<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-Q

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

     For the quarterly period ended: September 30, 2001

[_]  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: 1-11012
                             -------

                         Glacier Water Services, Inc.
                         ----------------------------
            (Exact Name of Registrant as Specified in Its Charter)

           Delaware                                                   33-0493559
--------------------------------------------------------------------------------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

2651 La Mirada Drive, Suite 100, Vista, California                         92083
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

                                (760) 560-1111
                                --------------
             (Registrant's telephone number, including area code)


                                      N/A
                                      ---
  (Former name, former address and former fiscal year, if changed since last
                                    report)

     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 the number of shares outstanding of each of issuer's class of
common stock as of the latest practicable date: 2,834,474 shares of common
stock, $.01 par value, outstanding at November 1, 2001.

                                       1
<PAGE>

                         PART 1 - FINANCIAL INFORMATION
                         ITEM 1 - FINANCIAL STATEMENTS

                          GLACIER WATER SERVICES, INC.
                          CONSOLIDATED BALANCE SHEETS
                   (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                         September 30,       December 31,
                                                                                             2001                2000 *
                                                                                         -------------       ------------
                                                                                          (unaudited)
<S>                                                                                      <C>                 <C>
                                      Assets
                                      ------
Current assets:
   Cash and cash equivalents...................................................            $  2,302            $  1,428
   Investments, available-for-sale.............................................               1,881               3,195
   Accounts receivable.........................................................                 695                 765
   Inventories.................................................................               2,552               2,587
   Prepaid expenses and other..................................................               1,048               1,070
                                                                                           --------            --------
      Total current assets.....................................................               8,478               9,045

Property and equipment, net of accumulated depreciation........................              50,350              55,366
Other assets...................................................................               8,370              10,205
                                                                                           --------            --------
Total assets...................................................................            $ 67,198            $ 74,616
                                                                                           ========            ========

                 Liabilities and Stockholders' Equity (Deficit)
                 ----------------------------------------------
Current liabilities:
   Accounts payable............................................................            $    440            $    839
   Accrued commissions.........................................................               2,602               2,286
   Accrued liabilities.........................................................               1,768               1,609
   Line of credit..............................................................               1,750                  --
                                                                                           --------            --------
      Total current liabilities................................................               6,560               4,734

Line of credit.................................................................                  --               7,675
Long-term debt.................................................................              61,965              61,975


Stockholders' equity (deficit):
   Preferred stock, $.01 par value; 8% cumulative redeemable convertible;
     100,000 shares authorized, 16,000 and no shares, respectively, issued and
     outstanding...............................................................                  --                  --
   Common stock, $.01 par value; 10,000,000 shares authorized,
     2,834,474 shares issued and outstanding...................................                  35                  35
   Additional paid-in capital..................................................              17,782              16,188
   Retained deficit............................................................              (4,246)             (1,227)
   Treasury stock, at cost, 603,726 shares.....................................             (14,852)            (14,852)
   Accumulated other comprehensive income (loss)...............................                 (46)                 88
                                                                                           --------            --------
      Total stockholders' equity (deficit).....................................              (1,327)                232
                                                                                           --------            --------
Total liabilities and stockholders' equity (deficit)...........................            $ 67,198            $ 74,616
                                                                                           ========            ========
</TABLE>

* Amounts derived from audited information

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       2
<PAGE>

                          GLACIER WATER SERVICES, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
            (dollars in thousands, except shares and per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                 Three Months Ended                      Nine Months Ended
                                                           ------------------------------          ------------------------------
                                                            Sept 30,             Oct 1,             Sept 30,             Oct 1,
                                                              2001                2000                2001                2000
                                                           ----------          ----------          ----------          ----------
<S>                                                        <C>                 <C>                 <C>                 <C>
Revenues..........................................         $   17,248          $   17,214          $   46,161          $   45,938

Operating costs and expenses:
     Operating expenses...........................             10,591              10,864              29,120              29,800
     Selling, general and administrative expenses.              2,059               2,367               6,614               6,646
     Depreciation and amortization................              3,152               3,068               9,090               9,179
     Non-recurring and other charges..............                 --               1,400                  --               1,400
                                                           ----------          ----------          ----------          ----------
          Total operating costs and expenses......             15,802              17,699              44,824              47,025
                                                           ----------          ----------          ----------          ----------

Income (loss) from operations.....................              1,446                (485)              1,337              (1,087)

Other (income) expenses:
     Interest expense.............................              1,454                 759               4,550               5,326
     Investment income............................                (29)               (344)               (222)               (885)
                                                           ----------          ----------          ----------          ----------
Total other expenses..............................              1,425               1,415               4,328               4,441
                                                           ----------          ----------          ----------          ----------

Income (loss) before income taxes and                              21              (1,900)             (2,991)             (5,528)
 extraordinary item...............................

