##### 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, 2002

OR



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

For the transition period from  to

Commission File Number: 0-26580

AMERICAN COIN MERCHANDISING, INC.

(Exact name of registrant as specified in its charter)


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

397 S. 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. (   )

As of March 24, 2003, 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.

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





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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 and Related Stockholder Matters                
|                                                  | 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 
|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                      
|                                                  | Item 13. Certain Relationships and Related Transactions                                      
|                                                  | Item 14. Controls and Procedures                                                             
|PART IV                                          
|                                                  | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                       
|CERTIFICATIONS                                   
|INDEX TO EXHIBITS                                
|EX-10.64 Amended/Restated Employment Agreement   
|EX-10.65 Industrial Building Lease Agreement     
|EX-10.66 Consent, Waiver and Amendment to Release
|EX-10.67 Consent Waiver & Amendment to Purchase  
|EX-10.68 Amendment to Guarantee and Collateral   
|EX-99.1 Certification fo CEO and CFO             



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC.

Annual Report on Form 10-K

December 31, 2002

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 and Related Stockholder Matters                 |  |  | 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                             |  |  | 21 |     
|Item 8   |  | Financial Statements and Supplementary Data                                           |  |  | 21 |     
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |  | 21 |     
|PART III
|Item 10  |  | Directors and Executive Officers of the Registrant                                    |  |  | 22 |     
|Item 11  |  | Executive Compensation                                                                |  |  | 23 |     
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 25 |     
|Item 13  |  | Certain Relationships and Related Transactions                                        |  |  | 25 |     
|Item 14  |  | Controls and Procedures                                                               |  |  | 26 |     
|PART IV 
|Item 15  |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  |  | 27 |     

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Statements in this report that are not purely historical are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements with respect to
the financial condition and results of operations of the Company involve risks
and uncertainties related to Shoppe performance and dependence on suppliers and
foreign sourcing. These factors are more fully discussed later in this report
under the heading Risk Factors. In addition, the Companys results could also
be affected by a number of other risks and uncertainties which are more fully
discussed under the headings Risk Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations in this report.




PART I




Item 1. Business

American Coin Merchandising, Inc. (the Company) is the leading owner,
operator and franchisor in the United States of coin-operated amusement vending
equipment with more than 31,000 pieces of equipment on location. Over 14,600 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. The Companys
Shoppes 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 also places supplementary amusement vending
equipment generally at existing Shoppe locations, including kiddie rides, bulk
vending (novelty items, candy, gum, etc.) and video games.

On March 17, 2003 the Company announced that it had agreed with Folz
Vending Co., Inc. and its subsidiary Folz Novelty Co., Inc. (Folz) to merge
the business of Folz into a wholly owned subsidiary of the Company by acquiring
substantially all of the assets of Folz, pursuant to an Asset Purchase
Agreement dated March 14, 2003. The agreement is subject to various conditions
to closing.

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

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 Shoppes 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. The plush toys offered in the Companys Shoppes are made with 100%
polyester fiberfill and high-grade outer covers and the watches include
dependable movements. In addition, the Companys Shoppes offer licensed
products featuring recognizable characters (such as Disney and Looney Tunes
characters), regional-based and theme-based items (such as Christmas and
Easter items). All products offered in the Shoppes must adhere to the
Companys safety and quality standards.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Machine Appearance, Merchandise and Merchandising Techniques.The
Companys Shoppes 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 Shoppes
contain an 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 Shoppes fresh appearance. Management believes the Shoppes
appearance and the Companys merchandising techniques are important factors
in gaining acceptance of the Companys Shoppes by retailers.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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 Shoppes. The Company
believes that limited cost savings will be realized in 2003 as a result of
the transition from its current fulfillment facility in Kent, Washington to a
third party logistics center in Shanghai, China. See Inventory Management
and Distribution. 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
Toy Shoppes 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 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 Shoppes 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 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.

Shoppes

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

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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.

The SugarLoaf Toy Shoppe.The SugarLoaf Toy Shoppe 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, 2002, the Company and its franchisees were operating
9,169 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, 2002, the Company and its franchisees were operating 2,501
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, 2002, the Company
and its franchisees were operating 2,621 SugarLoaf Bean Bag Shoppes.

The SugarLoaf Stop Shoppe.The SugarLoaf Stop Shoppe features a play price
of 50¢ and dispenses key-chains featuring NASCAR, 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,
2002, the Company and its franchisees were operating 1,229 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, 2002, the Company and its franchisees were
operating 398 SugarLoaf Fun Shoppes.

The following chart indicates the number of certain Company-owned
amusement vending equipment in operation at the indicated date:

|                 |               |        |                   |         |                   |        |                   |         |  |        |        |         |  |  |       |      |  |  |        |        |  |  |       |      | 
|---------------- | ------------- | ------ | ----------------- | ------- | ----------------- | ------ | ----------------- | ------- |  | ------ | ------ | ------- |  |  | ----- | ---- |  |  | ------ | ------ |  |  | ----- | ---- | 
|                 |               |        | December 31, 2002 |         | December 31, 2001 |        | December 31, 2000
|                 |               |        |                   |         |                   |        |                  
|Type             |               | Number |                   | Percent |                   | Number |                   | Percent |  | Number |        | Percent
|                 |               |        |                   |         |                   |        |                   |         |  |        |        |        
|Toy Shoppes      |               |        | 8,246             |         |                   |        | 42.3              | %       |  |        | 7,863  |         |  |  | 46.8  | %    |  |  | 7,580  |        |  |  | 47.6  | %   
|Treasure Shoppes |               |        | 2,184             |         |                   |        | 11.2              |         |  |        | 1,766  |         |  |  | 10.5  |      |  |  | 1,633  |        |  |  | 10.3  |     
|Bean Bag Shoppes |               |        | 2,601             |         |                   |        | 13.4              |         |  |        | 2,413  |         |  |  | 14.4  |      |  |  | 2,344  |        |  |  | 14.7  |     
|Stop Shoppes     |               |        | 1,229             |         |                   |        | 6.3               |         |  |        | 1,079  |         |  |  | 6.4   |      |  |  | 1,058  |        |  |  | 6.6   |     
|Fun Shoppes      |               |        | 357               |         |                   |        | 1.8               |         |  |        | 190    |         |  |  | 1.1   |      |  |  | 129    |        |  |  | 0.8   |     
|                 |               |        |                   |         |                   |        |                   |         |  |        |        |         |  |  |       |      |  |  |        |        |  |  |       |     
|                 | Total Shoppes |        |                   | 14,617  |                   |        |                   | 75.0    |  |        |        | 13,311  |  |  |       | 79.2 |  |  |        | 12,744 |  |  |       | 80.0 | 
|Video Games      |               |        | 2,559             |         |                   |        | 13.1              |         |  |        | 2,087  |         |  |  | 12.4  |      |  |  | 1,792  |        |  |  | 11.3  |     
|Kiddie Rides     |               |        | 2,301             |         |                   |        | 11.9              |         |  |        | 1,401  |         |  |  | 8.4   |      |  |  | 1,387  |        |  |  | 8.7   |     
|                 |               |        |                   |         |                   |        |                   |         |  |        |        |         |  |  |       |      |  |  |        |        |  |  |       |     
|                 |               |        | 19,477            |         |                   |        | 100.0             | %       |  |        | 16,799 |         |  |  | 100.0 | %    |  |  | 15,923 |        |  |  | 100.0 | %   
|                 |               |        |                   |         |                   |        |                   |         |  |        |        |         |  |  |       |      |  |  |        |        |  |  |       |     

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.

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Retail Accounts.Currently, the Companys Shoppes 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
Shoppes in national and regional Retail Accounts to take advantage of the
regular customer traffic of these locations. The following chart identifies
some of the Companys Retail Accounts:

|                   |  |                   |  |                       |  |                      
|------------------ |  | ----------------- |  | --------------------- |  | ---------------------
|Mass Merchandisers |  | Supermarkets      |  | Restaurants           |  | Other                
|                   |  |                   |  |                       |  |                      
|Wal Mart           |  | Kroger            |  | Dennys               |  | Truckstops of America
|Kmart              |  | Safeway           |  | Ponderosa Steak House |  | Flying J Truckstop   
|                   |  | Fred Meyer Stores |  | Shoneys, Inc.        |  | Loves Truckstop      
|                   |  | Cub Foods         |  | Golden Corral         |  |                      
|                   |  |                   |  | Furrs Family Dining  |  |                      

The Company or its franchisees provide the Shoppes and pay 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, 2002 generally ranged from
25% to 30%, depending on the dollar volume, number of Shoppes 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 and its franchisees generally
place Shoppes pursuant to oral agreements with location managers. While the
Company has written agreements with certain major Retail Accounts, the Company
and its franchisees also have placed Shoppes 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,
regional sales representatives and sales directors 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 regional sales
representatives, sales directors, 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 has
embarked upon 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.

As of December 31, 2002, the Company had installed more than 12,209
amusement vending machines in 1,605 Wal-Mart stores nationwide. The Companys
largest account, Wal-Mart accounted for approximately 41.9% of total revenue in
2002. In March 2000, the Company signed a new three-year agreement with Safeway
that designates the Company as Safeways principal operator of skill-cranes
through April 1, 2003. As of December 31, 2002, the Company and its franchisees
had installed more than 936 amusement vending machines in 578 Safeway stores
nationwide. In May 2000, the Company signed a new four-year agreement with
Dennys that designates the Company as Dennys exclusive skill-crane operator
for its company-owned restaurants through June 30, 2005. As of December 31,
2002, the Company and its franchisees had installed 561 Shoppes in
company-owned Dennys restaurants nationwide. Other than Wal-Mart, no account
represented 10% or more of the Companys total revenue in 2002.

The Company and its franchisees compete 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

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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.

Other Vending.The Company has introduced new types of complementary
amusement vending machines at existing Shoppe locations which management
believes will expand the potential customers for the Company. As of December
31, 2002, the Company and its franchisees had 2,318 kiddie rides installed in
Retail Accounts nationwide. As of December 31, 2002, the Company and its
franchisees had 11,640 pieces of bulk vending equipment in operation. Bulk
vending refers to the sale of unsorted confections, nuts, gumballs, toys and
novelty items (in or out of capsules) selected by the customer and dispensed
through vending machines. As of December 31, 2002, the Company and its
franchisees had 2,574 simulator and traditional video games in operation. 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.

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, and training and monitoring route merchandisers. The
Company has developed a comprehensive training program for area general
managers, general managers and franchisees 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 and general 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
and general 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,
depending upon volume, which are visited and serviced two to ten times per
week. The route merchandiser cleans and services the Shoppe, takes inventory of
the Shoppe, replaces product as needed, monitors the Vend Ratio and arranges
the product within the Shoppe in accordance with the Companys merchandising
techniques. The route merchandiser records the number of units of product
placed in the Shoppes and the number of plays for both Shoppes and other
amusement vending equipment from nonresettable meters. This paper-based process
is being 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. The meter readings are subsequently
reconciled against actual collections. The Company is also in the early
development stage of 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. 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. Plush toys are sourced
principally from six Chinese manufacturers. After the plush is procured from
the Companys suppliers, it is shipped to a third party logistics center in
Shanghai, China where it is sorted and pre-packed. The pre-packing of the
Companys other products will transition from Kent, Washington to Louisville,
Colorado during April 2003. During the second quarter of 2003, the Company
plans to transition to direct shipments from the distribution center in
Shanghai, China and its pre-pack operation in Louisville, Colorado to regional
distribution centers in Atlanta, Georgia; Allentown, Pennsylvania; Chicago,
Illinois, Dallas; Texas; Ontario, California; and Seattle, Washington. 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.
Pre-packed product units are then shipped to Company field offices and
franchises on a weekly basis.

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At December 31, 2002, the Company was operating in 49 states through a
national network of 35 offices. The field offices average approximately 4,138
square feet and comprise a small office area and a warehouse area where
out-of-service Shoppes 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 to Shoppes. 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-owned and franchise offices to service a
greater number of Shoppes without a commensurate increase in warehouse space
and significantly reduces the time general managers and franchise personnel
spend on inventory management. The establishment of the six regional
distribution centers will result in a reduction in the Companys warehouse
space and provide efficiencies in the utilization of inventory.

Management Information Systems.In late 2000, the Company implemented new
financial software and a new centralized data base route management information
system that utilizes customized software for monitoring field office amusement
vending equipment results. The software allows the Company to monitor
individual amusement vending equipment placements, revenue, Vend Ratio for
Shoppes and tax and commission payments through reports generated at the
corporate offices. The software also allows the Company to monitor total
vending revenue, average weekly revenue and equipment on location.

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 is also in the early
development stage of 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.

Shoppe Production.During the first half of 2002, the Company relocated
its machine repair and refurbishment facility to Lecanto, Florida to focus on
the refurbishment and redeployment of its existing base of Shoppes. During
2002, 387 Toy Shoppe and Fun Shoppe units were refurbished and redeployed to
operating offices. During the third quarter of 2002, the Company acquired
certain of the operating assets, including trademarks, and hired certain key
production employees of its principal supplier of Shoppes to begin the process
of producing new Shoppes for the Companys internal placement requirements as
well as sales to outside third parties. During 2002, the Company produced and
deployed 161 new Shoppes to operating offices.

