item 7  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  |          | 12 |     
|Item 7A |  | Quantitative and Qualitative Disclosure About Market Risk                                                    |  |          | 22 |     
|Item 8  |  | Financial Statements and Supplementary Data                                                                  |  |          | 22 |     
|Item 9  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  |          | 22 |     
|Item 9A |  | Controls
and Procedures                                                                                      |  |          | 22 |     
|        |  |                                                                                                              |  | PART III |    |      |  | 
|Item 10 |  | Directors and Executive Officers of the Registrant                                                           |  |          | 23 |     
|Item 11 |  | Executive Compensation                                                                                       |  |          | 24 |     
|Item 12 |  | Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters               |  |          | 26 |     
|Item 13 |  | Certain Relationships and Related Transactions                                                               |  |          | 26 |     
|Item 14 |  | Principal
Accountant Fees and Services                                                                       |  |          | 27 |     
|        |  |                                                                                                              |  | PART IV  |    |      |  | 
|Item 15 |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                             |  |          | 28 |     

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




PART I




Item 1. Business

American Coin Merchandising, Inc. (the Company) is the leading owner and
operator of coin-operated amusement vending equipment in the United States with
more than 167,000 machines on location in over 18,000 customer sites. Over 18,000 of these
machines are skill-crane machines (Shoppes) that dispense plush toys,
watches, jewelry, novelties and other items. For up to 50¢ a play, customers
maneuver the skill-crane into position and attempt to retrieve the desired item
in the machines enclosed display area before play is ended. In addition to
Shoppes, the Company operates an extensive line of bulk vending (novelty items,
candy, gum, etc.), kiddie rides and video games. The Companys Shoppes, bulk
vending and other amusement equipment are placed in supermarkets, mass
merchandisers, restaurants, bowling centers, truckstops, bingo halls, bars,
warehouse clubs and similar locations (Retail Accounts) to take advantage of
the regular customer traffic at these locations. The Company utilizes appealing
displays of quality merchandise, new product introductions, including
Company-designed products, licensed products and seasonal items, and other
merchandising techniques to attract new and repeat customers. The Company
operates under the SugarLoaf Creations, Inc. and Folz Vending, Inc. brand
names.

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 Companys common stock is no longer publicly traded. The
Companys mandatorily redeemable preferred securities remain outstanding and
continue to trade on the American Stock Exchange.

On April 15, 2003, the Company, through a wholly owned subsidiary,
completed the acquisition of substantially all of the assets of Folz Vending
Co. and its wholly owned subsidiary Folz Novelty Co., Inc. (collectively
Folz) for $22.3 million. The acquisition was funded through additional
borrowings under the Companys amended and restated credit facility, the
issuance of $6.5 million of additional senior subordinated notes and a $12.5
million equity contribution received from the Companys parent, ACMI Holdings,
Inc. In addition to the Folz acquisition, the Company made a number of other
asset acquisitions during the second quarter of 2003 in the aggregate amount of
approximately $10.7 million, all funded through the Companys credit facility.

Business Strategy

The Companys business strategy is to differentiate itself from
traditional amusement vending operators and to strengthen its position as a
leading owner and operator of amusement vending equipment in the U.S. The key
elements of the Companys business strategy are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Quality
Products.The Companys machines offer a mix of products,
including selected products of higher quality than the carnival-type products
traditionally associated with skill-crane and other prize-dispensing
equipment. Plush toys offered in the Companys Shoppes are made with 100%
polyester fiberfill and high-grade outer covers and watches include
dependable movements. In addition, the Companys machines offer licensed
products featuring recognizable characters, regional-based and theme-based
items (such as Christmas and Easter items). All products offered in the
machines must adhere to the Companys safety and quality standards.



| |                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Machine Appearance, Merchandise and Merchandising Techniques.The
Companys machines are distinctively marked with the SugarLoaf logo and other
signage that is readily identifiable with the Company in order to create
brand recognition. In addition, the Shoppes are well lit and are cleaned and
serviced regularly to maintain their attractive appearance. The
machines contain an

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | appealing mix of products arranged by size, color, shape and type.
Products with higher perceived value are prominently displayed, and the
Company frequently incorporates new items into the merchandise mix to
maintain the machines fresh appearance. Management believes the
machines
appearance and the Companys merchandising techniques are important factors
in gaining acceptance of the Companys equipment by retailers.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Product Procurement and Company-Designed Product.The Company controls
product cost by purchasing a significant portion of its products directly
from manufacturers in large quantities and in some cases acquiring merchandise that has
been discontinued or is subject to substantial close-out discounts. The
Company also controls product cost by pre-packing products that it
distributes to Company-owned offices and sells to its franchisees and
non-franchisees for use in filling and merchandising the machines. These
pre-packed units include a predetermined mix or recipe of different types,
sizes, shapes and colors of product, which achieve the Companys
merchandising objectives while also controlling average product cost. The
Company is able to frequently introduce new product in its machines by
designing a significant portion of the product and by purchasing licensed and
other product from suppliers. Designing products at various price points
furthers the Companys objective of controlling product cost. See Suppliers
 Product.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Vend Ratio and Revenue Management.The Company closely monitors the
revenue per machine and per product dispensed, or the Vend Ratio, of each of its Shoppes to
maintain customer satisfaction and to optimize Shoppe revenue and
profitability. A lower than optimal vend frequency reduces customer
satisfaction, resulting in less frequent plays and lower revenue at a given
location, while a higher than optimal vend frequency reduces profitability.
If the Vend Ratio falls outside of the Companys target range, the route
merchandiser can influence various factors affecting the Vend Ratio,
including the mix of products by size and weight, the placement of products
within the Shoppes display area, the number of products and the density of
the products within the Shoppe. If a Shoppes weekly revenue consistently
falls below the Companys minimum weekly revenue goal, the Company will
consider relocating the Shoppe.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Location Selection.The Company concentrates its sales efforts on
placing equipment in Retail Accounts such as Wal-Mart, Kmart, Dennys, Golden
Corral, Shoneys, Flying J Truckstop and Furrs Family Dining, which have good
reputations for quality and attract a high level of foot traffic. Within
these accounts, the Company seeks to secure sites with the greatest
visibility and accessibility to potential customers. See Operations 
Account Acquisition, Sales and Marketing.



| |                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Timely Installation and National Operations. The Company provides Retail
Accounts with an integrated system of Shoppe and vending machine installation,
maintenance, service and an accounting of revenue and commissions on a local
or national basis. Such services have been deployed rapidly across the
country to large Retail Accounts.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Training.The Company conducts comprehensive training for new general
managers through its Sugarloaf University program, which includes a
five-day seminar and field training held at its corporate offices. It also
provides operations manuals, training videos and other materials relating to
office management and route merchandising to assure the achievement of the
Companys business objectives. See Operations  Supervision, Training and
Support.

Amusement Vending Equipment

The Company has sought to position its Shoppes as an entertaining way to
purchase quality products. Management believes that the quality of the
Shoppes products and the entertainment and amusement afforded by their
skill-crane format have broad appeal to adults and adolescents. While
skill-crane machines have been in operation for over 75 years, the Company has
incorporated into its Shoppes several improvements and refinements. The Company
increased the size of the Shoppes to enhance their visibility and to display
and vend more products and created bright, distinctive signage, which is
readily identifiable with the Company. The Company also added exterior
lighting, brightened interior lighting and selected exterior colors of the
machines to attract and focus customer attention on the products in the
Shoppes. In addition, the Company has upgraded the Shoppes operating
mechanisms to achieve consistency of play and reliability of performance.

The SugarLoaf Toy Shoppe has been operated by the Company since its
inception. The Company introduced the SugarLoaf Fun Shoppe in 1993, the
SugarLoaf Treasure Shoppe in 1994, the SugarLoaf Bean Bag Shoppe in 1997 and
the SugarLoaf Stop Shoppe in 1998. Management believes that the introduction of
new types of skill-crane and other machines has enabled the Company to
capitalize on its current routes and existing relationships by placing
additional machines in existing locations, thereby increasing revenue at each
location with little incremental service costs. The introductions of SugarLoaf
Treasure Shoppes, SugarLoaf Fun Shoppes, SugarLoaf Bean Bag Shoppes and
SugarLoaf Stop Shoppes are typically made in locations where a SugarLoaf Toy
Shoppe is already located. Currently the Company operates five types of Shoppes
as described below.

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The SugarLoaf Toy Shoppe.The SugarLoaf Toy Shoppe typically features a
play price of 50¢ and dispenses plush toys and other toys. The estimated retail
values of products offered in the SugarLoaf Toy Shoppe generally range from
$4.00 to $30.00. As of December 31, 2003, the Company was
operating 9,979
SugarLoaf Toy Shoppes.

The SugarLoaf Treasure Shoppe.The SugarLoaf Treasure Shoppe features a
play price of 50¢ and dispenses jewelry, watches, bolo ties and belt buckles.
The SugarLoaf Treasure Shoppe improves upon traditional skill-crane machines of
this type by dispensing products with estimated retail values ranging from
$4.00 to $30.00 instead of carnival-type merchandise of low retail value. As of
December 31, 2003, the Company was operating 2,939 SugarLoaf Treasure Shoppes,
approximately 90% of which were placed within locations in which another Shoppe
was already in operation.

The SugarLoaf Bean Bag Shoppe.The SugarLoaf Bean Bag Shoppe features a
play price of 50¢ and dispenses Bean-bag type stuffed toys with estimated
retail values ranging from $3.00 to $6.00. As of December 31, 2003, the Company
was operating 2,791 SugarLoaf Bean Bag Shoppes.

The SugarLoaf Stop Shoppe.The SugarLoaf Stop Shoppe features a play price
of 50¢ and dispenses key-chains featuring bean bags, licensed items and sports
figures. The estimated retail values of products offered in the SugarLoaf Stop
Shoppe generally range from $2.00 to $10.00. As of December 31, 2003, the
Company was operating 1,706 SugarLoaf Stop Shoppes.

The SugarLoaf Fun Shoppe.The SugarLoaf Fun Shoppe features a play price
of 25¢ and dispenses small toys, novelties and candy. The SugarLoaf Fun Shoppe
is designed to appeal primarily to adolescents and children. The estimated
retail values of products offered in the SugarLoaf Fun Shoppe are generally
under $5.00. As of December 31, 2003, the Company was operating 793 SugarLoaf
Fun Shoppes.

Bulk and Other Amusement Vending.The Company places complementary bulk and other amusement vending
machines at existing Shoppe and other customer locations which management believes will expand the
potential customers for the Company. As of December 31, 2003, the Company had
4,874 kiddie rides and 2,971 simulator and traditional video games installed in Retail Accounts nationwide.

As of December 31,
2003, the Company had over 139,000 bulk vending machines in operation. Bulk vending machines are typically displayed on racks
with 5 to 9 machines on each rack. Bulk vending refers to the sale of unsorted
confections, nuts, gumballs, stickers, toys and novelty items (in or out of capsules)
selected by the customer and dispensed through vending machines. The significant increase in bulk vending equipment in comparison to the prior year is a result of the
Folz acquisition. From time to time, the Company has placed, and may continue to place
in the future, other types of coin-operated vending machines in retail accounts
in order to leverage the Companys existing national distribution and service
network.

The following chart indicates the number of Company-owned
amusement machines in operation at December 31,:

2003
    
    2002
    
    2001Type
    
    Number
    
    Number
    
    NumberToy Shoppes
    
    
    9,979
    
    
    
    8,246
    
    
    
    7,863Treasure Shoppes
    
    
    2,939
    
    
    
    2,184
    
    
    
    1,766Bean Bag Shoppes
    
    
    2,791
    
    
    
    2,601
    
    
    
    2,413Stop Shoppes
    
    
    1,706
    
    
    
    1,229
    
    
    
    1,079Fun Shoppes
    
    
    793
    
    
    
    357
    
    
    
    190Total Shoppes
    
    
    18,208
    
    
    
    14,617
    
    
    
    13,311Kiddie Rides
    
    
    4,874
    
    
    
    2,301
    
    
    
    1,401Video Games
    
    
    2,971
    
    
    
    2,559
    
    
    
    2,087Bulk Vending
    
    
    139,441
    
    
    
    11,618
    
    
    
    7,800Other Amusement
    
    
    1,575
    
    
    
    632
    
    
    
    684167,069
    
    
    
    31,727
    
    
    
    25,283


Operations

Management believes that the Companys operations program provides for
efficient and cost-effective purchasing and distribution of product. In
addition, the Company has a route-servicing system that facilitates the
development of a good working relationship with location managers in regional
and national chain accounts. During the third quarter of 2002, the Company
distributed to its field organization electronic hand-held devices that are
being used to collect and transmit to its centralized data base route
management information system machine revenue and inventory utilization
information, which was previously gathered using a paper-based process. The
Company offers its franchisees the same training programs, product and machine
purchasing programs used by the Company, and they are required to use
substantially the same procedures, systems and methods the Company employs in
its own operations.

Retail Accounts.Currently, the Companys machines are located, in order
of prevalence, in supermarkets, mass merchandisers, restaurants, bingo halls
and bowling centers, bars and similar locations. The Company is focusing on
placing equipment in national and regional Retail Accounts to take advantage of
the regular customer traffic of these locations.

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The Company provides and pays certain installation
costs, while the retailer provides a site within the location and electrical
power. The retailers are paid commissions based upon a percentage of gross
revenue, which for the year ended December 31, 2003 generally
average approximately 33% and varies, depending on the dollar volume, number of machines installed and total
number of locations the retailer controls. Management believes that national
and regional supermarket, mass merchandise and restaurant chain accounts are
increasingly aware of the economic benefits of amusement vending equipment such
as the Companys Shoppes, which can provide retailers greater revenue per
square foot than alternative uses of available floor space.

In individual-location accounts, the Company generally places amusement vending equipment pursuant to oral and written agreements with location managers. While the Company has
written agreements with certain major Retail Accounts, the Company and its
franchisees also have placed machines in national and regional Retail Accounts
pursuant to oral or other agreements, which may be terminated at any time.
Management believes that the Company and its franchisees generally have good
relations with their retail accounts.

Account Acquisition, Sales and Marketing.The Company has an integrated
sales and marketing effort, with the primary objective of contributing to
annual revenue growth through acquiring new customers and keeping existing
customers. The Company identifies targeted channels and accounts within those
channels through a disciplined annual planning process. Through this process,
Business Development Managers develop call plans, channel
penetration objectives, and annual sales goals. The Company further segments
its sales efforts with a key account group responsible for its largest
customers and by assigning management personnel to individual accounts as their
corporate account. The assignment of accounts to individuals is intended to
reduce turnover within our existing account base.

Local offices pursue sales opportunities assisted by sales and marketing
materials developed by corporate as well as with assistance from Business Development Managers, key account personnel, and senior management. This approach
expands the Companys ability to secure new locations.

Marketing pursuits are integrated with selling efforts. The Company
utilized a four-pronged marketing program: (i) obtaining consumer information
within the amusement vending category, (ii) an educational process within
targeted channels concerning the benefits of amusement vending to targeted
customers, (iii) development of case studies detailing the interaction of
multiple crane placements, price value initiatives, and use of increased
licensed products, and (iv) maintenance of awareness and visibility through the
attendance of trade and customer vendor shows.

The Company competes for limited sites within accounts with purveyors of
seasonal and specialty items and with owners and operators of other amusement
and vending machines, ATM machines and coin counting and redemption equipment.
Competition for such sites is based primarily on the quality of the program and
the amount of revenue to the location owner that can be generated by a
particular use of a site. Management believes that the revenue potential of the
Companys amusement vending equipment compares favorably to that of competing
uses for available sites within retail locations.

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Supervision, Training and Support.The Companys division vice presidents
are primarily responsible for hiring and training the Companys general
managers and for on-going support and supervision of the Companys field
offices.

Each Company field office is managed by an area general manager or general
manager who is responsible for the management of the office, including
inventory management, training and monitoring of group managers
and route merchandisers. The
Company has developed a comprehensive training program for area general
managers, general managers and group managers covering office management, new
account acquisition, inventory control, route merchandising, site selection,
machine servicing and all other aspects of the operation of the business. The
area general managers, general managers and group managers attend training programs and receive
ongoing field training. The Company considers its route merchandisers to be a
key element of its merchandising efforts. The Companys area general managers, general managers
and group managers provide training of route merchandisers in all aspects of
route management, machine servicing, revenue collection, Vend Ratio monitoring
and product merchandising. See  Employees.

Route Merchandising.Frequent, regular and reliable service and support is
an important element in the operation of the Companys Shoppes and other
amusement vending equipment. The Companys route merchandisers and franchisee
personnel are trained to perform regularly scheduled merchandising and service
procedures. A route merchandiser has a route consisting of 10 to 33 locations,
which are visited depending on the volume of
activity at a location. The route merchandiser cleans and services the equipment,
takes inventory, replaces product as needed, monitors the Vend Ratio
of the Shoppes and arranges
the product within the machine in accordance with the Companys merchandising
techniques. The route merchandiser records the number of units of product
placed in the machine and the number of plays for both Shoppes and other
amusement vending equipment. This paper-based process
transitioned to an electronic based process with the introduction of hand-held
devices that are being used to collect and transmit machine revenue and
inventory utilization information.
Cash collected is independently verified against reported revenues from the route merchandiser.
 The Company developed an infrared device
that will be attached to its vending equipment allowing the hand-held devices
to electronically read the meter readings that are currently entered manually
into the hand-held devices. Field testing of the infrared device will take
place in 2004 and the Company anticipates deployment will begin
in 2005. All collections are delivered to and verified by
another employee at the field office for deposit.

Inventory Management and Distribution.The Companys distribution system
is designed to allow efficient and cost-effective distribution of its product
to Company field offices and franchise offices. During 2003, the sorting and pre-pack function for plush products
transitioned from Kent, Washington to Shanghai, China. The sorting and
pre-pack function for treasure products (jewelry, watches, etc.) transitioned from Kent, Washington to
Louisville, Colorado at the same time. Plush toys are sourced
principally from Chinese manufacturers. After plush toys are procured from
the Companys suppliers, they are shipped to a third party logistics center in
Shanghai, China where it is sorted and pre-packed. The pre-packed units of
product are shipped to regional
distribution centers in Atlanta, Georgia; Allentown, Pennsylvania; Chicago,
Illinois, Dallas; Texas; Ontario, California; and Kent, Washington.
The Company acquired leased facilities in Sun Valley, California and Oceanside, New York for the distribution of bulk product from Folz.
Pre-packed product units are then shipped to Company field offices
on a weekly basis. There can be no assurance these changes in the Companys
distribution operations will be successful in reducing the Companys
costs or will not result in disruption to
the supply of the Companys products. A disruption in the supply of the
Companys products would have a material adverse effect on the Companys
business and results of operations. The Company communicates appropriate
product mix requirements to its warehouse employees on a weekly basis.

At December 31, 2003,
the Company was operating in 49 states and Puerto Rico through a
national network of 37 offices. The field offices comprise a small office area and a warehouse area
where out-of-service machines and other amusement vending equipment are repaired
and product inventory is maintained. Part of the route merchandisers daily
route servicing responsibilities is to distribute product and equipment in the field.
Pre-packing aids in controlling product cost and facilitates new product
introductions. Pre-packing also substantially reduces the warehouse space
required for inventory, allowing the Company to
service a greater number of machines without a commensurate increase in
warehouse space and significantly reduces the time general managers and
personnel spend on inventory management. The establishment of the six
regional distribution centers resulted in a reduction in the Companys
warehouse space and provides efficiencies in the utilization of inventory.

Management Information Systems.During the third quarter of 2002, the
Company distributed to its field organization electronic hand-held devices that
are being used to collect and transmit to its centralized data base route
management information system machine revenue and inventory utilization
information, which were previously gathered using a paper-based process. The
Company

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developed an infrared device that will be attached to its vending
equipment allowing the hand-held devices to electronically read the meter
readings that are currently entered manually into the hand-held devices. Field
testing of the infrared device will take place in 2004 and the Company
anticipates deployment will begin in 2005.

Manufacturing
and Refurbishment. The Company repairs, refurbishes and produces Shoppes
in its Lecanto, Florida facility. The Company produces Shoppes for internal use
as well as for sale to third parties. During 2003, the Company
produced and shipped over 3,000 machines. The Company manufactures and
refurbishes kiddie rides in California, Missouri and refurbishes bulk
vending equipment in Oceanside, New York.

Merchandising

Merchandising
Mix.The Company offers merchandise for its machines in
pre-pack bags and in bulk. The pre-pack bags include an assortment of exclusive
SugarLoaf designs, along with licensed and other domestic product. The
merchandise variety is regularly updated, and the Company offers at least 1,500
new items each year. Seasonal goods are placed in Shoppes for all major
holidays. The Company also creates several theme product collectibles and many
players attempt to retrieve all of the products in the series.

Merchandise Sourcing and Vendor Relationships.The Company purchases
product from several overseas factories and has developed good relationships
with these suppliers over the past several years. The Company also utilizes
several domestic sources and attempts to take advantage of licensed and
closeout merchandise.

Suppliers

Product.The Company maintains a purchasing and development staff at its
corporate headquarters and contracts with foreign and domestic manufacturers
and outside vendors for its supply of products. The Companys
machines offer
a combination of Company-designed products that are manufactured to the
Companys specifications and off the shelf products available from foreign
manufacturers and third-party vendors. Since 1988, all Company-designed plush toys
have been manufactured to its specifications by foreign manufacturers.
Currently, the Company relies on multiple manufacturers in China to produce its
custom designs, each of whom has the capability to produce a range of the toys
required by the Company. Decisions regarding the choice of manufacturer are
based on price, quality of workmanship, reliability and the ability of a
manufacturer to meet the Companys delivery requirements.

Equipment.The Company believes that sufficient capacity will be available
in 2004 to produce and refurbish sufficient quantities of equipment to meet its internal and
external placement demands. Management believes that machines of suitable quality and quantity are
available from its internal production capabilities as well as from a number
of domestic and foreign manufacturers.