Income taxes......................................                 --                  --                  --                  --
                                                           ----------          ----------          ----------          ----------

Income (loss) before extraordinary gain...........                 21              (1,900)             (2,991)             (5,528)

Extraordinary gain on early retirement of debt,                    --                 318                   4               1,851
 net of tax.......................................         ----------          ----------          ----------          ----------

Net income (loss).................................                 21              (1,582)             (2,987)             (3,677)
                                                           ----------          ----------          ----------          ----------

Preferred dividends...............................                 32                  --                  34                  --
                                                           ----------          ----------          ----------          ----------

Net loss applicable to common stockholders........         $      (11)         $   (1,582)         $   (3,021)         $   (3,677)
                                                           ==========          ==========          ==========          ==========

Basic and diluted loss per share:
Income (loss) before extraordinary item...........         $     0.00          $    (0.67)         $    (1.07)         $    (1.95)
Extraordinary gain................................                 --                 .11                  --                 .65
                                                           ----------          ----------          ----------          ----------
Net income (loss).................................         $     0.00          $    (0.56)         $    (1.07)         $    (1.30)
                                                           ==========          ==========          ==========          ==========

Shares used in calculation........................          2,834,474           2,840,174           2,834,474           2,836,438
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3
<PAGE>

                          GLACIER WATER SERVICES, INC.
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                             (dollars in thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended      Nine Months Ended
                                                     --------------------    -------------------
                                                     Sept 30,     Oct 1,     Sept 30,     Oct 1,
                                                       2001        2000        2001        2000
                                                     --------    --------    --------    -------
<S>                                                  <C>         <C>         <C>         <C>
Net income (loss)                                       $21      $(1,582)    $(2,987)    $(3,677)
Unrealized  (loss) on securities:
    Unrealized holding gain (loss) arising
     during the period                                   29          (31)       (135)       (474)
    Less: reclassification adjustment for
     losses (gains) included in net income (loss)        25          (30)         (1)        (61)
                                                        ---      -------     -------     -------
Net unrealized gain (loss)                                4           (1)       (134)       (413)
                                                        ---      -------     -------     -------
Comprehensive income (loss)                             $25      $(1,583)    $(3,121)    $(4,090)
                                                        ===      =======     =======     =======
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       4
<PAGE>

                         GLACIER WATER SERVICES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (dollars in thousands)
                                  (unaudited)




<TABLE>
<CAPTION>
                                                                                           Nine Months Ended
                                                                                           -----------------
                                                                                  September 30,           October 1,
                                                                                      2001                   2000
                                                                                      ----                   ----
<S>                                                                                  <C>                    <C>
Cash flow from operating activities:
   Net loss                                                                          $ (2,987)              $ (3,677)
   Adjustments to reconcile net loss to net cash provided by
     operating activities:
       Depreciation and amortization                                                    9,090                  9,179
       Loss on disposal of assets                                                          38                    831
       Extraordinary gain on early retirement of debt                                      (4)                (1,851)
       Realized gain (loss) on sales of investments                                         1                    (61)
   Change in operating assets and liabilities:
       Accounts receivable                                                                 70                   (197)
       Inventories                                                                         35                    572
       Prepaid expenses and other                                                          22                    260
       Payments for prepaid marketing incentives                                         (202)                (2,749)
       Other assets                                                                        56                     94
       Accounts payable, accrued liabilities and accrued commissions                       44                    190
                                                                                     --------               --------
                    Total adjustments                                                   9,150                  6,268
                                                                                     --------               --------
                    Net cash provided by operating activities                           6,163                  2,591
                                                                                     --------               --------

Cash flows from investing activities:
   Net investment in vending equipment                                                 (1,878)                (5,520)
   Purchase of property and equipment                                                    (258)                  (448)
   Purchase of investments                                                                 --                   (931)
   Proceeds from sale of investments                                                    1,012                  2,670
   Proceeds from maturities of investments                                                165                    208
                                                                                     --------               --------
                    Net cash used in investing activities                                (959)                (4,021)
                                                                                     --------               --------