Merchandising

Merchandising Mix.The Company offers merchandise for the Shoppes 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 ten 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 SugarLoaf Toy Shoppes 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 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.

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Shoppes.The Company believes that sufficient capacity will be available
in 2003 to produce sufficient quantities of Shoppes to meet its internal and
external placement demands. See Operations # Shoppe Production. The Company
historically has purchased Shoppes from three principal approved crane
manufacturers. Management believes that suitable skill-crane machines are
available from a number of domestic and foreign manufacturers.

Franchise Relations

As of December 31, 2002, the Company had franchise agreements in effect
with 8 franchisees covering 11 territories in the U.S. covering, in the
aggregate, 1,301 pieces of amusement vending equipment. The Company does not
currently intend to grant any additional franchises. 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.

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 and Kid Shoppe. In addition, the Company claims
common law trademark protection for the mark A Test of Skill, ACMI,
American Coin, American Coin Merchandising, 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.

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The distribution and operation of skill-crane machines 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 skill-crane machines.
Currently, the Company believes that it has obtained all necessary governmental
licenses, permits and approvals necessary for the distribution or operation of
Shoppes in Company-owned operations. 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 Shoppes or from products and other merchandise dispensed from the
Shoppes. 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 28, 2003, the Company had a total of 751 employees,
including 50 employees at its headquarters in Louisville, Colorado. None of the
Companys employees are represented by labor unions or are covered by any
collective bargaining contract. Management believes it has a good relationship
with 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 route merchandisers to properly service the Companys Shoppes and
other amusement vending equipment and equipment service managers. 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 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

The Companys principal executive offices and a field operating office are
located at 397 S. Taylor Avenue, Louisville, Colorado where the Company
occupies approximately 31,000 square feet of office and warehouse space under a
lease that expires February 28, 2013. The Companys fulfillment warehouse in
Kent, Washington occupies approximately 106,000 square feet under a lease that
expires August 31, 2003. The Companys machine repair and refurbishment
facility in Lecanto, Florida occupies approximately 24,900 square feet under a
lease that expires January 14, 2008. The Company also is a party to 51 other
leases which are used for office and warehouse space which average
approximately 4,100 square feet, provide for monthly rental payments ranging
from $450 to $5,440 and expire at various times over the period April 30, 2002
to May 31, 2006.




Item 3. Legal Proceedings

As of March 24, 2003, 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 2002.

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PART II




Item 5. Market for Registrants Common Equity and Related Stockholder Matters

The Companys common stock is no longer publicly traded. As of March 24,
2003, 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.




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 Business.

|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        |        | 
|------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ---------------------------------------------------------- | ------- | ------------ | ------- | ----------- | ------ | ------ | ------ | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------ | ------ | 
|                                                                                                                                |                     |                                                            |         | Successor    |         | Predecessor
|                                                                                                                                |                     |                                                            |         |              |         |            
|                                                                                                                                |                     |                                                            |         | Eleven       |         | One         |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |  
|                                                                                                                                |                     |                                                            |         | Months       |         | Month       |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |  
|                                                                                                                                |                     |                                                            |         | Ended        |         | Ended       |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |  
|                                                                                                                                |                     |                                                            |         | December 31, |         | January 31, |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |  
|                                                                                                                                |                     |                                                            |         | 2002         |         | 2002        |        | 2001   |        | 2000 |         | 1999    |         | 1998
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |     
|Statement of Operations Data:                                                                                                   |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|Revenue:                                                                                                                        |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                | Vending             |                                                            | $       | 131,237      |         |             | $      | 10,880 |        |      | $       | 139,670 |         |      | $       | 127,076 |         |   | $       | 115,835 |         |   | $       | 92,854 |       
|                                                                                                                                | Franchise and other |                                                            |         | 2,100        |         |             |        | 199    |        |      |         | 2,257   |         |      |         | 2,681   |         |   |         | 4,630   |         |   |         | 4,857  |       
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     | Total revenue                                              |         |              | 133,337 |             |        |        | 11,079 |      |         |         | 141,927 |      |         |         | 129,757 |   |         |         | 120,465 |   |         |        | 97,711 | 
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|Cost of revenue:                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                | Vending             |                                                            |         | 98,747       |         |             |        | 8,581  |        |      |         | 104,758 |         |      |         | 93,315  |         |   |         | 84,997  |         |   |         | 66,070 |       
|                                                                                                                                | Franchise and other |                                                            |         | 547          |         |             |        | 192    |        |      |         | 1,921   |         |      |         | 1,936   |         |   |         | 3,104   |         |   |         | 3,108  |       
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     | Total cost of revenue                                      |         |              | 99,294  |             |        |        | 8,773  |      |         |         | 106,679 |      |         |         | 95,251  |   |         |         | 88,101  |   |         |        | 69,178 | 
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     | Gross profit                                               |         |              | 34,043  |             |        |        | 2,306  |      |         |         | 35,248  |      |         |         | 34,506  |   |         |         | 32,364  |   |         |        | 28,533 | 
|General and administrative expenses                                                                                             |                     |                                                            | 23,152  |              |         |             | 3,713  |        |        |      | 26,518  |         |         |      | 25,080  |         |         |   | 25,668  |         |         |   | 19,413  |       
|Write off of costs in excess of assets acquired, severance and
other costs                                                      |                     |                                                            |        |              |         |             |       |        |        |      |        |         |         |      |        |         |         |   | 7,536   |         |         |   |        |       
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     | Operating earnings (loss)                                  |         |              | 10,891  |             |        |        | (1,407 | )    |         |         | 8,730   |      |         |         | 9,426   |   |         |         | (840    | ) |         |        | 9,120  | 
|Interest expense, net                                                                                                           |                     |                                                            | 10,408  |              |         |             | 390    |        |        |      | 6,127   |         |         |      | 7,775   |         |         |   | 6,866   |         |         |   | 3,368   |       
|Change in fair value of interest rate collar                                                                                    |                     |                                                            | 1,429   |              |         |             |       |        |        |      |        |         |         |      |        |         |         |   |        |         |         |   |        |       
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     | (Loss) earnings before income taxes and extraordinary loss |         |              | (946    | )           |        |        | (1,797 | )    |         |         | 2,603   |      |         |         | 1,651   |   |         |         | (7,706  | ) |         |        | 5,752  | 
|Income tax benefit (expense)                                                                                                    |                     |                                                            | 359     |              |         |             | 683    |        |        |      | (989    | )       |         |      | (627    | )       |         |   | 3,200   |         |         |   | (1,854  | )     
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     | (Loss) earnings before extraordinary loss                  |         |              | (587    | )           |        |        | (1,114 | )    |         |         | 1,614   |      |         |         | 1,024   |   |         |         | (4,506  | ) |         |        | 3,898  | 
|Extraordinary loss on debt refinancing, net of income tax
benefit                                                               |                     |                                                            |        |              |         |             | (1,071 | )      |        |      |        |         |         |      | (165    | )       |         |   |        |         |         |   |        |       
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     | Net (loss) earnings                                        |         | $            | (587    | )           |        | $      | (2,185 | )    |         | $       | 1,614   |      |         | $       | 859     |   |         | $       | (4,506  | ) |         | $      | 3,898  | 
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|Basic (loss) earnings per share                                                                                                 |                     |                                                            |         |              |         | $           | (0.33  | )      |        | $    | 0.25    |         |         | $    | 0.13    |         |         | $ | (0.70   | )       |         | $ | 0.60    |       
|Diluted (loss) earnings per share                                                                                               |                     |                                                            |         |              |         | $           | (0.33  | )      |        | $    | 0.24    |         |         | $    | 0.13    |         |         | $ | (0.70   | )       |         | $ | 0.58    |       
|Basic weighted average common shares                                                                                            |                     |                                                            |         |              |         |             | 6,545  |        |        |      | 6,526   |         |         |      | 6,493   |         |         |   | 6,475   |         |         |   | 6,467   |       
|Diluted weighted average common shares                                                                                          |                     |                                                            |         |              |         |             | 6,545  |        |        |      | 6,729   |         |         |      | 6,493   |         |         |   | 6,475   |         |         |   | 6,713   |       
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     |                                                            |         | 2002         |         |             |        | 2001   |        | 2000 |         | 1999    |         | 1998
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |     
|Balance Sheet Data:                                                                                                             |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|Working capital                                                                                                                 |                     | $                                                          | 6,067   |              |         |             |        |        |        | $    | 3,651   |         |         | $    | 691     |         |         | $ | 9,367   |         |         | $ | 9,235   |       
|Total assets                                                                                                                    |                     |                                                            | 136,373 |              |         |             |        |        |        |      | 103,362 |         |         |      | 107,907 |         |         |   | 104,134 |         |         |   | 111,782 |       
|Short-term debt and current portion of
long-term debt                                                                           |                     |                                                            | 4,718   |              |         |             |        |        |        |      | 7,700   |         |         |      | 7,233   |         |         |   | 2,463   |         |         |   | 2,155   |       
|Long-term debt, excluding current portion                                                                                       |                     |                                                            | 79,593  |              |         |             |        |        |        |      | 37,276  |         |         |      | 44,224  |         |         |   | 50,230  |         |         |   | 50,310  |       
|Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely junior
subordinated debentures |                     |                                                            | 12,974  |              |         |             |        |        |        |      | 15,644  |         |         |      | 15,593  |         |         |   | 15,542  |         |         |   | 15,492  |       
|Total stockholders equity                                                                                                      |                     |                                                            | 28,042  |              |         |             |        |        |        |      | 31,763  |         |         |      | 30,089  |         |         |   | 29,154  |         |         |   | 33,648  |       
|Number of Shoppes:                                                                                                              |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|Company operations                                                                                                              |                     |                                                            | 14,617  |              |         |             |        |        |        |      | 13,311  |         |         |      | 12,744  |         |         |   | 11,186  |         |         |   | 10,671  |       
|Franchise operations                                                                                                            |                     |                                                            | 1,301   |              |         |             |        |        |        |      | 1,457   |         |         |      | 1,724   |         |         |   | 1,878   |         |         |   | 1,998   |       
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       
|                                                                                                                                |                     | Total                                                      |         |              | 15,918  |             |        |        |        |      |         |         | 14,768  |      |         |         | 14,468  |   |         |         | 13,064  |   |         |        | 12,669 | 
|                                                                                                                                |                     |                                                            |         |              |         |             |        |        |        |      |         |         |         |      |         |         |         |   |         |         |         |   |         |       

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

In order to provide a meaningful basis of comparing the Companys
operating results, 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 combined Company results for the year ended December 31,
2002 are compared to the comparable periods in 2001 and 2000. 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 and its franchisees own and operate coin-operated amusement
vending equipment with more than 31,000 pieces of equipment on location. Over
14,600 of these machines are Shoppes that dispense plush toys, watches,
jewelry, novelties and other items. The Companys Shoppes are placed in Retail
Accounts and similar high traffic locations and the Company typically pays
25-30% 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, 2002, the Company was
operating in 49 states with a national network of 35 offices and there were 8
Company franchisees operating in 11 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.

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

For the year ended December 31, 2002, approximately 85% of the Companys
revenue and gross profit were derived from Company-owned Shoppes. The Companys
revenue and gross profit in a particular period is directly related to the
number of Shoppes in operation during the period. Management believes that the
Companys business is somewhat seasonal, with average revenue per machine per
week 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 represents the Companys percentage of gross
vending revenue generated by Shoppes owned and operated by franchisees, as well
as product sold to the franchisees and non-franchisee customers. Product sold
to the franchisees and non-franchisee customers consists of goods to vend in
Shoppes. The Company anticipates that franchise and other revenue will increase
over 2002 levels with the third party sale of skill-cranes and kiddie rides.

The Company anticipates a positive financial impact related to three
initiatives implemented by the Company during 2002 dealing with (i) the
transfer of the Companys fulfillment facility in Kent, Washington to a third
party logistics center in Shanghai, China, (ii) the introduction of hand-held
devices to the Companys route merchandisers and (iii) the internal production
of skill-cranes during 2003. However, there can be no assurance that such
positive financial impact will occur at all, and if it does occur that it will
have a material beneficial impact on the Companys financial performance. There
may be unforeseen problems with these initiatives that have a negative impact
on the Companys financial results.

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Results of Operations

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

Revenue

The Companys total revenue increased 1.8% from $141.9 million in 2001 to
$144.4 million in 2002. Vending revenue increased $2.4 million or 1.8% 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; however,
the Company expects other revenue to increase in the future with the third
party sale of skill-cranes and kiddie rides.

Cost of Revenue and Gross Profit

The cost of vending operations increased $2.6 million in 2002 to $107.3
million. The vending operations contribution to 2002 gross profit of $34.8
million is comparable to gross profit from vending operations realized in 2001.
The vending gross profit achieved in 2002 was 24.5% of vending revenue, which
represents a .5 percentage point decrease 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 33.4% of vending revenue, which is .2 percentage points lower than in 2001.
The decrease in vending gross profit and cash gross profit is primarily
attributable to higher direct labor and leased equipment expense. The cash
vending gross profit achieved during the fourth quarter of 2002 was 34.0%,
which is .1 percentage points lower than the comparable period in 2001.

