<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

                        COMMISSION FILE NUMBER 000-21827

                                   ----------

                              AMSCAN HOLDINGS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                                          <C>
                DELAWARE                                          13-3911462
    (State or Other Jurisdiction of                            (I.R.S. Employer
     Incorporation or Organization)                          Identification No.)
</TABLE>

<TABLE>
<S>                                                               <C>
     80 Grasslands Road Elmsford, NY                                10523
(Address of Principal Executive Offices)                          (Zip Code)
</TABLE>

               REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (914) 345-2020

   SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE


   SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE


     Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

     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 [X] No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. (See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act). (Check one):

Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [X]

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

     The aggregate market value of the Common Stock held by non-affiliates of
the Registrant (assuming for purposes of this calculation, without conceding,
that all executive officers and directors are "affiliates") at June 30, 2005,
the last business day of the registrant's most recently completed second fiscal
quarter, was $2,143,000.

     The number of outstanding shares of the registrant's common stock as of
March 29, 2006 was 1,000.00.

                       DOCUMENTS INCORPORATED BY REFERENCE

     None.

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

<PAGE>

                              AMSCAN HOLDINGS, INC.
                                    FORM 10-K

                                DECEMBER 31, 2005

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
                                     PART I
Item 1    Business.......................................................     3
Item 1A   Risk Factors...................................................    13
Item 1B   Unresolved Staff Comments......................................    16
Item 2    Properties.....................................................    16
Item 3    Legal Proceedings..............................................    18
Item 4    Submission of Matters to a Vote of Security Holders............    18

                                     PART II

Item 5    Market for Registrant's Common Equity, Related Stockholder
          Matters and Issuer Purchases of Equity Securities..............    18
Item 6    Selected Consolidated Financial Data...........................    19
Item 7    Management's Discussion and Analysis of Financial Condition
          and Results of Operations......................................    22
Item 7A   Quantitative and Qualitative Disclosures About Market Risk.....    34
Item 8    Financial Statements and Supplementary Data....................    34
Item 9    Changes in and Disagreements With Accountants on Accounting and
          Financial Disclosure...........................................    34
Item 9A   Controls and Procedures........................................    34
Item 9B   Other Information..............................................    34

                                    PART III

Item 10   Directors and Executive Officers of the Registrant.............    35
Item 11   Executive Compensation.........................................    36
Item 12   Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters................................    40
Item 13   Certain Relationships and Related Transactions.................    41
Item 14   Principal Accountant Fees and Services.........................    41

                                     PART IV

Item 15   Exhibits and Financial Statement Schedules.....................    43

          Signatures.....................................................    46
</TABLE>

     References throughout this document to the "Company" include Amscan
Holdings Inc. and its wholly owned subsidiaries. In this document the words
"we," "our," "ours" and "us" refer only to the Company and its wholly owned
subsidiaries and not to any other person.

     You may read and copy any materials we file with the Securities and
Exchange Commission ("SEC") at the SEC's Public Reference Room at 100 F Street,
NE, Washington, DC 20549. You may obtain information on the operations of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a
website that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC, including
us, at http://www.sec.gov.


                                        2
<PAGE>

PART I

ITEM 1. BUSINESS

     Amscan Holdings, Inc. ("Amscan" or the "Company") designs, manufactures,
contracts for manufacture and distributes party goods, including paper and
plastic tableware, metallic balloons, accessories, novelties, gifts and
stationery. With the completion of its acquisition of Party City Corporation
(the "Party City Acquisition") on December 23, 2005 (the "Party City Acquisition
Date"), the Company became an operator of specialty retail party supply stores
in the United States and a franchisor of both individual store and franchise
areas throughout the United States and Puerto Rico.

WHOLESALE OPERATIONS

     We believe we are a leading designer, manufacturer and distributor of
decorative party goods in the United States and the largest manufacturer of
metallic balloons in the world. We offer one of the broadest and deepest product
lines in the party goods industry. We currently offer over 400 party good
ensembles, which range from approximately 30 to 150 design-coordinated items
spanning tableware, accessories, novelties, balloons, decorations and gifts. The
breadth of these ensembles enables retailers to encourage additional sales for a
single occasion. We market party good ensembles for a wide variety of occasions
including seasonal and religious holidays, special events and themed
celebrations. Our seasonal and religious ensembles enhance holiday celebrations
throughout the year including New Year's, Valentine's Day, St. Patrick's Day,
Easter, Passover, Fourth of July, Halloween, Thanksgiving, Hanukkah and
Christmas. Our special event ensembles include birthdays, christenings, first
communions, bar mitzvahs, confirmations, graduations, bridal and baby showers
and anniversaries. Our theme-oriented ensembles include Hollywood, Chinatown,
Cocktail Party, Bachelorette, Card Party, Hawaiian Luaus, Mardi Gras, Fifties
Rock-and-Roll Parties, Summer Barbeque, Patriotic and Western. In 2005,
approximately 80% of our net sales at wholesale consisted of products designed
for non-seasonal occasions, with the remaining 20% comprised of items used for
holidays and seasonal celebrations throughout the year. Our extensive gift and
stationery product lines, encompassing home, baby and wedding products for
general gift giving or self-purchase, further leverage our design, marketing and
distribution capabilities.