Franchise Relations

As of December 31, 2003, the Company had franchise agreements in effect
with six franchisees covering seven territories in the U.S. The Company does not
currently intend to grant any additional franchises and revenues from franchise
related activities is less than 1% of total revenues. In the event any
franchisee proposes to transfer to any third party its SugarLoaf business or
any rights or interests granted by the franchise agreement, the Company has up
to 45 days to exercise a right of first refusal to purchase such business,
rights or interests on the same terms and conditions as the franchisees
proposed transfer of such business rights or interests.

Competition

The Company competes with a number of regional and local operators of
amusement vending equipment. Many of these competitors are engaged in
aggressive expansion programs, several have begun their own programs of
consolidation trying to establish needed scale, and the Company has experienced
and expects to continue to experience intense competition for new locations.
There can be no assurance that the Company will be able to compete effectively
with these companies in the future. The Companys amusement vending equipment
also competes with other vending machines, coin-operated amusement devices,
coin counting and redemption machines and seasonal and bulk merchandise for
sites in retail locations. There can be no assurance that the Company will be
able to maintain its current sites in retail locations or that it will be able
to obtain sites in the future on attractive terms or at all. There also are few
barriers to entry in the Companys business, and it would be possible for
well-financed vending machine manufacturers or other vending machine operators
with existing relationships with supermarkets, mass merchandisers and other
venues targeted by the Company to compete readily with the Company in certain
markets.

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Intellectual Property

The Company has no patents or patent applications pending and relies
primarily on a combination of trademark, trade dress and unfair competition
laws, trade secrets, confidentiality procedures and agreements to protect its
proprietary rights. The Company owns a number of trademarks that have been
registered with the United States Patent and Trademark Office, including
Shoppe, SugarLoaf, Sugar Loaf, Toy Shoppe, Treasure Shoppe, Fun
Shoppe, Shoppe of Stickers, Stickerama and Kid Shoppe. In addition, the Company claims
common law trademark protection for the marks A Test of Skill, ACMI,
American Coin, American Coin Merchandising,
Folz Vending and various ones of its logos
and symbols. The Company considers its operations manual, training videos, and
other related materials and portions of its licensed methods to be proprietary
and confidential, and the terms of the Companys franchise agreements require
franchisees to maintain the confidentiality of such information and procedures
and to adopt reasonable precautions to prevent unauthorized disclosure of these
secrets and information. Despite the Companys efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Companys amusement vending equipment and products or to obtain and use
information that the Company regards as proprietary. The Company also may be
involved from time to time in litigation to determine the enforceability, scope
and validity of proprietary rights. The Company believes it has significant
intellectual property protection for its business. Management believes that its
success is likely to depend more upon merchandising skill, location selection
and consumer support than on legal protection of the Companys proprietary
rights.

Government Regulation

The Companys business is subject to federal, state and local regulations
relating to product labeling and safety, coin-operated games and franchising.
The Federal Hazardous Substances Act, as amended by the Child Protection Act of
1966, the Child Protection and Toy Safety Act of 1969, the Toy Safety Act of
1984 and the Child Safety Protection Act of 1994 requires the labeling of
articles that bear or contain a hazardous substance as defined in such
statutes. In addition, the Consumer Product Safety Commission may, under these
statutes, ban from the market toys or other articles intended for use by
children which contain hazardous substances or present a public health or
safety hazard, and require the repurchase and reimbursement of certain expenses
by the manufacturer of such banned toys or other articles.

The distribution and operation of amusement vending equipment may be subject to
federal, state and local regulations, including gaming regulations, which vary
from jurisdiction to jurisdiction. Certain jurisdictions may require licenses,
permits and approvals to be held by companies and their key personnel in
connection with the distribution or operation of amusement vending equipment.
Currently, the Company believes that it has obtained all necessary governmental
licenses, permits and approvals necessary for the distribution or operation of
its machines. However, no assurance can be given that
such licenses, permits or approvals will be given or renewed in the future.
Franchisees are responsible for their own regulatory compliance.

As a franchisor, the Company is subject to various federal and state
franchise and business opportunity laws and regulations. The Company does not
currently intend to grant any additional franchises and it believes it is in
material compliance with such laws in the states in which the Company has
offered and sold franchises.

Insurance

The Company carries property, liability, workers compensation and
directors and officers liability insurance policies, which it believes are
customary for businesses of its size and type. However, there can be no
assurance that the Companys insurance coverage will be adequate or that
insurance will continue to be available to the Company at reasonable rates. The
Company may be subject to claims for personal injuries resulting from the use
of its equipment or from products and other merchandise dispensed from the
machines. To date, the Company has not experienced any material product
liability claims or costs, and it currently maintains product liability
insurance that it believes to be adequate. The Companys product liability
insurance coverage is limited, however, and there can be no assurance that such
insurance would adequately cover future product liability costs or claims.

Employees

As of February 27, 2004, the Company had a total of 1,157 employees,
including 46 employees at its headquarters in Louisville, Colorado. A total of
33 of the Companys employees are
represented by labor unions or are covered by a collective bargaining contract. Management believes it has a
good relationship with the Companys employees and the union
representing the Companys employees.

Generally, each of the Companys field offices employ approximately 10 to
45 persons, including a general manager, an office assistant and an adequate
number of group managers, route merchandisers, and equipment service managers to properly service the Companys Shoppes and
other amusement vending

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equipment. The general manager is
responsible for the daily operations of the office, monitoring route
merchandisers and acquiring new accounts. The area general managers oversee the
operations of certain Company field offices and report directly to the
Companys division vice presidents.

The Company has an incentive bonus program pursuant to which area general
managers, general managers and certain field office personnel may be eligible
to receive incentive compensation based on office and route profitability.
Management believes that this program rewards excellence in management, gives
field office personnel an incentive to improve operations and results in an
overall reduction in the cost of operations. Corporate personnel are also
eligible to receive incentive compensation based on overall Company
performance.




Item 2. Properties

As of December 31, 2003, the Company has entered into long-term lease
agreements for its warehouse, office and manufacturing, repair and
refurbishment facilities. We believe the existing facilities are adequate and
have sufficient capacity to meet our current operational needs, and that
suitable additional or substitute space is available on commercially reasonable
terms, if needed.

The Companys principal executive offices are located in a facility at 397
South Taylor Avenue, Louisville, Colorado. The facility occupies approximately
31,000 square feet and is utilized for executive offices, warehouse, pre-pack
and field office functions.

The Companys distribution facilities average approximately 14,100 square feet
under leases that expire between 2005 and 2008. These facilities are located
in the following locations:

Allentown, Pennsylvania
Atlanta, Georgia
Chicago,Illinois
Dallas, Texas
Kent, Washington
    
    Louisville, Colorado
Oceanside, New York
Ontario, California
Sun Valley, California


The Companys manufacturing, repair and refurbishment facilities average
approximately 23,700 square feet under leases that expire between 2004 and 2008. These facilities are located in the following locations:

California, Missouri
Lecanto, Florida
Oceanside, New York


The Companys field office facilities average approximately 4,900 square
feet under leases that expire between 2004 and 2008. These facilities are
located in or near the following metropolitan areas:

Allentown, Pennsylvania
    
    Nashville, TennesseeAlbany, New York
    
    New Orleans, LouisianaAtlanta, Georgia
    
    Norman, OklahomaBentonville, Arkansas
    
    Omaha, NebraskaBoston, Massachusetts
    
    Orlando, FloridaCharlotte, North Carolina
    
    Pittsburgh, PennsylvaniaChicago, Illinois
    
    Portland, OregonColumbia, South Carolina
    
    Richmond, VirginiaDallas, Texas
    
    Saint Louis, MissouriFairview, New Jersey
    
    Salt Lake City, UtahHonolulu, Hawaii
    
    San Antonio, TexasHouston, Texas
    
    San Francisco, CaliforniaLansing, Michigan
    
    San Juan, Puerto RicoLos Angeles, California
    
    Seattle, WashingtonDenver, Colorado
    
    Spokane, WashingtonMadison, Wisconsin
    
    Tampa, FloridaMiami, Florida
    
    Tempe, ArizonaMinneapolis, Minnesota
    
    Wichita, KansasMissoula, Montana





Item 3. Legal Proceedings

As of March 12, 2004, the Company was not party to any material legal
proceedings.




Item 4. Submission of Matters to a Vote of Security Holders

The Company did not submit any matters to a vote of its stockholders
during the fourth quarter of 2003.

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PART II




Item 5. Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

The Companys common stock is no longer publicly traded. As of February
11, 2002, ACMI Holdings, Inc. owns all of the Companys outstanding common
stock. The Company has not declared or paid a cash dividend on its common
stock. The payment of future dividends will be within the discretion of the
Companys Board of Directors and will depend on the earnings, capital
requirements, and restrictions in current and future debt agreements, credit
agreements and operating and financial condition of the Company, among other
factors. The Company did not repurchase any of its equity securities
during the quarter ended December 31, 2004.




Item 6. Selected Financial Data

The selected financial data set forth below has been derived from the
consolidated financial statements of the Company. Periods following the month
ended January 31, 2002 reflect the Companys results of operations following
its acquisition by ACMI Holdings, Inc. See Item 1Business.

|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |         |         |  
|----------------------------------------------------------------------- | ------------------- | ----------------------------------- | ------ | --------- | ------- | ----------- | ------ | ------------ | ------- | ----------- | ----- | ------ | ------ | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                                                                        |                     |                                     |        | Successor |         | Predecessor
|                                                                        |                     |                                     |        |           |         |            
|                                                                        |                     |                                     |        |           |         |             |        | Eleven       |         | One         |       |        |        |      |        |         |         |   |        |         |         |  
|                                                                        |                     |                                     |        |           |         |             |        | Months       |         | Month       |       |        |        |      |        |         |         |   |        |         |         |  
|                                                                        |                     |                                     |        |           |         |             |        | Ended        |         | Ended       |       |        |        |      |        |         |         |   |        |         |         |  
|                                                                        |                     |                                     |        |           |         |             |        | December 31, |         | January 31, |       |        |        |      |        |         |         |   |        |         |         |  
|                                                                        |                     |                                     |        | 2003      |         | 2002        |        | 2002         |         | 2001        |       | 2000   |        | 1999
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |     
|Statement of Operations Data:                                           |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|Revenue:                                                                |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|                                                                        | Vending             |                                     | $      | 197,091   |         |             | $      | 131,237      |         |             | $     | 10,880 |        |      | $      | 139,670 |         |   | $      | 127,076 |         |   | $      | 115,835 |        
|                                                                        | Franchise and other |                                     |        | 4,327     |         |             |        | 2,100        |         |             |       | 199    |        |      |        | 2,257   |         |   |        | 2,681   |         |   |        | 4,630   |        
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|                                                                        |                     | Total revenue                       |        |           | 201,418 |             |        |              | 133,337 |             |       |        | 11,079 |      |        |         | 141,927 |   |        |         | 129,757 |   |        |         | 120,465 |  
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|Cost of revenue:                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|                                                                        | Vending             |                                     |        | 149,980   |         |             |        | 98,270       |         |             |       | 8,663  |        |      |        | 105,139 |         |   |        | 93,986  |         |   |        | 85,423  |        
|                                                                        | Franchise and other |                                     |        | 3,127     |         |             |        | 1,024        |         |             |       | 110    |        |      |        | 1,540   |         |   |        | 1,265   |         |   |        | 2,678   |        
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|                                                                        |                     | Total cost of revenue               |        |           | 153,107 |             |        |              | 99,294  |             |       |        | 8,773  |      |        |         | 106,679 |   |        |         | 95,251  |   |        |         | 88,101  |  
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|                                                                        |                     | Gross profit                        |        |           | 48,311  |             |        |              | 34,043  |             |       |        | 2,306  |      |        |         | 35,248  |   |        |         | 34,506  |   |        |         | 32,364  |  
|General and administrative expenses                                     |                     |                                     | 36,183 |           |         |             | 23,152 |              |         |             | 3,713 |        |        |      | 26,518 |         |         |   | 25,080 |         |         |   | 25,668 |        
|Restructuring charge                                                    |                     |                                     | 320    |           |         |             |       |              |         |             |      |        |        |      |       |         |         |   |       |         |         |   |       |        
|Loss on debt refinancing                                                |                     |                                     |       |           |         |             |       |              |         |             | 1,727 |        |        |      |       |         |         |   | 266    |         |         |   |       |        
|Write off costs in excess of assets acquired,
severance and other costs |                     |                                     |       |           |         |             |       |              |         |             |      |        |        |      |       |         |         |   |       |         |         |   | 7,536  |        
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|                                                                        |                     | Operating earnings (loss)           |        |           | 11,808  |             |        |              | 10,891  |             |       |        | (3,134 | )    |        |         | 8,730   |   |        |         | 9,160   |   |        |         | (840    | )
|Interest expense, net                                                   |                     |                                     | 13,931 |           |         |             | 10,408 |              |         |             | 390   |        |        |      | 6,127  |         |         |   | 7,775  |         |         |   | 6,866  |        
|Change in fair value of interest rate collar                            |                     |                                     | (337   | )         |         |             | 1,429  |              |         |             |      |        |        |      |       |         |         |   |       |         |         |   |       |        
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |        
|                                                                        |                     | (Loss) earnings before income taxes |        |           | (1,786  | )           |        |              | (946    | )           |       |        | (3,524 | )    |        |         | 2,603   |   |        |         | 1,385   |   |        |         | (7,706  | )
|Income tax benefit (expense)                                            |                     |                                     | (216   | )         |         |             | 359    |              |         |             | 1,339 |        |        |      | (989   | )       |         |   | (526   | )       |         |   | 3,200  |        
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |         |        
|                                                                        |                     | Net (loss) earnings                 |        | $         | (2,002  | )           |        | $            | (587    | )           |       | $      | (2,185 | )    |        | $       | 1,614   |   |        | $       | 859     |   |        | $       | (4,506  | )
|                                                                        |                     |                                     |        |           |         |             |        |              |         |             |       |        |        |      |        |         |         |   |        |         |         |   |        |         |        
|Basic (loss) earnings per share                                         |                     |                                     | N/A    |           |         |             | N/A    |              |         | $           | (0.33 | )      |        | $    | 0.25   |         |         | $ | 0.13   |         |         | $ | (0.70  | )      
|Diluted (loss) earnings per share                                       |                     |                                     | N/A    |           |         |             | N/A    |              |         | $           | (0.33 | )      |        | $    | 0.24   |         |         | $ | 0.13   |         |         | $ | (0.70  | )      
|Basic weighted average common shares                                    |                     |                                     | N/A    |           |         |             | N/A    |              |         |             | 6,545 |        |        |      | 6,526  |         |         |   | 6,493  |         |         |   | 6,475  |        
|Diluted weighted average common shares                                  |                     |                                     | N/A    |           |         |             | N/A    |              |         |             | 6,545 |        |        |      | 6,729  |         |         |   | 6,493  |         |         |   | 6,475  |        

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|                                                                                                                                |  |      |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                                                                                                |  | 2003 |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                                                                                                |  |      |         |      |  |      |         |      |  |     
|Balance Sheet Data:                                                                                                             |  |      |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Working capital                                                                                                                 |  | $    | 5,940   |      |  | $    | 6,067   |      |  | $    | 3,651   |  |  | $ | 691     |  |  | $ | 9,367   | 
|Total assets                                                                                                                    |  |      | 184,760 |      |  |      | 136,373 |      |  |      | 103,362 |  |  |   | 107,907 |  |  |   | 104,134 | 
|Short-term debt and current portion of long-term debt                                                                           |  |      | 6,349   |      |  |      | 4,718   |      |  |      | 7,700   |  |  |   | 7,233   |  |  |   | 2,463   | 
|Long-term debt, excluding current portion                                                                                       |  |      | 102,577 |      |  |      | 79,593  |      |  |      | 37,276  |  |  |   | 44,224  |  |  |   | 50,230  | 
|Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely junior
subordinated debentures |  |      | 14,460  |      |  |      | 12,974  |      |  |      | 15,644  |  |  |   | 15,593  |  |  |   | 15,542  | 
|Total stockholders equity                                                                                                      |  |      | 38,548  |      |  |      | 28,042  |      |  |      | 31,763  |  |  |   | 30,089  |  |  |   | 29,154  | 




Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

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

In order to provide a meaningful basis of comparing the Companys
operating results for the year ended December 31, 2003 with the comparable
period from 2002, the operating results for the eleven months ended December
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
accounting principles generally accepted in the United States of America.

General

The Company owns and operates coin-operated amusement vending equipment
with more than 167,000 pieces of equipment on location in over 18,000 customer sites. Over 18,000 of these
machines are Shoppes that dispense plush toys, watches, jewelry, novelties and
other items. The Companys amusement vending machines are placed in Retail Accounts and similar
high traffic locations and the Company typically pays on average approximately 33% of gross revenue
to the location owner as a location commission. The Company has also introduced
new types of supplementary vending and amusement machines at existing Shoppe
locations. At December 31, 2003, the Company was operating in 49
states and Puerto Rico with a
national network of 37 offices and there were six Company franchisees
operating in seven territories in the United States. The Company sells product
vended in the machines to its franchisees and collects continuing royalties
ranging from 2% to 5% of its franchisees gross machine revenue. Revenues from
franchise related activities account for less than 1% of total
revenues for the year ended December 31, 2003.

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 Companys common stock is no longer publicly traded. The
Companys mandatorily redeemable preferred securities remain outstanding and
continue to trade on the American Stock Exchange.

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

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Inc. In addition to the Folz acquisition, the Company made a number of
other asset acquisitions during the second quarter of 2003 in the aggregate
amount of approximately $10.7 million, all funded through the Companys credit
facility.

For the
year ended December 31, 2003, approximately 70% of the Companys
revenue was derived from Shoppes and approximately 28% of the
Companys revenues was derived from the other amusement vending
equipment. The Companys
revenue and gross profit in a particular period is directly related to the
number and type of machines in operation during the period. Management believes that the
Companys business is somewhat seasonal, with average revenue per machine per
week historically higher during the Easter and Christmas periods. Vending
revenue represents cash receipts from customers using amusement vending
equipment and is recognized when collected. The cost of vending revenue is
comprised of the cost of vended products, location commissions, depreciation
and direct service cost.

Franchise and other revenue are derived from the sale of Shoppes, kiddie
rides and goods to vend in Shoppes sold to third parties and franchisees and
royalties from franchisees. The Company anticipates that franchise and other
revenue will vary in the future based on demand and product availability. Total
franchise and other revenues account for approximately 2% of total revenues.

Results of Operations

Year Ended December 31, 2003 vs. Year Ended December 31, 2002

Revenue

The Companys total revenue increased 39.5% from $144.4 million in 2002 to
$201.4 million in 2003. Vending revenue increased $55.0 million or 38.7% in
2003 to $197.1 million, primarily as a result of the Folz, GamePlan and other
acquisitions completed during the quarter ended June 30, 2003 and internal
growth.

Franchise and other revenue increased 88.2% from $2.3 million in 2002 to
$4.3 million in 2003, primarily due to increased sales of amusement vending
equipment to third parties.

Cost of Revenue and Gross Profit

The cost of vending operations increased $43.1 million in 2003 to $150.0
million. The contribution to gross profit from vending operations was $47.1
million in 2003 and $35.2 million in 2002. The vending gross profit achieved in
2003 was 23.9% of vending revenue, which represents a 0.9 percentage point
decrease from the gross profit percentage achieved in 2002. The cash vending
gross profit (vending revenue minus cost of vended product, location
commissions and direct service cost) achieved in 2003 was 31.3% of vending
revenue, which is 2.4 percentage points lower than in 2002. The decrease in
vending gross margin percentage and cash gross margin percentage is primarily attributable to the
change in the Companys sales mix. The Company now has a higher
percentage of bulk vending revenues after the Folz acquisition. Bulk
vending typically has a lower gross margin than the Companys
other amusement vending offerings.

Gross profit on franchise and other revenue in 2003 increased to $1.2
million, or 27.7% of franchise and other revenue compared to $1.2 million or
50.7% in 2002. The decrease in gross margin percentage is a result of the
increase in sales of amusement vending equipment to third parties, which occur at a lower gross margin percentage.

Operating Expense

General and administrative expenses (including depreciation and
amortization) were 18.0% of revenue, which is 0.6 percentage points lower than
in 2002. General and administrative expenses for the year ended December 31,
2002 include transaction related costs of approximately $2.2 million. The
increase in general and administrative expenses for the year ended December 31,
2003 as compared to 2002, excluding the ACMI Holdings, Inc.
acquisition transaction expenses, was primarily due to
the addition of personnel and facilities to support the acquired operations, additional
personnel and facilities in the sales and marketing, logistics and support areas to better
manage the Companys current and expected future operations and costs incurred
to integrate acquired operations.

Restructuring Charge

In June 2003, the Company recorded a restructuring charge associated with
the termination of certain administrative and sales employees that resulted
from reorganizing certain functions after the acquisition of Folz. As of
December 31, 2003, $181,000 had

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been charged against the $320,000 restructuring accrual. The restructuring
accrual is included in other accrued expenses in the accompanying consolidated
balance sheet.

Operating Earnings

Operating
earnings in 2003 were $11.8 million or 5.9% of total revenue as
compared to operating earnings of $7.8 million in 2002 or 5.4% of total
revenue. The 2002 operating results included $2.2 million of
ACMI Holdings, Inc. transaction related costs and the $1.7 million loss on debt refinancing.

Interest Expense, Net

Interest expense increased $3.0 million to $13.8 million in 2003 as
compared to 2002. The Companys interest expense is directly related to a
higher level of borrowings after the Folz and other acquisitions during the
second quarter of 2003 and changes in the underlying interest rates.

Net Earnings (Loss)

The net
loss for the year ended December 31, 2003 was $2.0 million, as
compared to a net loss of $2.8 million for 2002. The 2002 net loss resulted
primarily from transaction related costs, the loss on debt refinancing and
changes in the fair value of the interest rate collar.

Year Ended December 31, 2002 vs. Year Ended December 31, 2001

Revenue

The Companys total revenue increased 1.7% from $141.9 million in 2001 to
$144.4 million in 2002. Vending revenue increased $2.4 million or 1.7% in 2002
to $142.1 million, primarily as a result of an 11.0% increase in the average
number of amusement vending equipment in use during 2002, over the average
number of amusement vending equipment in use during 2001. The impact of
increased amusement vending equipment in use during 2002 was offset by lower
weekly skill crane averages in 2002 compared to 2001. The 2002 amusement
vending equipment in use was also effected by the acquisition of a kiddie ride
company in September 2002.