Gross profit on franchise and other revenue in 2002 increased to $1.6
million, or 67.9% of franchise and other revenue, which is 53.0 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
lower freight-in costs associated with inbound inventory purchases.

Operating Expense

General and administrative expenses including depreciation and
amortization were 18.6% of revenue, which is .1 percentage points lower than in
2001. General and administrative expenses for the year ended December 31, 2002
include transaction related costs of approximately $2.2 million partially
offset by the discontinuance of cost in excess of assets acquired amortization
and tighter control on discretionary spending during the year.

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.

Non Operating Income (Expense)

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 SFAS 133, accordingly the Company records this
instrument at fair value and recognizes realized and unrealized gains and
losses separately on its consolidated statement of operations.

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Extraordinary Loss

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

Net Earnings 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 extraordinary loss
resulting from the refinancing of the Company credit facility.

Year Ended December 31, 2001 vs. Year Ended December 31, 2000

Revenue

The Companys total revenue increased 9.4% from $129.8 million in 2000 to
$141.9 million in 2001. Vending revenue increased $12.6 million or 9.9% in 2001
to $139.7 million, primarily as a result of a 7.1% increase in the average
number of amusement vending equipment in use during 2001, over the average
number of amusement vending equipment in use during 2000.

Franchise and other revenue decreased $424,000 or 15.8% in 2001 as
compared to 2000, due to the acquisition of a franchise during the second
quarter of 2001.

Cost of Revenue and Gross Profit

The cost of vending operations increased $11.4 million in 2001 to $104.8
million. The vending operations contribution to 2001 gross profit increased to
$34.9 million, which represents a 3.4% increase over gross profit from vending
operations realized in 2000. The vending gross profit achieved in 2001 was
25.0% of vending revenue, which represents a 1.6 percentage point decrease from
the gross profit percentage achieved in 2000. The cash vending gross profit
(vending revenue minus cost of vended product, location commissions and direct
service cost) achieved in 2001 was 33.6% of vending revenue, which is .9
percentage points lower than in 2000. The decrease in cash vending gross profit
is primarily attributable to higher location payments. The cash vending gross
profit achieved during the fourth quarter of 2001 was 34.1%, which is .8
percentage points lower than the comparable period in 2000.

Gross profit on franchise and other revenue in 2001 decreased to $336,000,
or 14.9% of franchise and other revenue, which is 12.9 percentage points lower
than the gross margin achieved in 2000. The decrease in gross margin as a
percentage of franchise and other revenue resulted primarily from increased
importing related costs partially offset by lower unit costs and lower product
sales to franchisees and non-franchisees.

Operating Expense

General and administrative expenses including depreciation and
amortization as a percentage of revenue for 2001 decreased to 18.7%, as
compared to 19.3% of revenue in 2000. The decrease in general and
administrative expenses, as a percentage of revenue, resulted primarily from
tighter control on discretionary spending during the year.

Operating Earnings

Operating earnings in 2001 were $8.7 million or 6.2% of total revenue as
compared to operating earnings of $9.4 million in 2000 or 7.3% of total
revenue. The decrease in operating results is primarily attributable to
increased location payments and placement fees.

Non Operating Income (Expense)

Interest expense decreased $1.6 million to $6.1 million in 2001 as
compared to 2000. The Companys interest expense is directly related to its
level of borrowings and changes in the underlying interest rates.

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Net Earnings and Earnings Per Share

The net earnings for the year ended December 31, 2001 were $1.6 million,
as compared to net earnings of $859,000 for 2000. Diluted net earnings per
share for 2001 were $0.24, compared to diluted net earnings per share of $0.13
in 2000.

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.

Deferred Taxes

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

Inventory

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

Property and Equipment

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

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

The Company assesses the impairment of identifiable intangibles and
long-lived assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Costs in excess of assets acquired are
reviewed for impairment annually or whenever events or changes in circumstances
indicate that the carrying value may

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

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

Liquidity and Capital Resources

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

Net cash provided by operating activities was $5.2 million, $15.8 million
and $23.4 million in 2002, 2001 and 2000, respectively. The decline in 2002 net
cash provided by operating activities results primarily from the fees and
expenses associated with refinancing the Companys credit facility during the
first quarter of 2002. The Company anticipates that cash will continue to be
provided by operations as additional skill-crane 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 $12.1 million, $7.6 million and
$18.1 million in 2002, 2001 and 2000, respectively. Capital expenditures
amounted to $8.0 million, $4.9 million and $15.6 million in 2002, 2001 and
2000, respectively, of which $7.3 million, $4.0 million and $15.0 million were
used for the acquisition of amusement vending equipment. The acquisition of
franchisees and others used $1.5 million and $273,000 in 2002 and 2001,
respectively.

Net cash provided by financing activities was $7.0 million in 2002. Net
cash used in financing activities was $7.0 million and $3.0 million in 2001 and
2000, respectively, and 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., and the repayment of the Companys previous
credit facility and other debt obligations.

The Companys $65.0 million senior secured credit facility is comprised of
a $10.0 million revolving credit facility and $55.0 million of term loans
comprised of a $25.0 million term loan A and a $30.0 million term loan B. Under
the revolving credit facility, the Company may borrow up to $10.0 million
through February 11, 2007, and at December 31, 2002, there was approximately
$6.3 million outstanding, a $670,000 letter of credit and $151,000 available
under the revolving credit facility. Under both term loans A and B, the Company
is required to make quarterly principal installments that increase in amount
through February 11, 2007 for term loan A and February 11, 2008 for term loan
B. The revolving facility and the term loans bear interest at a floating rate
at the Companys option equal to either LIBOR plus the applicable margin or a
base rate that is equal to the higher of the prime rate or the federal funds
rate plus one-half percent plus the applicable margin. The effective rate of
interest on both facilities at December 31, 2002 was 6.1%. The credit facility
provides that certain financial ratios be met and places restrictions on, among
other things, the incurrence of additional debt financing and certain payments
to the Companys parent company. The Company was in compliance with such
financial ratios and restrictions at December 31, 2002.

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The Company has also issued $25.8 million of senior subordinated notes due
in 2009. Interest on these notes is payable on a quarterly basis at the rate of
17% per annum; however, at the option of the Company the minimum cash interest
due on these notes is 13% with the balance of interest due being paid in the
form of additional notes or payment in kind notes in an aggregate amount equal
to the amount of interest that would be payable with respect to the notes, if
such interest were paid in cash. The note agreement provides that certain
financial ratios be met and places restrictions on, among other things, the
incurrence of additional senior subordinated indebtedness and certain
restricted payments. The Company was in compliance with such financial ratios
and restrictions at December 31, 2002.

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, 2002 are as follows
(in thousands):

|                                        |  |      |       |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |        |  |  |          |        |  |  |   |        | 
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | ----- | ----- |  |  | - | ------ |  |  | -------- | ------ |  |  | - | ------ | 
|                                        |  |      |       |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |        |  |  | 2008 and |        |  |  |  
|Year Ending December 31,                |  | 2003 |       | 2004 |  | 2005 |       | 2006 |  | 2007 |       | thereafter |  | Total
|                                        |  |      |       |      |  |      |       |      |  |      |       |            |  |      
|Operating leases                        |  | $    | 2,883 |      |  | $    | 1,942 |      |  | $    | 1,583 |            |  | $     | 964   |  |  | $ | 497    |  |  | $        | 1,602  |  |  | $ | 9,471  | 
|Long-term debt (not
including interest) |  |      | 4,718 |      |  |      | 5,371 |      |  |      | 6,073 |            |  |       | 6,036 |  |  |   | 29,199 |  |  |          | 32,914 |  |  |   | 84,311 | 
|Employment contract                     |  |      | 300   |      |  |      | 325   |      |  |      |      |            |  |       |      |  |  |   |       |  |  |          |       |  |  |   | 625    | 

The Companys long-term debt as described above has materially changed
since December 31, 2001 due to the acquisition of the Company by ACMI Holdings,
Inc. and the Companys incurrence of additional debt in the form of the $65.0
million senior secured credit facility and $25.0 million of senior subordinated
notes.

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.

On March 17, 2003 the Company announced that it had agreed with Folz
Vending Co., Inc. and its subsidiary Folz Novelty Co., Inc. (Folz) to merge
the business of Folz into a wholly owned subsidiary of the Company by acquiring
substantially all of the assets of Folz, pursuant to an Asset Purchase
Agreement dated March 14, 2003. The agreement is subject to various conditions
to closing.

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

SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, (SFAS 133) requires that all derivative instruments be reported in
the statement of financial position as assets or liabilities and measured at
fair value. The Companys interest rate collar instrument is not allowed hedge
accounting treatment under SFAS 133, accordingly the Company records this
instrument at fair value and recognizes realized and unrealized gains and
losses in other expense in the consolidated statement of operations. The
Company paid $148,000 during the year since LIBOR was below the floor rate
under the interest rate collar. This amount is included in interest expense in
the consolidated statement of operations for the eleven months ended December
31, 2002. The Company does not speculate using derivative instruments.

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

Impact of Recently Issued Accounting Standards

In August 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which provides a single accounting model for long-lived assets to be disposed
of and changes the criteria that would have to be met to classify an asset as
held-for-sale. The statement also requires expected future operating losses
from discontinued operations to be recognized in the periods in which the
losses are incurred, which is a change from the current requirement of
recognizing such operating losses as of the measurement date. The statement is
effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 in 2002, which did not have a material impact on the
Companys financial results.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement provides guidance on the classification of gains
and losses from the extinguishment of debt and on the accounting for certain
specified lease transactions. SFAS No. 145 is not expected to have a material
impact on the Companys financial results.

In June 2002, the FASB issued 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
required such a liability to be recognized at the time that an entity committed
to an exit play. SFAS No. 146 is not expected to have a material impact on the
Companys financial results.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of FASB
Statement No. 123. This Statement provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 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 is currently evaluating whether or not it will
adopt the fair value based method, and accordingly has not determined the
impact that this standard will have on its financial position or results of
operations. The Company has adopted the expanded disclosure provisions of SFAS
No. 148 in these financial statements for the year ended December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. Interpretation No. 45 elaborates on the
disclosures made by a guarantor in its interim and annual financial statements
about its obligations under certain guarantees that it has issued. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This interpretation does not prescribe a specific
approach for subsequently measuring the guarantors recognized liability over
the term of the related guarantee. This interpretation also incorporates,
without change, the guidance in FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others, which is being superseded. The
Company is required to apply the provisions of Interpretation No. 45 to exit or
guarantees that are initiated or modified after December 31, 2002. The adoption
of this standard is not expected to will not have a material impact on the
Companys financial position or results of its operations. This statement also
requires expanded disclosures for certain types of obligations not covered by
the accounting provisions of this interpretation, such as warranty obligations.
The Company has adopted these disclosure requirements in its financial
statements for the year ended December 31, 2002.

In January 2003, the FASB issued 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 disperse 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 provisions
of Interpretation No. 45 to variable interest entities created after January
31, 2003. The adoption of this standard is not expected to have a material
impact on the Companys financial position or results of its operations.

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Risk Factors

This report contains forward-looking statements. Because such statements
include risks and uncertainties, actual results could differ materially from
those expressed or implied by such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and in the sections entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations and Business.

Shoppe Performance.A primary key to the financial success of the Company
is the weekly revenue generated per Shoppe, which has a history of fluctuating.
The Company has attributed some of this fluctuation to the effectiveness of its
product mix and has taken 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 Shoppes. The average weekly revenue generated per Shoppe
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 and the
ability of its franchisees to place additional Shoppes in Retail Accounts as
well as to maintain or increase the average financial performance of the
Shoppes. The Companys ability to place additional Shoppes depends on a number
of factors beyond the Companys control, including general business and
economic conditions. Installation of additional Shoppes will also depend, in
part, upon the Companys ability to secure additional national and regional
Retail Accounts and to obtain approval to place additional Shoppes in
individual locations of such accounts. The Company, its franchisees and their
suppliers also may be unable to place and adequately service additional
Shoppes, 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 Shoppe 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 Shoppe 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 intends to 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 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

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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
effect 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 42% of total revenue in 2002.
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 skill-crane 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 Shoppes are produced by
foreign manufacturers. A majority is purchased directly by the Company from
manufacturers in China. The Company purchases its other products indirectly
from vendors who obtain a significant percentage of such products from foreign
manufacturers. During 2003, the Company is also transitioning 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. Among other things, the
loss of Chinas most favored nation status under U.S. tariff laws could
result in a substantial increase in the import duty of certain products
manufactured in China, which could result in substantially increased costs for
certain products purchased by the Company which could have a material adverse
effect on the Companys business, financial condition and results of
operations. 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.

Changing Consumer Trends; Technological Innovations.Consumer preferences
are constantly changing and difficult to predict, and consumer interest in the
Companys Shoppes or the products dispensed could decline suddenly

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or other prize-dispensing equipment or amusement devices could replace the
Shoppes 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 Shoppes skill-crane format in both existing markets and in new markets
into which the Company may expand. There can be no assurance that the use of
skill-crane machines 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 skill-crane machines
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), W. John Cash (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. The Company does maintain key man
insurance on Randall J. Fagundo. 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

As described above, the Company entered into an interest rate collar
instrument for 50% of the principal amount of the term debt outstanding or a
notional amount of $27,500,000 for a three-year period ending March 31, 2005.
If the 3 month LIBOR rates were to increase (decrease) by 100 basis points,
then the additional interest payment related to the floor rate would increase
(decrease) by $66,000 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 29.




