UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

AMENDMENT NO. 1 TO

CURRENT REPORT

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

Date of Report (Date of earliest event reported)

April 15, 2003

American Coin Merchandising, Inc.

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation)		001-14780 (Commission File No.)		84-1093721 (IRS Employer Identification No.)

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

(303) 444-2559
(Registrant’s telephone number, including area code)

This Amendment No. 1 to the Current Report of American Coin Merchandising, Inc. (the “Registrant”) on Form 8-K dated April 30, 2003 (the “Report”), relates to the April 15, 2003 acquisition by Folz Vending, Inc. (formally known as FVFN Acquisition Corp.), a wholly owned subsidiary of the registrant, of substantially all of the assets of Folz Vending Co., Inc. and its wholly owned subsidiary Folz Novelty Co., Inc. (collectively “Folz”). The acquisition was made pursuant to an Asset Purchase Agreement dated as of March 14, 2003 by and among FVFN Acquisition Corp (now know as Folz Vending, Inc.), the Registrant, Folz, The Roger Folz Revocable Trust (the sole stockholder of Folz Vending Co., Inc. and the majority stockholder of Folz Novelty Co., Inc.), and Roger Folz (the grantor of the Roger Folz Revocable Trust). The purpose of this Amendment is to amend Items 7(a) and 7(b) of the Report to provide the Folz financial statements and the required pro forma financial information relating to the Registrant’s acquisition of substantially all the assets of Folz on April 15, 2003.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

(a)		Financial Statements of Business Acquired.

		Filed herewith as part of this report are the following Financial Statements of Folz:


Folz Vending Co., Inc. and Affiliates
Combined Financial Statements – Unaudited For the Three Months Ended March 31, 2003 and 2002
	Independent Accountants’ Report
	Combined Balance Sheet as of March 31, 2003
	Combined Statements of Operations for the three months ended March 31, 2003 and 2002
	Combined Statements of Stockholder’s Equity for the three months ended March 31, 2003 and 2002
	Combined Statements of Cash Flows for the three months ended March 31, 2003 and 2002
	Notes to Combined Financial Statements

Folz Vending Co., Inc. and Affiliates
Combined Financial Statements For the Year Ended December 31, 2002
	Independent Accountants’ Report
	Combined Balance Sheet as of December 31, 2002
	Combined Statement of Income for the year ended December 31, 2002
	Combined Statement of Stockholder’s Equity for the year ended December 31, 2002
	Combined Statement of Cash Flows for the year ended December 31, 2002
	Notes to Combined Financial Statements

Folz Vending Co., Inc. and Affiliates
Combined Financial Statements For the Years Ended December 31, 2001 and 2000
	Report of Independent Certified Public Accountants
	Combined Balance Sheets as of December 31, 2001 and 2000
	Combined Statements of Earnings for the years ended December 31, 2001 and 2000
	Combined Statements of Stockholder’s Equity for the years ended December 31, 2001 and 2000
	Combined Statements of Cash Flows for the years ended December 31, 2001 and 2000
	Notes to Combined Financial Statements

(b)		Unaudited Pro Forma Financial Information.

		The following Unaudited Pro Forma Financial Information is attached:


American Coin Merchandising, Inc. and Subsidiaries
	Unaudited Pro Forma Condensed Balance Sheet as of March 31, 2003
	Unaudited Pro Forma Condensed Statement of Operations for the year ended December 31, 2002
	Unaudited Pro Forma Condensed Statement of Operations for the three months ended March 31, 2003
	Notes to Unaudited Pro Forma Condensed Financial Statements

On April 15, 2003, the Registrant completed the acquisition of substantially all of the assets of Folz for $22.0 million subject to certain post-closing adjustments. The acquisition was funded through additional borrowings under the Company’s amended and restated credit facility of $4.5 million, the issuance of $6.5 million of additional senior subordinated notes, and a $12.5 million equity contribution received from its parent Company ACMI Holdings, Inc.

The following unaudited pro forma financial statements assume a business combination between the Registrant and Folz accounted for using the purchase method of accounting. The unaudited pro forma financial statements are based on historical financial statements and the notes thereto of the Registrant included in its annual report on Form 10-K for the year ended December 31, 2002, its quarterly report on Form 10-Q for the three months ended March 31, 2003 and the historical financial statements and notes thereto of Folz filed herewith.

The unaudited pro forma condensed balance sheet combines the Registrant’s March 31, 2003 condensed balance sheet with the Folz March 31, 2003 combined balance sheet, giving effect to the acquisition of Folz, accounted for as a purchase, as if it had occurred on March 31, 2003. The unaudited pro forma condensed statements of operations combine the Registrant’s historical condensed statement of operations for the year ended December 31, 2002 and three months ended March 31, 2003 with the Folz combined historical statement of operations for the same periods giving pro forma effect to the acquisition of Folz, accounted for as a purchase, as if it had occurred on January 1, 2002.

The Registrant’s historical condensed statement of operations for the year ended December 31, 2002 provided herein combines the operating results for eleven months ended December 31, 2002 with the operating results for the one month ended January 31, 2002. The combining of successor and predecessor periods is not acceptable under accounting principles generally accepted in the United States of America; however, the Registrant believes that this presentation is meaningful in the context of this pro forma presentation. Certain amounts contained in the Folz combined historical statement of income for the year ended December 31, 2002 and three months ended March 31, 2003 have been reclassified to conform the Registrant’s basis of presentation.

The unaudited pro forma condensed financial statements reflect the fair value of assets acquired and impact on results of operations and include the adjustments necessary to present the acquired assets as of March 31, 2003 and results of operations for Folz for the year ended December 31, 2002 and three months ended March 31, 2003. Certain adjustments have been made to reflect assets and liabilities that were not acquired in the purchase based upon March 31, 2003 amounts. The Registrant has not completed its valuation of costs in excess of assets acquired and other intangible assets, but expects to do so in the next few months. The pro forma financial statements are based on the preliminary estimates of fair value of the assets acquired and may be subject to additional adjustment.

The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the purchase had been consummated on such dates, nor is it necessarily indicative of future operating results or financial position. Such information is subject to the assumptions set forth in the notes to the pro forma financial statements.

These unaudited pro forma financial statements should be read in conjunction with the historical financial statements and the related notes thereto of the Registrant and the historical financial statements and the notes thereto of Folz filed herewith.

AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 2003
(Amounts in thousands)


				Historical		Historical		Elimination
				American Coin		Combined		of Businesses			Adjustments for the			Pro
				Merchandising, Inc.		Folz		Not Acquired			Acquisition of Folz			Forma

			ASSETS						(a)
Current assets:
	Cash and cash equivalents			$	3,204	$	1,604	$	(186	)	$	(1,418	)(b)	$	3,204
	Trade accounts and other receivables				1,078		—		—			—			1,078
	Inventories, net				11,840		6,773		(577	)		(57	)(b)		17,979
	Prepaid expenses and other assets				4,165		749		(184	)		(73	)(b)		4,657

		Total current assets			20,287		9,126		(947	)		(1,548	)		26,918

Property and equipment at cost, net					41,252		9,630		(353	)		(81	)(b)		50,448
Placement fees, net of accumulated amortization					1,948		—		—			—			1,948
Costs in excess of assets acquired and other intangible assets, net of accumulated amortization					65,637		—		—			12,539	(b)		78,176
Other assets, net of accumulated amortization					7,167		1,077		822			(1,672	)(b)		7,394

Total assets				$	136,291	$	19,833	$	(478	)	$	9,238		$	164,884

See accompanying notes to unaudited pro forma condensed financial statements.

AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
AS OF MARCH 31, 2003
(Amounts in thousands)


				Historical
				American Coin			Historical			Elimination
				Merchandising,			Combined			of Businesses			Adjustments for the			Pro
				Inc.			Folz			Not Acquired			Acquisition of Folz			Forma

	LIABILITIES AND STOCKHOLDERS’ EQUITY										(a)
Current liabilities:
		Current portion of long-term debt		$	4,728		$	1,670		$	—		$	(1,670	)(b)	$	4,728
		Accounts payable			7,004			3,044			(39	)		—			10,009
		Accrued commissions			3,350			1,519			(142	)		—			4,727
		Other accrued expenses			1,265			711			(38	)		—			1,938

			Total current liabilities		16,347			6,944			(219	)		(1,670	)		21,402
Long-term debt, net of current portion					77,415			4,804			—			(4,804	)(b)		88,453
														11,038	(c)
Other liabilities					795			—			—			—			795
Fair value of interest rate collar agreement					1,300			—			—			—			1,300

			Total liabilities		95,857			11,748			(219	)		4,564			111,950
Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures					12,987			—			—			—			12,987
Subordinated debt					—			1,500			—			(1,500	)(b)		—
Stockholders’ equity:
		Common stock			—			500			—			(500	)(b)		—
		Additional paid-in capital			28,629			126			—			(126	)(b)		41,129
														12,500	(c)
		(Accumulated deficit) retained earnings			(1,182	)		7,259			(259	)		(7,000	)(b)		(1,182	)

					27,447			7,885			(259	)		4,874			39,947
		Less treasury stock			—			(1,300	)		—			1,300	(b)		—

			Total stockholders’ equity		27,447			6,585			(259	)		6,174			39,947

			Total liabilities and stockholders’ equity	$	136,291		$	19,833		$	(478	)	$	9,238		$	164,884

See accompanying notes to unaudited pro forma condensed financial statements.