     Our products are sold at wholesale, to party superstores, including Party
City, other party goods retailers, independent card and gift stores, and other
retailers and distributors throughout the world, including North America, South
America, Europe, Asia and Australia. In 2005, approximately 60% of the product
sold to these retailers and distributors were products manufactured by the
Company. The remaining 40% of products sold were supplied by third-party
manufacturers, many of whom are located in Asia.

     Sales to the party superstore distribution channel generally account for
approximately 35% of our net sales at wholesale. Party superstores provide
consumers with a one-stop source for all of their party needs, generally at
discounted prices. We also have strong, long-standing relationships with
independent party and card and gift retailers, with these channels generally
accounting for 20% of our net sales, at wholesale.

RETAIL OPERATIONS

     With the Party City Acquisition, we acquired the nation's largest retail
party superstore chain. Party City's focus is to provide the retail consumer
with broad assortments, deep in-stock inventory positions and a compelling
price-value proposition. Party City authorized its first franchise store in 1989
and opened its first company-owned store in January 1994.

     As of December 31, 2005, the Party City network consisted of 502 stores,
with 248 company-owned stores and 254 stores owned by franchisees. Party City
stores typically range in size from 10,000 to 12,000 square feet and offer a
broad range of products for all occasions, including Amscan, private label and
other brand merchandise. Non-seasonal merchandise generally accounts for
approximately 66% of Party City's annual retail net sales, with birthdays being
the largest non-seasonal event. Halloween represents the largest seasonal
occasion, accounting for approximately 20% of Party City's annual retail sales.

     Party City's retail operations generate revenue primarily through the sale
of party goods through company-owned stores. Party City also generates revenue
through the assessment of an initial one-time franchise fee and ongoing
franchise royalty payments based on retail sales.


                                       3

<PAGE>

     Party City's results of operations for the eight-day period from the Party
City Acquisition Date through December 31, 2005, are included in the Company's
consolidated results of operations for the year ended December 31, 2005. Party
City's balance sheet, which is included in the Company's consolidated balance
sheet at December 31, 2005, is based, in-part, on our preliminary estimates of
the fair value of the tangible and identifiable intangible assets acquired and
liabilities assumed on the Party City Acquisition Date. Independent valuation
specialists are currently conducting a valuation of the net assets acquired as
of the Party City Acquisition Date to assist management with the final
determination of fair value.

     Prior to its acquisition, Party City filed its quarterly and annual
financial statements with the SEC. Historically, Party City defined a fiscal
year ("Fiscal Year") as the 52-week period or 53-week period ended on the
Saturday nearest June 30 of each year. The Party City financial statements for
the fiscal years ended July 2, 2005, July 3, 2004 and June 28, 2003 were filed
with the SEC on September 15, 2005 and September 14, 2004 and are based on a
52-week period, 53-week period and 52-week period, respectively. Party City
defined its fiscal quarters ("Fiscal Quarter") as the four interim 13-week
periods following the end of the previous Fiscal Year, except in the case of a
53-week Fiscal Year when the fourth Fiscal Quarter is extended to 14 weeks. The
condensed financial statements for the Party City Fiscal Quarters ended October
1, 2005 and October 2, 2004 were filed with the SEC on November 10, 2005 and
November 12, 2004, respectively, and are each based on 13-week periods. As a
result of the acquisition, Party City's fiscal year was changed to the 52-week
or 53-week period ended on the Saturday nearest to December 31 of each year.

THE PARTY CITY ACQUISITION

     On the Party City Acquisition Date, the Company completed the Party City
Acquisition pursuant to the Agreement and Plan of Merger, dated September 26,
2005 (as amended, the "Acquisition Agreement"), by and among the Company, Party
City and BWP Acquisition, Inc. ("BWP"), a Delaware corporation and a
wholly-owned subsidiary of the Company. Pursuant to the terms of the Acquisition
Agreement, BWP merged with and into Party City, with Party City continuing as
the surviving corporation. Each share of common stock of Party City outstanding
at the Party City Acquisition Date was cancelled and converted into the right to
receive $17.50 in cash, without interest. Prior to the acquisition, Party City
settled all outstanding stock options and warrants at the spread between $17.50
and their exercise price. Transaction costs associated with the Party City
Acquisition totaled $9.4 million.