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

None.

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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 24, 2003:

|                      |  |     |    |                                |  |                                                                               
|--------------------- |  | --- | -- | ------------------------------ |  | ------------------------------------------------------------------------------
|                      |  |     |    |                                |  | Principal Occupation/                                                         
|Name                  |  | Age |    | Position Held with the Company
|                      |  |     |    |                               
|William F. Dawson Jr. |  |     | 38 |                                |  | Partner, Wellspring Capital Management LLC, Chairman of the Board of Directors
|Randall J. Fagundo    |  |     | 43 |                                |  | President, Chief Executive Officer and Director                               
|Greg S. Feldman       |  |     | 46 |                                |  | Managing Partner, Wellspring Capital Management LLC and Director              
|Pericles Navab        |  |     | 35 |                                |  | President, Cadigan Investment Partners, Inc. and Director                     
|Bruce W. Krysiak      |  |     | 52 |                                |  | Chairman, EDABB, Inc. and Director                                            
|W. John Cash          |  |     | 55 |                                |  | Senior Vice President, Chief Financial Officer, Treasurer and Secretary       
|Robert A. Kaslon      |  |     | 38 |                                |  | 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 the 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.

W.  John Cash,has served as Senior Vice President since January 1999,
Secretary since June 1999 and Chief Financial Officer since July 1995. Prior to
joining the Company he was Vice President and Chief Financial Officer of Kasler
Holding Company, a diversified construction company, from May 1991 to March
1995. From July 1984 to April 1991, Mr. Cash served as a partner of KPMG LLP.

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.

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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 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, 2002, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.




Item 11. Executive Compensation

Compensation of Directors

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.

Summary Compensation Table

The following table shows for the fiscal years ended December 31, 2002,
2001 and 2000, compensation awarded or paid to, or earned by, the Companys
Chief Executive Officer and its two other most highly compensated executive
officers for the year ended December 31, 2002 (the Named Executive Officers):

|                            |                                  |      |      |        |  |        |              |             |            |                   |            |         |           |  |              |         |  |  |       |       | 
|--------------------------- | -------------------------------- | ---- | ---- | ------ |  | ------ | ------------ | ----------- | ---------- | ----------------- | ---------- | ------- | --------- |  | ------------ | ------- |  |  | ----- | ----- | 
|                            |                                  |      |      |        |  |        |              |             |            |                   |            |         |           |  | Long-Term    |         |  |  |      
|                            |                                  |      |      |        |  |        |              |             |            |                   |            |         |           |  | Compensation |         |  |  |      
|                            |                                  |      |      |        |  |        | Annual       |             | Awards     |                   |            |         |          
|                            |                                  |      |      |        |  |        | Compensation |             |            |                   |            |         |          
|                            |                                  |      |      |        |  |        |              |             | Securities |                   |            |         |          
|                            |                                  |      |      |        |  |        | Salary       |             | Bonus      |                   | Underlying |         | All Other
|Name and Principal Position |                                  | Year |      | ($)(1) |  | ($)(2) |              | Options (3) |            | Compensation $(4)
|                            |                                  |      |      |        |  |        |              |             |            |                  
|Randall J. Fagundo          |                                  |      | 2002 |        |  |        | 250,000      |             |            |                   | 89,730     |         |           |  |             |         |  |  | 8,188 |      
|                            | President and Chief Executive    |      |      | 2001   |  |        |              | 250,000     |            |                   |            | 129,398 |           |  |              |        |  |  |       | 8,742 | 
|                            | Officer                          |      |      | 2000   |  |        |              | 230,733     |            |                   |            |        |           |  |              | 125,000 |  |  |       | 7,236 | 
|W. John Cash                |                                  |      | 2002 |        |  |        | 150,000      |             |            |                   | 28,653     |         |           |  |             |         |  |  | 7,722 |      
|                            | Senior Vice President, Chief     |      |      | 2001   |  |        |              | 150,000     |            |                   |            | 37,471  |           |  |              |        |  |  |       | 7,150 | 
|                            | Financial Officer, Treasurer and |      |      | 2000   |  |        |              | 145,222     |            |                   |            |        |           |  |              | 50,000  |  |  |       | 6,979 | 
|                            | Secretary                        |      |      |        |  |        |              |             |            |                   |            |         |           |  |              |         |  |  |       |       | 
|Robert A. Kaslon            |                                  |      | 2002 |        |  |        | 110,000      |             |            |                   | 23,347     |         |           |  |             |         |  |  | 7,716 |      
|                            | Senior Vice President of         |      |      | 2001   |  |        |              | 103,333     |            |                   |            | 36,434  |           |  |              |        |  |  |       | 7,513 | 
|                            | Merchandising                    |      |      | 2000   |  |        |              | 90,000      |            |                   |            | 21,039  |           |  |              | 5,000   |  |  |       | 6,708 | 



---

|(1) |  | Includes amounts deferred pursuant to Sections 401(k) and 125 of the
Internal Revenue Code of 1986, as amended.                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents bonus earned during 2000 and paid in 2001 and the 2000 bonus
was earned and paid during 2000.                                                                                                                   
|   
|(3) |  | Pursuant to the terms of the Agreement and Plan of Merger, the options
were exercised as of February 11, 2002 and the Named Executive Officers
received the difference between $8.50 and the exercise price of the
options.
|   
|(4) |  | 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.          

23



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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, 2002
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 12/31/02      |  | 12/31/02   
|                   |  | Acquired       |         | Value          |  | Exercisable/     |           | Exercisable/    
|Name               |  | on Exercise(#) |         | Realized($)(1) |  | Unexercisable(#) |           | Unexercisable($)
|                   |  |                |         |                |  |                  |           |                 
|Randall J. Fagundo |  |                | 275,000 |                |  |                  | 1,259,375 |                  |  | None        |  | None        
|W. John Cash       |  |                | 70,000  |                |  |                  | 373,750   |                  |  | None        |  | None        
|Robert A. Kaslon   |  |                | 8,000   |                |  |                  | 38,285    |                  |  | None        |  | None        



---

|(1) |  | Pursuant to the terms of the Agreement and Plan of Merger, the options
were exercised as of February 11, 2002 and the Named Executive Officers
received the difference between $8.50 and the exercise price of the
options.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 for 2002
was $275,000. Mr. Fagundos annual base salary increased to $300,000 on January
1, 2003. The Employment Agreement further provides that Mr. Fagundos salary
will be 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

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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.

Compensation Committee Interlocks and Insider Participation

During the Companys fiscal year ended December 31, 2002, 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

The following table sets forth certain information regarding the ownership
of the Companys common stock as of March 24, 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 S. 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
620 Fifth Avenue, Suite 216
New York, New York 10020-1571 |                  |                          |                  |  |  |     |   | 
|William F. Dawson, Jr.                                      |                                                                                                 |                  |                         |                  |  |  |    |  
|Randall J. Fagundo                                          |                                                                                                 |                  |                         |                  |  |  |    |  
|Greg S. Feldman                                             |                                                                                                 |                  |                         |                  |  |  |    |  
|Pericles Navab                                              |                                                                                                 |                  |                         |                  |  |  |    |  
|Bryce W. Krysiak                                            |                                                                                                 |                  |                         |                  |  |  |    |  
|W. John Cash                                                |                                                                                                 |                  |                         |                  |  |  |    |  
|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
24, 2003, 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

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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. Pursuant to the terms of
the Fee Agreement, the Company has paid to date closing fees of $1,350,000 and
$650,000 to Wellspring and Cadigan, respectively. 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 following the Merger, is
a partner at Wellspring. Greg S. Feldman, a director of the Company following
the Merger, 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 following the Merger, 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.

Messrs. Fagundo and Cash 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. Controls and Procedures

Under the supervision and with the participation of the Companys
management, including its principal executive officer and principal financial
officer, the Company has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures within 90 days of filing of
this annual report on Form 10-K, and, based on their evaluation, the Companys
principal executive officer and principal financial officer have concluded that
these controls and procedures are effective. There were no significant changes
in the Companys internal controls or other factors that could significantly
affect these controls subsequent to the date of their evaluation.

Disclosure controls and procedures are the Companys controls and other
procedures that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commissions rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the Companys management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.

26



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##### Table of Contents






PART IV




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



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

|       |  |   |  |                                                                                                                                                                                                                                       
|------ |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1♦   |  |  |  | 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.                                                 
|2.2♦   |  |  |  | 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.                                                                                                                                                                                       
|3.3∑   |  |  |  | Certificate of Merger of the Registrant.                                                                                                                                                                                              
|3.4∑   |  |  |  | Restated Certificate of Incorporation.                                                                                                                                                                                                
|3.5∑   |  |  |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                        
|4.1   |  |  |  | Reference is made to Exhibits 3.1 through 3.5.                                                                                                                                                                                        
|4.2∑   |  |  |  | Specimen Stock Certificate.                                                                                                                                                                                                           
|4.3ο   |  |  |  | Certificate of Trust of American Coin Merchandising Trust I.                                                                                                                                                                          
|4.4ο   |  |  |  | Trust Agreement of American Coin Merchandising Trust I.                                                                                                                                                                               
|4.5ο   |  |  |  | Amended and Restated Trust Agreement of American Coin Merchandising Trust I.                                                                                                                                                          
|4.6ο   |  |  |  | Form of Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, as
Trustee.                                                                                                                                
|4.7ο   |  |  |  | Form of Guarantee Agreement with respect to Trust Preferred Securities of American Coin
Merchandising Trust I.                                                                                                                        
|4.8ο   |  |  |  | Form of Agreement as to Expenses and Liabilities between the Registrant and American Coin
Merchandising Trust I.                                                                                                                      
|4.9ο   |  |  |  | Form of Certificate Evidencing Trust Preferred Securities.                                                                                                                                                                            
|4.10ο  |  |  |  | Form of Certificate Evidencing Trust Common Securities.                                                                                                                                                                               
|4.11ο  |  |  |  | Form of Ascending Rate Junior Subordinated Deferrable Interest Debenture.                                                                                                                                                             
|4.12∑  |  |  |  | 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.                                                                                                        
|10.60∑ |  |  |  | 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.                                                    
|10.61∑ |  |  |  | Credit Agreement, dated February 11, 2002, between and among the Registrant and Madison Capital
Funding LLC and The Royal Bank of Scotland PLC.                                                                                       
|10.62∑ |  |  |  | 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.                      

27



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##### Table of Contents



|       |  |   |  |                                                                                                                                                                                                                     
|------ |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.63Σ |  |  |  | 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.                                                                                 
|10.65  |  |  |  | Industrial Building Lease Agreement, between the Registrant and FCF Properties, LLC, dated
October 24, 2002.                                                                                                        
|10.66  |  |  |  | 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.
|10.67  |  |  |  | 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.                               
|10.68  |  |  |  | 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                                                    
|99.1   |  |  |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                       



---

|♦   |  | 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.              
|   
|ο   |  | Incorporated by reference to the Companys Registration Statement on Form S-3, File No. 333-60267.                
|   
|Ψ   |  | 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. 
|   
|φ	* |  | Incorporated by reference to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2000.
|   
|σ   |  | Incorporated by reference to the Companys Quarterly Report on Form
10-Q for the period ended June 30, 2001.      
|   
|Σ   |  | Incorporated by reference to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 
|   
|Χ   |  | Indicates management contract or compensatory plan, contract or
arrangement.                                      



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------
|   
|    |  | None.               

28



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three Years Ended December 31, 2002

|                                   |                                            |  |      |     | 
|---------------------------------- | ------------------------------------------ |  | ---- | --- | 
|                                   |                                            |  | 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.

29



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##### 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, 2002
(Successor) and 2001 (Predecessor), and the related consolidated statements of
operations, stockholders equity, and cash flows for the eleven months ended
December 31, 2002 (Successor) and the one month ended January 31, 2002 and the
years ended December 31, 2001 and 2000 (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, 2002 (Successor)
and 2001 (Predecessor), and the results of their operations and their cash
flows for the eleven months ended December 31, 2002 (Successor) and the one
month ended January 31, 2002 and the years ended December 31, 2001 and 2000
(Predecessor), in conformity with accounting principles generally accepted in
the United States of America.

As described in note 4, American Coin Merchandising, Inc. and subsidiaries
adopted the provisions of Statement of Financial Accounting Standards 142,
Goodwill and Other Intangible Assets, effective on January 1, 2002.