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


			Historical
			American Coin			Historical			Elimination
			Merchandising,			Combined			of Businesses			Adjustments for the			Pro
			Inc.			Folz			Not Acquired			Acquisition of Folz			Forma

										(a)
Revenue:
	Vending		$	142,117		$	54,223		$	(3,946	)	$	—		$	192,394
	Franchise and other			2,299			—			—			—			2,299

		Total revenue		144,416			54,223			(3,946	)		—			194,693

Cost of revenue:
	Vending, excluding related depreciation and amortization			94,661			42,092			(3,132	)		—			133,621
	Depreciation and amortization			12,667			2,173			(173	)		(724	)(d)		13,943

		Total cost of vending		107,328			44,265			(3,305	)		(724	)		147,564
	Franchise and other			739			—			—			—			739

		Total cost of revenue		108,067			44,265			(3,305	)		(724	)		148,303

	Gross profit			36,349			9,958			(641	)		724			46,390
General and administrative expenses				25,828			7,947			(719	)		—			33,056
Depreciation and amortization				1,037			410			—			(148	)(d)		1,299
Loss on debt refinancing				1,727			—			—			—			1,727

		Operating earnings		7,757			1,601			78			872			10,308
Interest expense, net				10,798			889			(4	)		497	(e)		12,180
Change in fair value of interest rate collar				1,429			—			—			—			1,429

		(Loss) earnings before income taxes		(4,470	)		712			82			375			(3,301	)
Income tax benefit (expense)				1,698			(98	)		30			(376	)(f)		1,254

		Net (loss) earnings	$	(2,772	)	$	614		$	112		$	(1	)	$	(2,047	)

See accompanying notes to unaudited pro forma condensed financial statements.

AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(Amounts in thousands)


			Historical
			American Coin			Historical			Elimination
			Merchandising,			Combined			of Businesses			Adjustments for the			Pro
			Inc.			Folz			Not Acquired			Acquisition of Folz			Forma

										(a	)
Revenue:
	Vending		$	37,115		$	12,285		$	(870	)	$	—		$	48,530
	Franchise and other			880			—			—			—			880

		Total revenue		37,995			12,285			(870	)		—			49,410

Cost of revenue:
	Vending, excluding related depreciation and amortization			25,532			9,820			(725	)		—			34,627
	Depreciation and amortization			3,122			473			(27	)		(127	)(e)		3,441

		Total cost of vending		28,654			10,293			(752	)		(127	)		38,068
	Franchise and other			534			—			—			—			534

		Total cost of revenue		29,188			10,293			(752	)		(127	)		38,602

	Gross profit			8,807			1,992			(118	)		127			10,808
General and administrative expenses				6,598			1,997			(187	)		—			8,408
Depreciation and amortization				239			91			—			(25	)(e)		305

		Operating earnings		1,970			(96	)		69			152			2,095
Interest expense, net				2,878			130			—			215	(e)		3,223
Change in fair value of interest rate collar				52			—			—			—			52

		(Loss) earnings before income taxes		(960	)		(226	)		69			(63	)		(1,180	)
Income tax benefit (expense)				365			(10	)		—			93	(f)		448

		Net (loss) earnings	$	(595	)	$	(236	)	$	69		$	30		$	(732	)

See accompanying notes to unaudited pro forma condensed financial statements.

AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS

	(a)		Represents the elimination of financial information related to Folz entities that were not part of the purchase transaction but were included in the historical combined Folz financial statements.

	(b)		Represents the elimination of other assets and liabilities of Folz retained by the Seller and the elimination of Folz stockholders’ equity. The purchase price has initially been allocated based on estimates of fair value as follows:


Estimated fair value of assets acquired
	Inventories	$	6,139
	Prepaid expenses and other assets		492
	Property and equipment		9,196
	Other assets		227
Less fair value of liabilities assumed
	Accounts payable		3,005
	Accrued commissions		1,377
	Other accrued expenses		673

Borrowings under credit facilities			11,038
Equity contribution from Parent			12,500

	Estimated costs in excess of assets acquired	$	12,539

	(c)		Represents borrowings under the Registrant’s credit facilities of $11.0 million and an equity contribution of $12.5 million from its parent company to finance the purchase.

	(d)		Represents the adjustments to depreciation expense as a result of the impact of conforming the depreciation lives to those of the Registrant and recalculating depreciation based on the estimated fair value, which approximates the net book value of the assets.

	(e)		Represents the elimination of historical Folz interest expense and the increase in interest expense as a result of the increased borrowings under the Registrant’s credit facilities to finance the purchase. Interest expense on such borrowings is calculated using an assumed weighted average rate of 12.5%.

	(f)		Represents additional income tax expense for (i) the income of Folz, as no Federal income tax expense has historically been included in the Folz financial statements because Folz’s primary operating entity has elected to be treated as an S Corporation for tax purposes, and (ii) the tax benefits of increased interest expense. Income tax expense is computed using the Registrants’s historical statutory income tax rate of 38%.

(c)

Exhibits.

	4.13*		Form of 17% Senior Subordinated Notes Due 2009 by and between the Registrant and each of the purchasers listed in the Purchase Agreement among ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named therein, dated as of April 15, 2003 (incorporated by reference to Exhibit 10.69).

	10.69*		Amended and Restated Credit Agreement, dated as of April 15, 2003, by and among the Registrant, as borrower, the financial institutions named therein, as lenders, Madison Capital Funding LLC, as Agent and The Royal Bank of Scotland PLC, New York Branch, as Documentation Agent.

	10.70*		Purchase Agreement among ACMI Holdings, Inc., the Registrant, as Issuer, and the Purchasers named therein dated as of April 15, 2003.

	10.71*		Consent and Amendment dated as of April 15, 2003, to the Purchase Agreement dated as of February 11, 2002 and amended as of November 12, 2002, by and among ACMI Holdings, Inc., the Registrant and the Purchasers named therein and to the Warrants issued to the Purchasers pursuant to the Purchase Agreement.

	10.72*		Asset Purchase Agreement, dated as of March 14, 2003, by and among FVFN Acquisition Corp., as purchaser, the Registrant, as guarantor, Folz Vending Co., Inc. and Folz Novelty Co. Inc., as sellers, The Roger Folz Revocable Trust and Roger Folz.

	10.73*		Subordination and Intercreditor Agreement dated as of April 15, 2003 by and among Audax Mezzanine Fund, L.P., Audax Trust Co-Invest, L.P., Audax Co-Invest, L.P., AFF Co-Invest, L.P., AFF Co-Invest, L.P. and the Royal Bank of Scotland plc, New York Branch, the Registrant, ACMI Holdings, Inc. and Madison Capital Funding LLC.

	10.74*		Amendment No. 1 to Subordination and Intercreditor Agreement dated as of April 15, 2003 among Audax Mezzanine Fund, L.P., Audax Trust Co-Invest, L.P., Audax Co-Invest, L.P., The Royal Bank of Scotland plc, New York Branch, Upper Columbia Capital Company, LLC, State Street Bank and Trust Company, the Registrant, ACMI Holdings, Inc., and Madison Capital Funding LLC.

	10.75*		Form of Guarantee of 17% Senior Subordinated Notes Due 2009 by and between the Registrant, ACMI Holdings, Inc. and each of the purchasers listed in the Purchase Agreement among ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named therein, dated as of April 15, 2003 (incorporated by reference to Exhibit 10.69).

	10.76*		Joinder Agreement dated as of March 14, 2003 signed by FVFN Acquisition Corp. for the benefit of Madison Capital Funding, LLC, as Agent in connection with that certain Guarantee and Collateral Agreement dated as of February 11, 2002 among the Grantors Party thereto and the Agent.

	10.77*		Reaffirmation of Guaranty and Collateral Agreement of Guaranty and Collateral Agreement dated as of February 11, 2002 of the repayment of all of the “obligations” under the certain Credit Agreement dated as of February 11, 2002, by and among American Coin Merchandising, Inc., The Royal Bank of Scotland plc, New York Branch as documentation agent, the lenders from time to time party thereto and Madison Capital Funding, LLC, as Agent, Acknowledged and Agreed by American Coin Merchandising, Inc., ACMI Holdings, Inc., FVFN Acquisition Corp. and Madison Capital Funding, LLC.

Previously filed by the Registrant on its Current Report on Form 8-K, dated April 15, 2003 as amended by this Form 8-K/A.

SIGNATURE

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 hereto duly authorized.


	American Coin Merchandising, Inc.

	By:	/s/ Kenneth W. Edic

Dated: June 30, 2003		Kenneth W. Edic Senior Vice President and Chief Financial Officer


	Folz Vending Co. , Inc. and Affiliates

	Combined Financial Statements - Unaudited

	For The Three Months Ended March 31, 2003 and 2002

INDEPENDENT ACCOUNTANTS’ REPORT

To the Board of Directors and Stockholder
Folz Vending Co., Inc. and Affiliates

We have reviewed the accompanying combined balance sheet of Folz Vending Co., Inc. and Affiliates as of March 31, 2003, and the related combined statements of operations, stockholders’ equity, and cash flows for the three-month periods ended March 31, 2003 and 2002. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim combined financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 7, on April 15, 2003, the Company sold certain of its assets.