     Financing for the Party City Acquisition, including the repayment of the
Company's borrowings under its 2004 Senior Secured Credit Facility (defined
hereafter), was provided by: (i) an equity investment of $166.4 million (the
"Equity Investment") in the Company's parent, AAH Holdings Corporation ("AAH"),
a Delaware corporation jointly controlled by funds affiliated with Berkshire
Partners LLC and Weston Presidio (together the "Principal Investors"), (ii)
borrowings under a First Lien Credit Agreement (the "First Lien Credit
Agreement") consisting of a $325 million term loan (net of an original issue
discount of $3.25 million) (the "First Term Loan") and a committed revolving
credit facility in an aggregate principal amount of $85 million (the "First Term
Loan Revolver"), (iii) borrowings under a Second Lien Credit Agreement (the
"Second Lien Credit Agreement," and, together with the First Lien Credit
Agreement, the "Credit Agreements") consisting of a $60 million term loan (net
of an original issue discount of $1.5 million) (the "Second Term Loan") and (iv)
cash on-hand of $20.4 million. Deferred financing costs associated with the
Credit Agreements totaled $7.4 million.

     The Equity Investment consisted of the sale of 13,868.75 shares of AAH
common stock to the Principal Investors, certain members of management and
certain other investors.

     The excess of the Party City purchase price over the tangible net assets
acquired has been preliminarily allocated to intangible assets consisting of
franchise licenses ($30.0 million) and other intangibles ($0.3 million), each of
which is being amortized using the straight-line method over the assets'
estimated useful life (15 to 17 years), and trade names ($35.0 million) and
goodwill ($222.2 million), which are not being amortized. The acquisition was
structured as a purchase of common stock and, accordingly, the amortization of
intangible assets is not deductible for income tax purposes.

THE 2004 TRANSACTIONS

     On April 30, 2004, Amscan and AAH Acquisition Corporation ("AAH
Acquisition"), a wholly-owned subsidiary of AAH, entered into a merger
agreement, with Amscan continuing as the surviving entity and as a wholly owned
subsidiary of AAH. Under the terms of the agreement, the equity interests in
Amscan held by GS Capital Partners II, L.P. and certain other private investment
funds managed by Goldman, Sachs & Co., collectively referred to as GSCP, and all
other stockholders, other than certain management investors, were cancelled in
exchange for the right to receive cash. Cash paid to consummate the acquisition
totaled $530.0 million and was financed with initial borrowings (before
deducting deferred financing costs of $13.1 million) consisting of


                                       4

<PAGE>

a $205.0 million term loan under a senior secured credit facility (the "2004
Senior Secured Credit Facility") which includes a $50.0 million revolving loan
facility, the proceeds from the issuance of $175.0 million of 8.75% senior
subordinated notes due 2014, an equity contribution by the Principal Investors
and employee stockholders of $140.5 million, borrowings under the revolver of
$23.6 million and available cash on hand. Certain existing employee shareholders
participated in the 2004 Transactions (as defined hereafter) by purchasing
approximately 296.91 shares of common stock. The Chief Executive Officer and the
President of the Company exchanged 5.4945 and 2.7472 of their shares of common
stock of the Company for 100 and 50 shares of common stock of AAH with an
equivalent value of $1.0 million and $0.5 million, respectively. In addition,
the Chief Executive Officer and the President of the Company exchanged vested
options to purchase 5.607 and 2.804 shares of Company common stock, which had
intrinsic values of $0.6 million and $0.3 million, respectively, for vested
options under the AAH equity incentive plan with intrinsic values of $0.5
million and $0.2 million and fair values of $0.6 million and $0.3 million,
respectively.

     Concurrent with the AAH Acquisition, the following financing transactions
were also consummated: the repayment of a term loan of $147.7 million under our
then existing senior secured credit facility and the termination of all
commitments there under; the redemption of $87.2 million of the $110.0 million
aggregate principal amount of our 9.875% senior subordinated notes due 2007 for
$93.5 million, or 103.542% of the principal amount of such notes, plus accrued
and unpaid interest following our tender offer and consent solicitation; and the
repayment of a $8.5 million mortgage obligation with a financial institution
(the acquisition together with the foregoing financing transactions are referred
to herein collectively as the "2004 Transactions").

     On May 31, 2004, the remaining outstanding 9.875% senior subordinated notes
due 2007 were redeemed for $23.6 million, or 103.292% of the principal amount of
such notes, plus accrued and unpaid interest pursuant to the redemption notice.
The Company financed the redemption with borrowings under its revolving credit
facility.

     The 8.75% senior subordinated notes were sold to their initial purchasers
on April 30, 2004, and were subsequently resold to qualified institutional
buyers and non-U.S. persons in reliance upon Rule 144A and Regulation S under
the Securities Act of 1933 (the "Note Offering"). In August 2004, the Company
filed with the Securities and Exchange Commission a Registration Statement on
Form S-4, offering to exchange registered notes for the notes issued in
connection with the Note Offering. The terms of the notes and the exchange notes
were substantially identical. The exchange was completed in October 2004.

     As used herein and in the consolidated financial statements, "Predecessor"
refers to Amscan prior to the 2004 Transactions and "Successor" refers to Amscan
after the 2004 Transactions; the distinction between Predecessor and Successor
is needed because generally accepted accounting principles required us to
account for the acquisition under the purchase method of accounting, which
required that the Company adjust its assets and liabilities to their relative
fair values at the date of the 2004 Transactions. In order to reflect the
ultimate beneficial ownership of the Company, the capital structure disclosed in
the consolidated financial statements is the capital structure of AAH.

