U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

           /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                                        -

                For the quarterly period ended September 29, 2001
                                 --------------

                                       OR

          /__/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

 For the transition period from _______________________ to ____________________

                           Commission File No. 0-25507
                                               -------

                                  iPARTY CORP.
                                  ------------
             (Exact name of registrant as specified in its charter)

              Delaware                                    13-4012236
              --------                                    ----------
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation of organization)

1457 VFW Parkway West Roxbury, MA                                     02132
----------------------------------------------------                  -----
   (Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code: (617) 323-0822

 ------------------------------------------------------------------------------
         (Former name or former address, if changed since last report.)

        Check  whether the Issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.

                                  Yes X    No ___

                  Transitional small business disclosure format

                                    Yes    No X


        On November  7, 2001 there were  14,131,695  shares of the  Registrant's
common stock, $.001 par value, issued and outstanding.

--------------------------------------------------------------------------------
                                                                          Page 1

<PAGE>

                                  iPARTY CORP.

                         Quarterly Report on Form 10-QSB

                                Table of Contents

                                                                            PAGE

PART I   FINANCIAL INFORMATION

Item 1.           Financial Statements                                       3

                  Notes to Consolidated Financial Statements                 6

Item 2.           Management's Discussion and Analysis                       12



PART II  OTHER INFORMATION

Item 1.           Legal Proceedings                                          16

Item 6.             Exhibits                                                 16


SIGNATURES


--------------------------------------------------------------------------------
                                                                          Page 2
<PAGE>
<TABLE>
<CAPTION>

                                  iParty Corp.
                           Consolidated Balance Sheets

                                                                           September 29,       December 30,
                               ASSETS                                          2001               2000
                                                                               ----               ----
                                                                          (Unaudited)
                                                                           ---------
<S>                                                                        <C>                  <C>

Current assets:
   Cash and cash equivalents                                              $  2,976,517       $  5,002,254
   Cash, restricted                                                            605,938            635,000
   Accounts receivable                                                         494,088            948,292
   Inventory                                                                11,500,269          8,226,560
   Prepaid expenses and other current assets                                   561,729             69,812
                                                                            ----------         ----------
       Total current assets                                                 16,138,541         14,881,918

   Property and equipment, net                                               1,084,519            903,849
   Other assets                                                                361,237            557,286

Total assets                                                              $ 17,584,297       $ 16,343,053

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                        $  4,447,390       $  2,415,679
  Accrued severance and restructuring expenses                                  33,384            775,137
  Accrued expenses                                                           2,419,260          2,434,480
  Line of credit                                                             5,310,057          2,800,790
       Total current liabilities                                            12,210,091          8,426,086

Other liabilities                                                              564,699            492,465

Total liabilities                                                           12,774,790          8,918,551

Commitments and contingencies

Stockholders' equity:
  Preferred stock - $.001 par value; 10,000,000 shares authorized;
     Series A preferred stock - 1,000,000 shares authorized,
        issued and outstanding                                                   1,000              1,000
     Series B preferred stock - 1,413,352  authorized;
       1,227,317 and 1,413,352 shares issued and outstanding as of               1,227              1,414
       September  29, 2001 and December 30, 2000, respectively
     Series C preferred stock - 145,198 shares authorized,
       issued and outstanding                                                      145                145
     Series D preferred stock - 362,996 shares authorized,
       issued and outstanding                                                      363                363
     Series E preferred stock - 533,333 shares authorized,
       issued and outstanding                                                      533                533
     Series F preferred stock - 114,286 shares authorized,
       issued and outstanding                                                      114                114
  Common stock - $.001 par value; 150,000,000 shares authorized;
       14,035,095 and 12,174,745 shares issued and outstanding as of            14,035             12,175
       September 29, 2001 and December 30, 2000, respectively
  Additional paid in capital                                                64,450,431         64,166,987
  Accumulated deficit                                                     (59,658,341)       (56,758,229)
                                                                          ------------       ------------

      Total stockholders' equity                                            4,809,507           7,424,502
                                                                          ------------       ------------
Total liabilities and stockholders' equity                                $ 17,584,297       $ 16,343,053
                                                                          ============       ============


</TABLE>






  The accompanying Notes are an integral part of these Consolidated Financial
                                   Statements

--------------------------------------------------------------------------------
                                                                          Page 3
<PAGE>
<TABLE>
<CAPTION>

                                                            iParty Corp.
                                                Consolidated Statements of Operations

                                             For the three months ended         For the nine months ended
                                             September 29,     September 30,       September 29,    September 30,
                                             ------------      ------------        ------------     ------------
                                                2001              2000                2001             2000
                                                ----              ----                ----             ----
                                             (Unaudited)       (Unaudited)         (Unaudited)      (Unaudited)
                                             -----------       -----------         -----------      -----------
<S>                                          <C>               <C>              <C>                 <C>

Revenues                                     $ 10,355,272     $ 3,648,105       $ 31,553,751      $ 4,054,791
                                             ------------     -----------       ------------      -----------
 Operating costs:
           Cost of products sold                6,321,804       2,685,984         19,251,924        3,178,704
           Amortization of partner                      -         377,744                  -        1,133,233
            warrant
           Marketing and sales                  3,370,746       2,160,959         10,282,471        7,176,081
           Product and technology                 451,030       1,068,973          1,539,172        4,510,562
            development
           General and administrative           1,011,461       1,000,144          2,862,996        2,079,287
           Restructuring income                         -               -          (122,534)                -
           Non-cash compensation expense           85,490          88,777            285,118          723,733



 Operating loss                                 (885,259)     (3,734,476)        (2,545,396)     (14,746,809)


          Interest income                          23,173         144,039            110,222          644,172
          Interest expense                      (185,034)         (11,000)          (464,941)        (11,000)
                                              -----------      -----------      -------------      -----------

 Net loss before income taxes              $  (1,047,120)      $(3,601,437)     $ (2,900,115)   $ (14,113,637)

    Provision for income taxes                         -                 -                 -           84,784
                                             -----------       -----------      -------------      -----------

   Net Loss                                $  (1,047,120)      $(3,601,437)     $  (2,900,115)   $ (14,198,421)
                                           =============       ============     =============    ==============

 Loss per share:
           Basic and diluted                  $    (0.08)      $   (0.53)       $     (0.22)      $     (1.48)
                                           =============       ===========      =============     =============
 Weighted Average Shares
 Outstanding:
           Basic and diluted                  13,559,624        11,136,107         13,104,496       11,114,326
                                           =============        ==========      =============     =============


</TABLE>



  The accompanying Notes are an integral part of these Consolidated Financial
                                   Statements.

