AMERICAN COIN MERCHANDISING INC, S-1, 1997-09-19

AMERICAN COIN MERCHANDISING INC
S-1, 1997-09-19
MISCELLANEOUS AMUSEMENT & RECREATION

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997
REGISTRATION NO. 333-
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------

AMERICAN COIN MERCHANDISING, INC.
d/b/a SUGARLOAF CREATIONS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
DELAWARE 5962 84-1093721
<C> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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5660 CENTRAL AVENUE
BOULDER, COLORADO 80301
(303) 444-2559
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

---------------------

JEROME M. LAPIN
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN COIN MERCHANDISING, INC.
5660 CENTRAL AVENUE
BOULDER, COLORADO 80301
(303) 444-2559
FAX: (303) 443-2264
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

COPIES TO:

<TABLE>
<C> <C> <C>
JAMES C.T. LINFIELD, ESQ. CARLA W. SLEDGE, ESQ. ALVIN G. SEGEL, ESQ.
COOLEY GODWARD LLP HUTCHINSON BLACK & COOK LLC IRELL & MANELLA LLP
2595 CANYON BOULEVARD, SUITE 250 1215 SPRUCE STREET, SUITE 100 1800 AVENUE OF THE STARS, SUITE 900
BOULDER, CO 80302 BOULDER, COLORADO 80302 LOS ANGELES, CA 90067-4276
(303) 546-4000 (303) 442-6514 (310) 277-1010
FAX: (303) 546-4099 FAX: (303) 442-6593 FAX: (310) 203-7199
</TABLE>

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------

CALCULATION OF REGISTRATION FEE

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<CAPTION>
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value $.01 par
value................................ 2,300,000 $17.50 $40,250,000 $12,197
==============================================================================================================================
</TABLE>

(1) Includes 300,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act of
1933 based on the average of the high and low prices of the Company's Common
Stock as reported on the Nasdaq National Market on September 17, 1997.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 19, 1997

2,000,000 SHARES

[AMERICAN COIN LOGO]
COMMON STOCK
------------------------

Of the 2,000,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock") of American Coin Merchandising, Inc., d/b/a SugarLoaf Creations,
Inc. (the "Company") offered hereby, 1,000,000 shares are being sold by the
Company and 1,000,000 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). See "Principal and Selling Stockholders."
The Company will not receive any of the proceeds from the sale of the Common
Stock offered by the Selling Stockholders. The Company's Common Stock is traded
on the Nasdaq National Market under the symbol "AMCN." The last sale of the
Company's Common Stock, as reported on the Nasdaq National Market, occurred on
September 15, 1997 at a price of $17.50 per share.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
========================================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------
Total........................... $ $ $ $
========================================================================================================================
</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters by the Company and the Selling Stockholders and other matters.
(2) Before deducting certain expenses estimated at $400,000 payable on a
pro-rata basis by the Company and the Selling Stockholders.
(3) The Selling Stockholders have granted the Underwriters a 30-day
over-allotment option to purchase up to 300,000 shares of Common Stock at
the Price to Public less Underwriting Discounts and Commissions, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Selling Stockholders will be $ , $ , and $ ,
respectively. See "Underwriting."

------------------------

The shares of Common Stock are being offered by the Underwriters named
herein, subject to prior sale, when, as and if issued by the Company and
delivered to and accepted by the Underwriters and subject to certain prior
conditions, including the right of the Underwriters to reject any order in whole
or in part. It is expected that delivery of the shares of Common Stock will be
made at the offices of EVEREN Clearing Corporation in New York, New York or
through the facilities of The Depository Trust Company in New York, New York, on
or about , 1997.

EVEREN SECURITIES, INC.
LADENBURG THALMANN & CO. INC.

THE SEIDLER COMPANIES
INCORPORATED

The date of this Prospectus is September , 1997
<PAGE> 3

Picture of Toy Shoppe, Treasure Shoppe and Fun Shoppe which shows Toy
Shoppe containing stuffed animals and plush toys, Fun Shoppe containing small
toys and candy and Treasure Shoppe containing jewelry and watches.

Picture of map of the United States marked to show location of Company
offices, franchise offices and corporate headquarters.

Graph of Machine Growth showing increase of number of Shoppes owned by the
Company and its franchisees from 1992 through 1996.

List of Major Retail Accounts including Kroger, Safeway/Vons, King Soopers,
Cub Foods, Wal-Mart, K-Mart, Denny's, Ponderosa Steak House, Bonanza Steak
Houses, AMF Bowling Centers, Brunswick Bowling Centers, Truckstops of America,
Flying J Truckstop and 76 Truckstops.

SugarLoaf(R), Toy Shoppe(R), Fun Shoppe(R), Treasure Shoppe(R) and A Test
of Skill(TM) are all trademarks of the Company.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING
STOCKHOLDERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes thereto appearing elsewhere in this Prospectus. Information
contained in this Prospectus includes "forward-looking statements" (as such term
is defined in the Private Securities Litigation Reform Act of 1995) which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "plans" or "anticipates" or variations
thereon or comparable terminology or by a discussion of strategy. Because such
statements include risks and uncertainties, actual results could differ
materially from those expressed or implied by such forward-looking statements.
This Prospectus also contains important cautionary statements identifying
factors which may affect such future results. See "Risk Factors" for a
discussion of certain of these factors and risks associated with an investment
in the Common Stock. Except as noted otherwise, all information in this
Prospectus assumes that the Underwriters' over-allotment option is not
exercised. Unless the context otherwise requires, the term the "Company" refers
to American Coin Merchandising, Inc., a Delaware corporation, or prior to August
31, 1995, American Coin Merchandising, Inc. and affiliates.

THE COMPANY

The Company is a leading owner, operator and franchisor of coin-operated
skill-crane machines ("Shoppes") that dispense stuffed animals, plush toys,
watches, jewelry and other items through a national network of more than 9,000
machines operated by the Company and its franchisees. For up to 50c a play,
customers maneuver the skill-crane into position and attempt to retrieve the
desired item in the machine's enclosed display area before play is ended. The
Shoppes are located in supermarkets, mass merchandisers, bowling centers, bingo
halls, bars, restaurants, warehouse clubs and similar locations ("Retail
Accounts") to take advantage of the regular customer traffic at these locations.
Shoppes are currently located in Wal-Mart, K-Mart, Safeway, Denny's, Kroger, and
many other well-known Retail Accounts. The Company utilizes displays of quality
merchandise, new product introductions, including Company-designed products,
licensed products and seasonal items, and other merchandising techniques to
attract new and repeat customers. The Company is beginning to expand into
complementary vending businesses, including kiddie rides and bulk vending
(candy, gum, novelty items, etc.).

The number of Company owned and operated Shoppes has risen from 743 to
3,967 from 1993 to 1996, representing a compound annual growth rate of 74.8%. In
1996, the Company had record revenue and operating earnings of $38.3 million and
$4.3 million. The Company's growth continued during the six month period ended
June 30, 1997, when the Company had six month revenue and operating earnings of
$26.1 million and $3.1 million, an increase of 59.3% and 104.2% over the
comparable 1996 period. This growth resulted primarily from an increase in the
installed base of Company owned and operated Shoppes from 2,904 as of June 30,
1996 to 4,792 as of June 30, 1997, or an increase of 65%. In 1996, Shoppes owned
by the Company and its franchisees vended more than 7.25 million toys.

The Company plans to increase the number of Shoppes it owns and operates by
an average of at least 1,400 for 1997 and 1998 through a combination of
acquisitions and new Shoppe placements. The Company believes that the Shoppes'
potential economic return, visual appeal, product quality and the Company's high
operational standards are important factors in gaining acceptance of the
Company's Shoppes by Retail Accounts. The Company operates three types of
Shoppes: (i) the Toy Shoppe which primarily dispenses stuffed animals and plush
toys, (ii) the Treasure Shoppe which dispenses items such as jewelry and
watches, and (iii) the Fun Shoppe which dispenses small toys and candy. Over 60%
of the Company's Shoppe placements have been Toy Shoppes, which the Company
purchases for an average price of $3,600. In 1996, a Toy Shoppe averaged $12,000
in revenue and over $4,200 in cash profit contribution (revenue minus cost of
vended products, location commissions and direct service cost).

The skill-crane industry has been in existence for over 75 years and is
highly fragmented. Based on analysis of certain industry publications, the
Company believes that there are approximately 50,000 units of prize-dispensing
equipment in operation nationwide, of which skill-cranes are the most prevalent
type, with the average skill-crane business operating 16 machines. With over
5,000 Company owned and operated
3
<PAGE> 5

Shoppes, management believes the Company is the largest, and only national,
owner and operator of skill-crane machines. The Company believes that
supermarkets, mass merchandisers, bowling centers, bingo halls, bars,
restaurants, warehouse clubs and similar locations, representing over 100,000
potential crane locations, are becoming increasingly aware of the economic
benefits of amusement and vending machines, such as the Company's Shoppes, which
can provide retailers greater revenue and profits per square foot than
alternative uses of available floor space, with minimal expense.

BUSINESS STRATEGY

The Company's business strategy is to differentiate itself from traditional
skill-crane operators by (i) offering products of higher quality than the
carnival-type products that have been associated with skill-crane and other
prize-dispensing equipment; (ii) utilizing appealing merchandise displays,
frequent new product introductions, including Company-designed products,
licensed products and seasonal items, and other merchandising techniques
designed to attract customers; (iii) controlling product cost by purchasing
products in large quantities directly from manufacturers; (iv) closely
monitoring Shoppe revenue per product dispensed (the "Vend Ratio") to maintain
customer satisfaction and optimize Shoppe revenue and profitability; (v)
concentrating the placement of its Shoppes in Retail Accounts; (vi) providing
major Retail Accounts with the timely installation and operation of an
integrated system of Shoppes that can exceed 1,000 machines on a national basis;
and (vii) providing comprehensive training for the Company's field office
personnel and franchisees to assure the achievement of the Company's business
objectives. The Company intends to focus on owning and operating Shoppes and
does not currently intend to grant any additional franchises.

GROWTH STRATEGY

- Further penetration of existing geographic markets. The Company owns and
operates over 5,000 Shoppes from a national network of 30 offices with
operations in 40 states, which management believes makes the Company the
largest, and only national, owner and operator of skill-crane machines.
The Company believes this network is well positioned to serve the
skill-crane operations of supermarkets, mass merchandisers, bowling
centers, bingo halls, bars, restaurants, warehouse clubs and similar
locations, which the Company estimates represent over 100,000 potential
crane locations.

- Increase penetration of existing Retail Accounts. The Company and its
franchisees are designated skill-crane operators for many regional and
national Retail Accounts including Wal-Mart, Safeway, Kroger and
franchised Denny's. The Company believes opportunities exist to increase
penetration within its existing Retail Accounts. For example, while the
Company already owns and operates 1,465 Shoppes in Wal-Mart, over 250
stores have yet to be installed under the Wal-Mart contract.

- Target marketing efforts towards new large Retail Accounts. The Company
believes the attractive economic returns its Shoppes offer and its
demonstrated success with installing and operating a significant number
of Shoppes in Retail Accounts such as Wal-Mart and Safeway will allow it
to successfully target new national and regional Retail Accounts. In only
twelve months (ended June 30, 1997), the Company installed over 1,200
Shoppes in Wal-Mart stores.

- Capitalize on relationships with existing Retail Accounts. The Company
believes it can capitalize on its existing relationships with Retail
Accounts to expand the number and type of amusement and vending machines
its employees service at each location. Already the Company has
introduced multiple Shoppes at individual locations and is beginning to
introduce kiddie rides and bulk vending into its system.

- Acquire franchisees and other complementary vending businesses. The
Company has undertaken six (6) acquisitions since January 1, 1996 (see
"Recent Acquisitions") acquiring over 600 Shoppes, significant franchised
territories and a bulk vending and kiddie ride business. The Company
plans to pursue acquisition opportunities in order to increase the number
of Company owned machines and to acquire franchised territories and other
complementary businesses.
4
<PAGE> 6

RECENT ACQUISITIONS

As part of the Company's growth strategy, since January 1996 it has
undertaken the following six (6) acquisitions:

- Hoosier Coin Company. The Company's former franchisee for Indiana,
including 156 Shoppes, was purchased in January 1996 for consideration of
approximately $0.5 million.

- Northern Coin Company. The Company's former licensee for portions of
Colorado including 40 Shoppes, was purchased in May 1996 for
consideration of approximately $0.5 million.

- Sugarloaf of Utah. The Company's former franchisee for Utah, including
213 Shoppes, was purchased in July 1996 for consideration of
approximately $0.9 million.

- Sugarloaf West. The Company's former franchisee for portions of Colorado,
including 37 Shoppes, was purchased in August 1996 for consideration of
approximately $0.2 million.

- Sugarloaf, Inc. The Company's former franchisee for the states of
Louisiana and Oklahoma and portions of Missouri, Illinois and Texas,
including 202 Shoppes, was purchased in September 1997 for consideration
of approximately $1.7 million.

- Quality Amusements Corp. and Quality Entertainment Corp. On September 12,
1997, the Company executed an agreement to purchase the assets of these
operators of bulk vending machines and kiddie rides for consideration of
approximately $1.8 million, which is scheduled to close November 1, 1997.

The Company was incorporated in Colorado in July 1988 and was
reincorporated in Delaware in July 1995. The Company's principal executive
offices are located at 5660 Central Avenue, Boulder, Colorado 80301 and its
telephone number is (303) 444-2559.

THE OFFERING

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<S> <C>
Common Stock Offered by the Company.................. 1,000,000 shares
Common Stock Offered by the Selling Stockholders..... 1,000,000 shares(1)
Common Stock Outstanding after the Offering.......... 6,449,904 shares(2)
Use of Proceeds...................................... To repay bank debt, purchase additional
Shoppes, fund acquisitions and for working
capital and other general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol........................ "AMCN"
</TABLE>

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(1) Excludes 300,000 shares of Common Stock which is subject to the
Underwriters' over-allotment option. See "Underwriting."

(2) Excludes (i) 329,500 shares of Common Stock issuable upon exercise of stock
options at a weighted average exercise price of $7.76 per share outstanding
as of August 31, 1997, and (ii) 125,000 shares of Common Stock issuable upon
exercise of certain warrants which have an exercise price of $8.40 per
share. See "Management -- Stock Option Plan" and " -- Non-Employee
Directors' Stock Option Plan."
5
<PAGE> 7

SUMMARY FINANCIAL AND OPERATING DATA

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<CAPTION>
SIX MONTHS TWELVE
ENDED MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, ENDED
---------------------------------------------- ----------------- JUNE 30,
1992 1993 1994 1995 1996 1996 1997 1997
------ ------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenue........................................ $7,784 $10,508 $17,614 $25,714 $38,267 $16,417 $26,147 $47,997
Gross profit................................... 2,557 3,403 5,008 7,959 11,325 4,707 7,796 14,414
General and administrative expenses............ 2,098 2,854 3,607 4,565 7,053 3,203 4,725 8,575
Operating earnings............................. 459 549 1,401 3,394 4,272 1,504 3,071 5,839
Net earnings................................... 516 321 1,082 2,575 2,586 876 1,765 3,475
Pro forma net earnings(1)...................... 320 199 671 2,549
Net earnings per share(2)...................... $ 0.48 $ 0.16 $ 0.33 $ 0.64
Weighted average common shares(2).............. 5,417 5,449 5,381 5,447
COMPANY OPERATING DATA:
Revenue growth................................. -- 35.0% 67.6% 46.0% 48.8% 37.9% 59.3%
Operating earnings growth...................... -- 19.6 155.2 142.3 25.9 0.7 104.2
Gross margin................................... 32.9% 32.4 28.4 31.0 29.6 28.7 29.8
Operating earnings margin...................... 5.9 5.2 8.0 13.2 11.2 9.2 11.8
Pro forma net earnings margin(3)............... 4.1 1.9 3.8 9.9 6.8 5.3 6.8
NUMBER OF SHOPPES(4)
Company operations............................. 284 743 1,019 2,057 3,967 2,904 4,792
Franchise operations........................... 1,788 2,148 3,008 3,455 3,981 3,522 4,195
------ ------- ------- ------- ------- ------- -------
Total.................................. 2,072 2,891 4,027 5,512 7,948 6,426 8,987
====== ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(5)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 1,958 $12,173
Total assets................................................ 24,695 34,910
Total short-term debt and current portion of long-term
debt...................................................... 1,101 1,101
Total long-term debt, excluding current portion............. 6,760 725
Total stockholders' equity.................................. 13,467 29,717
</TABLE>

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(1) During the years 1992 through August 1995, the Company and each of the
Chicago Toy Company, the Georgia Toy Company, Inland Merchandising, Inc.,
Lehigh Valley Toy Company, Performance Merchandising, Inc., Southwest Coin
Company, Sugarloaf, Ltd. and Sugarloaf Marketing Inc., (the "Affiliated
Entities") were organized as either S corporations or a partnership and the
taxable income of the Company and the Affiliated Entities was attributable
directly to their respective stockholders or partners during such periods.
Accordingly, net income has been adjusted to reflect federal and state
income taxes as if such taxes had been incurred for such period at an
estimated effective rate of 38%. See Note 1 of Notes to the Financial
Statements included herein.

(2) Net earnings per share and weighted average common shares are not presented
for 1992 through 1995 because the Company and each of the Affiliated
Entities were organized as S corporations or a partnership. On a pro forma
basis, net earnings per share and weighted average common shares would have
been $0.55 and 4,669,000 respectively, for 1995. See Note 14 of Notes to the
Financial Statements included herein.

(3) Net earnings margin for 1992 through 1995 is based on pro forma net
earnings.

(4) Shoppes previously owned and operated by the Affiliated Entities, other than
Sugarloaf Marketing, are included in Company operations. Shoppes previously
owned and operated by Sugarloaf Marketing are included in franchise
operations on a historical basis and in Company operations on a pro forma
basis. The number of Shoppes is as of the end of the indicated period.

(5) Adjusted to give effect to the sale of the 1,000,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $17.50
per share and after deduction of underwriting discounts and commissions and
estimated offering expenses and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
6
<PAGE> 8

RISK FACTORS

The following principal risk factors should be considered carefully in
addition to the other information contained in this Prospectus before purchasing
the Common Stock offered hereby. This Prospectus contains forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995), which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," "plans" or "anticipates"
or variations thereon or comparable terminology or by a discussion of strategy.
Because such statements include risks and uncertainties, actual results could
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below and in the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.

GROWTH AND MANAGEMENT OF GROWTH

The Company has recently experienced substantial growth, however, there can
be no assurance that the Company will continue to grow at historical rates or at
all. The Company's ability to generate increased revenue and achieve higher
levels of profitability will depend upon its ability and the ability of its
franchisees to place additional Shoppes in Retail Accounts as well as to
maintain or to increase the average financial performance of the Shoppes. The
Company's ability to place additional Shoppes depends on a number of factors
beyond the Company's control, including general business and economic
conditions. Installation of additional Shoppes will also depend, in part, upon
the Company's ability to secure additional national and regional Retail Accounts
and to obtain approval to place additional Shoppes in individual locations of
such accounts. The Company, its franchisees and their suppliers also may be
unable to place and service additional Shoppes, which could have a material
adverse effect on the Company's financial performance.

In addition, the Company has limited experience with product offerings
beyond skill-cranes and such new product offerings may involve risks and
operational requirements different from those of the Shoppes. Accordingly, there
can be no assurance that any additional Company product offerings will meet with
success or generate significant additional revenue.

There can be no assurance that the Company will be able to manage its
expanding operations effectively or that it will be able to maintain or
accelerate its growth. The Company's growth has placed, and is expected to
continue to place, significant demands on all aspects of the Company's business,
including Shoppe servicing, merchandising, financial and administrative
personnel and systems. The Company's future operating results are substantially
dependent upon the ability of the Company's officers and key personnel to manage
anticipated growth and increased demand effectively; to attract, train and
retain additional qualified personnel; and to implement and improve technical,
service, administrative, financial control and reporting systems. Either a
deterioration in Shoppe performance or the Company's failure to manage growth
effectively could adversely and materially affect the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Business Strategy" and "-- Growth Strategy."

ACQUISITION RELATED RISKS

Part of the Company's business strategy is to acquire other businesses or
assets that will complement its existing business and it is contemplated that
part of the proceeds from the Offering may be used for such acquisitions. The
Company is unable to predict whether or when any prospective acquisition
candidates will become available or the likelihood of a material transaction
being completed should any negotiations commence. If the Company proceeds with
any such transaction, no assurance can be given that the Company can effectively
integrate the acquired operations with its own. The Company also may seek to
finance any such acquisition through debt financings or issuances of equity and
there can be no assurance that any such financing will be available on
acceptable terms or at all. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Growth Strategy."

7
<PAGE> 9

TRADE RELATIONS AND DEPENDENCE ON MAJOR ACCOUNTS

The Company's largest major account, Wal-Mart, accounted for approximately
1.9% of total revenue for the six month period ended June 30, 1996, 11.4% of
total revenue in all of fiscal 1996, and 28.2% of total revenue for the six
month period ended June 30, 1997. Although the Company has entered into a
contract with Wal-Mart (which expires on January 1, 2000), national and regional
Retail Accounts generally do not enter into long-term contracts with vendors. In
individual-location accounts, the Company and its franchisees generally place
Shoppes pursuant to oral agreements with location managers. The arrangements of
the Company and its franchisees with most of these accounts may be terminated at
any time. In addition, Wal-Mart may terminate its contract with the Company
under certain limited circumstances. The loss of the Wal-Mart account, or the
loss of a significant number of other major accounts, or a significant reduction
in the number of Shoppes placed at such accounts, for any reason, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Operations."

COMPETITION FOR LOCATIONS

The Company competes with a number of regional and local operators of
skill-crane machines. Many of these competitors are engaged in aggressive
expansion programs, and the Company has experienced and expects to continue to
experience intense competition for new locations. There can be no assurance that
the Company will be able to compete effectively with these companies in the
future. The Company's Shoppes also compete with other vending machines and
coin-operated amusement devices and seasonal and bulk merchandise for sites
within retail locations. There can be no assurance that the Company will be able
to maintain its current sites in the retail locations or that it will be able to
obtain sites in the future on attractive terms or at all. There also are few
barriers to entry in the Company's business, and it would be possible for
well-financed vending machine manufacturers or other vending machine operators
with existing relationships with supermarkets and other locations targeted by
the Company to readily compete with the Company in certain markets. See
"Business -- Competition."