     The excess of the purchase price over the tangible net assets acquired has
been allocated to intangible assets consisting of customer lists/relationships
($14.5 million) and copyrights/designs and other intangibles ($12.8 million),
each of which is being amortized using the straight-line method over the assets'
estimated useful life (2.5 to 15 years), and tradenames ($33.5 million) and
goodwill ($283.5 million), which are not being amortized. The acquisition was
structured as a purchase of common stock and, accordingly, the amortization of
intangible assets is not deductible for income tax purposes.

SUMMARY FINANCIAL INFORMATION ABOUT THE COMPANY

     Information about the Company's revenues, income from operations and assets
for each of the years in the five-year period ended December 31, 2005, is
included in this report in Item 6, "Selected Consolidated Financial Data." The
Company's consolidated financial statements for the Predecessor periods (prior
to May 1, 2004) and for the Successor periods (subsequent to April 30, 2004)
include the accounts of the Company and its majority-owned and controlled
entities.

     The Company does business in the United States and in other geographic
areas of the world. Information about the Company's revenues, income from
operations and assets relating to geographic areas outside the United States for
each of the years in the three-year period ended December 31, 2005, is included
in Note 18 to the Company's consolidated financial statements which are included
in this report beginning on page F-2.


                                       5

<PAGE>

WHOLESALE OPERATIONS

     Despite a concentration of holidays in the fourth quarter of the year, as a
result of our expansive product lines and customer base and increased
promotional activities, the impact of seasonality on our quarterly results of
operations has been limited. Promotional activities, including special dating
terms, particularly with respect to Halloween and Christmas products sold in the
third quarter, and the introduction of our new everyday products and designs
during the fourth quarter result in higher accounts receivables and inventory
balances and higher interest costs to support these balances.

RETAIL OPERATIONS

     Our retail operations are subject to significant seasonal variations.
Historically, Party City has realized a significant portion of its revenues,
cash flow and net income in the fourth quarter of the year principally due to
the sales in October for the Halloween season and, to a lesser extent, due to
holiday sales for end of year holidays. In addition, the results of retail
operations and cash flows may also fluctuate significantly as a result of a
variety of other factors, including the timing of new store openings and store
closings and the timing of the acquisition and disposition of stores. The
results of Party City's operations for the eight-day period from the Party City
Acquisition Date through December 31, 2005, are included in the Company's
consolidated results of operations for the year ended December 31, 2005.

OUR BUSINESS STRATEGY

     Our objective is to be the primary source for consumers' party goods
requirements and to maintain and expand our position as a leading national chain
of party supply stores, while internally improving our operating efficiencies.
Key components of our business strategy include the following:

WHOLESALE OPERATIONS

     -    BUILD UPON OUR POSITION AS A LEADING PROVIDER TO PARTY GOODS
          RETAILERS. We will continue to offer convenient "one-stop shopping"
          for both large party superstores and smaller party goods retailers. We
          will seek to grow our sales to existing stores by increasing our share
          of sales volume and shelf space, continuing to develop innovative new
          products and helping retailers promote coordinated ensembles that
          increase average purchase volume per consumer through "add-on" or
          impulse purchases. Given our position in the party superstore
          distribution channel and the strength of our relationships with all
          major party superstore chains, we expect our sales will continue to
          grow as new party superstores are opened.

     -    CAPITALIZE ON INVESTMENTS IN INFRASTRUCTURE. We intend to increase our
          net sales and profitability by leveraging the significant investments
          we have made in our infrastructure. We believe that the addition of a
          state-of-the-art 544,000 square foot distribution facility in the
          fourth quarter of 2002 and our plan to expand the facility by
          approximately 350,000 square feet in 2006, will provide us with the
          opportunity to further consolidate our operations while maintaining
          warehousing and distribution capabilities to serve anticipated future
          growth. We plan to finance a substantial portion of the expansion with
          the net proceeds from the anticipated sale of a second, less
          technologically sophisticated company-owned warehouse.

     -    EXPAND INTERNATIONAL PRESENCE. We believe there is an opportunity to
          expand our international business, which represented approximately 14%
          of our net sales in each of the years in the three-year period ended
          December 31, 2005. We currently have a presence in Europe, Mexico,
          Canada, and Asia. We have our own sales force in the United Kingdom,
          Mexico and Canada, and operate through third-party sales
          representatives elsewhere. The market for decorative party goods
          outside the U.S. is less mature due to lower consumer awareness of
          party products and less developed retail distribution channels. During
          2005, we strengthened our international management infrastructure,
          hiring a senior vice president of international operations to help
          implement our strategies to grow international sales. Our strategies
          include broadening our distribution network, increasing
          accessorization and customization of our products to local tastes and
          holidays and continuing to deepen retail penetration.

