<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: July 1, 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 July 28, 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>
                                                                                         July 1,          December 31,
                                                                                           2001              2000 *
                                                                                         --------         -----------
                      Assets                                                           (unaudited)
                      ------
<S>                                                                                  <C>            <C>
Current assets:
   Cash and cash equivalents.......................................................      $  2,888           $  1,428
   Investments, available for sale.................................................         2,109              3,195
   Accounts receivable.............................................................           646                765
   Inventories.....................................................................         2,549              2,587
   Prepaid expenses and other......................................................           691              1,070
                                                                                         --------           --------
      Total current assets.........................................................         8,883              9,045

Property and equipment, net of accumulated depreciation............................        52,135             55,366
Other assets.......................................................................         9,016             10,205
                                                                                         --------           --------
Total assets.......................................................................      $ 70,034           $ 74,616
                                                                                         ========           ========

               Liabilities and Stockholders' Equity (Deficit)
               ----------------------------------------------
Current liabilities:
   Accounts payable................................................................      $    552           $    839
   Accrued commissions.............................................................         2,360              2,286
   Accrued liabilities.............................................................         1,471              1,609
   Line of Credit..................................................................         5,000                 --
                                                                                         --------           --------
      Total current liabilities....................................................         9,383              4,734

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

Stockholders' equity (deficit):
   Common stock, $.01 par value; 10,000,000 shares authorized,
      2,834,474 shares issued and outstanding......................................            35                 35
   Preferred stock, $.01 par value; 8% cumulative redeemable convertible; 100,000
    shares authorized, 16,000 and no shares, respectively, issued and outstanding..            --                 --
   Additional paid-in capital......................................................        17,788             16,188
   Retained deficit................................................................        (4,235)            (1,227)
   Treasury stock, at cost, 603,726 shares.........................................       (14,852)           (14,852)
   Accumulated other comprehensive income (loss)...................................           (50)                88
                                                                                         --------           --------
      Total stockholders' equity (deficit).........................................        (1,314)               232
                                                                                         --------           --------
Total liabilities and stockholders' equity (deficit)...............................      $ 70,034           $ 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               Six Months Ended
                                                                ---------------------------     --------------------------
                                                                 July 1,         July 2,         July 1,         July 2,
                                                                   2001            2000            2001            2000
                                                                ----------      ----------      ----------      ----------
<S>                                                            <C>             <C>             <C>             <C>
Revenues...................................................     $   15,473      $   15,939      $   28,913      $   28,724

Operating costs and expenses:
     Operating expenses....................................          9,749          10,349          18,529          18,936
     Selling, general and administrative expenses..........          2,231           2,282           4,555           4,279
     Depreciation and amortization.........................          3,028           3,077           5,938           6,110
                                                                ----------      ----------      ----------      ----------
          Total operating costs and expenses...............         15,008          15,708          29,022          29,325
                                                                ----------      ----------      ----------      ----------

Income (loss) from operations..............................            465             231            (109)           (601)

Other (income) expenses:
     Interest expense......................................          1,530           1,785           3,096           3,568
     Investment income.....................................            (75)           (302)           (194)           (541)
                                                                ----------      ----------      ----------      ----------
Total other expenses.......................................          1,455           1,483           2,902           3,027
                                                                ----------      ----------      ----------      ----------

Loss before income taxes and extraordinary item............           (990)         (1,252)         (3,011)         (3,628)

Income tax benefit.........................................             --              --              --              --
                                                                ----------      ----------      ----------      ----------

Loss before extraordinary gain.............................           (990)         (1,252)         (3,011)         (3,628)

Extraordinary gain on early retirement of debt, net
  of tax...................................................             --             460               4           1,533
                                                                ----------      ----------      ----------      ----------

Net loss...................................................     $     (990)     $     (792)     $   (3,007)     $   (2,095)
                                                                ==========      ==========      ==========      ==========

Basic and diluted loss per share:
Loss before extraordinary item.............................     $    (0.35)     $    (0.44)         $(1.06)     $    (1.28)
Extraordinary gain.........................................             --             .16              --             .54
                                                                ----------      ----------      ----------      ----------
Net loss...................................................     $    (0.35)     $    (0.28)         $(1.06)     $    (0.74)
                                                                ==========      ==========      ==========      ==========