Cash flows from financing activities:
   Early retirement of debt                                                                (5)                (3,804)
   Proceeds from borrowings on line of credit                                           8,275                 14,606
   Principal payments on line of credit                                               (14,200)               (11,810)
   Proceeds from issuance of stock                                                      1,600                     69
                                                                                     --------               --------
                     Net cash used in financing activities                             (4,330)                  (939)
                                                                                     --------               --------
Net increase (decrease) and cash equivalents                                              874                 (2,369)
Cash and cash equivalents, beginning of period                                          1,428                  4,205
                                                                                     --------               --------
Cash and cash equivalents, end of period                                             $  2,302               $  1,836
                                                                                     ========               ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       5
<PAGE>

                         GLACIER WATER SERVICES, INC.
               SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                            (dollars in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>


                                                       Nine Months Ended
                                                       -----------------
                                                   September 30,    October 1,
                                                       2001            2000
                                                       ----            ----
<S>                                                   <C>            <C>
   Cash paid for interest............................ $   4,532      $    5,222
                                                      =========      ==========

   Cash paid for income taxes........................ $       4      $        5
                                                      =========      ==========
</TABLE>




  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       6
<PAGE>

                         GLACIER WATER SERVICES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              September 30, 2001
                                  (unaudited)


1. Summary of Significant Accounting Policies

     Basis of Presentation

     In the opinion of the Company's management, the accompanying consolidated
financial statements reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the consolidated
financial position of the Company and the consolidated results of its operations
and its cash flows for the three- and nine-month periods ended September 30,
2001 and October 1, 2000. Although the Company believes that the disclosures in
these financial statements are adequate to make the information presented not
misleading, certain information, including footnote information, normally
included in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.  Results of operations
for the three- and nine-month period ended September 30, 2001 are not
necessarily indicative of results to be expected for the full year.  For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.

     Reclassification

     Certain prior year amounts have been reclassified to conform to the current
presentation.

2. Investments

     Investments are accounted for in accordance with FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which requires
that the Company determine the appropriate classification of investments at the
time of purchase and reevaluate such designation as of each balance sheet date.
At September 30, 2001 and December 31, 2000, the Company considered all
investments as available for use in its current operations, and therefore
classified them short-term, available-for-sale investments.  Available-for-sale
investments are stated at fair value, with unrealized gains and losses, if any,
reported as a separate component of stockholders' equity.  Realized gains or
losses from the sale of investments, write-downs associated with investments
deemed to be permanently impaired, interest income, and dividend income are
included as investment income or loss in the accompanying statements of
operations. Management reviews the carrying values of its investments and writes
such investments down to estimated fair value by a charge to operations when
such review results in management's determination that an investment impairment
is considered to be other than temporary.  As of September 30, 2001, management
believes its unrealized losses aggregating $46,000 to be temporary in nature.
The cost of securities sold is based on the specific identification method.

                                       7
<PAGE>

                         GLACIER WATER SERVICES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                              September 30, 2001
                                  (unaudited)

     At September 30, 2001, short-term investments consisted of the following
(in thousands):

<TABLE>
<CAPTION>

                                             Gross         Gross     Estimated
                                           Unrealized   Unrealized      Fair
                                    Cost      Gains        Losses      Value
                                    ----      -----        ------      -----
<S>                             <C>           <C>         <C>        <C>
    Corporate securities         $  1,511     $  118      $   --     $  1,629
    Mortgage backed securities        416         --        (164)         252
                                 --------     ------      -------    --------
      Total debt securities      $  1,927     $  118      $ (164)    $  1,881
                                 ========     ======      =======    ========
</TABLE>

     The Company's primary market risk exposure is interest rate risk.  The
Company's exposure to interest rate risk relates primarily to the opportunity
cost associated with fixed rate obligations.  At September 30, 2001, the Company
held a portfolio of marketable securities, which were non-investment grade debt
securities, with an estimated fair value equal to $1,881,000, which consisted of
corporate debt securities and a mortgage backed security with carrying values of
$1,629,000 and $252,000, respectively.