Franchise and other revenue were consistent compared with 2001.

Cost of Revenue and Gross Profit

The cost of vending operations increased $1.8 million in 2002 to $107.0
million. The vending operations contribution to 2002 gross profit of $35.2
million is comparable to gross profit from vending operations realized in 2001.
The vending gross profit achieved in 2002 was 24.8% of vending revenue, which
represents a 0.1 percentage point increase from the gross profit percentage
achieved in 2001. The cash vending gross profit (vending revenue minus cost of
vended product, location commissions and direct service cost) achieved in 2002
was 33.7% of vending revenue, which is 0.4 percentage points higher than in
2001.

Gross profit on franchise and other revenue in 2002 increased to $1.2
million, or 50.7% of franchise and other revenue, which is 18.9 percentage
points higher than the gross margin achieved in 2001. The increase in gross
margin as a percentage of franchise and other revenue resulted primarily
from the mix of products and services provided to the companys franchises.

Operating Expense

General and administrative expenses including depreciation and
amortization were 18.6% of revenue, which is 0.1 percentage points lower than
in 2001. General and administrative expenses for the year ended December 31,
2002 include the ACMI Holdings, Inc. transaction related costs of approximately $2.2 million partially
offset by the discontinuation of cost in excess of assets acquired amortization
and tighter control on discretionary spending during the year.

In
February 2002, the Company refinanced its $55.0 million credit
facility resulting in a $1.7 million
loss on refinancing charge from the write-off of loan origination fees related to the previous credit facility.

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Operating Earnings

Operating earnings in 2002 were $9.5 million or 6.6% of total revenue as
compared to operating earnings of $8.7 million in 2001 or 6.2% of total
revenue. The increase in operating results is primarily attributable to tighter
control on discretionary spending offset by transaction related costs.

Interest Expense, Net

Interest expense increased $4.7 million to $10.8 million in 2002 as
compared to 2001. The Companys interest expense is directly related to its
level of borrowings and changes in the underlying interest rates.

Change in Fair Value of Interest Rate Collar

The change in fair value on this interest rate collar totaled $1.4 million
in 2002. The Companys interest rate collar instrument is not allowed hedge
accounting treatment under Statement of Financial Accounting Standards (SFAS)
No. 133 Accounting for Derivative Instruments and Hedging Activities.
Accordingly the Company records this instrument at fair value and recognizes
realized and unrealized gains and losses separately on its consolidated
statement of operations.

Net Earnings and Earnings Per Share

The net loss for the year ended December 31, 2002 was $2.8 million, as
compared to net earnings of $1.6 million for 2001. The net loss results
primarily from transaction related costs, increased interest expense, changes
in the fair value of the interest rate collar and the loss
resulting from the refinancing of the Company credit facility.

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Critical Accounting Policies

Managements Discussion and Analysis of Financial Condition and Results of
Operations discusses the Companys consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America, as discussed in Note 3 in the accompanying
consolidated financial statements. 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.

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 or reduction in
benefit 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.
Management determined that a valuation allowance should be recorded
against the net deferred tax assets of $906,000 at December 31,
2003. Should management conclude that these deferred tax assets are
realizable in the future, the valuation allowance will be reversed to
the extent of such realizability.

The
Company is also subject to examination of its income, sales and local
use tax returns by the IRS and various other tax authorities. The
Company periodically assesses the likelihood of adverse outcomes
resulting from these examinations to determine the adequacy of its
provisions and related accruals.

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.

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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 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 machine utilization experience.

Valuation of Long-lived and Intangible Assets and Costs in Excess of Assets
Acquired

The
Company performs a fair value assessment 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 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 approximately $33.3
million of costs in excess of assets acquired. The Company recorded
approximately $2.0 million of amortization related to these assets during 2001
and would have amortized approximately $2.0 during 2002. Currently
the Company has $74.4 million of costs in excess of assets acquired. In lieu of
amortization, the Company performs an annual impairment review of the costs
in excess of assets acquired.

The
Company has not recorded an impairment charge upon
completion of previous impairment reviews. However, there can be no assurance that at
the time of future reviews an impairment charge will not be required,
which may be material.

Liquidity and Capital Resources

The Companys primary sources of liquidity and capital resources
historically have been cash flows from operations, borrowings under the
Companys credit facilities, issuances of its equity and debt
securities and equity contributions from its parent company.
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 $14.5 million, $5.2 million
and $15.8 million in 2003, 2002 and 2001, respectively. The increase in 2003
net cash provided by operating activities results primarily from an
increase in trade accounts payable and accrued expenses. The Company anticipates that cash will continue to be
provided by operations as additional machines and other amusement
devices are 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 $51.2 million, $12.1 million and
$7.6 million in 2003, 2002 and 2001, respectively. Capital expenditures
amounted to $14.5 million, $8.0 million and $4.9 million in 2003, 2002 and
2001, respectively, of which $13.0 million, $7.3 million and $4.0 million were
used for the acquisition of amusement vending equipment. The acquisition of
franchisees and others used $34.1 million, $1.5 million and $273,000 in 2003,
2002 and 2001, respectively.

Net cash
provided by financing activities was $37.1 million in 2003 and
$7.0 million in 2002. Net cash used in financing activities was
$7.0 million in 2001. Financing activities consisted primarily of borrowings and payments on the
Companys credit facility and purchase of common stock in conjunction with the
acquisition by ACMI Holdings, Inc., equity contributions from ACMI Holdings,
Inc. and the repayment of the Companys previous credit facility and other debt
obligations.

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The Company amended and restated its senior secured credit facility on
April 15, 2003, in conjunction with the acquisition of Folz. The amended senior
secured credit facility is comprised of a $12.0 million revolving credit
facility and provides for up to $70.0 million of term debt. The $70.0 million
term debt facility is comprised of a $26.3 million term loan A, a $37.2 million
term loan B, a $2.7 million term loan C and a $3.8 million term loan D. As of
December 31, 2003, there was $66.7 million of total term loans outstanding. As
of December 31, 2003, there was $8.0 million borrowed, $1.2 million utilized by
letters of credit, and $2.8 million available under the revolving credit
facility. The revolving credit facility expires on March 31, 2007. Under the
term loan facilities, the Company is required to make quarterly principal
installments that increase in amount until the March 31, 2008 termination of
the facilities. The revolving facility and the term loans bear interest at a
floating rate at the Companys option, equal to either LIBOR plus the
applicable margin or a base rate that is equal to the higher of the prime rate
or the federal funds rate plus one-half percent plus the applicable margin. The
effective rate of interest on the credit facility at December 31, 2003 was
6.4%.

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. The Company was in compliance with
such financial ratios and restrictions at December 31, 2003.

On February 13, 2004, the Company completed Amendment No. 1 to its Amended
and Restated Credit Agreement. Among other things, Amendment No. 1 provided for
an $8.5 million expansion of the term loan facility under the senior secured
credit facility. In connection with the expansion of the term loan commitment,
the Company converted $8.5 million of the then outstanding revolving credit
facility to term debt. The revolving credit facility commitment remained $12
million after the above transactions.

In February 2002 and April 2003, the Company issued $25.0 million and $6.5
million, respectively, of senior subordinated notes due in 2009. Interest on
these notes is payable on a quarterly basis at the rate of 17% per annum;
provided however, the minimum cash interest on these notes is 13% with the
balance of interest payable in the form of additional payment in kind notes.
Included in the $33.5 million of senior subordinated notes outstanding at
December 31, 2003 is $2.0 million of payment by in kind notes issued in lieu of
interest. The note agreement provides that certain financial ratios be met and
places restrictions on, among other things, the incurrence of additional senior
subordinated indebtedness and certain restricted payments. The Company was in
compliance with such financial ratios and restrictions at December 31, 2003.

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

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

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 consolidated statements of operations. The
Company paid $639,000 during 2003 and $148,000 for the eleven months ended
December 31, 2002 since LIBOR was below the floor rate under the interest rate
collar. These amounts are included in interest expense in the consolidated
statements of operations. The Company does not speculate using derivative
instruments.

The fair value of the interest rate collar is obtained from bank quotes.
These values represent the estimated amount the Company would receive or pay to
terminate the agreement taking into consideration current interest rates. The
fair value of the interest rate collar is a liability of
approximately $911,000 and
$1.2 million as of December 31, 2003 and 2002, respectively.

In September 1998, the Trust, a wholly owned subsidiary trust created
under the laws of the State of Delaware, completed a public offering of $17
million of Ascending Rate (10.5% at December 31, 1998 increasing to 12.0% at
September 16, 2005) Cumulative Trust Preferred Securities (the Trust Preferred
Securities). The Company recognizes periodic interest using the interest
method over the outstanding term of the debt. The sole assets of the Trust are
American Coin Merchandising, Inc. Ascending Rate Junior Subordinated Debentures
(the Subordinated Debentures) due September 15, 2028. The obligations of the
Trust related to the Trust Preferred Securities are fully and unconditionally
guaranteed by American Coin Merchandising, Inc. Distributions on the Trust
Preferred Securities are payable quarterly by the Trust. The Trust Securities
are subject to mandatory redemption upon the repayment of the Subordinated
Debentures at their stated maturity at $10 per Trust Preferred Security.

The Company may cause the Trust to defer the payment of distributions for
successive periods up to eight consecutive quarters. During such periods,
accrued distributions on the Trust Preferred Securities will compound quarterly
and the Company may not declare or pay distributions on its common stock or
debt securities that rank equal or junior to the Trust Preferred Securities.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liability and Equity (SFAS
No. 150). This statement established standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity and was effective at the beginning of the first interim
period beginning after June 15, 2003. For financial instruments created before
the issuance date transition should be achieved by reporting the cumulative
effect of a change in an accounting principle by initially measuring the
financial instruments at fair value. In November 2003, the FASB deferred
certain provisions of SFAS No. 150 through FASB Position (FSP) 150-3. The
Companys mandatorily redeemable preferred securities fall under the guidance
of FSP 150-3 and consequently the Company has not adopted the proposed
classifications of measurement requirements of SFAS No. 150. The mandatorily
redeemable preferred securities are currently being accreted to their $17
million stated amount.

The Company has noncancelable commitments for operating leases, debt and
an employment contract. These commitments expire at various times over the next
five years. Future minimum commitments as of December 31, 2003 are as follows
(in thousands):

|                            |  |       |         |        |  |                        |        |           |  |         |        |  |  |   |        |           |  |   |       | 
|--------------------------- |  | ----- | ------- | ------ |  | ---------------------- | ------ | --------- |  | ------- | ------ |  |  | - | ------ | --------- |  | - | ----- | 
|                            |  |       |         |        |  | Payments Due By Period
|                            |  |       |         |        |  |                       
|                            |  |       |         |        |  | Less Than              |        |           |  |         |        |  |  |   |        | More Than
|Contractual Obligations     |  | Total |         | 1 Year |  | 1-3 Years              |        | 3-5 Years |  | 5 Years
|                            |  |       |         |        |  |                        |        |           |  |        
|Long-term debt obligations  |  | $     | 108,926 |        |  | $                      | 6,349  |           |  | $       | 59,243 |  |  | $ | 43,334 |           |  | $ |      | 
|Operating lease obligations |  |       | 18,771  |        |  |                        | 6,146  |           |  |         | 10,317 |  |  |   | 1,091  |           |  |   | 1,217 | 
|Employment contract         |  |       | 325     |        |  |                        | 325    |           |  |         |       |  |  |   |       |           |  |   |      | 
|                            |  |       |         |        |  |                        |        |           |  |         |        |  |  |   |        |           |  |   |       | 
|Total                       |  | $     | 128,022 |        |  | $                      | 12,820 |           |  | $       | 69,560 |  |  | $ | 44,425 |           |  | $ | 1,217 | 
|                            |  |       |         |        |  |                        |        |           |  |         |        |  |  |   |        |           |  |   |       | 

The Company may use a portion of its capital resources to effect
acquisitions of franchisees. 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 expected to be generated
from operations and 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 needs for the next twelve months. The Companys liquidity through
operating cash flows is subject to multiple risks associated with the Companys
operations including fluctuations in Shoppe performance, management of growth,
payment of the Companys indebtedness, dependence upon major accounts and
competition, among others. The section entitled Risk Factors beginning on
page 20 sets forth several of the risks associated with the Companys
operations and is incorporated herein by reference.

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Impact of Recently Issued Accounting Standards

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

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

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

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liability and Equity (SFAS
No. 150). This statement established standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity and was effective at the beginning of the first interim
period beginning after June 15, 2003. For financial instruments created before
the issuance date transition should be achieved by reporting the cumulative
effect of a change in an accounting principle by initially measuring the
financial instruments at fair value. In November 2003, the FASB deferred
certain provisions of SFAS No. 150 through FASB Position (FSP) 150-3. The
Companys mandatorily redeemable preferred securities fall under the guidance
of FSP 150-3 and consequently the Company has not adopted the proposed
classifications of measurement requirements of SFAS No. 150. The mandatorily
redeemable preferred securities are currently being accreted to their $17
million stated amount.

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.

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

On January 1, 2003, the Company adopted FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. Interpretation No. 46 is an
interpretation of Accounting Research Bulletin No. 51, and addresses
consolidation by business enterprises of variable interest entities. This
interpretation requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. Variable interest entities
that effectively

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dispense risks will not be consolidated unless a single party holds an
interest or combination of interests that effectively recombines risks that
were previously dispersed. The Company is required to apply the provision of
Interpretation No. 46 to variable interest entities created after July 1, 2003.
The adoption of this standard did not have an impact on the Companys financial
position or results of its operations.

Risk Factors

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

Machine Performance.A primary key to the financial success of the Company
is the weekly revenue generated per machine, which has a history of fluctuating.
The Company has attributed some of this fluctuation to the effectiveness of its
product mix and continues to take steps to address this problem; however, there
can be no assurance that such efforts will continue to have a positive impact
on the performance of the machines. The average weekly revenue generated per
machine may decline or fluctuate in the future, which could have a material
adverse effect on the Companys business, financial condition and results of
operations.

Growth and Management of Growth.The Company has recently experienced
growth. 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 to
place additional machines in Retail Accounts as well as to maintain or increase
the average financial performance of the machines. The Companys ability to
place additional machines depends on a number of factors beyond the Companys
control, including general business and economic conditions. Installation of
additional machines will also depend, in part, upon the Companys ability to
secure additional national and regional Retail Accounts and to obtain approval
to place additional machines in individual locations of such accounts. The
Company may be unable to place and adequately service additional machines, which
could have a material adverse effect on the Companys business, financial
condition and results of operations.

There can be no assurance that the Company will be able to manage its
expanding operations effectively or that it will be able to maintain or
accelerate its growth. The Companys growth has placed, and is expected to
continue to place significant demands on all aspects of the Companys business,
including machine servicing, merchandising, financial and administrative
personnel and systems. The Companys future operating results are substantially
dependent upon the ability of the Companys officers and key personnel to
manage anticipated growth and increased demand effectively; to attract, train
and retain additional qualified personnel; and to implement and improve
technical, service, administrative, financial control and reporting systems.
Either deterioration in machine performance or the Companys failure to manage
growth effectively could adversely and materially affect the Companys
business, financial condition and results of operations.

Integration
of Acquisitions. The Company may acquire other
businesses in the future. Acquisitions are likely to place a significant strain
on the Companys managerial, operating, financial and other resources. The
Companys future performance will depend, in part, upon its ability to
integrate its acquisitions effectively, which will require that the Company
implement additional management information systems capabilities, further
develop its operating, administrative and financial and accounting systems and
controls, improve coordination among accounting, finance, marketing and
operations, and hire and train additional personnel. Failure by the Company to
develop adequate operational and control systems or to attract and retain
additional qualified management, financial, sales and marketing and customer
care personnel could materially adversely affect the Companys ability to
integrate the businesses it acquires. While the Company anticipates that it
will recognize various economies and efficiencies of scale as a result of its
acquisitions and the integration of the businesses it has acquired, the process
of consolidating the businesses and implementing integrations, even if
successful, may take a significant period of time, will place a significant
strain on the Companys resources and could subject the Company to additional
expenses during the integration process. Furthermore, the Companys performance
will depend on the internal growth generated through acquired operations. As a
result, there can be no assurance that the Company will be able to integrate
the businesses it has acquired successfully or in a timely manner in accordance
with its strategic objectives. Failure to

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effectively and efficiently integrate acquired businesses could have a
material adverse effect on the Companys business, financial condition and
results of operations.

Substantial Indebtedness; Effect of Financial Leverage.The Company
intends to use funds available under its revolving credit facility for a number
of purposes, including future acquisitions of franchisees. Further use of funds
from the credit facility could result in the Company incurring additional
indebtedness that is substantial in relation to its stockholders equity and
cash flow available for debt service. As a result of the issuance of the
Ascending Rate Cumulative Trust Preferred Securities and the amount the Company
owes pursuant to its senior secured facilities and senior subordinated notes,
fixed charges could exceed earnings for the foreseeable future. Substantial
leverage poses the risk that the Company may not be able to generate sufficient
cash flow to service its indebtedness, or to adequately fund its operations.
There can be no assurance that the Company will be able to increase its revenue
and leverage the acquisitions it has made to achieve sufficient cash flow to
meet its potential debt service obligations. In particular, there can be no
assurance that the Companys operating cash flow will be sufficient to meet its
debt service obligations under its senior secured facilities. The Companys
leverage also could limit its ability to affect future financings or may
otherwise restrict the Companys operations and growth.

Trade Relations and Dependence on Major Accounts.The Companys largest
account, Wal-Mart, accounted for approximately 44% of total revenue in 2003.
The loss of the Wal-Mart account, or the loss of a significant number of other
major accounts, or a significant reduction in the number of Shoppes and other
amusement vending equipment placed at such accounts, for any reason, could have
a material adverse effect on the Companys business, financial condition and
results of operations.

Competition.The Company competes with a number of regional and local
operators of amusement vending machines. Many of these competitors are engaged in
aggressive expansion programs, and the Company has experienced and expects to
continue to experience intense competition for new locations and acquisition
candidates. There can be no assurance that the Company will be able to compete
effectively with these companies in the future. The Companys amusement vending
equipment also competes with other vending machines, coin-operated amusement
devices, coin counting and redemption machines and seasonal and bulk
merchandise for sites within retail locations. There can be no assurance that
the Company will be able to maintain its current sites in the retail locations
or that it will be able to obtain sites in the future on attractive terms or at
all. There also are few barriers to entry in the Companys business, and it
would be possible for well-financed vending machine manufacturers or other
vending machine operators with existing relationships with Retail Accounts
targeted by the Company to compete readily with the Company in certain markets.

Dependence on Suppliers and Foreign Sourcing.Substantially all of the
plush toys and other products dispensed from the machines 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. During 2003, the Company transitioned its product fulfillment
operations to a third party distribution center in Shanghai, China. 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. The Company also could be affected by labor strikes in the sea
shipping, trucking and railroad industries, all of which the Company utilizes
to varying degrees. Although the Company believes that alternative means of
transportation would be available for its products in the event of a labor
strike affecting a particular mode of transportation, such a disruption could
increase the Companys transportation costs and thereby reduce its profit
margins in a particular period.

Seasonality and Variability of Results.The financial performance of
amusement vending equipment is substantially dependent on the level of retail
traffic at a particular location. Accordingly, the business, financial
condition and results of operations of the Company can be materially and
adversely affected by factors that reduce retail traffic at such locations.
These include numerous factors beyond the Companys control such as weather,
labor strikes and other disruptions of the business at Retail Accounts and
local and national business and economic conditions. The Companys results are
also linked to seasonal increases in foot-traffic at Retail Accounts, and
disruptions of past trends, including traditional increases during holiday
seasons, could decrease the Companys revenue. As a result, the Companys
operating results may vary significantly over time. Accordingly,
period-to-period comparisons of its results of operations are not necessarily
meaningful and the Companys past results should not be relied upon as an
indication of future performance.

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Changing Consumer Trends; Technological Innovations.Consumer preferences
are constantly changing and difficult to predict, and consumer interest in the
Companys machines or the products dispensed could decline suddenly or other
prize-dispensing equipment or amusement devices could replace the machines in
consumer preference. The Companys success will depend in part on its ability
to offer new and appealing products and on the continuing appeal of its
machines in both existing markets and in new markets into
which the Company may expand. There can be no assurance that the use of
amusement vending equipment and the Companys operating results will not be adversely
affected by changing consumer trends. The Companys business also is
susceptible to advances in the design and manufacture of amusement vending equipment
and other vending technology. The Companys failure to anticipate or respond
adequately to such technological changes could adversely affect the Companys
business and results of operations.

Dependence on Key Employees.The Companys success to date has been
dependent in part upon the efforts and abilities of Randall J. Fagundo (its
Chief Executive Officer and President), Kenneth W. Edic (its Senior Vice
President, Chief Financial Officer, Treasurer and Secretary), Robert A. Kaslon
(its Senior Vice President of Merchandising) and certain other key personnel.
The Companys continued success will depend upon its ability to retain a number
of its current key employees and to attract, train and retain new key
management and operational personnel. There can be no assurance that the
Company will be able to retain its existing key employees or attract and retain
qualified employees in the future. In addition, executives or other employees
with knowledge of the Companys operations and policies may leave the Company
and establish competitive businesses. There can be no assurance that the
Company would be able to effectively enforce non-compete provisions against
these individuals.




Item 7A. Quantitative and Qualitative Disclosure About Market Risk

The Company entered into an interest rate collar
instrument for notional amount of $27,500,000 for a three-year period ending March 31, 2005.
If the 3 month LIBOR rates were to increase (decrease) by 100 basis points,
then the additional interest payment related to the floor rate would increase
(decrease) by $243,000 per year.




Item 8. Financial Statements and Supplementary Data

The financial statements and related notes thereto required by this item
are listed and set forth herein beginning on page 30.




Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




Item 9A. Controls and Procedures

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

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PART III




Item 10. Directors and Executive Officers of the Registrant

The following table sets forth certain information concerning the
directors and executive officers of the Company as of March 12, 2003:

|                      |  |     |    |                                |  |                                                                               
|--------------------- |  | --- | -- | ------------------------------ |  | ------------------------------------------------------------------------------
|                      |  |     |    |                                |  | Principal Occupation/                                                         
|Name                  |  | Age |    | Position Held with the Company
|                      |  |     |    |                               
|William F. Dawson Jr. |  |     | 39 |                                |  | Partner, Wellspring Capital Management LLC, Chairman of the Board of Directors
|Randall J. Fagundo    |  |     | 44 |                                |  | President, Chief Executive Officer and Director                               
|Greg S. Feldman       |  |     | 47 |                                |  | Managing Partner, Wellspring Capital Management LLC and Director              
|Pericles Navab        |  |     | 36 |                                |  | President, Cadigan Investment Partners, Inc. and Director                     
|Bruce W. Krysiak      |  |     | 53 |                                |  | Chairman, EDABB, Inc. and Director                                            
|Kenneth W. Edic       |  |     | 51 |                                |  | Senior Vice President, Chief Financial Officer, Treasurer and Secretary       
|Robert A. Kaslon      |  |     | 39 |                                |  | Senior Vice President of Merchandising                                        

William F. Dawson, Jr.has served as Chairman of the Board since February
2002. Mr. Dawson has been employed by Wellspring Capital Management LLC, a
private equity firm, since May 2001. Mr. Dawson was employed by Whitney & Co.,
an investment management firm, where he served as Managing Director from May
2000 to April 2001. Prior to Whitney & Co., Mr. Dawson was employed by
Donaldson, Lufkin & Jenrette, Inc., an investment banking firm, from September
1991 to April 2000.

Randall J. Fagundo,a co-founder of the Company, has served as President
and Chief Executive Officer since June 1999 and served as Senior Vice President
and Chief Operating Officer from January 1999 to June 1999. Mr. Fagundo served
as Secretary from May 1991 to June 1999 and as a director since February 2002.
Mr. Fagundo served as Vice President of Operations from May 1991 to January
1999.

Greg S. Feldman,has served as a director since February 2002. Mr. Feldman
is co-founder and has been a Managing Partner of Wellspring Capital
Management LLC since its inception in January 1995.

Pericles Navab, has served as a director since February 2002. Mr. Navab is
the founder and president of Cadigan Investment Partners, Inc. (f/k/a
Knightsbridge Holdings, LLC), an investment firm specializing in management
buyouts. Prior to Cadigan, Mr. Navab was a Principal at Arena Capital Partners,
LLC, an investment holding company, from January 1999 to December 2000.
Previously, Mr. Navab was a Principal at GarMark Partners, a private investment
firm, from August 1996 to December 1998.

Bruce W. Krysiak,has served as a director since February 2002. Mr.
Krysiak has served as Chairman of EDABB, Inc., an investment firm, for ten
years and Executive Partner with Arena Capital Partners, LLC, since October
1999. From April 1998 to March 1999, Mr. Krysiak served as the President, Chief
Operating Officer and a director of Toys R Us, Inc. (NYSE:TOY), a toy
retailing company. From January 1997 until April 1998, Mr. Krysiak served as
the President and Chief Operating Officer of Dollar General Corporation
(NYSE:DG), a large retail merchandise company, and from April 1995 until May
1996 he served as Chief Operating Officer of the Circle K Corporation, a
convenience store operator.

Kenneth W. Edic,has served as Senior Vice President and Chief Financial
Officer since April 2003 and as Secretary and Treasurer since August 2003. Mr.
Edic served as Controller from March 1999 to April 2003. Prior to joining the
Company Mr. Edic was Vice President, Controller, Treasurer and Corporate
Secretary at Triumph Fuels, Vice President and Controller at Pace Membership
Warehouse and held various positions with Cole National.

Robert A. Kaslon,has served as a Senior Vice President since May 1999.
Mr. Kaslon served as Vice President of Operations from May 1997 to May 1999.
From May 1994 to May 1997 Mr. Kaslon served as Director of Operations and
Franchisee Relations.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (the 1934 Act)
requires the Companys directors and executive officers, and persons who own
more than ten percent of a registered class of the Companys equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section

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16(a) forms they file. On February 12, 2002, the Company filed a Form 15
to terminate the registration of its equity securities under the 1934 Act.

To the Companys knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2003, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.

Audit Committee; Audit Committee
Financial Expert

The
Audit Committee is comprised of Mr. Bruce W. Krysiak, who serves as
its sole member and Chairman. Mr. Krysiak is an audit committee
financial expert and independent as that term is
used in Item 7(d)(3)(iv) of Schedule 14A under the Securities
Exchange Act of 1934. Pursuant to Section 801 of the American Stock
Exchange Company Guide (the AMEX Guide), the Company is
deemed to be a controlled company based on the fact that
over 50% of the Companys voting power is held by Wellspring
Capital Management L.L.C.

Code of Ethics

The
Company has adopted a Code of Ethics (as defined in Item 406 of
Regulation S-K) that applies to the Companys Chief Executive
Officer, Chief Financial Officer, principal accounting officer or
controller or persons performing similar functions. The Code of
Ethics is filed as Exhibit 14 to this Annual Report on Form 10-K.




Item 11. Executive Compensation

Compensation of Directors

With the exception of Mr. Krysiak, non-employee directors of the Company do not receive annual cash
compensation; however the Company does reimburse for their reasonable
out-of-pocket expenses related to attendance at Board meetings, See Certain
Relationships and Related Transactions. In consideration of
Mr. Krysiaks services as the Chairman of the Audit
Committee, Chairman of the Compensation Committee and member of the
Board, the Board has determined to
pay Mr. Krysiak $75,000 per year for his services and granted
Mr. Krysiak 25,000 options to purchase common stock under the
2002 Option Plan established by the Companys parent company,
ACMI Holdings, Inc.

Summary Compensation Table

The following table shows for the fiscal years ended December 31, 2003,
2002 and 2001, compensation awarded or paid to, or earned by, the Companys
Chief Executive Officer and its other highly compensated executive officers for
the year ended December 31, 2003 (the Named Executive Officers):

|                            |                              |      |      |        |  |        |              |         |              |                   |            |         |           |  |            |   |  |  |        |       | 
|--------------------------- | ---------------------------- | ---- | ---- | ------ |  | ------ | ------------ | ------- | ------------ | ----------------- | ---------- | ------- | --------- |  | ---------- | - |  |  | ------ | ----- | 
|                            |                              |      |      |        |  |        |              |         |              |                   |            |         |           |  | Long-Term  |   |  |  |       
|                            |                              |      |      |        |  |        | Annual       |         | Compensation |                   |            |         |          
|                            |                              |      |      |        |  |        | Compensation |         | Awards       |                   |            |         |          
|                            |                              |      |      |        |  |        |              |         |              |                   |            |         |          
|                            |                              |      |      |        |  |        |              |         |              |                   |            |         |           |  | Securities |   |  |  |       
|                            |                              |      |      |        |  |        | Salary       |         | Bonus        |                   | Underlying |         | All Other
|Name and Principal Position |                              | Year |      | ($)(1) |  | ($)(2) |              | Options |              | Compensation $(3)
|                            |                              |      |      |        |  |        |              |         |              |                  
|Randall J. Fagundo          |                              |      | 2003 |        |  |        | 300,000      |         |              |                   | 52,891     |         |           |  |            |   |  |  | 8,209  |      
|                            | President and Chief          |      |      | 2002   |  |        |              | 250,000 |              |                   |            | 89,730  |           |  |            |  |  |  |        | 8,188 | 
|                            | Executive Officer            |      |      | 2001   |  |        |              | 250,000 |              |                   |            | 129,398 |           |  |            |  |  |  |        | 8,742 | 
|W.
John Cash (4)            |                              |      | 2003 |        |  |        | 149,805      |         |              |                   | 16,321     |         |           |  |            |   |  |  | 6,999  |      
|                            | Senior Vice President, Chief |      |      | 2002   |  |        |              | 150,000 |              |                   |            | 28,653  |           |  |            |  |  |  |        | 7,722 | 
|                            | Administrative Officer       |      |      | 2001   |  |        |              | 150,000 |              |                   |            | 37,471  |           |  |            |  |  |  |        | 7,150 | 
|Robert A. Kaslon            |                              |      | 2003 |        |  |        | 112,567      |         |              |                   | 18,134     |         |           |  |            |   |  |  | 7,802  |      
|                            | Senior Vice President of     |      |      | 2002   |  |        |              | 110,000 |              |                   |            | 23,347  |           |  |            |  |  |  |        | 7,716 | 
|                            | Merchandising                |      |      | 2001   |  |        |              | 103,333 |              |                   |            | 36,434  |           |  |            |  |  |  |        | 7,513 | 
|Kenneth W. Edic             |                              |      | 2003 |        |  |        | 146,875      |         |              |                   | 10,880     |         |           |  |           |   |  |  | 5,561  |      
|                            | Senior Vice President, Chief |      |      | 2002   |  |        |              | 110,917 |              |                   |            | 12,735  |           |  |            |   |  |  |        | 5,419 | 
|                            | Financial Officer, Treasurer |      |      | 2001   |  |        |              | 103,000 |              |                   |            | 16,822  |           |  |            |   |  |  |        | 3,105 | 
|                            | and Secretary                |      |      |        |  |        |              |         |              |                   |            |         |           |  |            |   |  |  |        |       | 
|Craig Held                  |                              |      | 2003 |        |  |        | 216,666      |         |              |                   | 16,321     |         |           |  |           |   |  |  | 10,630 |      
|                            | Executive Vice President of  |      |      | 2002   |  |        |              | 87,836  |              |                   |            |        |           |  |            |  |  |  |        | 479   | 
|                            | Sales and Marketing          |      |      | 2001   |  |        |              |        |              |                   |            |        |           |  |            |  |  |  |        |      | 



---

|(1) |  | Includes amounts deferred pursuant to Sections 401(k) and 125 of the
Internal Revenue Code of 1986, as amended.                                                                                                  
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Bonuses are paid in the year subsequent to the year earned.                                                                                                                                                      
|   
|(3) |  | Includes value of Company provided automobile, health insurance premiums
paid by the Company and funds contributed by the Company as matching
contributions to the Named Executive Officers 401(k) Plan account.
|   
|(4) |  | Mr. Cash left the Company in July of 2003.                                                                                                                                                                       

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Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values

The following table shows for the fiscal year ended December 31, 2003
certain information regarding options exercised and held at year-end by the
Named Executive Officers:

|                   |  |                |       |             |  |                  |                  |                  |       |             |   |              |   |  |  | 
|------------------ |  | -------------- | ----- | ----------- |  | ---------------- | ---------------- | ---------------- | ----- | ----------- | - | ------------ | - |  |  | 
|                   |  |                |       |             |  |                  |                  |                  |       | Number of   |   |              |   | 
|                   |  |                |       |             |  |                  |                  |                  |       | Securities  |   | Value of    
|                   |  |                |       |             |  |                  |                  |                  |       | Underlying  |   | Unexercised 
|                   |  |                |       |             |  |                  |                  |                  |       | Unexercised |   | In-The-Money
|                   |  |                |       |             |  |                  |                  |                  |       | Options     |   | Options at  
|                   |  | Shares         |       |             |  |                  |                  | at 12/31/03      |       | 12/31/03   
|                   |  | Acquired       |       | Value       |  | Exercisable/     |                  | Exercisable/    
|Name               |  | on Exercise(#) |       | Realized($) |  | Unexercisable(#) |                  | Unexercisable($)
|                   |  |                |       |             |  |                  |                  |                 
|Randall J. Fagundo |  | None           |       | None        |  |                  | 13,891 / 125,017 |                  |       | $           |  |             
|W. John Cash       |  |                | 1,000 |             |  | None             |                  |                  | 0 / 0 |             |   | $            |  | 
|Robert A. Kaslon   |  | None           |       | None        |  |                  | 959 / 8,631      |                  |       | $           |  |             
|Kenneth W. Edic    |  | None           |       | None        |  |                  | 959 / 14,384     |                  |       | $           |  |             
|Craig Held         |  | None           |       | None        |  |                  | 1,630 / 14,672   |                  |       | $           |  |             

Employment Agreement

The Company entered into an employment agreement with its Chief Executive
Officer and President, Randall J. Fagundo (the Executive) as of December 1,
2000. The employment agreement was amended on July 31, 2001 and further amended
and restated on September 30, 2002 (the Employment Agreement). The term of
the Employment Agreement runs through December 31, 2004 and is subject to
automatic extension for successive one-year periods unless either party
provides 90 days written notice of such partys election not to extend the
term. Under the Employment Agreement, Mr. Fagundos annual base salary was
$275,000 for 2002, $300,000 for 2003 and increased to $325,000 on January 1,
2004. Upon the achievement of certain performance goals as established by the
Companys Board of Directors, the Executive is also entitled to receive at the
end of each calendar year an annual bonus in an amount equal to up to 100% of
the base salary paid to him during such calendar year. In connection with the
Employment Agreement, Mr. Fagundo received a stock option for 138,900 shares of
the common stock of ACMI Holdings, Inc., the parent of the Company, pursuant to
the ACMI Holdings, Inc. 2002 Stock Option Plan. This option has an exercise
price of $8.50 per share, which was equal to the market price as of the date of
grant. The option is subject to vesting over a five-year period and further
subject to vesting upon the achievement of certain milestones. The Employment
Agreement also provides that the Executive will be entitled to (i) participate
in any employee benefits plans the Company makes available to its other
employees in executive positions and (ii) use of an automobile provided by the
Company and that the Company shall use its best efforts to cause the Executive
to be elected to the board during the term of the Employment Agreement. The
Employment Agreement also provides that the Company may terminate the
Executives employment at any time for cause. If the Executive is terminated
for cause or the Executive voluntarily terminates the Employment Agreement, the
Company is obligated to pay (i) the Executives earned salary and (ii) any not
yet paid accrued obligations under the Companys applicable employee benefit
plans and programs. If the Executive is terminated without cause, the Company
is obligated to pay (i) the Executives earned salary; (ii) a cash amount equal
to the Executives then-current annual base salary over the non-compete period
(as defined therein); and (iii) any not yet paid accrued obligations under the
Companys applicable employee benefit plans and programs. The Employment
Agreement also provides that if, in anticipation of, or within one year after,
a change of control of the Company, the Executive is terminated without cause
or the Executive terminates the Employment Agreement for good reason, then the
Executive will be entitled to receive (i) the Executives earned salary; (ii)
any not yet paid accrued obligations under the Companys applicable employee
benefit plans and programs and (iii) a cash amount equal to three times the
then-current annual base salary, plus three times the greater of (x) the
Executives actual annual discretionary bonus earned in the calendar year in
which the termination occurs, (y) the Executives actual annual discretionary
bonus earned in the calendar year immediately prior to the year in which the
termination occurs, or (z) the average of the Executives annual discretionary
bonus earned for the three calendar years immediately prior to the year in
which the termination occurs. The amount of any payments upon a change of
control is subject to reduction if such payments would constitute excess
parachute payments under applicable federal tax laws. The Employment Agreement
also contains confidentiality and noncompete provisions which prohibit the
Executive from soliciting employees of the Company, engaging in business
similar to the Companys or disclosing confidential information without the
specific authorization of the Companys Board of Directors after the
termination of the Executives employment with the Company.

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Compensation Committee Interlocks and Insider Participation

During the Companys fiscal year ended December 31, 2003, the Companys
Compensation Committee consisted of Messrs. Dawson, Feldman and Krysiak. No
member of the Compensation Committee of the Company serves as a member of the
Board of Directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Companys Board of Directors or
Compensation Committee.




Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters

The following table sets forth certain information regarding the ownership
of the Companys common stock as of March 12, 2003 by: (i) each director; (ii)
each of the Named Executive Officers; (iii) all Named Executive Officers and
directors of the Company as a group; and (iv) all those known by the Company to
be beneficial owners of more than five percent of its common stock. Unless
otherwise indicated, the address for each of the persons listed in the table is
c/o American Coin Merchandising, Inc. 397 South Taylor Avenue, Louisville,
Colorado 80027.

|                                                            |                                                                                           |                  |                          |                  |  |  |     |   | 
|----------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------- | ------------------------ | ---------------- |  |  | --- | - | 
|                                                            |                                                                                           |                  | Beneficial Ownership (1)
|                                                            |                                                                                           |                  |                         
|Beneficial Owner                                            |                                                                                           | Number of Shares |                          | Percent of Total
|                                                            |                                                                                           |                  |                          |                 
|ACMI Holdings, Inc. (2)                                     |                                                                                           |                  | 1,000                    |                  |  |  | 100 | %
|                                                            | c/o Wellspring Capital Management LLC
390 Park Avenue, 5th Floor
New York, New York 10022 |                  |                          |                  |  |  |     |   | 
|William F. Dawson, Jr.                                      |                                                                                           |                  |                         |                  |  |  |    |  
|Randall J. Fagundo                                          |                                                                                           |                  |                         |                  |  |  |    |  
|Greg S. Feldman                                             |                                                                                           |                  |                         |                  |  |  |    |  
|Pericles Navab                                              |                                                                                           |                  |                         |                  |  |  |    |  
|Bruce W. Krysiak                                            |                                                                                           |                  |                         |                  |  |  |    |  
|Kenneth W. Edic                                             |                                                                                           |                  |                         |                  |  |  |    |  
|Robert A. Kaslon                                            |                                                                                           |                  |                         |                  |  |  |    |  
|All executive officers and directors
as a group (7 persons) |                                                                                           |                  |                         |                  |  |  |    | %



---

|(1) |  | Applicable percentages are based on 1,000 shares outstanding on March 12,
2004, adjusted as required by rules promulgated by the SEC.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company became a wholly owned subsidiary of ACMI Holdings, Inc., a
Delaware corporation, on February 11, 2002.                   

Pursuant to the terms of the Guarantee and Collateral Agreement, dated as
of February 11, 2002, made by the Company and ACMI Holdings, Inc., in favor of
Madison Capital Funding LLC, as agent for the lenders under the Companys
senior secured credit facility, ACMI Holdings, Inc. has pledged all of the
common stock of the Company as collateral to secure the Companys obligations
under the senior secured credit facility. Accordingly, upon the occurrence of
an even of default under the senior secured credit facility, ACMI Holdings,
Inc.s ownership in the Companys common stock would transfer to Madison
Capital Funding LLC as agent for the lenders resulting in a change of control
of the Company.




Item 13. Certain Relationships and Related Transactions

In connection with the acquisition by ACMI Holdings, Inc., the Company
entered into a Services and Fee Agreement with Wellspring Capital Management
LLC (Wellspring) and Cadigan Investment Partners, Inc. (f/k/a Knightsbridge
Holdings, LLC) (Cadigan) on February 11, 2002 (the Fee Agreement). The
following discussion of the Fee Agreement is qualified in its entirety by
reference to the actual Fee Agreement, which is incorporated by reference.
Pursuant to the terms of the Fee Agreement, the Company will pay an annual
consulting fee of $300,000 in arrears in equal monthly installments and
reimburse Wellspring and Cadigan for all reasonable out-of-pocket costs and
expenses incurred in connection with the performance of their consulting
services. The consulting fee is allocated 66 2/3% to Wellspring and 33 1/3% to
Cadigan. The Fee Agreement further provides that the Company will not pay any
portion of the consulting fee to the extent that such payment conflicts with
the Companys covenants pursuant to its

26



---



##### Table of Contents



senior secured credit facility or senior subordinated notes. However, such
unpaid fees will continue to accrue, without interest, and the Company will pay
such fees if and when such payment is no longer prohibited under the senior
secured credit facility or senior subordinated notes. The Company
paid $300,000 pursuant to the terms of
the Fee Agreement during 2003. The Fee Agreement further
provides that the Company shall pay all fees and expenses payable to the
lenders pursuant to the terms of the senior secured credit facility and senior
subordinated notes. Any other consulting or similar fees that may be payable
under the Fee Agreement are allocated 65% to Wellspring and 35% to Cadigan.
Cadigans entitlement to the fees set forth in the Fee Agreement is contingent
upon its continuous ownership of certain warrants to purchase shares of ACMI
Holdings, Inc. and its maintenance of a representative on the Board of
Directors of ACMI Holdings, Inc. Under the terms of the Fee Agreement, the
Company agrees to indemnify Wellspring and Cadigan and their respective
representatives in connection with any liabilities or judgments with respect to
the Fee Agreement.

William F. Dawson, Jr., a director of the Company, is
a partner at Wellspring. Greg S. Feldman, a director of the Company, is the managing partner at Wellspring. Wellspring holds a majority
interest in ACMI Holdings, of which the Company is a wholly owned subsidiary.

Pericles Navab, a director of the Company, holds an
interest in and is the President of Cadigan. Cadigan holds an interest in ACMI
Holdings, which is controlled by Wellspring Capital Management LLC.

Other Transactions

The Company has also entered into an employment agreement with Randall J.
Fagundo. A summary of the terms of the Companys employment agreement with Mr.
Fagundo is contained in Item 11. Executive Compensation  Employment is
incorporated herein by reference.

Mr. Fagundo, the Companys former Chief Financial Officer, and another
executive of the Company are members of a limited liability company, which has
agreed to lease to the Company a building located in Louisville, Colorado. The
terms of the agreement provide for a ten year lease term, commencing March 1,
2003, at annual monthly rental rates ranging from $25,353 for the first year to
$33,076 for the tenth year, together with additional payments in respect of the
tenants proportionate share of the maintenance and insurance costs and
property tax assessments for the leased premises. The Company believes that the
terms of this lease is comparable to those that would be entered into between
unrelated parties on an arms length basis.




Item 14. Principal Accountant Fees and Services

The Company retained KPMG LLP to audit its consolidated financial
statements for the year ended December 31, 2003. Before KPMG was
engaged by the Company to render audit or non-audit services, the
engagement was approved by the Companys Audit Committee.