Shares used in calculation.................................      2,834,474       2,843,965       2,834,474       2,834,570
</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)
<TABLE>
<CAPTION>

                                                                         Three Months Ended            Six Months Ended
                                                                       -----------------------      ------------------------
                                                                         July 1,      July 2,        July 1,        July 2,
                                                                          2001         2000            2001          2000
                                                                        ---------     --------      ---------      ---------
<S>                                                                   <C>            <C>            <C>             <C>
Net loss                                                                $(990)         $(792)        $(3,007)        $(2,095)
                                                                        -----          -----         -------         -------
Unrealized  (loss) on securities:
    Unrealized holding gain (loss) arising during the period                4             48            (162)           (382)
    Less: reclassification adjustment for losses (gains)
     included in net loss                                                   5            (20)            (24)             30
                                                                        -----          -----         -------         -------
Net unrealized gain (loss)                                                 (1)            68            (138)           (412)
                                                                        -----          -----         -------         -------
Comprehensive loss                                                      $(991)         $(724)        $(3,145)        $(2,507)
                                                                        =====          =====         =======         =======
</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>
                                                                                   Six Months Ended
                                                                               -----------------------
                                                                               July 1,         July 2,
                                                                                2001            2000
                                                                               -------         -------
<S>                                                                          <C>             <C>
Cash flow from operating activities:
   Net loss                                                                    $(3,007)        $(2,095)
   Adjustments to reconcile net loss to net cash provided by
     operating activities:
       Depreciation and amortization                                             5,938           6,110
       Loss on disposal of assets                                                   33              10
       Extraordinary gain on early retirement of debt                               (4)         (1,533)
       Realized gain on sales of investments                                       (24)            (30)
   Change in operating assets and liabilities:
       Accounts receivable                                                         119            (236)
       Inventories                                                                  38             448
       Prepaid expenses and other                                                  379             127
       Payments for prepaid marketing incentives                                  (153)         (2,289)
       Other assets                                                                 51             111
       Accounts payable, accrued liabilities and accrued commissions              (351)           (394)
                                                                               -------         -------
                    Total adjustments                                            6,026           2,324
                                                                               -------         -------
                    Net cash provided by operating activities                    3,019             229
                                                                               -------         -------
Cash flows from investing activities:
   Net investment in vending equipment                                          (1,294)         (4,965)
   Purchase of property and equipment                                             (156)           (364)
   Purchase of investments                                                          --            (799)
   Proceeds from sale of investments                                               856           2,670
   Proceeds from maturities of investments                                         115             142
                                                                               -------         -------
                    Net cash used in investing activities                         (479)         (3,316)
                                                                               -------         -------
Cash flows from financing activities:
   Early retirement of debt                                                         (5)         (2,900)
   Proceeds from borrowings on line of credit                                    6,865          10,976
   Principal payments on line of credit                                         (9,540)         (7,703)
   Proceeds from issuance of stock                                               1,600              69
                                                                               -------         -------
                     Net cash (used in) provided by financing activities        (1,080)            442
                                                                               -------         -------
Net increase (decrease) in cash and cash equivalents                             1,460          (2,645)
Cash and cash equivalents, beginning of period                                   1,428           4,205
                                                                               -------         -------
Cash and cash equivalents, end of period                                       $ 2,888         $ 1,560
                                                                               =======         =======
</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>


                                                                                                  Six Months Ended
                                                                                               ----------------------
                                                                                                  July 1,    July 2,
                                                                                                   2001       2000
                                                                                               -----------  ---------
<S>                                                                                              <C>          <C>
   Cash paid for interest....................................................................       $3,102       $3,384
                                                                                                    ======       ======

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


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

                                       6
<PAGE>

                         GLACIER WATER SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  July 1, 2001
                                  (unaudited)


  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.

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 six-month periods ended July 1, 2001 and
July 2, 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 six-month period ended July 1, 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.

