Holiday shoppers will be dropping millions at shopping malls during this holiday season, and Michael Herscu is hoping that will include his businesses as well.

He’s not asking for much, just a few quarters from each customer.

As founder and principal of HQ Entertainment Services Inc., Herscu puts kiddy rides, games, candy stands, pay phones and automated teller machines into the common areas of malls. And like retail stores, HQ Entertainment enjoys a revenue spike during the holidays.

“This is the best time of year for us,” said Herscu. “Our sales go up about 30 percent during this time of year. The more people in the mall, the more people there are to use our products.”

Bouncing toddlers up and down on a miniature space shuttle might not seem like a lucrative trade, but Herscu has seen his company’s revenues jump from $160,000 in 1992 to $1.9 million in 1997. He has used his profits to start another business, King ATM Corp., which posted $1.2 million in revenues its first year and is projected to hit $2.5 million in 1998, its second year of operation.

With both companies combined, Herscu’s revenues are projected to hit $5.7 million.

Not exactly what he expected after only five years in the United States. The Australian-born Herscu was an investment banker for Shearson Lehman Brothers in New York and then went back to Australia to run his family business.

In 1992, he came back to the United States. With his personal savings, he launched into the candy-stand business. The stands sit in mall corridors and people pay 25 cents to get a gumball, a handful of jellybeans or M & Ms.; Herscu started by cold calling malls all over the country. Eventually a few agreed to take his stands.

“A lot of doors slammed in my face, but then I got a number of accounts,” said Herscu. “In the beginning it was very tough. I had to wake up at 5 a.m. to refill the candy machines and make sure they were working properly.”

By the end of the first year, Herscu had succeeded in getting his candy stands into 15 malls. By the beginning of 1998, he had them in 50 malls, including Fox Hills Mall, Topanga Plaza Mall, Plaza West Covina, Santa Anita Mall, Baldwin Hills Mall and the Westside Pavilion. A few months ago, Herscu sold 20 of his candy stands, but still maintains 30.

After his success with candy, he branched out into kiddy rides, crane games and Santa Claus-Easter Bunny photo stands in 1994. The kiddy ride business is extremely competitive, so Herscu bought top-of-the-line equipment to set himself apart from the competition.

“We only use the highest quality machines, so they don’t break down all the time, like some equipment,” said Herscu. “That is what has set us apart from the competition.”

The Easter Bunny and Santa Claus photo stands also proved popular. His stands in 20 malls generated more than $1 million in sales over two years, but the venture was a headache.

The equipment was constantly breaking down and the 400 part-time employees were a hassle, Herscu said, so he sold the business for an undisclosed amount.

Today, HQ Entertainment operates kiddy rides, crane games and candy machines, which mall clients say are very popular with shoppers.

“It is an additional revenue base for us and it keeps the kids happy,” said Scott Grossman, executive vice president of management for Westfield America in Los Angeles, which has Herscu’s machines in its Topanga Plaza Mall, Santa Monica Promenade and Fox Hills Mall, to name a few. “Most of our malls don’t have a place to buy gum and candy. It’s a win-win, we get rent and we also offer another service to our customers.”

HQ Entertainment pays rent to the mall owners and gives them a percentage of the sales. Average rent runs about $500 a month and the malls get 30 percent to 35 percent of the sales revenue.

“The rides in the mall are very successful,” said Lori Jones, director of leasing for Festival Cos. in Santa Monica, which has Herscu’s machines in its Baldwin Hills Mall, Crenshaw Plaza and Media City Center in Burbank. “They make money. The machines are not included in the malls’ budgets, so it is a good source for additional revenue.”

After having made money on candy, games, rides and Santas, Herscu decided to branch out even further. So in 1995 he started to provide pay phones for malls, and in 1996 he jumped into the ATM business.

Once again he put in top-of-the-line machines. The timing was right, because many malls were undergoing expansions and additional phones were not being added.

He took a similar approach with ATMs, stocking them with an average of $120,000 each week, so the machines don’t run out of cash as quickly. Herscu now has ATMs in 70 malls.

Herscu is now looking to grow through acquisition, having concluded that the industry is ripe for consolidation. To facilitate that, he is working with Carolyn Kantor, a former Merrill Lynch analyst and financial advisor.

“We are looking for new acquisitions,” said Kantor. “We bring a lot to the table. It will have to be something we are passionate about, but it could be anything. We want to invest capital and operate another business.”

HQ Entertainment Services Inc.

Year Founded: 1992

Core Business: Kiddy rides, games, candy machines, pay phones and automated teller machines in malls

Revenues in 1992: $160,000

Revenues in 1997: $3.1 million

Revenues in 1998 (projected): $5.7 million

Employees in 1992: 1

Employees in 1998: 20

Goal: To expand operations nationally by acquiring competitors and to double the number of malls in which the company operates

Driving Force: Demand for additional services in malls not provided by the mall owner