The aggregate fees billed to the Company for professional services performed by
KPMG LLP were as follows:

December 31,
    
    2003
    
    2002Audit fees (a)
    
    $
    115,681
    
    
    $
    100,060Audit-related fees (b)
    
    
    12,000
    
    
    
    11,500Tax fees (c)
    
    
    139,508
    
    
    
    89,173Subtotal
    
    
    267,189
    
    
    
    200,733All other fees
    
    
    
    
    
    
    Total principal accountant fees
    
    $
    267,189
    
    
    $
    200,733




|(a) |  | Audit fees pertain to the audit of the Companys annual consolidated
financial statements, including reviews of the interim financial
statements contained in the Companys Quarterly Reports on Form 10-Q
and completion of statutory reports and review of documents filed with the Securities and Exchange Commission.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Audit-related fees pertain to employee benefit plan audits.
|--- |  | -----------------------------------------------------------



|(c) |  | Tax fees pertain to services performed for tax compliance, tax
advice, and tax planning, including preparation of tax returns and
claims for refund and tax payment-planning services. Tax planning
and advice also includes assistance with tax audits and appeals, and
tax advice related to specific transactions.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys pre-approval policy permits the Chairman of the Audit Committee
to pre-approve non-audit services to be provided to the Company by KPMG LLP,
provided approval of such services is ratified by the full Audit Committee at
its next scheduled meeting.

27



---



##### Table of Contents






PART IV




Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K



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

|       |  |                                                                                                                                                                                                                                       
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1w   |  | Agreement and Plan of Merger, dated as of September 9, 2001, among Crane Mergerco Holdings, Inc., a
Delaware corporation, Crane Mergerco Inc., a Delaware corporation and Registrant.                                                 
|       |  |                                                                                                                                                                                                                                       
|2.2w   |  | Form of Voting Agreement, dated as of September 9, 2001, among Crane Mergerco Holdings, Inc., a
Delaware corporation and each of Richard P. Bermingham, Randall J. Fagundo, Richard D. Jones, John A.
Sullivan and J. Gregory Theisen.
|       |  |                                                                                                                                                                                                                                       
|3.1   |  | Certificate of Incorporation of the Registrant.                                                                                                                                                                                       
|       |  |                                                                                                                                                                                                                                       
|3.3S   |  | Certificate of Merger of the Registrant.                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                       
|3.4S   |  | Restated Certificate of Incorporation.                                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                       
|3.5S   |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                        
|       |  |                                                                                                                                                                                                                                       
|4.1   |  | Reference is made to Exhibits 3.1 through 3.5.                                                                                                                                                                                        
|       |  |                                                                                                                                                                                                                                       
|4.2S   |  | Specimen Stock Certificate.                                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                       
|4.3o   |  | Certificate of Trust of American Coin Merchandising Trust I.                                                                                                                                                                          
|       |  |                                                                                                                                                                                                                                       
|4.4o   |  | Trust Agreement of American Coin Merchandising Trust I.                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                       
|4.5o   |  | Amended and Restated Trust Agreement of American Coin Merchandising Trust I.                                                                                                                                                          
|       |  |                                                                                                                                                                                                                                       
|4.6o   |  | Form of Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, as Trustee.                                                                                                                                
|       |  |                                                                                                                                                                                                                                       
|4.7o   |  | Form of Guarantee Agreement with respect to Trust Preferred Securities of American Coin Merchandising
Trust
I.                                                                                                                        
|       |  |                                                                                                                                                                                                                                       
|4.8o   |  | Form of Agreement as to Expenses and Liabilities between the Registrant and American Coin
Merchandising Trust I.                                                                                                                      
|       |  |                                                                                                                                                                                                                                       
|4.9o   |  | Form of Certificate Evidencing Trust Preferred Securities.                                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                       
|4.10o  |  | Form of Certificate Evidencing Trust Common Securities.                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                       
|4.11o  |  | Form of Ascending Rate Junior Subordinated Deferrable Interest Debenture.                                                                                                                                                             
|       |  |                                                                                                                                                                                                                                       
|4.12S  |  | 17% Senior Subordinated Notes Due 2009 between the Registrant and each of the parties listed on the
attached schedule, dated February 11, 2002.                                                                                       
|       |  |                                                                                                                                                                                                                                       
|10.1  |  | Form of Indemnity Agreement to be entered into between the Registrant and its directors and executive
officers.                                                                                                                       
|       |  |                                                                                                                                                                                                                                       
|10.47Ñ |  | Premier Amusement Vendor Agreement, dated January 28, 2000, between the Registrant and Best Vendor Co.                                                                                                                                
|       |  |                                                                                                                                                                                                                                       
|10.48Ñ |  | Addendum to Premier Amusement Vendor Agreement, dated January 28, 2000, between the Registrant and
Best Vendor Co.                                                                                                                    
|       |  |                                                                                                                                                                                                                                       
|10.49Ñ |  | Addendum #2 to Premier Amusement Vendor Agreement, dated February 14, 2000, between the Registrant
and Best Vendor Co.                                                                                                                
|       |  |                                                                                                                                                                                                                                       
|10.50Ä |  | Amusement Vending Agreement, effective as of July 1, 2000, between the Registrant and Dennys Inc.                                                                                                                                    
|       |  |                                                                                                                                                                                                                                       
|10.51Ä |  | Other Income Supplier AgreementCoin Operated Equipment, dated August 1, 2000 between the Registrant
and Wal-Mart Stores, Inc.                                                                                                        
|       |  |                                                                                                                                                                                                                                       
|10.60S |  | Services and Fee Agreement, dated February 11, 2002, between and among the Registrant, Wellspring
Capital
Management LLC and Knightsbridge Holdings, LLC d/b/a Krysiak Navab & Co.                                                    
|       |  |                                                                                                                                                                                                                                       
|10.61S |  | Credit Agreement, dated February 11, 2002, between and among the Registrant and Madison Capital
Funding LLC and The Royal Bank of Scotland PLC.                                                                                       
|       |  |                                                                                                                                                                                                                                       
|10.62S |  | Guarantee and Collateral Agreement, dated February 11, 2002, between and among the Registrant, ACMI
Holdings and Audax Mezzanine Fund, L.P., Royal Bank of Scotland PLC and Upper Colombia Capital
Company, LLC.                      
|       |  |                                                                                                                                                                                                                                       
|10.63S |  | Purchase Agreement among ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named
therein, dated as of February 11, 2002.                                                                                              
|       |  |                                                                                                                                                                                                                                       
|10.64X |  | Amended and Restated Executive Employment Agreement, dated as of September 30, 2002, between the
Registrant and Randall J. Fagundo.                                                                                                   
|       |  |                                                                                                                                                                                                                                       
|10.65S |  | Industrial Building Lease Agreement, between the Registrant and FCF Properties, LLC, dated October
24, 2002.                                                                                                                          
|       |  |                                                                                                                                                                                                                                       
|10.66S |  | Consent, Waiver and Amendment to and Release Under Credit Agreement, dated as of November 12, 2002,
by and among the Registrant and Madison Capital Funding LLC and The Royal Bank of Scotland PLC, New
York Branch.                  
|       |  |                                                                                                                                                                                                                                       
|10.67S |  | Consent, Waiver and Amendment to the Purchase Agreement, dated as of November 12, 2002, by and among
ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named therein.                                                 
|       |  |                                                                                                                                                                                                                                       
|10.68S |  | Amendment to Guarantee and Collateral Agreement, dated as of November 12, 2002, by and among the
Registrant, ACMI Holdings, Inc. and Madison Capital Funding LLC.                                                                     
|       |  |                                                                                                                                                                                                                                       
|10.69  |  | Amendment No. 1 to Amended and Restated Credit Agreement dated as of February 13, 2004.                                                                                                                                               
|       |  |                                                                                                                                                                                                                                       
|10.70  |  | Consent and Amendment No. 1 to Subordination and Intercreditor Agreement date as of February 13, 2004.                                                                                                                                
|       |  |                                                                                                                                                                                                                                       
|10.71  |  | Consent and Amendment No. 2 to Subordination and Intercreditor Agreement dated as of February 13, 2004.                                                                                                                               
|       |  |                                                                                                                                                                                                                                       
|14.1   |  | Code of Ethics.                                                                                                                                                                                                                       
|       |  |                                                                                                                                                                                                                                       
|31.1   |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                       
|31.2   |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                       
|32     |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                               

28



---



##### Table of Contents



|31.1 |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.                                               
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                        
|31.2 |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.                                               
|     |  |                                                                                                                        
|32   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



---

|w |  | Incorporated by reference to the Companys Current Report on Form 8-K, dated September 10, 2001.                    
|- |  | --------------------------------------------------------------------------------------------------------------------
| 
| |  | Incorporated by reference to the Companys Registration Statement on Form SB-2, File No. 33-95446-D.                
| 
|O |  | Incorporated by reference to the Companys Registration Statement on Form S-3, File No. 333-60267.                  
| 
|y |  | Incorporated by reference to the Companys Current Report on Form 8-K, dated April 29, 1999.                        
| 
|Ñ |  | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2000.       
| 
|Ä |  | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended September 30, 2000.   
| 
|j |  | * Incorporated by reference to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.
| 
|s |  | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2001.        
| 
|S |  | Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002   
| 
|x |  | Indicates management contract or compensatory plan, contract or arrangement.                                        



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

None.

29



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three Years Ended December 31, 2003

|                                   |                                            |  |      |     | 
|---------------------------------- | ------------------------------------------ |  | ---- | --- | 
|                                   |                                            |  | Page
|Independent Auditors Report       |                                            |  | F-1  |    
|Consolidated Financial Statements: |                                            |  |      |    
|                                   | Balance Sheets                             |  |      | F-2 | 
|                                   | Statements of Operations                   |  |      | F-3 | 
|                                   | Statements of Stockholders Equity         |  |      | F-4 | 
|                                   | Statements of Cash Flows                   |  |      | F-5 | 
|                                   | Notes to Consolidated Financial Statements |  |      | F-6 | 

All schedules are omitted because of the absence of conditions under which
they are required or because the required information is provided in the
financial statements or notes thereto.





---



##### Table of Contents



Independent Auditors Report The Board of Directors and Stockholder
American Coin Merchandising, Inc.: We have audited the accompanying consolidated balance sheets of American Coin
Merchandising, Inc. and
subsidiaries (Company) as of December 31, 2003 and 2002 (Successor), and the
related consolidated
statements of operations, stockholders equity, and cash flows for the year
ended December 31, 2003
(Successor), the eleven months ended December 31, 2002 (Successor), the one
month ended January 31,
2002 (Predecessor) and the year ended December 31, 2001 (Predecessor). These
consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an
opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable
basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material
respects, the financial position of American Coin Merchandising, Inc. and
subsidiaries as of December 31,
2003 and 2002 (Successor), and the results of their operations and their cash
flows for the year ended
December 31, 2003 (Successor), the eleven months ended December 31, 2002
(Successor), the one month
ended January 31, 2002 (Predecessor) and the year ended December 31, 2001
(Predecessor), in conformity
with accounting principles generally accepted in the United States of America. As
described in note 4, the Company adopted the provisions of Statement of Financial Accounting Standards 142, Goodwill and Other Intangible
assets,effective on January 1, 2002. Denver, Colorado
March 12, 2004


F-1



---



##### Table of Contents



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

|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |        |         |  | 
|------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ------- | ------------ |  | ------------ | ------ | ------- |  | 
|                                                                                                                                |                                                                                |                                            |         |         | Successor   
|                                                                                                                                |                                                                                |                                            |         |         |             
|                                                                                                                                |                                                                                |                                            |         |         | December 31, |  | December 31,
|                                                                                                                                |                                                                                |                                            |         |         | 2003         |  | 2002        
|                                                                                                                                |                                                                                |                                            |         |         |              |  |             
|                                                                                                                                |                                                                                |                                            | ASSETS  |         |              |  |              |        |         |  | 
|Current assets:                                                                                                                 |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                | Cash and cash equivalents                                                      |                                            | $       | 4,599   |              |  | $            | 4,178  |        
|                                                                                                                                | Trade accounts and other receivables                                           |                                            |         | 1,294   |              |  |              | 1,069  |        
|                                                                                                                                | Inventories                                                                    |                                            |         | 22,962  |              |  |              | 11,512 |        
|                                                                                                                                | Prepaid expenses and other assets                                              |                                            |         | 5,051   |              |  |              | 3,035  |        
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                |                                                                                | Total current assets                       |         |         | 33,906       |  |              |        | 19,794  | 
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|Property and equipment:                                                                                                         |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                | Vending machines                                                               |                                            |         | 67,688  |              |  |              | 40,738 |        
|                                                                                                                                | Vehicles                                                                       |                                            |         | 4,062   |              |  |              | 4,622  |        
|                                                                                                                                | Office equipment, furniture and fixtures                                       |                                            |         | 5,917   |              |  |              | 4,485  |        
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                |                                                                                |                                            | 77,667  |         |              |  | 49,845       |       
|                                                                                                                                | Less accumulated depreciation                                                  |                                            |         | (19,454 | )            |  |              | (7,870 | )      
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                |                                                                                | Property and equipment, net                |         |         | 58,213       |  |              |        | 41,975  | 
|Placement fees, net of accumulated amortization
of $5,148 in 2003 and $2,599 in 2002                                            |                                                                                |                                            | 2,164   |         |              |  | 2,080        |       
|Costs in excess of assets acquired                                                                                              |                                                                                |                                            | 74,359  |         |              |  | 64,588       |       
|Other intangible assets, net of accumulated amortization of
$830 in 2003 and $221 in 2002                                       |                                                                                |                                            | 9,144   |         |              |  | 1,105        |       
|Other assets, net of accumulated amortization of
$3,141 in 2003 and $1,409 in 2002                                              |                                                                                |                                            | 6,974   |         |              |  | 6,831        |       
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                |                                                                                | Total assets                               |         | $       | 184,760      |  |              | $      | 136,373 | 
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                            |                                                                                |                                            |         |         |              |  |              |       
|Current liabilities:                                                                                                            |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                | Current portion of long-term debt                                              |                                            | $       | 6,349   |              |  | $            | 4,718  |        
|                                                                                                                                | Accounts payable                                                               |                                            |         | 14,300  |              |  |              | 3,656  |        
|                                                                                                                                | Accrued commissions                                                            |                                            |         | 3,443   |              |  |              | 3,392  |        
|                                                                                                                                | Other accrued expenses                                                         |                                            |         | 3,874   |              |  |              | 1,961  |        
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                |                                                                                | Total current liabilities                  |         |         | 27,966       |  |              |        | 13,727  | 
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|Long-term debt, net of current portion                                                                                          |                                                                                |                                            | 102,577 |         |              |  | 79,593       |       
|Other liabilities                                                                                                               |                                                                                |                                            | 298     |         |              |  | 764          |       
|Fair value of interest rate collar agreement                                                                                    |                                                                                |                                            | 911     |         |              |  | 1,248        |       
|Deferred tax liabilities                                                                                                        |                                                                                |                                            |        |         |              |  | 25           |       
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                |                                                                                | Total liabilities                          |         |         | 131,752      |  |              |        | 95,357  | 
|Company obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely junior subordinated debentures |                                                                                |                                            | 14,460  |         |              |  | 12,974       |       
|Stockholders equity:                                                                                                           |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                | Common stock, $.01 par value (1,000 shares
authorized, issued and outstanding) |                                            |         |        |              |  |              |       |        
|                                                                                                                                | Additional paid-in capital                                                     |                                            |         | 41,137  |              |  |              | 28,629 |        
|                                                                                                                                | Accumulated deficit                                                            |                                            |         | (2,589  | )            |  |              | (587   | )      
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                |                                                                                | Total stockholders equity                 |         |         | 38,548       |  |              |        | 28,042  | 
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       
|Commitments and contingencies                                                                                                   |                                                                                |                                            |         |         |              |  |              |       
|                                                                                                                                |                                                                                | Total liabilities and stockholders equity |         | $       | 184,760      |  |              | $      | 136,373 | 
|                                                                                                                                |                                                                                |                                            |         |         |              |  |              |       

See accompanying notes to consolidated financial statements.

F-2



---



##### Table of Contents



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

|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |         |         |       | 
|-------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------- | ----------------------------------- | ------- | ------------ | ------ | ------------- | ------- | ----------- | ---- | ------------ | ------ | ------ | ------ | ------ | ------- | ------- | ----- | 
|                                             |                                                          |                                                   |                                     |         | Successor    |        | Predecessor  
|                                             |                                                          |                                                   |                                     |         |              |        |              
|                                             |                                                          |                                                   |                                     |         | Year         |        | Eleven Months |         | One Month   |      | Year        
|                                             |                                                          |                                                   |                                     |         | Ended        |        | Ended         |         | Ended       |      | Ended       
|                                             |                                                          |                                                   |                                     |         | December 31, |        | December 31,  |         | January 31, |      | December 31,
|                                             |                                                          |                                                   |                                     |         | 2003         |        | 2002          |         | 2002        |      | 2001        
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |             
|Revenue:                                     |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             | Vending                                                  |                                                   | $                                   | 197,091 |              |        | $             | 131,237 |             |      | $            | 10,880 |        |        | $      | 139,670 |        
|                                             | Franchise and other                                      |                                                   |                                     | 4,327   |              |        |               | 2,100   |             |      |              | 199    |        |        |        | 2,257   |        
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             |                                                          | Total revenue                                     |                                     |         | 201,418      |        |               |         | 133,337     |      |              |        | 11,079 |        |        |         | 141,927 |      
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|Cost of revenue:                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             | Vending, excluding related depreciation
and amortization |                                                   |                                     | 135,409 |              |        |               | 87,093  |             |      |              | 7,568  |        |        |        | 92,768  |        
|                                             | Depreciation and amortization                            |                                                   |                                     | 14,571  |              |        |               | 11,654  |             |      |              | 1,013  |        |        |        | 11,990  |        
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             |                                                          | Total cost of vending                             |                                     |         | 149,980      |        |               |         | 98,747      |      |              |        | 8,581  |        |        |         | 104,758 |      
|                                             | Franchise and other                                      |                                                   |                                     | 3,127   |              |        |               | 547     |             |      |              | 192    |        |        |        | 1,921   |        
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             |                                                          | Total cost of revenue                             |                                     |         | 153,107      |        |               |         | 99,294      |      |              |        | 8,773  |        |        |         | 106,679 |      
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             |                                                          | Gross profit                                      |                                     |         | 48,311       |        |               |         | 34,043      |      |              |        | 2,306  |        |        |         | 35,248  |      
|General and administrative expenses          |                                                          |                                                   | 34,664                              |         |              |        | 22,211        |         |             |      | 3,617        |        |        |        | 23,386 |        
|Depreciation and amortization                |                                                          |                                                   | 1,519                               |         |              |        | 941           |         |             |      | 96           |        |        |        | 3,132  |        
|Restructuring charge                         |                                                          |                                                   | 320                                 |         |              |        |              |         |             |      |             |        |        |        |       |        
|Loss on debt refinancing                     |                                                          |                                                   |                                    |         |              |        |              |         |             |      | 1,727        |        |        |        |       |        
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             |                                                          | Operating earnings (loss)                         |                                     |         | 11,808       |        |               |         | 10,891      |      |              |        | (3,134 | )      |        |         | 8,730   |      
|Interest expense, net                        |                                                          |                                                   | 13,931                              |         |              |        | 10,408        |         |             |      | 390          |        |        |        | 6,127  |        
|Change in fair value of interest rate collar |                                                          |                                                   | (337                                | )       |              |        | 1,429         |         |             |      |             |        |        |        |       |        
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             |                                                          |                                                   | (Loss) earnings before income taxes |         |              | (1,786 | )             |         |             | (946 | )            |        |        | (3,524 | )      |         |         | 2,603 | 
|Income tax benefit (expense)                 |                                                          |                                                   | (216                                | )       |              |        | 359           |         |             |      | 1,339        |        |        |        | (989   | )      
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |        
|                                             |                                                          | Net (loss) earnings                               |                                     | $       | (2,002       | )      |               | $       | (587        | )    |              | $      | (2,185 | )      |        | $       | 1,614   |      
|                                             |                                                          |                                                   |                                     |         |              |        |               |         |             |      |              |        |        |        |        |         |        
|                                             |                                                          | Basic (loss) earnings per share of
common stock   |                                     |         | N/A          |        |               |         | N/A         |      |              | $      | (0.33  | )      |        | $       | 0.25    |      
|                                             |                                                          | Diluted (loss) earnings per share of
common stock |                                     |         | N/A          |        |               |         | N/A         |      |              | $      | (0.33  | )      |        | $       | 0.24    |      
|                                             |                                                          | Basic weighted average common shares              |                                     |         | N/A          |        |               |         | N/A         |      |              |        | 6,545  |        |        |         | 6,526   |      
|                                             |                                                          | Diluted weighted average common shares            |                                     |         | N/A          |        |               |         | N/A         |      |              |        | 6,545  |        |        |         | 6,729   |      

See accompanying notes to consolidated financial statements.