	/s/ Weiser LLP CERTIFIED PUBLIC ACCOUNTANTS

Lake Success, NY
May 30, 2003

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED BALANCE SHEET

MARCH 31, 2003

(Unaudited)

(See Independent Accountants’ Report)


Current assets:
	Cash		$	1,603,887
	Inventories			6,773,449
	Prepaid expenses and other current assets			728,607
	Prepaid income taxes			20,265

		Total current assets		9,126,208

Property and equipment:
	Vending equipment			38,435,419
	Transportation equipment			213,455
	Furniture and fixtures			1,319,795
	Leasehold improvements			512,525
	Computer equipment			1,613,032

				42,094,226
Less accumulated depreciation and amortization				32,463,678

		Net property, plant and equipment		9,630,548

Other assets:
	Due from related party			321,227
	Security deposits			61,655
	Deferred charges and other assets			336,844
	Cash surrender value, officer’s life insurance			356,988

		Total other assets		1,076,714

		Total assets	$	19,833,470


Current liabilities:
	Current maturities of long-term debt		$	1,669,895
	Accounts payable			3,043,735
	Commissions payable			1,518,806
	Accrued expenses			711,570

		Total current liabilities		6,944,006

Long-term debt, net of current maturities				4,803,809

Subordinated debt				1,500,000

Stockholder’s equity:
	Capital stock			500,000
	Additional paid-in capital			126,380
	Retained earnings			7,259,358

				7,885,738
Less treasury stock — at cost				(1,300,083	)

		Total stockholder’s equity		6,585,655

		Total liabilities and stockholder’s equity	$	19,833,470

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

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

(See Independent Accountants’ Report)


			For The Three Months Ended March 31,

			2003					2002

			Amount		%			Amount		%

Gross sales			$	12,285,042		100.00	%	$	12,822,083		100.00	%
Less vending commission				4,213,664		34.30			4,470,030		34.86

				8,071,378		65.70			8,352,053		65.14

Cost of sales:
	Opening inventory			6,647,604		54.11			6,931,712		54.06
	Purchases			2,054,129		16.72			2,140,267		16.69
	Freight-in			76,069		.62			74,134		.58
	Other costs			154,499		1.26			129,913		1.01

				8,932,301		72.71			9,276,026		72.34
Less closing inventory				6,773,449		55.14			6,863,324		53.53

		Total cost of sales		2,158,852		17.57			2,412,702		18.81

Gross profit				5,912,526		48.13			5,939,351		46.33

Costs and expenses:
	Warehouse and shipping expenses			805,176		6.55			683,580		5.33
	Selling expenses			259,273		2.11			291,411		2.27
	Collection routemen’s expenses			2,495,029		20.31			2,479,536		19.34
	General and administrative expenses			1,570,313		12.78			1,494,015		11.65
	Data processing expenses			167,728		1.37			141,886		1.11
	Truck fleet expenses			188,894		1.54			175,243		1.37

		Total costs and expenses		5,486,413		44.66			5,265,671		41.07

Operating income before depreciation and amortization (carried forward)				426,113		3.47			673,680		5.26

(Continued)

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

(See Independent Accountants’ Report)

(Concluded)


	For The Three Months Ended March 31,

	2003						2002

	Amount			%			Amount			%

Operating income before depreciation and amortization (brought forward)		426,113			3.47			673,680			5.26
Depreciation and amortization of property and equipment		564,333			4.59			641,974			5.01

Operating (loss) income		(138,220	)		(1.12	)		31,706			.25
Interest expense		(129,506	)		(1.05	)		(220,909	)		(1.72	)
Other income – net		42,111			.34			54,304			.42

Loss before income tax expense		(225,615	)		(1.83	)		(134,899	)		(1.05	)
Income tax expense		9,575			.08			9,575			.07

Net loss	$	(235,190	)		(1.91	)%	$	(144,474	)		(1.12	)%

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

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENTS OF STOCKHOLDER’S EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002

(Unaudited)

(See Independent Accountants’ Report)


					Accumulated
			Additional		Other
	Capital Stock -		Paid-in		Comprehensive			Retained			Treasury Stock -						Comprehensive
	No Par Value		Capital		Loss			Earnings			at Cost			Total			Loss

Balance, January 1, 2002	$	500,000	$	126,380	$	(270,308	)	$	7,129,079		$	(1,300,083	)	$	6,185,068
Increase in fair market value of interest rate swap agreement						132,168									132,168		$	132,168
Distributions to stockholder									(36,000	)					(36,000	)
Net loss									(144,474	)					(144,474	)		(144,474	)

Comprehensive loss																	$	(12,306	)

Balance, March 31, 2002	$	500,000	$	126,380	$	(138,140	)	$	6,948,605		$	(1,300,083	)	$	6,136,762

Balance, January 1, 2003	$	500,000	$	126,380	$	—		$	7,494,848		$	(1,300,083	)	$	6,821,145
Distributions to stockholder									(300	)					(300	)
Net loss									(235,190	)					(235,190	)	$	(235,190	)

Comprehensive loss																	$	(235,190	)

Balance, March 31, 2003	$	500,000	$	126,380	$	—		$	7,259,358		$	(1,300,083	)	$	6,585,655

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

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

(See Independent Accountants’ Report)


				For The Three Months Ended
				March 31,

				2003			2002

Cash flows from operating activities:
	Net loss			$	(235,190	)	$	(144,474	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation and amortization			564,333			641,974
		Loss (gain) on sale of fixed assets			2,547			(982	)
		Increase (decrease) in cash attributable to changes in operating assets and liabilities:
			Inventories		(125,845	)		68,388
			Prepaid expenses and other current assets		(98,288	)		(77,619	)
			Prepaid income taxes		(15,759	)		(32,064	)
			Security deposits		(1,655	)		—
			Deferred charges and other assets		123,197			64,714
			Accounts payable		855,265			287,255
			Commissions payable		(99,382	)		(72,637	)
			Accrued expenses		(168,679	)		4,027

Net cash provided by operating activities					800,544			738,582

Cash flows from investing activities:
	Capital expenditures				(644,745	)		(167,096	)
	Proceeds from sale of equipment				816			5,505
	Advances to related party				(1,547	)		(24,271	)

Net cash used in investing activities					(645,476	)		(185,862	)

(Continued)

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENT OF CASH FLOWS

(Unaudited)

(See Independent Accountants’ Report)

(Concluded)


			For The Three Months Ended
			March 31,

			2003			2002

Cash flows from financing activities:
	Repayments of long-term debt			(6,845,509	)		(209,479	)
	Proceeds from long-term debt			6,650,000			—
	Distributions to stockholder			(300	)		(36,000	)

Net cash used in financing activities				(195,809	)		(245,479	)

Net (decrease) increase in cash				(40,741	)		307,241
Cash at beginning of period				1,644,628			1,387,570

Cash at end of period			$	1,603,887		$	1,694,811

Supplemental Disclosures of Cash Flow Information:
	Cash paid during the period for:
		Interest	$	120,567		$	220,054

		Income taxes	$	25,334		$	41,639

Supplemental Schedule of Noncash Investing and Financing Activities:
	Equipment financed through the issuance of promissory notes		$	97,000

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

FOLZ VENDING CO., INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

1.		SUMMARY OF ACCOUNTING POLICIES:

		A summary of the significant accounting policies consistently applied in the preparation of the accompanying combined financial statements follows:

	a)		Nature of Operations:

			The combined financial statements of Folz Vending Co., Inc. and Affiliates include the accounts of Folz Vending Co., Inc. (the “Company”) and its 70%-owned subsidiary, Folz Novelty Co., Inc. and its affiliate Folz Vending Co., Ltd.

			The Company operates coin-operated vending machines at retail locations throughout the United States and Canada which dispense children’s toys and novelty items, as well as gum and confections.

			As a result of common control and ownership, the above companies are 100% combined without reflecting minority interest in the accompanying financial statements.

			All material accounts and transactions among the combined companies have been eliminated in the accompanying combined financial statements.

			The capital stock of each of the above companies is as follows:


Folz Vending Co., Inc. $1 par value; 500,000 shares authorized; 500,000 shares issued		$	500,000
Folz Novelty Co., Inc. No par value; 200 shares authorized; 30 shares issued and outstanding			22,000
Folz Vending Co., Ltd. $1 par value; 4,000 shares authorized; 210 shares issued and outstanding			210

			522,210
Less: Elimination			(22,210	)

	Total Capital Stock	$	500,000

-2-

	b)		Foreign Currencies:

			Under provisions applicable to the Company outlined in Statement of Financial Accounting Standards No. 52 (“SFAS No. 52”), “Foreign Currency Translation,” of the Financial Accounting Standards Board, the Company considers the U.S. dollar to be the functional currency of Folz Vending Co., Ltd. (a foreign corporation). Accordingly, assets and liabilities are remeasured into U.S. dollars using historical rates and the exchange gains and losses are included in operations for the year.

	c)		Inventories:

			Inventories, consisting of merchandise held for sale, are stated at the lower of cost or market; cost is determined using the first-in, first-out method.

	d)		Property and Equipment:

			Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets, less any salvage value, to operations over their estimated service lives, principally on a straight-line basis. The estimated lives used in determining depreciation and amortization are as follows:


	Years

Vending equipment		5-20
Transportation equipment		5
Furniture and fixtures		8
Leasehold improvements		15
Computer equipment		8
Trucking equipment		5

			Expenditures for repairs and maintenance are expensed as incurred. The cost of renewals and betterments are capitalized.

	e)		Income Taxes:

			The Company and its affiliates file separate Federal and state income tax returns. The Company’s primary operating entity has elected to be treated as an S Corporation for tax purposes. Under this election, income taxes are payable personally by the stockholder of the Company. Certain states in which the Company operates do not recognize S Corporation elections, and, accordingly, a provision for state and local taxes has been included in the financial statements.

