UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                                        |                                                                                          
|------------------------------------------------- | -----------------------------------------------------------------------------------------
|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
|For the Quarterly Period Ended September 30, 2004
|OR                                               
|o                                                 | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|For the Transition period from
 to               

Commission File Number: 001-14843

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The Boyds Collection, Ltd.(Exact Name of Registrant as Specified in its Charter)

|Maryland                                                                  |  | 52-1418730                          
|------------------------------------------------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization)            |  | (I.R.S. Employer Identification No.)
|                                                                          |  |                                     
|350 South Street, McSherrystown,
Pennsylvania, Attn.: Joseph E. Macharsky |  | 17344                               
|(Address of Principal Executive Offices)                                  |  | (Zip Code)                          

(717) 633-9898(Registrant's Telephone Number, Including Area Code)

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
Yes o        No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

|Common Stock, par value $.0001 per share |  | 59,004,202                          
|---------------------------------------- |  | ------------------------------------
|(Class)                                  |  | (Outstanding as of October 12, 2004)



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THE BOYDS COLLECTION, LTD.  TABLE OF CONTENTS

|         |  |                                                                                                             |  | Page
|-------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|PART I.  |  | FINANCIAL INFORMATION                                                                                       |  |     
|Item 1.  |  | Financial Statements:                                                                                       |  |     
|         |  | Condensed Consolidated Balance Sheets as of December 31, 2003 and September 30, 2004                        |  | 3   
|         |  | Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2004 |  | 4   
|         |  | Condensed Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2004       |  | 5   
|         |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2004       |  | 6   
|         |  | Notes to Condensed Consolidated Financial Statements                                                        |  | 7   
|Item 2.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                       |  | 13  
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 24  
|Item 4.  |  | Disclosure Controls and Procedures                                                                          |  | 24  
|PART II. |  | OTHER INFORMATION                                                                                           |  |     
|Item 1.  |  | Legal Proceedings                                                                                           |  | 25  
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                   |  | 25  
|Item 3.  |  | Defaults Upon Senior Securities                                                                             |  | 25  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                         |  | 25  
|Item 5.  |  | Other Information                                                                                           |  | 25  
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                            |  | 25  
|         |  | Signatures                                                                                                  |  | 26  
|         |  | Index to Exhibits                                                                                           |  | 27  

2

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PART I  FINANCIAL INFORMATION

Item 1.    Financial Statements.

THE BOYDS COLLECTION, LTD.  CONDENSED CONSOLIDATED BALANCE SHEETS  As of December 31, 2003 and September 30, 2004  Unaudited

|                                             |                                                                                                                                            | December 31,
2003                    |                            | September 30,
2004 |        
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------ | -------------------------- | ------------------ | -------
|
|ASSETS                                       |                                                                                                                                            |                                      |                            |                    |        
|CURRENT ASSETS:                              |                                                                                                                                            |                                      |                            |                    |        
|                                             | Cash and cash equivalents                                                                                                                  |                                      | $                          | 4,173              |        
|                                             | Accounts receivable, less allowances of $2,189 at December 31, 2003, and $2,002 at September 30, 2004                                      |                                      |                            | 8,174              |        
|                                             | Inventoryprimarily finished goods, less allowance for obsolete inventory of $2,855 at December 31, 2003, and $2,756 at September 30, 2004 |                                      |                            | 9,404              |        
|                                             | Inventory in transit                                                                                                                       |                                      |                            | 3,653              |        
|                                             | Other current assets                                                                                                                       |                                      |                            | 932                |        
|                                             | Income taxes receivable                                                                                                                    |                                      |                            | 1,964              |        
|                                             | Deferred income taxes                                                                                                                      |                                      |                            | 21,047             |        
|                                             |                                                                                                                                            |                                      |                            |                    |        
|                                             |                                                                                                                                            |                                      | Total current assets       |                    |        
|PROPERTY AND EQUIPMENTNET(Note 4)           |                                                                                                                                            |                                      | 21,726                     |                    |        
|OTHER ASSETS:                                |                                                                                                                                            |                                      |                            |                    |        
|                                             | Deferred debt issuance costs                                                                                                               |                                      |                            | 961                |        
|                                             | Deferred tax asset                                                                                                                         |                                      |                            | 147,997            |        
|                                             | Other assets                                                                                                                               |                                      |                            | 2,923              |        
|                                             |                                                                                                                                            |                                      |                            |                    |        
|                                             |                                                                                                                                            |                                      | Total other assets         |                    |        
|                                             |                                                                                                                                            |                                      |                            |                    |        
|TOTAL ASSETS                                 |                                                                                                                                            | $                                    | 222,954                    |                    | $      
|                                             |                                                                                                                                            |                                      |                            |                    |        
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                                                                                            |                                      |                            |                    |        
|CURRENT LIABILITIES:                         |                                                                                                                                            |                                      |                            |                    |        
|                                             | Accounts payable                                                                                                                           |                                      | $                          | 2,514              |        
|                                             | Accrued expenses                                                                                                                           |                                      |                            | 5,452              |        
|                                             | Income taxes payable                                                                                                                       |                                      |                            |                   |        
|                                             | Interest payable                                                                                                                           |                                      |                            | 626                |        
|                                             | Current portion of long-term debt (Note 5)                                                                                                 |                                      |                            | 14,000             |        
|                                             |                                                                                                                                            |                                      |                            |                    |        
|                                             |                                                                                                                                            |                                      | Total current liabilities  |                    |        
|LONG-TERM DEBT(Note 5)                       |                                                                                                                                            |                                      | 62,392                     |                    |        
|COMMITMENTS AND CONTINGENCIES(Notes 2 and 9) |                                                                                                                                            |                                      |                            |                    |        
|STOCKHOLDERS' EQUITY:                        |                                                                                                                                            |                                      |                            |                    |        
|                                             | Common stock (61,838 shares issued at December 31, 2003, and September 30, 2004, respectively) and paid-in capital in excess of par        |                                      |                            | (41,221            | )      
|                                             | Other comprehensive income:                                                                                                                |                                      |                            |                    |        
|                                             |                                                                                                                                            | Accumulated other comprehensive loss |                            |                    | (244   
|                                             |                                                                                                                                            | Retained earnings                    |                            |                    | 206,873
|                                             | Less: Treasury shares at cost (2,834 at December 31, 2003, and at September 30, 2004, respectively)                                        |                                      |                            | (27,438            | )      
|                                             |                                                                                                                                            |                                      |                            |                    |        
|                                             |                                                                                                                                            |                                      | Total stockholders' equity |                    |        
|                                             |                                                                                                                                            |                                      |                            |                    |        
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   |                                                                                                                                            | $                                    | 222,954                    |                    | $      
|                                             |                                                                                                                                            |                                      |                            |                    |        

See
notes to condensed consolidated financial statements.