     -    INCREASE PENETRATION IN INDEPENDENT RETAIL DISTRIBUTION CHANNEL. We
          believe there is a significant opportunity to expand our sales to
          independent retailers, including card and gift stores. We have made
          significant investments by adding management and expanding our
          customer service and marketing infrastructure to support the existing
          sales effort. As our existing sales representatives become more
          seasoned and productive, and as we add new sales representatives, we
          expect to increase sales and profitability from this distribution
          channel as sales growth is achieved with relatively fixed support


                                       6

<PAGE>

          costs.

     -    CONTINUED GROWTH THROUGH TARGETED ACQUISITIONS. We believe that there
          will be, from time to time, opportunities to make acquisitions of
          complementary businesses. Through such businesses, we can leverage our
          existing marketing, distribution and production capabilities, expand
          our presence in the various retail distribution channels, further
          broaden and deepen our product lines and increase our penetration in
          international markets.

RETAIL OPERATIONS

     -    OFFER A BROAD SELECTION OF MERCHANDISE. We will continue to provide
          customers with convenient one-stop shopping for party supplies by
          offering what we believe is one of the most extensive selections of
          party supplies available. The typical Party City store offers a broad
          selection of Amscan, private label and other brand merchandise
          consisting of more than 15,000 active SKU's.

     -    MAINTAIN VALUE PRICE POSITION. We will continue to use the aggregate
          buying power of approximately 500 Company-owned and franchise stores,
          which allows us to offer a broad line of high quality merchandise at
          low prices. We believe we reinforce customers' expectations of value
          through our advertising and marketing campaigns.

     -    EXPAND NETWORK OF CONVENIENT STORE LOCATIONS. Although we believe that
          our stores typically are destination shopping locations, we seek to
          maximize customer traffic and quickly build the visibility of new
          stores by situating our stores in high traffic areas. Site selection
          criteria include: population density, demographics, traffic counts,
          location of complementary retailers, storefront visibility and
          presence (either in a stand-alone building or in dominant power strip
          shopping centers), competition, lease rates and accessible parking. We
          believe there are an extensive number of suitable domestic locations
          available for future stores, and we plan to open up to five new
          company-owned Party City stores and between 8 and 10 franchise stores
          during 2006. In addition, we will continue our evaluation of the
          potential for growth through temporary Halloween stores under the
          Halloween Costume Warehouse brand.

     -    PROVIDE EXCELLENT CUSTOMER SERVICE. We view the quality of our
          customers' shopping experience as critical to our continued success,
          and we are committed to making shopping in our stores an enjoyable
          experience. For example, at Halloween, our most important selling
          season, each store significantly increases the number of sales
          associates. We hire and train qualified store managers and other
          personnel committed to serving our customers and compensate them based
          on performance measures in order to enhance the customer-service
          oriented culture in our stores.

     -    INFORMATION SYSTEMS. In recent years Party City has upgraded its point
          of sale (POS) and other information systems which will allow us to
          continue to use technology to enhance our business practices. We are
          currently implementing software systems that will further automate the
          merchandise replenishment, forecasting and planning functions.

INNOVATIVE PRODUCT DEVELOPMENT AND DESIGN CAPABILITIES

     Our 120 person in-house design staff continuously develops fresh,
innovative and contemporary product designs and concepts. Our continued
investment in art and design results in a steady supply of fresh ideas and the
creation of complex, unique ensembles that appeal to consumers. In 2005, we
introduced approximately 6,000 new products and 60 new ensembles and also
provided Party City and other customers with over 1,000 new private label
products. Our proprietary designs help us keep our products differentiated from
the competition.


                                       7
<PAGE>

PRODUCT LINES

     The following table sets forth the principal products distributed by the
Company at the wholesale level, by product line:

PARTY GOODS

Decorative and Solid Color Tableware
Candles
Cascades and Centerpieces
Crepe
Cutouts
Flags and Banners
Guest Towels
Latex Balloons
Party Favors
Party Hats
Pinatas

METALLIC BALLOONS

Sing-A-Tune
SuperShapes
Bouquets
18 Inch Standard

STATIONERY

Baby and Wedding Memory Books
Decorative Tissues
Gift Wrap, Bows and Bags
Invitations, Notes and Stationery
Photograph Albums
Ribbons
Stickers and Confetti

GIFT

Ceramic Giftware
Decorative Candles
Decorative Frames
Mugs
Plush Toys
Wedding Accessories and Cake Tops

     The percentage of net sales, at wholesale, for each product line for 2005,
2004 and 2003 are set forth in the following table:

<TABLE>
<CAPTION>
                      2005   2004   2003
                      ----   ----   ----
<S>                   <C>    <C>    <C>
Party Goods .......    65%    68%    65%
Metallic Balloons..    25     24     24
Stationery ........     6      5      8
Gift ..............     4      3      3
                      ---    ---    ---
                      100%   100%   100%
                      ===    ===    ===
</TABLE>

     Our products span a wide range of lifestyle events from age-specific
birthdays to theme parties and sporting events, as well as holidays such as
Halloween and New Year's. Approximately 80% of our net sales, at wholesale,
consist of items designed for non-seasonal occasions, with the remaining 20%
comprised of items used for holidays and seasonal celebrations throughout the
year. Our product offerings cover the following:


SEASONAL

New Year's
Valentine's Day
St. Patrick's Day
Easter
Passover
Fourth of July
Halloween
Thanksgiving
Hanukkah
Christmas

THEMES

Bachelorette
Card Party
Chinatown
Cocktail Party
Fiesta
Fifties Rock and Roll
Hawaiian Luau
Hollywood
Mardi Gras
Masquerade
Patriotic
Religious
Sports
Summer Barbeque
Western

EVERYDAY

Birthdays
Graduations
Weddings
Anniversaries
Showers
First Communions
Confirmations
Retirements
Christenings
Bar Mitzvahs

MANUFACTURED PRODUCTS

     Our vertically integrated manufacturing capability (i.e., our ability to
perform each of the steps in the process of converting raw materials into our
finished products) enables us to control costs, monitor product quality, manage
inventory investment better and provide more efficient order fulfillment. We
manufactured items generally representing approximately 60%


                                       8

<PAGE>
 of our net sales at wholesale. Our facilities in New York, Kentucky, Rhode
Island, Minnesota and Mexico are highly automated and produce paper and plastic
plates and cups, paper napkins, metallic balloons and other party and novelty
items. State-of-the-art printing, forming, folding and packaging equipment
support these manufacturing operations. Given our size and sales volume, we are
generally able to operate our manufacturing equipment on the basis of at least
two shifts per day thus lowering production costs per unit. In addition, we
manufacture products for third parties, which allows us to maintain a
satisfactory level of equipment utilization.

PURCHASED PRODUCTS

     We purchase products created and designed by us, generally representing
nearly 40% of our net sales, at wholesale, from independently-owned
manufacturers, many of whom are located in Asia and with whom we have
long-standing relationships. We have relationships of over 15 years with our two
largest suppliers. We believe that the quality and price of the products
manufactured by these suppliers provide a significant competitive advantage. Our
business is not dependent upon any single source of supply for these products.

RAW MATERIALS

     The principal raw materials used in manufacturing our products are paper
and petroleum-based resin. While we currently purchase such raw material from a
relatively small number of sources, paper and resin are available from numerous
sources. Therefore, we believe our current suppliers could be replaced without
adversely affecting our manufacturing operations in any material respect.

WHOLESALE SALES AND MARKETING

     Our principal wholesale sales and marketing efforts are conducted through a
domestic direct employee sales force of approximately 120 professionals
servicing approximately 40,000 retail accounts. Included in this sales force are
approximately 20 seasoned sales professionals who primarily service the party
superstore and party specialty retailer distribution channel and who, on
average, have been affiliated with us for over 10 years. In addition to the
employee sales team, a select group of manufacturers' representatives handle
specific account situations. Employees of subsidiaries outside the United States
generally service international customers. Our Anagram subsidiary utilizes a
group of approximately 40 independent distributors to bring their metallic
balloons to the grocery, gift and floral markets, as well as to our party
superstore and specialty retailer customers.

     Our practice of including party goods retailers in all facets of our
product development is a key element of our sales and marketing efforts. We
target important consumer preferences by integrating our own market research
with the input of party goods retailers in the creation of our designs and
products. In addition, our sales force assists customers in the actual layout of
displays of our products and, from time to time, provides customers with
promotional displays.

     To support our sales and marketing efforts, we produce four main decorative
party product catalogues annually (three catalogues for seasonal products and
one catalogue for everyday products), with additional catalogues to market our
metallic balloons and gift and stationery products. We have also developed a
website which displays and describes our product assortment and capabilities.
This website enables our key customers to access real time information regarding
the status of existing orders and stock availability, and to place new orders.
We utilize this website as a vital marketing tool, providing us with the ability
to announce special product promotions and other information in an expeditious
manner.

WHOLESALE DISTRIBUTION AND SYSTEMS

     We ship our products directly to retailers and distributors throughout the
United States and Canada from company-owned and leased distribution facilities
that employ computer assisted systems. Our electronic-order entry and
information systems allow us to manage our inventory with minimal waste,
maintain strong fill rates and provide quick order turnaround times of generally
between 24 to 48 hours.

     Our distribution facilities for party items are principally located in New
York and represent more than 1,000,000 square feet in the aggregate. We plan to
expand our company-owned state-of-the-art 544,000 square foot distribution
facility by approximately 350,000 square feet in 2006 at an estimated cost of
$15.0 million. A substantial portion of the cost is expected to be provided by
the net proceeds from the anticipated sale of a second, less technologically
sophisticated company-owned warehouse. We distribute our metallic balloons
domestically from company-owned and leased facilities in Minnesota and New York.
Products for markets outside the United States are also shipped from leased
distribution facilities in the United Kingdom, Mexico and Australia.