                                       7
<PAGE>

                          GLACIER WATER SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                  July 1, 2001
                                  (unaudited)

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 July 1, 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 July 1, 2001, management believes
its unrealized losses aggregating $50,000 to be temporary in nature. The cost of
securities sold is based on the specific identification method.

     At July 1, 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                   $1,667          $118          $  --         $1,785
Mortgage backed securities                492            --           (168)           324
                                       ------          ----          -----         ------
Total debt securities                  $2,159          $118          $(168)        $2,109
                                       ======          ====          =====         ======
</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 July 1, 2001, the Company held
a portfolio of marketable securities, which were non-investment grade debt
securities, with an estimated fair value equal to $2,109,000, which consisted of
corporate debt securities and a mortgage backed security with carrying values of
$1,785,000 and $324,000, respectively.

     Proceeds from sales of marketable securities for both the three- and six-
month periods ended July 1, 2001 were $856,000 as the Company had no sales
during the first quarter.  Proceeds from the maturities of marketable securities
for the three- and six-month periods ended July 1, 2001 were $56,000 and
$115,000, respectively.  Gross realized gains on such sales or maturities for
the three- and six-month periods ended July 1, 2001 were $1,000 and $30,000,
respectively.  Gross realized losses on such sales or maturities for both the
three- and six-month periods ended July 1, 2001 were $6,000.  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 July 1, 2001, the Company incurred net investment
income totaling $75,000, which consisted of management fees of $4,000,
investment earnings of $84,000, and net realized losses on the sale or
maturities of investments of $5,000 compared to a net investment income totaling
$302,000, which consisted of management fees of $11,000, investment earnings of
$292,000,

                                       8
<PAGE>

                          GLACIER WATER SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                  July 1, 2001
                                  (unaudited)

and a net realized gain on the sale or maturities of investments of $21,000 for
the same period last year.  For the six-month period ended July 1, 2001, the
Company incurred net investment income totaling $194,000, which consisted of
management fees of $8,000, investment earnings of $178,000, and a net realized
gain on the sale or maturities of investments of $24,000 compared to a net
investment income totaling $541,000, which consisted of management fees of
$25,000, investment earnings of $536,000, and a net realized gain on the sale or
maturities of investments of $30,000 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>

3.   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 July 1, 2001 and
December 31, 2000, there were no vending machines in the process of assembly.

4.   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 July 1, 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 (6.75% per annum at July 1,
2001) or LIBOR plus 1.90% (5.99% per annum at July 1, 2001).  As of July 1,
2001, the Company had approximately $5,000,000 of funds available under the
credit facility.

5.   Extraordinary Item

     As of July 1, 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 July 1, 2001. Through July 1, 2001,
the Company has repurchased 921,400 shares of the Trust Preferred Securities at
an average price of $16.41.

                                       9
<PAGE>

                          GLACIER WATER SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                  July 1, 2001
                                  (unaudited)

6.   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 shareholder'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.
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.  The Company accrued $2,100 in
dividends for the quarter ended July 1, 2001 associated with 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.

                                       10
<PAGE>

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


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 July 1, 2001, the Company
operated 13,419 machines in 35 states compared to 13,817 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 in 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, at a discount, a
portion of the long-term debt early.  This early retirement of a portion of the
long-term debt reduces the Company's interest expense and improves its net
results. The Company continually evaluates opportunities to either streamline or
make operations more efficient.

Revenues
--------

     For the quarter ended July 1, 2001, revenues decreased $466,000 or 2.9% to
$15,473,000 compared to $15,939,000 for the second quarter a year ago.  The
decrease in revenues for the quarter was the result of having fewer machines in
operation compared to the prior year and the discontinuance of the Mexico
operation during the third quarter of last year.  For the six-month period ended
July 1, 2001, revenues increased $189,000 or 0.7% to $28,913,000 compared to
$28,724,000 for the same period in the prior year. The increase in revenues for
the six-month period ended July 1, 2001 was due primarily to the higher revenues
per machine this year offset by fewer machines in operation and the
discontinuance of the Mexico operation during the third quarter of last year.