3

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THE BOYDS COLLECTION, LTD.  CONDENSED CONSOLIDATED STATEMENTS OF INCOME  For the Three Months and Nine Months Ended September 30, 2003 and 2004  (Unaudited)

|                                             |                                                  | Three Months Ended
September 30, |        | Nine Months Ended
September 30,
|-------------------------------------------- | ------------------------------------------------ | -------------------------------- | ------ | -------------------------------
|
|
|NET SALES                                    |                                                  | $                                | 31,511 |                                
|COST OF GOODS SOLD                           |                                                  |                                  | 13,210 |                                
|                                             |                                                  |                                  |        |                                
|                                             | GROSS PROFIT                                     |                                  |        | 18,301                         
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |                                                  |                                  | 11,277 |                                
|                                             |                                                  |                                  |        |                                
|INCOME FROM OPERATIONS                       |                                                  |                                  | 7,024  |                                
|                                             |                                                  |                                  |        |                                
|OTHER INCOME/(EXPENSE)                       |                                                  |                                  | (235   | )                              
|INTEREST EXPENSE:                            |                                                  |                                  |        |                                
|                                             | Interest expense                                 |                                  |        | 1,114                          
|                                             | Amortization of deferred debt issuance costs     |                                  |        | 264                            
|                                             |                                                  |                                  |        |                                
|TOTAL INTEREST EXPENSE                       |                                                  |                                  | 1,378  |                                
|                                             |                                                  |                                  |        |                                
|INCOME BEFORE PROVISION FOR INCOME TAXES     |                                                  |                                  | 5,411  |                                
|PROVISION FOR INCOME TAXES(Note 8)           |                                                  |                                  | 2,888  |                                
|                                             |                                                  |                                  |        |                                
|NET INCOME                                   |                                                  | $                                | 2,523  |                                
|                                             |                                                  |                                  |        |                                
|EARNINGS PER SHARE:                          |                                                  |                                  |        |                                
|                                             | Basic and Dilutive Earnings Per ShareNet Income |                                  | $      | 0.04                           
|                                             |                                                  |                                  |        |                                

See
notes to condensed consolidated financial statements.

4

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THE BOYDS COLLECTION, LTD.  CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY  For the Nine Months Ended September 30, 2004  (Unaudited)

|                            |                              | Common Stock |   |       |   |   |         |   |   |         |   |   |      |   
|--------------------------- | ---------------------------- | ------------ | - | ----- | - | - | ------- | - | - | ------- | - | - | ---- | --
|
|
|
|BALANCE, JANUARY 1, 2004    |                              | 61,838       |   | 2,834 |   | $ | (41,221 | ) | $ | (27,438 | ) | $ | (244 | ) 
|Other comprehensive income: |                              |              |   |       |   |   |         |   |   |         |   |   |      |   
|                            | Foreign currency translation |              |  |       |  |   |         |  |   |         |  |   |      | 20
|Net income                  |                              |             |   |      |   |   |        |   |   |        |   |   | ..   |   
|                            |                              |              |   |       |   |   |         |   |   |         |   |   |      |   
|Comprehensive income        |                              |             |   |      |   |   |        |   |   |        |   |   |     |   
|                            |                              |              |   |       |   |   |         |   |   |         |   |   |      |   
|BALANCE, SEPTEMBER 30, 2004 |                              | 61,838       |   | 2,834 |   | $ | (41,221 | ) |   | (27,438 | ) | $ | (224 | ) 
|                            |                              |              |   |       |   |   |         |   |   |         |   |   |      |   

See notes to condensed consolidated financial statements.

5

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THE BOYDS COLLECTION, LTD.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  For the Nine Months Ended September 30, 2003 and 2004  (Unaudited)

|                                                     |                                                                                   | Nine Months Ended
September 30,                            |                                          
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------------- | -----------------------------------------
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                   |                                                            |                                          
|                                                     | Net income                                                                        |                                                            | $                                        
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                            |                                          
|                                                     |                                                                                   | Depreciation and amortization                              |                                          
|                                                     |                                                                                   | Amortization and write off of deferred debt issuance costs |                                          
|                                                     |                                                                                   | Loss on sale of equipment                                  |                                          
|                                                     |                                                                                   | Deferred taxes                                             |                                          
|                                                     |                                                                                   | Changes in assets and liabilities:                         |                                          
|                                                     |                                                                                   |                                                            | Accounts receivablenet                  
|                                                     |                                                                                   |                                                            | Inventorynet                            
|                                                     |                                                                                   |                                                            | Inventory in transit                     
|                                                     |                                                                                   |                                                            | Other current assets                     
|                                                     |                                                                                   |                                                            | Other assets                             
|                                                     |                                                                                   |                                                            | Accounts payable                         
|                                                     |                                                                                   |                                                            | Accrued taxes/Income taxes receivable    
|                                                     |                                                                                   |                                                            | Accrued expenses                         
|                                                     |                                                                                   |                                                            | Interest payable                         
|                                                     |                                                                                   |                                                            | Other liabilities                        
|                                                     |                                                                                   |                                                            |                                          
|                                                     |                                                                                   |                                                            | Net cash provided by operating activities
|                                                     |                                                                                   |                                                            |                                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                   |                                                            |                                          
|                                                     | Purchase of property and equipment                                                |                                                            |                                          
|                                                     |                                                                                   |                                                            |                                          
|                                                     |                                                                                   |                                                            | Net cash used in investing activities    
|                                                     |                                                                                   |                                                            |                                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                   |                                                            |                                          
|                                                     | Repayment of debt                                                                 |                                                            |                                          
|                                                     | Net borrowings under revolving credit agreement                                   |                                                            |                                          
|                                                     | Issuance of stock                                                                 |                                                            |                                          
|                                                     | Repurchase of common stock                                                        |                                                            |                                          
|                                                     |                                                                                   |                                                            |                                          
|                                                     |                                                                                   |                                                            | Net cash used in financing activities    
|                                                     |                                                                                   |                                                            |                                          
|                                                     | Effect of exchange rate changes on cash                                           |                                                            |                                          
|                                                     |                                                                                   |                                                            |                                          
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                   |                                                            | 1,968                                    
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD       |                                                                                   |                                                            | 2,205                                    
|                                                     |                                                                                   |                                                            |                                          
|CASH AND CASH EQUIVALENTS, END OF PERIOD             |                                                                                   | $                                                          | 4,173                                    
|                                                     |                                                                                   |                                                            |                                          
|CASH PAID DURING THE PERIOD FOR INTEREST             |                                                                                   | $                                                          | 3,179                                    
|                                                     |                                                                                   |                                                            |                                          
|CASH RECEIVED DURING THE PERIOD FOR INCOME TAXES     |                                                                                   | $                                                          | (2,042                                   
|                                                     |                                                                                   |                                                            |                                          

See
notes to condensed consolidated financial statements.

6

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THE BOYDS COLLECTION, LTD.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except share and per share amounts)  (Unaudited)

1.    INTERIM FINANCIAL STATEMENTS

The Boyds Collection, Ltd. ("Boyds" or the "Company") operates in two segments, which consist of the Company's wholesale gift/collectible business and the
Company's retail gift/entertainment business. In September 2002, Boyds Bear Country store opened in Gettysburg, Pennsylvania. The Company expects to open its second retail store in
Pigeon Forge, Tennessee in early November of 2004. The third retail store will be located in Myrtle Beach, South Carolina and is expected to open in late 2005. In addition, the Company intends to open
its fourth location in Branson, Missouri. These retail stores are being used to generate income and expand the brand awareness and image of Boyds. Substantially all of the Company's products are
sourced from foreign manufacturers in China through buying agencies.