--------------------------------------------------------------------------------
                                                                          Page 4
<PAGE>

<TABLE>
<CAPTION>


                                                            iParty Corp.
                                                Consolidated Statements of Cash Flows

                                                                         For the nine months ended
                                                                        September 29, 2001       September 30, 2000
                                                                        ------------------       ------------------
                                                                            (Unaudited)              (Unaudited)
                                                                             ----------               ----------
<S>                                                                     <C>                      <C>

Cash flows from operating activities:

     Net loss                                                           $  (2,900,115)          $  (14,198,421)

     Adjustments to reconcile net loss to
      net cash used in operating activities:
        Depreciation and amortization                                         404,726                 2,109,181
        Non-cash compensation expense                                         285,119                   723,733
        Decrease (increase) in:
            Accounts receivable                                               454,202                  (166,016)
            Inventory                                                      (3,273,709)               (1,456,711)
            Prepaid expenses and other current assets                        (491,918)                  106,559
            Other assets                                                      196,049                  (163,716)
        Increase (decrease) in:
            Accounts payable                                                2,031,711                 1,084,379
            Accrued severance and restructuring expenses                     (741,753)                 (138,974)
            Accrued expenses                                                  163,506                 1,034,346
            Other liabilities                                                  72,234                   453,022
                                                                            ----------              -----------
        Net cash used in operating activities                              (3,799,948)              (10,612,618)
                                                                           -----------              -----------

Cash flows from investing activities:

     Purchase of property and equipment                                      (585,393)                 (796,994)
     Acquisition of operating assets                                                                 (4,858,289)
     Purchase of marketable securities                                             -                    973,877
     Decrease in restricted cash                                               29,062                    51,012
                                                                            ---------                -----------
        Net cash provided by (used in) investing activities                 (556,331)                (4,630,394)
                                                                            ---------                -----------

Cash flows from financing activities:

     Net borrowings from line of credit,                                    2,509,268                 1,601,000
     Proceeds from sale of stock, net of offering costs                                               2,491,035
     Payments on capital lease obligations                                   (178,726)                        -
                                                                           -----------               -----------
       Net cash provided by financing activities                            2,330,542                 4,092,035
                                                                           -----------               -----------

Net decrease in cash and cash equivalents                                  (2,025,737)              (11,150,977)

Cash and cash equivalents, beginning of period                              5,002,254                18,673,304
                                                                           ----------               -----------

Cash and cash equivalents, end of period                                 $  2,976,517              $  7,522,327
                                                                         ============              ============
Cash paid for:
     Interest expense                                                    $    464,941              $     11,000
                                                                         ============              ============

     Income taxes                                                        $          -              $     84,784
                                                                         ============              ============
Supplemental disclosure of non-cash financing activities:
     Conversion of Series B preferred stock to common stock              $      1,860              $          -
                                                                         ============              ============

     Acquisition of assets under capital lease                           $    184,840              $          -
                                                                         ============              ============

</TABLE>


  The accompanying Notes are an integral part of these Consolidated Financial
                                   Statements

--------------------------------------------------------------------------------
                                                                          Page 5
<PAGE>


                                  iPARTY CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 29, 2001
                                   (Unaudited)

1. THE COMPANY:

        iParty LLC was created on December 11, 1997 to launch an  Internet-based
merchant of party goods and services and  commenced  operations in January 1998.
On March 12, 1998,  iParty Corp.  was organized as a wholly owned  subsidiary of
iParty LLC and the net assets and  operations of iParty LLC were  transferred to
iParty Corp. On April 9, 1998, StarGreetings,  Inc. ("Star") was incorporated as
a wholly owned  subsidiary of iParty Corp. to develop and operate a personalized
celebrity greeting service.

        Effective July 2, 1998, iParty Corp.  ("iParty" or the "Company") merged
into WSI  Acquisition  Corp.  ("WSI"),  an  inactive  company.  The  merger  was
consummated  through an exchange of shares that resulted in iParty LLC receiving
6,000,000 common shares or 54.5% of the outstanding shares of WSI. In connection
with the merger and as a condition thereof, WSI sold, in two private placements,
an aggregate of 4,585,000  shares of its common stock of which 3,624,043  shares
were sold for $.01 per share and  960,957  shares,  together  with  warrants  to
purchase  1,000,000 shares of Series A preferred stock,  were sold for $1.00 per
share or aggregate proceeds of $997,197 before related expenses.  The merger was
treated as a  re-capitalization  for accounting  purposes and iParty's  historic
capital  accounts were  retroactively  adjusted to reflect the 6,000,000  shares
issued by WSI in the transaction.  In addition,  as WSI had no assets before the
merger and the private placements,  the 420,421 outstanding common shares of WSI
were recorded at par value with a  corresponding  charge to  additional  paid-in
capital. In connection with the merger, WSI changed its name to iParty Corp.

        On August 3, 2000,  iParty  Retail  Stores Corp.  ("iParty  Retail") was
incorporated as a wholly owned  subsidiary of iParty Corp. to operate a chain of
retail stores selling party goods.  On August 15, 2000,  iParty Retail  acquired
inventory,  fixed  assets and the leases of 33 retail  stores from The Big Party
Corporation ("The Big Party") in consideration of cash and assumption of certain
liabilities.  The Big Party filed for  bankruptcy  protection  during the second
quarter of 2000 and the acquisition was approved by the United States Bankruptcy
Court, District of Delaware.

        The  Company's  efforts  are  devoted  to the  sale of party  goods  and
services through retail stores and the Internet.