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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)

|                  |                                                                           |                               |    |        |   |         |        |              |   |          |        |          |   |       |        |         |   | 
|----------------- | ------------------------------------------------------------------------- | ----------------------------- | -- | ------ | - | ------- | ------ | ------------ | - | -------- | ------ | -------- | - | ----- | ------ | ------- | - | 
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |        | Retained |   | Total
|                  |                                                                           |                               |    |        |   |         |        | Additional   |   | Earnings |        | Stock-  
|                  |                                                                           |                               |    | Common |   | Paid-in |        | (Accumulated |   | holders
|                  |                                                                           |                               |    | Stock  |   | Capital |        | Deficit)     |   | Equity  
|                  |                                                                           |                               |    |        |   |         |        |              |   |         
|December 31, 2000 |                                                                           | $                             | 66 |        |   | $       | 22,076 |              |   | $        | 7,947  |          |   | $     | 30,089 |        
|                  | Issuance of 21,722 shares of common
stock in employee stock purchase plan |                               |    |       |   |         |        | 56           |   |          |        |         |   |       |        | 56      |  
|                  | Exercise of employee stock options                                        |                               |    |       |   |         |        | 4            |   |          |        |         |   |       |        | 4       |  
|                  | Net earnings                                                              |                               |    |       |   |         |        |             |   |          |        | 1,614    |   |       |        | 1,614   |  
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |        |          |   |       |        |        
|December 31, 2001 |                                                                           |                               | 66 |        |   |         | 22,136 |              |   |          | 9,561  |          |   |       | 31,763 |        
|                  | Exercise of employee stock options                                        |                               |    |       |   |         |        | 29           |   |          |        |         |   |       |        | 29      |  
|                  | Net loss for the one month ended
January 31, 2002                         |                               |    |       |   |         |        |             |   |          |        | (2,185   | ) |       |        | (2,185  | )
|                  | Impact of acquisition                                                     |                               |    | (66    | ) |         |        | (22,165      | ) |          |        | (7,376   | ) |       |        | (29,607 | )
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |        |          |   |       |        |        
|                  |                                                                           | Balances prior to acquisition |    |        |  |         |        |              |  |          |        |          |  |       |        |         |  | 
|                  | Issuance of equity in Successor Company                                   |                               |    |       |   |         |        | 28,000       |   |          |        |         |   |       |        | 28,000  |  
|                  | Capital contribution                                                      |                               |    |       |   |         |        | 629          |   |          |        |         |   |       |        | 629     |  
|                  | Net loss for the eleven months ended
December 31, 2002                    |                               |    |       |   |         |        |             |   |          |        | (587     | ) |       |        | (587    | )
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |        |          |   |       |        |        
|December 31, 2002 |                                                                           |                               |   |        |   |         | 28,629 |              |   |          | (587   | )        |   |       | 28,042 |        
|                  | Capital contribution                                                      |                               |    |       |   |         |        | 12,508       |   |          |        |         |   |       |        | 12,508  |  
|                  | Net loss                                                                  |                               |    |       |   |         |        |             |   |          |        | (2,002   | ) |       |        | (2,002  | )
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |        |          |   |       |        |        
|December 31, 2003 |                                                                           | $                             |   |        |   | $       | 41,137 |              |   | $        | (2,589 | )        |   | $     | 38,548 |        
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |        |          |   |       |        |        

See accompanying notes to consolidated financial statements.

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

|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |        |        |        |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------------------------- | ------ | ------------ | ------ | ------------ | ------ | ----------- | ------ | ------------ | ----- | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | Successor    |        | Predecessor 
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | Year         |        | Eleven       |        | One         |        | Year        
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | Ended        |        | Months Ended |        | Month Ended |        | Ended       
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | December 31, |        | December 31, |        | January 31, |        | December 31,
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | 2003         |        | 2002         |        | 2002        |        | 2001        
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |             
|Operating activities:                            |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |       
|                                                 | Net (loss) earnings                                                                                  |                                                                   | $                                                    | (2,002                                                   | )      |              | $      | (587         | )      |             | $      | (2,185       | )     |        | $      | 1,614  |       
|                                                 | Adjustments to reconcile net (loss) earnings to net cash
provided by (used in) operating activities: |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |        |       
|                                                 |                                                                                                      | Depreciation and amortization                                     |                                                      |                                                          | 14,740 |              |        |              | 14,146 |             |        |              | 1,146 |        |        |        | 15,637 |       
|                                                 |                                                                                                      | Change in fair value of interest rate collar, net of
cash paid    |                                                      |                                                          | (337   | )            |        |              | 1,248  |             |        |              |      |        |        |        |       |       
|                                                 |                                                                                                      | Deferred income tax expense                                       |                                                      |                                                          |       |              |        |              |       |             |        |              |      |        |        |        | 944    |       
|                                                 |                                                                                                      | Changes in operating assets and liabilities, net of
acquisitions: |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |        |        |       
|                                                 |                                                                                                      |                                                                   |                                                      | Trade accounts and other receivables                     |        |              | (260   | )            |        |             | 298    |              |       |        | 96     |        |        |        | 1,099  |  
|                                                 |                                                                                                      |                                                                   |                                                      | Inventories                                              |        |              | (4,761 | )            |        |             | (941   | )            |       |        | 1,233  |        |        |        | (1,809 | )
|                                                 |                                                                                                      |                                                                   |                                                      | Prepaid expenses and other assets                        |        |              | (685   | )            |        |             | (1,531 | )            |       |        | (5,468 | )      |        |        | (971   | )
|                                                 |                                                                                                      |                                                                   |                                                      | Accounts payable, accrued expenses and other
liabilities |        |              | 7,561  |              |        |             | (969   | )            |       |        | (1,260 | )      |        |        | (751   | )
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |       
|                                                 |                                                                                                      |                                                                   | Net cash provided by (used in) operating activities  |                                                          |        | 14,456       |        |              |        | 11,664      |        |              |       | (6,438 | )      |        |        | 15,763 |       
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |       
|Investing activities:                            |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |       
|                                                 | Acquisitions of property and equipment, net                                                          |                                                                   |                                                      | (14,471                                                  | )      |              |        | (7,568       | )      |             |        | (436         | )     |        |        | (4,857 | )     
|                                                 | Acquisitions                                                                                         |                                                                   |                                                      | (34,055                                                  | )      |              |        | (1,463       | )      |             |        |             |       |        |        | (273   | )     
|                                                 | Placement fees                                                                                       |                                                                   |                                                      | (2,632                                                   | )      |              |        | (2,361       | )      |             |        | (300         | )     |        |        | (2,517 | )     
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |       
|                                                 |                                                                                                      |                                                                   | Net cash used in investing activities                |                                                          |        | (51,158      | )      |              |        | (11,392     | )      |              |       | (736   | )      |        |        | (7,647 | )     
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |       
|Financing activities:                            |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |       
|                                                 | Net borrowings (payments) on credit facility, net of
issuance costs                                  |                                                                   |                                                      | 25,193                                                   |        |              |        | 291          |        |             |        | 82,703       |       |        |        | (5,724 | )     
|                                                 | Net payments on previous credit facility                                                             |                                                                   |                                                      |                                                         |        |              |        |             |        |             |        | (44,500      | )     |        |        |       |       
|                                                 | Principal payments on long-term debt                                                                 |                                                                   |                                                      | (578                                                     | )      |              |        | (268         | )      |             |        | (16          | )     |        |        | (1,372 | )     
|                                                 | Equity contribution from parent                                                                      |                                                                   |                                                      | 12,508                                                   |        |              |        | 629          |        |             |        |             |       |        |        |       |       
|                                                 | Net (purchase) issuance of common stock, net of offering
costs                                       |                                                                   |                                                      |                                                         |        |              |        |             |        |             |        | (31,825      | )     |        |        | 60     |       
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |        |       
|                                                 |                                                                                                      |                                                                   | Net cash provided by (used in) financing activities  |                                                          |        | 37,123       |        |              |        | 652         |        |              |       | 6,362  |        |        |        | (7,036 | )     
|                                                 |                                                                                                      |                                                                   | Net increase (decrease) in cash and cash equivalents |                                                          |        | 421          |        |              |        | 924         |        |              |       | (812   | )      |        |        | 1,080  |       
|Cash and cash equivalents at beginning of period |                                                                                                      |                                                                   | 4,178                                                |                                                          |        |              | 3,254  |              |        |             | 4,066  |              |       |        | 2,986  |       
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |       
|Cash and cash equivalents at end of period       |                                                                                                      | $                                                                 | 4,599                                                |                                                          |        | $            | 4,178  |              |        | $           | 3,254  |              |       | $      | 4,066  |       
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |              |        |             |        |              |       |        |        |        |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001

1. Description of the Business and Basis of Presentation

American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc., Folz
Vending, Inc. and American Coin Merchandising Trust I (the Company) owns and
operates approximately 165,000 coin-operated amusement vending machines.
Approximately 18,000 of these machines dispense plush toys, watches, jewelry,
novelties, and other items, with the majority of the other machines dispensing
bulk gum, candy and novelty items. The Company also operates kiddie rides,
video games and other amusement equipment. The Companys amusement vending
machines are placed in supermarkets, mass merchandisers, bowling centers, truck
stops, bingo halls, bars, restaurants, warehouse clubs and similar locations.
At December 31, 2003, the Company had 37 field offices with operations in 49
states and Puerto Rico. The Company also sells products and amusement vending
equipment to franchisees and third parties. At December 31, 2003, there were
six franchisees operating in 7 territories. All significant intercompany
balances and transactions have been eliminated in consolidation.

On February 11, 2002, the Company was acquired by ACMI Holdings, Inc. (the
Acquisition), 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 Acquisition, which was accounted for using the purchase method of
accounting. The transaction was approved at a stockholders meeting held on
February 5, 2002. The Companys common stock is no longer publicly traded. The
Companys mandatorily redeemable preferred securities remain outstanding and
continue to trade on the American Stock Exchange. Periods prior to the
acquisition (deemed to be February 1, 2002) are denoted as predecessor periods,
with those subsequent to the acquisition denoted as successor periods.

2. Acquisitions

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

The components of the purchase price and its allocation of fair value to the
assets and liabilities was as follows:

|                                   |                                       |                     |                                        |                      |  |        |        | 
|---------------------------------- | ------------------------------------- | ------------------- | -------------------------------------- | -------------------- |  | ------ | ------ | 
|Sources of funding:                |                                       |                     |                                        |                     
|                                   | Borrowings under credit facility      |                     | $                                      | 3,289                | 
|                                   | Issuance of senior subordinated notes |                     |                                        | 6,500                | 
|                                   | Equity contribution from Parent       |                     |                                        | 12,500               | 
|                                   |                                       |                     |                                        |                      | 
|                                   |                                       |                     |                                        | Total purchase price |  |        | 22,289 | 
|                                   | Allocation of purchase price:         |                     |                                        |                      | 
|                                   |                                       | Assets acquired     |                                        |                      |  |       
|                                   |                                       |                     | Inventories                            |                      |  | 6,147  |       
|                                   |                                       |                     | Prepaid expenses and other assets      |                      |  | 294    |       
|                                   |                                       |                     | Property and equipment                 |                      |  | 9,211  |       
|                                   |                                       |                     | Other assets                           |                      |  | 187    |       
|                                   |                                       |                     | Customer relationship intangible asset |                      |  | 5,346  |       
|                                   |                                       | Liabilities assumed |                                        |                      |  |       
|                                   |                                       |                     | Accounts payable                       |                      |  | (2,745 | )     
|                                   |                                       |                     | Accrued commissions                    |                      |  | (838   | )     
|                                   |                                       |                     | Other accrued expenses                 |                      |  | (1,181 | )     
|                                   |                                       |                     |                                        |                      | 
|Costs in excess of assets acquired |                                       | $                   | 5,868                                  |                     
|                                   |                                       |                     |                                        |                     

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The
Company allocated $5.3 million of purchase price to customer
relationships in accordance with Emerging Issues Task Force Issue 02-17,
Recognition of Customer Relationship Intangible Assets Acquired in a Business
Combination. The Company will amortize the customer relationship intangible
asset over an eight-year period. The Company recognized $167,000 of
amortization expense related to the customer relationship intangible
during the year ended December 31, 2003.

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

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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(in thousands)

2003
    
    2002Total revenue
    
    $
    214,792
    
    
    $
    194,693Cost of revenue:Vending
    
    
    146,085
    
    
    
    133,621Depreciation
    
    
    14,943
    
    
    
    13,943Total cost of
vending
    
    
    161,028
    
    
    
    147,564Franchise and other
    
    
    3,127
    
    
    
    739Total cost of
revenue
    
    
    164,155
    
    
    
    148,303Gross profit
    
    
    50,637
    
    
    
    46,390General and administrative
    
    
    36,684
    
    
    
    33,056Depreciation and amortization
    
    
    2,097
    
    
    
    1,299Restructuring
    
    
    320
    
    
    
    Loss
on debt refinancing
    
    
    
    
    
    
    1,727Operating earnings
(loss)
    
    
    11,536
    
    
    
    10,308Interest expense, net
    
    
    14,334
    
    
    
    12,180Change in fair value of collar
    
    
    (337
    )
    
    
    1,429(Loss) earnings before income tax
    
    
    (2,461
    )
    
    
    (3,301
    )Income tax benefit (expense)
    
    
    (483
    )
    
    
    1,254Net earnings (loss)
    
    $
    (2,944
    )
    
    $
    (2,047
    )




| |  | The unaudited pro forma condensed statements of operations presented above include the
following adjustments:
| |  | -------------------------------------------------------------------------------------------------------------



|- |  | Elimination of financial information related to Folz
operations that were not part of the purchase transaction but were
included in the historical combined Folz financial statements.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|- |  | Adjustments to depreciation expense as a result of the
impact of conforming the depreciation lives to those of the Company
and recalculating depreciation based on the estimated fair value,
which approximates the net book value of the assets and the
amortization of acquisition related intangible assets.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|- |  | Elimination of historical Folz interest expense and the
increase in interest expense as a result of the increased borrowings
under the Companys credit facilities to finance the purchase.
Interest expense on such borrowings is calculated using as assumed
weighted average rate of 12.5%.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|- |  | Additional income tax expense for (i) the income of Folz,
as no federal income tax expense had historically been included in the
Folz financial statements because Folzs primary operating entity
elected to be treated as an S Corporation for tax purposes, and (ii)
the tax benefits of increased interest expense. Income tax expense is
computed using the Companys historical statutory income tax rate of
38.0%.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



The Company also made several smaller acquisitions during the second
quarter of 2003. On May 30, 2003, the Company purchased certain amusement
vending assets from, and assumed certain liabilities of, GamePlan, Inc. and
Pinball Wizard, Inc. (collectively GamePlan) for $8.6 million. On May 30,
2003, the Company acquired certain amusement vending assets from a former
franchisee for $709,000. On June 19, 2003, the Company purchased certain assets
consisting of kiddie rides from another operator for $1.4 million. The Company
utilized its credit facility to fund all of these acquisitions. Based on the
preliminary estimates of the fair value of the assets acquired in these
acquisitions, the Company has allocated $3.2 million of the $10.7 million total
acquisition cost to costs in excess of assets acquired and $3.3 million to
other intangible assets.

During 2002, the Company acquired certain assets and the business
operations of a kiddie ride company for approximately $2,588,000. Of this
amount, $1,463,000 was paid in cash with the balance to be paid over a
three-year period in accordance with the terms of the promissory note issued in
connection with the acquisition. The Company has recorded approximately
$1,496,000 of costs in excess of assets acquired as a result of this
acquisition that was accounted for using the purchase method of accounting.

Results of operations for these acquisitions are included in the
consolidated financial statements from the respective acquisition dates
forward.

3. Summary of Significant Accounting Policies

Vending

Vending revenue represents cash receipts from customers using amusement
vending machines and is recognized when collected. The cost of vending is
comprised primarily of the cost of products vended through the machines, the
servicing of machines and commissions paid to retail locations.

Franchise Royalties

Typically, franchisees are required to pay continuing royalties ranging
from 2% to 5% of gross machine revenue.

Taxes

The Company accounts for income taxes under the asset and liability method
of accounting for income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. Deferred tax assets and liabilities are measured using enacted tax
rates expected to be in effect for the year in which those temporary
differences are expected to be recovered or settled. The effects on deferred
tax assets and liabilities of a change in tax rates are recognized in income in
the period that includes the enactment date. 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 or reduction in
benefit 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.
Management determined that a valuation allowance should be recorded
against the net deferred tax assets of $906,000 at December 31,
2003. Should management conclude that these deferred tax assets are
realizable in the future, the valuation allowance will be reversed to
the extent of such realizability.

The
Company is also subject to examination of its income, sales and local
use tax returns by the IRS and various other tax authorities. The
Company periodically assesses the likelihood of adverse outcomes
resulting from these examinations to determine the adequacy of its
provisions and related accruals.

Estimates

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.

Cash Equivalents

The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories consist of purchased items
ready for resale or use in vending operations and components used in the production of amusement vending machines.

F-9



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Property and Equipment

Property and equipment are stated at cost or if acquired in a business
acquisition at estimated fair value. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets that range
from 3 to 10 years.

Placement Fees

Placement fees are stated at cost and amortized on a straight-line basis
over the term of the related contract.

Costs in Excess of Assets
Acquired and Other Intangible Assets

Costs in
excess of assets acquired and other intangible assets represent the purchase amount paid in
excess of the fair value of the tangible net assets acquired. The
Company performs a fair value assessment of costs in excess of assets
acquired and the other intangible assets on an annual
basis or whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors the Company considers important, which
could trigger an impairment review, include significant underperformance
relative to expected historical or projected future operating results, changes
in the manner of use of the acquired assets or the strategy for overall
business and negative industry or economic trends.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company reviews its long-lived assets and intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the asset to the
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets.

Fair Value

The
carrying amounts of financial instruments, including accounts payable
and receivable, are reasonable estimates of their fair values because
of their short term nature. The carrying amount of long-term
debt approximates its fair value.

Earnings (Loss) Per Share

The Company discloses both basic and diluted earnings (loss) per share for
predecessor periods. Basic and diluted earnings (loss) per share were computed
by dividing earnings (loss) by the weighted average number of common shares
outstanding during the period and by all dilutive potential common shares
outstanding during the period, respectively.

Stock Options

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 earnings
(loss) and diluted earnings (loss) per share would have been reduced or
increased to the pro forma amounts indicated below (in thousands, except per
share data):

|                                  |  |             |  |   |        |              |  |              |      |             |  |              |        |   |  |   |       |  |  | 
|--------------------------------- |  | ----------- |  | - | ------ | ------------ |  | ------------ | ---- | ----------- |  | ------------ | ------ | - |  | - | ----- |  |  | 
|                                  |  |             |  |   |        | Successor    |  | Predecessor 
|                                  |  |             |  |   |        |              |  |             
|                                  |  |             |  |   |        | Year         |  | Eleven       |      | One         |  | Year        
|                                  |  |             |  |   |        | Ended        |  | Months Ended |      | Month Ended |  | Ended       
|                                  |  |             |  |   |        | December 31, |  | December 31, |      | January 31, |  | December 31,
|                                  |  |             |  |   |        | 2003         |  | 2002         |      | 2002        |  | 2001        
|                                  |  |             |  |   |        |              |  |              |      |             |  |             
|Net (loss) earnings               |  | As reported |  | $ | (2,002 | )            |  | $            | (587 | )           |  | $            | (2,185 | ) |  | $ | 1,614 | 
|                                  |  | Pro forma   |  |   | (2,107 | )            |  |              | (689 | )           |  |              | (2,400 | ) |  |   | 1,418 | 
|Diluted (loss) earnings per share |  | As reported |  |   | N/A    |              |  |              | N/A  |             |  | $            | (0.33  | ) |  | $ | 0.24  | 
|                                  |  | Pro forma   |  |   | N/A    |              |  |              | N/A  |             |  |              | (0.37  | ) |  |   | 0.21  | 

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 2003, 2002 and 2001: no dividend yield;
expected volatility of 19% for 2003 and 2002, and 58% for 2001; risk-free
interest rates of 4.3% in 2003, 4.8% in 2002 and 5.6% in 2001; and expected
lives of six years.

F-10



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##### Table of Contents



Supplemental Disclosures of Cash Flow Information

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

|                                                        |                                                                 |  |              |        |               |  |             |       |              |  |   |     |  |  |   |       | 
|------------------------------------------------------- | --------------------------------------------------------------- |  | ------------ | ------ | ------------- |  | ----------- | ----- | ------------ |  | - | --- |  |  | - | ----- | 
|                                                        |                                                                 |  | Successor    |        | Predecessor  
|                                                        |                                                                 |  |              |        |              
|                                                        |                                                                 |  | Year         |        | Eleven Months |  | One         |       | Year        
|                                                        |                                                                 |  | Ended        |        | Ended         |  | Month Ended |       | Ended       
|                                                        |                                                                 |  | December 31, |        | December 31,  |  | January 31, |       | December 31,
|                                                        |                                                                 |  | 2003         |        | 2002          |  | 2002        |       | 2001        
|                                                        |                                                                 |  |              |        |               |  |             |       |             
|Cash paid during the period:                            |                                                                 |  |              |        |               |  |             |       |              |  |   |     |  |  |   |      
|                                                        | Interest                                                        |  | $            | 11,073 |               |  | $           | 7,822 |              |  | $ | 560 |  |  | $ | 5,451 | 
|                                                        | Income taxes                                                    |  |              | 127    |               |  |             | 155   |              |  |   | 3   |  |  |   | 35    | 
|Significant noncash investing and financing activities: |                                                                 |  |              |        |               |  |             |       |              |  |   |     |  |  |   |      
|                                                        | Notes payable issued for acquisitions of franchisees and others |  |              |       |               |  |             | 1,125 |              |  |   |    |  |  |   | 615   | 

4. Costs in Excess of Assets Acquired and Other Intangible Assets

Effective January 1, 2002, the beginning of the Companys fiscal year
2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
under which costs in excess of assets acquired is no longer amortized but
instead will be assessed for impairment at least annually. The
weighted average estimated remaining life of the other intangible
assets was approximately 6.5 years at December 31, 2003.

Goodwill and other intangible assets consist of the following at December
31, 2003:

Other IntangibleGoodwill
    
    AssetsBalance, December 31, 2002
    
    $
    64,588
    
    
    $
    1,326Folz Acquisition
    
    
    5,868
    
    
    
    5,346Game Plan Acquisition
    
    
    3,174
    
    
    
    2,647Other
    
    
    729
    
    
    
    655Balance, December 31, 2003
    
    $
    74,359
    
    
    $
    9,974Less
accumulated amortization
    
    
    
    
    
    
    (830
    )Balance,
December 31, 2003, net
    
    $
    74,359
    
    
    $
    9,144


5. Credit Facility and Long-Term Debt

Senior Secured Credit Facility

The Company amended and restated its senior secured credit facility on
April 15, 2003, in conjunction with the acquisition of Folz. The amended senior
secured credit facility is comprised of a $12.0 million revolving credit
facility and provides for up to $70.0 million of term debt. The $70.0 million
term debt facility is comprised of a $26.3 million term loan A, a $37.2 million
term loan B, a $2.7 million term loan C and a $3.8 million term loan D. As of
December 31, 2003, there was $66.7 million of total term loans outstanding. As
of December 31, 2003, there was $8.0 million borrowed, $1.2 million utilized by
letters of credit, and $2.8 million available under the revolving credit
facility. The revolving credit facility expires on March 31, 2007. Under the
term loan facilities, the Company is required to make quarterly principal
installments that increase in amount until the March 31, 2008 termination of
the facilities. The revolving facility and the term loans bear interest at a
floating rate at the Companys option, equal to either LIBOR plus the
applicable margin or a base rate that is equal to the higher of the prime rate
or the federal funds rate plus one-half percent plus the applicable margin. The
effective rate of interest on the credit facility at December 31, 2003 was
6.4%.