The
condensed consolidated balance sheet as of September 30, 2004, the condensed consolidated statements of income for the three and nine months ended September 30, 2003
and 2004, the condensed consolidated statement of stockholders' equity for the nine months ended September 30, 2004 and the condensed consolidated statements of cash flows for the nine months
ended September 30, 2003 and 2004 are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such
interim financial statements have been included. The results of operations for the nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full
year. These financial statements should be read in conjunction with the financial statements and notes included in Boyds' Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 29, 2004.

In
November 2002, the FASB issued Interpretation No. 45, "Guarantors Accounting and Disclosure Requirements for Guarantees." The disclosure requirements are effective for
financial statements issued after December 15, 2002, and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after
December 31, 2003. The adoption of this
statement did not have a material impact on the financial position, results of operations or cash flow of Boyds.

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", which provides guidance on when to consolidate variable interest
entities. In December 2003, the FASB revised FIN 46 with FIN 46R. In addition to conforming to previously issued FASB Staff Positions, FIN 46R deferred the implementation date for certain
variable interest entities to the first quarter of 2004. The Interpretation applies immediately to variable interest entities created after December 31, 2003. The adoption of this standard did
not have a material impact on the financial position, results of operations or cash flow of Boyds.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial
accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In general, this statement is effective for contracts entered into or modified after September 30, 2003, and for hedging relationships designated
after September 30, 2003. The adoption of this statement did not have a material impact on the financial position, results of operations or cash flow of Boyds.

7

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In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes
standards for the classification and measurement in an issuer's statement of financial position of certain financial instruments that embody obligations for the issuer that are required to be
classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first
interim period beginning after June 15, 2003. The provisions of the statement did not have a material impact on the financial position, results of operations or cash flow of Boyds.

2.    FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

At December 31, 2003 and at September 30, 2004, Boyds had letters of credit outstanding under its credit agreement amounting to $3.1 million
and $2.7 million, respectively. These letters of credit represent Boyds' commitment to purchase inventory which is to be produced and/or shipped.

3.    RELATED PARTY TRANSACTIONS

Kohlberg, Kravis Roberts & Co. L.P. and its affiliates(collectively, "KKR") is a 59% shareholder of Boyds. For each of the third quarter and nine months
ended September 30, 2003 and September 30, 2004, Boyds paid to KKR approximately $0.1 million and $0.3 million, respectively, for management fees and related expenses.

4.    PROPERTY AND EQUIPMENT

The components of property and equipment at December 31, 2003 and September 30, 2004 were, as follows:

December 31,
2003

September, 30,
2004Land and building

$
18,713

$
18,923Construction in progress


1,050


12,333Equipment


4,673


4,973Software development costs


2,372


2,474Leasehold improvements


1,924


1,942Furniture and fixtures


398


496Total


29,130


41,141Less: accumulated depreciation and amortization


(7,404
)

(8,714
)Total

$
21,726

$
32,427


8

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5.    LONG-TERM DEBT

Long-term debt is summarized as follows:

December 31,
2003

September 30,
20049% Senior Subordinated Notes due May 15, 2008

$
34,392

$
34,392Credit Agreement:Secured Revolving Loan due April 2005





13,000Secured Tranche A Term Loan due April 2005


42,000


28,000Sub-Total


76,392


75,392Less: Current portion of long-term debt


(14,000
)

(41,000
)$
62,392

$
34,392


The
Senior Subordinated Notes have an optional redemption feature exercisable by Boyds any time on or after May 15, 2003 at 104.5% of face value. Each year thereafter, the rate
decreases by 1.5% until 2006. Interest on the Notes is payable semi-annually on May 15 and November 15.

At
September 30, 2003 and 2004, the weighted average interest rates in effect for the Tranche A Term Loan were 1.8% and 2.4%, respectively. Interest on the Tranche A Term Loan is
based on either LIBOR or the base rate as defined in the Credit Agreement. In addition, the Tranche A Term Loan has predetermined annual payments through April 2005. The weighted average
interest rate in effect for the Revolving Loan at September 30, 2004 was 2.2%. As of September 30, 2004, the Company had $13 million outstanding under its Revolving Loan. At
September 30, 2003, the Company had no amounts outstanding under this facility.

The
Credit Agreement contains certain covenants, including the requirement of a minimum interest coverage ratio as defined in the agreement and substantial restrictions as to dividends
and distributions. Boyds is in compliance with all applicable covenants as of September 30, 2004. The Company believes that it will remain in compliance with all of its debt covenants for the
foreseeable future based on its expected future earnings. The Credit Agreement also provides that the Term Loan and Revolving Loan be collateralized by the capital stock of Boyds' current and future
subsidiaries. In addition, the Term Loan is subject to mandatory prepayment with the proceeds of certain asset sales and a portion of Boyds' excess cash flow as defined in the Credit Agreement. The
Credit Agreement expires in April of 2005. The Company expects to refinance its existing debt and plans to have a new debt structure in place by the end of 2004.

The
scheduled maturities of the Company's long-term debt, including current portion of $41.0 million due in April 2005, are as follows:

2005


41,0002006


2007


2008


34,392$
75,392


6.    SEGMENTS OF THE COMPANY AND RELATED INFORMATION

The Company operates in two segments which consist of the Company's wholesale gift/collectible business and the Company's retail gift/entertainment business.
These segments are evaluated regularly by the Company's Chief Executive Officer in deciding how to assess performance and allocate

9

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resources.
Prior to the retail operations becoming a significant portion of the Company's performance, the Company had only one reportable segment.

The
Company's wholesale business designs, imports, and distributes resin figurines, plush animals, and other specialty giftware products via a global network of independent retailers and
distributors. The Company's retail operation sells resin figurines, plush animals, specialty giftware products and provides a unique entertainment experience, directly to the end consumer at its
Gettysburg, Pennsylvania flagship location. Additional retail stores are planned, with the second expected to open in Pigeon Forge, Tennessee in early November of 2004 and the third and fourth to open
in Myrtle Beach, South Carolina and Branson, Missouri.

|                       |  | For the Three Months Ended,
September 30,
|---------------------- |  | -----------------------------------------
|
|
|Sales                  |  | $                                        
|Gross Profit           |  |                                          
|SG&A                   |  |                                          
|Income from Operations |  |                                          

|                       |  | For the Nine Months Ended,
September 30,
|---------------------- |  | ----------------------------------------
|
|
|Sales                  |  | $                                       
|Gross Profit           |  |                                         
|SG&A                   |  |                                         
|Income from Operations |  |                                         
|Total Assets           |  | $                                       

10

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7.    STOCK-BASED COMPENSATION