2. UNAUDITED INTERIM FINANCIAL INFORMATION:

        The interim  consolidated  financial statements as of September 29, 2001
have been prepared by the Company  pursuant to the rules and  regulations of the
Securities and Exchange Commission (the "SEC") for interim financial  reporting.
These  consolidated  statements are unaudited and, in the opinion of management,
include  all  adjustments   (consisting  of  normal  recurring  adjustments  and
accruals)   necessary  to  present  fairly  the  consolidated   balance  sheets,
consolidated  operating  results,  and  consolidated  cash flows for the periods
presented in accordance  with  generally  accepted  accounting  principles.  The
consolidated  balance  sheet at  December  30,  2000 has been  derived  from the
audited  consolidated  financial  statements at that date. Operating results for
the three and nine months ended  September 29, 2001 may not be indicative of the
results for the year ending December 29, 2001. Certain  information and footnote
disclosures  normally  included in financial  statements  prepared in accordance
with generally  accepted  accounting  principles have been omitted in accordance
with  the  rules  and  regulations  of the  SEC.  These  consolidated  financial
statements should be read in conjunction with the audited consolidated financial
statements,  and accompanying notes,  included in the Company's Annual Report on
Form 10-KSB for the year ended December 30, 2000.

--------------------------------------------------------------------------------
                                                                          Page 6
<PAGE>




3. CREDIT ARRANGEMENT:

        On August 1, 2000, the Company established a line of credit with a bank.
The agreement  permits maximum  borrowings  equal to the lesser of $7,500,000 or
the  borrowing  base,  as defined.  Interest on the line of credit for the first
$5,000,000  borrowed  ("Line  Interest  Rate") is payable at the  greater of the
bank's base rate (6.25% at September 29, 2001) plus 1% or 7.25%. Interest on the
sub-line borrowing, money borrowed between $5,000,000 and $7,500,000, is payable
at the bank rate plus 2%. The agreement also provides for a Commitment Fee of 1%
or $75,000 and an Annual Facility Fee of 0.5% per annum of the maximum amount of
the special  sub-line.  This agreement expires on July 31, 2003. As of September
29, 2001, the Company had $5,310,057  outstanding  and an additional  $1,344,480
available under the line of credit

        In March  2001,  the  Company  and its  lender  modified  the  borrowing
facility  by  adjusting  certain  covenants  and other  provisions  based on the
Company's  operating plan for 2001. As of September 29, 2001, the Company was in
compliance with the adjusted covenants.

4. SEGMENT REPORTING:

        SFAS No. 131,  "Disclosures  About Segments of an Enterprise and Related
Information."  establishes  standards  for the way business  enterprises  report
information about operating segments in annual financial statements and requires
that those enterprises  report selected  information about operating segments in
interim financial reports issued to shareholders.

        Operating segments  represent  components of the Company's business that
are evaluated  regularly by management in assessing the performance and resource
allocation.  The Company has determined that its reportable  segments consist of
retail operations and Internet operations.

        The retail  operations  include the sales and related  expenses  from 33
retail  stores  located  throughout  New England  and  Florida  with the highest
concentration of 18 stores in Massachusetts, five in Connecticut, three in Rhode
Island, three in New Hampshire, one in Maine and three in Florida.

        The Internet  operations include the sales and related expenses from the
Internet and the Company's off line catalog.

        The reporting segments follow the same accounting  policies used for the
Company's  consolidated  financial statements and are described in the Company's
Form  10-KSB.  Management  evaluates  a  segment's  performance  based  upon net
revenue,  operating income (loss) and net loss.  Inter-segment  transactions are
uncommon and not material. Therefore, they have not been separately reflected in
the financial table below. The totals of the reportable segments' revenues,  net
profits and assets agree with the Company's  comparable amounts contained in the
financial  statements.  Revenues from customers outside of the United States are
not  material.  No one  customer  accounts  for more  than 10% of the  Company's
consolidated revenues.

--------------------------------------------------------------------------------
                                                                          Page 7
<PAGE>


        The  Company's  financial  data for segment  reporting for the three and
nine months ended September 29, 2001 and September 30, 2000 are as follows

<TABLE>
<CAPTION>

                               Three months ended                                 Three months ended
                                September 29, 2001                                September 30, 2000
                                ------------------                                ------------------
<S>                    <C>            <C>             <C>             <C>               <C>            <C>

                         Internet         Retail           Total         Internet         Retail           Total
                         --------         ------           -----         --------         ------           -----
Net revenue            $  204,264     $10,151,008     $ 10,355,272    $    348,105      $ 3,300,000    $ 3,648,105
                       ==========     ===========     ============    ============      ===========    ============

Operating Loss         $ (215,107)    $ (670,152)     $   (885,259)   $ (2,699,476)     $  (675,000)   $(3,374,476)
                       ==========     ===========     ============    ============      ===========    ============
Net loss               $ (202,114)    $ (845,006)     $ (1,047,120)   $ (2,911,437)     $  (690,000)   $(3,601,437)
                       ===========    ===========     ============    ============      ===========    ============

Total assets           $2,313,896     $15,270,401     $ 17,484,297    $ 13,200,579      $ 7,108,000    $ 20,308,579
                       ==========     ===========     ============    ============      ===========    ============
Deprec/amort           $  140,446     $    66,446     $    206,892    $    695,076      $     4,000    $    699,076
                       ==========     ===========     ============    ============      ===========    ============
Capital exp.           $        -     $    23,252     $     23,252    $    226,536      $   223,000    $    449,536
                       ==========     ===========     ============    ============      ===========    ============
</TABLE>

<TABLE>
<CAPTION>
                                Nine months ended                                 Nine months ended
                                September 29, 2001                                September 30, 2000
                                ------------------                                ------------------
<S>                    <C>            <C>             <C>             <C>               <C>            <C>