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. The Company was in compliance with
such financial ratios and restrictions at December 31, 2003.

In January 2002, the Company refinanced its $55 million senior secured
credit facility and replaced it with a $65 million senior secured credit
facility. As a result of the refinancing, the Company recorded a loss of $1.7
million related to the write-off of loan origination fees related to the
previous credit facility.

Senior Subordinated Notes

In February 2002 and April 2003, the Company issued $25.0 million and $6.5
million, respectively, of senior subordinated notes due in 2009. Interest on
these notes is payable on a quarterly basis at the rate of 17% per annum;
provided however, the minimum cash interest on these notes is 13% with the
balance of interest payable in the form of additional payment in kind notes.
Included in the $33.5 million of senior subordinated notes outstanding at
December 31, 2003 is $2.0 million of payment by in kind notes issued in lieu of
interest. The note agreement provides that certain financial ratios be met and
places restrictions on, among other things, the incurrence of additional senior
subordinated indebtedness and certain restricted payments. The Company was in
compliance with such financial ratios and restrictions at December 31, 2003.

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##### Table of Contents



Long-term debt consists of the following (in thousands):

|                                                                                                                                                                                                         |                                        |      |        |         |  |   |        |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---- | ------ | ------- |  | - | ------ | ------ | 
|December 31,                                                                                                                                                                                             |                                        | 2003 |        | 2002   
|                                                                                                                                                                                                         |                                        |      |        |        
|Senior secured credit facilities                                                                                                                                                                         |                                        | $    | 74,693 |         |  | $ | 57,205 |       
|Senior subordinated notes                                                                                                                                                                                |                                        |      | 33,494 |         |  |   | 25,789 |       
|Notes payable to a former franchisee and
others, due in monthly and quarterly
installments with interest ranging from 6% to
9%;maturing between 2004 and 2005, secured
by certain property and equipment |                                        |      | 739    |         |  |   | 1,317  |       
|                                                                                                                                                                                                         |                                        |      |        |         |  |   |        |       
|                                                                                                                                                                                                         | Total long-term debt                   |      |        | 108,926 |  |   |        | 84,311 | 
|Less current portion                                                                                                                                                                                     |                                        |      | (6,349 | )       |  |   | (4,718 | )     
|                                                                                                                                                                                                         |                                        |      |        |         |  |   |        |       
|                                                                                                                                                                                                         | Long-term debt, net of current portion |      | $      | 102,577 |  |   | $      | 79,593 | 
|                                                                                                                                                                                                         |                                        |      |        |         |  |   |        |       

The carrying amount of long-term debt approximates its fair value.

Maturities of long-term debt as of December 31, 2003 are as follows (in
thousands):

|                         |      |   |         |        | 
|------------------------ | ---- | - | ------- | ------ | 
|Year Ending December 31, |      |  
|                         | 2004 |   | $       | 6,349  | 
|                         | 2005 |   |         | 8,211  | 
|                         | 2006 |   |         | 10,660 | 
|                         | 2007 |   |         | 40,372 | 
|                         | 2008 |   |         | 9,840  | 
|2009 and thereafter      |      |   | 33,494  |       
|                         |      |   |         |       
|                         |      | $ | 108,926 |       
|                         |      |   |         |        | 

6. Interest Rate Collar

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

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

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 consolidated statements of operations. The
Company paid $639,000 during 2003 and $148,000 for the eleven months ended
December 31, 2002 since LIBOR was below the floor rate under the interest rate
collar. These amounts are included in interest expense in the consolidated
statements of operations. The Company does not speculate using derivative
instruments.

The fair value of the interest rate collar is obtained from bank quotes.
These values represent the estimated amount the Company would receive or pay to
terminate the agreement taking into consideration current interest rates. The
fair value of the interest rate collar is a liability of
approximately $911,000 and $1.2 million as of December 31, 2003 and 2002, respectively.

F-12



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##### Table of Contents



7. Mandatorily Redeemable Preferred Securities

In September 1998, the Trust, a wholly owned subsidiary trust created
under the laws of the State of Delaware, completed a public offering of $17
million of Ascending Rate (10.5% at December 31, 1998 increasing to 12.0% at
September 16, 2005) Cumulative Trust Preferred Securities (the Trust Preferred
Securities). The Company recognizes periodic interest using the interest
method over the outstanding term of the debt. The sole assets of the Trust are
American Coin Merchandising, Inc. Ascending Rate Junior Subordinated Debentures
(the Subordinated Debentures) due September 15, 2028. The obligations of the
Trust related to the Trust Preferred Securities are fully and unconditionally
guaranteed by American Coin Merchandising, Inc. Distributions on the Trust
Preferred Securities are payable quarterly by the Trust. The Trust Securities
are subject to mandatory redemption upon the repayment of the Subordinated
Debentures at their stated maturity at $10 per Trust Preferred Security.

The Company may cause the Trust to defer the payment of distributions for
successive periods up to eight consecutive quarters. During such periods,
accrued distributions on the Trust Preferred Securities will compound quarterly
and the Company may not declare or pay distributions on its common stock or
debt securities that rank equal or junior to the Trust Preferred Securities.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liability and Equity (SFAS
No. 150). This statement established standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity and was effective at the beginning of the first interim
period beginning after June 15, 2003. For financial instruments created before
the issuance date transition should be achieved by reporting the cumulative
effect of a change in an accounting principle by initially measuring the
financial instruments at fair value. In November 2003, the FASB deferred
certain provisions of SFAS No. 150 through FASB Position (FSP) 150-3. The
Companys mandatorily redeemable preferred securities fall under the guidance
of FSP 150-3 and consequently the Company has not adopted the proposed
classifications of measurement requirements of SFAS No. 150. The mandatorily
redeemable preferred securities are currently being accreted to their $17
million stated amount.

8. Income Taxes

Income tax expense (benefit) consists of the following (in thousands):

|         |                     |   |              |      |              |   |             |      |              |   |        |        |   |   |     |     | 
|-------- | ------------------- | - | ------------ | ---- | ------------ | - | ----------- | ---- | ------------ | - | ------ | ------ | - | - | --- | --- | 
|         |                     |   | Successor    |      | Predecessor 
|         |                     |   |              |      |             
|         |                     |   | Year         |      | Eleven       |   | One         |      | Year        
|         |                     |   | Ended        |      | Months Ended |   | Month Ended |      | Ended       
|         |                     |   | December 31, |      | December 31, |   | January 31, |      | December 31,
|         |                     |   | 2003         |      | 2002         |   | 2002        |      | 2001        
|         |                     |   |              |      |              |   |             |      |             
|Current  |                     |   |              |      |              |   |             |      |              |   |        |        |   |   |     |    
|         | Federal             |   | $            |     |              |   | $           |     |              |   | $      |       |   |   | $   | 45  | 
|         | State               |   |              |     |              |   |             |     |              |   |        |       |   |   |     |    | 
|         |                     |   |              |      |              |   |             |      |              |   |        |        |   |   |     |    
|         |                     |   |             |      |              |   |            |      |              |   |       |        |   |   | 45  |    
|         |                     |   |              |      |              |   |             |      |              |   |        |        |   |   |     |    
|Deferred |                     |   |              |      |              |   |             |      |              |   |        |        |   |   |     |    
|         | Federal             |   |              | (617 | )            |   |             | (308 | )            |   |        | (1,127 | ) |   |     | 790 | 
|         | State               |   |              | (73  | )            |   |             | (51  | )            |   |        | (212   | ) |   |     | 154 | 
|         | Valuation
Allowance |   |              | 906  |              |   |             |     |              |   |        |       |   |   |     |    | 
|         |                     |   |              |      |              |   |             |      |              |   |        |        |   |   |     |    
|         |                     |   | (216         | )    |              |   | (359        | )    |              |   | (1,339 | )      |   |   | 944 |    
|         |                     |   |              |      |              |   |             |      |              |   |        |        |   |   |     |    
|         |                     | $ | (216         | )    |              | $ | (359        | )    |              | $ | (1,339 | )      |   | $ | 989 |    
|         |                     |   |              |      |              |   |             |      |              |   |        |        |   |   |     |     | 

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##### Table of Contents



A reconciliation of the expected tax expense (benefit), assuming earnings
(loss) before taxes is taxed at the statutory federal tax rate of 34%, and the
Companys actual provision for income taxes is as follows (in thousands):

|                                                             |  |              |      |              |  |             |      |              |  |   |        |   |  |   |     |  
|------------------------------------------------------------ |  | ------------ | ---- | ------------ |  | ----------- | ---- | ------------ |  | - | ------ | - |  | - | --- | -
|                                                             |  | Successor    |      | Predecessor 
|                                                             |  |              |      |             
|                                                             |  | Year         |      | Eleven       |  | One         |      | Year        
|                                                             |  | Ended        |      | Months Ended |  | Month Ended |      | Ended       
|                                                             |  | December 31, |      | December 31, |  | January 31, |      | December 31,
|                                                             |  | 2003         |      | 2002         |  | 2002        |      | 2001        
|                                                             |  |              |      |              |  |             |      |             
|Expected tax
expense (benefit)
at the federal
statutory rate |  | $            | (607 | )            |  | $           | (322 | )            |  | $ | (1,198 | ) |  | $ | 885 |  
|State income taxes,
net of federal
taxes                     |  |              | (66  | )            |  |             | (45  | )            |  |   | (143   | ) |  |   | 106 |  
|Other, net                                                   |  |              | (17  | )            |  |             | 8    |              |  |   | 2      |   |  |   | (2  | )
|Valuation
Allowance                                          |  |              | 906  |              |  |             |     |              |  |   |       |   |  |   |    |  
|                                                             |  |              |      |              |  |             |      |              |  |   |        |   |  |   |     |  
|                                                             |  | $            | (216 | )            |  | $           | (359 | )            |  | $ | (1,339 | ) |  | $ | 989 |  
|                                                             |  |              |      |              |  |             |      |              |  |   |        |   |  |   |     |  

For income tax purposes, at December 31, 2003, the Company has a net
operating loss carryforward of approximately $22.8 million, expiring at various
dates through 2023. In February 2002, the common shares of the Company were
acquired by ACMI Holdings, Inc. As a result of the Acquisition, the utilization
of approximately $13 million of the net operating loss carryforward is subject
to limitation under the provisions of Section 382
of the Internal Revenue Code.

The sources and tax effects of temporary differences between financial
statement carrying amounts and the tax bases of assets and liabilities are as
follows (in thousands):

As of
December 31, 2003, management believes it is more likely than not
that the Companys net deferred tax assets will not be realized.
Accordingly, a valuation allowance has been recorded against the net
deferred tax assets of $906,000. Should
management conclude that these deferred tax assets are realizable in
the future,
the valuation allowance will be reversed to the extent of such
realizability.

|                          |                                                                       |      |        |        |   |   |        |        |  
|------------------------- | --------------------------------------------------------------------- | ---- | ------ | ------ | - | - | ------ | ------ | -
|December 31,              |                                                                       | 2003 |        | 2002  
|                          |                                                                       |      |        |       
|Deferred tax assets:      |                                                                       |      |        |        |   |   |        |       
|                          | Net
operating loss and other carryforwards                            |      | $      | 8,691  |   |   | $      | 7,270  |  
|                          | Allowance for doubtful receivables                                    |      |        | 63     |   |   |        | 23     |  
|                          | Inventory capitalization                                              |      |        | 916    |   |   |        | 357    |  
|                          | Accrued expenses                                                      |      |        | 288    |   |   |        | 368    |  
|                          | Valuation
Allowance                                                   |      |        | (906   | ) |   |        |       |  
|                          |                                                                       |      |        |        |   |   |        |       
|                          |                                                                       |      | 9,052  |        |   |   | 8,018  |       
|Deferred tax liabilities: |                                                                       |      |        |        |   |   |        |       
|                          | Property and equipmentbasis and depreciation differences             |      |        | (6,490 | ) |   |        | (6,146 | )
|                          | Costs in excess of assets acquired-basis and amortization differences |      |        | (2,562 | ) |   |        | (1,605 | )
|                          |                                                                       |      |        |        |   |   |        |       
|                          |                                                                       |      | (9,052 | )      |   |   | (7,751 | )     
|                          |                                                                       |      |        |        |   |   |        |       
|                          |                                                                       | $    |       |        |   | $ | 267    |       
|                          |                                                                       |      |        |        |   |   |        |        |  

9. Retirement Plan

The Company maintains a 401(k) profit sharing plan, which covers
substantially all employees. Employees are permitted to contribute up to 15% of
their eligible compensation. The Company makes contributions to the plan
matching 50% of the employees contribution up to 10% of their compensation.
The Companys matching contributions totaled $639,000 in 2003, $292,000 for the
eleven months ended December 31, 2002, $26,000 for the month ended January 31,
2002, and $286,000 in 2001, respectively.

The Company established a qualified Employee Stock Purchase Plan (the
Plan), the terms of which allowed for qualified employees (as defined) to
participate in the purchase of designated shares of the Companys common stock
at a price equal to the lower of 85% of the closing price at July 1 or the end
of each quarterly stock purchase period. The Company suspended the Plan
effective October 1, 2001 and terminated it in conjunction with the
Acquisition. During 2001 and 2000 shares totaling 21,722 and 33,725,
respectively, were purchased under the Plan at average prices of $2.61 and
$2.23 per share, respectively.

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10. Restructuring Charge

In June 2003, the Company recorded a restructuring charge associated with
the termination of certain administrative and sales employees that resulted
from reorganizing certain functions after the acquisition of Folz. The
restructuring accrual is included in other accrued expenses in the accompanying
consolidated balance sheets and follows the guidance of SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities.

The activity in the restructuring accrual is as follows:

|                           |          |   |     |      |  
|-------------------------- | -------- | - | --- | ---- | -
|Balance, December 31, 2002 |          | $ |    |     
|                           | Expense  |   |     | 320  |  
|                           | Payments |   |     | (181 | )
|                           |          |   |     |     
|Balance,
December 31, 2003 |          | $ | 139 |     
|                           |          |   |     |     

11. Commitments

The Company has noncancelable operating leases, primarily for office and
warehouse facilities, vehicles and certain types of equipment. Primarily all of
these leases expire at various times over the next five years. Rent expense
under these leases totaled $4,702,000 for the year ended December 31, 2003,
$2,823,000 for the eleven months ended December 31, 2002, $235,000 for the
month ended January 31, 2002, and $2,697,000 for the year ended December 31,
2001.

Future minimum commitments under operating lease arrangements as of
December 31, 2003 are as follows (in thousands):

|                         |       |   |       |        | 
|------------------------ | ----- | - | ----- | ------ | 
|Year Ending December 31, |       |   |       |       
|2004                     |       | $ | 6,146 |       
|2005                     |       |   | 4,643 |       
|2006                     |       |   | 3,670 |       
|2007                     |       |   | 2,004 |       
|2008                     |       |   | 730   |       
|2009 and thereafter      |       |   | 1,578 |       
|                         |       |   |       |       
|                         | Total |   | $     | 18,771 | 
|                         |       |   |       |       

Future minimum commitments for employment contracts as of December 31,
2003 are as follows (in thousands):

|                         |  |   |     | 
|------------------------ |  | - | --- | 
|Year Ending December 31, |  |  
|2004                     |  | $ | 325 | 

12. Stock Options

The Company had two fixed option plans. Under the terms of the amended and
restated stock option plan (the Option Plan), the Company could grant to
employees, consultants and advisors options to purchase up to 1,400,000 shares
of common stock. Under the Option Plan, the Company could grant both incentive
stock options and non-statutory stock options, and the maximum term was ten
years. Non-statutory options could be granted at no less than 85% of the fair
value of the common stock at the date of grant. Stock options granted under the
Option Plan vested over two to five year periods. This plan was terminated as
of February 1, 2002 upon the acquisition by ACMI Holdings, Inc.

Under terms of the amended 1995 Non-Employee Directors Stock Option Plan
(the Directors Plan), the Company could grant to non-employee directors
options to purchase up to 200,000 shares of common stock. Under the Directors
Plan, options granted vest immediately and had a maximum term of ten years.
This plan was terminated as of February 1, 2002 upon the acquisition by ACMI
Holdings, Inc.

Under terms of the ACMI Holdings, Inc. 2002 Stock Option Plan (the 2002
Plan), the Company may grant to employees and non-employee directors options
to purchase up to 360,633 shares of ACMI Holdings, Inc. common stock. Under the
2002 Plan, 50% of granted options are subject to vesting over a five-year
period and the remaining 50% of granted options are subject to vesting upon the
achievement of certain performance milestones.
Under certain conditions, if a change in ownership occurs all options
vest immediately.
No milestones were met during
2003 or 2002. The Company has determined the

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intrinsic value of the unvested options subject to milestone achievement
to be immaterial as of December 31, 2003 and 2002. However, the Company will
periodically re-measure the value of these outstanding unvested options based
on the then current fair market value of the underlying common stock. It is
reasonably possible that the future changes in the fair value of the common
stock of ACMI Holdings, Inc. could result in additional non-cash charges to
earnings and that such charges could be material.

A
summary of the status of the Companys 2002 Plan as of
December 31, 2003 and the now terminated two predecessor fixed stock
option plans as of December 31, 2002 and 2001, and changes during the
periods ended on those dates is presented below:

|                                   |           |        |           |         |                   |        |                  |       |      |        |                     |         |                 |        |      |       |  |  |           |         |  |   |      |      |           |  |           |          |   |   |      |      | 
|---------------------------------- | --------- | ------ | --------- | ------- | ----------------- | ------ | ---------------- | ----- | ---- | ------ | ------------------- | ------- | --------------- | ------ | ---- | ----- |  |  | --------- | ------- |  | - | ---- | ---- | --------- |  | --------- | -------- | - | - | ---- | ---- | 
|                                   |           |        | Successor |         | Predecessor      
|                                   |           |        |           |         |                  
|                                   |           |        |           |         |                   |        |                  |       |      |        | Eleven Months Ended |         | One Month Ended |        |      |       |  |  |           |         | 
|                                   |           |        | 2003      |         | December 31, 2002 |        | January 31, 2002 |       | 2001
|                                   |           |        |           |         |                   |        |                  |       |     
|                                   |           |        |           |         |                   |        | Weighted-        |       |      |        |                     |         | Weighted-       |        |      |       |  |  | Weighted- |         |  |   |      |      | Weighted-
|                                   |           |        |           |         |                   |        | Average          |       |      |        |                     |         | Average         |        |      |       |  |  | Average   |         |  |   |      |      | Average  
|                                   |           |        |           |         |                   |        | Exercise         |       |      |        |                     |         | Exercise        |        |      |       |  |  | Exercise  |         |  |   |      |      | Exercise 
|Fixed Options                      |           | Shares |           | Price   |                   | Shares |                  | Price |      | Shares |                     | Price   |                 | Shares |      | Price
|                                   |           |        |           |         |                   |        |                  |       |      |        |                     |         |                 |        |      |      
|Outstanding at beginning of
period |           |        | 308,644   |         |                   | $      | 8.50             |       |      |        |                    |         |                 |        |     |       |  |  | 700,104   |         |  | $ | 3.76 |      |           |  | 1,008,792 |          |   | $ | 5.19 |     
|                                   | Granted   |        |           | 46,940  |                   |        | $                | 8.50  |      |        |                     | 309,719 |                 |        | $    | 8.50  |  |  |           |        |  |   |      |     |           |  |           | 30,000   |   |   | $    | 3.75 | 
|                                   | Exercised |        |           | (1,000  | )                 |        | $                | 8.50  |      |        |                     |        |                 |        |      |      |  |  |           | 700,104 |  |   | $    | 3.76 |           |  |           | (1,938   | ) |   | $    | 2.63 | 
|                                   | Forfeited |        |           | (36,858 | )                 |        | $                | 8.50  |      |        |                     | (1,075  | )               |        | $    | 8.50  |  |  |           |        |  |   |      |     |           |  |           | (10,800  | ) |   | $    | 3.43 | 
|                                   | Cancelled |        |           |        |                   |        |                  |       |      |        |                     |        |                 |        |      |      |  |  |           |        |  |   |      |     |           |  |           | (325,950 | ) |   | $    | 8.17 | 
|                                   |           |        |           |         |                   |        |                  |       |      |        |                     |         |                 |        |      |       |  |  |           |         |  |   |      |      |           |  |           |          |   |   |      |     
|Outstanding at end of period       |           |        | 317,726   |         |                   | $      | 8.50             |       |      |        | 308,644             |         |                 | $      | 8.50 |       |  |  |          |         |  |   |     |      |           |  | 700,104   |          |   | $ | 3.76 |     
|                                   |           |        |           |         |                   |        |                  |       |      |        |                     |         |                 |        |      |       |  |  |           |         |  |   |      |      |           |  |           |          |   |   |      |     
|Options exercisable at
period end  |           |        | 27,178    |         |                   |        |                  |       |      |        |                    |         |                 |        |      |       |  |  |          |         |  |   |      |      |           |  | 531,886   |          |   |   |      |     

The following table summarizes information about the Companys stock
options outstanding at December 31, 2003:

|                |  |                     |         |                     |  |                  |     |             |  |                  |      |  |  |  |        |  |  |   |      | 
|--------------- |  | ------------------- | ------- | ------------------- |  | ---------------- | --- | ----------- |  | ---------------- | ---- |  |  |  | ------ |  |  | - | ---- | 
|                |  | Options Outstanding |         | Options Exercisable
|                |  |                     |         |                    
|Range           |  |                     |         |                     |  | Weighted Average |     |             |  |                  |      |  |  |  |        |  |  |  
|of              |  | Number              |         | Remaining           |  | Weighted Average |     | Number      |  | Weighted Average
|Exercise Prices |  | Outstanding         |         | Contractual Life    |  | Exercise Price   |     | Exercisable |  | Exercise Price  
|                |  |                     |         |                     |  |                  |     |             |  |                 
|$8.50           |  |                     | 317,726 |                     |  |                  | 8.3 |             |  | $                | 8.50 |  |  |  | 27,128 |  |  | $ | 8.50 | 

13. Certain Significant Risks and Uncertainties

Current Vulnerability Due to Certain Concentrations:

Suppliers

Substantially all of the plush toys and other products dispensed from the
amusement vending machines are produced by foreign manufacturers. A majority of these purchases
are made directly by the Company from manufacturers in the Peoples Republic of
China (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,
which could disrupt the supply of products from such manufacturers and
could result in a substantially increased costs for
certain products purchased by the Company which could have a material adverse
effect on the Companys financial performance.