DEPENDENCE ON SUPPLIERS AND FOREIGN SOURCING

Substantially all of the plush toys and other products dispensed from the
Shoppes are produced by foreign manufacturers. A majority are purchased directly
by the Company from manufacturers in the People's Republic of China ("China").
The Company purchases its other products indirectly from vendors who obtain a
significant percentage of such products from foreign manufacturers. As a result,
the Company is subject to changes in governmental policies, the imposition of
tariffs, import and export controls, transportation delays and interruptions,
political and economic disruptions and labor strikes which could disrupt the
supply of products from such manufacturers. Among other things, the loss of
China's "most favored nation" status under U.S. tariff laws could result in a
substantial increase in the import duty of certain products manufactured in
China, which could result in substantially increased costs for certain products
purchased by the Company which could have a material adverse effect on the
Company's financial performance. See "Business -- Operations" and
"-- Suppliers."

The Company also could be affected by labor strikes in the sea shipping,
trucking and railroad industries, all of which the Company utilizes to varying
degrees. Although the Company believes that alternative means of transportation
would be available for its products in the event of a labor strike affecting a
particular mode of transportation, such a disruption could increase the
Company's transportation costs and thereby reduce its profit margins.

The Company does not have a long-term supply agreement with any of its
crane suppliers. While the Company believes that it will continue to be able to
purchase skill-crane machines from existing or alternative suppliers, no
assurance can be given that skill-cranes will be available on a cost-efficient
basis or that shortages or other disruptions in the Company's sources of supply
for skill-crane machines and components would not

8
<PAGE> 10

have a material and adverse effect on the Company's business, financial
condition or results of operations. See "Business -- Suppliers" and "-- Growth
Strategy."

NATURE OF FRANCHISE RELATIONS

For the fiscal year ended December 31, 1996 and the six months ended June
30, 1997, the Company derived approximately 20.5% and 13.4%, respectively, of
its total revenue from franchise and other revenue. The Company expects to
continue to derive significant revenue from its franchisees in the future.
Franchise and other revenue consists primarily of product sales to franchisees
and royalties from franchisees. The Company's franchise agreements generally
grant franchisees an exclusive geographic territory in which the Company
generally may not place or operate the same type of Shoppes. Although the
franchise agreements require franchisees to place a specified minimum number of
Shoppes within their territories and to pay franchise royalties, franchisees are
under no minimum product purchase or minimum annual royalty payment obligations.
There can be no assurance, therefore, that the Company will continue to realize
the same or greater revenue from its franchisees. The Company also cannot
require franchisees to expand operations within their territories or preclude
them from taking actions inconsistent with the Company's expansion plans or
business strategy. See "Business -- Franchise Relations" and "-- Terms of
Franchise Agreement."

SEASONALITY AND VARIABILITY OF RESULTS

The financial performance of the Shoppes is substantially dependent on the
level of retail traffic at such Shoppes' particular location. Accordingly, the
business, financial condition and results of operations of the Company can be
materially and adversely affected by factors which reduce retail traffic at
Shoppe locations. These include numerous factors beyond the Company's control
such as weather, labor strikes and other disruptions of the business at Retail
Accounts and local and national business and economic conditions. The Company's
results are also linked to seasonal increases in foot-traffic at Retail
Accounts, and disruptions of past trends, including traditional increases during
holiday seasons could decrease the Company's revenue. As a result, the Company's
operating results may vary significantly over time. Accordingly,
period-to-period comparisons of its results of operations are not necessarily
meaningful and the Company's past results should not be relied upon as an
indication of future performance.

CHANGING CONSUMER TRENDS; TECHNOLOGICAL INNOVATIONS

Consumer preferences are constantly changing and difficult to predict, and
consumer interest in the Company's Shoppes or the products dispensed could
decline suddenly or other prize-dispensing equipment or amusement devices could
replace the Shoppes in consumer preference. The Company's success will depend in
part on its ability to offer new and appealing products and on the continuing
appeal of its Shoppes' skill-crane format in both existing markets and in new
markets into which the Company may expand. There can be no assurance that the
use of skill-crane machines and the Company's operating results will not be
adversely affected by changing consumer trends.

The Company's business also is susceptible to advances in the design and
manufacture of skill-crane machines and other vending technology. The Company's
failure to anticipate or respond adequately to such technological changes could
adversely affect the Company's business and results of operations.

GOVERNMENT REGULATION

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

9
<PAGE> 11

watches dispensed by the Company's Shoppes were to be banned, permanently or
temporarily, the Company's operations and financial position could be adversely
affected.

The distribution and operation of skill-crane machines may be subject to
federal, state, provincial and local regulations, including gaming regulations,
which vary from jurisdiction to jurisdiction. Certain jurisdictions may require
companies and their key personnel to hold licenses, permits and approvals in
connection with the distribution or operation of skill-crane machines.
Currently, the Company has obtained all governmental licenses, permits and
approvals that it believes are necessary for the distribution and operation of
its skill-crane machines. However, no assurance can be given that such licenses,
permits or approvals will be given or renewed in the future. The Company's
franchisees are responsible for their own regulatory compliance. The rejection
or termination of the Company's or any of its franchisees' licenses, permits or
approvals may adversely affect the business of the Company.

Many states and local jurisdictions lack specific laws and regulations
relating to skill-crane machines, and there can be no assurance that existing
state or local laws and regulations, including gaming laws and regulations, will
not be construed or enforced in the future to prohibit the operation of Shoppes
in these jurisdictions or subject the Company and its franchisees to additional
regulations or licensing requirements. Also, there can be no assurance that new
laws and regulations that prevent or restrict the operation of Shoppes in
particular states or local jurisdictions will not be adopted. Any such actions
on the part of states or local jurisdictions could have a material adverse
effect on the Company's business and operations and on its expansion plans.

As a franchisor, the Company is subject to various federal and state
franchise and business opportunity laws and regulations. Although the Company
does not currently intend to grant any additional franchises and it believes it
is in material compliance with such laws in the states in which the Company has
offered and sold franchises, the promulgation of new franchising laws and
regulations could adversely affect the Company's business and operations.

PRODUCT LIABILITY

The Company may be subject to claims for personal injuries resulting from
the use of its Shoppes or from products and other merchandise dispensed from the
Shoppes. To date, the Company has not experienced any material product liability
claims or costs, and it currently maintains product liability insurance which it
believes to be adequate. The Company's product liability insurance coverage is
limited, however, and there can be no assurance that such insurance would
adequately cover future product liability costs or claims. See
"Business -- Insurance."

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

DEPENDENCE ON KEY EMPLOYEES

The Company's success to date has been dependent in part upon the efforts
and abilities of Jerome M. Lapin (its President, Chief Executive Officer and
Chairman), W. John Cash (its Vice President, Chief Financial Officer and
Treasurer), Randall J. Fagundo (its Vice President of Operations and Secretary),
Abbe M. Stutsman (its Vice President of Purchasing and Product Development), and
certain other key personnel. The Company's continued success will depend upon
its ability to retain a number of its current key employees and to attract,
train and retain new key management and operational personnel. There can be no
assurance that the Company will be able to retain its existing key employees or
attract and retain qualified employees in the future. The Company does not
maintain any "key man" insurance. In addition, executives or other

10
<PAGE> 12

employees with knowledge of the Company's operations and policies may leave the
Company and establish competitive businesses. There can be no assurance that the
Company would be able to effectively enforce non-compete provisions against
these individuals. See "Business -- Employees," "Management."

CONTROL BY EXISTING STOCKHOLDERS

Upon the completion of this Offering, the current executive officers and
directors of the Company will beneficially own approximately 39% of the
outstanding Common Stock (approximately 33% if the Underwriters' over-allotment
option is exercised in full) and will hold vested and exercisable options and
warrants to acquire up to an additional 41,500 shares of Common Stock.
Accordingly, these stockholders may have the ability to control the election of
the Company's directors and the Company's other business and affairs. This
concentration of ownership may have the effect of delaying or preventing a
change in management or control of the Company. See "Description of Capital
Stock -- Delaware Anti-Takeover Law and Certain Charter Provisions."

LIMITED HISTORICAL TRADING VOLUME IN THE COMMON STOCK; POSSIBLE VOLATILITY OF
STOCK PRICE

The Common Stock has experienced low trading volumes due, in part, to
substantial holding by executive officers, members of the Board of Directors and
greater than 5% stockholders who collectively have held a significant portion of
the outstanding shares. Following the Offering, approximately 53% of the shares
(approximately 46% if the Underwriters' over-allotment option is exercised in
full) will be held by the Company's executive officers, members of the Board of
Directors and greater than 5% stockholders. No assurance can be given that an
active trading market will develop following the Offering.

In addition, even if a more active market does develop, no assurance can be
given that the market price for the Common Stock will not be volatile. The
market price for the Common Stock may be significantly affected by a variety of
factors, including a relatively high price to earnings ratio, the Company's
operating results or changes in any earnings estimates publicly announced by the
Company or by securities analysts. In addition, the stock market from time to
time experiences extreme price and volume fluctuations that have particularly
affected the market price for many companies and that often have been unrelated
to the operating performance of these companies. These broad market fluctuations
may adversely affect the market price of the Common Stock. See "Price Range of
Common Stock."

POTENTIAL SALE INTO THE PUBLIC MARKET OF OUTSTANDING SHARES

Upon completion of the Offering, the Company will have 6,449,904 shares of
Common Stock outstanding. Of these shares, the 1,700,000 shares sold in the
Company's initial public offering and the 2,000,000 shares sold in the Offering
will be freely tradable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company, as is defined
under the Securities Act. The remaining 2,749,904 shares of Common Stock are
"Restricted Shares" and are subject to restrictions under the Securities Act. Of
these shares, 14,000, 1,148,627 and 1,227,246 are subject to lock-up agreements
under which the holders have agreed not to sell or otherwise dispose of any of
their shares for a period of 90, 180 and 270 days, respectively, after the date
of this Prospectus without the prior written consent of EVEREN Securities, Inc.
("EVEREN"). See "Shares Eligible for Future Sale."

EFFECT OF ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to 500,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock.
Such issuance, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a

11
<PAGE> 13

period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 also could have the effect
of delaying or preventing change of control of the Company. Furthermore, certain
provisions of the Company's Certificate of Incorporation may have the effect of
delaying or preventing changes in control or management of the Company, which
could adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter
Provisions."

DILUTION

The public offering price is substantially higher than the tangible book
value per share of Common Stock at June 30, 1997. Investors purchasing shares of
Common Stock in the Offering will therefore incur immediate, substantial
dilution equal to $13.38 per share, based on as adjusted tangible book value per
share of Common Stock of $4.12, calculated assuming the sale of 1,000,000 shares
of Common Stock by the Company offered hereby at a public offering price of
$17.50 per share, less the underwriting discounts and estimated offering
expenses.

12
<PAGE> 14

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Common
Stock are estimated to be approximately $16.3 million after deducting the
estimated underwriting discounts and offering expenses. The Company will not
receive any proceeds from the sale of the 1,000,000 shares of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."

The net proceeds from the Offering will be used (i) to repay up to $8.5
million of the outstanding principal amount of the Company's credit facility
(the "Revolving Line") which bears interest at the annual rate of 8.5% and has a
final maturity of July 5, 1999, (ii) purchase additional skill-crane machines,
and (iii) fund acquisitions of other companies, technology or products that
complement the business of the Company, although no such transactions, other
than the acquisition of Quality Amusements Corp. and Quality Entertainment
Corp., are being planned or negotiated as of the date hereof. See
"Business -- Recent Acquisitions." The remaining proceeds will be used for
working capital and general corporate purposes. The amounts and timing of such
expenditures will depend upon the availability and terms of acquisitions and any
related financing and other factors, many of which are beyond the Company's
control. Pending such uses, the net proceeds of the Offering will be invested in
short-term, interest-bearing securities.

PRICE RANGE OF COMMON STOCK

The Common Stock began trading publicly in the over-the-counter market
through the Nasdaq National Market on October 16, 1995 under the symbol "AMCN".
Prior to that date, there was no public market for the Common Stock. The
following table sets forth for the periods indicated the high and low closing
sale quotations for the Common Stock as reported on the Nasdaq National Market.
The prices reported do not include retail mark-up, mark down or commissions and
may not reflect actual transactions.

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995:
Fourth Quarter (From October 16, 1995).................... $ 7.38 $6.00
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996:
First Quarter............................................. 6.63 4.88
Second Quarter............................................ 6.25 4.50
Third Quarter............................................. 6.50 4.00
Fourth Quarter............................................ 6.25 4.75
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................. 9.00 4.88
Second Quarter............................................ 11.75 6.75
Third Quarter (through September 18, 1997)................ 17.63 9.63
</TABLE>

As of September 15, 1997 there were 30 holders of record of the Common
Stock. On September 15, 1997, the last reported sale price on the Nasdaq
National Market for the Common Stock was $17.50.

DIVIDEND POLICY

The Company has not declared or paid a cash dividend on its Common Stock.
The payment of future dividends will be within the discretion of the Company's
Board of Directors and will depend on the earnings, capital requirements,
restrictions in current and future credit agreements and operating and financial
condition of the Company, among other factors. The Revolving Line limits the
Company's payment of dividends while the Revolving Line is in place. Prior to
October 1995, certain of the Affiliated Entities made S corporation
distributions to their respective owners, including certain Selling
Stockholders. See "Certain Relationships and Related Transactions."

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
June 30, 1997 on an actual basis and (ii) on an as adjusted basis to reflect the
receipt and application of the net proceeds from the sale of 1,000,000 shares of
the Common Stock offered by the Company hereby.

<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash and cash equivalents................................... $ 826 $11,041
======= =======
Short-term debt and current portion of long-term debt....... $ 1,101 $ 1,101
======= =======
Long-term debt, excluding current portion................... $ 6,760 $ 725
Stockholders' equity:
Preferred Stock, $.10 par value; 500,000 shares
authorized, none issued actual and as adjusted......... -- --
Common Stock, $.01 par value, 7,000,000 shares authorized;
issued and outstanding 5,447,904 and 6,447,904, actual
and as adjusted(1)..................................... 54 64
Additional paid-in capital................................ 8,414 24,654
Unearned stock option compensation........................ (33) (33)
Retained earnings......................................... 5,032 5,032
------- -------
Total stockholders' equity........................ 13,467 29,717
------- -------
Total capitalization.............................. $20,227 $30,442
======= =======
</TABLE>

- ---------------

(1) Excludes (i) 210,500 shares of Common Stock issuable upon exercise of stock
options at a weighted average exercise price of $6.57 per share outstanding
as of June 30, 1997, and (ii) 125,000 shares of Common Stock issuable upon
exercise of certain warrants which have an exercise price of $8.40 per
share. See "Management -- Stock Option Plan" and "-- Non-Employee Directors'
Stock Option Plan."

14
<PAGE> 16

SELECTED FINANCIAL AND OPERATING DATA

The selected financial data set forth below with respect to the Company's
statements of earnings for each of the years in the three-year period ended
December 31, 1996 and balance sheets at December 31, 1995 and 1996, have been
derived from the financial statements of the Company included elsewhere in this
Prospectus, that have been audited by KPMG Peat Marwick LLP, independent
auditors, as indicated in their report included elsewhere in this Prospectus.
The statement of earnings data for the years ended December 31, 1992 and 1993
and the balance sheet data as of December 31, 1993 and 1994, have been derived
from the financial statements audited by KPMG Peat Marwick LLP, which are not
included in this Prospectus. The financial data for the six months ended June
30, 1996 and 1997 have been derived from unaudited financial statements included
elsewhere in this Prospectus. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of financial position and results of
operations for these periods. Operating results for the six months ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1997. The data set forth below should be
read in conjunction with the financial statements, including notes thereto,
included elsewhere in this Prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
TWELVE
SIX MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED
---------------------------------------------- ----------------- JUNE 30,
1992 1993 1994 1995 1996 1996 1997 1997
------ ------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenue:
Vending............................... $4,138 $ 6,258 $11,651 $17,031 $30,439 $12,192 $22,648 $40,895
Franchise and other................... 3,646 4,250 5,963 8,683 7,828 4,225 3,499 7,102
------ ------- ------- ------- ------- ------- ------- -------
Total revenue................... 7,784 10,508 17,614 25,714 38,267 16,417 26,147 47,997
------ ------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Vending............................... 3,084 4,368 8,399 11,701 21,283 8,639 16,042 28,686
Franchise and other................... 2,143 2,737 4,207 6,054 5,659 3,071 2,309 4,897
------ ------- ------- ------- ------- ------- ------- -------
Total cost of revenue........... 5,227 7,105 12,606 17,755 26,942 11,710 18,351 33,583
------ ------- ------- ------- ------- ------- ------- -------
Gross profit.................... 2,557 3,403 5,008 7,959 11,325 4,707 7,796 14,414
General and administrative expense...... 2,098 2,854 3,607 4,565 7,053 3,203 4,725 8,575
------ ------- ------- ------- ------- ------- ------- -------
Operating earnings...................... 459 549 1,401 3,394 4,272 1,504 3,071 5,839
Interest expense........................ 89 115 228 383 375 91 267 551
Minority interest....................... 52 89 62 80 -- -- -- --
Share of (income) loss of equity
affiliate............................. (198) 24 29 27 -- -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Earnings before income taxes............ 516 321 1,082 2,904 3,897 1,413 2,804 5,288
Income tax expense...................... -- -- -- 329 1,311 537 1,039 1,813
------ ------- ------- ------- ------- ------- ------- -------
Net earnings.................... $ 516 $ 321 $ 1,082 $ 2,575 $ 2,586 $ 876 $ 1,765 $ 3,475
====== ======= ======= ======= ======= ======= ======= =======
Net earnings per share(2)............... $ 0.48 $ 0.16 $ 0.33 $ 0.64
Weighted average common shares(2)....... 5,417 5,449 5,381 5,447
Pro forma information:
Historical net earnings before income
taxes............................... $ 516 $ 321 $ 1,082 $ 2,904
Pro forma income tax expense.......... 196 122 411 1,104
------ ------- ------- -------
Pro forma net earnings(1)............. $ 320 $ 199 $ 671 $ 1,800
====== ======= ======= =======
COMPANY OPERATING DATA:
Revenue growth.......................... -- 35.0% 67.6% 46.0% 48.8% 37.9% 59.3%
Operating earnings growth............... -- 19.6 155.2 142.3 25.9 0.7 104.2
Gross margin............................ 32.9% 32.4 28.4 31.0 29.6 28.7 29.8
Operating earnings margin............... 5.9 5.2 8.0 13.2 11.2 9.2 11.8
Pro forma net earnings margin(3)........ 4.1 1.9 3.8 9.9 6.8 5.3 6.8
NUMBER OF SHOPPES(4):
Company operations...................... 284 743 1,019 2,057 3,967 2,904 4,792
Franchise operations.................... 1,788 2,148 3,008 3,455 3,981 3,522 4,195
------ ------- ------- ------- ------- ------- -------
Total........................... 2,072 2,891 4,027 5,512 7,948 6,426 8,987
====== ======= ======= ======= ======= ======= =======
</TABLE>

15
<PAGE> 17

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
----------------------------------- ---------------------------------
AS
1993 1994 1995 1996 ACTUAL ADJUSTED(5)
------ ------ ------- ------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 350 $ 220 $ 2,896 $ 2,930 $ 1,958 $12,173
Total assets............................................ 3,750 5,539 13,702 19,758 24,695 34,910
Total short-term debt and current portion of long-term
debt.................................................. 1,157 1,380 557 1,109 1,101 1,101
Total long-term debt, excluding current portion......... 1,078 1,640 1,632 5,059 6,760 725
Total stockholders' equity.............................. 833 1,214 9,007 11,676 13,467 29,717
</TABLE>

- ---------------

(3) Net earnings margin for 1992 through 1995 is based on pro forma net
earnings.

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors including those set forth under "Risk Factors" and elsewhere in
this Prospectus. The information presented below should be read in conjunction
with the financial statements, including notes thereto, included elsewhere in
this Prospectus.

GENERAL

The Company and its franchisees own and operate Shoppes that dispense
stuffed animals, plush toys, watches, jewelry and other items. The Company's
Shoppes are placed in Retail Accounts and similar high traffic locations, and
typically pay 20-30% of gross revenue to the location owner as a location
commission. At June 30, 1997, the Company had a national network of 29 offices
operating in 39 states and there were 20 Company franchisees operating in 27
territories. The Company sells both machines and product vended in the machines
to its franchisees and collects continuing royalties ranging from 2% to 5% of
its franchisees' gross machine revenue.

For the period ended June 30, 1997, over 80% of the Company's revenue and
gross profit was derived from Company-owned Shoppes. The Company's revenue and
gross profit in a particular period is directly related to the number of Shoppes
in operation during the period. Management believes that the Company's business
is somewhat seasonal, with average revenue per machine per week greater during
the Easter and Christmas periods. The Company plans to increase the number of
Shoppes it owns and operates by an average of at least 1,400 for 1997 and 1998
through a combination of acquisitions and new Shoppe placements. Vending revenue
represents cash receipts from customers using vending machines and is recognized
when collected. The cost of vending revenue is comprised of the cost of vended
products, location commissions, depreciation, and direct service cost.

Franchise and other revenue represents the Company's percentage of gross
vending revenue generated by Shoppes owned and operated by franchisees, as well
as product sold to the franchisees. Initial franchise fees have not been
material, and the Company currently does not plan to expand its franchise
network. Product sold to the franchisees consists of goods to vend in Shoppes.
Equipment sales to the franchisees have been done on a pass-through basis from
the Company's main suppliers. The Company anticipates that franchise and other
revenue will decline in the future as a result of the Company's acquisition of
franchises.

In 1995, the Company terminated its S corporation status. In conjunction
with its initial public offering in October 1995, the Company reorganized by
acquiring substantially all of the inventory, property and equipment and
assuming certain facilities leases and contracts of the Affiliated Entities (the
"Reorganization"). All of the Affiliated Entities previously were franchisees of
the Company and all except SugarLoaf Marketing, were controlled by one or more
of Greg Theisen, Abbe Stutsman, Richard Jones and Randall Fagundo and their
respective spouses (the "Founders").

The number of Company owned and operated Shoppes has risen from 743 to
3,967 from 1993 to 1996, representing a compound annual growth rate of 74.8%. In
1996, the Company had record revenue and operating earnings of $38.3 million and
$4.3 million. The Company's growth continued during the six month period ended
June 30, 1997, when the Company had six month revenue and operating earnings of
$26.1 million and $3.1 million, an increase of 59.3% and 104.2% over the
comparable 1996 period. This growth resulted primarily from an increase in the
installed base of Company owned and operated Shoppes from 2,904 as of June 30,
1996 to 4,792 as of June 30, 1997, an increase of 65%. The Company has
experienced 53.9% and 98.2% compound annual growth rates in total revenue and
operating earnings, respectively, between 1993 and 1996.