At September 30, 2004, Boyds has various stock-based employee compensation plans. The Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. Under this method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to
acquire the stock. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if Boyds had applied the fair value recognition method of accounting provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.

|                                                                                                                                                    |                     | Three Months Ended
September 30, |       | Nine Months Ended
September 30,
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | -------------------------------- | ----- | -------------------------------
|
|Net income, as reported                                                                                                                             |                     | $                                | 2,523 |                                
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards,
    net of related tax effects |                     |                                  | 1,271 |                                
|                                                                                                                                                    |                     |                                  |       |                                
|Pro forma net income                                                                                                                                |                     | $                                | 1,252 |                                
|                                                                                                                                                    |                     |                                  |       |                                
|Earnings per share:                                                                                                                                 |                     |                                  |       |                                
|                                                                                                                                                    | Basicas reported   |                                  | $     | 0.04                           
|                                                                                                                                                    |                     |                                  |       |                                
|                                                                                                                                                    | Basicpro forma     |                                  | $     | 0.02                           
|                                                                                                                                                    |                     |                                  |       |                                
|                                                                                                                                                    | Dilutedas reported |                                  | $     | 0.04                           
|                                                                                                                                                    |                     |                                  |       |                                
|                                                                                                                                                    | Dilutedpro forma   |                                  | $     | 0.02                           
|                                                                                                                                                    |                     |                                  |       |                                

8.    PROVISION FOR INCOME TAXES

For federal income tax purposes, Boyds has elected to treat the Recapitalization and Stock Purchase that occurred in April 1998 as an asset acquisition by
making an Internal Revenue Code Section 338(h)(10) election. As a result, there is a difference between the financial reporting and tax basis of Boyds' assets. The difference creates deductible
goodwill for income tax purposes, and a deferred tax asset for financial reporting purposes. The deductible goodwill is amortized over a period of fifteen years. In the opinion of management, Boyds
expects to have sufficient profits in the future to realize the deferred tax asset.

9.    CONTINGENCIES

Boyds is involved in various legal proceedings, claims and governmental audits in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of Boyds.

11

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10.    EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the net income available to
common stockholders:

|                                                                       |                                                                                       | Three Months Ended
September 30, |        | Nine Months Ended
September 30,
|---------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------- | ------ | -------------------------------
|
|Numerator for basic and diluted earnings per share:                    |                                                                                       |                                  |        |                                
|                                                                       | Net income                                                                            |                                  | $      | 2,523                          
|                                                                       |                                                                                       |                                  |        |                                
|Denominator:                                                           |                                                                                       |                                  |        |                                
|                                                                       | Denominator for basic earnings per share-weighted average
    shares                  |                                  |        | 58,996                         
|Effect of dilutive securities:                                         |                                                                                       |                                  |        |                                
|                                                                       | Effect of shares issuable under stock option plans based on
    treasury stock method |                                  |        | 1                              
|                                                                       |                                                                                       |                                  |        |                                
|Denominator for diluted earnings per share-weighted average
    shares |                                                                                       |                                  | 58,997 |                                
|                                                                       |                                                                                       |                                  |        |                                
|EPSBasic                                                              |                                                                                       | $                                | 0.04   |                                
|EPSDiluted                                                            |                                                                                       | $                                | 0.04   |                                

11.    SUBSEQUENT EVENTS

On October 1, 2004, the Company incurred additional borrowings under its Revolving Loan in the amount of $2.0 million, with proceeds utilized to
fund its continuing operations and the construction of its Pigeon Forge, Tennessee retail location.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial information and related notes included elsewhere in this report.

GENERAL

Boyds is a leading designer, importer and distributor of branded, high-quality, hand crafted collectibles and other specialty giftware products. The
Company operates in two segments which consist of the Company's wholesale gift/collectible business and the Company's retail gift/entertainment business. Boyds sells its products through an extensive
network of approximately 14,000 accounts comprised of independent gift and collectibles retailers, premier department stores, selected catalogue retailers and other electronic and retail channels.
This network of retailers is being serviced by a national sales force that was created in 2002. In September 2002, the Boyds Bear Country store opened in Gettysburg, Pennsylvania.
The Company is expecting to open its second retail location in Pigeon Forge, Tennessee in early November of 2004. The third and fourth retail locations will be Myrtle Beach, South Carolina and
Branson, Missouri.

Boyds'
sales consist of plush animals, resin figurines, and other products. Other products include collectors club sales, home décor, stationary and accessories.
Collectors club sales are generated from annual dues collected directly from members of Boyds' collectors club,The Loyal Order of Friends of Boyds,
which began in July 1996 and currently has approximately 28,000 paying members, as well as from the sale of related accessories.

Boyds
licenses its product designs to other companies for products including home textiles, infant clothing and wallpaper. Boyds believes such licensing, in addition to providing royalty
income, helps to increase consumer awareness of Boyds' designs and brand image. Boyds reports royalty income in net sales.

Boyds
exhibits its products at select national and regional tradeshows where orders are taken by Boyds' employees. Boyds operates almost exclusively out of a leased office/distribution
facility and owns a retail store in the general vicinity of Gettysburg, Pennsylvania. Boyds also leases warehouse space in Dunkeswell, United Kingdom, and Dordrecht, The Netherlands.

SEGMENTS

The Company operates in two segments which consist of the Company's wholesale gift/collectible business and the Company's retail gift/entertainment business.
These segments are evaluated regularly by the Company's Chief Executive Officer in deciding how to assess performance and allocate resources. Prior to the retail operations becoming a significant
portion of the Company's performance, the Company had only one reportable segment.

The
Company's wholesale business designs, imports, and distributes resin figurines, plush animals and other specialty giftware products via a global network of independent retailers and
distributors. The Company's retail operation sells resin figurines, plush animals, other specialty giftware products and provides a unique entertainment experience, directly to the end consumer
currently at its Gettysburg, Pennsylvania flagship location. The Company is expecting to open its second retail location in Pigeon Forge, Tennessee in early November of 2004. The third and fourth
retail locations are will be in Myrtle Beach, South Carolina and Branson, Missouri.

CRITICAL ACCOUNTING POLICIES

Preparing the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires that management
make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Predicting future

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events
is inherently an imprecise activity and as such requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements. Management
believes that the estimates and assumptions used in connection with the amounts reported in Boyds' financial statements and related disclosures are reasonable and made in good faith.

The
most significant accounting estimates inherent in the preparation of Boyds' financial statements include estimates related to the valuation of the deferred tax assets, determining
the ultimate collectability of accounts receivable and the realizable value of inventory.    The process of determining
estimates is based on several factors, including historical experience, current and anticipated economic conditions and customer profiles. Boyds continually reevaluates these key factors and makes
adjustments to estimates where appropriate. The following are Boyds' critical accounting policies, some of which require the application of significant estimates and assumptions.



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FACTORS WHICH AFFECT BOYDS' RESULTS OF OPERATIONS

Seasonality

Boyds receives orders throughout the year and generally ships merchandise out on a first-in, first-out basis. In anticipation of the
holiday season, 60% of orders are placed between May and October. The remaining 40% of orders are placed between November and April. Boyds does not have the significant seasonal variation in its
orders that it believes is experienced by many other giftware and collectibles companies.