KPMGLLP

Boulder, Colorado
February 14, 2003

F-1



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##### Table of Contents



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

|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------ | ------- | ------------ | ------ | ------- | ------- | 
|                                                                                                                                   |                                                                                                                                                |                                            |        | Successor    |         | Predecessor 
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |             
|                                                                                                                                   |                                                                                                                                                |                                            |        | December 31, |         | December 31,
|                                                                                                                                   |                                                                                                                                                |                                            |        | 2002         |         | 2001        
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |             
|ASSETS                                                                                                                             |                                                                                                                                                |                                            |        |             
|Current assets:                                                                                                                    |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   | Cash and cash equivalents                                                                                                                      |                                            | $      | 4,178        |         |              | $      | 4,066   |        
|                                                                                                                                   | Trade accounts and other receivables                                                                                                           |                                            |        | 1,069        |         |              |        | 738     |        
|                                                                                                                                   | Income tax receivable                                                                                                                          |                                            |        |             |         |              |        | 725     |        
|                                                                                                                                   | Inventories                                                                                                                                    |                                            |        | 11,512       |         |              |        | 11,981  |        
|                                                                                                                                   | Prepaid expenses and other assets                                                                                                              |                                            |        | 3,035        |         |              |        | 2,736   |        
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   |                                                                                                                                                | Total current assets                       |        |              | 19,794  |              |        |         | 20,246  | 
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|Property and equipment:                                                                                                            |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   | Vending machines                                                                                                                               |                                            |        | 40,738       |         |              |        | 71,758  |        
|                                                                                                                                   | Vehicles                                                                                                                                       |                                            |        | 4,622        |         |              |        | 5,683   |        
|                                                                                                                                   | Office equipment, furniture and fixtures                                                                                                       |                                            |        | 4,485        |         |              |        | 5,534   |        
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   |                                                                                                                                                |                                            | 49,845 |              |         |              | 82,975 |        
|                                                                                                                                   | Less accumulated depreciation                                                                                                                  |                                            |        | (7,870       | )       |              |        | (38,943 | )      
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   |                                                                                                                                                | Property and equipment, net                |        |              | 41,975  |              |        |         | 44,032  | 
|Placement fees, net of accumulated amortization of $2,599 in 2002 and $4,758 in 2001                                               |                                                                                                                                                |                                            | 2,080  |              |         |              | 2,218  |        
|Costs in excess of assets acquired and other intangible assets, net of accumulated
amortization of $221 in 2002 and $8,481 in 2001 |                                                                                                                                                |                                            | 65,693 |              |         |              | 34,660 |        
|Other assets, net of accumulated amortization of $1,409 in 2002 and $1,274 in 2001                                                 |                                                                                                                                                |                                            | 6,831  |              |         |              | 2,206  |        
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   |                                                                                                                                                | Total assets                               |        | $            | 136,373 |              |        | $       | 103,362 | 
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                               |                                                                                                                                                |                                            |        |             
|Current liabilities:                                                                                                               |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   | Current portion of long-term debt                                                                                                              |                                            | $      | 4,718        |         |              | $      | 7,700   |        
|                                                                                                                                   | Accounts payable                                                                                                                               |                                            |        | 3,656        |         |              |        | 4,322   |        
|                                                                                                                                   | Accrued commissions                                                                                                                            |                                            |        | 3,392        |         |              |        | 2,766   |        
|                                                                                                                                   | Other accrued expenses                                                                                                                         |                                            |        | 1,961        |         |              |        | 1,807   |        
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   |                                                                                                                                                | Total current liabilities                  |        |              | 13,727  |              |        |         | 16,595  | 
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|Long-term debt, net of current portion                                                                                             |                                                                                                                                                |                                            | 79,593 |              |         |              | 37,276 |        
|Other liabilities                                                                                                                  |                                                                                                                                                |                                            | 764    |              |         |              | 627    |        
|Fair value of interest rate collar agreement                                                                                       |                                                                                                                                                |                                            | 1,248  |              |         |              |       |        
|Deferred tax liabilities                                                                                                           |                                                                                                                                                |                                            | 25     |              |         |              | 1,457  |        
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   |                                                                                                                                                | Total liabilities                          |        |              | 95,357  |              |        |         | 55,955  | 
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|Company obligated mandatorily redeemable preferred securities of subsidiary trust
holding solely junior subordinated debentures    |                                                                                                                                                |                                            | 12,974 |              |         |              | 15,644 |        
|Stockholders equity:                                                                                                              |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   | Common stock, $.01 par value (Authorized 1 share in 2002 and 20,000 in 2001; issued
and outstanding 1 shares in 2002 and 6,538 shares in 2001) |                                            |        |             |         |              |        | 66      |        
|                                                                                                                                   | Additional paid-in capital                                                                                                                     |                                            |        | 28,629       |         |              |        | 22,136  |        
|                                                                                                                                   | (Accumulated deficit) retained earnings                                                                                                        |                                            |        | (587         | )       |              |        | 9,561   |        
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   |                                                                                                                                                | Total stockholders equity                 |        |              | 28,042  |              |        |         | 31,763  | 
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        
|Commitments and contingencies                                                                                                      |                                                                                                                                                |                                            |        |              |         |              |        |        
|                                                                                                                                   |                                                                                                                                                | Total liabilities and stockholders equity |        | $            | 136,373 |              |        | $       | 103,362 | 
|                                                                                                                                   |                                                                                                                                                |                                            |        |              |         |              |        |        

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    
|                                                                                                 |                                                          |                                                                             |        |                     |         |                
|                                                                                                 |                                                          |                                                                             |        | Eleven Months Ended |         | One Month Ended |        | Year Ended  
|                                                                                                 |                                                          |                                                                             |        | December 31,        |         | January 31,     |        | December 31,
|                                                                                                 |                                                          |                                                                             |        | 2002                |         | 2002            |        | 2001         |        | 2000
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |     
|Revenue:                                                                                         |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 | Vending                                                  |                                                                             | $      | 131,237             |         |                 | $      | 10,880       |        |      | $      | 139,670 |         |  | $      | 127,076 |        
|                                                                                                 | Franchise and other                                      |                                                                             |        | 2,100               |         |                 |        | 199          |        |      |        | 2,257   |         |  |        | 2,681   |        
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Total revenue                                                               |        |                     | 133,337 |                 |        |              | 11,079 |      |        |         | 141,927 |  |        |         | 129,757 |  
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|Cost of revenue:                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 | Vending, excluding related depreciation and amortization |                                                                             |        | 87,093              |         |                 |        | 7,568        |        |      |        | 92,768  |         |  |        | 83,282  |        
|                                                                                                 | Depreciation and amortization                            |                                                                             |        | 11,654              |         |                 |        | 1,013        |        |      |        | 11,990  |         |  |        | 10,033  |        
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Total cost of vending                                                       |        |                     | 98,747  |                 |        |              | 8,581  |      |        |         | 104,758 |  |        |         | 93,315  |  
|                                                                                                 | Franchise and other                                      |                                                                             |        | 547                 |         |                 |        | 192          |        |      |        | 1,921   |         |  |        | 1,936   |        
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Total cost of revenue                                                       |        |                     | 99,294  |                 |        |              | 8,773  |      |        |         | 106,679 |  |        |         | 95,251  |  
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Gross profit                                                                |        |                     | 34,043  |                 |        |              | 2,306  |      |        |         | 35,248  |  |        |         | 34,506  |  
|General and administrative expenses                                                              |                                                          |                                                                             | 22,211 |                     |         |                 | 3,617  |              |        |      | 23,386 |         |         |  | 21,924 |        
|Depreciation and amortization                                                                    |                                                          |                                                                             | 941    |                     |         |                 | 96     |              |        |      | 3,132  |         |         |  | 3,156  |        
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Operating earnings (loss)                                                   |        |                     | 10,891  |                 |        |              | (1,407 | )    |        |         | 8,730   |  |        |         | 9,426   |  
|Interest expense, net                                                                            |                                                          |                                                                             | 10,408 |                     |         |                 | 390    |              |        |      | 6,127  |         |         |  | 7,775  |        
|Change in fair value of interest rate collar                                                     |                                                          |                                                                             | 1,429  |                     |         |                 |       |              |        |      |       |         |         |  |       |        
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | (Loss) earnings before income taxes and extraordinary loss                  |        |                     | (946    | )               |        |              | (1,797 | )    |        |         | 2,603   |  |        |         | 1,651   |  
|Income tax benefit (expense)                                                                     |                                                          |                                                                             | 359    |                     |         |                 | 683    |              |        |      | (989   | )       |         |  | (627   | )      
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | (Loss) earnings before extraordinary loss                                   |        |                     | (587    | )               |        |              | (1,114 | )    |        |         | 1,614   |  |        |         | 1,024   |  
|Extraordinary loss on debt refinancing, net of income tax
benefit of $656 and $101, respectively |                                                          |                                                                             |       |                     |         |                 | (1,071 | )            |        |      |       |         |         |  | (165   | )      
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Net (loss) earnings                                                         |        | $                   | (587    | )               |        | $            | (2,185 | )    |        | $       | 1,614   |  |        | $       | 859     |  
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Basic (loss) earnings per share of common stock
before extraordinary loss   |        |                     |         |                 |        | $            | (0.17  | )    |        | $       | 0.25    |  |        | $       | 0.16    |  
|                                                                                                 |                                                          | Extraordinary loss on debt refinancing                                      |        |                     |         |                 |        |              | (0.16  | )    |        |         |        |  |        |         | (0.03   | )
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Basic (loss) earnings per share of common stock                             |        |                     |         |                 |        | $            | (0.33  | )    |        | $       | 0.25    |  |        | $       | 0.13    |  
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Diluted (loss) earnings per share of common stock
before extraordinary loss |        |                     |         |                 |        | $            | (0.17  | )    |        | $       | 0.24    |  |        | $       | 0.16    |  
|                                                                                                 |                                                          | Extraordinary loss on debt refinancing                                      |        |                     |         |                 |        |              | (0.16  | )    |        |         |        |  |        |         | (0.03   | )
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Diluted (loss) earnings per share of common stock                           |        |                     |         |                 |        | $            | (0.33  | )    |        | $       | 0.24    |  |        | $       | 0.13    |  
|                                                                                                 |                                                          |                                                                             |        |                     |         |                 |        |              |        |      |        |         |         |  |        |        
|                                                                                                 |                                                          | Basic weighted average common shares                                        |        |                     |         |                 |        |              | 6,545  |      |        |         | 6,526   |  |        |         | 6,493   |  
|                                                                                                 |                                                          | Diluted weighted average common shares                                      |        |                     |         |                 |        |              | 6,545  |      |        |         | 6,729   |  |        |         | 6,493   |  

See accompanying notes to consolidated financial statements.

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##### Table of Contents



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

|                  |                                                                           |                               |    |        |   |         |        |              |   |          |       |          |   |       |        |         |   | 
|----------------- | ------------------------------------------------------------------------- | ----------------------------- | -- | ------ | - | ------- | ------ | ------------ | - | -------- | ----- | -------- | - | ----- | ------ | ------- | - | 
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |       | Retained |   | Total
|                  |                                                                           |                               |    |        |   |         |        | Additional   |   | Earnings |       | Stock-  
|                  |                                                                           |                               |    | Common |   | Paid-in |        | (Accumulated |   | holders'
|                  |                                                                           |                               |    | Stock  |   | Capital |        | Deficit)     |   | Equity  
|                  |                                                                           |                               |    |        |   |         |        |              |   |         
|December 31, 1999 |                                                                           | $                             | 65 |        |   | $       | 22,001 |              |   | $        | 7,088 |          |   | $     | 29,154 |        
|                  | Issuance of 33,725 shares of common stock
in employee stock purchase plan |                               |    | 1      |   |         |        | 75           |   |          |       |         |   |       |        | 76      |  
|                  | Net earnings                                                              |                               |    |       |   |         |        |             |   |          |       | 859      |   |       |        | 859     |  
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |       |          |   |       |        |        
|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 |        
|                  |                                                                           |                               |    |        |   |         |        |              |   |          |       |          |   |       |        |        

See accompanying notes to consolidated financial statements.