                         Internet         Retail           Total         Internet         Retail           Total
                         --------         ------           -----         --------         ------           -----
Net revenue            $  693,768    $ 30,859,983     $ 31,553,751     $    754,791    $3,300,000      $  4,054,791
                       ==========    ============     ============     ============    ==========      ============
Operating Loss         $ (882,099)   $ (1,663,297)    $ (2,505,396)    $(14,071,809)   $ (675,000)     $(14,746,809)
                       ==========    ============     ============     ============    ==========      ============
Net loss               $ (795,518)   $ (2,064,597)    $ (2,900,115)    $(13,508,421)   $ (690,000)     $(14,198,421)
                       ==========    ============     ============     ============    ==========      ============

Total assets           $2,313,896    $ 15,310,401     $ 17,484,297     $ 13,200,579    $7,108,000      $ 20,308,579
                       ==========    ============     ============     ============    ==========      ============
Deprec/amort           $  581,270    $    108,574     $    689,844     $  2,828,914    $    4,000      $  2,832,914
                       ==========    ============     ============     ============    ==========      ============
Capital exp.           $    2,025    $    147,573     $    149,598     $    573,994    $  223,000      $    796,994
                       ==========    ============     ============     ============    ==========      ============
</TABLE>

5. ACQUISITION:

        On August 15, 2000, the Company,  through its  wholly-owned  subsidiary,
iParty Retail, pursuant to an Asset Purchase Agreement,  acquired certain assets
from The Big Party. The Company acquired inventory,  fixed assets and the leases
of 33 retail stores from The Big Party in  consideration  of cash and assumption
of certain  liabilities.  This  transaction  was  accounted for as a purchase in
accordance  with  APB  No.  16,   Accounting  for  Business   Combinations  and,
accordingly,  the  results  of The Big Party  since  August  15,  2000 have been
included in the  Company's  statement  of  operations.  The  purchase  price was
allocated to the acquired assets as follows:

       Purchase price:

       Cash paid                                 $ 3,975,000
       Payable to seller                             650,000
       Accrued transaction costs                     235,000
                                                 -----------

       Total purchase price                      $ 4,860,000
                                                 ===========
       Net tangible assets acquired:
         Inventory                               $ 4,860,000
                                                 ===========

        In  addition  to  acquiring   inventory,   iParty  purchased   leasehold
improvements at the acquired  stores.  The fair value of the acquired  inventory
and leaseholds  exceeded the purchase price.  As a result,  due to the fact that
the purchase price approximated the fair value of the inventory,  no value could
be assigned to the long-term assets.

        Unaudited pro forma results of operations  for the three and nine months
ended September 29, 2001 and September 30, 2000, respectively,  as if iParty and
The Big Party had been  combined  as of  January 1, 2000  follow.  The pro forma
results  include  estimates  and  assumptions  which  management   believes  are

--------------------------------------------------------------------------------
                                                                          Page 8
<PAGE>

reasonable. The pro forma financial information is not necessarily indicative of
the operating  results that would have occurred had the acquisition  occurred as
of the dates indicated,  nor are they necessarily indicative of future operating
results.

<TABLE>
<CAPTION>

                                              Three months ended                       Nine months ended
                                        September 29,      September 30,        September 29,     September 30,
                                        -------------      ------------         ------------      -------------
                                            2001               2000                 2001              2000
                                            ----               ----                 ----              ----
                                                            (Proforma)                               (Proforma)
                                                            ----------                               ----------
<S>                                     <C>                <C>                  <C>                <C>

Revenue                                 $ 10,335,272        $ 7,410,105         $   31,553,751     $  29,078,791
Operating loss                          $   (885,259)       $(4,630,440)        $   (2,545,396)    $ (17,530,773)

Net loss                                $ (1,047,120)       $(4,501,401)        $   (2,900,115)    $ (16,986,385)

Preferred stock
beneficial conversion
feature                                 $         -         $(2,249,354)        $           -      $  (2,249,354)
                                        ------------        -----------         ---------------    --------------

Net loss Available to Common            $(1,047,120)        $(6,750,755)        $   (2,900,115)    $ (19,235,739)
Stockholders                            ============        ===========         ===============    ==============
Loss per share:
 Basic and diluted                      $     (0.08)        $     (0.61)        $        (0.22)    $       (1.73)
                                        ============        ===========         ===============    ==============

Weighted average shares:
 Basic and diluted                        13,559,624         11,136,107              13,104,496        11,114,326
                                        ============        ===========         ===============    ==============
</TABLE>

6.  EARNINGS PER SHARE:

        The Company has computed net income (loss) per share in accordance  with
SFAS No. 128,  Earnings per Share.  Under the  provisions of SFAS No. 128, basic
net income  (loss) per common  share  ("Basic  EPS") is computed by dividing net
income  (loss) by the  weighted  average  number of common  shares  outstanding.
Diluted  net income  (loss) per common  share  ("Diluted  EPS") is  computed  by
dividing net income (loss) by the weighted  average  number of common shares and
dilutive common share  equivalents  then  outstanding  using the  treasury-stock
method.

The following table sets forth the calculation of the diluted earnings per share
for the periods noted.

<TABLE>
<CAPTION>

                                               Three months ended                       Nine months ended
                                        September 29,      September 30,        September 29,     September 30,
                                        -------------      ------------         ------------      -------------
                                            2001               2000                 2001              2000
                                            ----               ----                 ----              ----
<S>                                     <C>                <C>                  <C>               <C>

Net loss                                $(1,047,120)       $(3,601,437)         $ (2,900,115)    $ (14,198,421)

Preferred stock
beneficial conversion
feature                                 $         -        $(2,249,354)         $          -     $ (2,249,354)
                                        -----------        ------------         -------------    -------------
Net loss Available to Common            $(1,047,120)       $(5,850,791)         $ (2,900,115)    $(16,477,775)
Stockholders                            ===========        ============         =============    =============
Weighted average shares:
 Basic and diluted                       13,559,624          11,136,107           13,104,496        11,114,326
                                         ==========          ==========           ==========        ==========
Loss per share:
 Basic and diluted                      $     (0.08)       $     (0.53)         $     (0.22)     $      (1.48)
                                        ===========        ============         ============     =============
</TABLE>


As of September  29, 2001 and  September  30, 2000,  48,779,831  and  48,757,428
potential  common  shares were  outstanding,  respectively,  but not included in
earnings per share calculation as their effect would have been anti-dilutive.