Foreign Exchange

The dollar value of Boyds' assets located abroad is not significant. Boyds' sales are primarily denominated in United States dollars and, as a result, are not
subject to changes in exchange rates.

Boyds
generally pays for its products in United States dollars. However, Boyds' cost of such products fluctuates with the value of the Chinese renminbi because Boyds imports most of its
products from manufacturers in China. Boyds' costs could be adversely affected on a short-term basis if the Chinese renminbi appreciates significantly relative to the United States dollar.
Conversely, its costs would be favorably affected on a short-term basis if the Chinese renminbi depreciates significantly relative to the United States dollar. While Boyds does not do so
now, in the future, Boyds may, from time to time, enter into foreign exchange contracts or prepay inventory purchases as a partial hedge against currency fluctuations. Differences between the amounts
of such contracts and costs of specific material purchases are included in inventory and cost of sales. Boyds intends to manage foreign exchange risks to the extent appropriate.

Boyds
has growing sales operations based in Europe and Canada, but at this time Boyds does not expect any significant impact due to fluctuations in the Euro, the British Pound or the
Canadian dollar.

RESULTS OF OPERATIONS

Net sales consist of wholesale and retail sales of our products, net of sales discounts, product returns and allowances, collectors club sales generated from
Boyds' collectors club and royalty income from licenses held by Boyds. Wholesale sales are primarily made on a purchase order basis. Revenue associated with sales is recognized when title transfers to
the customer, or upon completion of a retail transaction.

Cost
of goods sold consists of product costs, freight and warehousing costs. Selling, general and administrative (SG&A) expenses include overhead, selling and marketing costs,
administration and professional fees.

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The
following table sets forth the components of net income as a percentage of net sales for the periods indicated:

|                                             |                        | Three months
Ended
September 30, |      | Nine months
Ended
September 30, |     
|-------------------------------------------- | ---------------------- | -------------------------------- | ---- | ------------------------------- | ----
|
|Net sales                                    |                        | 100.0                            | %    | 100.0                           | %   
|Gross profit                                 |                        | 58.1                             | %    | 60.5                            | %   
|Selling, general and administrative expenses |                        | 35.8                             | %    | 35.2                            | %   
|                                             |                        |                                  |      |                                 |     
|                                             | Income from operations |                                  | 22.3 | %                               | 25.3
|Other income (expenses), net                 |                        | (0.7                             | )%   | 0.4                             | %   
|Interest expense                             |                        | 4.4                              | %    | 3.5                             | %   
|Provision for income taxes                   |                        | 9.2                              | %    | 8.6                             | %   
|                                             |                        |                                  |      |                                 |     
|                                             | Net income             |                                  | 8.0  | %                               | 13.6
|                                             |                        |                                  |      |                                 |     

Executive Overview

In the third quarter of 2004, the Company's net sales increased by 4%, which can primarily be attributed to the wholesale segment's increase of 9% partially
offset by a decline of 21% in the retail segment.    Key to the positive wholesale gains were the sales to major accounts and the continued growth of the Company's NASCAR
plush and resin lines. The Company's bookings (cancelable orders) for the third quarter are up 1-2%, above the bookings for the same period in 2003. The increase in bookings was driven by
our growth relating to giftable plush product and major accounts. The Company's Gettysburg retail store experienced a decline in net sales of 21%, compared to the same period for 2003. The sales
decline can be attributed to tourist traffic declines in the Gettysburg area and to increased sales in September 2003 relating to the Gettysburg store's 1st anniversary
celebration.

The
Company's net income for the third quarter increased $1.9 million, or 77%, to $4.5 million as compared to the same period in 2003. This increase was caused by the
increase in sales for the quarter and in 2003 the Company incurred a charge of $1.3 million for obsolete inventory.

Cash
provided by operations in the first nine months of 2004 was approximately $8.9 million. In the first nine months of 2004, the Company utilized its existing cash, cash
generated from operations and borrowings under its Revolving Loan to repay approximately $17.5 (including the payment on the revolver) million of debt and invested approximately $12.0 million
of cash in property and equipment, largely in the new retail store in Pigeon Forge, Tennessee. The Company is actively working to refinance its existing debt and plans to have a new debt structure in
place by December 31, 2004.

Three Months Ended September 30, 2004 vs. Three Months Ended September 30, 2003

Net sales increased $1.3 million, or 4%, to $32.8 million in the third quarter of 2004 from $31.5 million for the third quarter of 2003.
Sales of Boyds' plush products increased $2.4 million, or 14%, resin product sales decreased $1.2 million, or 14%, and other product sales increased $0.1 million, or 4%. As a
percentage of net sales for the quarter, plush products represented 61%, resin products represented 24%, and other products represented 15%.

Wholesale
net sales increased $2.4 million in the quarter, or 9%, to $28.7 million in 2004 from $26.3 million in 2003. Retail net sales declined $1.1 million
to $4.1 million in the third quarter of 2004 from $5.2 million in 2003. Wholesale net sales were positively impacted by the increased sales of product uniquely designed for individual
retailers and continued progress with giftable product, specifically our message bear and NASCAR lines. For the three and nine months ended September 30,

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2004,
wholesale net sales to national retail customers represented approximately 42% and 34%, respectively an increase from 28% and 27% for the comparative periods in 2003. Retail sales were impacted
by lower traffic during the quarter at its Gettysburg store attributable to declines in tourist traffic to Gettysburg and the Gettysburg store's 1st anniversary celebration in September
of 2003.

Gross
profit increased $1.6 million, or 9%, to $19.9 million in the third quarter of 2004 from $18.3 million for the third quarter of 2003. Gross profit as a
percentage of net sales increased to 61% for the quarter from 58% for the same period in 2003. The dollar increase can be attributed to the increase in sales, a decrease in the amount of costs
capitalized in inventory of $0.4 million, and a decrease in reserve for obsolete inventory of $1.9 million, which were partially offset by increased transportation costs of
$0.8 million and costs associated with NASCAR royalties of $0.2 million. Wholesale gross profit increased by $2.4 million, or 17%, to $16.8 million in the
third quarter of 2004 from $14.4 million in the same period in 2003. Retail gross profit decreased by $0.8 million, or 21%, to $3.1 million in the third quarter of 2004 from
$3.9 million in the same period of 2003.

SG&A
expense increased $0.3 million, or 3%, to $11.6 million in the third quarter of 2004 from $11.3 million for the third quarter of 2003. SG&A as a percent of net
sales decreased to 35% for the quarter from 36% for the same period in 2003. The dollar increase can be attributed to $1.0 million in call center expenses and $0.3 million in
non-comparable costs associated with management overhead in the retail segment. These costs were offset by a $0.9 million reduction in the bonus accrual.

Income
from operations increased $1.3 million, or 18%, to $8.3 million in the third quarter of 2004 from $7.0 million for the third quarter of 2003. Income from
operations as a percentage of net sales increased to 25% for the quarter from 22% for the same period in 2003. The dollar increase and the percentage increase can be attributed to the items mentioned
above.