     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 Mexican operation of
approximately $136,000 and $247,000 for the three- and six-month periods ended
July 2, 2000, respectively.  Prior to the discontinuance of the operations in
Mexico during the third quarter last year, the Company operated 434 machines in
Mexico at its peak, of which, approximately 120 were located in water stores,
which are retail stores that offered vended water as well as bottle cleaning
services.  The number of water stores peaked at approximately 40 by the third
quarter of 2000.  However, these revenues were overshadowed by larger operating
costs (refer to section entitled Costs and Expenses), which resulted in
significant net losses of approximately $276,000 and $558,000 for the three- and
six-month periods ended July 2, 2000, respectively.

                                       11
<PAGE>

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 July 1, 2001 decreased $600,000 to
$9,749,000, or 63.0% of revenues, compared to $10,349,000, or 64.9% of revenues
in the same period last year.  The decrease in total operating expenses for the
quarter ended July 1, 2001 was the result of lower commission expense due to
lower revenues, lower cost of operations due to efficiencies realized in a
number of markets and the discontinuance of the Mexico operation.  Operating
expenses for the six-month period ended July 1, 2001 decreased $407,000 to
$18,529,000, or 64.1% of revenues, compared to $18,936,000, or 65.9% of revenues
in the same period last year. The decrease in total operating expenses for the
six-month period ended July 1, 2001 was the result of lower cost of operations
due to efficiencies realized in a number of markets and the discontinuance of
the Mexico operation offset by higher commission expense related to the increase
in revenues.

     The Mexico operation incurred operating expenses of approximately $215,000
and $385,000 for the three- and six-month periods ended July 2, 2000,
respectively.  The operating costs in Mexico was the result of the number of
vending machines placed in service as well as fixed costs which were primarily
rent, utilities and personnel, associated with the number of water stores
established in Mexico.

     Selling, general and administrative ("SG&A") expenses for the quarter ended
July 1, 2001 decreased $51,000 to $2,231,000, or 14.4% of revenues, compared to
$2,282,000, or 14.3% of revenues in the same period last year.  Included in the
SG&A for the three-month period ended July 2, 2000, was $126,000 attributed to
the Mexico operation last year. SG&A expenses for the six-month period increased
$276,000 to $4,555,000, or 15.8% of revenues, compared to $4,279,000, or 14.9%
of revenues in the same period last year.  Included in the SG&A for the six-
month period ended July 2, 2000, was $293,000 attributed to the Mexico
operation.  The change in SG&A expenses for both the quarter and the six-month
periods ended July 1, 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, which
are currently included in SG&A as a result of the suspension of the Company's
manufacturing activity in June 2000.  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 $3,028,000 for the quarter ended
July 1, 2001, compared to $3,077,000 in the same period last year.  Depreciation
and amortization expense was $5,938,000 for the six-month period ended July 1,
2001, compared to $6,110,000 for the same period last year.  The Mexico
operation incurred depreciation and amortization expenses of $73,000 and
$135,000 for the three- and six-month periods ended July 2, 2000 last year.  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 $1,530,000, for the quarter ended July 1,
2001, compared to $1,785,000 in the same period last year.  Interest expense for
the six-month period ended July 1, 2001 decreased to $3,096,000, compared to
$3,568,000 in the same period last year.  The decrease in interest expense for
both the three- and the six-month periods was the result of lower debt levels
this year compared to last year. The lower debt levels were associated by the
Company's repurchase of the Trust Preferred Securities.   The Mexico operation
incurred interest income of $2,000 and $8,000 for the three- and six-month
periods ended July 2, 2000 last year.

                                       12
<PAGE>

     For the quarter ended July 1, 2001, the Company incurred net investment
income totaling $75,000, which consisted of management fees of $4,000,
investment earnings of $84,000, and net realized losses on the sale or
maturities of investments of $5,000 compared to a net investment income totaling
$302,000, which consisted of management fees of $11,000, investment earnings of
$292,000, and a net realized gain on the sale or maturities of investments of
$21,000 for the same period last year. For the six-month period ended July 1,
2001, the Company incurred net investment income totaling $194,000, which
consisted of management fees of $8,000, investment earnings of $178,000, and a
net realized gain on the sale or maturities of investments of $24,000 compared
to a net investment income totaling $541,000, which consisted of management fees
of $25,000, investment earnings of $536,000, and a net realized gain on the sale
or maturities of investments of $30,000 for the same period last year.  The
decrease in investment income for both the three- and six-month periods was the
result of having lower investments available-for-sale balances this year
compared to last year.