--------------------------------------------------------------------------------
                                                                          Page 9
<PAGE>

7. RESTRUCTURING COSTS:

In fiscal 2000, the Company decided to close its New York City  headquarters and
transfer this operation to its Boston,  Massachusetts  location.  As part of its
operating expenses,  the Company recorded  $1,093,328 of restructuring  expenses
related to this facility closure in 2000. These costs were primarily  related to
severance  for a group of employees  and other exit costs related to closing the
New York facility.

<TABLE>
<CAPTION>

                                                 Severance              Other              Total
                                                 ---------              -----              -----
<S>                                              <C>                    <C>                <C>

Balance at December 30, 2000                     $ 406,874          $  368,263         $  775,137
Amounts paid in 2001                             $(406,874)         $ (212,345)        $ (619,219)
Excess of amounts provided                       $       -          $ (122,534)        $ (122,534)
                                                 ---------          -----------        -----------

Balance at September 29, 2001                    $       -          $   33,384         $   33,384
                                                 =========          ===========        ===========
</TABLE>

        During  the  quarter  ended  June  30,  2001,  due  to  the  substantial
completion  of  the  actions  of  the  2000  restructuring   plan,  the  Company
reevaluated its 2000 restructuring  accrual.  As a result of this review certain
costs associated with the close of the New York City headquarters were no longer
required.  This resulted from the elimination of certain planned actions as well
as the Company  successfully  negotiating  certain  closing costs.  As such, the
Company  recognized  a  restructuring  credit of  $122,534,  which  affected the
Internet  segment.  This credit is  reflected in  "Restructuring  income" in the
Consolidated  Statements  of  Operations.  The  remaining  balance of $33,384 at
September 29, 2001 is expected to be expended in the fourth quarter.


8. COMMITMENTS AND CONTINGENCIES:

  Legal proceedings:

        The Company is a defendant in one lawsuit  that is being  handled in the
ordinary  course of  business.  Pursuant to an Asset  Purchase  Agreement  dated
August  2,  2000,  as  amended,   the  Company  purchased  from  The  Big  Party
Corporation, Debtor and Debtor-in-Possession, 33 retail locations and the assets
located  therein,  including  inventory.  The  Company  and The Big Party are in
disagreement concerning the value and amount due on account of the inventory and
The Big Party is claiming that $625,568 is due. In addition,  the parties set up
a $100,000  escrow of funds  paid under the  agreement  as  security  for rental
payments  and  other  adjustments  due,  and  the  parties  are  in  discussions
concerning the portion thereof which belongs to the Company. The Big Party filed
a  complaint  with the U.S.  Bankruptcy  Court for the  District  of Delaware in
January  2001  seeking  payment of  $625,568  on account of the  inventory.  The
Company is  disputing  the amount  claimed  and  intends to file an answer and a
possible  counterclaim  for  amounts  due on account of the escrow  referred  to
above.  The Company is also in negotiations  with The Big Party seeking to reach
an  agreeable  compromise.  This  matter is in the  preliminary  stages.  In the
opinion of the management of the Company, the Company is adequately reserved and
this  should  not  result in final  judgement  or  settlement  that would have a
material  adverse  effect on the  Company's  financial  condition  or results of
operations.


Safe Harbor Statement:

        Certain statements in this Form 10-QSB,  including information set forth
under Item 2 "Management's Discussion and Analysis" constitute  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of  1995  (the  "Act").  The  words  "anticipates,"   "believes,"   "estimates,"
"expects,"  "plans,"  "intends"  and other similar  expressions  are intended to
identify these  forward-looking  statements,  but are not the exclusive means of
identifying  them.  We  desire  to avail  ourselves  of  certain  "safe  harbor"
provisions of the Act and are therefore including this special note to enable us
to do so.  Forward-looking  statements included in this Form 10-QSB or hereafter
included in other  publicly  available  documents  filed with the Securities and
Exchange  Commission,  reports to our stockholders and other publicly  available
statements   issued  or  released  by  us  involve  known  and  unknown   risks,
uncertainties,   and  other  factors  which  could  cause  our  actual  results,
performance  (financial or operating) or  achievements to differ from the future
results,  performance  (financial  or operating)  or  achievements  expressed or

--------------------------------------------------------------------------------
                                                                         Page 10
<PAGE>

implied by such forward looking  statements.  Such future results are based upon
our best estimates based upon current  conditions and the most recent results of
operations.  Various  risks,  uncertainties  and  contingencies  could cause our
actual  results,  performance or  achievements  to differ  materially from those
expressed in, or implied by, these  statements,  including,  but not limited to,
the  following:  the success or failure of our efforts to implement our business
strategy; our inability to obtain additional financing, if required; third-party
suppliers failure to fulfill their obligations to us; intense  competition;  the
failure of our systems or those of our  third-party  suppliers;  and  government
regulation of the Internet.

--------------------------------------------------------------------------------
                                                                         Page 11
<PAGE>


Item 2.         Management's Discussion and Analysis

Overview:

        The Company  intends to become the premier  multi-channel  party  supply
resource with distribution on-line, through catalogs and in retail stores.

        The  Company's  web site was launched in February  1999.  On October 12,
1999,  the Company  launched the new  iParty.com  site, a destination  for party
goods and party planning.  From Pokemon  costumes to birthday party packs to fog
machines,  an online party  magazine to party safety tips,  iParty.com  presents
consumers   with  what  it  believes  to  be  a   sophisticated,   yet  fun  and
easy-to-navigate  online party resource.  Offering  convenience and an extensive
assortment of  merchandise,  the Company  believes  iParty.com is refocusing the
party goods industry back to the needs of the consumer. At the click of a mouse,
party  givers  can  enjoy  one-stop  shopping  and  easy-to-find  pricing  while
purchasing all their party needs for birthday  bashes,  Super Bowl and Halloween
parties and more.

        In  April  2000,   the  Company   launched  its   catalogue   operation,
specializing in the seasonal party needs of the consumer.