-3-

			Folz Novelty Co., Inc. is treated as a C Corporation for tax purposes. For this affiliate and for the state taxes on income referred to above, the Company follows Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The net differences between financial statement and tax basis asset and liability values are not material and therefore, no deferred tax asset or liability has been recorded.

	f)		Retirement Plans:

			The Company maintains a 401(k) savings plans for union and nonunion employees. Employees become eligible for participation in the plans after six months of service (determined on the basis of actual hours for which an employee is paid, or entitled to payment). Under the plans, employees may contribute up to 15% of their salary to the plans. The Company matches 30% of the first 5% of the employee’s contribution. The Company’s contributions to the plans for the three months ended March 31, 2003 and 2002 were approximately $25,300 and $24,800, respectively.

	g)		Use of Estimated and Fair Value of Financial Instruments:

			The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

			The Company has estimated the fair value of financial instruments using available market information and other valuation methodologies in accordance with Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments.” Management of the Company believes that the fair value of financial instruments, consisting principally of cash and accounts payable approximate carrying value based on the short-term maturity of these instruments. The estimated fair values of the Company’s bank financing, equipment notes and interest rate swap agreements, based upon market rates, approximate the carrying values.

-4-

	h)		Derivative Financial Instruments:

			As of January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivatives and Hedging Activities” (“SFAS 133”), as amended. As a result of adopting SFAS 133, the Company recognized its interest rate swap agreements in the combined financial statements at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in stockholder’s equity as a component of accumulated other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value or cash flow hedge. Generally, the changes in the fair value of derivatives accounted for as fair value hedges are recorded in income along with the portions of the changes in the fair value of hedged items that relate to the hedged risks. Changes in the fair value of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in accumulated other comprehensive income. Changes in the fair values for derivatives not qualifying as hedged are reported in income.

			Derivative financial instruments are used by the Company principally in the management of its foreign currency and interest rate exposures. The swap agreements were designated with the principal amounts and terms of the underlying debt being hedged, and they qualified as effective hedges under SFAS 133. In 2002, accumulated other comprehensive loss was adjusted to the fair value of the swap at March 31, 2002, $138,140, with no impact on earnings. Amounts to be paid or received under interest rate swap agreements were accrued as interest rates change and were recognized over the life of the swap agreements as an adjustment to interest expense.

			In connection with the new financing agreement entered into January 16, 2003 (See Note 2(a)), the Company repaid the underlying indebtedness and terminated the swap.

	i)		Concentration of Credit Risk:

			Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents accounts in financial institutions which exceed the FDIC coverage limit of $100,000. The Company is at risk for any amounts exceeding the FDIC limits.

	j)		Cash and Cash Equivalents:

			The Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.

-5-

	k)		Unaudited Financial Statements:

			The unaudited combined financial statements as of March 31, 2003 and for the three months ended March 31, 2003 and March 31, 2002, have been prepared in accordance with generally accepted accounting principles for interim financial statements. In the opinion of the Company, these unaudited combined financial statements reflect all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of such data. The combined results for interim periods are not necessarily indicative of the results expected for a full year.

2.		DEBT:

		Bank and equipment debt consists of the following at March 31, 2003:


	Annual
	Interest Rate

Revolving credit loan (a)	Prime + .75%			$	250,000
Term loan (a)	Prime + 1%				6,080,000
Equipment notes payable (b)		8.46% - 10.45	%		143,704

					6,473,704
Less current maturities					1,669,895

				$	4,803,809

	a)		Bank Financing:

			On January 16, 2003, the Company refinanced its existing bank debt with another financial institution. The agreement provides for a revolving credit facility not to exceed $1,300,000 bearing interest at the prime rate plus .75% (5% at March 31, 2003) and expiring on June 30, 2003. In addition, the agreement provides for a term loan in the amount of $6,400,000. The term loan is payable in sixty equal monthly installments and bears interest at the prime rate plus 1% (5.25% at March 31, 2003).

			The stockholder has subordinated a note in the amount of $1,500,000 payable by the Company to him, to the bank debt. The loan bears interest at 9.25% per annum. Repayments of the subordinated debt are restricted under the lending agreement with the bank. Interest paid to the stockholder was approximately $35,000 for the three months ended March 31, 2003 and 2002. The subordination agreement was terminated upon repayment of the bank debt. See below.

-6-

			On April 15, 2003, all outstanding bank debt was repaid from the proceeds of the sale of the assets of the business. (See Note 7).

	b)		Equipment Notes:

			Equipment notes payable consist of various notes collateralized by vending and warehouse equipment and are payable in varying amounts through 2005.

Future aggregate maturities of debt, excluding subordinated debt, for the years subsequent to March 31, 2003 are as follows:


Years Ending
December 31,

2003 (remainder of year)	$	1,348,907
2004		1,284,082
2005		1,280,715
2006		1,280,000
2007		1,280,000

	$	6,473,704

3.		COMMITMENTS AND CONTINGENCIES:

		Lease Commitments:

		The Company leases certain of its facilities from the stockholder of the Company on a month to month basis. Under the terms of an oral agreement, the Company maintains a $60,000 security deposit with the stockholder and is obligated to make annual payments of $300,000. This amount is not included in the future minimum payments schedule. In connection with the sale referred to in Note 7, the purchaser entered into a new lease with the stockholder.

		The Company leases various facilities, transportation, office and warehouse equipment under noncancellable operating lease agreements which expire at various dates through 2006.

-7-

The following is a schedule of the approximate future minimum payments under noncancellable operating leases as of March 31, 2003:


Years Ending
December 31,	Amount

2003 (Remainder of year)	$	331,000
2004		175,000
2005		90,000
2006		3,000

	$	599,000

		Rent expense was approximately $469,000 and $477,000 for the three months ended March 31, 2003 and 2002, respectively.

		Letters of Credit:

		Outstanding letters of credit at March 31, 2003 aggregated $176,981. Additionally, the Company had a standby letter of credit at March 31, 2003 in the amount of $300,000.

4.		OTHER TRANSACTIONS:

		During the three months ended March 31, 2003, the Company had sales to three customers, each comprising 22%, 13.5% and 9.5% of total sales. During the three months ended March 31, 2002, the Company had sales to three customers, each comprising 22%, 13.7% and 9.7% of total sales. In February 2003, the Company was notified that a customer accounting for approximately 9.5% of the Company’s annual sales would not renew its contract upon its expiration on April 30, 2003.

		The Company purchased approximately 27% and 13% of its products from two suppliers in the three months ended March 31, 2003 and 44% and 14% in the three months ended March 31, 2002. If required, management believes that, similar products are readily available from various alternative sources.

5.		INCOME TAXES:

		The provision for income taxes consists of the following:


	For The Three Months Ended
	March 31,

	2003		2002

Federal	$	1,000	$	1,000
State and local		8,575		8,575

	$	9,575	$	9,575

-8-

6.		DUE FROM RELATED PARTY:

		Due from related party represents loans to an officer in the amount of $437,694 and loans from an officer in the amount of $116,467 at March 31, 2003. The loans are reported net, due on demand, and bear interest at the prime rate (4.25% at December 31, 2002). Net interest accrued on the loans amounted to approximately $3,300 and $2,500 for the three months ended March 31, 2003 and 2002, respectively.

		Also see Notes 2 and 3.

7.		SUBSEQUENT EVENTS:

		Contract of Sale:

		Pursuant to a contract dated March 14, 2003, on April 15, 2003, the Company sold inventory, property and equipment and certain intangible assets of Folz Vending Co., Inc. and Folz Novelty Co., Inc. for $22,000,000 in cash. In addition, the purchaser assumed $3,800,000 of liabilities.


	Folz Vending Co., Inc. and Affiliates

	Combined Financial Statements

	For The Year Ended December 31, 2002

(WEISER LETTERHEAD)

To The Board of Directors and Stockholder
Folz Vending Co., Inc. and Affiliates

We have audited the combined balance sheet of Folz Vending Co., Inc. and Affiliates as of December 31, 2002, and the related combined statements of income, stockholder’s equity, and cash flows for the year then ended. These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Folz Vending Co., Inc. and Affiliates as of December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As disclosed in Note 7(a), the Company entered into a contract to sell certain assets of the Company.