     Proceeds from sales of marketable securities for the three- and nine-month
periods ended September 30, 2001 were $156,000 and $1,012,000, respectively.
Proceeds from the maturities of marketable securities for the three- and nine-
month periods ended September 30, 2001 were $50,000 and $165,000, respectively.
There were no realized gains on such sales or maturities for the three- and
nine-month periods ended September 30, 2001.  Gross realized losses on such
sales or maturities for the three- and nine-month periods ended September 30,
2001 were $25,000 and $31,000, respectively.  Gross realized gains on such sales
for the nine-month period ended September 30, 2001 were $30,000.  The mortgage
backed securities have a maturity date of December 2021.  The Company's
investment portfolio is managed by Kayne Anderson Capital Advisors, L.P., a
related party.

     For the quarter ended September 30, 2001, the Company incurred net
investment income totaling $29,000, which consisted of management fees of
$3,000, investment earnings of $57,000, and net realized losses on the sale or
maturities of investments of $25,000 compared to a net investment income
totaling $344,000, which consisted of management fees of $10,000, investment
earnings of $324,000, and a net realized gain on the sale or maturities of
investments of $30,000 for the same period last year. For the nine-month period
ended September 30, 2001, the Company incurred net investment income totaling
$222,000, which consisted of management fees of $11,000, investment earnings of
$236,000, and a net realized loss on the sale or maturities of investments of
$3,000 compared to a net investment income totaling $885,000, which consisted of
management fees of $35,000, investment earnings of $860,000, and a net realized
gain on the sale or maturities of investments of $60,000 for the same period
last year.

     At December 31, 2000, investments available-for-sale consisted of the
following (in thousands):

<TABLE>
<CAPTION>

                                             Gross         Gross     Estimated
                                           Unrealized   Unrealized      Fair
                                    Cost      Gains        Losses      Value
                                    ----      -----        ------      -----
<S>                             <C>           <C>         <C>        <C>
   Corporate securities         $  2,523      $  117      $   --     $  2,640
   Mortgage backed securities        584          --         (29)         555
                                --------      ------      -------    --------
     Total debt securities      $  3,107      $  117      $  (29)    $  3,195
                                ========      ======      =======    ========
</TABLE>

                                       8
<PAGE>

                         GLACIER WATER SERVICES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                              September 30, 2001
                                  (unaudited)


3. Non-Recurring Charges

     In the third quarter of 2000, the Company approved a plan to discontinue
operations in Mexico.  As a result, the Company incurred non-recurring charges
totaling $1,400,000 associated with the closure of its Mexico operation.  The
non-recurring charges consisted of leasehold improvement write-down of $545,000
related to water stores and warehouse, impairment losses on the disposal of
equipment and fixtures located in Mexico of $338,000, severance costs of $83,000
related to involuntary termination of 35 employees, lease termination costs of
$42,000, building closure expenses of $192,000, fees paid to advisors regarding
actions to be taken in the restructuring of $117,000 and other direct costs
associated with the exit plan of $83,000.  By the end of the third quarter of
2000, the closure of the Mexico operation was substantially complete and the
Company recorded an accrual of 376,000 relating to the exit activities,
principally severance, lease terminations costs and fees to advisors.

     The company calculated the impairment loss on assets to be disposed of, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, by measuring the amount by which the carrying value exceeded the
fair value less cost to sell the assets.  Fair value was determined based upon
the best information available for prices of similar assets, which could be
bought or sold in a current transaction between unrelated parties.  Further, in
accordance with Emerging Issues Task Force (EITF) Issue 94-03, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring), the Company
accrued exit costs, which were identifiable and estimable.

4. Inventories

     Inventories consist of machine parts used to repair vending machines in
operation, and are stated at the lower of cost (moving weighted average) or
market.  Periodically these parts are used to assemble vending machines.  Costs
associated with the assembly of vending machines are accumulated until finished
machines are ready for installation at a retail location, at which time the
costs are transferred to property and equipment.  As of September 30, 2001 and
December 31, 2000, there were no vending machines in the process of assembly.

5. Long-Term Debt and Line of Credit

     The outstanding shares of the Glacier Water Trust Preferred Securities
(AMEX: HOO_pa) issued by Glacier Water Trust I, a wholly owned subsidiary of the
Company, (the "Trust Preferred Securities") represent the Company's long-term
debt.  As of September 30, 2001, there were 2,478,600 shares of the Trust
Preferred Securities outstanding, which had a carrying value of $61,965,000 and
have a maturity date of January 31, 2028.  The Company has a credit facility
with Tokai Bank of California, which provides for borrowings of up to
$10,000,000. The credit facility, which has a current maturity date of June 1,
2002, requires monthly interest payments at the lender's prime rate (6.00% per
annum at September 30, 2001) or LIBOR plus 1.90% (4.53% per annum at September
30, 2001).  As of September 30, 2001, the Company had approximately $8,250,000
of funds available under the credit facility.