     For the quarter ended July 1, 2001, the Company reported no net
extraordinary gain resulting from the early retirement of debt compared to a net
extraordinary gain of $460,000 for the same quarter last year.  Last year's net
extraordinary gain of $460,000 was the result of a gain of $531,000 less the
write-off of $71,000 of related deferred debt costs.  For the six-month period
ended July 1, 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 $1,533,000 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 a loss before
extraordinary gain on the early retirement of debt of  $990,000, or $.35 per
basic and diluted share for the quarter ended July 1, 2001 compared to a loss of
$1,252,000, or $0.44 per basic and diluted share for the quarter ended July 2,
2000.  After giving effect to the extraordinary gain, the net loss was $990,000,
or $0.35 per basic and diluted share for the quarter ended July 1, 2001,
compared with a loss of $792,000, or $0.28 per share for the same quarter last
year.

     For the six-months ended July 1, 2001, the Company incurred a loss before
extraordinary gain on the early retirement of debt of $3,011,000, or $1.06 per
basic and diluted share compared to a loss before extraordinary gain of
$3,628,000, or $1.28 per basic and diluted share for the same period last year.
After giving effect to the extraordinary gain, the net loss for the six-month
period was $3,007,000, or $1.06 per basic and diluted share compared to a net
loss of $2,095,000, or $0.74 per share for the same six-month period last year.

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 new 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 (6.75% per annum at July 1,
2001) or LIBOR plus 1.90% (5.99% per annum at July 1, 2001).  As of July 1,
2001, the Company had approximately $5,000,000 of funds available under the
credit facility.

     At July 1, 2001, the Company had cash and cash equivalents and marketable
securities of $4,997,000 and negative working capital of $440,000 due to the
revolver balance of $5,000,000 being classified as current due to the June 1,
2002 maturity date.  Net cash provided by operating activities was $3,019,000;
net cash used in investing activities was $479,000; and net cash used by
financing activities was $1,080,000 for the six-month period ended July 1, 2001.
The Company's stockholders'

                                       13
<PAGE>

equity as of July 1, 2001 was a negative $1,314,000, which amount is below the
American Stock Exchange's minimum stockholders' equity requirement of $4.0
million.

     During the quarter ended July 1, 2001, the Company issued 16,000 shares of
Glacier Water Redeemable Convertible Preferred Stock (the "Preferred Stock"),
which resulted in an increase to shareholder'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, for at least the next twelve months.

     During the six-month period ended July 1, 2001, the Company repurchased 400
shares of Trust Preferred Securities at an average price of $13.55.  The Company
used $5,400 in cash to repurchase $10,000 face value of its long-term debt less
$500 of deferred financing costs.  As of July 1, 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 July 1, 2001, the Company had repurchased 921,400
shares of Trust Preferred Securities at an average price of $16.41.  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
$1,300,000 per year for the remainder of the debt's outstanding maturity.

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 July 1, 2001, the Company held
a portfolio of marketable securities, which included non-investment grade debt
securities, with an estimated fair value equal to $2,109,000 which consisted of
corporate debt securities and a mortgage backed security with carrying values of
$1,785,000 and $324,000, 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.

                                       14
<PAGE>

                          PART II - OTHER INFORMATION


Item 1.   Legal Proceedings

     As of July 1, 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:  August 8, 2001          By: /s/Brian H. McInerney
                                   ---------------------
                                   Brian H. McInerney
                                   President and Chief Executive Officer


Date:  August 8, 2001          By: /s/W. David Walters
                                   -------------------
                                   W. David Walters
                                   Senior Vice President and
                                   Chief Financial Officer

                                       15