                                       9

<PAGE>

WHOLESALE CUSTOMERS

     Our wholesale customers are principally party superstores, including Party
City and its franchisees, other party goods retailers, independent card and gift
retailers and other distributors. We have also expanded our presence in the gift
shop, supermarket and other smaller independent retail distribution channels. In
the aggregate, we supply more than 40,000 retail outlets both domestically and
internationally. In addition, to deepen our retail penetration at key European
hypermarket and supermarket accounts, our future focus will include broadening
our distribution network, increasing accessorization and customization of our
products to local tastes and holidays.

     We have a diverse wholesale customer base. Although our sales volume is
concentrated with several important customers, generally party superstores, only
Party City accounted for more than 10% of our net sales at wholesale in each of
the years in the three year period ended December 31, 2005. For the years ended
December 31, 2005, 2004 and 2003, net sales to Party City's corporate-owned and
operated stores represented 13%, 14%, and 12% of the Company's net sales, at
wholesale, respectively. For the years ended December 31, 2005, 2004 and 2003,
net sales to Party City's franchise-owned and operated stores represented 13%,
14% and 13% of the Company's net sales, at wholesale, respectively. Franchisees
are financially independent and represent a diversified credit exposure.

COMPETITION AT WHOLESALE

     We compete on the basis of diversity and quality of our product designs,
breadth of product line, product availability, price, reputation and customer
service. Although we have many competitors with respect to one or more of our
products, we believe that there are few competitors who manufacture and
distribute products with the complexity of design and breadth of product lines
that we do. Furthermore, our design and manufacturing processes create
efficiencies in manufacturing that few of our competitors achieve in the
production of numerous coordinated products in multiple design types.

     Competitors include smaller independent specialty manufacturers, as well as
divisions or subsidiaries of large companies with greater financial and other
resources than ours. Certain of these competitors control various product
licenses for widely recognized images, such as cartoon or motion picture
characters, which could provide them with a competitive advantage. However,
through the acquisitions of Anagram and M&D Industries, we have acquired a
strong portfolio of character licenses for use in the design and production of
our metallic balloons.

RETAIL MERCHANDISING

     Party City stores are designed to be fun and engaging and to create a
compelling shopping experience for the consumer. Our stores range in size from
6,750 to 19,800 square feet with a typical store size between 10,000 and 12,000
square feet. The stores are divided into various sections based upon product
categories displayed to emphasize the breadth of merchandise available at a good
value. In-store signage is used to emphasize our price-value position and make
our stores easy to shop.

     During 2005, Party City upgraded the presentation in the majority of the
company-owned stores, including cutting through long aisles where appropriate to
allow customers to navigate the stores more easily and to provide increased
exposure for featured products. We also repositioned merchandise categories to
create adjacencies among items that are related by event or theme, thereby
making it easier for the consumer to locate and purchase coordinated items.

     To maintain consistency throughout our store network, we maintain a list of
approved items that are permitted to be sold in our stores. Franchise stores are
required to follow these guidelines according to the terms of their franchise
agreements. We maintain a standard store merchandise layout and presentation
format to be followed by company-owned and franchise stores. Any layout or
format changes developed by us are communicated to the managers of stores on a
periodic basis.

     Although product assortment is continually refreshed and updated, our
product categories remain consistent with our historical selection. The typical
Party City store offers a broad selection of Amscan, private label and other
brand merchandise consisting of more than 15,000 SKU's. Non-seasonal merchandise
historically represents two-thirds of a typical store's selling space and annual
net retail sales, while seasonal merchandise historically represents the
remaining portion. We have over 40 product categories, each of which can be
characterized into eight general themes, including Halloween, Other Seasonal,
Birthday, Balloons, Baby / Birthday / Wedding / Anniversary, Greeting Card /
Gift Wrap, Party Basics / Catering and Party Themes.


                                       10

<PAGE>

     Halloween is Party City's largest seasonal product category/theme. As a key
component of our sales strategy, our stores provide an extensive selection of
Halloween products. The stores also carry a broad array of related decorations
and accessories for the Halloween season. Our Halloween merchandise is
prominently displayed to provide an exciting and fun shopping experience for
customers. As a key component of our sales strategy, our stores provide an
extensive selection of Halloween products. The stores display Halloween-related
merchandise throughout the year to position us as the customer's Halloween
shopping resource. Historically, Party City's Halloween business has represented
approximately 20% of its annual retail net sales.

     We have many product categories that generally relate to birthdays, making
this theme the largest non-seasonal occasion in terms of net sales. Each
birthday product category includes a wide assortment of merchandise to fulfill
customer needs for celebrating birthdays, including invitations, thank you
cards, tableware, hats, horns, banners, cascades, balloons, novelty gifts,
pinatas, favors and candy.