                                       9
<PAGE>

                         GLACIER WATER SERVICES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                              September 30, 2001
                                  (unaudited)

6. Extraordinary Item

     As of September 30, 2001, the Company's Board of Directors has authorized
the Company to purchase up to 1,250,000, or approximately 36.8% of the 3,400,000
shares, of the Trust Preferred Securities  in the open market as part of the
Company's stock repurchase plan.  No shares of the Trust Preferred Securities
were repurchased during the quarter ended September 30, 2001. Through September
30, 2001, the Company has repurchased 921,400 shares of the Trust Preferred
Securities at an average price of $16.41.

7. Issuance of 8% Cumulative Redeemable Convertible Preferred Stock

     During the quarter ended July 1, 2001, the Company issued 16,000 shares of
Glacier Water Cumulative Redeemable Convertible Preferred Stock (the "Preferred
Stock"), which resulted in an increase to stockholders' equity of $1,600,000.
Holders of the Preferred Stock are entitled to receive, when declared by the
Board of Directors, a cumulative, preferential dividend ("Dividend") at the rate
of 8% per annum of the original purchase price of each share of Preferred Stock.
If after Dividends have been declared, the Company declares dividends or other
distributions on the common stock, such distributions shall be declared pro rata
on the common stock and the Preferred Stock.

     In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will be entitled
to be paid out of the assets of the Company available for distribution, before
any payment shall be made to holders of the common stock or any other class or
series of stock of the Company ranking junior to the Preferred Stock, an amount
equal to $100.00 per share plus any accrued but unpaid Dividends ("Liquidation
Amount").  After payment of the Liquidation Amount, all of the remaining assets
of the Company available for distribution shall be distributed ratably among
holders of all preferred and common stock of the Company.  The Preferred Stock
may be redeemed on or after the third anniversary of the issuance, at the
election of the Company, for redemption prices equal to 103%, 102%, 101%, and
100% of the Liquidation Amount on or after the third, fourth, fifth, and sixth
anniversary, respectively.  In addition, the Preferred Stock may be redeemed, at
the election of the Company, at 100% of the Liquidation Amount if the closing
price of the Company's common stock remains at or above $19.00 for 10
consecutive trading days.  The Preferred Stock is convertible into shares of
common stock computed by dividing the Liquidation Amount, with respect to the
number of shares of Preferred Stock to be converted, by $9.50.

     For the three- and nine-month periods ended September 30, 2001, the Company
accrued $32,000 and $34,000, respectively, for dividends associated with the
Cumulative Redeemable Convertible Preferred Stock.

                                       10
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS

     This report contains "forward-looking" information, as that term is defined
by the federal securities laws, about our financial condition, results of
operations and business.  You can find many of these statements by looking for
words such as "may", "will", "expect", "anticipate", "believe", "estimate", and
similar words used in this report.  The forward-looking statements in this
report are intended to be subject to the safe harbor protection provided by the
federal securities laws.

     These forward-looking statements are subject to numerous assumptions, risks
and uncertainties (including trade relations and completion) that may cause our
actual results to be materially different from any future results expressed or
implied in those statements.

     Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the forward-
looking statements. We caution readers not to place undue reliance on these
statements, which speak only as of the date of this report.

     The cautionary statements set forth above should be considered in
connection with any subsequent written or oral forward-looking statements that
we or persons acting on our behalf may issue.  We do not undertake any
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events.

Results of Operations
---------------------

Overview
--------

     The Company has built an extensive network of water vending machines
located throughout the United States by placing its water vending machines at
supermarkets and other retail locations in order to take advantage of the
regular customer traffic at such locations.  As of September 30, 2001, the
Company operated 13,396 machines in 35 states compared to 13,454 machines at the
same time last year.  As reported previously, the Company discontinued its
Mexico City, Mexico operation during the third quarter last year and returned
approximately 500 machines to United States.  These machines are currently being
stored in Houston, Texas awaiting redeployment.