17
<PAGE> 19

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, certain selected
earnings statement data as a percentage of total revenue:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Vending...................................... 66.1% 66.2% 79.5% 74.3% 86.6%
Franchise and other.......................... 33.9 33.8 20.5 25.7 13.4
----- ----- ----- ----- -----
Total revenue........................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenue:
Vending...................................... 47.7 45.5 55.6 52.6 61.4
Franchise and other.......................... 23.9 23.5 14.8 18.7 8.8
----- ----- ----- ----- -----
Total cost of revenue................ 71.6 69.0 70.4 71.3 70.2
----- ----- ----- ----- -----
Gross profit......................... 28.4 31.0 29.6 28.7 29.8
General and administrative expense............. 18.4 16.4 18.4 19.5 18.1
Commissions and royalties, related parties..... 2.0 1.3 -- -- --
----- ----- ----- ----- -----
Operating earnings............................. 8.0 13.2 11.2 9.2 11.7
Interest expense............................... 1.3 1.5 1.0 0.6 1.0
Other expenses................................. 0.5 0.4 -- -- --
----- ----- ----- ----- -----
Earnings before income taxes......... 6.1 11.3 10.2 8.6 10.7
Provision for income taxes..................... -- 1.3 3.4 3.3 4.0
----- ----- ----- ----- -----
Net earnings......................... 6.1% 10.0% 6.8% 5.3% 6.8%
===== ===== ===== ===== =====
</TABLE>

The preceding table contains percentages of total revenue calculated from the
Company's financial statements. Due to rounding, some subtotals and totals may
not add.

SIX MONTHS ENDED JUNE 30, 1997 VS. SIX MONTHS ENDED JUNE 30, 1996

Revenue

Total revenue for the first six months of 1997 increased 59.3% to $26.1
million from $16.4 million for the same period in 1996. Vending revenue
increased $10.5 million or 85.8% in the first half of 1997 to $22.6 million from
$12.2 million for the comparable period in 1996 as a result of a 76.6% increase
in the average number of Shoppes in place during the first half of 1997 compared
to the average number in place during the same period in 1996.

Franchise and other revenue decreased $726,000 or 17.2% to $3.5 million for
the first six months of 1997 as compared to the same period in 1996 due to the
acquisition of franchises by the Company.

Cost of Revenue and Gross Profit

The cost of vending operations for the first six months of 1997 increased
$7.4 million or 85.7% to $16.0 million from $8.6 million for the comparable
period in 1996. The vending operation's contribution to gross profit for the
first six months of 1997 increased to $6.6 million, which represents a 85.9%
increase over gross profit from vending operations realized in the same period
in 1996. The vending gross profit margin achieved in the first half of 1997 was
29.2% of vending revenue, as compared to 29.1% for the same period in 1996.

Gross profit on franchise and other revenue for the first six months of
1997 decreased to $1.2 million or 34% of franchise and other revenue, which is
6.7 percentage points higher than the gross margin achieved for the same period
in 1996.

18
<PAGE> 20

Operating Expense

General and administrative expense for the first six months of 1997
increased $1.5 million to $4.7 million or 18.1% of revenue, as compared to $3.2
million or 19.5% of revenue for the comparable period in 1996. The increase in
general and administrative expense results primarily from the additional
operating and satellite offices opened by the Company during the past year.

Operating Earnings

Operating earnings for the first six months of 1997 increased 104.2% to
$3.1 million, or 11.7% of total revenue, as compared to $1.5 million, or 9.2% of
total revenue for the comparable period in 1996. The increase in operating
earnings results primarily from the 76.6% increase in the average number of
Shoppes in place during the first half of 1997 compared to the average number in
place for the comparable period in 1996.

Non Operating Income (Expense)

Interest expense for the first six months of 1997 increased $176,000 to
$267,000 as compared to the same period in 1996. The Company's interest expense
is directly related to its level of borrowings and changes in the underlying
interest rates.

Net Earnings and Net Earnings Per Share

Net earnings for the first half of 1997 increased 101.5% to $1.8 million,
or 6.8% of total revenue, as compared to net earnings of $876,000 in the first
six months of 1996. Net earnings per share for the first half of 1997 increased
106.3% to $0.33, as compared to $0.16 for the first six months of 1996.

YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995

Revenue

The Company's total revenue increased 48.8% from $25.7 million in 1995 to
$38.3 million in 1996. Vending revenue increased $13.4 million or 78.7% in 1996
to $30.4 million primarily as a result of an increase in the average number of
Shoppes in use during 1996, which increased 95.8% over the average number of
Shoppes in use during 1995.

Franchise and other revenue decreased $855,000 or 9.8% in 1996 as compared
to 1995 due primarily to the acquisition of Company franchises.

Cost of Revenue and Gross Profit

The cost of vending operations increased $9.6 million in 1996 to $21.3
million. The vending operation's contribution to 1996 gross profit increased to
$9.2 million, which represents a 71.8% increase over gross profit from vending
operations realized in 1995. The vending gross profit achieved in 1996 was 30.1%
of vending revenue, which represents a decrease from the 31.3% of vending
revenue achieved in 1995. The decline in vending margin in 1996 results
primarily from a higher commission rate paid to locations.

Gross profit on franchise and other revenue in 1996 decreased to $2.2
million, or 27.7% of franchise and other revenue, which is 2.6 percentage points
lower than the gross margin achieved in 1995. The decrease in gross margin
resulted primarily from lower margins realized on equipment sales to
franchisees.

Operating Expense

General and administrative expense increased $2.5 million to $7.1 million
or 18.4% of revenue, as compared to $4.6 million or 17.8% of revenue in 1995.
The increase in general and administrative expense results primarily from the
acquisition of Sugarloaf Marketing and other franchisees, additional operating
and satellite offices opened during 1996, the accelerated placement of machines
during 1996 and the additional payroll and other costs associated with being a
public company. General and administrative expense for 1995 includes $232,000 of
commissions paid to the Company's two major stockholders.

19
<PAGE> 21

Operating Earnings

Operating earnings in 1996 increased to $4.3 million or 11.2% of total
revenue, which is, as a percentage of total revenue, 2 percentage points lower
than the operating earnings achieved in 1995. The decrease in operating earnings
results primarily from the additional operating and satellite offices opened
during 1996, the accelerated placement of machines during 1996 and the
additional payroll and other costs associated with being a public company.

Non Operating Income (Expense)

Interest expense decreased $8,000 to $375,000 in 1996 as compared to 1995.
The Company's interest expense is directly related to its level of borrowings
and changes in the underlying interest rates.

Net Earnings and Net Earnings Per Share

Net earnings for the year ended December 31, 1996 were $2.6 million, or
6.8% of total revenue. Net earnings per share for the year ended December 31,
1996 were $0.48. Prior to October 13, 1995 the Company had elected tax treatment
as an S corporation, while the combined affiliates were each organized as S
corporations, except for Southwest Coin Company which was organized as a
partnership. Accordingly, through October 12, 1995, no provisions were made for
income taxes since all income, deductions, gains, losses and credits were
reported on the tax returns of the owners.

YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994

Revenue

The Company's total revenue increased 46.0% from $17.6 million in 1994 to
$25.7 million in 1995. Vending revenue increased $5.4 million or 46.2% in 1995
to $17.0 million as a result of an increase in the average number of Shoppes in
use during 1995, which increased 74.6% over the average number of Shoppes in use
during 1994. Shoppes acquired in connection with the purchase of Sugarloaf
Marketing contributed $1.8 million in vending revenue from September 1, 1995 to
December 31, 1995 with 492 Shoppes added August 31, 1995. Franchise and other
revenue increased $2.7 million or 45.6% in 1995 as compared to 1994 primarily as
a result of an increase in the average franchisee machines on location in 1995
compared to 1994 and the new plush toy pre-pack program.

Cost of Revenue and Gross Profit

The cost of vending operations increased $3.3 million in 1995 to $11.7
million. The vending operations' contribution to 1995 gross profit increased to
$5.3 million, which represents a 63.9% increase over gross profit from vending
operations realized in 1994. The vending gross profit achieved in 1995 was 31.3%
of vending revenue, which represents an increase from the 27.9% of vending
revenue achieved in 1994. The increase is primarily attributable to lower
product costs realized by the Company's vending operation that result from the
significant increase in product procured for the Company's pre-pack program.
Gross profit on franchise and other revenue in 1995 increased to $2.6 million,
or 30.3% of franchise and other revenue, which is 0.9 percentage points higher
than the gross margin achieved in 1994. The increase in 1995 results from the
full implementation of the plush toy pre-pack program during the second quarter
of 1995 and the economies realized from a significant increase in the amount of
product procured for the program.

Operating Expense

General and administrative expense increased $958,000 in 1995 to $4.6
million, primarily as a result of the acquisition of SugarLoaf Marketing, but
decreased as a percentage of revenue to 17.8% in 1995 as compared to 20.5% in
1994 primarily as a result of higher revenue. General and administrative expense
includes $232,000 and $290,000 of commissions paid to the Company's two major
stockholders for 1995 and 1994, respectively.

Operating Earnings

Operating earnings in 1995 increased to $3.4 million or 13.2% of total
revenue, which is, as a percentage of total revenue, an increase of 5.2
percentage points higher than the operating earnings achieved in 1994.

20
<PAGE> 22

Non Operating Income (Expense)

Interest expense increased $155,000 to $383,000 in 1995 as compared to
1994. The Company's interest expense is directly related to its level of
borrowings and changes in the underlying interest rates.

QUARTERLY DATA AND SEASONAL VARIATION

The Company believes that its revenue tends to be somewhat seasonal, with
revenue per machine being higher during the Christmas and Easter holiday seasons
due to higher levels of foot traffic at Shoppe locations during those periods.
The following table contains selected unaudited quarterly financial data for
1995 and 1996 and the first six months of 1997. The unaudited information has
been prepared on the same basis as the audited financial statement appearing
elsewhere in this Prospectus and includes all normal recurring adjustments
necessary to present fairly, in all material respects, the information set forth
herein.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue.............. $5,596 $6,315 $6,206 $7,597 $8,014 $8,403 $9,634 $12,216 $12,357 $13,790
Total cost of revenue...... 3,815 4,411 4,318 5,211 5,625 6,085 6,743 8,489 8,551 9,800
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Gross profit............. 1,781 1,904 1,888 2,386 2,389 2,318 2,891 3,727 3,806 3,990
General and administrative
expenses................. 1,036 1,155 1,099 1,275 1,532 1,671 1,827 2,023 2,296 2,429
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Operating earnings....... 745 749 789 1,111 857 647 1,064 1,704 1,510 1,561
Interest expense........... 75 81 156 71 46 45 136 148 111 156
Other expense.............. 34 52 21 -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Earnings before income
taxes.................. 636 616 612 1,040 811 602 928 1,556 1,399 1,405
Provision for income
taxes.................... -- -- -- 329 308 229 352 422 518 521
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Net earnings............. $ 636 $ 616 $ 612 $ 711 $ 503 $ 373 $ 576 $ 1,134 $ 881 $ 884
====== ====== ====== ====== ====== ====== ====== ======= ======= =======
Net earnings per
share(1)............... $ 0.09 $ 0.07 $ 0.11 $ 0.21 $ 0.16 $ 0.16
====== ====== ====== ======= ======= =======
Weighted average common
shares(1)................ 5,449 5,449 5,460 5,449 5,425 5,452
====== ====== ====== ======= ======= =======

Total revenue.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of revenue...... 68.2 69.8 69.6 68.6 70.2 72.4 70.0 69.5 69.2 71.1
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Gross profit............. 31.8 30.2 30.4 31.4 29.8 27.6 30.0 30.5 30.8 28.9
General and administrative
expenses................. 18.5 18.3 17.7 16.8 19.1 19.9 19.0 16.6 18.6 17.6
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Operating earnings....... 13.3 11.9 12.7 14.6 10.7 7.7 11.0 13.9 12.2 11.3
Interest expense........... 1.3 1.3 2.5 0.9 0.6 0.5 1.4 1.2 0.9 1.1
Other expense.............. 0.6 0.8 0.3 -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Earnings before income
taxes.................... 11.4 9.8 9.9 13.7 10.1 7.2 9.6 12.7 11.3 10.2
Provision for income
taxes.................... -- -- -- 4.3 3.8 2.7 3.7 3.5 4.2 3.8
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Net earnings............. 11.4% 9.8% 9.9% 9.4% 6.3% 4.4% 6.0% 9.3% 7.1% 6.4%
====== ====== ====== ====== ====== ====== ====== ======= ======= =======
</TABLE>

- ---------------

(1) Net earnings per share and weighted average common shares are not presented
through 1995 because the Company and each of the Affiliated Entities were
organized as S corporations or a partnership.

The preceding table contains percentages of total revenue calculated from the
Company's financial statements. Due to rounding, some subtotals and totals may
not add.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity and capital resources
historically have been cash flows from operations and borrowings under the
Company's bank credit facility. These sources of cash flows have been offset by
cash used for investment in skill-crane machines and payment of long-term
borrowings.

Net cash provided by operating activities was $4.2 million, $2.9 million
and $1.8 million in 1996, 1995 and 1994, respectively. Net cash provided by
operating activities was $4.1 million for the six months ended June 30, 1997.
The Company anticipates that cash will continue to be provided by operations as
additional skill-crane machines are placed in service. Cash required in the
future is expected to be funded by existing cash or borrowings under the
Company's credit facility.

21
<PAGE> 23

Net cash used by investing activities was $7.4 million, $5.5 million and
$1.5 million in 1996, 1995 and 1994, respectively. Capital expenditures amounted
to $6.1 million, $2.2 million and $1.5 million in 1996, 1995 and 1994,
respectively, of which $4.8 million, $1.6 million and $1.4 million were
represented by the acquisition of skill-crane machines. The acquisition of
franchisees, other than through the Reorganization in 1995, used $1.2 million
and $160,000 in 1996 and 1995, respectively. Payments to the non-control group
in the Reorganization were $3.1 million in 1995. Additional investing activity
results primarily from collections on notes receivable generated through the
partial financing of machines purchased by franchisees, initial franchise fees
and additional notes issued to related parties. Net cash used by investing
activities was $5.8 million for the six months ended June 30, 1997. Capital
expenditures during that period were $5.6 million of which $4.1 million was
represented by the acquisition of skill-crane machines.

Net cash provided by financing activities was $2.4 million and $3.9 million
in 1996 and 1995 respectively, while financing activities in 1994 used $256,000.
The issuance of Common Stock primarily in connection with the Company's initial
public offering, provided $10.1 million in 1995 of which $4.5 million was used
to pay distributions to the Control Group in connection with the Reorganization.
Cash of $326,000 was retained by the combined affiliates in the Reorganization.
Other financing activities consist of advances and repayments on the Company's
credit facility and other debt obligations and S corporation distributions to
owners. Net cash provided by financing activities was $1.7 million for the six
months ended June 30, 1997. Financing activities consisted of advances and
repayments on the Company's credit facility and other debt obligations.

Under the Revolving Line, the Company may borrow up to the lesser of $9.0
million or a borrowing base defined by agreement, at the bank's prime interest
rate (8.5% at June 30, 1997). The Revolving Line is available through July 5,
1999, and at June 30, 1997 there was a principal amount of approximately $6.0
million outstanding. The Revolving Line provides that certain financial ratios
be met and places restrictions on, among other things, the occurrence of
additional debt financing and the payment of dividends. The Company was in
compliance with such financial ratios and restrictions at June 30, 1997. On
September 17, 1997, the Company executed a commitment to (i) increase the amount
available under the Revolving Line to $15.0 million from $9.0 million, (ii)
provide, at the Company's option, an interest rate based on the current LIBOR
rate, and (iii) eliminate the borrowing base restriction.

The Company may use a portion of its capital resources to effect
acquisitions. Because the Company cannot predict the timing or nature of
acquisition opportunities, or the availability of acquisition financing, the
Company cannot determine the extent to which capital resources may be so used.

RECENT ACCOUNTING PRONOUNCEMENTS

In February of 1997, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards No. 128, Earnings per Share,
(Statement No. 128) and No. 129, Disclosures of Information about Capital
Structure, (Statement No. 129), effective for years ending after December 15,
1997. Statement No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. The Company will adopt Statement No. 128
in its December 31, 1997 financial statements. The effect of such adoption is
not expected to have a material impact on the earnings per share of the Company.
Statement No. 129 specifies and aggregates various disclosures which were
previously required for certain entities. The Company has complied with the
disclosure requirements under this statement.

In June of 1997, the FASB issued Statements of Financial Accounting
Standards, No. 130, Reporting Comprehensive Income, (Statement No. 130), and No.
131, Disclosures About Segments of an Enterprise and Related Information,
(Statement No. 131), effective for years beginning after December 15, 1997.
Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company has not yet adopted Statement No. 130. The
Company will comply with the reporting and display requirements under this
statement when required. Statement No. 131 establishes standards for reporting
information about operating segments and the methods by which such segments were
determined. The Company has not yet adopted Statement No. 131. As the Company
operates within one industry segment, the reporting of such information is not
expected to be significant.

22
<PAGE> 24

BUSINESS

The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.

OVERVIEW

The Company is a leading owner, operator and franchisor of coin-operated
skill-crane machines that dispense stuffed animals, plush toys, watches, jewelry
and other items through a national network of more than 9,000 machines operated
by the Company and its franchisees. For up to 50c a play, customers maneuver the
skill-crane into position and attempt to retrieve the desired item in the
machine's enclosed display area before play is ended. The Company's Shoppes are
placed in supermarkets, mass merchandisers, bowling centers, bingo halls, bars,
restaurants, warehouse clubs and similar locations to take advantage of the
regular customer traffic at these locations. The Company utilizes appealing
displays of quality merchandise, new product introductions, including
Company-designed products, licensed products and seasonal items, and other
merchandising techniques to attract new and repeat customers.

Management believes that national and regional supermarket, mass
merchandise and restaurant chain accounts, representing over 100,000 potential
crane locations, are becoming increasingly aware of the economic benefits of
amusement and vending machines, such as the Company's Shoppes, which can provide
retailers greater revenue and profits per square foot than alternative uses of
available floor space with minimal expense. The Company believes that the
Shoppes' potential economic return, visual appeal, product quality, and the
Company's high operational standards are important factors in gaining acceptance
of the Company's Shoppes by Retail Accounts.

The Company was formed in Colorado in July 1988 and was reincorporated in
Delaware in July 1995. At the time the Company was founded, certain of the
Founders owned and operated entities that operated skill-crane machines. A
wholly-owned company of one of the Founders also had licensed the rights to
operate similar businesses through license, sale and set-up agreements that were
assigned to the Company. The Company was formed to support the license, sale and
set-up agreements and to offer additional license, sale and set-up arrangements
and franchises in new territories. Shortly after the Company was formed, it
began combining the buying power of the affiliated businesses to purchase
products and skill-crane machines at lower prices. In 1990, the Company began
developing its own territories by directly owning and operating skill-crane
machines.

To continue to expand its operations, on August 31, 1995 the Company
purchased substantially all of the inventory, property and equipment and assumed
certain facilities leases and contracts of the Affiliated Entities for an
aggregate purchase price of approximately $9.0 million. All of the Affiliated
Entities previously were franchisees of the Company and all, except SugarLoaf
Marketing, were under common control with the Company.

INDUSTRY

The skill-crane industry has been in existence for over 75 years and is
highly fragmented, with the average operator owning 16 machines. Based on
analysis of certain industry publications, the Company believes that there are
approximately 50,000 units of prize-dispensing equipment in operation
nationwide, of which skill-cranes are the most prevalent type. The Company
believes that there are over 300,000 supermarkets, mass merchandisers, bowling
centers, bingo halls, bars, restaurants, warehouse clubs and similar locations,
of which over 100,000 are viable locations for skill-cranes. Total dollar
vending volume for 1996 was estimated at $31.4 billion, of which reported
prize-dispensing revenues was $240 million. Management believes that skill-
cranes in the past have been operated principally as amusement devices,
dispensing products of minimal retail value. As a result, these machines were
typically located in arcades, amusement parks and similar venues catering to
adolescents. Management believes that recent skill-crane placement outside of
amusement venues have resulted in greater revenue per machine for some industry
operators.

23
<PAGE> 25

BUSINESS STRATEGY

The Company's business strategy is to differentiate itself from traditional
skill-crane operators and to strengthen its position as a leading owner and
operator of skill-crane machines in the U.S. The key elements of the Company's
business strategy are as follows:

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

Machine Appearance, Merchandise and Merchandising Techniques. The
Company's Shoppes are distinctively marked with the SugarLoaf logo and
other signage that is readily identifiable with the Company in order to
create brand recognition. In addition, the Shoppes are well-lit and are
cleaned and serviced regularly to maintain their attractive appearance. The
Shoppes contain an appealing mix of products arranged by size, color, shape
and type. Products with higher perceived value are prominently displayed,
and the Company frequently incorporates new items into the merchandise mix
to maintain the Shoppes' fresh appearance. Management believes the Shoppes'
appearance and the Company's merchandising techniques are important factors
in gaining acceptance of the Company's Shoppes by retailers.

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

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

Location Selection. The Company concentrates its sales efforts on
placing Shoppes in Retail Accounts such as Wal-Mart and Safeway which have
good reputations for quality and attract a high level of foot traffic.
Within these accounts, the Company seeks to secure sites with the greatest
visibility and accessibility to potential customers. See
"-- Operations -- Account Acquisition, Location Selection and Shoppe
Placement."

Timely Installation and National Operations. The Company provides
Retail Accounts with an integrated system of Shoppe and vending
installation, maintenance, service and an accounting of revenue

24
<PAGE> 26

and commissions on a local or national basis. Such services have been
deployed rapidly across the country to Retail Accounts including Wal-Mart
and Safeway.

Training. The Company employs a comprehensive training program,
including seminars and field training, for its regional managers, general
managers and franchisees. It also provides operations manuals, training
videos and other materials relating to office management and route
merchandising to assure the achievement of the Company's business
objectives. See "-- Operations -- Supervision, Training and Support."