        On  August  15,  2000  iParty  Retail  Stores  Corp.   purchased  assets
consisting  of 33 store  leases,  fixtures  and  inventory  from  The Big  Party
Corporation.  This enabled the Company to set up retail operations and to become
a multi-channel outlet for party supplies.

Results of Operations:

Three months ended  September 29, 2001 compared to three months ended  September
30, 2000:

        Revenue  includes the selling price of party goods sold,  net of returns
and discounts,  as well as outbound  shipping and handling  charges.  Revenue is
recognized  at the time of sale for retail  sales and at the time  products  are
shipped to customers  for  Internet  sales.  Consolidated  revenue for the three
months ended  September  29, 2001 and September  30, 2000 were  $10,355,272  and
$3,648,105,  respectively. For the three months ended September 29, 2001 revenue
from retail stores  totaled  $10,151,008  and revenue from the Internet  totaled
$204,264.  For the three months ended September 30, 2000 revenue from the retail
stores totaled  $3,300,000 and revenue from the Internet totaled  $348,105.  The
increase in revenue from retail  stores  reflects the Company  owning the stores
for the entire three months ended September 29, 2001. The Company  purchased the
retail stores on August 15, 2000.  The 41% decrease in Internet  sales is due to
decreased  traffic and revenue from new  customers  compared to the three months
ended September 30, 2000.

        Cost of  products  sold  consists  of the  cost of  merchandise  sold to
customers,  store rent,  warehousing  costs, and outbound  shipping and handling
costs charged to the Company by its fulfillment partner,  Taymark.  Consolidated
cost of  products  sold  for the  three  months  ended  September  29,  2001 and
September  30, 2000 was  $6,321,804  or 61% of revenue and  $2,685,984 or 74% of
revenue,  respectively.  For the three months ended  September  29, 2001 cost of
products sold from the retail stores totaled  $6,148,130 or 60.6% of revenue and
cost of products sold from the Internet totaled $163,474 or 80% of revenue.  For
the three months ended  September 30, 2000 cost of products sold from the retail
stores totaled $2,388,000 or 72.4% of revenue and cost of products sold from the
Internet totaled $297,984 or 85.6% of revenue.

        Amortization  of fulfillment  partner  warrant  expense  consists of the
amortization  of the  estimated  fair value of the warrant  issued to Taymark to
provide inventory and fulfillment services to deliver merchandise ordered on the
site, or directly through a toll-free  telephone number,  directly to consumers.
On July 8, 1999, the Company entered into a product  fulfillment  agreement with
Taymark.  The initial term of the agreement runs through  December 31, 2002. The
agreement  contains certain  restrictions on competition by the direct marketer.
As additional  consideration  for such  restrictions  and services,  the Company
issued a warrant to  purchase  3,000,000  shares of common  stock at an exercise
price of $3.75. The warrant expires on October 1, 2002. The estimated fair value
of the warrant on the date of issue was approximately $5.3 million as determined

--------------------------------------------------------------------------------
                                                                         Page 12
<PAGE>

using the  Black-Scholes  option  pricing  model.  On  December  30, 2000 it was
determined that the Company had not met certain  purchase  requirements  for the
year as outlined in the agreement with Taymark.  As a result of this  shortfall,
the  restrictions  on  competition  by Taymark as outlined in the agreement were
lifted  rendering  the  remaining  unamortized  value of the warrant  worthless.
Therefore,  the remaining balance of $3,021,954 was charged to expense.  For the
three months ended  September 29, 2001 and September  30, 2000  amortization  of
fulfillment partner warrant expense was $0 and $377,744 respectively.

        Marketing and sales expenses  consist  primarily of advertising,  public
relations  and  promotional  expenditures,  and all related  payroll and related
expenses for personnel  engaged in marketing and selling  activities,  including
store  payroll.  Consolidated  marketing and sales expenses for the three months
ended  September 29, 2001 and September 30, 2000 were $3,370,746 and $2,160,959,
respectively. For the three months ended September 29, 2001, marketing and sales
expenses for retail stores  totaled  $3,494,514  and marketing and sales expense
(income)  for the  Internet  totaled  $(123,768).  For the  three  months  ended
September  30, 2000  marketing  and sales  expenses  for retail  stores  totaled
$1,083,000 and marketing and sales expenses for the Internet totaled $1,077,959.
The increase in marketing  and sales  expenses  for retail  stores  reflects the
Company owning the stores for the entire three months ended  September 29, 2001.
The Company  purchased  the retail  stores on August 15,  2000.  Included in the
marketing  and sales  expenses for the Internet for 2000 was $135,000  resulting
from the amortization of the Margaritaville  warrant.  The decrease in marketing
spending for the Internet was related to lower cost per  acquisition in 2001 and
to a successful negotiation of a previously expensed advertising item.

        Product and  technology  development  expenses  consist  principally  of
payroll and related  expenses for product  development,  editorial,  systems and
operations personnel and consultants,  and systems infrastructure related to the
Company's  Internet site.  Product and technology  development  expenses for the
three months ended  September  29, 2001 and September 30, 2000 were $451,030 and
$1,068,973  respectively.  The  decrease in product and  technology  development
expenses is due to the  transition  from a site  development  phase in 2000 to a
site maintenance phase in 2001.

        General  and  administrative  ("G&A")  expenses  consist of payroll  and
related   expenses  for  executive,   finance  and   administrative   personnel,
professional  fees  and  other  general  corporate  expenses.  Consolidated  G&A
expenses for the three months ended  September  29, 2001 and  September 30, 2000
were $1,011,461 and $1,000,144 respectively.

        The non-cash  compensation expenses consist of the amortization of stock
options  granted to  consultants  related to the  Internet  operation.  Non-cash
compensation  expenses  for the  three  months  ended  September  29,  2001  and
September 30, 2000 were $85,490 and $88,777, respectively.

        Interest income on cash and cash  equivalents for the three months ended
September  29,  2001  and   September  30,  2000,   was  $23,173  and  $144,039,
respectively.  The  decrease  in  interest  income  is due to  higher  cash  and
investment balances in 2000 resulting from the Company's  financing  activities,
principally  the  private  placement  of  Series  B, C,  D, E and F  Convertible
Preferred Stock completed in 1999 and 2000.