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##### Table of Contents



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

|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |         |        |         |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------------------------- | ------ | ------------ | ------ | ----------- | ----- | ------------ | ------ | ------ | ------ | ------ | ------ | ------- | ------ | ------- | ------ | -
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | Successor    |        | Predecessor
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |            
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | Eleven       |        | One         |       |              |        |        |        |        |        |        
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | Months Ended |        | Month Ended |       | Year Ended  
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | December 31, |        | January 31, |       | December 31,
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        | 2002         |        | 2002        |       | 2001         |        | 2000  
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |       
|Operating activities:                            |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|                                                 | Net (loss) earnings                                                                                  |                                                                   | $                                                    | (587                                                     | )      |              | $      | (2,185      | )     |              | $      | 1,614  |        |        | $      | 859     |       
|                                                 | Adjustments to reconcile net (loss) earnings to net cash provided
by (used in) operating activities: |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |         |       
|                                                 |                                                                                                      | Depreciation and amortization                                     |                                                      |                                                          | 14,146 |              |        |             | 1,146 |              |        |        | 15,637 |        |        |         | 13,699 |        
|                                                 |                                                                                                      | Change in fair value of interest rate collar, net of cash paid    |                                                      |                                                          | 1,248  |              |        |             |      |              |        |        |       |        |        |         |       |        
|                                                 |                                                                                                      | Deferred income tax expense                                       |                                                      |                                                          |       |              |        |             |      |              |        |        | 944    |        |        |         | 2,725  |        
|                                                 |                                                                                                      | Changes in operating assets and liabilities, net of acquisitions: |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |         |        |        
|                                                 |                                                                                                      |                                                                   |                                                      | Trade accounts and other receivables                     |        |              | 298    |             |       |              | 96     |        |        |        | 1,099  |         |        |         | (2,015 | )
|                                                 |                                                                                                      |                                                                   |                                                      | Inventories                                              |        |              | (941   | )           |       |              | 1,233  |        |        |        | (1,809 | )       |        |         | 4,680  |  
|                                                 |                                                                                                      |                                                                   |                                                      | Prepaid expenses and other assets                        |        |              | (1,531 | )           |       |              | (5,468 | )      |        |        | (971   | )       |        |         | 84     |  
|                                                 |                                                                                                      |                                                                   |                                                      | Accounts payable, accrued expenses and other liabilities |        |              | (969   | )           |       |              | (1,260 | )      |        |        | (751   | )       |        |         | 3,398  |  
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|                                                 |                                                                                                      |                                                                   | Net cash provided by (used in) operating activities  |                                                          |        | 11,664       |        |             |       | (6,438       | )      |        |        | 15,763 |        |         |        | 23,430  |       
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|Investing activities:                            |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|                                                 | Acquisitions of property and equipment, net                                                          |                                                                   |                                                      | (7,568                                                   | )      |              |        | (436        | )     |              |        | (4,857 | )      |        |        | (15,618 | )     
|                                                 | Acquisitions of franchisees and others                                                               |                                                                   |                                                      | (1,463                                                   | )      |              |        |            |       |              |        | (273   | )      |        |        |        |       
|                                                 | Placement fees                                                                                       |                                                                   |                                                      | (2,361                                                   | )      |              |        | (300        | )     |              |        | (2,517 | )      |        |        | (2,441  | )     
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|                                                 |                                                                                                      |                                                                   | Net cash used in investing activities                |                                                          |        | (11,392      | )      |             |       | (736         | )      |        |        | (7,647 | )      |         |        | (18,059 | )     
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|Financing activities:                            |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|                                                 | Net borrowings (payments) on credit facility, net of issuance costs                                  |                                                                   |                                                      | 291                                                      |        |              |        | 82,703      |       |              |        | (5,724 | )      |        |        | (576    | )     
|                                                 | Net payments on previous credit facility                                                             |                                                                   |                                                      |                                                         |        |              |        | (44,500     | )     |              |        |       |        |        |        |        |       
|                                                 | Principal payments on long-term debt                                                                 |                                                                   |                                                      | (268                                                     | )      |              |        | (16         | )     |              |        | (1,372 | )      |        |        | (2,464  | )     
|                                                 | Capital contribution                                                                                 |                                                                   |                                                      | 629                                                      |        |              |        |            |       |              |        |       |        |        |        |        |       
|                                                 | Net (purchase) issuance of common stock, net of offering costs                                       |                                                                   |                                                      |                                                         |        |              |        | (31,825     | )     |              |        | 60     |        |        |        | 76      |       
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|                                                 |                                                                                                      |                                                                   | Net cash provided by (used in) financing activities  |                                                          |        | 652          |        |             |       | 6,362        |        |        |        | (7,036 | )      |         |        | (2,964  | )     
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|                                                 |                                                                                                      |                                                                   | Net increase (decrease) in cash and cash equivalents |                                                          |        | 924          |        |             |       | (812         | )      |        |        | 1,080  |        |         |        | 2,407   |       
|Cash and cash equivalents at beginning of period |                                                                                                      |                                                                   | 3,254                                                |                                                          |        |              | 4,066  |             |       |              | 2,986  |        |        |        | 579    |        
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        
|Cash and cash equivalents at end of period       |                                                                                                      | $                                                                 | 4,178                                                |                                                          |        | $            | 3,254  |             |       | $            | 4,066  |        |        | $      | 2,986  |        
|                                                 |                                                                                                      |                                                                   |                                                      |                                                          |        |              |        |             |       |              |        |        |        |        |        |        

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, 2002, 2001 and 2000

1. Description of the Business and Basis of Presentation

American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc., and
American Coin Merchandising Trust I (the Trust) (together the Company) and
its franchisees own and operate over 31,000 coin-operated amusement vending
machines. These machines dispense plush toys, watches, jewelry, novelties, and
other items. The Companys amusement vending machines are placed in
supermarkets, mass merchandisers, bowling centers, truck stops, bingo halls,
bars, restaurants, warehouse clubs and similar locations. At December 31, 2002,
the Company had 35 field offices with operations in 49 states. The Company also
sells products to franchisees. At December 31, 2002, there were 8 franchisees
operating in 11 territories. All significant intercompany balances and
transactions have been eliminated in consolidation.

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

2. Acquisitions

On February 11, 2002, the Company was acquired by ACMI Holdings, Inc. for
approximately $110.7 million. Of this amount, approximately $28 million was
paid in cash. The Company has recorded approximately $61.4 million of costs in
excess of assets acquired as a result of the ACMI Holdings acquisition that was
accounted for using the purchase method of accounting.

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.

During 2001, the Company acquired certain assets and the business
operations of one of its franchises for approximately $1,125,000. Of this
amount, $487,000 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 also assumed certain equipment leases in
connection with the acquisition. The Company has recorded approximately
$886,000 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. The pro forma difference between revenue and net earnings (loss) and
actual is insignificant.

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.

Income 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

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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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.

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 effect 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.

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 the straight-line basis
over the term of the related contract.

Costs in Excess of Assets Acquired

Costs in excess of assets acquired represent the purchase amount paid in
excess of the fair value of the tangible net assets acquired. The Company
assesses the impairment of costs in excess of assets acquired annually 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.

Earnings (Loss) Per Share

The Company discloses both basic and diluted earnings (loss) per share for
successor 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.

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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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
|                                  |  |             |  |           |      |              |      |            
|                                  |  |             |  |           |      | Eleven       |      | One         |        |                         |        |      |       |  |       |  
|                                  |  |             |  |           |      | Months Ended |      | Month Ended |        |                         |        |      |       |  |       |  
|                                  |  |             |  |           |      | December 31, |      | January 31, |        | Year Ended December 31,
|                                  |  |             |  |           |      | 2002         |      | 2002        |        | 2001                    |        | 2000
|                                  |  |             |  |           |      |              |      |             |        |                         |        |     
|Net (loss) earnings               |  | As reported |  | $         | (587 | )            |      | $           | (2,185 | )                       |        | $    | 1,614 |  |       | $ | 859  | 
|                                  |  |             |  | Pro forma |      |              | (689 | )           |        |                         | (2,400 | )    |       |  | 1,418 |   |      |  | 501  | 
|Diluted (loss) earnings per share |  | As reported |  |           |      |              |      | $           | (0.33  | )                       |        | $    | 0.24  |  |       | $ | 0.13 | 
|                                  |  |             |  | Pro forma |      |              |      |             |        |                         | (0.37  | )    |       |  | 0.21  |   |      |  | 0.08 | 

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 2002, 2001 and 2000: no dividend yield;
expected volatility of 19 percent for 2002, 58 percent for 2001 and 86 percent
for 2000; risk-free interest rates of 4.8 percent in 2002, 5.6 percent in 2001
and 5.7 percent in 2000; and expected lives of six years.

Supplemental Disclosures of Cash Flow Information

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

|                                                        |                                                                 |  |               |       |             |  |                         |     |      |  |   |       |  |  |   |       | 
|------------------------------------------------------- | --------------------------------------------------------------- |  | ------------- | ----- | ----------- |  | ----------------------- | --- | ---- |  | - | ----- |  |  | - | ----- | 
|                                                        |                                                                 |  | Successor     |       | Predecessor
|                                                        |                                                                 |  |               |       |            
|                                                        |                                                                 |  | Eleven Months |       | One         |  |                         |     |      |  |   |       | 
|                                                        |                                                                 |  | Ended         |       | Month Ended |  |                         |     |      |  |   |       | 
|                                                        |                                                                 |  | December 31,  |       | January 31, |  | Year Ended December 31,
|                                                        |                                                                 |  | 2002          |       | 2002        |  | 2001                    |     | 2000
|                                                        |                                                                 |  |               |       |             |  |                         |     |     
|Cash paid during the period:                            |                                                                 |  |               |       |             |  |                         |     |      |  |   |       |  |  |   |      
|                                                        | Interest                                                        |  | $             | 7,822 |             |  | $                       | 560 |      |  | $ | 5,451 |  |  | $ | 7,172 | 
|                                                        | Income taxes                                                    |  |               | 155   |             |  |                         | 3   |      |  |   | 35    |  |  |   | 69    | 
|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 following table reconciles net earnings for years ended December 31,
2001 and 2000 to the pro forma net earnings excluding the amortization of costs
in excess of assets acquired (in thousands, except share data).

|                                                           |                                                                         |   |       |       |      |   |       |       | 
|---------------------------------------------------------- | ----------------------------------------------------------------------- | - | ----- | ----- | ---- | - | ----- | ----- | 
|                                                           |                                                                         |   | 2001  |       | 2000
|                                                           |                                                                         |   |       |       |     
|Net earnings before cumulative affect of accounting change |                                                                         | $ | 1,614 |       |      | $ | 859   |      
|                                                           | Amortization of costs in excess of assets acquired, net of income taxes |   |       | 1,254 |      |   |       | 1,240 | 
|                                                           |                                                                         |   |       |       |      |   |       |      
|Net earnings                                               |                                                                         | $ | 2,868 |       |      | $ | 2,099 |      
|                                                           |                                                                         |   |       |       |      |   |       |      
|Actual basic earnings per share of common stock            |                                                                         | $ | 0.25  |       |      | $ | 0.13  |      
|Actual diluted earnings per share of common stock          |                                                                         | $ | 0.24  |       |      | $ | 0.13  |      
|Pro forma basic earnings per share of common stock         |                                                                         | $ | 0.44  |       |      | $ | 0.32  |      
|Pro forma diluted earnings per share of common stock       |                                                                         | $ | 0.43  |       |      | $ | 0.32  |      
|Basic weighted average common shares                       |                                                                         |   | 6,526 |       |      |   | 6,493 |      
|Diluted weighted average common shares                     |                                                                         |   | 6,729 |       |      |   | 6,493 |      

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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

5. Credit Facility

In January 2002, the Company refinanced its $55 million senior secured
credit facility and replaced it with a $65 million senior secured facility. As
a result of the refinancing, the Company recorded an after-tax extraordinary
loss of $1.1 million related to the write-off of loan origination fees related
to the previous credit facility.

In December 2000, the Company refinanced its $50 million reducing
revolving loan agreement and replaced it with a $55 million senior secured
credit facility. As a result of the refinancing, the Company recorded an
after-tax extraordinary loss of $165,000, or $0.03 per diluted share, related
to the write-off of loan origination fees related to the previous credit
facility.

The Companys $65.0 million senior secured credit facility is comprised of
a $10.0 million revolving credit facility and $55.0 million of term loans
comprised of a $25.0 million term loan A and a $30.0 million term loan B. Under
the revolving credit facility, the Company may borrow up to $10.0 million
through February 11, 2007, and at December 31, 2002, there was approximately
$6.3 million outstanding, a $670,000 letter of credit and $151,000 available
under the revolving credit facility. Under both term loans A and B, the Company
is required to make quarterly principal installments that increase in amount
through February 11, 2007 for term loan A and February 11, 2008 for term loan
B. The revolving facility and the term loans bear interest at a floating rate
at the Companys option equal to either LIBOR plus the applicable margin or a
base rate that is equal to the higher of the prime rate or the federal funds
rate plus one-half percent plus the applicable margin. The effective rate of
interest on both facilities at December 31, 2002 was 6.1%. The credit facility
provides that certain financial ratios be met and places restrictions on, among
other things, the incurrence of additional debt financing and certain payments
to the Companys parent company. The Company was in compliance with such
financial ratios and restrictions at December 31, 2002.

The Company has also issued $25.8 million of senior subordinated notes due
in 2009. Interest on these notes is payable on a quarterly basis at the rate of
17% per annum; however, at the option of the Company the minimum cash interest
due on these notes is 13% with the balance of interest due being paid in the
form of additional notes or payment in kind notes in an aggregate amount equal
to the amount of interest that would be payable with respect to the notes, if
such interest were paid in cash. The note agreement provides that certain
financial ratios be met and places restrictions on, among other things, the
incurrence of additional senior subordinated indebtedness and certain
restricted payments. The Company was in compliance with such financial ratios
and restrictions at December 31, 2002.

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 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 $148,000 during the year since LIBOR was below the floor rate
under the interest rate collar. This amount is included in interest expense in
the consolidated statement of

F-9



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

operations for the eleven months ended December 31, 2002. The Company does
not speculate using derivative instruments.