GROWTH STRATEGY

The Company plans to increase the number of Shoppes it owns and operates by
an average of at least 1,400 for 1997 and 1998 through a combination of
acquisitions and new Shoppe placements. The Company believes that the Shoppes'
potential economic return, visual appeal, product quality and the Company's high
operational standards are important factors in gaining acceptance of the
Company's Shoppes by Retail Accounts. The Company operates three types of
Shoppes: (i) the Toy Shoppe which primarily dispenses stuffed animals and plush
toys, (ii) the Treasure Shoppe which dispenses items such as jewelry and
watches, and (iii) the Fun Shoppe which dispenses small toys and candy. Over 60%
of the Company's Shoppe placements have been Toy Shoppes, which the Company
purchases for an average price of $3,600. In 1996, a Toy Shoppe averaged over
$12,000 in revenue and over $4,200 in cash profit contribution (revenue minus
cost of vended products, location commission and direct service cost).
Historically, skill-cranes are generally available for installation within two
to four weeks of ordering from the manufacturer, and can be quickly rolled out
on a national basis over a one year period, as was done with over 1,000 new
machine placements after the signing of the Wal-Mart contract.

25
<PAGE> 27

RECENT ACQUISITIONS

As part of the Company's growth strategy, since January 1996 it has
undertaken the following six (6) acquisitions:

- Hoosier Coin Company. The Company's former franchisee for Indiana,
including 156 Shoppes, was purchased in January 1996 for consideration of
approximately $0.5 million.

- Northern Coin Company. The Company's former licensee for portions of
Colorado including 40 Shoppes, was purchased in May 1996 for
consideration of approximately $0.5 million.

- Sugarloaf of Utah. The Company's former franchisee for Utah, including
213 Shoppes, was purchased in July 1996 for consideration of
approximately $0.9 million.

- Sugarloaf West. The Company's former franchisee for portions of Colorado,
including 37 Shoppes, was purchased in August 1996 for consideration of
approximately $0.2 million.

SHOPPES

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

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

The SugarLoaf Toy Shoppe. The SugarLoaf Toy Shoppe features a play price of
50c and dispenses stuffed animals, plush toys and other toys. The estimated
retail values of products offered in the SugarLoaf Toy Shoppe generally range
from $4.00 to $30.00. As of June 30, 1997, the Company and its franchisees were
operating approximately 6,177 SugarLoaf Toy Shoppes.

The SugarLoaf Treasure Shoppe. The SugarLoaf Treasure Shoppe features a
play price of 50c and dispenses jewelry, watches, bolo ties and belt buckles.
The SugarLoaf Treasure Shoppe improves upon traditional skill-crane machines of
this type by dispensing products with estimated retail values ranging from $4.00
to $30.00 instead of carnival-type merchandise of low retail value. As of June
30, 1997, the Company and its franchisees were operating approximately 1,312
SugarLoaf Treasure Shoppes, approximately 90% of which were placed within
locations in which another Shoppe was already in operation.

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<PAGE> 28

The SugarLoaf Fun Shoppe. The SugarLoaf Fun Shoppe features a play price of
25c and dispenses small toys, novelties and candy. The SugarLoaf Fun Shoppe is
designed to appeal primarily to adolescents and young adults. The estimated
retail values of products offered in the SugarLoaf Fun Shoppe are generally
under $5.00. Because the retail value of the products offered in the SugarLoaf
Fun Shoppe are generally lower than the products offered in the SugarLoaf Toy
Shoppe and the SugarLoaf Treasure Shoppe, the SugarLoaf Fun Shoppe dispenses
more frequently than the Company's other Shoppes, including certain SugarLoaf
Fun Shoppes which operate until a player wins a prize. As of June 30, 1997, the
Company and its franchisees were operating approximately 1,498 SugarLoaf Fun
Shoppes, approximately 85% of which were placed within locations in which
another Shoppe was already in operation. The Company is currently converting a
substantial portion of its SugarLoaf Fun Shoppes into SugarLoaf Toy Shoppes
which are stocked with beanie-bag type stuffed toys.

The following chart indicates the number of Shoppes the Company had in
operation at the indicated date:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------- -----------------
TYPE NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
---- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Toy Shoppes........................... 1,291 62.7% 2,699 68.0% 3,313 69.1%
Treasure Shoppes...................... 357 17.4 542 13.7 766 16.0
Fun Shoppes........................... 409 19.9 726 18.3 713 14.9
----- ----- ----- ----- ----- -----
Total....................... 2,057 100.0% 3,967 100.0% 4,792 100.0%
===== ===== ===== ===== ===== =====
</TABLE>

OPERATIONS

Management believes that the Company's operations program provides for
efficient and cost-effective purchasing and distribution of product. In
addition, the Company and its franchisees have a route-servicing system that
facilitates the development of a good working relationship with location
managers in regional and national chain accounts. The Company offers its
franchisees the same software management tools, training programs and product
and machine purchasing programs used by the Company, and they are required to
use substantially the same procedures, systems and methods the Company employs
in its own operations.

Retail Accounts. Currently, the Company's Shoppes are located, in order of
prevalence, in supermarkets, mass merchandisers, bingo halls and bowling
centers, bars and similar locations. In the future, the Company intends to
attempt to place Shoppes in national and regional supermarket, mass merchandise
and restaurant chain accounts to take advantage of the regular customer traffic
of these locations. The following chart identifies some of the Company's Retail
Accounts:

<TABLE>
<CAPTION>
RETAIL ACCOUNTS
- ----------------------------------------------------------------------------------------------------------
SUPERMARKETS MASS MERCHANDISERS RESTAURANTS OTHER
------------ ------------------ ----------- -----
<S> <C> <C> <C>
Kroger Wal-Mart Denny's (franchised) AMF Bowling Centers
Safeway/Vons K-Mart Ponderosa Steak House Brunswick Bowling Centers
King Soopers Bonanza Steak Houses Truckstops of America
Cub Foods Flying J Truckstop
76 Truckstops
</TABLE>

The Company or its franchisees provide the Shoppes and pay for certain
installation costs, while the retailer provides a site within the location and
electrical power. The retailers are paid commissions based upon a percentage of
Shoppe revenue, generally ranging from 20% to 30%, depending on the dollar
volume, number of Shoppes installed and total number of locations the retailer
controls. Management believes that national and regional supermarket, mass
merchandise and restaurant chain accounts are increasingly aware of the economic
benefits of amusement and vending machines such as the Company's Shoppes, which
can provide retailers greater revenue per square foot than alternative uses of
available floor space.

In individual-location accounts, the Company and its franchisees generally
place Shoppes pursuant to oral agreements with location managers. While the
Company has written agreements with certain major Retail Accounts, the Company
and its franchisees also have placed Shoppes in national and regional Retail
Accounts pursuant to oral or other agreements, which may be terminated at
anytime. Management believes

27
<PAGE> 29

that the Company and its franchisees generally have good relations with their
retail accounts. The Company was awarded the "Wal-Mart Other Income 1996 Crane
Vendor of the Year" award.

Account Acquisition, Location Selection and Shoppe Placement. The Company
acquires new individual-location accounts for the placement of its Shoppes
through its regional sales managers and field office general managers. To
augment its field office general managers' account acquisition activities, the
Company began a concerted marketing effort in August 1994 to national and
regional chain accounts and has entered into new agreements with national and
regional supermarket and mass merchandise chain accounts covering the placement
of Shoppes within the locations of such accounts. In August 1996, the Company
signed an agreement with Wal-Mart appointing the Company as the principal
operator of skill-crane vending machines for Wal-Mart through January 1, 2000.
At June 30, 1997, the Company had installed more than 1,460 Shoppes in
approximately 840 Wal-Mart stores nationwide. Under the terms of the agreement,
an estimated 1,250 Wal-Mart stores will be installed with Shoppes by the Company
and its franchisees. In January 1997, the Company signed a three-year agreement
with Safeway that will make the Company and its franchisees Safeway's domestic
skill-crane operator. At June 30, 1997, the Company and its franchisees had
installed more than 450 Shoppes in approximately 340 Safeway stores nationwide.

Once the Company enters into a national or regional chain account
agreement, it contacts each location manager to arrange for a review of the
location to confirm its suitability and to obtain the manager's agreement to the
placement of one or more Shoppes within the location. The Company and its
regional sales manager or franchisee work together to place Shoppes at national
and regional chain account locations.

For accounts other than national chain accounts, the Company's regional
sales and general managers identify viable locations, contact the location's
owner or manager to confirm the suitability of the location and obtain the
owner's or manager's agreement to the placement of the Shoppes and related
compensation arrangements. The suitability of a location is based upon a
thorough assessment by the Company, including an analysis of the surrounding
trade area in order to determine the neighborhood demographics, local
regulations, the level of overall retail activity and the cost-effectiveness of
servicing the location through existing route merchandisers. The Company also
reviews each site within the location for its visibility and accessibility to
customers.

The Company and its franchisees compete for limited sites within
supermarkets with purveyors of seasonal and specialty items and with owners and
operators of other amusement and vending machines. The Company's Shoppes also
compete with vending machine and coin-operated amusement device operators for
sites in mass merchandise and restaurant chains, bowling centers and other
locations. Competition for such sites is based primarily on the amount of
revenue to the location owner that can be generated by a particular use of a
site. Management believes that the revenue potential of the Company's Shoppes
compares favorably to that of competing uses for available sites within retail
locations.

Other Vending. The Company intends to introduce new types of vending and
amusement machines which management believes may expand the potential locations
and customers for the Company. Recently, the Company has begun to place a
limited number of kiddie rides in certain retail locations. In April 1997, the
Company signed a three-year agreement with Safeway that made the Company and its
franchisees Safeway's domestic coin-operated kiddie ride operator. In September
1997, the Company executed an agreement to purchase the assets of Quality
Amusements Corp. and Quality Entertainment Corp., operators of bulk vending
machines and kiddie rides. The Company will begin operating these additional
machines in November 1997. From time to time, the Company has, and may continue
to in the future, place other types of coin-operated vending machines in retail
accounts in order to leverage the Company's existing national distribution and
service network.

28
<PAGE> 30

Supervision, Training and Support. The Company's area directors are
primarily responsible for training the Company's regional managers and the
regional managers are responsible for training the general managers and for
on-going support and supervision of the Company's field offices.

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

Route Merchandising. Frequent, regular and reliable service and support is
an important element in the operation of the Company's Shoppes. The Company's
route merchandisers and franchisee personnel are trained to perform regularly
scheduled merchandising and service procedures. A route merchandiser has a route
consisting of 10 to 33 locations, depending upon volume, which are visited and
serviced two to ten times per week. The route merchandiser cleans and services
the Shoppe, takes inventory of the Shoppe, replaces product as needed, monitors
the Vend Ratio and arranges the product within the Shoppe in accordance with the
Company's merchandising techniques. The route merchandiser records the number of
units of product placed in the machines and the number of plays from
nonresettable meters. The meter readings are subsequently reconciled against
actual collections. All collections are delivered to and verified by a field
office for deposit.

Inventory Management and Distribution. The Company's distribution system is
designed to allow efficient and cost-effective distribution of its product to
Company field offices and franchise offices. After the product is procured from
the Company's suppliers, it is shipped to one of two distribution centers where
it is sorted and readied for pre-packing. The Company maintains inventory for
the products offered through its Toy Shoppes in a public warehousing facility in
Seattle, Washington. An inventory of products offered in Treasure Shoppes and
Fun Shoppes is maintained in the Company's warehouse in Boulder, Colorado. The
Company communicates appropriate product mix requirements to the warehouses on a
weekly basis. The warehouses sort the products according to the Company's
specified mix requirements and pack the product for each type of Shoppe into
pre-packed units for shipment to Company field offices and franchises on a
weekly basis.

At June 30, 1997, the Company had 29 offices operating in 39 states. The
field offices average approximately 2,100 square feet and comprise a small
office area and a warehouse area where out-of-service Shoppes are repaired and
product inventory is maintained. Part of the route merchandisers' daily route
servicing responsibilities is to distribute product to Shoppes. Pre-packing aids
in controlling product cost and facilitates new product introductions.
Pre-packing also substantially reduces the warehouse space required for
inventory, allowing the Company-owned and franchise offices to service a greater
number of Shoppes without a commensurate increase in warehouse space. In
addition, pre-packing significantly reduces the time field office general
managers and franchise personnel spend on inventory management, which allows
more time for acquiring new accounts and monitoring the quality of Shoppe
merchandising in the field.

Management Information Systems. The Company's management information system
utilizes customized software for monitoring field office and franchisee Shoppe
results. The software allows the Company to monitor individual Shoppe
placements, Shoppe revenue, Vend Ratio and tax and commission payments through
reports generated at the Company field offices. The software also allows the
Company to monitor total Shoppe revenue, average Shoppe revenue, Shoppes on
location and Vend Ratio and to determine franchisee royalty payments for
franchise offices.

MERCHANDISING

Merchandising Mix. The Company offers merchandise for the Shoppes in
pre-pack bags along with bulk merchandise. The pre-pack bags include an
assortment of exclusive SugarLoaf designs, along with licensed

29
<PAGE> 31

and other domestic goods. The merchandise variety is regularly updated, and the
Company offers at least 1,500 new items each year. Seasonal goods are placed in
Shoppes for all major holidays.

New Designs. The Company works with several free-lance designers and
creates at least 300 new, exclusive designs each year which can only be obtained
through the SugarLoaf Toy Shoppes. The Company also creates several theme
product collectibles and many players attempt to retrieve all of the products in
the series.

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

SUPPLIERS

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

Shoppes. During 1996, all of the 1,430 skill-crane machines purchased by
the Company were supplied by Rainbow Crane, Inc. During the first six months of
1997, approximately 83.6% of the 1,107 skill-crane machines purchased by the
Company were supplied by Rainbow; another 16.4% of such purchases were supplied
by Smart Industries, Inc. All three of the Company's approved suppliers,
including one of the leading manufacturers of skill-crane machines, are located
in the U.S. The Company is currently purchasing the SugarLoaf Treasure Shoppe
from one of the Company's three approved suppliers and is currently purchasing
the SugarLoaf Fun Shoppe and the SugarLoaf Toy Shoppe from two of the approved
suppliers. The Company intends to divide future purchases of its skill-crane
machines between at least two of its approved suppliers and may seek to add new
suppliers. Management believes that suitable skill-crane machines are available
from a number of domestic and foreign manufacturers.

FRANCHISE RELATIONS

As of June 30, 1997, the Company had franchise agreements in effect with 20
franchisees covering 26 territories in the U.S. and one territory in British
Columbia, Canada covering, in the aggregate, 4,195 Shoppes. The Company does not
currently intend to grant any additional franchises.

The Company enters into a franchise agreement with the franchisee for each
separate territory. The Company provides ongoing advice and assistance to
franchisees in connection with the operation and management of each franchise
through training sessions, meetings, seminars, field training and operations
manuals. Franchisees are required to place a minimum number of Shoppes in each
territory depending on the population of the territory. Franchisees are under no
minimum product purchase obligations and are required to pay royalties equal to
a percentage of vending revenue, with no fixed minimum amount required.

The Company requires its franchisees to meet certain minimum operational
standards in order to maintain consistent quality in the Shoppes. Franchisees
are required to service each Shoppe no less than two times per week, to respond
to service calls within a specified period of time and to maintain certain size,
type and quality standards for the products dispensed in the Shoppes. In
addition, franchisees are required to maintain certain average minimum Vend
Ratios.

The Company offers franchisees a cost-effective means of purchasing both
products and Shoppes. The Company is able to purchase products and Shoppes in
quantity and thereby reduce equipment and product costs to the Company and its
franchisees. The Company offers pre-packed units of product for each of the

30
<PAGE> 32

Shoppes. The product mix in the pre-packed units is changed on a weekly basis to
maintain the Shoppes' fresh appearance. Franchisees also can create their own
mix of products by purchasing products in bulk from the Company or other
vendors. The Company must approve all products purchased from other vendors.

Although the franchise agreements require franchisees to place a specified
minimum number of Shoppes within their territories and to pay franchise
royalties, franchisees are under no minimum product purchase or minimum annual
royalty payment obligations. There can be no assurance, therefore, that the
Company will continue to realize the same or greater revenue from its
franchisees. The Company also cannot require franchisees to expand operations
within their territories or preclude them from taking actions inconsistent with
the Company's expansion or business strategy.

TERMS OF FRANCHISE AGREEMENT

Following is a summary of certain terms of the Company's franchise
agreements currently in effect:

Fee and Royalty Payments. Current franchise agreements typically provide
for payment of an initial franchise fee that depends on the population of the
franchised territory. A reduced initial fee is available to qualified current
franchisees who purchase rights to operate in a new territory contiguous to
their respective current territories. Initial franchise fees are not a material
source of the Company's revenue. In addition, the franchisee must pay a royalty
fee based on gross machine revenue, subject to quarterly adjustments, a cap on
fees paid annually and a fee reduction program, as described below. The royalty
may be adjusted up or down at the end of each quarter based on that quarter's
average weekly gross revenue from the territory and such adjustment will remain
in effect until adjusted at the end of the next succeeding calendar quarter. The
annual royalties payable on gross revenue from the SugarLoaf Toy Shoppes and
SugarLoaf Treasure Shoppes in a territory are capped at $125,000. There is no
cap on the annual royalty payable on gross revenue from the SugarLoaf Fun
Shoppe. A franchisee is entitled to a reduction in the royalty rate on gross
revenue from the SugarLoaf Treasure Shoppe and the SugarLoaf Toy Shoppe of one
percentage point on gross revenue for a future six-month period based on the
franchisee meeting certain standards during the most recently completed
six-month period.

Purchase Requirements. New franchisees are required to make certain minimal
initial purchases of Shoppes from the Company. Additional machines and spare
parts may be purchased from the Company or any Company-approved alternative
sources. Product may be ordered from the Company or from Company-approved
suppliers. The Company offers products through both its pre-packing programs and
a bulk-purchase program whereby volume purchases of certain designated products
are made by the Company.

Territory Requirements. Franchise agreements generally provide for an area
of exclusivity defined by counties. The Company retains certain rights under the
franchise agreements to operate other types of amusement devices and vending
machines.

Quality Standards. All of the Company's franchise agreements require that
the franchisee comply with the Company's standards and specifications for
products, machines, distribution of products, inventory standards, service,
placement, appearance and maintenance of the machines, product ordering
procedures, installation, minimum average player return, product mix and
customer relations and service calls.

Financing Assistance. The Company has established a third-party
equipment-leasing program for qualified franchisees. The leasing program permits
qualified franchisees to lease the machines for their territories. If the
franchisee defaults on the lease, the Company has agreed to purchase the
machines from the leasing company at an agreed upon price. If the Company agrees
to guarantee the lease, the franchisee must pay to the leasing company a fee of
less than one percent of the lease amount, which amount is then remitted to the
Company by the leasing company.

Right of First Refusal. In the event any franchisee proposes to transfer to
any third party its SugarLoaf business or any rights or interests granted by the
franchise agreement, the Company has up to 45 days to exercise a right of first
refusal to purchase such business, rights or interests on the same terms and
conditions as the franchisee's proposed transfer of such business rights or
interests.

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<PAGE> 33

COMPETITION

The majority of skill-crane operators are privately owned "mom and pop"
operations each owning and operating on average less than 20 skill-crane
machines. However, the Company also competes with a number of regional and local
operators of skill-crane machines. Many of these competitors are engaged in
aggressive expansion programs, and the Company has experienced and expects to
continue to experience intense competition for new locations. There can be no
assurance that the Company will be able to compete effectively with these
companies in the future. The Company's Shoppes compete with other vending
machines and coin-operated amusement devices and seasonal and bulk merchandise
for sites in retail locations. Competition for sites in retail locations is
based primarily on the amount of revenue that can be generated by a particular
use of a site. There can be no assurance that the Company will be able to
maintain its current sites in the retail locations or that it will be able to
obtain sites in the future on attractive terms or at all. There also are few
barriers to entry in the Company's business, and it would be possible for
well-financed vending machine manufacturers or other vending machine operators
with existing relationships with supermarkets and other venues targeted by the
Company to readily compete with the Company in certain markets.

INTELLECTUAL PROPERTY

The Company has no patents or patent applications pending and relies
primarily on a combination of trademark and unfair competition laws, trade
secrets, confidentiality procedures and agreements to protect its proprietary
rights. The Company seeks to protect its product names under trademark and
unfair competition laws. The Company owns a number of trademarks that have been
registered with the United States Patent and Trademark Office, including
"SugarLoaf," "Toy Shoppe," "Treasure Shoppe" and "Fun Shoppe." In addition, the
Company claims common law trademark protection for the mark "A Test of Skill".
The Company considers its operations manual, training videos, and other related
materials and portions of its licensed methods to be proprietary and
confidential and the terms of the Company's franchise agreements require
franchisees to maintain the confidentiality of such information and procedures
and to adopt reasonable precautions to prevent unauthorized disclosure of these
secrets and information. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's Shoppes and products or to obtain and use information that the Company
regards as proprietary. The Company also may be involved from time to time in
litigation to determine the enforceability, scope and validity of proprietary
rights. The Company does not have significant intellectual property protection
for its business. Management believes that its success is likely to depend more
upon merchandising skill, location selection and consumer support than on legal
protection of the Company's proprietary rights.

GOVERNMENT REGULATION

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

The distribution and operation of skill-crane machines may be subject to
federal, state, provincial and local regulations, including gaming regulations,
which vary from jurisdiction to jurisdiction. Certain jurisdictions may require
licenses, permits and approvals to be held by companies and their key personnel
in connection with the distribution or operation of skill-crane machines.
Management believes that Washington is the only state in which the Company
currently operates Shoppes that requires the Company to maintain a license with
the state's gambling commission. Currently, the Company believes that it has
obtained all necessary governmental licenses, permits and approvals necessary
for the distribution or operation of the Shoppes in the Company-owned
operations. However, no assurance can be given that such licenses, permits or

32
<PAGE> 34

approvals will be given or renewed in the future. Franchisees are responsible
for their own regulatory compliance. See "Risk Factors -- Government
Regulation."

The U.S. Federal Trade Commission and certain states require a franchisor
to transmit specified disclosure statements to potential franchisees upon
entering into negotiations to grant a franchise. Additionally, some states
require the franchisor to register its franchise with the state before it may
offer a franchise. The Company believes it is in material compliance with such
laws in the states in which the Company has offered or sold franchises and does
not currently intend to grant any additional franchises.

INSURANCE

The Company carries property, liability, workers' compensation and
directors and officers liability insurance policies, which it believes are
customary for businesses of its size and type. However, there can be no
assurance that the Company's insurance coverage will be adequate or that
insurance will continue to be available to the Company at reasonable rates.
Franchisees are required to maintain certain minimum standards of insurance
pursuant to their franchise agreements. Under the current form of franchise
agreement, such insurance must be issued by a responsible insurance company or
companies acceptable to the Company and must include fire and extended coverage
insurance, comprehensive general liability insurance, general liability motor
vehicle insurance on all vehicles used in the operation of the business and
workers' compensation insurance. The Company must be named as an additional
insured on appropriate policies.