		/s/ Weiser LLP
		CERTIFIED PUBLIC ACCOUNTANTS

Lake Success, N. Y.
February 25, 2003, except for Note 7(a),
as to which the date is March 14, 2003

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED BALANCE SHEET

December 31, 2002


Current assets:
	Cash		$	1,644,628
	Inventories			6,647,604
	Prepaid expenses and other current assets			630,319
	Prepaid income taxes			4,506

		Total current assets		8,927,057

Property and equipment:
	Vending equipment			37,788,326
	Transportation equipment			211,455
	Furniture and fixtures			1,311,704
	Leasehold improvements			512,525
	Computer equipment			1,531,495

				41,355,505
	Less accumulated depreciation and amortization			31,899,003

		Net property, plant & equipment		9,456,502

Other assets:
	Due from related party			319,680
	Security deposits			60,000
	Deferred charges and other assets			460,041
	Cash surrender value, officer’s life insurance			356,988

		Total other assets		1,196,709

		Total assets	$	19,580,268


Current liabilities:
	Current maturities of long-term debt		$	1,435,102
	Accounts payable			2,188,470
	Commissions payable			1,618,188
	Accrued expenses			880,249

		Total current liabilities		6,122,009

Long-term debt, net of current maturities				5,137,114

Subordinated debt				1,500,000

Stockholder’s equity:
	Capital stock			500,000
	Additional paid-in capital			126,380
	Retained earnings			7,494,848

				8,121,228
	Less treasury stock — at cost			1,300,083

		Total stockholder’s equity		6,821,145

		Total liabilities and stockholder’s equity	$	19,580,268

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

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENT OF INCOME

For The Year Ended December 31, 2002


			Amount		%

Gross sales			$	54,222,642		100.00	%
Less vending commission				18,324,702		33.80

				35,897,940		66.20

Cost of sales:
	Opening inventory			6,931,712		12.78
	Purchases			8,824,769		16.28
	Freight-in			375,673		.69
	Other costs			556,538		1.03

				16,688,692		30.78
	Less closing inventory			6,647,604		12.26

		Total cost of sales		10,041,088		18.52

Gross profit				25,856,852		47.68

Costs and expenses:
	Warehouse and shipping expenses			3,008,111		5.55
	Selling expenses			1,157,170		2.13
	Collection routemen’s expenses			10,208,833		18.83
	General and administrative expenses			6,208,832		11.45
	Data processing expenses			581,304		1.07
	Truck fleet expenses			742,206		1.37

		Total costs and expenses		21,906,456		40.40

Operating income before depreciation and amortization (carried forward)				3,950,396		7.28

(Continued)

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENT OF INCOME

For the Year Ended December 31, 2002

(Concluded)


	Amount			%

Operating income before depreciation and amortization (brought forward)		3,950,396			7.28
Depreciation and amortization of property and equipment		2,582,666			4.76

Operating income		1,367,730			2.52
Interest expense		(889,298	)		(1.64	)
Other income — net		233,018			.43

Income before income tax expense		711,450			1.31
Income tax expense		97,564			.18

Net income	$	613,886			1.13	%

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

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENT OF STOCKHOLDER’S EQUITY

For The Year Ended December 31, 2002


					Accumulated
			Additional		Other
	Capital Stock—		Paid-in		Comprehensive			Retained			Treasury Stock—						Comprehensive
	No Par Value		Capital		Loss			Earnings			at Cost			Total			Income

Balance, January 1, 2002	$	500,000	$	126,380	$	(270,308	)	$	7,129,079		$	(1,300,083	)	$	6,185,068
Increase in fair market value of interest swap agreement						152,808									152,808		$	152,808
Loss on interest rate swap						117,500									117,500			117,500
Reclassification of loss on interest rate swap																		(117,500	)
Distributions to stockholder									(248,117	)					(248,117	)
Net income									613,886						613,886			613,886

Comprehensive income																	$	766,694

Balance, December 31, 2002	$	500,000	$	126,380	$	—		$	7,494,848		$	(1,300,083	)	$	6,821,145

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

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2002


Cash flows from operating activities:
	Net income			$	613,886
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			2,582,666
		Gain on sale of fixed assets			(5,915	)
		Loss on interest rate swap			117,500
		Increase (decrease) in cash attributable to changes in operating assets and liabilities:
			Inventories		284,108
			Prepaid expenses and other current assets		(174,220	)
			Cash surrender value, officer’s life insurance		(10,536	)
			Deferred charges and other assets		115,561
			Accounts payable		499,204
			Commissions payable		10,768
			Accrued expenses		136,810

Net cash provided by operating activities					4,169,832

Cash flows from investing activities:
	Capital expenditures				(1,753,700	)
	Proceeds from sale of equipment				23,773
	Advances to related party				(127,916	)

Net cash used in investing activities					(1,857,843	)

(Continued)

FOLZ VENDING CO., INC. AND AFFILIATES

COMBINED STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2002

(Concluded)


Cash flows from financing activities:
	Repayments of long-term debt			(1,550,000	)
	Repayments of note payable			(256,814	)
	Distributions to stockholder			(248,117	)

Net cash used in financing activities				(2,054,931	)

Net increase in cash				257,058
Cash at beginning of year				1,387,570

Cash at end of year			$	1,644,628

Supplemental Disclosures of Cash Flow Information:
	Cash paid during the year for:
		Interest	$	789,669

		Income taxes	$	85,923

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

FOLZ VENDING CO., INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

1.		SUMMARY OF ACCOUNTING POLICIES:

		A summary of the significant accounting policies consistently applied in the preparation of the accompanying combined financial statements follows:

Nature of Operations:

			The combined financial statements of Folz Vending Co., Inc. and Affiliates include the accounts of Folz Vending Co., Inc. (the “Company”) and its 70%-owned subsidiary, Folz Novelty Co., Inc. and its affiliate Folz Vending Co., Ltd.

			The Company operates coin-operated vending machines at retail locations throughout the United States and Canada which dispense children’s toys and novelty items, as well as gum and confections.

			As a result of common control and ownership, the above companies are 100% combined without reflecting minority interest in the accompanying financial statements.

			All material accounts and transactions among the combined companies have been eliminated in the accompanying combined financial statements.

			The capital stock of each of the above companies is as follows:


Folz Vending Co., Inc.
	$1 par value; 500,000 shares authorized; 500,000 shares issued		$	500,000
Folz Novelty Co., Inc.
	No par value; 200 shares authorized; 30 shares issued and outstanding			22,000
Folz Vending Co., Ltd.
	$1 par value; 4,000 shares authorized; 210 shares issued and outstanding			210

				522,210
Less: Elimination				(22,210	)

		Total Capital Stock	$	500,000

-2-

	b)		Foreign Currencies:

			Under provisions applicable to the Company outlined in Statement of Financial Accounting Standards No. 52 (“SFAS No. 52”), “Foreign Currency Translation,” of the Financial Accounting Standards Board, the Company considers the U.S. dollar to be the functional currency of Folz Vending Co., Ltd. (a foreign corporation). Accordingly, assets and liabilities are remeasured into U.S. dollars using historical rates and the exchange gains and losses are included in operations for the year.

	c)		Inventories:

			Inventories, consisting of merchandise held for sale, are stated at the lower of cost or market; cost is determined using the first-in, first-out method.

	d)		Property and Equipment:

			Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets, less any salvage value, to operations over their estimated service lives, principally on a straight-line basis. The estimated lives used in determining depreciation and amortization are as follows:


	Years

Vending equipment		5-20
Transportation equipment		5
Furniture and fixtures		8
Leasehold improvements		15
Computer equipment		8
Trucking equipment		5

			Expenditures for repairs and maintenance are expensed as incurred. The cost of renewals and betterments are capitalized.

	e)		Income Taxes:

			The Company and its affiliates file separate Federal and state income tax returns. The Company’s primary operating entity has elected to be treated as an S Corporation for tax purposes. Under this election, income taxes are payable personally by the stockholder of the Company. Certain states in which the Company operates do not recognize S Corporation elections, and, accordingly, a provision for state and local taxes has been included in the financial statements.

-3-

			Folz Novelty Co., Inc. is treated as a C Corporation for tax purposes. For this affiliate and for the state taxes on income referred to above, the Company follows Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The net differences between financial statement and tax basis asset and liability values are not material and therefore, no deferred tax asset or liability has been recorded.

	f)		Retirement Plans:

			The Company maintains 401(k) savings plans for union and nonunion employees. Employees become eligible for participation in the plans after six months of service (determined on the basis of actual hours for which an employee is paid, or entitled to payment). Under the plans, employees may contribute up to 15% of their salary to the plans. The Company matches 30% of the first 5% of the employee’s contribution. The Company’s contributions to the plans for 2002 were approximately $99,000.

	g)		Use of Estimated and Fair Value of Financial Instruments:

			The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

			The Company has estimated the fair value of financial instruments using available market information and other valuation methodologies in accordance with Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments.” Management of the Company believes that the fair value of financial instruments, consisting principally of cash and accounts payable approximate carrying value based on the short-term maturity of these instruments. The estimated fair values of the Company’s bank financing, equipment notes and interest rate swap agreements, based upon market rates, approximate the carrying values.