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

7. Long-Term Debt

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

|                                                                                                                                                                                                         |                                        |      |           |        |             |   |        |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---- | --------- | ------ | ----------- | - | ------ | ------ | 
|                                                                                                                                                                                                         |                                        |      | Successor |        | Predecessor
|December 31,                                                                                                                                                                                             |                                        | 2002 |           | 2001  
|                                                                                                                                                                                                         |                                        |      |           |       
|Senior secured credit facilities (see note 5)                                                                                                                                                            |                                        | $    | 57,205    |        |             | $ | 44,500 |       
|Senior subordinated notes (see note 5)                                                                                                                                                                   |                                        |      | 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 |                                        |      | 1,317     |        |             |   | 476    |       
|                                                                                                                                                                                                         |                                        |      |           |        |             |   |        |       
|                                                                                                                                                                                                         | Total long-term debt                   |      |           | 84,311 |             |   |        | 44,976 | 
|Less current portion                                                                                                                                                                                     |                                        |      | (4,718    | )      |             |   | (7,700 | )     
|                                                                                                                                                                                                         |                                        |      |           |        |             |   |        |       
|                                                                                                                                                                                                         | Long-term debt, net of current portion |      | $         | 79,593 |             |   | $      | 37,276 | 
|                                                                                                                                                                                                         |                                        |      |           |        |             |   |        |       

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

Maturities of long-term debt as of December 31, 2002 are as follows (in
thousands):

|                         |                     |   |        |        | 
|------------------------ | ------------------- | - | ------ | ------ | 
|Year Ending December 31, |                     |   |        |       
|                         | 2003                |   | $      | 4,718  | 
|                         | 2004                |   |        | 5,371  | 
|                         | 2005                |   |        | 6,073  | 
|                         | 2006                |   |        | 6,036  | 
|                         | 2007                |   |        | 29,199 | 
|                         | 2008 and thereafter |   |        | 32,914 | 
|                         |                     |   |        |       
|                         |                     | $ | 84,311 |       
|                         |                     |   |        |       

8. 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.

Issuance costs of approximately $1.5 million related to the Trust
Preferred Securities were deferred and are being amortized on the interest
method over the period until mandatory redemption at September 15, 2028.

F-10



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

9. Income Taxes

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

|         |         |   |              |      |             |   |                         |        |      |   |     |     |  |   |        |        |  
|-------- | ------- | - | ------------ | ---- | ----------- | - | ----------------------- | ------ | ---- | - | --- | --- |  | - | ------ | ------ | -
|         |         |   | Successor    |      | Predecessor
|         |         |   |              |      |            
|         |         |   | Eleven       |      | One         |   |                         |        |      |   |     |     | 
|         |         |   | Months Ended |      | Month Ended |   |                         |        |      |   |     |     | 
|         |         |   | December 31, |      | January 31, |   | Year Ended December 31,
|         |         |   | 2002         |      | 2002        |   | 2001                    |        | 2000
|         |         |   |              |      |             |   |                         |        |     
|Current  |         |   |              |      |             |   |                         |        |      |   |     |     |  |   |        |       
|         | Federal |   |              |     |             |   |                         |       |      |   | $   | 45  |  |   | $      | (1,911 | )
|         | State   |   |              |     |             |   |                         |       |      |   |     |    |  |   |        | (187   | )
|         |         |   |              |      |             |   |                         |        |      |   |     |     |  |   |        |       
|         |         |   |             |      |             |   |                        |        |      |   | 45  |     |  |   | (2,098 | )     
|         |         |   |              |      |             |   |                         |        |      |   |     |     |  |   |        |       
|Deferred |         |   |              |      |             |   |                         |        |      |   |     |     |  |   |        |       
|         | Federal |   |              | (308 | )           |   |                         | (1,127 | )    |   |     | 790 |  |   |        | 2,438  |  
|         | State   |   |              | (51  | )           |   |                         | (212   | )    |   |     | 154 |  |   |        | 287    |  
|         |         |   |              |      |             |   |                         |        |      |   |     |     |  |   |        |       
|         |         |   | (359         | )    |             |   | (1,339                  | )      |      |   | 944 |     |  |   | 2,725  |       
|         |         |   |              |      |             |   |                         |        |      |   |     |     |  |   |        |       
|         |         | $ | (359         | )    |             | $ | (1,339                  | )      |      | $ | 989 |     |  | $ | 627    |       
|         |         |   |              |      |             |   |                         |        |      |   |     |     |  |   |        |       

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
|                                                             |  |              |      |            
|                                                             |  | Eleven       |      | One         |  |                         |        |      |  |   |     |  
|                                                             |  | Months Ended |      | Month Ended |  |                         |        |      |  |   |     |  
|                                                             |  | December 31, |      | January 31, |  | Year Ended December 31,
|                                                             |  | 2002         |      | 2002        |  | 2001                    |        | 2000
|                                                             |  |              |      |             |  |                         |        |     
|Expected tax expense (benefit) at the
federal statutory rate |  | $            | (322 | )           |  | $                       | (1,198 | )    |  | $ | 885 |   |  | $ | 562 | 
|State income taxes, net of federal taxes                     |  |              | (45  | )           |  |                         | (143   | )    |  |   | 106 |   |  |   | 65  | 
|Other, net                                                   |  |              | 8    |             |  |                         | 2      |      |  |   | (2  | ) |  |   |    | 
|                                                             |  |              |      |             |  |                         |        |      |  |   |     |   |  |   |     | 
|                                                             |  | $            | (359 | )           |  | $                       | (1,339 | )    |  | $ | 989 |   |  | $ | 627 | 
|                                                             |  |              |      |             |  |                         |        |      |  |   |     |   |  |   |     | 

For income tax purposes, at December 31, 2002, the Company has a net
operating loss carryforward of approximately $19 million, expiring at various
dates through 2022. 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 an annual limitation of $5 million per year by 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):

|                          |                                                                       |      |           |        |             |   |        |        |  
|------------------------- | --------------------------------------------------------------------- | ---- | --------- | ------ | ----------- | - | ------ | ------ | -
|                          |                                                                       |      | Successor |        | Predecessor
|December 31,              |                                                                       | 2002 |           | 2001  
|                          |                                                                       |      |           |       
|Deferred tax assets:      |                                                                       |      |           |        |             |   |        |       
|                          | Net operating loss carryforward                                       |      | $         | 7,270  |             |   | $      | 2,425  |  
|                          | Allowance for doubtful receivables                                    |      |           | 23     |             |   |        | 18     |  
|                          | Inventory capitalization                                              |      |           | 357    |             |   |        |       |  
|                          | Accrued expenses                                                      |      |           | 368    |             |   |        | 173    |  
|                          | Alternative minimum tax credit carryforward                           |      |           |       |             |   |        | 76     |  
|                          |                                                                       |      |           |        |             |   |        |       
|                          |                                                                       |      | 8,018     |        |             |   | 2,692  |       
|                          |                                                                       |      |           |        |             |   |        |       
|Deferred tax liabilities: |                                                                       |      |           |        |             |   |        |       
|                          | Property and equipmentbasis and depreciation differences             |      |           | (6,146 | )           |   |        | (3,515 | )
|                          | Costs in excess of assets acquired-basis and amortization differences |      |           | (1,605 | )           |   |        | (443   | )
|                          | Inventory capitalization                                              |      |           |       |             |   |        | (129   | )
|                          |                                                                       |      |           |        |             |   |        |       
|                          |                                                                       |      | (7,751    | )      |             |   | (4,087 | )     
|                          |                                                                       |      |           |        |             |   |        |       
|                          |                                                                       | $    | 267       |        |             | $ | (1,395 | )     
|                          |                                                                       |      |           |        |             |   |        |       

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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

10. 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 compensation. The
Companys matching contributions totaled $292,000 for the eleven months ended
December 31, 2002 and $26,000 for the month ended January 31, 2002, and
$286,000 and $264,000 in 2001 and 2000, respectively.

The Company established a qualified Employee Stock Purchase Plan (the
Plan), the terms of which allow 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 February
11, 2002 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.

11. Commitments

The Company has noncancelable operating leases, primarily for office and
warehouse facilities, vehicles and certain types of equipment. These leases
expire at various times over the next five years. Rent expense under these
leases totaled $2,823,000 for the eleven months ended December 31, 2002 and
$235,000 for the month ended January 31, 2002, and $2,697,000 and $2,225,000
for the years ended December 31, 2001 and 2000, respectively.

Future minimum commitments under operating lease arrangements as of
December 31, 2002 are as follows (in thousands):

|                         |       |   |       |       | 
|------------------------ | ----- | - | ----- | ----- | 
|Year Ending December 31, |       |   |       |      
|2003                     |       | $ | 2,883 |      
|2004                     |       |   | 1,942 |      
|2005                     |       |   | 1,583 |      
|2005                     |       |   | 964   |      
|2007                     |       |   | 497   |      
|2008 and thereafter      |       |   | 1,602 |      
|                         |       |   |       |      
|                         | Total |   | $     | 9,471 | 
|                         |       |   |       |      

Future minimum commitments for employment contracts as of December 31,
2002 are as follows (in thousands):

|                         |       |   |     |     | 
|------------------------ | ----- | - | --- | --- | 
|Year Ending December 31, |       |   |     |    
|2003                     |       | $ | 300 |    
|2004                     |       |   | 325 |    
|                         |       |   |     |    
|                         | Total |   | $   | 625 | 
|                         |       |   |     |    

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.

F-12



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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, options are subject to vesting over a five-year period and further
subject to vesting upon the achievement of certain milestones. No milestones
were met during 2002. As of December 31, 2002, the Company has determined the
intrinsic value of the unvested options to be immaterial. However, the Company
will periodically re-measure the value of the 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
earning and that such charges could be material.

A summary of the status of the Companys current stock option plan and its
two fixed stock option plans as of December 31, 2002, 2001 and 2000, and
changes during the periods ended on those dates is presented below:

|                                   |           |        |                     |         |                  |        |           |       |      |        |         |         |           |        |      |       |  |  |           |          |   |   |      |      |           |  |           |         |   |   |      |      | 
|---------------------------------- | --------- | ------ | ------------------- | ------- | ---------------- | ------ | --------- | ----- | ---- | ------ | ------- | ------- | --------- | ------ | ---- | ----- |  |  | --------- | -------- | - | - | ---- | ---- | --------- |  | --------- | ------- | - | - | ---- | ---- | 
|                                   |           |        | Successor           |         | Predecessor     
|                                   |           |        |                     |         |                 
|                                   |           |        | Eleven Months Ended |         | One Month Ended  |        |           |       |      |        |         |         |           |        |      |       |  |  |           |          |  
|                                   |           |        | December 31, 2002   |         | January 31, 2002 |        | 2001      |       | 2000
|                                   |           |        |                     |         |                  |        |           |       |     
|                                   |           |        |                     |         |                  |        | 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 |           |        |                    |         |                  |        |          |       |      |        | 700,104 |         |           | $      | 3.76 |       |  |  | 1,008,792 |          |   | $ | 5.19 |      |           |  | 672,017   |         |   | $ | 7.10 |     
|                                   | Granted   |        |                     | 309,719 |                  |        | $         | 8.50  |      |        |         |        |           |        |      |      |  |  |           | 30,000   |   |   |      | 3.75 |           |  |           | 399,675 |   |   |      | 2.65 | 
|                                   | Exercised |        |                     |        |                  |        |           |      |      |        |         | 700,104 |           |        |      | 3.76  |  |  |           | (1,938   | ) |   |      | 2.63 |           |  |           |        |   |   |      |     | 
|                                   | Forfeited |        |                     | (1,075  | )                |        |           | 8.50  |      |        |         |        |           |        |      |      |  |  |           | (10,800  | ) |   |      | 3.43 |           |  |           | (62,900 | ) |   |      | 8.72 | 
|                                   | Cancelled |        |                     |        |                  |        |           |      |      |        |         |        |           |        |      |      |  |  |           | (325,950 | ) |   |      | 8.17 |           |  |           |        |   |   |      |     | 
|                                   |           |        |                     |         |                  |        |           |       |      |        |         |         |           |        |      |       |  |  |           |          |   |   |      |      |           |  |           |         |   |   |      |     
|Outstanding at end of period       |           |        | 308,644             |         |                  |        | 8.50      |       |      |        |        |         |           |        |     |       |  |  | 700,104   |          |   |   | 3.76 |      |           |  | 1,008,792 |         |   |   | 5.19 |     
|                                   |           |        |                     |         |                  |        |           |       |      |        |         |         |           |        |      |       |  |  |           |          |   |   |      |      |           |  |           |         |   |   |      |     
|Options exercisable at
period end  |           |        |                    |         |                  |        |           |       |      |        |        |         |           |        |      |       |  |  | 531,886   |          |   |   |      |      |           |  | 436,187   |         |   |   |      |     

The following table summarizes information about fixed stock options
outstanding at December 31, 2002:

|                |  |                     |         |                     |  |                  |      |             |  |                  |      |  |  |  |   |  |  |   |      | 
|--------------- |  | ------------------- | ------- | ------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ---- |  |  |  | - |  |  | - | ---- | 
|                |  | 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           |  |                     | 308,644 |                     |  |                  | 9.12 |             |  | $                | 8.50 |  |  |  |  |  |  | $ | 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
Shoppes are produced by foreign manufacturers. A majority is purchased 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. Among other
things, the loss of Chinas most favored nation status under U.S. tariff laws
could result in a substantial increase in the import duty of certain products
manufactured in China, which could result in 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 42%, 38%, and 37% of the Companys revenue for the years
ended December 2002, 2001, and 2000 respectively.