Customers

The Company had amusement vending machines placed with one retail customer
that accounted for 44%, 42% and 38% of the Companys revenue for the years
ended December 31, 2003, 2002 and 2001, respectively.

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14. Earnings Per Share

Basic and diluted earnings (loss) per share for the one month ended
January 31, 2002 and years ended December 31, 2001 and 2000 were computed as follows:

|                                                 |                                   |                                           |            |             |       |                         |           |      |         | 
|------------------------------------------------ | --------------------------------- | ----------------------------------------- | ---------- | ----------- | ----- | ----------------------- | --------- | ---- | ------- | 
|                                                 |                                   |                                           |            | Predecessor |       |                         |           |      |         | 
|                                                 |                                   |                                           |            |             |       |                         |           |      |         | 
|                                                 |                                   |                                           |            | One         |       |                         |           |     
|                                                 |                                   |                                           |            | Month Ended |       |                         |           |     
|                                                 |                                   |                                           |            | January 31, |       | Year Ended December 31, |           |     
|                                                 |                                   |                                           |            | 2002        |       | 2001                   
|                                                 |                                   |                                           |            |             |       |                        
|Net (loss) earnings                              |                                   | $                                         | (2,185,000 | )           |       | $                       | 1,614,000 |     
|                                                 |                                   |                                           |            |             |       |                         |           |     
|Common shares outstanding at beginning of period |                                   |                                           | 6,537,629  |             |       |                         | 6,513,919 |     
|                                                 |                                   | Effect of shares issued during the period |            |             | 7,278 |                         |           |      | 12,121  | 
|                                                 |                                   |                                           |            |             |       |                         |           |     
|Basic weighted average common shares             |                                   |                                           | 6,544,907  |             |       |                         | 6,526,040 |     
|Incremental shares from assumed conversions:     |                                   |                                           |            |             |       |                         |           |     
|                                                 |                                   | Stock options                             |            |             |      |                         |           |      | 202,710 | 
|                                                 |                                   |                                           |            |             |       |                         |           |     
|Diluted weighted average common shares           |                                   |                                           | 6,544,907  |             |       |                         | 6,728,750 |     
|                                                 |                                   |                                           |            |             |       |                         |           |     
|                                                 | Basic (loss) earnings per share   |                                           | $          | (0.33       | )     |                         | $         | 0.25 |        
|                                                 | Diluted (loss) earnings per share |                                           | $          | (0.33       | )     |                         | $         | 0.24 |        

15.     Unaudited Quarterly Financial Information(in thousands, except per share
data)



|                                             |                                     |   |           |        |          |   |         |        |         |   |        |        |   |   |        |       |  
|-------------------------------------------- | ----------------------------------- | - | --------- | ------ | -------- | - | ------- | ------ | ------- | - | ------ | ------ | - | - | ------ | ----- | -
|                                             |                                     |   | Successor
|                                             |                                     |   |          
|                                             |                                     |   | Dec. 31   |        | Sept. 30 |   | June 30 |        | Mar. 31
|                                             |                                     |   | 2003      |        | 2003     |   | 2003    |        | 2003   
|                                             |                                     |   |           |        |          |   |         |        |        
|Total revenue                                |                                     | $ | 57,427    |        |          | $ | 56,532  |        |         | $ | 49,464 |        |   | $ | 37,995 |      
|Total cost of revenue                        |                                     |   | 43,381    |        |          |   | 42,082  |        |         |   | 38,456 |        |   |   | 29,188 |      
|                                             |                                     |   |           |        |          |   |         |        |         |   |        |        |   |   |        |      
|                                             | Gross profit                        |   |           | 14,046 |          |   |         | 14,450 |         |   |        | 11,008 |   |   |        | 8,807 |  
|General and
administrative expenses          |                                     |   | 10,950    |        |          |   | 9,663   |        |         |   | 8,733  |        |   |   | 6,837  |      
|Restructuring                                |                                     |   |          |        |          |   |        |        |         |   | 320    |        |   |   |       |      
|                                             |                                     |   |           |        |          |   |         |        |         |   |        |        |   |   |        |      
|                                             | Operating earnings
(loss)           |   |           | 3,096  |          |   |         | 4,787  |         |   |        | 1,955  |   |   |        | 1,970 |  
|Interest expense, net                        |                                     |   | 3,867     |        |          |   | 3,748   |        |         |   | 3,438  |        |   |   | 2,878  |      
|Change in fair value of
interest rate collar |                                     |   | (204      | )      |          |   | (177    | )      |         |   | (8     | )      |   |   | 52     |      
|                                             |                                     |   |           |        |          |   |         |        |         |   |        |        |   |   |        |      
|                                             | Earnings (loss) before
income taxes |   |           | (567   | )        |   |         | 1,216  |         |   |        | (1,475 | ) |   |        | (960  | )
|Income tax (expense)
benefit                 |                                     |   | (675      | )      |          |   | (466    | )      |         |   | 560    |        |   |   | 365    |      
|                                             |                                     |   |           |        |          |   |         |        |         |   |        |        |   |   |        |      
|                                             | Net earnings (loss)                 |   | $         | (1,242 | )        |   | $       | 750    | (a)     |   | $      | (915   | ) |   | $      | (595  | )
|                                             |                                     |   |           |        |          |   |         |        |         |   |        |        |   |   |        |      

|(a) |  | The final allocation of fair value to various assets for acquisitions made
in 2003 did not occur until the fourth quarter, when related depreciation
and amortization were recorded. The impact of such depreciation and
amortization would have reduced net earnings for the quarter ended
September 30, 2003 by approximately $279,000 to $471,000.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             |                                     |   |           |        |             |   |         |       |         |   |         |            |   |           |        |       |  |   |        |        |  
|-------------------------------------------- | ----------------------------------- | - | --------- | ------ | ----------- | - | ------- | ----- | ------- | - | ------- | ---------- | - | --------- | ------ | ----- |  | - | ------ | ------ | -
|                                             |                                     |   | Successor |        | Predecessor
|                                             |                                     |   |           |        |            
|                                             |                                     |   |           |        |             |   |         |       |         |   |         | Two Months |   | One Month
|                                             |                                     |   |           |        |             |   |         |       |         |   |         | Ended      |   | Ended    
|                                             |                                     |   | Dec. 31   |        | Sept. 30    |   | June 30 |       | Mar. 31 |   | Jan. 31
|                                             |                                     |   | 2002      |        | 2002        |   | 2002    |       | 2002    |   | 2002   
|                                             |                                     |   |           |        |             |   |         |       |         |   |        
|Total revenue                                |                                     | $ | 39,024    |        |             | $ | 35,780  |       |         | $ | 34,090  |            |   | $         | 24,443 |       |  | $ | 11,079 |       
|Total cost of revenue                        |                                     |   | 28,740    |        |             |   | 26,512  |       |         |   | 25,818  |            |   |           | 18,224 |       |  |   | 8,773  |       
|                                             |                                     |   |           |        |             |   |         |       |         |   |         |            |   |           |        |       |  |   |        |       
|                                             | Gross profit                        |   |           | 10,284 |             |   |         | 9,268 |         |   |         | 8,272      |   |           |        | 6,219 |  |   |        | 2,306  |  
|General and
administrative expenses          |                                     |   | 6,609     |        |             |   | 6,100   |       |         |   | 6,295   |            |   |           | 4,148  |       |  |   | 3,713  |       
|Loss on debt refinancing                     |                                     |   |          |        |             |   |        |       |         |   |        |            |   |           |       |       |  |   | 1,727  |       
|                                             |                                     |   |           |        |             |   |         |       |         |   |         |            |   |           |        |       |  |   |        |       
|                                             | Operating earnings
(loss)           |   |           | 3,675  |             |   |         | 3,168 |         |   |         | 1,977      |   |           |        | 2,071 |  |   |        | (1,407 | )
|Interest expense, net                        |                                     |   | 2,905     |        |             |   | 2,897   |       |         |   | 2,880   |            |   |           | 1,726  |       |  |   | 390    |       
|Change in fair value of
interest rate collar |                                     |   | 101       |        |             |   | 728     |       |         |   | 600     |            |   |           |       |       |  |   |       |       
|                                             |                                     |   |           |        |             |   |         |       |         |   |         |            |   |           |        |       |  |   |        |       
|                                             | Earnings (loss) before
income taxes |   |           | 669    |             |   |         | (457  | )       |   |         | (1,503     | ) |           |        | 345   |  |   |        | (3,524 | )
|Income tax (expense)
benefit                 |                                     |   | (258      | )      |             |   | 172     |       |         |   | 576     |            |   |           | (131   | )     |  |   | 1,339  |       
|                                             |                                     |   |           |        |             |   |         |       |         |   |         |            |   |           |        |       |  |   |        |       
|                                             | Net earnings (loss)                 |   | $         | 411    |             |   | $       | (285  | )       |   | $       | (927       | ) |           | $      | 214   |  |   | $      | (2,185 | )
|                                             |                                     |   |           |        |             |   |         |       |         |   |         |            |   |           |        |       |  |   |        |       
|Basic (loss) earnings per
share              |                                     |   | N/A       |        |             |   | N/A     |       |         |   | N/A     |            |   |           | N/A    |       |  | $ | (0.33  | )     
|Diluted (loss) earnings
per share            |                                     |   | N/A       |        |             |   | N/A     |       |         |   | N/A     |            |   |           | N/A    |       |  | $ | (0.33  | )     
|Basic weighted average
common shares         |                                     |   | N/A       |        |             |   | N/A     |       |         |   | N/A     |            |   |           | N/A    |       |  |   | 6,545  |       
|Diluted weighted average
common shares       |                                     |   | N/A       |        |             |   | N/A     |       |         |   | N/A     |            |   |           | N/A    |       |  |   | 6,545  |       

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16. Related Party Transactions

In connection with the acquisition by ACMI Holdings, Inc., the Company
entered into a Services and Fee Agreement with Wellspring Capital Management
LLC (Wellspring) and Cadigan Investment Partners, Inc. (f/k/a Knightsbridge
Holdings, LLC) (Cadigan) on February 11, 2002 (the Fee Agreement). Pursuant
to the terms of the Fee Agreement, the Company will pay an annual consulting
fee of $300,000, in arrears, in equal monthly installments and reimburse
Wellspring and Cadigan for all reasonable out-of-pocket costs and expenses
incurred in connection with the performance of their consulting services. The
consulting fee is allocated 66 2/3% to Wellspring and 33 1/3% to Cadigan. The
Fee Agreement further provides that the Company will not pay any portion of the
consulting fee to the extent that such payment conflicts with the Companys
covenants pursuant to its senior secured credit facility or senior subordinated
notes. However, such unpaid fees will continue to accrue, without interest, and
the Company will pay such fees if and when such payment is no longer prohibited
under the senior secured credit facility or senior subordinated
notes. The Company paid $300,000 pursuant
to the terms of the Fee Agreement during 2003. The Fee
Agreement further provides that the Company shall pay all fees and expenses
payable to the lenders pursuant to the terms of the senior secured credit
facility and senior subordinated notes. Any other consulting or similar fees
that may be payable under the Fee Agreement are allocated 65% to Wellspring and
35% to Cadigan. Cadigans entitlement to the fees set forth in the Fee
Agreement is contingent upon its continuous ownership of certain warrants to
purchase shares of ACMI Holdings, Inc. and its maintenance of a representative
on the Board of Directors of ACMI Holdings, Inc. Under the terms of the Fee
Agreement, the Company agrees to indemnify Wellspring and Cadigan and their
respective representatives in connection with any liabilities or judgments with
respect to the Fee Agreement.

Mr. Fagundo, the Companys former Chief Financial Officer, and another
executive of the Company are members of a limited liability company, which has
agreed to lease to the Company a building located in Louisville, Colorado. The
terms of the agreement provide for a ten year lease term, commencing March 1,
2003, at annual monthly rental rates ranging from $25,353 for the first year to
$33,076 for the tenth year, together with additional payments in respect of the
tenants proportionate share of the maintenance and insurance costs and
property tax assessments for the leased premises. The Company believes that the
terms of this lease is comparable to those that would be entered into between
unrelated parties on an arms length basis.

17. Subsequent Event

On February 13, 2004, the Company completed Amendment No. 1 to its Amended
and Restated Credit Agreement. Among other things, Amendment No. 1 provided for
an $8.5 million expansion of the term loan facility under the senior secured
credit facility. In connection with the expansion of the term loan commitment,
the Company converted $8.5 million of the then outstanding revolving credit
facility to term debt. The revolving credit facility commitment remained $12
million after the above transactions.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized.

| |  |                                   |  |                                      
| |  | --------------------------------- |  | -------------------------------------
| |  | AMERICAN COIN MERCHANDISING, INC.
| |  |                                   |  |                                      
| |  | By                                |  | /s/ Randall J. Fagundo               
| |  |                                   |  |                                      
| |  |                                   |  | Randall J. Fagundo                   
| |  |                                   |  | President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Randall J. Fagundo and Kenneth W. Edic, or any
of them, his or her attorney-in-fact, each with the power of substitution, for
him or her in any and all capacities, to sign any amendments to this report,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                                  |  |                                                                                                                      |  |               
|------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                         |  | Title                                                                                                                |  | Date          
|                                                  |  |                                                                                                                      |  |               
|/s/ WILLIAM F. DAWSON, JR

William F. Dawson, Jr. |  | Chairman of the Board                                                                                                |  | March 23, 2004
|                                                  |  |                                                                                                                      |  |               
|/s/ RANDALL J. FAGUNDO

Randall J. Fagundo        |  | President and Chief Executive Officer and
Director                                                                   |  | March 23, 2004
|                                                  |  |                                                                                                                      |  |               
|/s/ KENNETH W. EDIC

Kenneth W. Edic              |  | Senior Vice President, Chief Financial Officer,
Treasurer and Secretary (Principal Financial and
Accounting Officer) |  | March 23, 2004
|                                                  |  |                                                                                                                      |  |               
|/s/ GREG S. FELDMAN

Greg S. Feldman              |  | Director                                                                                                             |  | March 23, 2004
|                                                  |  |                                                                                                                      |  |               
|/s/ PERICLES NAVAB

Pericles Navab                |  | Director                                                                                                             |  | March 23, 2004
|                                                  |  |                                                                                                                      |  |               
|/s/ BRUCE W. KRYSIAK

Bruce W. Krysiak            |  | Director                                                                                                             |  | March 23, 2004





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##### Table of Contents






INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                       
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  | DESCRIPTION                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                       
|2.1w    |  | Agreement and Plan of Merger, dated as of September 9, 2001, among Crane Mergerco Holdings, Inc., a
Delaware corporation, Crane Mergerco Inc., a Delaware corporation and Registrant.                                                 
|        |  |                                                                                                                                                                                                                                       
|2.2w    |  | Form of Voting Agreement, dated as of September 9, 2001, among Crane Mergerco Holdings, Inc., a
Delaware corporation and each of Richard P. Bermingham, Randall J. Fagundo, Richard D. Jones, John A.
Sullivan and J. Gregory Theisen.
|        |  |                                                                                                                                                                                                                                       
|3.1    |  | Certificate of Incorporation of the Registrant.                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                       
|3.3S    |  | Certificate of Merger of the Registrant.                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                       
|3.4S    |  | Restated Certificate of Incorporation.                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                       
|3.5S    |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                       
|4.1    |  | Reference is made to Exhibits 3.1 through 3.5.                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                       
|4.2S    |  | Specimen Stock Certificate.                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                       
|4.3o    |  | Certificate of Trust of American Coin Merchandising Trust I.                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                       
|4.4o    |  | Trust Agreement of American Coin Merchandising Trust I.                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                       
|4.5o    |  | Amended and Restated Trust Agreement of American Coin Merchandising Trust I.                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                       
|4.6o    |  | Form of Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, as Trustee.                                                                                                                                
|        |  |                                                                                                                                                                                                                                       
|4.7o    |  | Form of Guarantee Agreement with respect to Trust Preferred Securities of American Coin Merchandising
Trust
I.                                                                                                                        
|        |  |                                                                                                                                                                                                                                       
|4.8o    |  | Form of Agreement as to Expenses and Liabilities between the Registrant and American Coin
Merchandising Trust I.                                                                                                                      
|        |  |                                                                                                                                                                                                                                       
|4.9o    |  | Form of Certificate Evidencing Trust Preferred Securities.                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                       
|4.10o   |  | Form of Certificate Evidencing Trust Common Securities.                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                       
|4.11o   |  | Form of Ascending Rate Junior Subordinated Deferrable Interest Debenture.                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                       
|4.12S   |  | 17% Senior Subordinated Notes Due 2009 between the Registrant and each of the parties listed on the
attached schedule, dated February 11, 2002.                                                                                       
|        |  |                                                                                                                                                                                                                                       
|10.1   |  | Form of Indemnity Agreement to be entered into between the Registrant and its directors and executive
officers.                                                                                                                       
|        |  |                                                                                                                                                                                                                                       
|10.47Ñ  |  | Premier Amusement Vendor Agreement, dated January 28, 2000, between the Registrant and Best Vendor Co.                                                                                                                                
|        |  |                                                                                                                                                                                                                                       
|10.48Ñ  |  | Addendum to Premier Amusement Vendor Agreement, dated January 28, 2000, between the Registrant and
Best Vendor Co.                                                                                                                    
|        |  |                                                                                                                                                                                                                                       
|10.49Ñ  |  | Addendum #2 to Premier Amusement Vendor Agreement, dated February 14, 2000, between the Registrant
and Best Vendor Co.                                                                                                                
|        |  |                                                                                                                                                                                                                                       
|10.50Ä  |  | Amusement Vending Agreement, effective as of July 1, 2000, between the Registrant and Dennys Inc.                                                                                                                                    
|        |  |                                                                                                                                                                                                                                       
|10.51Ä  |  | Other Income Supplier Agreement-Coin Operated Equipment, dated August 1, 2000 between the Registrant
and Wal-Mart Stores, Inc.                                                                                                        
|        |  |                                                                                                                                                                                                                                       
|10.60S  |  | Services and Fee Agreement, dated February 11, 2002, between and among the Registrant, Wellspring
Capital
Management LLC and Knightsbridge Holdings, LLC d/b/a Krysiak Navab & Co.                                                    
|        |  |                                                                                                                                                                                                                                       
|10.61S  |  | Credit Agreement, dated February 11, 2002, between and among the Registrant and Madison Capital
Funding LLC and The Royal Bank of Scotland PLC.                                                                                       
|        |  |                                                                                                                                                                                                                                       
|10.62S  |  | Guarantee and Collateral Agreement, dated February 11, 2002, between and among the Registrant, ACMI
Holdings and Audax Mezzanine Fund, L.P., Royal Bank of Scotland PLC and Upper Colombia Capital
Company, LLC.                      
|        |  |                                                                                                                                                                                                                                       
|10.63S  |  | Purchase Agreement among ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named
therein, dated as of February 11, 2002.                                                                                              
|        |  |                                                                                                                                                                                                                                       
|10.64X  |  | Amended and Restated Executive Employment Agreement, dated as of September 30, 2002, between the
Registrant and Randall J. Fagundo.                                                                                                   
|        |  |                                                                                                                                                                                                                                       
|10.65S  |  | Industrial Building Lease Agreement, between the Registrant and FCF Properties, LLC, dated October
24, 2002.                                                                                                                          
|        |  |                                                                                                                                                                                                                                       
|10.66S  |  | Consent, Waiver and Amendment to and Release Under Credit Agreement, dated as of November 12, 2002,
by and among the Registrant and Madison Capital Funding LLC and The Royal Bank of Scotland PLC, New
York Branch.                  
|        |  |                                                                                                                                                                                                                                       
|10.67S  |  | Consent, Waiver and Amendment to the Purchase Agreement, dated as of November 12, 2002, by and among
ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named therein.                                                 
|        |  |                                                                                                                                                                                                                                       
|10.68S  |  | Amendment to Guarantee and Collateral Agreement, dated as of November 12, 2002, by and among the
Registrant, ACMI Holdings, Inc. and Madison Capital Funding LLC                                                                      
|        |  |                                                                                                                                                                                                                                       
|10.69   |  | Amendment No. 1 to Amended and Restated Credit Agreement dated as of February 13, 2004.                                                                                                                                               
|        |  |                                                                                                                                                                                                                                       
|10.70   |  | Consent and Amendment No. 1 to Subordination and Intercreditor Agreement date as of February 13, 2004.                                                                                                                                
|        |  |                                                                                                                                                                                                                                       
|10.71   |  | Consent and Amendment No. 2 to Subordination and Intercreditor Agreement dated as of February 13, 2004.                                                                                                                               
|        |  |                                                                                                                                                                                                                                       
|14.1    |  | Code of Ethics                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                       
|31.1    |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                       
|31.2    |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                       
|32      |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                               





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##### Table of Contents





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|w |  | Incorporated by reference to the Companys Current Report on Form 8-K, dated September 10, 2001.                    
|- |  | --------------------------------------------------------------------------------------------------------------------
| 
| |  | Incorporated by reference to the Companys Registration Statement on Form SB-2, File No. 33-95446-D.                
| 
|O |  | Incorporated by reference to the Companys Registration Statement on Form S-3, File No. 333-60267.                  
| 
|y |  | Incorporated by reference to the Companys Current Report on Form 8-K, dated April 29, 1999.                        
| 
|Ñ |  | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2000.       
| 
|Ä |  | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended September 30, 2000.   
| 
|j |  | * Incorporated by reference to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.
| 
|s |  | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2001.        
| 
|S |  | Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002   
| 
|X |  | Indicates management contract or compensatory plan, contract or arrangement.