EMPLOYEES

As of August 31, 1997, the Company had a total of 372 employees, including
31 employees at its headquarters in Boulder, Colorado. None of the Company's
employees are represented by labor unions or covered by any collective
bargaining contract. Management believes it has a good relationship with the
Company's employees.

Generally, each of the Company's field offices employs approximately 5 to
15 persons, including a general manager, an office assistant and an adequate
number of route merchandisers to properly service the Company's Shoppes. The
general manager is responsible for the daily operations of the office,
monitoring route merchandisers and acquiring new accounts. The regional managers
oversee the operations of the Company field offices and report directly to the
Company's area directors.

The Company has an incentive bonus program pursuant to which regional
managers and field office personnel may be eligible to receive incentive
compensation based on office and route profitability. Management believes that
this program rewards excellence in management, gives field office personnel an
incentive to improve operations and results in an overall reduction in the cost
of operations. In addition, regional field managers and other corporate
personnel are eligible to receive options to purchase shares of Common Stock
subject to ongoing service requirements.

PROPERTY

The Company's principal executive offices are located at 5660 Central
Avenue, Boulder, Colorado, where the Company, its Treasure and Fun Shoppe
fulfillment warehouse facilities and the Denver, Colorado operation occupy
approximately 18,000 square feet of office and warehouse space under a lease
that expires January 28, 2002. The Company also is a party to 29 other leases
which are used for office and warehouse space which average approximately 2,100
square feet, provide for monthly rental payments ranging from $350 to $3,930 and
expire at various times over the period September 30, 1997 to August 31, 2000.
The Company believes that its facilities are adequate for its current needs and
for the anticipated expansion of its business.

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<PAGE> 35

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company as of August 31, 1997 were
as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jerome M. Lapin................ 67 President, Chief Executive Officer and Chairman of
the Board of Directors
W. John Cash................... 50 Vice President, Chief Financial Officer and
Treasurer
Randall J. Fagundo............. 37 Vice President of Operations, Secretary and
Director
Abbe M. Stutsman(1)............ 45 Vice President of Purchasing and Product
Development and Director
Richard D. Jones(2)............ 56 Director
J. Gregory Theisen............. 51 Director
Jim D. Baldwin(1).............. 65 Director
John A. Sullivan(1)(2)......... 42 Director
</TABLE>

- ---------------

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

Jerome M. Lapin has served as President, Chief Executive Officer and a
Director since January 1994 and as chairman of the Board since July 1995. Prior
to joining the Company, he was the Managing Director for World Hosts Pty. Ltd.,
a restaurant leasing consulting business, from July 1991 to January 1994. From
June 1989 to June 1990, Mr. Lapin was the President of Sanwa Foods, Inc., a soup
manufacturer and marketer ("Sanwa"), and from June 1990 to June 1991 he was a
consultant for Sanwa. Mr. Lapin was a co-founder of the International House of
Pancakes, Inc. in 1958.

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

Randall J. Fagundo, a co-founder of the Company, has served as Vice
President of Operations and Secretary since May 1991 and as a Director since
August 1988. Prior to joining the Company, he was one of the founders of
Southwest Coin Company.

Abbe M. Stutsman, a co-founder of the Company, has served as a Vice
President since January 1994 and as a Director since December 1989. Ms. Stutsman
served as the Company's Secretary from August 1988 until May 1991, Treasurer
from January 1994 until July 1995 and President from May 1991 until January
1994. Prior to joining the Company, she was the Business Manager of Colorado
Coin from April 1988 to August 1988.

Richard D. Jones, a co-founder of the Company, has served as a Director
since August 1988 and served as Chairman of the Board from August 1988 to July
1995 and as President of the Company from August 1988 to April 1991. Mr. Jones
has served as President of T.R. Baron & Associates, Inc., a marketing and
consulting business, since May 1975. Mr. Jones was a co-founder of Colorado Coin
in 1987.

J. Gregory Theisen, a co-founder of the Company, has served as a Director
since August 1988. Mr. Theisen has served as a Vice President of Lorac, Inc., an
investment consulting company, since December 1989. Mr. Theisen served as Vice
President of the Company from August 1988 to December 1993. Prior to joining the
Company, Mr. Theisen was a co-founder of Colorado Coin and served as its
Operations Manager from January 1987 to October 1988.

34
<PAGE> 36

Jim D. Baldwin, has served as a Director since October 1995. Mr. Baldwin
served as President and Chief Executive Officer of King Soopers, a
supermarket/combination store retailer, from 1979 until his retirement in
February 1990. Mr. Baldwin served as a consultant with Knight, Roth and
Associates, a consulting firm, from February 1990 to July 1994. Mr. Baldwin has
served as Chairman of the Board of KRMA Channel 6 TV since July 1996. Mr.
Baldwin also serves as a director of Grease Monkey Holding Corp.

John A. Sullivan, has served as a Director since October 1995. Mr. Sullivan
has been employed by Batchelder & Partners, Inc., an investment advisory and
consulting firm, since May 1996. Mr. Sullivan also served as a Senior Vice
President of The Seidler Companies Incorporated ("Seidler"), the underwriter of
the Company's initial public offering, from August 1993 to April 1996. Prior to
being elected Senior Vice President at Seidler, Mr. Sullivan served as a Vice
President from October 1990 to August 1993. Mr. Sullivan also serves as a
director of the Farr Company.

BOARD COMMITTEES

The standing committees of the Board of Directors include an Audit
Committee and a Compensation Committee.

The Audit Committee is comprised of Messrs. Baldwin and Sullivan and Ms.
Stutsman. The functions performed by the Audit Committee include recommending to
the Board of Directors independent auditors to serve the Company for the ensuing
year, reviewing with the independent auditors and management, the scope and
results of the audit, assuring that the independent auditors act independently,
reviewing and approving any substantial change in the Company's accounting
policies and practices, reviewing with management and the independent auditors
the adequacy of the Company's system of internal controls and reviewing the
Company's annual report.

The Compensation Committee is comprised of Messrs. Jones and Sullivan. The
functions performed by the Compensation Committee include reviewing and
approving management's recommendations as to executive compensation and
reviewing, approving and administering the Company's executive compensation and
stock option plans.

DIRECTORS' COMPENSATION

Each non-employee director of the Company, other than Messrs. Jones and
Theisen, receives $2,500 for each regular or special meeting of the Board of
Directors or committee meeting that is held on a date other than the date of a
board meeting. All Directors also receive reimbursement for their reasonable
out-of-pocket expenses related to such attendance.

Each non-employee director of the Company, other than Messrs. Jones and
Theisen, are eligible to receive stock option grants under the 1995 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). Only non-employee
directors of the Company or an affiliate of such directors (as defined in the
Code) are eligible to receive options under the Directors' Plan. Options granted
under the Directors' Plan are intended by the Company not to qualify as
incentive stock options under the Code. Option grants under the Directors' Plan
are non-discretionary.

During 1996, the Company did not grant options to non-employee directors of
the Company.

35
<PAGE> 37

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table shows for the fiscal years ended December 31, 1996,
1995 and 1994, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and its three other most highly compensated executive
officers for the year ended December 31, 1996 (the "Named Executive Officers"):

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------------
-------------------- SECURITIES
SALARY BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) OPTIONS COMPENSATION
--------------------------- ---- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jerome M. Lapin........................... 1996 $ 155,833 -- -- $ 6,757(2)
President and Chief Executive 1995 156,250 -- -- 7,074(2)
Officer 1994 150,000 -- 548,132 $16,689(3)
W. John Cash(4)........................... 1996 112,320 -- -- 9,128(6)
Vice President, Chief Financial 1995(5) 50,416 -- 20,000 4,051(6)
Officer and Treasurer
Randall J. Fagundo........................ 1996 111,837 -- 9,550(6)
Vice President of Operations 1995 80,411 $ 98,469(7) -- 6,445(6)
and Secretary 1994 64,835 144,819(7) -- 2,030(6)
Abbe M. Stutsman.......................... 1996 111,837 -- 9,824(6)
Vice President of Purchasing 1995 79,167 203,870(7) -- 6,445(6)
and Product Development 1994 67,085 255,224(7) -- 2,030(6)
</TABLE>

- ---------------

(1) Includes amounts deferred pursuant to Section 401(k) of the Internal Revenue
Code of 1986, as amended.

(2) Consists of value of Company provided automobile and health insurance
premiums paid by the Company.

(3) Includes value of Company provided automobile, health insurance premiums
paid by the Company and relocation reimbursement of $9,683.

(4) On April 30, 1997, W. John Cash was granted an option to purchase 100,000
shares of Common Stock at an exercise price of $7.63 per share under the
Company's Stock Option Plan.

(5) Mr. Cash joined the Company in July 1995.

(6) Includes value of Company provided automobile, health insurance premiums
paid by the Company and funds contributed by the Company as matching
contributions to the Named Executive Officers' 401(k) Plan account.

(7) Consists of S corporation distributions.

STOCK OPTION PLAN

The Company's Stock Option Plan (the "Option Plan") was originally adopted
by the Board of Directors and approved by its stockholders as of November 1993
and was amended and restated by the Board of Directors and approved by the
stockholders in July 1995. The purpose of the Option Plan is to attract and
retain qualified personnel, to provide additional incentives to employees,
officers, directors, consultants and advisors of the Company and its
subsidiaries and to promote the success of the Company's business. The Option
Plan covers a total of 856,132 shares of Common Stock. At August 31, 1997,
552,465 shares of Common Stock had been issued pursuant to the exercise of
options previously granted under the Option Plan and the Company had outstanding
options to purchase 308,500 shares of Common Stock, of which 4,833 shares are
subject to stockholder approval of an increase in the shares authorized for
issuance under the Option Plan, at exercise prices ranging from $4.50 to $9.69
per share. The Option Plan will terminate in October 2003 unless sooner
terminated by the Board of Directors.

The Option Plan provides for the grant of both incentive stock options
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") and non-statutory stock options. The Board may
delegate administration of the Option Plan to a Stock Option Committee, which
would be

36
<PAGE> 38

comprised of disinterested directors. Subject to the limitations set forth in
the Option Plan, the Board or the Stock Option Committee has the authority to
select the persons to whom grants are to be made, to designate the number of
shares to be covered by each option, to determine whether an option is to be an
incentive stock option or a non-statutory stock option, to establish vesting
schedules, and, subject to certain restrictions, to specify the type of
consideration to be paid upon exercise and to specify other terms of the
options.

The maximum term of options granted under the Option Plan is ten years
(five years for an option granted to a person who at that time owns 10% of the
total combined voting power of all classes of stock.) The aggregate fair market
value of the stock with respect to which incentive stock options are first
exercisable in any calendar year may not exceed $100,000 per optionee; portions
in excess of such amount shall be treated as non-statutory stock options.
Options granted under the Option Plan are non-transferable and generally expire
upon the earlier of the stated expiration date or three months after the
termination of an optionee's service to the Company (18 months in the event the
optionee's employment terminates by reason of death and 12 months in the event
the optionee's employment terminates due to disability).

The Board has discretion in connection with a merger or consolidation where
the Company is the surviving corporation to prescribe the terms and conditions
for the modification of the options granted under the Option Plan. In the event
of a dissolution or liquidation of the Company, or a merger or consolidation in
which the Company is not the surviving corporation, all outstanding options will
terminate unless assumed by another corporation.

No specific vesting schedule is required under the Option Plan. The
exercise price of incentive stock options must equal at least the fair market
value of the Common Stock on the date of grant, except that the exercise price
of incentive stock options granted to any person who at the time of grant owns
stock possessing more than 10% of the total combined voting power of all classes
of stock must be at least 110% of the fair market value of such stock on the
date of grant. The exercise price of non-statutory stock options under the
Option Plan may be no less than 85% of the fair market value of the Common Stock
on the date of grant.

NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

In July 1995, the Company adopted the 1995 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to directors of the Company who are
not, and never have been, its employees or consultants. The Directors' Plan is
intended to meet the requirements of Rule 16b-3(c)(2)(i) under the Securities
Exchange Act of 1934 and, accordingly, to be entirely self-executing. At August
31, 1997, the Company had 21,000 options outstanding to purchase shares of
Common Stock at an exercise price of $7.00 per share.

The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 42,000. Pursuant to the terms of
the Directors' Plan, each director of the Company who is not otherwise employed
by the Company and is first appointed or elected after the date of adoption of
the Directors' Plan, automatically will be granted an option to purchase 10,500
shares of Common Stock. Such options will vest in three equal annual
installments with the first installment vesting on the first anniversary of the
date of grant.

In the event of a merger, consolidation, reverse merger or reorganization
of the Company, the surviving corporation must assume any options outstanding
under the Directors' Plan or substitute similar options for those outstanding
under the Directors' Plan or, if the Company is the surviving corporation, such
options will continue in full force and effect.

No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. Unless otherwise
terminated by the Board, the Directors' Plan automatically terminates in June
2005.

OPTION GRANTS IN LAST FISCAL YEAR

During the fiscal year ended December 31, 1996 there were no options
granted to the Named Executive Officers.

37
<PAGE> 39

AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table shows for the fiscal year ended December 31, 1996
certain information regarding options exercised and held at year-end by the
Named Executive Officers:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT 12/31/96(#) 12/31/96
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE(#) UNEXERCISABLE($)(2)
---- -------------- -------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Jerome M. Lapin.......... 41,666 $263,287 323,297/0 $ 1,608,726/0
W. John Cash............. -- -- 5,000/15,000 $ 2,500/7,500
Randall J. Fagundo....... -- -- --/-- --/--
Abbe M. Stutsman......... -- -- --/-- --/--
</TABLE>

- ---------------

(1) Based on the fair market value of the Common Stock as of the date of
exercise, minus the exercise price, multiplied by the number of shares
acquired.

(2) Based on the fair market value of the Common Stock as of December 31, 1996
of $5.00 per share, minus the exercise price of "in-the-money" unexercised
options, multiplied by the number of shares represented by such options.

EMPLOYMENT AGREEMENTS

The Company entered into employment agreements with Jerome M. Lapin, W.
John Cash and Abbe Stutsman (each an "Executive") as of June 1, 1996 (the
"Employment Agreements"). The Employment Agreement with Mr. Lapin provides that
he will receive an annual salary of $160,000 and the Employment Agreements with
Mr. Cash and Ms. Stutsman, as updated by the Compensation Committee, provides
that they will each receive an annual salary of $117,700, with each Executive
being eligible to receive a bonus or salary increase as determined by the
Compensation Committee. The Employment Agreements also provide that each
Executive will be entitled to (i) participate in any employee benefits plans the
Company makes available to its other employees, (ii) four weeks vacation, and
(iii) use of an automobile provided by the Company. The Employment Agreement
with Mr. Lapin expires on December 31, 1999 and the Employment Agreements with
Mr. Cash and Ms. Stutsman expire on December 31, 1998. Each Employment Agreement
also provides that the Company may terminate the Executive's employment at any
time for cause and with 60 days' written notice without cause. If the Executive
is terminated without cause, the Company is obligated to pay the Executive's
salary for 12 months after the termination date. The Employment Agreements
provide that after a change of control of the Company, if the Executive is
terminated without cause, required to move outside the Boulder, Colorado area or
experiences a material reduction in his other responsibilities then the
Executive will be entitled to receive the salary set forth in the respective
Employment Agreement for the remaining term of the Agreement. The Employment
Agreements also contain confidentiality and noncompete provisions which prohibit
the Executives from soliciting employees of the Company, engaging in business
similar to the Company's or disclosing confidential information for a period of
three years after the termination of the Executive's employment with the
Company.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent not prohibited by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, the Company has
entered into indemnity agreements with each of its directors and executive
officers and has purchased a directors and officers liability insurance policy
covering each of its directors and executive officers.

In addition, the Company's Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company or its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction

38
<PAGE> 40

or other forms of nonmonetary relief would remain available under Delaware law.
Each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit and for improper distributions to stockholders. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.

There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

REORGANIZATION

On August 31, 1995, the Company acquired substantially all of the
inventory, property and equipment and assumed certain facilities leases and
contracts of the Affiliated Entities for an aggregate purchase price of
approximately $9.0 million. The Company paid the purchase price by issuing
promissory notes which were secured by the acquired assets. The Founders, as
owners of significant ownership interests in the Affiliated Entities, received a
portion of the proceeds of the promissory notes upon their repayment by the
Company as described below. The Company entered into a five-year non-competition
agreement with each Founder and Gary Kraft in connection with the
Reorganization.

Sugarloaf Marketing and Sugarloaf, Ltd. (the "Kraft Entities") were owned
principally by Gary Kraft, Messrs. Jones and Theisen. The Kraft Entities
received promissory notes in an aggregate principal amount of $5.6 million. The
terms of the purchase of the Kraft Entities' assets were determined as a result
of negotiations between the Company and Gary Kraft, the principal stockholder of
the Sugarloaf Marketing. The Kraft Entities retained their cash and accounts
receivable, trade names and trademarks. In connection with the Reorganization,
Gary Kraft was granted three additional franchises covering the states of
Louisiana and Oklahoma and portions of Missouri, Illinois and Texas which were
acquired in September 1997. See "Business -- Recent Acquisitions."

The Affiliated Entities were owned in varying percentages by the Founders
and certain past and present employees of the Affiliated Entities. The purchase
price of the assets acquired from such affiliated entities was determined by the
Founders, and not as a result of arm's-length negotiation, by multiplying the
income, as adjusted, of each such Affiliated Entity for the six-month period
January through June 1995 by six and adding the book value of the acquired
inventory as of the closing. The Affiliated Entities received promissory notes
in an aggregate principal amount of $1.3 million. Promissory notes representing
the remaining fifty percent of the aggregate purchase price is being be paid
semi-annually over a three-year period with interest only due for the first year
and principal and interest due in the second and third years.

As a result of their ownership interests in the Affiliated Entities, the
Founders received the following amounts, subject to certain adjustments to be
made in connection with the acquisition of the transferred assets, from the
Affiliated Entities described above:

<TABLE>
<CAPTION>
AMOUNT RECEIVED
---------------
<S> <C>
Richard D. Jones............................................ $2,001,786
J. Gregory Theisen.......................................... 1,924,920
Randall J. Fagundo.......................................... 601,142
Abbe M. Stutsman............................................ 1,329,543
</TABLE>

The purchase price for the Affiliated Entities was paid with cash in the
amount of $2.0 million and three year promissory notes with an aggregate
principal amount of $1.3 million with an interest rate on the principal

39
<PAGE> 41

amount of 8% per annum (the "Notes"). During the fiscal year ended December 31,
1996, the Company made the following interest payments on the Notes held by the
Founders:

<TABLE>
<CAPTION>
AMOUNT RECEIVED
---------------
<S> <C>
Richard D. Jones............................................ $19,090
J. Gregory Theisen.......................................... 16,169
Randall J. Fagundo.......................................... 22,709
Abbe M. Stutsman............................................ 49,921
</TABLE>

As of August 31, 1997, the Company had made the following interest and
principal payments on the Notes held by the Founders during 1997:

<TABLE>
<CAPTION>
AMOUNT RECEIVED
---------------
<S> <C>
Richard D. Jones............................................ $136,018
J. Gregory Theisen.......................................... 115,207
Randall J. Fagundo.......................................... 161,801
Abbe M. Stutsman............................................ 355,688
</TABLE>

PRODUCT PURCHASES AND ROYALTY PAYMENTS

The Affiliated Entities, as franchisees of the Company, purchased equipment
and inventory and made certain royalty and other payments to the Company in the
following amounts in the periods shown:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
Performance Merchandising, Inc.............................. $717,246 $416,925
Inland Merchandising, Inc................................... 178,554 413,499
Chicago Toy Company, Inc.................................... 414,616 344,967
Georgia Toy Company......................................... 117,815 108,328
Lehigh Valley Toy Company................................... 125,207 94,346
Southwest Coin Company...................................... 209,825 187,118
Sugarloaf Marketing, Inc.................................... 662,856 708,197
Sugarloaf, Ltd.............................................. 382,744 460,420
</TABLE>

Southwest Coin Company and the Kraft Entities had no written agreement with
the Company. Chicago Toy Company, Inc., Southwest Coin Company and the Kraft
Entities had not paid royalties on certain vending revenue from Shoppes owned
and operated by them. Southwest Coin Company and Sugarloaf Marketing (in certain
geographic areas) had not paid royalties on vending revenue from SugarLoaf Toy
Shoppes as such entities were in existence prior to the Company's formation.
Chicago Toy Company, Inc. did not pay royalties on vending revenue from
SugarLoaf Treasure Shoppes through a special arrangement with Gary Kraft, the
controlling shareholder of Sugarloaf, Ltd., related to the services Mr. Kraft
rendered to the Company in connection with the development of the SugarLoaf
Treasure Shoppe concept.