-4-

	h)		Derivative Financial Instruments:

			As of January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivatives and Hedging Activities” (“SFAS 133”), as amended. As a result of adopting, SFAS 133, the Company recognized its interest rate swap agreements in the combined financial statements at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in stockholder’s equity as a component of accumulated other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value or cash flow hedge. Generally, the changes in the fair value of derivatives accounted for as fair value hedges are recorded in income along with the portions of the changes in the fair value of hedged items that relate to the hedged risks. Changes in the fair value of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in accumulated other comprehensive income. Changes in the fair values for derivatives not qualifying as hedged are reported in income.

			Derivative financial instruments are used by the Company principally in the management of its foreign currency and interest rate exposures. The swap agreements were designated with the principal amounts and terms of the underlying debt being hedged, and they qualified as effective hedges under SFAS 133. The fair value of the swap agreements of $(117,500) at December 31, 2002 has been recorded as a component of accrued expenses. Amounts to be paid or received under interest rate swap agreements were accrued as interest rates change and were recognized over the life of the swap agreements as an adjustment to interest expense.

			In connection with the new financing agreement entered into January 16, 2003 (See Note 7(b)), the Company repaid the underlying indebtedness and terminated the swap. At December 31, 2002, due to its anticipated ineffectiveness, the rate swap no longer qualified for hedge accounting treatment. The fair value of $(117,500) remains reflected as a liability in the balance sheet and amounts recorded in accumulated other comprehensive loss have been reflected as a charge to interest expense.

	i)		Concentration of Credit Risk:

			Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents accounts in financial institutions which exceed the FDIC coverage limit of $100,000. The Company is at risk for any amounts exceeding the FDIC limits.

-5-

	j)		Cash and Cash Equivalents:

			For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.

2.		DEBT:

		Bank and equipment debt consists of the following at:


	Annual	December 31,
	Interest rate	2002

Revolving credit loan (a)	LIBOR + 5.95%	$	1,400,000
Revolving credit loan (a)	LIBOR		3,000,000
Term loan (a)	LIBOR		2,000,000
Equipment notes payable (b)	8.46% - 10.45%		172,216

			6,572,216
Less current maturities			1,435,102

		$	5,137,114

	a)		Bank Financing:

			In 1993, the Company entered into a lending agreement with a bank and, concurrently, the Company’s sole stockholder refinanced certain real property owned by the stockholder and leased to the Company, the proceeds of which $(1,500,000), under the terms of the agreement, have been lent to the Company in the form of subordinated debt at an annual interest rate of 9.25%. Repayments of the subordinated debt are restricted under the bank lending agreement. Interest paid to the stockholder was $138,750 for the year ended December 31, 2002. See Note 7.

			The Company’s lending agreement with its bank, expiring in January 2003, as amended (“the Agreement”) provided the Company with maximum borrowings of $11,500,000, of which $10,500,000 was available for direct borrowings and $1,000, 000 is available for letters of credit. Outstanding letters of credit at December 31, 2002 aggregated $59,992. Additionally, the Company had a standby letter of credit at December 31, 2002 in the amount of $300,000. Pursuant to the Agreement, the revolving credit loan borrowings are due $90,000 per month beginning August 2001 through December 2001, $50,000 per month beginning January 2002 through November 30, 2002, with the remaining balance due on January 2, 2003. In addition, at December 31, 2002, $2,000,000 was outstanding pursuant to a term loan agreement which requires equal quarterly principal payments of $250,000 plus interest through December 2004. The outstanding revolving credit loan and term loan were refinanced on January 16, 2003. (See Note 7.)

-6-

			The Company entered into interest rate swap agreements to limit the effect of increases in the interest rates on any floating rate debt. The swap agreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. In 1999, the Company entered into two swap agreements, expiring in June 2002 and December 2004, respectively, for an aggregate notional amount of $6,000,000. The effect of these agreements is to limit the interest rate exposure to 9.74% on $3,000,000 and 9.79% on $2,000,000 of the Company’s debt under its lending agreement with the bank.

			The Agreement contains certain financial covenants, relating to fixed charge coverage, leverage ratios, limitations on capital expenditures and other financing, maintenance of minimum tangible net worth, and limits distributions to the Company’s stockholder, principally in amounts sufficient to pay income taxes directly attributable to the taxable earnings of the Company. Borrowings under the Agreement are collateralized by substantially all of the assets of the Company and are guaranteed by the Company’s stockholder.

	b)		Equipment Notes:

			Equipment notes payable consist of various notes collateralized by vending and warehouse equipment and are payable in varying amounts through 2007.

Future aggregate maturities of debt, excluding subordinated debt, for the years subsequent to December 31, 2002 are as follows:


Years Ending
December 31,

2003	$	1,435,102
2004		1,296,399
2005		1,280,715
2006		1,280,000
2007		1,280,000

	$	6,572,216

-7-

3.		COMMITMENTS AND CONTINGENCIES:

		Lease Commitments:

		The Company leases certain of its facilities from the stockholder of the Company on a month to month basis. Under the terms of an oral agreement, the Company maintains a $60,000 security deposit with the stockholder and is obligated to make annual payments of $300,000. This amount is not included in the future minimum payments schedule.

		The Company leases various facilities, transportation, office and warehouse equipment under noncancellable operating lease agreements which expire at various dates through 2006.

		The following is a schedule of the approximate future minimum payments under noncancellable operating leases as of December 31, 2002:


Years Ending
December 31,	Amount

2003	$	455,000
2004		175,000
2005		90,000
2006		3,000

	$	723,000

		Rent expense was approximately $2,013,000 for the year ended December 31, 2002.

4.		OTHER TRANSACTIONS:

		During 2002, the Company had sales to three customers, each comprising 20%, 12%, and 9.5% of total sales. In February 2003, the Company was notified that the customer accounting for approximately 9.5% of the Company’s sales would not renew its contract upon its expiration on April 30, 2003.

		The Company purchased approximately 36% and 12% of its products from two suppliers in 2002. If required, management believes that, similar products are readily available from various alternative sources.

-8-

5.		INCOME TAXES:

		The provision for income taxes consists of the following:


	For The Year Ended
	December 31,
	2002

Federal	$	16,332
Foreign		30,445
State and local		50,787

	$	97,564

6.		DUE FROM RELATED PARTY:

		Due from related party represents loans to an officer in the amount of $436,147 and loans from an officer in the amount of $116,467 at December 31, 2002. The loans are reported net, due on demand, and bear interest at the prime rate (4.25% at December 31, 2002). Net interest accrued on the loans amounted to approximately $12,000 for the year ended December 31, 2002.

		Also see Notes 2 and 3.

7.		SUBSEQUENT EVENTS:

	a)		Contract of Sale:

			On March 14, 2003, the Company entered into a contract to sell the inventory, property and equipment, and certain intangible assets of the Company for $22,000,000 in cash. In addition, the purchaser will assume approximately $3,800,000 of liabilities.

	b)		Financing:

			On January 16, 2003, the Company executed a loan agreement with a financial institution. The agreement provides for a revolving credit facility not to exceed $1,300,000 bearing interest at the prime rate plus. 75% (5% at December 31, 2002) and expiring on June 30, 2003. In addition, the agreement provides for a term loan in the amount of $6,400,000. The term loan is payable in sixty equal monthly installments and bears interest at the prime rate plus 1% (5.25% at December 31, 2002). The new loan facilities replace those existing at December 31, 2002. Accordingly, the current and non-current maturities of bank debt have been presented using the payment terms of the new debt. The subordinated debt referred to in Note 2(a), has been subordinated to the debt underlying the new loan agreement.

COMBINED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

FOLZ VENDING CO., INC. AND AFFILIATES

December 31, 2001 and 2000

C O N T E N T S


		Page

Report of Independent Certified Public Accountants			3
Financial Statements
	Combined Balance Sheets		4
	Combined Statements of Earnings		5
	Combined Statement of Stockholder’s Equity		6
	Combined Statements of Cash Flows		7 - 8
	Notes to Combined Financial Statements		9 - 19

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Folz Vending Co., Inc. and Affiliates

We have audited the accompanying combined balance sheets of Folz Vending Co., Inc. (a New York corporation) and Affiliates as of December 31, 2001 and 2000, and the related combined statements of earnings, stockholder’s equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Folz Vending Co., Inc. and Affiliates as of December 31, 2001 and 2000, and the combined results of their operations and their combined cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Melville, New York
February 8, 2002, except for Note B, as to
which the date is April 3, 2002

-3-

Folz Vending Co., Inc. and Affiliates

COMBINED BALANCE SHEETS

December 31,


				2001			2000

ASSETS
CURRENT ASSETS
		Cash		$	1,387,570		$	1,193,892
		Inventories			6,931,712			7,205,590
		Prepaid expenses and other assets			444,492			498,776
		Prepaid income taxes			16,113			81,104

			Total current assets		8,779,887			8,979,362
PROPERTY AND EQUIPMENT, NET					10,303,326			12,012,043
DUE FROM STOCKHOLDER AND AFFILIATES					191,764			245,004
OTHER ASSETS					982,054			1,324,253

				$	20,257,031		$	22,560,662

	LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
		Current maturities of long-term debt		$	1,760,511		$	1,430,883
		Accounts payable			1,689,266			2,450,428
		Commissions payable			1,607,420			1,565,619
		Accrued liabilities			896,247			660,338

			Total current liabilities		5,953,444			6,107,268
LONG-TERM DEBT, less current maturities					6,618,519			8,635,285
STOCKHOLDER SUBORDINATED DEBT					1,500,000			1,500,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER’S EQUITY
		Capital stock — no par value			500,000			500,000
		Additional paid-in capital			126,380			127,380
		Retained earnings			7,129,079			6,990,812
		Accumulated other comprehensive loss			(270,308	)

					7,485,151			7,618,192
		Treasury stock — at cost			(1,300,083	)		(1,300,083	)

					6,185,068			6,318,109

				$	20,257,031		$	22,560,662

The accompanying notes are an integral part of these statements.