Total
interest expense declined $0.3 million, or 21%, to $1.1 million in the third quarter of 2004 from $1.4 million for the third quarter of 2003. Total interest
expense as a percentage of net sales remained flat at 4% for the third quarter of 2004 as compared to the third quarter of 2003. The dollar decline was due to the lower amount of outstanding debt for
the period.

Provision
for income taxes decreased $0.1 million, or 3%, from $2.8 million for the third quarter of 2004 to $2.9 million in the third quarter of 2003. The
percentage decline was due to increased sales. The provision for income taxes as a percentage of net sales was 9%, which is consistent with the third quarter of 2003.

Net
income increased $2.0 million, or 80%, to $4.5 million in the third quarter of 2004 from $2.5 million for the third quarter of 2003. Net income as a percent of
sales increased to 14% for the quarter from 8% for the same period in 2003. The dollar increase can be attributed to the items mentioned above.

Nine Months Ended September 30, 2004 vs. Nine Months Ended September 30, 2003

Net sales decreased $9.3 million, or 10%, to $81.8 million in the first nine months of 2004 from $91.1 million for the first nine months of
2003. Sales of Boyds' plush products decreased $3.7 million, or 7%, resin product sales decreased $4.8 million, or 18%, and other product sales decreased $0.8 million, or 7%. As a
percentage of net sales for the first nine months, plush products represented 60%, resin products represented 28%, and other products represented 12%.

Wholesale
net sales declined $8.0 million in the first nine months, or 10%, to $72.0 million in 2004 from $80.0 million in 2003. Retail net sales declined
$1.3 million to $9.8 million in 2004 from $11.1 million in 2003. Wholesale net sales have been impacted by the decline in plush product demand during the first and second
quarters, which were partially offset by the increases in the demand for giftable plush and custom plush product in the third quarter of 2004. The decline in retail net sales was

17

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driven
by slower tourist traffic in the Gettysburg area and the Gettysburg store's 1st anniversary celebration in September 2003.

Gross
profit decreased $6.8 million, or 12%, to $49.7 million in the first nine months of 2004 from $56.5 million for the first nine months of 2003. Gross profit as
a percentage of net sales decreased to 61% for the first nine months from 62% for the same period in 2003. The dollar decrease and the percentage decrease can be attributed to the decrease in sales,
$0.7 million in higher transportation costs, and $0.7 million in costs associated with NASCAR royalties, which were partially offset by a $1.9 million reduction in
the inventory obsolescence reserve. Wholesale gross profit decreased by $5.7 million, or 12%, to $42.3 million in the first nine months of 2004 from $48.0 million in same period
of 2003. Retail gross profit decreased by $1.1 million, or 13%, to $7.4 million in the first nine months of 2004 from $8.5 million in the same period of 2003.

SG&A
expense increased $3.3 million, or 11%, to $33.2 million in the first nine months of 2004, from $29.9 million for the first nine months of 2003. SG&A as a
percent of net sales increased to 41% for the first nine months from 33% for the same period in 2003. The dollar increase in SG&A expenses can be attributed to additional costs of $1.4 million
incurred to fully staffing the national sales force, $0.6 million in costs associated with the departure of several Company executives, a $0.5 million reduction in the benefit received
from the reversal of bad debt expense, $1.0 million in startup costs associated with a third party telemarketing company, and $0.6 million increased management overhead costs in the
retail segment, which were partially offset by a $0.8 million in lower bonus accrual. Additionally, the percentage decline in sales along with the previously mentioned SG&A dollar increases,
can be attributed to the increase in SG&A expense.

Income
from operations declined $10.2 million, or 38%, to $16.4 million in the first nine months of 2004 from $26.6 million for the first nine months of 2003. Income
from operations as a percentage of net sales declined to 20% for the first nine months of 2004 from 29% for the same period in 2003. The dollar decline and the decline in the percentage of net sales
can be attributed to the items mentioned above.

Total
interest expense declined $1.1 million, or 25%, to $3.3 million in the first nine months of 2004 from $4.4 million for the first nine months of 2003. Total
interest expense as a percentage of net sales decreased to 4% for the first nine months of 2004 from 5% for the same period in 2003. The dollar decline was due to the lower amount of outstanding debt
for the period.

Provision
for income taxes decreased $3.9 million, or 42%, to $5.3 million in the first nine months of 2004 from $9.2 million for the nine months of 2003. The dollar
decline was due to decreased sales and increased costs associated with increased licensed product royalties, increased operational costs associated with fully staffing the national sales force, costs
associated with the departure of several Company executives and increased management overhead costs in the retail segment. These were partially offset by a settlement notice from the State of
Pennsylvania received in the first quarter of 2003 regarding a franchise tax benefit of approximately $0.9 million relating to the tax year 2000. The provision for income taxes as a percentage
of net sales was 7% for the first nine months of 2004 compared to 10% for the first nine months of 2003. The effective tax rate for the first nine months of 2004 was 40.6% compared to 42.2% for the
first nine months of 2003.

Net
income declined $4.9 million, or 39%, to $7.8 million in the first nine months of 2004 from $12.7 million for the first nine months of 2003. Net income as a
percent of sales decreased to 10% for the year from 14% for the same period in 2003. The dollar decline and the decline in the percentage of net sales was attributed to the items mentioned above.

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Liquidity and Capital Resources

Boyds' primary sources of liquidity are cash flow from operations and borrowings under its credit agreement, which includes a revolving credit facility. Boyds'
primary uses of cash are to fund working capital requirements to service debt and to fund property additions largely related to its retail store expansion. Cash balances decreased to
$0.03 million in the first nine months of 2004 as compared to $4.2 million at December 31, 2003.

Operating Activities

Cash provided by operating activities decreased $13.4 million, or 60%, to $8.9 million in the first nine months of 2004 from $22.3 million
for the first nine months of 2003. The cash flow decrease was primarily attributable to the decrease in sales, the additional costs associated with the national sales force and an increase in accounts
receivable caused by $4.0 million in sales to large retailers at the end of the quarter and new sales programs which have begun to extend credit terms offered to select customers.

Investing Activities

Capital and investment expenditures totaled $12.0 million in the first nine months of 2004 as compared to $1.1 million in the first nine months of
2003. This increase in expenditures was a result of construction costs of $10.5 million relating to Boyds Bear CountryPigeon Forge, Tennessee, and $1.0 million
relating to Boyds Bear CountryTMMyrtle Beach, South Carolina. As the Company continues its retail expansion it is anticipating to spend approximately $15 million each
for the next few retail stores.

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Financing Activities

In connection with the recapitalization in 1998, Boyds issued 9% Senior Subordinated Notes due 2008 in an amount of $165.0 million and entered into a
credit agreement providing for a $325.0 million senior secured term loan, consisting of tranche A and tranche B, and a senior secured revolving credit facility providing for borrowings up to
$40.0 million. As of September 30, 2004, and has repaid $130.6 million of the notes, leaving a balance outstanding of $34.4 million. Boyds has repaid $297.0 million
of the term loans under the credit agreement, leaving a balance outstanding of $28.0 million as of September 30, 2004. Boyds has reduced its total debt by $10.0 million since
September 30, 2003.