     Over the past three years, the Company has expanded into new markets.  Such
expansion has required the Company to commit costs in support of the
infrastructure necessary to support these new markets.  Future expansion of
vending machines into new markets will be limited in order to allow the Company
to concentrate its efforts on installing machines at new locations within
existing markets where it currently operates.  This strategy should build
synergies and enhance the Company's ability to leverage its fixed costs in the
new markets.  The Company continually looks for ways to reduce operating costs
in all areas.   The Company continually explores opportunities to implement
technology to improve the efficiency of servicing the vending machines to lower
operating cost.  The Company continues to monitor selling, general and
administrative expenses and reduces costs where possible.  Further, in an effort
to improve net results, the Company has utilized its net cash provided by
operations and proceeds from the sale of investments to retire early, at a
discount, a portion of the long-term debt.  This early retirement of a portion
of the long-term debt reduces the Company's interest expense and improves its
net results.

                                       11
<PAGE>

Revenues
--------

     Revenues for the quarter ended September 30, 2001, increased $34,000 or
0.2% to $17,248,000 from $17,214,000 for the third quarter a year ago.  For the
nine-month period ended September 30, 2001, revenues increased $223,000 or 0.5%
to $46,161,000 compared to $45,938,000 for the same period in the prior year.
The increase in revenues for both the three- and nine-month periods ended
September 30, 2001 was due primarily to higher average revenues per machine this
year compared to last year, offset by the impact of the discontinuance of the
Mexico operation in the third quarter last year.  The Company realized revenue
improvements from the maturing of inside machines and the overall maturing of
new markets.

     The Company began operations in Mexico during fiscal 1998.  As previously
discussed, the Mexico operation was discontinued during the third quarter last
year.  The Company recognized revenues from the Mexico operation of
approximately $79,000 and $326,000 for the three- and nine-month periods ended
September 30, 2000, respectively.  At its peak, the Company operated 434
machines in Mexico, of which, approximately 120 were located in water stores.
However, these revenues were overshadowed by larger operating costs (refer to
section entitled Costs and Expenses), which resulted in net operating losses of
approximately $258,000 and $824,000 not including the $1,400,000 non-recurring
charges for the three- and nine-month periods ended October 1, 2000,
respectively.  Accordingly, during the third quarter of 2000, to improve the
Company's operating results, the operations in Mexico ceased and approximately
500 machines were returned to the United States for future deployment.

Costs and Expenses
------------------

     Operating expenses for the quarter ended September 30, 2001 decreased
$273,000 to $10,591,000, or 61.4% of revenues, compared to $10,864,000, or 63.1%
of revenues in the same period last year.  Operating expenses for the nine-month
period ended September 30, 2001 decreased $680,000 to $29,120,000, or 63.1% of
revenues, compared to $29,800,000, or 64.9% of revenues in the same period last
year. The decrease in total operating expenses for both the three- and nine-
month periods ended September 30, 2001 was the result of lower commission
expenses, lower cost of operations due to cost containment efforts and
efficiencies, and the discontinuance of the Mexico operation.

     The Mexico operation incurred operating expenses of approximately $184,000
and $569,000 for the three- and nine-month periods ended October 1, 2000,
respectively.  The operating costs in Mexico represented costs to service
vending machines and rent, utilities and personnel associated with the water
stores.

     In the third quarter of 2000, the Company approved a plan to discontinue
operations in Mexico.  As a result, the Company incurred non-recurring charges
totaling $1,400,000 associated with the closure of its Mexico operation.  The
non-recurring charges consisted of leasehold improvement write-down of $545,000
related to water stores and warehouse, impairment losses on the disposal of
equipment and fixtures located in Mexico of $338,000, severance costs of $83,000
related to involuntary termination of 35 employees, lease termination costs of
$42,000, building closure expenses of $192,000, fees paid to advisors regarding
actions to be taken in the restructuring of $117,000 and other direct costs
associated with the exit plan of $83,000.  By the end of the third quarter of
2000, the closure of the Mexico operation was substantially complete and the
Company recorded an accrual of $376,000 relating to the exit activities,
principally severance, lease terminations costs and fees to advisors.