-4-

Folz Vending Co., Inc. and Affiliates

COMBINED STATEMENTS OF EARNINGS

Year ended December 31,


			2001			2000

Vending sales			$	51,789,168		$	55,013,628
Cost of sales				26,893,684			29,295,384

		Gross profit		24,895,484			25,718,244
Costs and expenses
	Selling, general and administrative expenses			21,147,499			22,951,784
	Store removal costs						194,578
	Depreciation and amortization			2,681,750			2,657,303

		Total costs and expenses		23,829,249			25,803,665

Operating profit (loss)				1,066,235			(85,421	)
Interest expense				(954,327	)		(1,024,150	)
Other income – net				361,612			438,590

Earnings (loss) before income tax expense				473,520			(670,981	)
Income tax expense (refund)				134,503			(76,294	)

NET EARNINGS (LOSS)			$	339,017		$	(594,687	)

-5-

Folz Vending Co., Inc. and Affiliates

COMBINED STATEMENT OF STOCKHOLDER’S EQUITY

Years ended December 31, 2001 and 2000


									Accumulated
			Additional						other
	Capital stock -		paid-in			Retained			comprehensive			Treasury stock -						Comprehensive
	no par value		capital			earnings			loss			at cost			Total			income (loss)

Balance, January 1, 2000	$	500,000	$	127,380		$	8,106,546					$	(1,300,083	)	$	7,433,843
Distributions to shareholder							(521,047	)								(521,047	)
Net loss							(594,687	)								(594,687	)	$	(594,687	)

Comprehensive loss																		$	(594,687	)

Balance, December 31, 2000		500,000		127,380			6,990,812						(1,300,083	)		6,318,109
Fair market value of interest rate swap agreement at January 1, 2001									$	(80,354	)					(80,354	)	$	(80,354	)
Disposal of common stock of affiliate				(1,000	)											(1,000	)
Decrease in fair market value of interest rate swap agreement										(189,954	)					(189,954	)		(189,954	)
Distributions to shareholder							(200,750	)								(200,750	)
Net income							339,017									339,017			339,017

Comprehensive income																		$	68,709

Balance, December 31, 2001	$	500,000	$	126,380		$	7,129,079		$	(270,308	)	$	(1,300,083	)	$	6,185,068

The accompanying notes are an integral part of this statement.

-6-

Folz Vending Co., Inc. and Affiliates

COMBINED STATEMENTS OF CASH FLOWS

Year ended December 31,


					2001			2000

Cash flows from operating activities
	Net earnings (loss)				$	339,017		$	(594,687	)

	Adjustments to reconcile net earnings (loss) to net cash provided by operating activities
		Depreciation and amortization of property, plant and equipment				2,696,077			2,672,159
		Gain on sale of fixed assets				(108,493	)		(173,839	)
		Changes in operating assets and liabilities
			(Increase) decrease in assets
				Inventories		273,877			595,826
				Prepaid expenses and receivables		119,276			768,507
				Other assets		342,199			(111,256	)
			Increase (decrease) in liabilities
				Accounts payable		(761,162	)		(1,437,662	)
				Commissions payable		41,801			(275,229	)
				Accrued liabilities		(34,399	)		(244,531	)
				Income taxes payable					(29,855	)

						2,569,176			1,764,120

		Net cash provided by operating activities				2,908,193			1,169,433

Cash flows from investing activities
	Capital expenditures					(911,254	)		(2,251,808	)
	Proceeds from sale of equipment					265,376			243,720
	Due from stockholder and affiliates					53,240			15,121

		Net cash used in investing activities				(592,638	)		(1,992,967	)

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Folz Vending Co., Inc. and Affiliates

COMBINED STATEMENTS OF CASH FLOWS (continued)

Year ended December 31,


					2001			2000

Cash flows from financing activities
		Issuances of long-term debt			$			$	1,500,000
		Repayments of long-term debt				(1,750,000	)		(750,000	)
		Repayments of notes payable				(170,127	)		(230,608	)
		Issuances of notes payable							163,261
		Disposal of common stock of affiliate				(1,000	)
		Distribution to stockholder				(200,750	)		(521,047	)

				Net cash (used in) provided by financing activities		(2,121,877	)		161,606

				NET INCREASE (DECREASE) IN CASH		193,678			(661,928	)
Cash at beginning of year						1,193,892			1,855,820

Cash at end of year					$	1,387,570		$	1,193,892

Supplemental disclosures of cash flow information:
		Cash paid during the year for
			Interest		$	993,773		$	1,000,082
			Income taxes		$	90,232		$	97,199
			Income tax refunds		$	21,339		$	67,538
Supplemental noncash investing and financing activities:
	Equipment financed through the issuance of promissory notes aggregated approximately $233,000 in 2001

The accompanying notes are an integral part of these statements.

-8-

Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2001 and 2000

NOTE A – DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

		Folz Vending Co., Inc. operates coin-operated vending machines at retail locations throughout the United States and Canada, which dispense children’s toys and novelty items, as well as gum and confections.

		A summary of the significant accounting policies consistently applied in the preparation of the accompanying combined financial statements follows:

	1.		Financial Statement Presentation

			The combined financial statements of Folz Vending Co., Inc. and Affiliates include the accounts of Folz Vending Co., Inc. (the “Company”) and its 70%-owned subsidiary, Folz Novelty Co., Inc. In January 2001, the stock of Roger’s Leasing Service Co., Inc., which was 67% owned by the sole stockholder of the Company, was sold to a third party. No gain or loss on the sale was recorded by the Company.

			As a result of common control and ownership, the above companies are 100% combined without reflecting minority interest in the accompanying financial statements.

			All accounts and transactions among the combined companies have been eliminated in the accompanying combined financial statements.

	2.		Translation of Foreign Currencies

			Under provisions applicable to the Company outlined in Statement of Financial Accounting Standards No. 52 (“SFAS No. 52”), “Foreign Currency Translation,” of the Financial Accounting Standards Board, the Company considers the U.S. dollar to be the functional currency of Folz Vending Co., Ltd. (a foreign corporation). Accordingly, nonmonetary assets and liabilities are remeasured into U.S. dollars using historical rates and the exchange gains and losses are included in operations for the year.

	3.		Revenue Recognition

			Vending sales represents cash receipts from customers using coin-operated vending machines and is recognized when collected. Cost of sales is comprised primarily of the cost of products vended through the machines, the servicing of machines and commissions paid to retail locations.

-9-

Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE A (continued)

	4.		Shipping and Handling Costs

			Pursuant to EITF 00-10, “Accounting for Shipping and Handling Fees and Costs,” the Company includes all shipping and handling expenses incurred by the Company in cost of sales.

	5.		Inventories

			Inventories, consisting of merchandise held for sale, are stated at the lower of cost or market; cost is determined using the first-in, first-out method.

	6.		Property and Equipment

			Property and equipment is stated at cost. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets, less any salvage value, to operations over their estimated service lives, principally on a straight-line basis. The estimated lives used in determining depreciation and amortization are as follows:


	Years

Vending equipment		5-20
Transportation equipment		5
Furniture and fixtures		8
Leasehold improvements		15
Computer equipment		8
Condominium		31
Trucking equipment		5

	7.		Long-Lived Assets

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

-10-

Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE A (continued)

	8.		Income Taxes

			The Company and its affiliates file separate Federal and state income tax returns. The Company’s primary operating entity has elected to be treated as an S Corporation for tax purposes. Under this election, income taxes are payable personally by the shareholder of the Company. Certain states in which the Company operates do not recognize S Corporation elections, and, accordingly, a provision for state taxes has been included in the financial statements.

			Folz Novelty Co., Inc. is treated as a C Corporation for tax purposes. For this affiliate and for the state taxes on income referred to above, the Company follows Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The net differences between financial statement and tax basis asset and liability values are not material.

	9.		Retirement Plans

			The Company maintains 401(k) savings plans for union and nonunion employees. Employees become eligible for participation in the plans after six months of service (determined on the basis of actual hours for which an employee is paid, or entitled to payment). Under the plans, employees may contribute up to 15% of their salary to the plans. The Company matches 30% of the first 5% of the employee’s contribution. The Company’s contributions to the plans for 2001 and 2000 were approximately $93,000 and $126,000, respectively.

	10.		Use of Estimates and Fair Value of Financial Instruments

			In preparing combined financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

			Based upon historical experience, the Company increased the estimate of the useful life of certain equipment from 5 to 10 years and 10 to 20 years for bulk vending equipment effective January 1, 2000. The effect of this revision decreased depreciation and amortization expense by $916,842 in 2000. The new estimated useful lives have been recognized over the remaining useful lives of the respective assets.