STOCKHOLDER LOANS

Between December 1989 and December 1993, Messrs. Jones and Theisen each
loaned the Company an aggregate amount equal to $297,250, Mr. Fagundo loaned the
Company an amount equal to $38,250 and Ms. Stutsman loaned the Company an
aggregate amount equal to $43,250. In addition, during such period Mr. Fagundo
loaned the Company $33,000 and the Company loaned Mr. Fagundo $33,000 and in
June 1995 such amounts were repaid. All of the outstanding loans had simple
interest rates of 12% per annum which the Company paid on a quarterly basis. All
of the loans were amended on August 31, 1995 to provide for the automatic
conversion of the entire principal amount into share of Common Stock of the
Company upon the closing of the Company's initial public offering at a price per
share equal to the price per share of the shares of

40
<PAGE> 42

Common Stock offered to the public. The following shares were issued at the
closing of the initial public offering:

<TABLE>
<CAPTION>
AMOUNT RECEIVED
---------------
<S> <C>
Richard D. Jones............................................ $42,464
J. Gregory Theisen.......................................... 42,464
Randall J. Fagundo.......................................... 5,465
Abbe M. Stutsman............................................ 6,178
</TABLE>

S CORPORATION DISTRIBUTIONS

The Company paid to the Founders the following amounts as S corporation
distributions for the periods shown:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
Richard D. Jones............................................ $91,000 --
J. Gregory Theisen.......................................... 91,000 --
Randall J. Fagundo.......................................... 38,999 --
Abbe M. Stutsman............................................ 38,999 --
</TABLE>

The Affiliated Entities paid to the Founders the following amounts either
as S corporation or partnership distributions for the periods shown:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
Richard D. Jones............................................ $ 70,522 $ 65,322
J. Gregory Theisen.......................................... 53,172 52,522
Randall J. Fagundo.......................................... 105,820 98,469
Abbe M. Stutsman............................................ 216,225 203,870
</TABLE>

During the fiscal year ended December 31, 1996, the Company paid the
following distributions to the former S corporation shareholders of the Company,
representing 40% of the estimated amount of net income of the Company from
January 1, 1995 through October 12, 1995:

<TABLE>
<CAPTION>
AMOUNT RECEIVED
---------------
<S> <C>
Richard D. Jones............................................ $228,519
J. Gregory Theisen.......................................... 228,519
Randall J. Fagundo.......................................... 85,550
Jerome M. Lapin............................................. 24,499
Abbe M. Stutsman............................................ 66,433
</TABLE>

COMMISSIONS

Mr. Jones, through T.R. Baron & Associates, Inc., and Mr. Theisen, through
Lorac, Inc., received from the Company and the affiliated entities, as
commission payments the following amounts during the periods shown:

41
<PAGE> 43

OTHER TRANSACTIONS

John A. Sullivan, a Director of the Company, served as a Senior Vice
President with The Seidler Companies Incorporated, the underwriter of the
Company's initial public offering. As compensation for serving as the Company's
underwriter, The Seidler Companies Incorporated received warrants exercisable
for 125,000 shares of Common Stock at an exercise price of $8.40 per share which
are exercisable until October 18, 1999.

Management believes the terms of the foregoing transactions were fair to
the Company. All future transactions with affiliates will be subject to the
approval of the Company's disinterested directors and will be on terms believed
by such directors to be no less favorable to the Company than those available
from unaffiliated third parties.

42
<PAGE> 44

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 31, 1997, and as
adjusted to reflect the sale of the Common Stock being offered hereby (assuming
no exercise of the Underwriters' over-allotment option) by (i) each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers, (iv) all directors and executive officers
of the Company as a group, and (v) the Selling Stockholders. Except as otherwise
noted, the persons or entities in this table have sole voting and investing
power with respect to all the shares of Common Stock owned by them.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OFFERING(1)(2)
------------------- OF SHARES -------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED(2) NUMBER PERCENT
---------------- --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Richard D. and Melinda K. Jones(3)......... 1,128,623 20.71% 500,000 628,623 9.75%
5660 Central Avenue
Boulder, CO 80301
J. Gregory Theisen(4)...................... 1,098,623 20.16 500,000 598,623 9.28
5660 Central Avenue
Boulder, CO 80301
SAFECO Asset Management Company(5)......... 886,800 16.27 -- 886,800 13.75
Safeco Plaza
Seattle, WA 98185
Jerome M. Lapin(6)......................... 523,132 9.60 -- 523,132 8.11
5660 Central Avenue
Boulder, CO 80301
Abbe M. Stutsman(7)........................ 368,104 6.75 -- 368,104 5.71
5660 Central Avenue
Boulder, CO 80301
Randall J. Fagundo......................... 367,391 6.75 -- 367,391 5.70
5660 Central Avenue
Boulder, CO 80301
W. John Cash(8)............................ 10,000 * -- 10,000 *
Jim D. Baldwin(9).......................... 12,000 * -- 12,000 *
John A. Sullivan(9)(10).................... 33,500 * -- 33,500 *
All directors and executive officers as
group (8 persons) (3)-(4) and (6)-(10)... 3,541,373 64.57% 1,000,000 2,541,373 39.40%
</TABLE>

- ---------------

* Less than one percent.

(1) Percentage of beneficial ownership is based on 5,449,904 shares of Common
Stock outstanding as of August 31, 1997 and 6,449,904 shares of Common
Stock outstanding after this offering. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of Common Stock subject to options or warrants currently exercisable
or exercisable within 60 days of August 31, 1996, are deemed outstanding
for computing the percentage of the person or entity holding such
securities, but are not outstanding for computing the percentage of any
other person or entity. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.

43
<PAGE> 45

(2) Amounts indicated reflect actual number of shares offered and assumes no
exercise of the Underwriters' over-allotment option. In the event such
option is exercised in full, (i) Richard D. and Melinda K. Jones will sell
125,000 shares and will beneficially own 503,623 shares, or 7.81% of the
Common Stock outstanding after the Offering, (ii) J. Gregory Theisen will
sell an additional 125,000 shares and will beneficially own 473,623 shares,
or 7.34% of the Common Stock outstanding after the Offering, (iii) Abbe M.
Stutsman will sell an additional 25,000 shares and will beneficially own
343,104 shares, or 5.32% of the Common Stock outstanding after the
Offering, and (iv) Randall J. Fagundo will sell an additional 25,000 shares
and will beneficially own 342,391 shares, or 5.31% of the Common Stock
outstanding after the Offering.

(3) Includes 42,464 shares held by T.R. Baron and Associates, Inc. Defined
Benefit Pension Plan, of which Mr. Jones is the Trustee. The 500,000 shares
to be sold in the Offering are held by the Jones Family Charitable Trust
Number 1, of which Mr. Jones is the Trustee.

(4) Includes 12,464 shares held by Colorado Coin Company Defined Benefit Keogh
Plan of which Mr. Theisen is the Trustee.

(5) Safeco Asset Management Company is a subsidiary of Safeco Corporation and
holds such shares on behalf of its clients, including Safeco Common Stock
Trust, which holds 500,000 shares.

(6) Includes 161,648 shares of Common Stock held jointly with Mr. Lapin's
spouse.

(7) Includes 50,519 shares of Common Stock held jointly with Ms. Stutsman's
spouse.

(8) Consists of options to purchase Common Stock exercisable within 60 days of
August 31, 1997 by Mr. Cash.

(9) Includes options to purchase 7,000 shares of Common Stock granted under the
Directors' Plan which are exercisable within 60 days of August 31, 1997.

(10) 9,000 shares of Common Stock is held jointly with Mr. Sullivan's spouse,
options to purchase 7,000 shares of Common Stock granted under the
Directors' Plan which are exercisable within 60 days of August 31, 1997 and
a warrant held by Mr. Sullivan exercisable to purchase 17,500 shares of
Common Stock.

44
<PAGE> 46

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 6,449,904 shares of
Common Stock outstanding. Of these shares, the 1,700,000 shares sold in the
Company's initial public offering and the 2,000,000 shares sold in the Offering
will be freely tradable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company, as is defined
under the Securities Act. The remaining 2,749,904 shares of Common Stock are
"Restricted Shares" and are subject to restrictions under the Securities Act. Of
these shares, 14,000, 1,148,627 and 1,227,246 are subject to lock-up agreements
under which the holders have agreed not to sell or otherwise dispose of any of
their shares for a period of 90, 180 and 270 days, respectively, after the date
of this Prospectus without the prior written consent of EVEREN.

In general, under Rule 144, a person (or person whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year,
including a person who may be deemed an affiliate of the Company, is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(approximately 64,500 shares after giving effect to the Offering) or the average
weekly trading volume of the Common Stock on the Nasdaq National Market during
the four calendar weeks preceding such sale. Sales under Rule 144 are subject to
certain restrictions relating to manner of sale, notice and the availability of
current public information about the Company. A person who has not been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned shares for at least two years, would be entitled to
sell such shares without regard to the volume limitations, manner of sale
provisions and other requirements of Rule 144.

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement, of which this Prospectus is a part.

GENERAL

The Company's Certificate of Incorporation currently provides that the
Company is authorized to issue 7,000,000 shares of Common Stock, $.01 par value
per share. As of August 31, 1997, the Company had 5,449,904 shares of Common
Stock outstanding. Upon completion of this Offering, there will be 6,449,904
shares of Common Stock outstanding. The Company is also authorized to issue
500,000 shares of Preferred Stock, $.10 par value per share. No shares of
Preferred Stock are currently issued and outstanding. In addition, an aggregate
of 345,667 shares of Common Stock are reserved for issuance under the Option
Plan and the Directors' Plan.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any shares of Preferred Stock issued in
the future, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefore. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding Preferred Stock. Holders
of Common Stock have no preemptive rights and no right to convert their Common
Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
the Offering will be, fully paid and nonassessable.

45
<PAGE> 47

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 500,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue any shares of Preferred Stock.

WARRANTS

As of August 31, 1997, the Company had outstanding warrants to purchase
125,000 shares of Common Stock. The exercise price for the warrants is $8.40 per
share which expire on October 18, 1999. None of the warrants have any voting
rights, dividend rights or preferences until such time as the warrant is
exercised and converted to Common Stock. The term of the warrants, including the
exercise prices may be changed by written agreement of the Company and the
holders of the respective warrants.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.

The Company's Certificate of Incorporation and Bylaws also require that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board or the Chief Executive Officer. The Company's Certificate
of Incorporation also provides that the authorized number of directors may be
changed only by resolution of the Board of Directors. These provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of the Company.

TRANSFER AGENT AND REGISTRAR

Norwest Bank Minnesota, N.A. is the transfer agent and registrar for the
Common Stock.

46
<PAGE> 48

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
for whom EVEREN Securities, Inc., Ladenburg Thalmann & Co. Inc. and The Seidler
Companies Incorporated are acting as representatives (the "Representatives"),
have severally agreed to purchase an aggregate of 2,000,000 shares of Common
Stock from the Company and the Selling Stockholders. The number of shares of
Common Stock that each Underwriter has agreed to purchase is set forth opposite
its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
EVEREN Securities, Inc. ....................................
Ladenburg Thalmann & Co. Inc. ..............................
The Seidler Companies Incorporated..........................

-------
Total.............................................
=======
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions. If any of the shares of Common
Stock are purchased by the Underwriters pursuant to the Underwriting Agreement,
all such shares of Common Stock (other than the shares of Common Stock covered
by the over-allotment option described below) must be so purchased.

The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the Common Stock to the
public initially at the price to the public set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not to exceed
$ per share. The Underwriters may allow, and such dealers may re-allow,
discounts not to exceed $ per share to certain other dealers. After the
initial public offering of the shares of Common Stock offered hereby, the public
offering price and the other selling terms may be changed by the
Representatives.

The Selling Stockholders have granted to the Underwriters an option to
purchase up to an aggregate of 300,000 additional shares of Common Stock at the
price to the public set forth on the cover page of this Prospectus, less
underwriting discounts and commissions, solely to cover over-allotments, if any.
Such option may be exercised at any time until 30 days after the date of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such Underwriter's initial commitment
as indicated in the preceding table.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the Act,
or to contribute payments that the Underwriters may be required to make in
respect thereof.

The public offering price for the Common Stock set forth on the cover page
of this Prospectus was determined by negotiations among the Company, the Selling
Stockholders and the Representatives. The factors considered in determining the
public offering price include the information set forth in this Prospectus and
otherwise available to the Representatives, the trading history of the Common
Stock on the Nasdaq National Market, the history of and prospects for the
industry in which the Company competes, the ability of the Company's management,
the past and present operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities market at the
time of the Offering and the recent market prices of securities of generally
comparable companies. Prior to this offering, trading in the Company's Common
Stock has been thinly traded. There can be no assurance as to the liquidity of
any market

47
<PAGE> 49

that may develop for the Common Stock or the ability of holders to sell their
Common Stock, nor can there be any assurance that the price at which holders are
able to sell their Common Stock will not be lower than the price at which the
Common Stock is sold to the public by the Underwriters. See "Risk
Factors -- Limited Historical Trading Volume in the Common Stock; Possible
Volatility of Stock Price."

The Company, each Company director and officer and each Selling Stockholder
has agreed with the Underwriters not to (other than in connection with this
offering or in connection with certain transfers to entities organized for the
exclusive benefit of family members of such persons), directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, any shares of Common Stock of the
Company or issue any securities convertible into or exercisable or exchangeable
(except pursuant to the terms of the Company's existing employee or director
stock plans) for Common Stock, or enter into any swap or other agreement to do
any of the foregoing, for periods ranging between 90 and 270 days after the date
of this Prospectus (subject to a limited exception in one case in connection
with the satisfaction of certain personal tax liabilities related to the
exercise of Company Stock Options) without the written consent of EVEREN (the
"Lock-Up Agreement"). These "lock-up" restrictions may not apply to the estate
of any person described above in the event such person dies during the "lock-up"
period and do not prohibit any person from exercising options (but would
prohibit the sale during the "lock-up" period of shares of Common Stock
purchased upon the exercise of such options). As part of the Lock-Up Agreement,
the Company has also agreed with the Underwriters that it will not, without the
written consent of EVEREN, file a registration statement relating to shares of
capital stock (including Common Stock), or securities convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase or
acquire, capital stock (including Common Stock), during the 90-day period
following the date of this Prospectus, excepting the filing of registration
statements on Form S-8 with respect to the Company's employee or director stock
plans.

In connection with the Offering, the Representatives and certain
Underwriters and selling group members and their respective affiliates may, in
accordance with Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act"), engage in over-allotment, stabilizing transactions, syndicate
covering transactions, penalty bids and other transactions that stabilize,
maintain or otherwise affect the market price for the Common Stock.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position, in which case the Underwriters may engage in
a syndicate covering transaction or may exercise the Underwriters'
over-allotment option described above. Syndicate covering transactions involve
the purchase of Common Stock in the open market following completion of the
offering to cover all or a portion of a syndicate short position. Penalty bids
permit the Representatives, on behalf of the Underwriters, to reclaim a selling
concession from a syndicate member when Common Stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
minimum. Any of the transactions described in this paragraph may cause the price
of Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.

Certain of the shares of Common Stock offered hereby are already listed on
the Nasdaq National Market, and application has been made to Nasdaq National
Market to so list the other shares of Common Stock offered hereby.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Cooley Godward LLP, Boulder,
Colorado. Certain legal matters in connection with the Common Stock will be
passed on for the Underwriters by Irell & Manella LLP, Los Angeles, California.

48
<PAGE> 50

EXPERTS

The financial statements of the Company as of December 31, 1995 and 1996,
and for each of the years in the three-year period ended December 31, 1996, have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, of which this Prospectus is a part, as well as such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices
located a 7 World Trade Center, New York, New York 10048 and Northwest Atrium,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a Worldwide Web site (address: http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The Common
Stock is traded on the Nasdaq National Market. Reports and other information
concerning the Company may also be inspected at the offices of the Nasdaq Stock
Market, 1725 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-1, including amendments thereto, under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit or incorporated by reference to the Registration Statement
of which this Prospectus forms a part, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Copies of the
Registration Statement and the exhibits and schedules thereto may be inspected,
without charge, at the offices of the Commission, or obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549.

49
<PAGE> 51

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2

Financial Statements:
Balance Sheets............................................ F-3
Statements of Earnings.................................... F-4
Statements of Stockholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>

F-1
<PAGE> 52

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
American Coin Merchandising, Inc.:

We have audited the accompanying balance sheets of American Coin
Merchandising, Inc. (formerly American Coin Merchandising, Inc. and affiliates
through August 31, 1995) as of December 31, 1996 and 1995, and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. 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 generally accepted auditing
standards. 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 financial position of American Coin Merchandising,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Boulder, Colorado
February 25, 1997

F-2
<PAGE> 53

AMERICAN COIN MERCHANDISING, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,590 $ 771 $ 826
Trade accounts and other receivables...................... 748 673 726
Inventories............................................... 3,411 4,329 4,559
Current portion of trade notes receivable................. 20 -- --
Prepaid expenses and other assets......................... 190 164 315
------- ------- -------
Total current assets.............................. 5,959 5,937 6,426
------- ------- -------
Property and equipment, at cost:
Vending machines.......................................... 7,051 12,446 16,590
Vehicles.................................................. 938 2,095 3,102
Office equipment, furniture and fixtures.................. 306 527 909
------- ------- -------
8,295 15,068 20,601
Less accumulated depreciation............................. (3,037) (4,697) (5,859)
------- ------- -------
Property and equipment, net....................... 5,258 10,371 14,742
------- ------- -------
Placement fees, net of accumulated amortization............. 20 183 322
Deferred income taxes....................................... 350 42 42
Cost in excess of assets acquired, net of accumulated
amortization.............................................. 2,115 3,209 3,125
Other assets................................................ -- 16 38
------- ------- -------
Total assets...................................... $13,702 $19,758 $24,695
======= ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Bank revolving line of credit............................. $ 406 $ -- $ --
Current portion of long-term debt......................... 151 435 427
Current portion of notes payable to Control Group......... -- 674 674
Income taxes payable...................................... 188 279 227
Accounts payable.......................................... 1,055 544 1,820
Accrued commissions....................................... 525 747 728
Other accrued expenses.................................... 104 344 592
Distribution payable...................................... 634 -- --
------- ------- -------
Total current liabilities......................... 3,063 3,023 4,468
Long-term debt, net of current portion...................... 283 4,384 6,423
Notes payable to Control Group.............................. 1,349 675 337
------- ------- -------
Total liabilities................................. 4,695 8,082 11,228
------- ------- -------
Stockholders' equity:
Preferred stock, $.10 par value (Authorized 500,000
shares; none issued)................................... -- -- --
Common stock, $.01 par value (Authorized 7,000,000 shares;
issued and outstanding 5,081,608 and 5,123,274 in 1995
and 1996, respectively, 5,447,904 at June 30, 1997).... 51 51 54
Additional paid-in-capital................................ 8,355 8,407 8,414
Unearned stock option compensation........................ (80) (49) (33)
Retained earnings......................................... 681 3,267 5,032
------- ------- -------
Total stockholders' equity.................................. 9,007 11,676 13,467
------- ------- -------
Commitments
Total liabilities and stockholders' equity........ $13,702 $19,758 $24,695
======= ======= =======
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 54

AMERICAN COIN MERCHANDISING, INC. (a)

STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Vending.................................. $11,651 $17,031 $30,439 $12,192 $22,648
Franchise and other...................... 5,963 8,683 7,828 4,225 3,499
------- ------- ------- ------- -------
Total revenue.................... 17,614 25,714 38,267 16,417 26,147
------- ------- ------- ------- -------
Cost of revenue:
Vending.................................. 8,399 11,701 21,283 8,639 16,042
Franchise and other...................... 4,207 6,054 5,659 3,071 2,309
------- ------- ------- ------- -------
Total cost of revenue............ 12,606 17,755 26,942 11,710 18,351
------- ------- ------- ------- -------
Gross profit..................... 5,008 7,959 11,325 4,707 7,796
General and administrative expenses........ 3,247 4,218 7,053 3,203 4,725
Commissions and royalties, related
parties.................................. 360 347 -- -- --
------- ------- ------- ------- -------
Operating earnings....................... 1,401 3,394 4,272 1,504 3,071
------- ------- ------- ------- -------
Interest expense, related parties.......... 144 224 108 54 45
Interest expense, other.................... 84 159 267 37 222
Minority interest in income of combined
affiliates............................... 62 80 -- -- --
Share of loss of equity affiliate.......... 29 27 -- -- --
------- ------- ------- ------- -------
Earnings before taxes.................... 1,082 2,904 3,897 1,413 2,804
Provision for income taxes................. -- 329 1,311 537 1,039
------- ------- ------- ------- -------
Net earnings..................... $ 1,082 $ 2,575 $ 2,586 $ 876 $ 1,765
======= ======= ======= ======= =======
Net earnings per share of common stock..... $ 0.48 $ 0.16 $ 0.33
Weighted average common shares............. 5,417 5,449 5,381
Pro forma information:
Historical earnings before taxes......... $ 2,904
Pro forma adjustments to earnings before
taxes................................. 1,207
-------
Pro forma earnings before taxes.......... 4,111
Pro forma income tax expense............. (1,562)
-------
Pro forma net earnings................... $ 2,549
=======
Pro forma earnings per common and common
equivalent share
Pro forma net earnings per share......... $ 0.55
Weighted average common shares........... 4,669
</TABLE>

- ---------------

(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates(see note 1).

See accompanying notes to financial statements.

F-4
<PAGE> 55

AMERICAN COIN MERCHANDISING, INC.(a)

STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL UNEARNED EQUITY STOCK-
COMMON PAID-IN STOCK OPTION RETAINED OF HOLDERS'
STOCK CAPITAL COMPENSATION EARNINGS AFFILIATES EQUITY
------ ---------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993........................... $31 $ 34 $ -- $ 101 $ 667 $ 833
Issuance of common stock.................... -- -- -- -- 4 4
Net earnings................................ -- -- -- 602 480 1,082
Distributions............................... -- -- -- (260) (445) (705)
--- ------- ---- ------- ----- -------
DECEMBER 31, 1994........................... 31 34 -- 443 706 1,214
Issuance of 1,700,000 common stock in public
offering, net............................. 17 10,034 -- -- -- 10,051
Issuance of employee stock options.......... -- 80 (80) -- -- --
Exercise of employee stock options.......... 2 3 -- -- -- 5
Conversion of stockholder loans............. 1 675 -- -- -- 676
Net earnings................................ -- -- -- 2,072 503 2,575
Distributions............................... -- -- -- (634) (420) (1,054)
Distribution to Control Group in conjunction
with Reorganization....................... -- -- -- (4,162) (789) (4,951)
Deferred tax asset established in
Reorganization............................ -- 491 -- -- -- 491
Termination of S corporation tax status..... -- (2,962) -- 2,962 -- --
--- ------- ---- ------- ----- -------
DECEMBER 31, 1995........................... 51 8,355 (80) 681 -- 9,007
Amortization of deferred compensation....... -- -- 26 -- -- 26
Tax benefit related to employee stock
options................................... -- 57 -- -- -- 57
Exercise of employee stock options.......... -- 1 -- -- -- 1
Termination of employee stock options....... -- (6) 5 -- -- (1)
Net earnings................................ -- -- -- 2,586 -- 2,586
--- ------- ---- ------- ----- -------
DECEMBER 31, 1996........................... 51 8,407 (49) 3,267 -- 11,676
Amortization of deferred compensation....... -- -- 12 -- -- 12
Exercise of employee stock options.......... 3 12 -- -- -- 15
Termination of employee stock options....... -- (5) 4 -- -- (1)
Net earnings................................ -- -- -- 1,765 -- 1,765
--- ------- ---- ------- ----- -------
JUNE 30, 1997 (UNAUDITED)................... $54 $ 8,414 $(33) $ 5,032 $ -- $13,467
=== ======= ==== ======= ===== =======
</TABLE>

- ---------------

(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see note 1).

See accompanying notes to financial statements.