The
revolving credit facility provides loans in an aggregate amount of up to $40.0 million. The Company had borrowed $13.0 million under this agreement as of
September 30, 2004, and incurred an additional $2.0 million of borrowings in October 2004. The revolving credit facility will be available to fund the working capital needs of
Boyds. Borrowings under the credit agreement bear interest at a rate per annum equal to a margin over either a base rate or LIBOR, at Boyds' option. The revolving credit facility commitment will
terminate on April 21, 2005. Effective April 21, 2000, the tranche A term loan is being amortized over six years. The credit agreement contains customary covenants and events of default,
including substantial restrictions on Boyds' ability to declare dividends or make distributions. Boyds is in compliance with all applicable covenants as of September 30, 2004. The Company
believes that it will remain in compliance with all of its debt covenants for the foreseeable future based on its expected future earnings. The term loans are subject to mandatory prepayment with the
proceeds of certain asset sales and a portion of Boyds' excess cash flow, as defined in the credit agreement.

On
February 17, 2000, Boyds announced that its Board of Directors had approved the repurchase of 3.0 million shares of the Company's common stock. As of
September 30, 2004, Boyds had repurchased 344,730 shares of common stock pursuant to the Stock Repurchase Program for an aggregate amount of approximately $2 million. These repurchases
were financed out of operating cash flow. Any future repurchases under the Stock Repurchase Program are expected to be financed similarly or by utilizing borrowings under the revolving credit
facility. Boyds plans to make such purchases from time to time in the open market or in private transactions.

On
July 27, 2000, Boyds announced that its Board of Directors had approved a repurchase program for its outstanding 9% Series B Senior Subordinated Notes due 2008. As of
September 30, 2004, Boyds had repurchased $64.6 million of its notes pursuant to the Bond Repurchase Program. These repurchases were funded out of operating cash flow. Any future
repurchases under the Bond Repurchase Program are expected to be funded similarly or by utilizing borrowings under the revolving credit facility. Boyds plans to make such purchases from time to time
in the open market or in private transactions.

Management
believes that cash flow from operations, availability under the existing revolving credit facility and its expected new debt facility will provide adequate funds for Boyds'
foreseeable working capital needs, planned capital expenditures, debt service obligations, the Stock Repurchase Program and the Bond Repurchase Program. The Company is actively working to refinance
its existing debt and plans to have a new debt structure in place by December 31, 2004. Any future acquisitions, joint ventures or other similar transactions may require additional capital and
there can be no assurance that any such capital will be available to Boyds on acceptable terms, or at all. Boyds' ability to fund its working capital needs, planned capital expenditures and scheduled
debt payments, to refinance indebtedness and to comply with all of the financial covenants under its debt agreements depends on its future operating performance and cash flow, which in turn are
subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond Boyds' control.

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RISK FACTORS WHICH MAY AFFECT FUTURE PERFORMANCE

Dependence on two independent buying agencies.Substantially all of the products that Boyds sells are purchased through two
independent buying agencies. One buying agency is located in Hong Kong, and the other buying agency is located in the United States. These two buying agencies, which contract with a total of 19
independent manufacturers, account for approximately 90% of Boyds' total imports. These two buying agencies also perform a number of functions for Boyds, including collaborating in Boyds' product
design and development process. As a result, Boyds is substantially dependent on these buying agencies and the manufacturers with which they contract. Boyds does not have long-term
contracts with either of its primary buying agencies. Boyds believes that the loss of either of its primary buying agencies would (1) have a material adverse effect on its financial condition
and results of operations, (2) cause disruptions in its orders, (3) affect the quality of its products, and (4) possibly require it to select alternative manufacturers.

Potential economic and political risks of China.All of Boyds' significant manufacturers are located in China. Although Boyds
has identified alternate manufacturers which could meet its quality and reliability standards at similar costs in China and in other countries, the loss of any one or more of its manufacturers could
have a material adverse effect on its business. Because Boyds relies primarily on Chinese manufacturers, it is subject to the following risks that could restrict its manufacturers' ability to make its
products or increase its manufacturing costs: (1) economic and political instability in China; (2) transportation delays; (3) restrictive actions by the Chinese government;
(4) the laws and policies of the United States affecting importation of goods, including duties, quotas and taxes; (5) Chinese trade and tax laws. In addition, Boyds' business could be
adversely affected if the Chinese renminbi appreciates significantly relative to the United States dollar due to the cost of its products fluctuating with the value of the Chinese renminbi.

Potential adverse trade regulations and restrictions.Boyds does not own or operate any manufacturing facilities. Instead,
Boyds imports substantially all of its retail products from independent foreign manufacturers, primarily in China. As a result, substantially all of its products are subject to United States Customs
Service duties and regulations. These regulations include requirements that Boyds disclose information regarding the country of origin on its products, such as "Handmade in China." Within its
discretion, the United States Customs Service may also set new regulations regarding the amount of duty to be paid, the value of merchandise to be reported or other customs regulations relating to
Boyds' imported products. Failure to comply with these regulations may result in the imposition of additional duties or penalties or forfeiture of merchandise.

The
countries in which Boyds' products are manufactured may impose new quotas, duties, tariffs or other charges or restrictions. This could adversely affect Boyds' financial condition,
results of operations or its ability to continue to import products at current or increased levels. In particular, Boyds' costs could increase, or the mix of countries from which Boyds imports its
products may be changed, if the Generalized System of Preferences program is not renewed or extended each year. The Generalized System of Preferences program allows selected products of beneficiary
countries to enter the United States duty free. In addition, if countries that are currently accorded "Most Favored Nation" status by the United States, such as China, cease to have such status, Boyds
could be adversely affected because the cost of importing from such countries may increase. Boyds cannot predict what regulatory changes may occur or the type or amount of any financial impact these
changes may have on it in the future.

Changing consumer tastes.The demand for Boyds' products may be quickly affected by changing consumer tastes and interests.
Boyds' results of operations depend substantially upon its ability to continue to conceive, design, source and market new pieces and upon continuing market acceptance of its existing and future
product lines. If Boyds fails or is significantly delayed in introducing new pieces to its existing product lines or creating new product line concepts or if its new products do not meet

21

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with
market acceptance, its results of operations may be impaired. A number of companies who participate in the giftware and collectibles industries are part of large, diversified companies that have
greater financial resources than Boyds, offer a wider range of products and may be less affected by changing consumer tastes.

Potential infringement of Boyds' intellectual property.Boyds believes that its trademarks and other proprietary rights are
material to its success and competitive position. Accordingly, Boyds devotes resources to the establishment and protection of its intellectual property on a worldwide basis. The actions Boyds takes to
establish and protect its trademarks and other proprietary rights may not be adequate to protect its intellectual property or to prevent imitation of its products by others. Moreover, while Boyds has
not experienced any proprietary license infringements or legal actions that have had a material impact on its financial condition or results of operations, other persons have, and will likely in the
future, assert rights in, or ownership of, its trademarks and other proprietary rights. Boyds may not
be able to successfully resolve such conflicts. In addition, the laws of foreign countries may not always protect intellectual property to the same extent as do the laws of the United States.