-11-

Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE A (continued)

			The Company has estimated the fair value of financial instruments using available market information and other valuation methodologies in accordance with Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments.” Management of the Company believes that the fair value of financial instruments, consisting principally of cash and accounts payable approximate carrying value based on the short-term maturity of these instruments. The estimated fair values of the Company’s bank financing, equipment notes and interest rate swap agreements, based upon market rates, approximate the carrying values.

	11.		Derivative Financial Instruments

			As of January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivatives and Hedging Activities” (“SFAS 133”), as amended. As a result of adopting, SFAS 133, the Company recognizes its interest rate swap agreements in the combined financial statements at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in stockholder’s equity as a component of accumulated other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value or cash flow hedge. Generally, the changes in the fair value of derivatives accounted for as fair value hedges are recorded in income along with the portions of the changes in the fair value of hedged items that relate to the hedged risks. Changes in the fair value of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in accumulated other comprehensive income. Changes in the fair values for derivatives not qualifying as hedged are reported in income.

			Derivative financial instruments are used by the Company principally in the management of its foreign currency and interest rate exposures. The swap agreements are designated with the principal amounts and terms of the underlying debt being hedged, and they qualify as effective hedges under SFAS 133. Since the swap agreements are classified as cash flow hedges, the fair value of $(270,308) has been recorded as a component of accrued liabilities, and accumulated other comprehensive income has been reduced by the same amount as the derivative, with no impact on earnings. Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. Since SFAS 133 was adopted by the Company as of January 1, 2001, the fair value of the swap agreements of $(80,354) at December 31, 2000 are not recorded in the combined financial statements at December 31, 2000.

-12-

Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE A (continued)

	12.		Impact of Recently Issued Accounting Pronouncements

			In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 (“SFAS No. 141”), “Business Combinations,” and No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets.” SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indictors arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142 effective January 1, 2002. The adoption of the provisions of SFAS No. 142 will not have a material impact on the Company’s results of operations and financial position.

			In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 (“SFAS No. 143”), “Accounting for Asset Retirement Obligations.” This statement addresses financial and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company is currently evaluating the effect of the adoption of SFAS No. 143 on its financial position and results of operations.

			In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement supersedes Statement of Financial Accounting Standards No. 121 (“SFAS No. 121”), “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and Accounting Principles Board Opinion No. 30, “Reporting Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for recognition and measurement of impairment, but amends the accounting and reporting standards for segments of a business to be disposed of. The provisions of this statement are required to be adopted no later than fiscal years beginning after December 31, 2001, with early adoption encouraged. The Company is currently evaluating the effect that adoption of the provisions of SFAS No. 144 will have on its results of operations and financial position.

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Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE B – PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:


		2001		2000

Vending equipment		$	36,250,852	$	35,344,456
Transportation equipment			205,998		444,496
Furniture and fixtures			1,290,073		1,281,028
Leasehold improvements			512,525		512,525
Computer equipment			1,414,764		1,297,210
Condominium					95,750
Trucking equipment					170,759

			39,674,212		39,146,224
	Less accumulated depreciation and amortization		29,370,886		27,134,181

		$	10,303,326	$	12,012,043

NOTE C – OTHER ASSETS

Other assets consist of the following at December 31:


	2001		2000

Deferred charges and other	$	575,602	$	910,320
Security deposit		60,000		60,000
Cash surrender value on officer’s life insurance policy		346,452		353,933

	$	982,054	$	1,324,253

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Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE D – ACCRUED EXPENSES

Accrued expenses consist of the following at December 31:


	2001		2000

Payroll and other benefits	$	301,981	$	305,842
Professional fees		14,127		17,682
Interest				40,230
Rent		138,020		153,629
Other		171,811		142,955
Fair market value of interest rate swap agreement		270,308		—

	$	896,247	$	660,338

NOTE E — DEBT

Debt consists of the following at December 31:


		Annual
		interest rate			2001		2000

Revolving credit loan (1)		LIBOR + 5.95%			$	1,950,000	$	2,450,000
Revolving credit loan (1)			9.74%			3,000,000		3,000,000
Term loan (1)			9.79%			3,000,000		4,250,000
Equipment notes payable (2)			8.46% - 10.00	%		429,030		366,168

						8,379,030		10,066,168
Less
	Current maturities					1,760,511		1,430,883

					$	6,618,519	$	8,635,285

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Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE E (continued)

	1.		Bank Financing

			In 1993, the Company entered into a lending agreement with a bank and, concurrently, the Company’s sole stockholder refinanced certain real property owned by the stockholder and leased to the Company, the proceeds of which, $1,500,000, under the terms of the agreement, have been lent to the Company in the form of subordinated debt at an annual interest rate of 1% above the prime rate (5.75% at December 31, 2001). Repayments of the subordinated debt are restricted under the bank lending agreement.

			The Company’s lending agreement with its bank, expiring in January 2003, as amended (“the Agreement”) provided the Company with maximum borrowings of $11,500,000, of which $10,500,000 was available for direct borrowings and $1,000,000 is available for letters of credit. Outstanding letters of credit at December 31, 2001 aggregated $540,376. Pursuant to the Agreement the revolving credit loan borrowings are due $90,000 per month beginning August 2001 through December 2001, $50,000 per month beginning January 2002 through October 31, 2002, with the remaining balance due on January 2, 2003. In addition at December 31, 2001, $3,000,000 was outstanding pursuant to a term loan agreement, which requires equal quarterly principal payments of $250,000 plus interest through December 2004.

			The Company entered into interest rate swap agreements to limit the effect of increases in the interest rates on any floating rate debt. The swap agreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. In 1999, the Company entered into two swap agreements, expiring in June 2002 and December 2004, respectively, for an aggregate notional amount of $6,000,000. The effect of these agreements is to limit the interest rate exposure to 9.74% on $3,000,000 and 9.79% on $3,000,000 of the Company’s debt under its lending agreement with a bank.

			The Agreement contains certain financial covenants, relating to fixed charge coverage, leverage ratios, limitations on capital expenditures and other financing, maintenance of minimum tangible net worth, and limits distributions to the Company’s stockholder, principally in amounts sufficient to pay income taxes directly attributable to the taxable earnings of the Company. Borrowings under the Agreement are collateralized by substantially all of the assets of the Company and are guaranteed by the Company’s stockholder.

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Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE E (continued)

	2.		Equipment Notes

			Equipment notes payable consist of various notes collateralized by vending and warehouse equipment and are payable in varying amounts through 2005.

			Aggregate maturities of debt for the years subsequent to December 31, 2001 are as follows:


2002	$	1,760,511
2003		5,601,406
2004		1,016,399
2005		714

	$	8,379,030

NOTE F — COMMITMENTS AND CONTINGENCIES

	1.		Lease Commitments

			The Company leases certain of its facilities from a stockholder of the Company. Under the terms of an oral agreement, the Company maintains a $60,000 security deposit with the stockholder and is obligated to make annual payments of $300,000. This amount is not included in the future minimum payments schedule.

			The Company leases various facilities, transportation, office and warehouse equipment under noncancellable operating lease agreements, which expire at various dates through 2006.

			The following is a schedule of the future minimum payments under noncancellable operating leases as of December 31, 2001:


		Amount

Year ending December 31,
	2002	$	339,970
	2003		170,667
	2004		81,685
	2005		6,998
	2006		2,721

		$	602,041

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Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE F (continued)

			Rent expense, included amounts incurred under leases with related parties, was approximately $2,113,000 and $2,277,000 for the years ended December 31, 2001 and 2000, respectively.

	2.		Litigation Matters

			The Company is not involved in any significant litigation which, in the opinion of the management of the Company, will have a material adverse effect on the combined financial position or results of operations of the Company.

NOTE G – BUSINESS CONCENTRATIONS AND GEOGRAPHIC DATA

	1.		Business Concentrations

			During 2001, the Company had sales to three customers, each comprising 19%, 12% and 10% of total sales. During 2000, the Company had sales to three customers, each comprising 18%, 13% and 8% of total sales. The Company purchased approximately 21% and 16% of its products from two suppliers in 2001 and 28% and 17% in 2000. If required, management believes that, similar products are readily available from various alternative sources.

	2.		Geographic Data

			All of the Company’s identifiable assets and results of operations are located in the United States and Canada. Geographic data, as of and for the years ended December 31, 2001 and 2000, is as follows:


		2001		2000

Revenue
	United States	$	48,223,821	$	51,250,632
	Canada		3,565,347		3,762,996

		$	51,789,168	$	55,013,628

Property and equipment, net
	United States	$	10,062,811	$	11,549,593
	Canada		240,515		462,450

		$	10,303,326	$	12,012,043

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Folz Vending Co., Inc. and Affiliates

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

December 31, 2001 and 2000

NOTE H — INCOME TAXES

The provision (benefit) for income taxes consists of the following:


	Year ended December 31,

	2001		2000

Federal	$	26,018	$	(35,744	)
Foreign		47,742
State and local		60,743		(40,550	)

	$	134,503	$	(76,294	)

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AMERICAN COIN MERCHANDISING INC 8-K/A