F-5
<PAGE> 56

AMERICAN COIN MERCHANDISING, INC.(a)

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net earnings................................... $ 1,082 $ 2,575 $ 2,586 $ 876 $ 1,765
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization............... 688 930 1,891 762 1,359
Affiliate losses............................ 34 72 -- -- --
Compensation expense related to stock
options................................... -- -- 25 13 11
Deferred income tax expense................. -- 141 308 -- --
Changes in operating assets and liabilities,
net of Reorganization and acquisitions:
Trade accounts and other receivables,
net.................................... (147) (206) 53 (212) (53)
Inventories............................... (573) (1,650) (756) (157) (230)
Prepaid expenses and other assets......... 56 (182) 10 (95) (173)
Income taxes payable...................... -- 188 148 27 (52)
Accounts payable and accrued expenses..... 632 994 (49) 669 1,505
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 1,772 2,862 4,216 1,883 4,132
------- ------- ------- ------- -------
Investing activities:
Acquisitions of property and equipment, net.... (1,471) (2,234) (6,052) (3,242) (5,570)
Acquisitions of franchisees.................... -- (160) (1,224) (613) --
Acquisition of non-Control Group interests in
Reorganization.............................. -- (3,125) -- -- --
Placement fees................................. -- (20) (192) (113) (215)
Change in notes receivable..................... 3 31 20 7 --
------- ------- ------- ------- -------
Net cash used in investing
activities........................... (1,468) (5,508) (7,448) (3,961) (5,785)
------- ------- ------- ------- -------
Financing activities:
Net borrowings (payments) on revolving line of
credit...................................... (153) (121) 3,381 1,283 2,248
Principal payments on notes payable to related
parties..................................... (247) (167) -- -- --
Proceeds from issuance of notes payable to
related parties............................. 444 22 -- -- --
Principal payments on long-term debt........... (397) (1,172) (1,559) (185) (217)
Principal payments on notes payable to Control
Group....................................... -- -- -- -- (338)
Proceeds from issuance of long-term debt....... 802 516 1,224 24 --
Distributions.................................. (705) (420) (634) (634) --
Payments to Control Group in Reorganization.... -- (4,509) -- -- --
Cash retained by combined affiliates in
Reorganization.............................. -- (326) -- -- --
Issuance of common stock, net of offering
costs....................................... -- 10,056 1 -- 15
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities................. (256) 3,879 2,413 488 1,708
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................... 48 1,233 (819) (1,590) 55
Cash and cash equivalents at beginning of
period......................................... 309 357 1,590 1,590 771
------- ------- ------- ------- -------
Cash and cash equivalents at end of period....... $ 357 $ 1,590 $ 771 $ -- $ 826
======= ======= ======= ======= =======
</TABLE>

- ---------------
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see Note 1).

See accompanying notes to financial statements.

F-6
<PAGE> 57

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

American Coin Merchandising, Inc., d/b/a SugarLoaf Creations, Inc. (the
"Company") and its franchisees own and operate coin-operated skill-crane
machines ("Shoppes") that dispense stuffed animals, plush toys, watches, jewelry
and other items. The Company's Shoppes are placed in supermarkets, mass
merchandisers, bowling centers, bingo halls, bars, restaurants, warehouse clubs
and similar locations. At June 30, 1997, the Company has 29 offices operating in
39 states. The Company also sells products to franchisees. At June 30, 1997
there were 26 Company franchises in operation.

Prior to August 31, 1995, the date of the Reorganization described below,
certain stockholders of the Company, who collectively own a controlling interest
in the Company (the "Control Group"), owned interests in the eight affiliated
entities (the "Affiliated Entities") which were franchisees of the Company.
Except as noted below, each of the Affiliated Entities began operations prior to
January 1, 1993. The Control Group owned greater than 50% of the outstanding
common stock or partnership interests of seven of the Affiliated Entities and
less than 50% of the eighth, as follows:

Affiliated Entities:

Combined affiliates:
Chicago Toy Company
Georgia Toy Company
Inland Merchandising, Inc. (began operations in June 1993)
Lehigh Valley Toy Company
Performance Merchandising, Inc.
Southwest Coin Company
Sugarloaf, Ltd. (began operations in January 1993)

Equity affiliate:
Sugarloaf Marketing, Inc.

Due to the common controlling ownership, the accompanying financial
statements include the accounts of the Company and the combined affiliates
(collectively referred to as the "Combined Companies") through August 31, 1995.
All material intercompany balances and transactions have been eliminated.
Through August 31, 1995 the Control Group's interest has been accounted for as
equity of affiliates and the other stockholders' interest has been reflected as
minority interest. As such, the assets and liabilities of the Combined Companies
have been accounted for in the financial statements based upon their historical
costs through August 31, 1995. The financial statements account for the Control
Group ownership interest in Sugarloaf Marketing, Inc. using the equity method of
accounting through August 31, 1995.

On August 31, 1995, the Company acquired substantially all of the
inventories, property and equipment, and assumed certain facilities leases,
which are operating leases, and contracts of the Affiliated Entities in exchange
for promissory notes in the principal amount of $8,983,000 (the
"Reorganization"), of which $7,634,000 was paid from the proceeds of the
Company's initial public offering in October 1995. The remaining promissory
notes in the principal amount of $1,349,000 are payable in 1997 and 1998. As a
result of the Reorganization, assets attributable to the Control Group's
interest have been accounted for similar to the pooling-of-interests method of
accounting for business combinations. Assets and liabilities included in the
financial statements which were retained by the combined affiliates in the
Reorganization have been accounted for as distributions to the combined
affiliates. Amounts paid to the combined affiliates attributed to the Control
Group interest have been accounted for as a distribution for financial reporting
purposes. Assets transferred attributable to the non-Control Group members (the
minority interest in the combined affiliates and the majority interest in the
equity affiliate) have been accounted for using the purchase method of
accounting for business combinations. The Company has recorded approximately
$1,964,000 of costs in excess

F-7
<PAGE> 58

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

of assets acquired as a result of the transfer of assets attributable to the
non-Control Group. The Reorganization was a taxable transaction for income tax
purposes, and accordingly, the Company has a tax basis in the transferred assets
in excess of that for financial reporting.

2. ACQUISITIONS

In September 1995, the Company acquired certain assets and the business
operation of one of its franchisees for approximately $346,000. Of this amount,
$158,000 was paid in cash with the balance to be paid over a three year period
in accordance with the terms of a promissory note issued in connection with the
acquisition. The Company has recorded approximately $187,000 of costs in excess
of assets acquired as a result of this acquisition that was accounted for using
the purchase method of accounting.

During 1996, the Company acquired in January, July and August certain
assets and the business operations of three of its franchisees and also acquired
the operating assets of a skill-crane service company in May for approximately
$2,103,000. Of this amount, $1,224,000 was paid in cash with the balance to be
paid over two and three year periods in accordance with the terms of the
promissory notes issued in connection with the acquisitions. The Company has
recorded approximately $1,239,000 of costs in excess of assets acquired as a
result of these acquisitions that were accounted for using the purchase method
of accounting.

The pro forma effect of these acquisitions is not material to revenue or
net earnings for the years ended December 31, 1995 and 1996.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

VENDING

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

FRANCHISE ROYALTIES AND FEES

Typically, franchisees are required to pay continuing royalties ranging
from 2% to 5% of gross machine revenue.

Franchisees are required to pay an initial nonrefundable franchise fee.
Initial franchise fees are recognized as revenue when the franchise opens.
Included in equipment sales and other revenue is initial franchise fee revenue
of $53,000, $86,000 and none during 1994, 1995 and 1996 and none for the six
months ended June 30, 1997, respectively.

INCOME TAXES

Prior to October 13, 1995 the Company had elected tax treatment as an S
corporation, and the combined affiliates were each organized as S corporations,
except for Southwest Coin Company which was organized as a partnership.
Accordingly, through October 12, 1995, no provisions were made for income taxes
since all income, deductions, gains, losses and credits were reported on the tax
returns of the stockholders or partners. The S corporation status of the Company
terminated on October 12, 1995 and, thereafter, the Company became a taxable
entity.

Effective October 13, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards Statement No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the asset and liability method of accounting for income
taxes as prescribed by SFAS 109, deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. Deferred tax assets and liabilities are measured using

F-8
<PAGE> 59

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

enacted tax rates expected to be in effect for the year in which those temporary
differences are expected to be recovered or settled. The effects on deferred tax
assets and liabilities of a change in tax rates are recognized in income in the
period that includes the enactment date.

Quarterly income taxes are computed using the anticipated effective tax
rate for the year.

ESTIMATES

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

CASH EQUIVALENTS

The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories consist of purchased items
ready for resale or use in vending operations.

PROPERTY AND EQUIPMENT

Property, equipment and capital leases are stated at cost. Depreciation is
calculated on the straight-line and accelerated methods over the estimated
useful lives of the assets that range from 3 to 7 years. Amortization expense
related to capital leases is calculated on the straight-line method over the
estimated useful lives of the leased assets which is 7 years.

COST IN EXCESS OF ASSETS ACQUIRED

Cost in excess of assets acquired represents the purchase amount paid in
excess of the fair market value of the tangible net assets acquired and is
amortized using the straight-line method over a 20-year period.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

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

NET EARNINGS PER SHARE

Net earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares include the dilution from the potential exercise of stock
options when the effect is dilutive. Primary and fully diluted earnings per
share are the same. Net earnings per share has been omitted for 1994 and 1995
because through August 31, 1995 the Combined Companies were not a single entity
with its own capital structure.

F-9
<PAGE> 60

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

INTERIM FINANCIAL STATEMENTS

The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited but, in the opinion of management, include
all adjustments, consisting of normal recurring adjustments, which are necessary
for a fair presentation of the financial condition, results of operations, and
cash flows. The operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.

RECLASSIFICATIONS

Certain amounts for prior periods have been reclassified to conform to the
June 30, 1997 presentation.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -----------------
1994 1995 1996 1996 1997
----- -------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Cash paid during the period:
Interest paid............................... $240 $ 370 $372 $ 95 $ 282
Income taxes paid........................... -- -- 858 510 1,092
Significant noncash investing and financing
activities:
Equipment purchases financed with debt...... 336 241 54 54 --
Notes payable issued for acquisitions of
franchisees.............................. -- 188 879 363 --
Distribution payable........................ -- 634 -- -- --
Deferred tax asset established in
Reorganization........................... -- 491 -- -- --
Conversion of stockholder loans into common
stock.................................... -- 676 -- -- --
Cash paid in Reorganization:
Value of tangible assets acquired........... $ 983
Cost in excess of assets acquired........... 1,964
Net liabilities retained by combined
affiliates,
excluding cash retained..................... 1,310
Notes payable to Control Group.............. (1,349)
Net elimination of investment in equity
affiliate
and minority interest....................... 101
Distribution to Control Group............... 4,951
-------
Cash paid and retained (1).......... $ 7,960
=======
</TABLE>

- ---------------

(1) Includes $326,000 of cash retained by the combined affiliates.

4. INVESTMENT IN EQUITY AFFILIATE

Prior to the Reorganization, investment in equity affiliate consisted of a
48.5% and 48.0% interest in 1994 and 1995, respectively, in Sugarloaf Marketing,
Inc. (Sugarloaf Marketing) which was accounted for using the equity method (see
note 1). On August 31, 1995, in connection with the Reorganization, the Company
acquired the remaining 52% interest in Sugarloaf Marketing. The acquisition has
been accounted for using the purchase method of accounting for business
combinations. The operating results of Sugarloaf Marketing are included in the
Company's earnings statement from the date of the acquisition. Pro forma results
of operations

F-10
<PAGE> 61

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

for 1995, as if the Reorganization, including the acquisition of Sugarloaf
Marketing, had occurred on January 1, 1995 is presented in note 14.

Summarized financial information of Sugarloaf Marketing is as follows (in
thousands):

<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1994 1995
------------ ------------
<S> <C> <C>
Revenue.................................................. $5,078 $3,941
Net loss................................................. (59) (57)
</TABLE>

Included in revenue are the following amounts with Sugarloaf Marketing (in
thousands):

<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1994 1995
------------ ------------
<S> <C> <C>
Product and service sales................................ $603 $660
Franchise royalties...................................... 60 52
</TABLE>

Transactions with Sugarloaf Marketing were conducted on a basis consistent
with that of unaffiliated franchisees.

5. BANK REVOLVING LINE OF CREDIT

The Company has a bank revolving line of credit, which expires July 5,
1999. Interest is payable monthly at the bank's prime rate (8.25% at December
31, 1996 and 8.50% at June 30, 1997). Maximum borrowings on this line cannot
exceed the lesser of $9,000,000 or a borrowing base defined in the agreement. At
December 31, 1996 and June 30, 1997, there was a principal amount of
approximately $3,787,000 and $6,035,000, respectively outstanding on this
facility that is reflected in long-term debt on the accompanying balance sheet.

The credit facility is secured by all business assets, including accounts
receivable, inventories, property and equipment and an assignment of franchise
fees. The line of credit agreement requires that, among other things, the
Company maintain a minimum net worth, meet certain ratios, and limits the
Company's ability to pay dividends and incur additional indebtedness.

At December 31, 1996 and June 30, 1997, approximately $59,000 and $287,000,
respectively, of the credit facility was committed on open letters of credit for
inventory on order but not yet received.

F-11
<PAGE> 62

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT AND NOTES PAYABLE TO CONTROL GROUP

Long-term debt and notes payable to control group consists of the following
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
LONG-TERM DEBT:
Bank revolving line of credit (see note 5)................. $ -- $3,787 $6,035
Notes payable to former franchisees, in monthly
installments with interest at 8%; final payments at
various dates through August 1999, secured by certain
property and equipment................................... 178 871 689
Capitalized lease obligations.............................. 107 -- --
Notes payable to banks, in monthly installments with
interest ranging from 7% to 12.95%; final payments at
various dates through August 2000; secured by certain
property and equipment................................... 149 161 126
------ ------ ------
Total long-term debt............................. 434 4,819 6,850
Less current portion....................................... (151) (435) (427)
------ ------ ------
Long-term debt, net of current portion........... $ 283 $4,384 $6,423
====== ====== ======
NOTES PAYABLE TO CONTROL GROUP:
Promissory notes to Affiliated Entities, semi-annual
principal payments to commence February 1997 with
interest at 8%; notes are secured by the assets exchanged
(see note 1)............................................. $1,349 $1,349 $1,011
Less current portion....................................... -- (674) (674)
------ ------ ------
Notes payable to Control Group, net of current
portion........................................ $1,349 $ 675 $ 337
====== ====== ======
</TABLE>

The carrying amount of long-term debt and notes payable to control group
approximates fair value.

Maturities of long-term debt and notes payable to Control Group as of
December 31, 1996 are as follows (in thousands):

7. INCOME TAXES

Prior to October 13, 1995, the Company was an S corporation and was not
subject to income taxes. The S corporation status of the Company terminated on
October 12, 1995. As a result of the termination of the Company's S corporation
status, the Company incurred a one-time deferred tax expense of $141,000.

F-12
<PAGE> 63

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1995 1996
---- ------
<S> <C> <C>
Current
Federal................................................... $160 $ 869
State..................................................... 28 134
---- ------
188 1,003
---- ------
Deferred
Federal................................................... 119 267
State..................................................... 22 41
---- ------
141 308
---- ------
$329 $1,311
==== ======
</TABLE>

A reconciliation of the expected tax expense, assuming income before taxes
is taxed at the statutory federal tax rate of 34%, and the Company's actual
provision for income taxes is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1995 1996
----- ------
<S> <C> <C>
Expected tax expense at the federal statutory rate.......... $ 987 $1,325
State income taxes, net of federal taxes.................... 33 116
Change in valuation allowance............................... -- (171)
Termination of S corporation status......................... 141 --
S corporation income........................................ (811) --
Other....................................................... (21) 41
----- ------
$ 329 $1,311
===== ======
</TABLE>

The sources and tax effects of temporary differences between financial
statement carrying amounts and the tax bases of assets and liabilities are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
DEFERRED TAX ASSETS:
Property and equipment-basis and depreciation differences... $ 98 $ --
Costs in excess of assets acquired-basis and amortization
differences............................................... 1,255 1,157
------ ------
1,353 1,157
Valuation allowance......................................... 1,003 832
------ ------
350 325
DEFERRED TAX LIABILITIES:
Property and equipment-basis and depreciation differences... -- (283)
------ ------
$ 350 $ 42
====== ======
</TABLE>

F-13
<PAGE> 64

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMISSIONS AND ROYALTIES TO RELATED PARTIES

The Company recognized commission expense of $290,000 and $232,000 in 1994
and 1995, respectively, for services provided by two other corporations whose
stockholders are also the majority stockholders of the Company. In addition, the
Company recognized royalty expense of $70,000 and $115,000 in 1994 and 1995,
respectively, to a trust controlled by a stockholder of one of the combined
affiliates.

9. RETIREMENT PLAN

The Company maintains a 401(k) profit sharing plan, which covers
substantially all employees. Employees are permitted to contribute up to 15% of
their eligible compensation. The Company makes contributions to the plan
matching 50% of the employees' contribution up to 10%. The Company's matching
contributions totaled $8,000, $17,000 and $49,000, in 1994, 1995 and 1996 and
totaled $18,000 and $54,000 for the six months ended June 30, 1996 and 1997,
respectively.

10. COMMITMENTS

LEASES

The Company has several noncancelable operating leases, primarily for
office and warehouse facilities and certain types of equipment. These leases
expire at various times over the next four years. Rent expense under these
leases totaled $173,000, $190,000 and $275,000 in 1994, 1995 and 1996 and
totaled $131,000 and $243,000 for the six months ended June 30, 1996 and 1997,
respectively.

Future minimum commitments under operating leasing arrangements as of
December 31, 1996 are as follows (in thousands):

<TABLE>
<S> <C>
1997.................................................. $253
1998.................................................. 122
1999.................................................. 43
2000.................................................. 8
2001 and thereafter................................... --
----
Total....................................... $426
====
</TABLE>

GUARANTEES

The Company has established, with a bank, a vending machine leasing program
for qualified franchisees. Under terms of the program, the Company has agreed to
purchase machines from the bank at an agreed upon price for franchisees who
default on their leases with the bank. At December 31, 1996 and June 30, 1997,
franchisees had $30,000 and $7,000, respectively, in outstanding leases
guaranteed by the Company.

11. STOCK OPTIONS

The Company has two fixed option plans. Under the terms of the amended and
restated stock option plan (the "Option Plan"), the Company may grant to
employees, consultants and advisors up to 856,132 shares of common stock. Under
the Option Plan, the Company may grant both incentive stock options and non-
statutory stock options, and the maximum term is ten years. Non-statutory
options may be granted at no less than 85% of the fair market value of the
common stock at the date of grant. Stock options granted under the Option Plan
vest over three to four year periods.

Under the 1995 Non-Employee Directors' Stock Option Plan (the "Directors
Plan"), the Company may grant to non-employee directors options to purchase up
to 42,000 shares of common stock. Under the Directors Plan, options granted vest
over a three year period and have a maximum term of ten years.

F-14
<PAGE> 65

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company applies APB Opinion No. 25 and the related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for options granted at fair market value under the plans. The compensation cost
that has been charged against earnings for options granted at a price less than
fair market value was $25,000 in 1996. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with SFAS No. 123, the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share data):

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
--------------- --------------
1995 1996 1996 1997
------ ------ ----- ------
<S> <C> <C> <C> <C>
Net earnings
As Reported........................................... $2,575 $2,586 $ 876 $1,765
Pro forma............................................. $2,559 $2,471 $ 817 $1,693
Primary earnings per share
As Reported........................................... $ N/A $ 0.48 $0.16 $ 0.33
Pro forma............................................. $ N/A $ 0.46 $0.15 $ 0.31
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997: no dividend yield; expected
volatility of 81 percent for 1995 and 1996 and 60 percent for 1997; risk-free
interest rates of 6.0 percent; and expected lives of six years.

The effect of applying SFAS No. 123, in the above pro forma disclosure,
does not purport to be representative of the effect on net earnings for future
years.

A summary of the status of the Company's two fixed stock option plans and
changes during the related periods is presented below:

<TABLE>
<CAPTION>
DECEMBER 31, SIX MONTHS ENDED
------------------------------------------ JUNE 30,
1995 1996 1997
-------------------- ------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
------------- -------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period..................... 548,132 $ .02 488,463 $1.44 440,797 $1.51
Granted...................... 123,500 5.61 -- -- 100,000 7.63
Exercised.................... (183,169) .02 (41,666) .02 (324,630) 0.05
Forfeited.................... -- -- (6,000) 5.53 (5,667) 5.53
-------- ------- --------
Outstanding at end of
period..................... 488,463 1.44 440,797 1.51 210,500 6.57
======== ======= ========
Options exercisable at end of
period..................... 364,943 360,797 35,167
Weighted-average fair value
of options granted during
the period................. $ 4.68 -- 4.70
</TABLE>

F-15
<PAGE> 66

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about fixed stock options
outstanding:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
RANGE WEIGHTED AVERAGE
OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
$.02 323,297 2.0 $ .02 323,297 $ .02
4.00 to 7.00 117,500 8.9 5.62 37,500 5.67
------- -------
.02 to 7.00 440,797 3.8 1.51 360,797 .61
======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
RANGE WEIGHTED AVERAGE
OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
4.00 to 8.00 210,500 9.1 $6.57 35,167 $5.68
</TABLE>

12. STOCKHOLDERS' EQUITY

COMMON STOCK

The Company was originally incorporated in Colorado in 1988 and was
reincorporated in Delaware effective July 1995. In July 1995, the Company
effectuated a 2525.9515-for-1 stock split of its common stock. Common stock
information has been restated to give effect to the stock split. In October
1995, the Company completed a public offering of 1,700,000 shares of its common
stock at $7.00 per share. Total proceeds, net of underwriting commission and
other offering costs of $1,849,000, were $10,051,000. Two of the principal
stockholders of the Company and the majority stockholder of Sugarloaf Marketing
acquired 300,000 shares of the Company's common stock at the initial public
offering price of $7.00 per share. In conjunction with the Company's public
offering, $676,000 in notes payable to related parties were converted into
96,571 shares of common stock.

PREFERRED STOCK

The Board of Directors has the authority to issue up to 500,000 shares of
$.10 par value preferred stock in one or more series and to fix the rights,
preferences, privileges and distributions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, without any further vote or action by stockholders.
No shares of preferred stock have been issued.