        Interest  expense  for the three  months  ended  September  29, 2001 and
September  30,  2000,  was $185,034  and $11,000  respectively.  The increase in
interest expense  reflects  borrowing on the line of credit for the entire three
months ended September 29, 2001. The Company entered into the Credit Arrangement
on August 1, 2000.

Nine months ended September 29, 2001 compared to nine months ended September 30,
2000:

        Revenue  includes the selling price of party goods sold,  net of returns
and discounts,  as well as outbound  shipping and handling  charges.  Revenue is
recognized  at the time of sale for retail  sales and at the time  products  are
shipped to  customers  for  Internet  sales.  Consolidated  revenue for the nine

--------------------------------------------------------------------------------
                                                                         Page 13
<PAGE>

months ended  September  29, 2001 and September  30, 2000 were  $31,553,751  and
$4,054,791  respectively.  For the nine months ended  September 29, 2001 revenue
from retail stores  totaled  $30,859,983  and revenue from the Internet  totaled
$693,768.  For the nine months ended  September 30, 2000 revenue from the retail
stores totaled  $3,300,000 and revenue from the Internet totaled  $754,791.  The
increase in revenue from retail  stores  reflects the Company  owning the stores
for the entire nine months ended  September 29, 2001. The Company  purchased the
retail  stores on August 15, 2000.  The 8% decrease in Internet  sales is due to
decreased  traffic and revenue  from new  customers  compared to the nine months
ended September 30, 2000.

        Cost of  products  sold  consists  of the  cost of  merchandise  sold to
customers,  store rent,  warehousing  costs, and outbound  shipping and handling
costs charged to the Company by its fulfillment partner,  Taymark.  Consolidated
cost of products sold for the nine months ended September 29, 2001 and September
30,  2000 was  $19,251,924  or 61% of revenue and  $3,178,704  or 78% of revenue
respectively. For the nine months ended September 29, 2001 cost of products sold
from retail stores  totaled  $18,709,591  or 61% of revenue and cost of products
sold from the Internet totaled  $542,333 or 78% of revenue.  For the nine months
ended  September 30, 2000 cost of products  sold from the retail stores  totaled
$2,388,000  or 72.4% of  revenue  and cost of  products  sold from the  Internet
totaled $790,704 or 105% of revenue. During the period ended September 30, 2000,
the Company  aggressively  acquired new Internet  customers  with several coupon
promotions.   Although  these   promotions  were  successful  in  acquiring  new
customers, they resulted in a negative gross margin of 5%.

        Amortization  of fulfillment  partner  warrant  expense  consists of the
amortization  of the  estimated  fair value of the warrant  issued to Taymark to
provide inventory and fulfillment services to deliver merchandise ordered on the
site, or directly through a toll-free  telephone number,  directly to consumers.
On July 8, 1999, the Company entered into a product  fulfillment  agreement with
Taymark.  The initial term of the agreement runs through  December 31, 2002. The
agreement  contains certain  restrictions on competition by the direct marketer.
As additional  consideration  for such  restrictions  and services,  the Company
issued a warrant to Taymark to purchase  3,000,000  shares of common stock at an
exercise price of $3.75.  The warrant  expires on October 1, 2002. The estimated
fair value of the warrant on the date of issue was approximately $5.3 million as
determined using the Black-Scholes option pricing model. On December 30, 2000 it
was determined that the Company had not met certain  purchase  requirements  for
the  year as  outlined  in the  agreement  with  Taymark.  As a  result  of this
shortfall,  the  restrictions  on  competition  by  Taymark as  outlined  in the
agreement were lifted rendering the remaining  unamortized  value of the warrant
worthless.  Therefore,  the  remaining  balance  of  $3,021,954  was  charged to
expense.  For the nine months ended  September  29, 2001 and  September 30, 2000
amortization  of  fulfillment  partner  warrant  expense was $0 and  $1,133,233,
respectively.

        Marketing and sales expenses  consist  primarily of advertising,  public
relations  and  promotional  expenditures,  and all related  payroll and related
expenses for personnel  engaged in marketing and selling  activities,  including
store  payroll.  Consolidated  marketing and sales  expenses for the nine months
ended September 29, 2001 and September 30, 2000 were $10,282,471 and $7,176,081,
respectively.  For the nine months ended September 29, 2001, marketing and sales
expenses for retail stores  totaled  $10,365,351  and marketing and sales income
for the Internet totaled $(82,880). For the nine months ended September 30, 2000
marketing and sales expenses for retail stores totaled  $1,083,000 and marketing
and  sales  expenses  for  the  Internet  totaled  $6,093,081.  Included  in the
marketing  and sales  expenses for the Internet for 2000 was $405,000  resulting
from the amortization of the Margaritaville  warrant.  The decrease in marketing
spending for the Internet was related to lower cost per  acquisition in 2001 and
to a successful negotiation of a previously expensed advertising item.

        Product and  technology  development  expenses  consist  principally  of
payroll and related  expenses for product  development,  editorial,  systems and
operations personnel and consultants,  and systems infrastructure related to the
Company's  Internet site.  Product and technology  development  expenses for the
nine months ended  September 29, 2001 and September 30, 2000 were $1,539,172 and
$4,510,562,  respectively.  The decrease in product and  technology  development
expenses is due to the  transition  from a site  development  phase in 2000 to a
site maintenance phase in 2001.

--------------------------------------------------------------------------------
                                                                         Page 14
<PAGE>

        General  and  administrative  ("G&A")  expenses  consist of payroll  and
related   expenses  for  executive,   finance  and   administrative   personnel,
professional  fees  and  other  general  corporate  expenses.  Consolidated  G&A
expenses for the nine months ended  September  29, 2001 and  September  30, 2000
were  $2,862,996 and $2,079,287,  respectively.  The increase in G&A expenses is
due to the additional staff required to manage the retail stores.