     Selling, general and administrative ("SG&A") expenses for the quarter ended
September 30, 2001 decreased $308,000 to $2,059,000, or 11.9% of revenues,
compared to $2,367,000, or 13.8% of revenues in the same period last year.  The
change in SG&A expenses for the quarter ended September

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<PAGE>

30, 2001 was primarily due to cost containment efforts this year and the
discontinuance of the Mexico operation which incurred SG&A expenses of $103,000
last year. SG&A expenses for the nine-month period ended September 30, 2001
decreased $32,000 to $6,614,000, or 14.3% of revenues, compared to $6,646,000,
or 14.5% of revenues in the same period last year. The change in SG&A expenses
for the nine-month period ended September 30, 2001, was primarily due to a
reduction associated with the discontinuance of the Mexico operation, offset by
an increase due to certain overhead costs previously allocated as part of the
manufacturing process. As a result of the suspension of the Company's
manufacturing activity in June 2000, these costs are currently included in SG&A.
Also included are severance costs associated with the termination of employment
of certain executives during the first quarter this year.

     Depreciation and amortization expense was $3,152,000 for the quarter ended
September 30, 2001, compared to $3,068,000 in the same period last year.
Depreciation and amortization expense was $9,090,000 for the nine-month period
ended September 30, 2001, compared to $9,179,000 for the same period last year.
The Mexico operation incurred depreciation and amortization expenses of $50,000
and $185,000 for the three- and nine-month periods ended October 1, 2000,
respectively.  The machines that were returned to the United States from Mexico,
are being stored in Houston, Texas and continue to be depreciated.

     Interest expense decreased to $1,454,000, for the quarter ended September
30, 2001, compared to $1,759,000 in the same period last year.  Interest expense
for the nine-month period ended September 30, 2001 decreased to $4,550,000,
compared to $5,326,000 in the same period last year.  The decrease in interest
expense for both the three- and the nine-month periods was the result of lower
debt levels this year compared to last year. The lower debt levels were
attributed to the Company's repurchase of the Trust Preferred Securities and
lower outstanding balances on the Company's revolving line of credit.  The
Mexico operation incurred interest income of $3,000 and $11,000 for the three-
and nine-month periods ended October 1, 2000, respectively.

     For the quarter ended September 30, 2001, the Company incurred net
investment income totaling $29,000, which consisted of management fees of
$3,000, investment earnings of $57,000, and net realized losses on the sale or
maturities of investments of $25,000.  This compares to prior year net
investment income totaling $344,000, which consisted of management fees of
$10,000, investment earnings of $324,000, and a net realized gain on the sale or
maturities of investments of $30,000. For the nine-month period ended September
30, 2001, the Company incurred net investment income totaling $222,000, which
consisted of management fees of $11,000, investment earnings of $236,000, and a
net realized loss on the sale or maturities of investments of $3,000. This
compares to prior year net investment income totaling $885,000, which consisted
of management fees of $35,000, investment earnings of $860,000, and a net
realized gain on the sale or maturities of investments of $60,000.  The decrease
in investment income for both the three- and nine-month periods was the result
of having lower investments this year compared to last year.

     For the quarter ended September 30, 2001, the Company reported no net
extraordinary gain resulting from the early retirement of debt compared to a net
extraordinary gain of $318,000 for the same quarter last year.  Last year's net
extraordinary gain of $318,000 was the result of a gain of $379,000 less the
write-off of $61,000 of related deferred debt costs.  For the nine-month period
ended September 30, 2001, the Company repurchased 400 shares at an average price
of $13.55, which resulted in a net extraordinary gain of $4,100 compared to a
net extraordinary gain of $1,851,000 for the same time last year.    The net
extraordinary gain of $4,100 this year was the result of a gain of $4,600 less
the write-off of $500 of related deferred debt costs.

     As a result of the foregoing, the Company incurred income before
extraordinary gain on the early retirement of debt of  $21,000 for the quarter
ended September 30, 2001 compared to a loss of $1,900,000 for the quarter ended
October 1, 2000.  After giving effect to the extraordinary gain, the

                                       13
<PAGE>

Company had net income of $21,000 for the quarter ended September 30, 2001,
compared with a loss of $1,582,000 for the same quarter last year.

     For the nine-months ended September 30, 2001, the Company incurred a loss
before extraordinary gain on the early retirement of debt of $2,991,000 compared
to a loss before extraordinary gain of $5,528,000 for the same period last year.
After giving effect to the extraordinary gain, the net loss for the nine-month
period was $2,987,000 compared to a net loss of $3,677,000 for the same nine-
month period last year.

     During the nine-month period ended September 31, 2001, the Company issued
16,000 shares of 8% Glacier Water Cumulative Redeemable Convertible Preferred
Stock (the "Preferred Stock") and accordingly, preferred dividends of $32,000
have been accrued as of September 31, 2001 and will reduce any amounts available
to the common stockholders.