WARRANTS

In conjunction with the Company's initial public offering, a warrant to
purchase 125,000 shares of common stock at a purchase price of $8.40 per share
was sold to the Company's underwriter for a nominal amount. The warrant expires
on October 18, 1999.

13. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

CERTAIN SIGNIFICANT ESTIMATES

At December 31, 1996 the Company has recorded a deferred tax asset of
$325,000, net of a $832,000 valuation allowance, as a result of the benefit
associated with the difference between the tax and financial statement basis of
assets acquired by the Company on August 31, 1995 in connection with the
Reorganization. Realization is dependent on generating sufficient taxable income
prior to the expiration of the benefit.

F-16
<PAGE> 67

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Although realization is not assured, management believes it is more likely than
not that a portion of the deferred tax asset will be realized. The amount of the
deferred tax asset considered realizable, however, could be increased in the
near term if estimates of future taxable income are increased.

CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

SUPPLIERS

Substantially all the Company's plush toys and certain other products
dispensed in the Company's SugarLoaf Toy Shoppes are produced by foreign
manufacturers and a majority are purchased directly by the Company from
manufacturers in the People's Republic of China ("China"). China currently
enjoys "most favored nation" ("MFN") status under U.S. tariff laws, which allows
for the most favorable category of U.S. import duties. The loss of MFN status
for China could result in a substantial increase in the import duty of certain
products manufactured in China, which could result in substantially increased
costs for certain products purchased by the Company. Although the Company would
attempt to mitigate any such increased cost by procuring its product from other
countries, it would likely incur substantially higher costs and temporary
disruptions in supply in the event that it becomes necessary to do so.

The Company also purchases a substantial portion of the products for its
other Shoppes from vendors who obtain product from domestic and foreign
manufacturers. As a result, the Company is subject to changes in governmental
policies, the imposition of tariffs and import and export controls,
transportation delays and interruptions, political and economic disruptions and
labor strikes which could disrupt the Company's supply of products from foreign
manufacturers.

CUSTOMERS

The Company has made available to its franchisees a fee reduction program
whereby a franchisee is entitled to a reduction in the royalty rate on gross
revenue from the SugarLoaf Toy and Treasure Shoppes of one percentage point on
gross revenue for a future six-month period based upon the franchisee meeting
certain performance standards during the most recently completed six-month
period. One of the performance standards relates to the purchase of 30%, up to a
maximum of $250,000, of product used in the SugarLoaf Toy Shoppe program from
the Company.

During the year ended December 31, 1996 and the six months ended June 30,
1997, one customer accounted for 11.4% and 28.2%, respectively, of the Company's
revenue.

14. UNAUDITED PRO FORMA INFORMATION

The computation of pro forma total revenue, net earnings and net earnings
per share for the year ended December 31, 1995 were prepared on the basis as if
the Reorganization had occurred on January 1, 1995 with an adjustment in the
level of commissions and royalties to related parties that were not paid after
the Reorganization, an adjustment for interest expense related to shareholder
loans converted to common stock in conjunction with the Company's initial public
offering of common stock on October 12, 1995 and the

F-17
<PAGE> 68

AMERICAN COIN MERCHANDISING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

recording of income tax expense to reflect the conversion of the Company from an
S corporation to a taxable entity on October 12, 1995 follows (in thousands):

<TABLE>
<S> <C>
Historical total revenue.................................... $25,714
Revenue of Sugarloaf Marketing through the date of
acquisition............................................... 3,941
Pro forma adjustment to eliminate intercompany revenue...... (712)
-------
Pro forma total revenue..................................... $28,943
=======
Historical earnings before income taxes..................... $ 2,904
Pro forma adjustments:
Net loss of Sugarloaf Marketing through the date of
acquisition............................................ (57)
Adjust for change in level of commissions and royalties to
related parties........................................ 1,182
Adjust for interest related to stockholder loans converted
to equity.............................................. 61
Eliminate minority interest and equity interest through
the date of acquisition as a result of acquiring
remaining ownership interest in affiliated entities.... 107
Record amortization of cost in excess of assets
acquired............................................... (68)
Increase depreciation for assets acquired from non-control
group.................................................. (18)
-------
Total adjustments to earnings before taxes........ 1,207
-------
Pro forma earnings before income taxes...................... 4,111
Pro forma earnings tax expense at 38%....................... 1,562
-------
Pro forma net earnings...................................... $ 2,549
=======
Weighted average shares outstanding(1)...................... 4,669
Pro forma net earnings per share............................ $ 0.55
=======
</TABLE>

- ---------------

(1) Shares used in computing pro forma net earnings per share are based upon
3,503,102 weighted average shares outstanding, common equivalent shares of
370,332, and 96,571 shares issued in connection with the conversion of
certain stockholder loans at the initial public offering price of $7.00 per
share and 699,149 shares issued to pay distributions in conjunction with the
Reorganization. Common equivalent shares consist of stock options,
determined using the treasury stock method. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued at prices below the anticipated public offering price during a
12-month period prior to the proposed offering have been included in the
calculation as if they were outstanding for the entire year (using the
treasury stock method and the average price of the common stock from October
16, 1995 through December 31, 1995) and the shares issued in the initial
public offering whose proceeds were used to pay distributions to Control
Group stockholders in connection with the Reorganization have been included
in the calculation (using the initial public offering price) as if they were
outstanding for the entire year.

F-18
<PAGE> 69

======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 13
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Capitalization........................ 14
Selected Financial and
Operating Data...................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 23
Management............................ 34
Executive Compensation................ 36
Certain Relationships and Related
Transactions........................ 39
Principal and Selling Stockholders.... 43
Shares Eligible for Future Sale....... 45
Description of Capital Stock.......... 45
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 49
Additional Information................ 49
Index to Financial Statements......... F-1
</TABLE>

======================================================

2,000,000 SHARES

[AMERICAN COIN LOGO]

AMERICAN COIN
MERCHANDISING, INC.
D/B/A SUGARLOAF CREATIONS, INC.

COMMON STOCK
---------------------
PROSPECTUS
---------------------

EVEREN SECURITIES, INC.

LADENBURG THALMANN & CO. INC.

THE SEIDLER COMPANIES
INCORPORATED
SEPTEMBER , 1997

======================================================
<PAGE> 70

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Company (the "Registrant") in
connection with the sale of the Common Stock being registered. All the amounts
shown are estimates except for the registration fee and the NASD filing fee.

<TABLE>
<S> <C>
Registration fee............................................ $ 12,200
NASD filing fee............................................. 4,500
NASDAQ National Market System fee........................... 17,500
Blue sky qualification fee and expenses..................... 10,000
Printing and engraving expenses............................. 135,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 40,000
Transfer agent and registrar fees........................... 3,000
Miscellaneous............................................... 77,800
--------
Total............................................. $400,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and officers and may
indemnify its employees and other agents to the fullest extent not prohibited by
Delaware law.

The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.

The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnity agreements also set forth certain procedures that will
apply in the event of a claim for indemnification thereunder.

The Underwriting Agreement filed as Exhibit 1.1 to this Registration
statement provides for indemnification by the Underwriters of the Registrant and
its Officers and directors for certain liabilities arising under the Securities
Act or otherwise.

II-1
<PAGE> 71

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since September 1, 1994, the Registrant has sold and issued the following
unregistered securities:

(1) In July 1995, the Registrant granted to one of the officers of the
Registrant an option to purchase 20,000 shares of Common Stock under the
Option Plan at an exercise price of $4.50 per share.

(2) In January 1995, the Registrant sold to one of the officers and
directors of the Registrant 181,869 shares of Common Stock pursuant to the
exercise of a stock option at an exercise price of $.02 per share for cash
in the aggregate amount of $4,320.

(3) In August 1995, the Registrant amended certain promissory notes of
the Registrant held by the Founders to provide for the automatic conversion
of the entire principal amount into 96,571 shares of Common Stock of the
Registrant upon the closing of its initial public offering.

The sales and issuances of securities in the transaction described in
paragraph (1) above were issued in transactions that were deemed to be exempt
from registration under the Securities Act by virtue of Rule 701 promulgated
thereunder in that they were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to a written contract relating to
compensation, as provided by Rule 701.

The sales and issuances of securities in the transaction described in
paragraph (2) above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2).

The issuance of securities in the transaction described in paragraph (3)
above will be exempt from registration under the Securities Act by virtue of
Section 3(a)(9).

Appropriate legends are affixed to the Stock Certificates representing the
shares issued in transactions covered by paragraphs (1)-(3) above. All
recipients either received adequate information about the Registrant or had
access, through employment or other relationships, to such information.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
<C> <S>
1.+ -- Form of Underwriting Agreement.
2.1# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Chicago Toy Company, Inc., dated July
17, 1995.
2.2# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Georgia Toy Company, dated July 21,
1995.
2.3# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Inland Merchandising, Inc., dated July
21, 1995.
2.4# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Lehigh Valley Toy Company, dated July
21, 1995.
2.5# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Performance Merchandising, Inc., dated
July 21, 1995.
2.6# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Southwest Coin Company, dated July 21,
1995.
2.7# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Sugarloaf, Ltd. and Sugarloaf
Marketing, Inc., dated May 31, 1995.
2.8# -- Asset Purchase Agreement among the Registrant, certain
persons and Chicago Toy Company, Inc., dated August 31,
1995.
2.9# -- Asset Purchase Agreement among the Registrant, certain
persons and Georgia Toy Company, dated August 31, 1995.
2.10# -- Asset Purchase Agreement among the Registrant, certain
persons and Inland Merchandising, Inc., dated August 31,
1995.
</TABLE>

II-2
<PAGE> 72
<TABLE>
<CAPTION>
<C> <S>
2.11# -- Asset Purchase Agreement among the Registrant, certain
persons and Lehigh Valley Toy Company, dated August 31,
1995.
2.12# -- Asset Purchase Agreement among the Registrant, certain
persons and Performance Merchandising, Inc., dated August
31, 1995.
2.13# -- Asset Purchase Agreement among the Registrant, certain
persons and Sugarloaf Ltd. and Sugarloaf Marketing, Inc.,
dated August 31, 1995.
3.1# -- Certificate of Incorporation of the Registrant.
3.2# -- Bylaws of the Registrant.
4.1# -- Reference is made to Exhibits 3.1 and 3.2.
4.2# -- Specimen Stock Certificate.
5.1+ -- Opinion of Cooley Godward LLP.
10.1# -- Form of Indemnity Agreement to be entered into between
the Registrant and its directors and executive officers.
10.2# -- Amended and Restated Stock Option Plan of the Registrant
(the "Option Plan").
10.3# -- Form of Incentive Stock Option under the Option Plan.
10.4# -- Form of Nonstatutory Stock Option under the Option Plan.
10.5# -- 1995 Non-Employee Director Stock Option Plan (the
"Director Plan").
10.6# -- Form of Nonstatutory Stock Option under the Director
Plan.
10.7# -- Stockholder Agreement between the Registrant and the
Founders, certain of their spouses and Jerome M. Lapin,
dated as of January 6, 1994, as amended July 21, 1995.
10.8# -- Letter Agreement between the Registrant and Norwest Bank
Colorado, N.A., dated as of October 11, 1995.
10.9# -- Registrant's Uniform Franchise Offering Circular, dated
August 31, 1995, including forms of the Franchise
Agreement, the National Account Program Agreement, Pre-
Pack Program Agreement and the Bulk Purchasing Agreement.
10.10# -- Amended and Restated Term Loan and Credit Agreement,
including exhibits thereto, between the Registrant and
Norwest Bank Colorado, N.A., dated as of May 1, 1995, as
amended on July 21, 1995.
10.11# -- Amended and Restated Promissory Notes between the
Registrant and each of the parties set forth within,
dated as of August 31, 1995.
10.12# -- Modification Agreement, dated August 25, 1995, between
the Registrant and Norwest Bank Colorado, N.A.
10.13# -- Form of Representative's Warrant.
10.14# -- Form of Uniform Commercial Code Security Agreement
between the Registrant and each of the parties listed on
the attached schedule, dated as of August 31, 1995.
10.15# -- Form of Noncompetition Agreement between the Registrant
and each of the parties listed on the attached schedule,
dated as of August 31, 1995.
10.16# -- Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.17# -- Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.18# -- Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.19# -- Subordination Agreement between the Registrant and
Georgia Toy Company, dated as of August 31, 1995.
</TABLE>

II-3
<PAGE> 73
<TABLE>
<CAPTION>
<C> <S>
10.20# -- Subordination Agreement between the Registrant and Inland
Merchandising, Inc., dated as of August 31, 1995.
10.21# -- Subordination Agreement between the Registrant and Lehigh
Valley Toy Company, dated as of August 31, 1995.
10.22# -- Subordination Agreement between the Registrant and
Performance Merchandising, Inc., dated as of August 31,
1995.
10.23# -- Subordination Agreement between the Registrant, Sugarloaf
Ltd., Sugarloaf Marketing, Inc. and Southwest Coin
Company, dated as of August 31, 1995.
10.24# -- Subordination Agreement between the Registrant and
Chicago Toy Company, Inc., dated as of August 31, 1995.
10.25# -- Agreement to Purchase Assets and Release among Pleasant
Valley Toy Company, Inc., Robert G. Kittridge and the
Registrant dated as of September 6, 1995.
10.26++ -- Employment Agreement dated as of June 1, 1996, between
the Registrant and Jerome M. Lapin.
10.27++ -- Employment Agreement dated as of June 1, 1996, between
the Registrant and Abbe M. Stutsman.
10.28++ -- Employment Agreement dated as of June 1, 1996, between
the Registrant and W. John Cash.
10.29++* -- Other Income Vendor Agreement, dated as of July 31, 1996,
between the Registrant and Wal-Mart Stores, Inc.
10.30++ -- Credit Agreement, including exhibits thereto, between the
Registrant and Wells Fargo Bank (Colorado), N.A., dated
as of September 23, 1996.
10.31++ -- Revolving Line of Credit Note, between the Registrant and
Wells Fargo Bank, N.A., dated as of September 23, 1996.
10.32++ -- Continuing Security Agreement: Equipment, Rights to
Payment and Inventory, between the Registrant and Wells
Fargo Bank, N.A., dated as of September 23, 1996.
10.33++ -- Commercial Lease Agreement, between the Registrant and
Technical Building Company, dated as of January 28, 1997.
16.1# -- Letter of Gallant & Company, P.C. to the Securities and
Exchange Commission pursuant to the requirements of Item
304(a) (3) of Regulation S-B.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.
24.1 -- Power of Attorney. Reference is made to page II-6.
</TABLE>

- ---------------

# Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 33-95446-D.

++ Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996.

* An order seeking confidential treatment for certain portions of the exhibit
has been granted.

+ To be filed by amendment.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 15 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission

II-4
<PAGE> 74

such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective; (2) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and (3) for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-5
<PAGE> 75

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boulder, State of
Colorado, on the 19th day of September 1997.

AMERICAN COIN MERCHANDISING, INC.

By /s/ JEROME M. LAPIN

-----------------------------------
Jerome M. Lapin
Chairman of the Board, President
and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Jerome
M. Lapin and W. John Cash, and each of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any of all amendments to the Registration Statement on Form
S-1 (including post-effective amendments or any abbreviated registration
statement, and any amendments thereto, filed pursuant to Rule 462(b) increasing
the amount of securities for which registration is being sought), and to file
the same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <C>

/s/ JEROME M. LAPIN Chairman of the Board, President, September 19, 1997
- ----------------------------------------------------- Chief Executive Officer (Principal
Jerome M. Lapin Executive Officer)

/s/ W. JOHN CASH Vice President, Chief Financial September 19, 1997
- ----------------------------------------------------- Officer and Treasurer (Principal
W. John Cash Financial and Accounting Officer)

/s/ RANDALL J. FAGUNDO Vice President of Operations, September 19, 1997
- ----------------------------------------------------- Secretary and Director
Randall J. Fagundo

/s/ ABBE M. STUTSMAN Vice President of Product Development September 19, 1997
- ----------------------------------------------------- and Purchasing and Director
Abbe M. Stutsman

/s/ J. GREGORY THEISEN Director September 19, 1997
- -----------------------------------------------------
J. Gregory Theisen
</TABLE>

II-6
<PAGE> 76
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <C>

/s/ RICHARD D. JONES Director September 19, 1997
- -----------------------------------------------------
Richard D. Jones

/s/ JIM D. BALDWIN Director September 19, 1997
- -----------------------------------------------------
Jim D. Baldwin

/s/ JOHN A. SULLIVAN Director September 19, 1997
- -----------------------------------------------------
John A. Sullivan
</TABLE>

II-7
<PAGE> 77

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1+ -- Form of Underwriting Agreement
2.1# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Chicago Toy Company, Inc., dated July
17, 1995
2.2# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Georgia Toy Company, dated July 21,
1995
2.3# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Inland Merchandising, Inc., dated July
21, 1995
2.4# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Lehigh Valley Toy Company, dated July
21, 1995
2.5# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Performance Merchandising, Inc., dated
July 21, 1995
2.6# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Southwest Coin Company, dated July 21,
1995
2.7# -- Memorandum of Terms for the Purchase of Assets between
the Registrant and Sugarloaf, Ltd. and Sugarloaf
Marketing, Inc., dated May 31, 1995
2.8# -- Asset Purchase Agreement among the Registrant, certain
persons and Chicago Toy Company, Inc., dated August 31,
1995
2.9# -- Asset Purchase Agreement among the Registrant, certain
persons and Georgia Toy Company, dated August 31, 1995
2.10# -- Asset Purchase Agreement among the Registrant, certain
persons and Inland Merchandising, Inc., dated August 31,
1995
2.11# -- Asset Purchase Agreement among the Registrant, certain
persons and Lehigh Valley Toy Company, dated August 31,
1995
2.12# -- Asset Purchase Agreement among the Registrant, certain
persons and Performance Merchandising, Inc., dated August
31, 1995
2.13# -- Asset Purchase Agreement among the Registrant, certain
persons and Sugarloaf Ltd. and Sugarloaf Marketing, Inc.,
dated August 31, 1995
3.1# -- Certificate of Incorporation of the Registrant
3.2# -- Bylaws of the Registrant
4.1# -- Reference is made to Exhibits 3.1 and 3.2
4.2# -- Specimen Stock Certificate
5.1+ -- Opinion of Cooley Godward LLP
10.1# -- Form of Indemnity Agreement to be entered into between
the Registrant and its directors and executive officers
10.2# -- Amended and Restated Stock Option Plan of the Registrant
(the "Option Plan")
10.3# -- Form of Incentive Stock Option under the Option Plan
10.4# -- Form of Nonstatutory Stock Option under the Option Plan
10.5# -- 1995 Non-Employee Director Stock Option Plan (the
"Director Plan")
10.6# -- Form of Nonstatutory Stock Option under the Director Plan
10.7# -- Stockholder Agreement between the Registrant and the
Founders, certain of their spouses and Jerome M. Lapin,
dated as of January 6, 1994, as amended July 21, 1995
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.8# -- Letter Agreement between the Registrant and Norwest Bank
Colorado, N.A., dated as of October 11, 1995
10.9# -- Registrant's Uniform Franchise Offering Circular, dated
August 31, 1995, including forms of the Franchise
Agreement, the National Account Program Agreement,
Pre-Pack Program Agreement and the Bulk Purchasing
Agreement
10.10# -- Amended and Restated Term Loan and Credit Agreement,
including exhibits thereto, between the Registrant and
Norwest Bank Colorado, N.A., dated as of May 1, 1995, as
amended on July 21, 1995
10.11# -- Amended and Restated Promissory Notes between the
Registrant and each of the parties set forth within,
dated as of August 31, 1995
10.12# -- Modification Agreement, dated August 25, 1995, between
the Registrant and Norwest Bank Colorado, N.A.
10.13# -- Form of Representative's Warrant
10.14# -- Form of Uniform Commercial Code Security Agreement
between the Registrant and each of the parties listed on
the attached schedule, dated as of August 31, 1995
10.15# -- Form of Noncompetition Agreement between the Registrant
and each of the parties listed on the attached schedule,
dated as of August 31, 1995
10.16# -- Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995
10.17# -- Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995
10.18# -- Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995
10.19# -- Subordination Agreement between the Registrant and
Georgia Toy Company, dated as of August 31, 1995
10.20# -- Subordination Agreement between the Registrant and Inland
Merchandising, Inc., dated as of August 31, 1995
10.21# -- Subordination Agreement between the Registrant and Lehigh
Valley Toy Company, dated as of August 31, 1995
10.22# -- Subordination Agreement between the Registrant and
Performance Merchandising, Inc., dated as of August 31,
1995
10.23# -- Subordination Agreement between the Registrant, Sugarloaf
Ltd., Sugarloaf Marketing, Inc. and Southwest Coin
Company, dated as of August 31, 1995
10.24# -- Subordination Agreement between the Registrant and
Chicago Toy Company, Inc., dated as of August 31, 1995
10.25# -- Agreement to Purchase Assets and Release among Pleasant
Valley Toy Company, Inc., Robert G. Kittridge and the
Registrant dated as of September 6, 1995
10.26++ -- Employment Agreement dated as of June 1, 1996, between
the Registrant and Jerome M. Lapin
10.27++ -- Employment Agreement dated as of June 1, 1996, between
the Registrant and Abbe M. Stutsman
10.28++ -- Employment Agreement dated as of June 1, 1996, between
the Registrant and W. John Cash
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.29++* -- Other Income Vendor Agreement, dated as of July 31, 1996,
between the Registrant and Wal-Mart Stores, Inc.
10.30++ -- Credit Agreement, including exhibits thereto, between the
Registrant and Wells Fargo Bank (Colorado), N.A., dated
as of September 23, 1996
10.31++ -- Revolving Line of Credit Note, between the Registrant and
Wells Fargo Bank, N.A., dated as of September 23, 1996
10.32++ -- Continuing Security Agreement: Equipment, Rights to
Payment and Inventory, between the Registrant and Wells
Fargo Bank, N.A., dated as of September 23, 1996
10.33++ -- Commercial Lease Agreement, between the Registrant and
Technical Building Company, dated as of January 28, 1997
16.1# -- Letter of Gallant & Company, P.C. to the Securities and
Exchange Commission pursuant to the requirements of Item
304(a) (3) of Regulation S-B
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.
24.1 -- Power of Attorney. Reference is made to page II-6
</TABLE>

- ---------------

# Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 33-95446-D.

++ Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996.

* An order seeking confidential treatment for certain portions of the exhibit
has been granted.

+ To be filed by amendment.

<PAGE> 1

CONSENT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS
AMERICAN COIN MERCHANDISING, INC.:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

/s/ KPMG Peat Marwick LLP

Boulder, Colorado
September 19, 1997