        Restructuring income consists of the excess of amounts provided to close
our New York office over actual expenses incurred. During the quarter ended June
30,  2001,  due  to  the  substantial  completion  of the  actions  of the  2000
restructuring plan, the Company reevaluated its 2000 restructuring accrual. As a
result of this review  certain costs  associated  with the close of the New York
City headquarters were no longer required. This resulted from the elimination of
certain planned actions as well as the Company successfully  negotiating certain
closing costs.  As such, the Company has  recognized a  restructuring  credit of
$122,534,  which  affected  the  Internet  segment.  This credit is reflected in
"Restructuring income" in the Consolidated Statements of Operations.

        The non-cash  compensation expense consists of the amortization of stock
options  granted to  consultants  related to the  Internet  operation.  Non-cash
compensation  expense for the nine months ended September 29, 2001 and September
30, 2000 was $285,118 and  $723,733,  respectively.  In February  2000,  certain
employees  exercised stock options on a cash-less basis resulting in $460,000 of
non-cash compensation.

        Interest  income on cash and cash  equivalents for the nine months ended
September  29,  2001  and  September  30,  2000,   was  $110,222  and  $644,172,
respectively.  The  decrease  in  interest  income  is due to  higher  cash  and
investment  balance in 2000 resulting from the Company's  financing  activities,
principally  the  private  placement  of  Series  B, C,  D, E and F  Convertible
Preferred Stock completed in 1999 and 2000.

        Interest  expense  for the nine  months  ended  September  29,  2001 and
September  30, 2000,  was $464,941  and $11,000,  respectively.  The increase in
interest  expense  reflects  borrowing on the line of credit for the entire nine
months ended September 29, 2001. The Company entered into the Credit Arrangement
on August 1, 2000.


Liquidity and Capital Resources:

        The Company used cash in operating  activities for the nine months ended
September 29, 2001 and September 30, 2000 totaling  $3,799,948 and  $10,612,618,
respectively.  In addition, the Company invested cash in property and equipment,
including web site development  expenditures for the nine months ended September
29, 2001 and September 30, 2000  totaling  $585,393 and $796,994,  respectively.
The Company also used  $2,509,268  of its bank line to fund our working  capital
and capital expenditures in the nine months ended September 29, 2001.

        To date,  the Company has raised an aggregate of $32.9 million in equity
financing.  On August 1, 2000,  the Company  established a line of credit with a
bank. The agreement permits maximum borrowings equal to the lesser of $7,500,000
or the borrowing base, as defined.  Interest on the line of credit for the first
$5,000,000  borrowed  ("Line  Interest  Rate") is payable at the  greater of the
bank's base rate (6.75% at September 30, 2001) plus 1% or 7.75%. Interest on the
sub-line borrowing, money borrowed between $5,000,000 and $7,500,000, is payable
at the bank rate plus 2%. The agreement also provides for a Commitment Fee of 1%
or $75,000 and an Annual Facility Fee of 0.5% per annum of the maximum amount of
the special  sub-line.  This agreement expires on July 31, 2003. As of September
29, 2001, the Company had $5,310,057 outstanding under the line of credit.

        In March  2001,  the  Company  and its  lender  modified  the  borrowing
facility  by  adjusting  certain  covenants  and other  provisions  based on the
Company's  operating plan for 2001. As of September 29, 2001, the Company was in
compliance with the adjusted covenants.

        The Company believes,  based on currently proposed plans and assumptions
relating  to its  operations,  that the net  proceeds  from the  financings  and
related interest income,  together with anticipated revenues from operations and

--------------------------------------------------------------------------------
                                                                         Page 15
<PAGE>

the line of  credit,  will be  sufficient  to fund its  operations  and  working
capital requirements for at least twelve months. In the event that the Company's
plans or assumptions change or prove inaccurate (due to unanticipated  expenses,
increased  competition,  unfavorable  economic  conditions,  or other unforeseen
circumstances) the Company could be required to seek additional financing sooner
than currently expected.  There can be no assurance that such additional funding
will be  available  to the  Company,  or if  available,  that the  terms of such
additional financing will be acceptable.


PART II  OTHER INFORMATION

Item 1.  Legal Proceedings.

        The Company is a defendant in one lawsuit  that is being  handled in the
ordinary  course of  business.  Pursuant to an Asset  Purchase  Agreement  dated
August  2,  2000,  as  amended,   the  Company  purchased  from  The  Big  Party
Corporation, Debtor and Debtor-in-Possession, 33 retail locations and the assets
located  therein,  including  inventory.  The  Company  and The Big Party are in
disagreement concerning the value and amount due on account of the inventory and
The Big Party is claiming that $625,568 is due. In addition,  the parties set up
a $100,000  escrow of funds  paid under the  agreement  as  security  for rental
payments  and  other  adjustments  due,  and  the  parties  are  in  discussions
concerning the portion thereof which belongs to the Company. The Big Party filed
a  complaint  with the U.S.  Bankruptcy  Court for the  District  of Delaware in
January  2001  seeking  payment of  $625,568  on account of the  inventory.  The
Company is  disputing  the amount  claimed  and  intends to file an answer and a
possible  counterclaim  for  amounts  due on account of the escrow  referred  to
above.  The Company is also in negotiations  with The Big Party seeking to reach
an  agreeable  compromise.  This  matter is in the  preliminary  stages.  In the
opinion of the management of the Company, the Company is adequately reserved and
this  should  not  result in final  judgement  or  settlement  that would have a
material  adverse  effect on the  Company's  financial  condition  or results of
operations.


Item 6.  Exhibits.
         (a) Exhibit 27.1    Financial Data Schedule

--------------------------------------------------------------------------------
                                                                         Page 16
<PAGE>



SIGNATURES

        In accordance  with  requirements  of the  Securities  Exchange Act, the
Company  has  duly  caused  this  report  to be  signed  on  its  behalf  by the
undersigned thereunto duly authorized.

                                           iPARTY CORP.

Dated:    November 12, 2001                   By:   /s/ Sal Perisano
                                                    ----------------------------
                                                       Sal Perisano
                                                       Chief Executive Officer

                                              By:    /s/ Patrick Farrell
                                                     ---------------------------
                                                     Patrick Farrell
                                                     President & Chief Financial
                                                     Officer


--------------------------------------------------------------------------------
                                                                         Page 17