F-13



---



##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

14. Earnings Per Share

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

|                                                 |                                                             |                                           |            |             |       |                         |           |      |         |   |           |      |        | 
|------------------------------------------------ | ----------------------------------------------------------- | ----------------------------------------- | ---------- | ----------- | ----- | ----------------------- | --------- | ---- | ------- | - | --------- | ---- | ------ | 
|                                                 |                                                             |                                           |            | One         |       |                         |           |      |         |   |           |     
|                                                 |                                                             |                                           |            | Month Ended |       |                         |           |      |         |   |           |     
|                                                 |                                                             |                                           |            | January 31, |       | Year Ended December 31,
|                                                 |                                                             |                                           |            | 2002        |       | 2001                    |           | 2000
|                                                 |                                                             |                                           |            |             |       |                         |           |     
|Net (loss) earnings                              |                                                             | $                                         | (2,185,000 | )           |       | $                       | 1,614,000 |      |         | $ | 859,000   |     
|                                                 |                                                             |                                           |            |             |       |                         |           |      |         |   |           |     
|Common shares outstanding at beginning of period |                                                             |                                           | 6,537,629  |             |       |                         | 6,513,919 |      |         |   | 6,480,194 |     
|                                                 |                                                             | Effect of shares issued during the period |            |             | 7,278 |                         |           |      | 12,121  |   |           |      | 12,318 | 
|                                                 |                                                             |                                           |            |             |       |                         |           |      |         |   |           |     
|Basic weighted average common shares             |                                                             |                                           | 6,544,907  |             |       |                         | 6,526,040 |      |         |   | 6,492,512 |     
|Incremental shares from assumed conversions:     |                                                             |                                           |            |             |       |                         |           |      |         |   |           |     
|                                                 |                                                             | Stock options                             |            |             |      |                         |           |      | 202,710 |   |           |      |       | 
|                                                 |                                                             |                                           |            |             |       |                         |           |      |         |   |           |     
|Diluted weighted average common shares           |                                                             |                                           | 6,544,907  |             |       |                         | 6,728,750 |      |         |   | 6,492,512 |     
|                                                 |                                                             |                                           |            |             |       |                         |           |      |         |   |           |     
|                                                 | Basic (loss) earnings per share before extraordinary loss   |                                           | $          | (0.17       | )     |                         | $         | 0.25 |         |   | $         | 0.16 |       
|                                                 | Diluted (loss) earnings per share before extraordinary loss |                                           |            | (0.17       | )     |                         |           | 0.24 |         |   |           | 0.16 |       
|                                                 | Basic (loss) earnings per share                             |                                           |            | (0.33       | )     |                         |           | 0.25 |         |   |           | 0.13 |       
|                                                 | Diluted (loss) earnings per share                           |                                           |            | (0.33       | )     |                         |           | 0.24 |         |   |           | 0.13 |       

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

|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       |  |   |        |       | 
|----------------------------------------------------------------- | ---------------------------------------------------------- | - | --------- | ------ | ----------- | - | ------- | ----- | ------- | - | ------- | ------ | ------- | - | ---------- | ----- | --------- | - | ------- | ------ | - | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                  |                                                            |   | Successor |        | Predecessor
|                                                                  |                                                            |   |           |        |            
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   | Two Months |       | One Month |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       | 
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   | Ended      |       | Ended     |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       | 
|                                                                  |                                                            |   | Dec. 31   |        | Sept. 30    |   | June 30 |       | Mar. 31 |   | Jan. 31 |        | Dec. 31 |   | Sept. 30   |       | June 30   |   | Mar. 31
|                                                                  |                                                            |   | 2002      |        | 2002        |   | 2002    |       | 2002    |   | 2002    |        | 2001    |   | 2001       |       | 2001      |   | 2001   
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   |        
|Total revenue                                                     |                                                            | $ | 39,024    |        |             | $ | 35,780  |       |         | $ | 34,090  |        |         | $ | 24,443     |       |           | $ | 11,079  |        |   | $ | 37,537 |       |  | $ | 35,021 |       |  | $ | 34,973 |       |  | $ | 34,396 |      
|Total cost of revenue                                             |                                                            |   | 28,740    |        |             |   | 26,512  |       |         |   | 25,818  |        |         |   | 18,224     |       |           |   | 8,773   |        |   |   | 27,911 |       |  |   | 26,509 |       |  |   | 26,503 |       |  |   | 25,756 |      
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                                  | Gross profit                                               |   |           | 10,284 |             |   |         | 9,268 |         |   |         | 8,272  |         |   |            | 6,219 |           |   |         | 2,306  |   |   |        | 9,626 |  |   |        | 8,512 |  |   |        | 8,470 |  |   |        | 8,640 | 
|General and administrative
expenses                               |                                                            |   | 6,609     |        |             |   | 6,100   |       |         |   | 6,295   |        |         |   | 4,148      |       |           |   | 3,713   |        |   |   | 6,990  |       |  |   | 6,666  |       |  |   | 6,457  |       |  |   | 6,405  |      
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                                  | Operating earnings (loss)                                  |   |           | 3,675  |             |   |         | 3,168 |         |   |         | 1,977  |         |   |            | 2,071 |           |   |         | (1,407 | ) |   |        | 2,636 |  |   |        | 1,846 |  |   |        | 2,013 |  |   |        | 2,235 | 
|Interest expense, net                                             |                                                            |   | 2,905     |        |             |   | 2,897   |       |         |   | 2,880   |        |         |   | 1,726      |       |           |   | 390     |        |   |   | 1,106  |       |  |   | 1,494  |       |  |   | 1,679  |       |  |   | 1,848  |      
|Change in fair value of
interest rate collar                      |                                                            |   | 101       |        |             |   | 728     |       |         |   | 600     |        |         |   |           |       |           |   |        |        |   |   |       |       |  |   |       |       |  |   |       |       |  |   |       |      
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                                  | Earnings (loss) before
income taxes and
extraordinary loss |   |           | 669    |             |   |         | (457  | )       |   |         | (1,503 | )       |   |            | 345   |           |   |         | (1,797 | ) |   |        | 1,530 |  |   |        | 352   |  |   |        | 334   |  |   |        | 387   | 
|Income tax (expense) benefit                                      |                                                            |   | (258      | )      |             |   | 172     |       |         |   | 576     |        |         |   | (131       | )     |           |   | 683     |        |   |   | (581   | )     |  |   | (134   | )     |  |   | (127   | )     |  |   | (147   | )    
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                                  | Earnings (loss) before
extraordinary loss                  |   |           | 411    |             |   |         | (285  | )       |   |         | (927   | )       |   |            | 214   |           |   |         | (1,114 | ) |   |        | 949   |  |   |        | 218   |  |   |        | 207   |  |   |        | 240   | 
|Extraordinary loss on debt
refinancing, net of income
tax benefit |                                                            |   |          |        |             |   |        |       |         |   |        |        |         |   |           |       |           |   | (1,071  | )      |   |   |       |       |  |   |       |       |  |   |       |       |  |   |       |      
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                                  | Net earnings (loss)                                        |   | $         | 411    |             |   | $       | (285  | )       |   | $       | (927   | )       |   | $          | 214   |           |   | $       | (2,185 | ) |   | $      | 949   |  |   | $      | 218   |  |   | $      | 207   |  |   | $      | 240   | 
|                                                                  |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   |         |        |   |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Basic (loss) earnings per
share                                   |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           | $ | (0.33   | )      |   | $ | 0.15   |       |  | $ | 0.03   |       |  | $ | 0.03   |       |  | $ | 0.04   |      
|Diluted (loss) earnings per
share                                 |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           | $ | (0.33   | )      |   | $ | 0.14   |       |  | $ | 0.03   |       |  | $ | 0.03   |       |  | $ | 0.04   |      
|Basic weighted average
common shares                              |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   | 6,545   |        |   |   | 6,536  |       |  |   | 6,532  |       |  |   | 6,522  |       |  |   | 6,514  |      
|Diluted weighted average
common shares                            |                                                            |   |           |        |             |   |         |       |         |   |         |        |         |   |            |       |           |   | 6,545   |        |   |   | 6,903  |       |  |   | 6,809  |       |  |   | 6,638  |       |  |   | 6,527  |      

F-14



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##### Table of Contents



AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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. Pursuant
to the terms of the Fee Agreement, the Company has paid to date closing fees of
$1,350,000 and $650,000 to Wellspring and Cadigan, respectively. 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.

Messrs. Fagundo and Cash 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 March 17, 2003 the Company announced that it had agreed with Folz
Vending Co., Inc. and its subsidiary Folz Novelty Co., Inc. (Folz) to merge
the business of Folz into a wholly owned subsidiary of the Company by acquiring
substantially all of the assets of Folz, pursuant to an Asset Purchase
Agreement dated March 14, 2003. The agreement is subject to various conditions
to closing.

F-15



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##### Table of Contents






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 W. John Cash, 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 28, 2003
|                                               
|/s/ RANDALL J. FAGUNDORandall J. Fagundo        |  | President and Chief Executive
Officer and Director                                                                   |  | March 28, 2003
|                                               
|/s/ W. JOHN CASHW. John Cash                    |  | Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer) |  | March 28, 2003
|                                               
|/s/ GREG S. FELDMANGreg S. Feldman              |  | Director                                                                                                             |  | March 28, 2003
|                                               
|/s/ PERICLES NAVABPericles Navab                |  | Director                                                                                                             |  | March 28, 2003
|                                               
|/s/ BRUCE W. KRYSIAKBruce W. Krysiak            |  | Director                                                                                                             |  | March 28, 2003





---



##### Table of Contents






CERTIFICATIONS

I, Randall J. Fagundo, certify that:

1.     I have reviewed this annual report on Form 10-K of American Coin
Merchandising, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



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

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



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

6.     The registrants other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

| |                        
| | -----------------------
| | /s/ Randall J. Fagundo 
| |                        
| | Randall J. Fagundo     
| | Chief Executive Officer





---



##### Table of Contents



I, W. John Cash, certify that:

1.     I have reviewed this annual report on Form 10-K of American Coin
Merchandising, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



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

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



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

6.     The registrants other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

| |                        
| | -----------------------
| | /s/ W. John Cash       
| |                        
| | W. John Cash           
| | Chief Financial Officer





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##### Table of Contents






INDEX TO EXHIBITS

|        |  |   |  |                                                                                                                                                                                                                                       
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |   |  | DESCRIPTION                                                                                                                                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                       
|2.1♦    |  |  |  | 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.                                                 
|2.2♦    |  |  |  | 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.                                                                                                                                                                                       
|3.3∑    |  |  |  | Certificate of Merger of the Registrant.                                                                                                                                                                                              
|3.4∑    |  |  |  | Restated Certificate of Incorporation.                                                                                                                                                                                                
|3.5∑    |  |  |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                        
|4.1    |  |  |  | Reference is made to Exhibits 3.1 through 3.5.                                                                                                                                                                                        
|4.2∑    |  |  |  | Specimen Stock Certificate.                                                                                                                                                                                                           
|4.3ο    |  |  |  | Certificate of Trust of American Coin Merchandising Trust I.                                                                                                                                                                          
|4.4ο    |  |  |  | Trust Agreement of American Coin Merchandising Trust I.                                                                                                                                                                               
|4.5ο    |  |  |  | Amended and Restated Trust Agreement of American Coin Merchandising Trust I.                                                                                                                                                          
|4.6ο    |  |  |  | Form of Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, as
Trustee.                                                                                                                                
|4.7ο    |  |  |  | Form of Guarantee Agreement with respect to Trust Preferred Securities of American Coin
Merchandising Trust I.                                                                                                                        
|4.8ο    |  |  |  | Form of Agreement as to Expenses and Liabilities between the Registrant and American Coin
Merchandising Trust I.                                                                                                                      
|4.9ο    |  |  |  | Form of Certificate Evidencing Trust Preferred Securities.                                                                                                                                                                            
|4.10ο   |  |  |  | Form of Certificate Evidencing Trust Common Securities.                                                                                                                                                                               
|4.11ο   |  |  |  | Form of Ascending Rate Junior Subordinated Deferrable Interest Debenture.                                                                                                                                                             
|4.12∑   |  |  |  | 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.                                                                                                        
|10.60∑  |  |  |  | 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.                                                    
|10.61∑  |  |  |  | Credit Agreement, dated February 11, 2002, between and among the Registrant and Madison Capital
Funding LLC and The Royal Bank of Scotland PLC.                                                                                       
|10.62∑  |  |  |  | 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.                      





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##### Table of Contents



|        |  |   |  |                                                                                                                                                                                                                     
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |   |  | DESCRIPTION                                                                                                                                                                                                         
|        |  |   |  |                                                                                                                                                                                                                     
|10.63Σ  |  |  |  | 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.                                                                                 
|10.65   |  |  |  | Industrial Building Lease Agreement, between the Registrant and FCF Properties, LLC, dated
October 24, 2002.                                                                                                        
|10.66   |  |  |  | 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.
|10.67   |  |  |  | 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.                               
|10.68   |  |  |  | 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                                                    
|99.1    |  |  |  | Certification of Chief Executive Officer and Chief Financial Officer 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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|♦   |  | 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.              
|   
|ο   |  | Incorporated by reference to the Companys Registration Statement on Form S-3, File No. 333-60267.                
|   
|Ψ   |  | 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. 
|   
|φ	* |  | Incorporated by reference to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2000.
|   
|σ   |  | Incorporated by reference to the Companys Quarterly Report on Form
10-Q for the period ended June 30, 2001.      
|   
|Σ   |  | Incorporated by reference to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 
|   
|Χ   |  | Indicates management contract or compensatory plan, contract or
arrangement.