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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

For the fiscal year ended December 31, 2003

OR

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

For the transition period from      to     

Commission File Number: 0-26580

AMERICAN COIN MERCHANDISING, INC.

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

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

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

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

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

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

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

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

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AMERICAN COIN MERCHANDISING, INC.

Annual Report on Form 10-K

December 31, 2003

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

PART I

Item 1. Business

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

     On February 11, 2002 the Company was acquired by ACMI Holdings, Inc., a newly formed corporation organized by two investment firms, Wellspring Capital Management LLC and Cadigan Investment Partners, Inc. (f/k/a Knightsbridge Holdings, LLC). The Company’s common stock is no longer publicly traded. The Company’s mandatorily redeemable preferred securities remain outstanding and continue to trade on the American Stock Exchange.

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

Business Strategy

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

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

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

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

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

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

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

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

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

Amusement Vending Equipment

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

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

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

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

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

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

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

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

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

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

Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Merchandising

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

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

Suppliers

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

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

Franchise Relations

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

Competition

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

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Intellectual Property

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

Government Regulation

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

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

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

Insurance

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

Employees

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

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

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

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

Item 2. Properties

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

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

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

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

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

Item 3. Legal Proceedings

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

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

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

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PART II

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

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

Item 6. Selected Financial Data

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