Liquidity and Capital Resources
-------------------------------

     The Company's primary sources of liquidity and capital resources were cash
and investments, cash flows from operations, funds available under the Company's
credit facility and proceeds from the issuance of 16,000 shares of Preferred
Stock.  On June 23, 2000, the Company entered into a credit facility with Tokai
Bank of California, which provides for borrowings of up to $10,000,000. The
credit facility, which has a current maturity date of June 1, 2002, requires
monthly interest payments at the lender's prime rate (6.00% per annum at
September 30, 2001) or LIBOR plus 1.90% (4.53% per annum at September 30, 2001).
As of September 30, 2001, the Company had approximately $8,250,000 of funds
available under the credit facility.

     At September 30, 2001, the Company had cash and cash equivalents and
marketable securities of $4,183,000 and working capital of $1,918,000.  Net cash
provided by operating activities was $6,163,000; net cash used in investing
activities was $959,000; and net cash used by financing activities was
$4,330,000 for the nine-month period ended September 30, 2001.  The Company's
stockholders' equity as of September 30, 2001 was a negative $1,327,000, which
amount is below the American Stock Exchange's minimum stockholders' equity
requirement of $4,000,000.

     During the quarter ended July 1, 2001, the Company issued 16,000 shares of
Glacier Water Cumulative Redeemable Convertible Preferred Stock (the "Preferred
Stock"), which resulted in an increase to stockholder's equity of $1,600,000.
Holders of the Preferred Stock are entitled to receive, when declared by the
Board of Directors, a cumulative, preferential dividend ("Dividend") at the rate
of 8% per annum of the original purchase price of each share of Preferred Stock.
Redemption of the Preferred Stock is solely at the option of the Company at any
time after July 1, 2004.

     The Company believes that its cash and investments on hand, cash flow from
operations and availability under its credit facility, will be sufficient to
meet its anticipated operating and capital requirements, including its
investment in vending machines, as well as distributions related to the Trust
Preferred Securities and dividend requirements on its Cumulative Redeemable
Convertible Preferred Stock, for at least the next twelve months.

     During the nine-month period ended September 30, 2001, the Company
repurchased 400 shares of Trust Preferred Securities at an average price of
$13.55.  The Company used $5,420 in cash to repurchase $10,000 face value of its
long-term debt less $500 of deferred financing costs.  As of September 30, 2001,
the Company's Board of Directors have authorized the Company to purchase
1,250,000 shares of the Trust Preferred Securities in the open market as part of
the Company's stock repurchase plan. Through September 30, 2001, the Company had
repurchased 921,400 shares of Trust Preferred Securities at a cost of
$15,118,000 for an average price of $16.41 retiring a face value of $23,035,000
less $1,098,000 deferred financing costs.  The Company believes that this is an
excellent use of the Company's cash as it will result in reducing debt levels
thereby lowering interest expense in excess of $2,000,000 per year for the
remainder of the debt's outstanding maturity.

                                       14
<PAGE>

ITEM 3 - QUANTITATIVE AND QUALITIVE DISCLOSURE ABOUT MARKET RISK

     The Company's primary market risk exposure is interest rate risk.  The
Company's exposure to interest rate risk relates primarily to the opportunity
cost associated with fixed rate obligations.  At September 30, 2001, the Company
held a portfolio of marketable securities, which included non-investment grade
debt securities, with an estimated fair value equal to $1,881,000 which
consisted of corporate debt securities and a mortgage backed security with
carrying values of $1,629,000 and $252,000, respectively.

     The Company's investment portfolio is managed by Kayne Anderson Capital
Advisors, L.P., a related party, primarily in fixed rate corporate bonds and
mortgage backed securities.

                          PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     As of September 30, 2001, the Company was not involved in any legal
proceedings that in management's determination will have a material impact on
the Company, its financial position or its results of operation.

Item 6.  Exhibits and Reports on Form 8-K

      a. Exhibits
         --------
         None

      b. Reports on Form 8-K
         -------------------
         None

                                  SIGNATURES

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



                                GLACIER WATER SERVICES, INC.

Date:  November 4, 2001            By: /s/Brian H. McInerney
                                       -------------------------------------
                                       Brian H. McInerney
                                       President and Chief Executive Officer


Date:  November 4, 2001            By: /s/W. David Walters
                                       --------------------------------------
                                       W. David Walters
                                       Senior Vice President and
                                       Chief Financial Officer

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