Required debt payments.Boyds has significant debt on its balance sheet. If the Company does not refinance its existing debt
and/or does not generate sufficient cash flows, the Company may have difficulty making its required debt payments in the future.

Retail Capital Expenditures.As the Company progresses with its retail expansion plans, it will be making significant capital
expenditures. In the event that the format that the Company has designed or the locations that the Company has selected, and will select in the future, become unprofitable, the Company will have to
write down the investments made in these properties. In addition, if these properties become underperforming, the Company may have difficulty in making any future debt obligation payments.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2002, the FASB issued Interpretation No. 45, "Guarantors Accounting and Disclosure Requirements for Guarantees." The disclosure
requirements are effective for financial statements issued after December 15, 2002, and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or
modified after December 31, 2003. The adoption of this statement did not have a material impact on the financial position, results of operations or cash flow of Boyds.

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", which provides guidance on when to consolidate variable interest
entities. In December 2003, the FASB revised FIN 46 with FIN 46R. In addition to conforming to previously issued FASB Staff Positions, FIN 46R deferred the implementation date for certain
variable interest entities. The Interpretation applies immediately to variable interest entities created after December 31, 2003. The adoption of this standard did not have a material impact on
the financial position, results of operations or cash flow of Boyds.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure." This statement amends SFAS No. 123
"Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reporting results. The disclosure provisions of this standard are effective for fiscal years ended after December 15, 2002 and have
been incorporated into the Company's condensed consolidated financial statements and accompanying notes included elsewhere in this report.

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In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial
accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In general, this statement is effective for contracts entered into or modified after June 30, 2004, and for hedging relationships designated
after June 30, 2004. The adoption of this statement did not have a material impact on the financial position, results of operations or cash flow of Boyds.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes
standards for the classification and measurement in an issuer's statement of financial position of certain financial instruments that embody obligations for the issuer that are required to be
classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first
interim period beginning after June 15, 2003. The provisions of the statement did not have a material impact on the financial position, results of operations or cash flow of Boyds.

RELATED PARTY TRANSACTIONS

Kohlberg, Kravis Roberts & Co. L.P. and its affiliates (collectively, "KKR") is a 59% shareholder of Boyds. For each of the third quarter and nine months
ended September 30, 2003 and September 30, 2004, Boyds paid to KKR approximately $0.1 million and $0.3 million, respectively, for management fees and related expenses.

FORWARD LOOKING STATEMENTS

Some of the matters discussed in this report include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future
events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates" and similar expressions are forward-looking statements.

The
forward-looking statements in this report are based on a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of
which are beyond the control of Boyds, and reflect future business decisions that are subject to change. A variety of factors could cause actual results to differ materially from those anticipated in
Boyds' forward-looking statements, including: the effects of economic conditions; the inability to grow Boyds' business as planned; the loss of either of Boyds' two independent buying agencies or any
of its manufacturing sources; economic or political instability in the countries with which Boyds does business; changes to, or the imposition of, new regulations, duties, taxes or tariffs associated
with the import or export of goods from or to the countries with which Boyds does business; and other risk factors that are discussed in this report and, from time to time, in other Securities and
Exchange Commission reports and filings. One or more of the factors discussed above may cause actual results to differ materially from those expressed in or implied by the statements in this report.

Readers
are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of such statements. Boyds undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this report, or the date of such statements, as the case
may be, or to reflect the occurrence of unanticipated events.

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Boyds faces minimal interest rate risk exposure in relation to its outstanding debt of $75.4 million at September 30, 2004. Of this amount,
$41.0 million under the Credit Agreement is subject to interest rate fluctuations. A hypothetical 1% change in interest rates applied to the fair value of debt would not have a material impact
on earnings or cash flows of the Company.

Boyds
faces currency risk exposure that arises from translating the results of its European and Canadian operations that are denominated in the local currency of the Euro, the British
Pound and the Canadian dollar, to the U.S. dollar. The currency risk exposure is not material as the operations of the European and Canadian subsidiaries do not have a material impact on the Company's
earnings.

Boyds
also faces foreign exchange risks that arise from paying in United States Dollars for products that are manufactured in China. While it does not do so now, in the future Boyds may,
from time to time, enter into foreign exchange contracts or prepay inventory purchases as a partial hedge against currency fluctuations. Differences between the amounts of such contracts and costs of
specific material purchases are included in inventory and costs of sales. Boyds intends to manage foreign exchange risks to the extent appropriate.

Item 4.    Disclosure Controls and Procedures

Boyds maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it
files with the Securities and Exchange Commission ("SEC"), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Boyds carried out an
evaluation of its disclosure controls and procedures, under the supervision and with the participation of the Chief Executive and Chief Financial Officers, as of a date within 90 days of the
filing date of this report, and based on such evaluation, Boyds' Chief Executive and Chief Financial Officers believe that these disclosure controls and procedures are effective to ensure that Boyds
is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

There
have been no significant changes in Boyds' internal controls or in other factors that could significantly affect these controls, subsequent to the date Boyds' Chief Executive and
Chief Financial Officers completed their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II  OTHER INFORMATION

Item 1.    Legal Proceedings.

Boyds is involved in various legal proceedings, claims and governmental audits in the ordinary course of business. In the opinion of management, the ultimate
disposition of these proceedings, claims and audits will not have a material adverse effect on the financial position, results of operations, and cash flows of Boyds.

Item 2.    Changes in Securities and Use of ProceedsNone

Item 3.    Defaults Upon Senior SecuritiesNone

Item 4.    Submission of Matters to a Vote of Security HoldersNone

Item 5.    Other Information

Item 6.    Exhibits and Reports on Form 8-K



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|Date: November 15, 2004 |  |                            |  |                        
|----------------------- |  | -------------------------- |  | -----------------------
|                        |  | THE BOYDS COLLECTION, LTD.
|                        |  | By:                        |  | /s/JAN L. MURLEY       
|                        |  | Name:                      |  | Jan L. Murley          
|                        |  | Title:                     |  | Chief Executive Officer
|                        |  | By:                        |  | /s/JOSEPH E. MACHARSKY 
|                        |  | Name:                      |  | Joseph E. Macharsky    
|                        |  | Title:                     |  | Chief Financial Officer

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Index to Exhibits

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|31.2        |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|32.1        |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This certification is being furnished in accordance with the Sarbanes-Oxley Act of 2002 and
Commission Release No. 34-47551 and shall not be deemed "filed" with the Commission for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by
reference into any filing under the Securities Act of the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.)*
|32.2        |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This certification is being furnished in accordance with the Sarbanes-Oxley Act of 2002 and
Commission Release No. 34-47551 and shall not be deemed "filed" with the Commission for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by
reference into any filing under the Securities Act of the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.)*

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