RETAILER SUPPLIERS

     Amscan is the largest supplier to Party City, providing 20%, 21% and 20% of
the merchandise purchased by Party City in each of the years in the three-year
period ended December 31, 2005. The following table represents other suppliers
from whom Party City purchased at least 5% of its merchandise:

<TABLE>
<CAPTION>
          SUPPLIER             PRODUCTS SUPPLIED   2005   2004   2003
          --------            ------------------   ----   ----   ----
<S>                           <C>                  <C>    <C>    <C>
Hallmark Marketing Corp....     Paper products       6%     5%     5%
Unique Industries, Inc.....     Paper products       5      6      7
Rubies Costume Co. Inc.....   Halloween costumes     5      5      5
                                                   ---    ---    ---
   Total...................                         16%    16%    17%
                                                   ===    ===    ===
</TABLE>

     While Party City has historically purchased a significant portion of its
other brand merchandise from a relatively small number of sources, we do not
believe our retail business is dependent upon any single source of supply for
these products. However, certain of these suppliers may control various product
licenses for widely recognized images, such as cartoon or motion picture
characters and the loss of such suppliers could materially adversely affect our
future business, results of operations, financial condition and cash flow. We
consider numerous factors in supplier selection, including, but not limited to,
price, credit terms, product offerings and quality. As is customary in our
industry, we generally do not have long-term contracts with any supplier and any
supplier may discontinue selling to us at any time.

     We strive to maintain sufficient inventory to enable us to provide a high
level of service to our customers. Inventory, accounts receivable and accounts
payable levels, payment terms and return policies are in accordance with the
general practices of the retail party supply industry and standard business
procedures. We negotiate pricing with suppliers on behalf of all stores in our
network (company-owned and franchise). We believe that our buying power enables
us to receive favorable pricing terms and enhances our ability to obtain high
demand merchandise.

RETAIL ADVERTISING AND MARKETING

     Our advertising focuses on promoting specific seasonal occasions as well as
general themes, with a strong emphasis on our price-value positioning.
Historically, we have advertised primarily via the use of free-standing inserts
in newspapers throughout our market areas. In second half of 2005, Party City
introduced additional marketing techniques to supplement the inserts, including
outdoor, direct mail, newspaper and television advertising in selected markets,
with the goal of increasing customer traffic and building our brand. We also
placed particular emphasis on highly targeted relationship marketing efforts.
For example, we have begun to offer a Birthday Club program. In conjunction with
our marketing efforts, we have launched an upgraded Party City website that will
better communicate products, party ideas and promotional offers, although it
does not have e-commerce functionality initially.

FRANCHISE OPERATIONS

     As of December 31, 2005, we had 254 franchise stores throughout the United
States and Puerto Rico. Party City stores run by franchisees utilize our format,
design specifications, methods, standards, operating procedures, systems and
trademarks.

     We receive revenue from our franchisees, consisting of an initial one-time
fee and ongoing royalty fees. In addition, each franchisee has a mandated
advertising budget, which consists of a minimum initial store opening promotion
and ongoing local


                                       11

<PAGE>

advertising and promotions. Further, the franchisee must pay an additional 1% of
net sales to a Party City group advertising fund to cover common advertising
materials related to the Party City store concept. We do not offer financing to
our franchisees for one-time fees and ongoing royalty fees.

     Current franchise agreements provide for an assigned area or territory that
typically equals a three-mile radius from the franchisee's store location and
the right to use the Party City logo and trademark "The Discount Party Super
Store(R)." In most stores, the franchisee or the majority owner of a corporate
franchisee devotes full time to the management, operation and on-premises
supervision of the stores or groups of stores.

     Although franchise locations are generally obtained and secured by the
franchisee, pursuant to the franchise agreement we must approve all site
locations. As franchisor, we also supply valuable and proprietary information
pertaining to the operation of the Party City store business, as well as advice
regarding location, improvements and promotion. We also supply consultation in
the areas of purchasing, inventory control, pricing, marketing, merchandising,
hiring, training, improvements and new developments in the franchisee's business
operations, and we provide assistance in opening and initially promoting the
store.

     We continually focus on the management of our franchise operations, looking
for ways to improve the collaborative relationship in such areas as
merchandising, advertising and information systems.

     As of December 31, 2005, we had 16 territory agreements with certain
franchisees. These agreements grant the holder of the territory the right to
open one or more stores within a stated time period.

COMPETITION AT RETAIL

     We operate in highly competitive markets. Our stores compete with a variety
of smaller and larger retailers, including, but not limited to, single
owner-operated party supply stores, specialty party supply and paper goods
retailers (including superstores), warehouse/merchandise clubs, designated
departments in drug stores, general mass merchandisers, supermarkets and
department stores of local, regional and national chains and catalog and
Internet merchandisers. In addition, other stores or Internet merchandisers may
enter the market and become significant competitors in the future. Our stores
compete, among other things, on the basis of location and store layout, product
mix, customer convenience and price. Some of our competitors in our markets have
greater financial resources than we do.

     We believe that Party City stores maintain a leading position in the party
supply business by offering a wider breadth of merchandise than most
competitors, greater selection within merchandise classes and low prices on most
items in our stores. We believe that our significant buying power, which results
from the size of our Party City store network, is an integral advantage.

GOVERNMENT REGULATION

     As a franchisor, we must comply with regulations adopted by the Federal
Trade Commission, such as the Trade Regulation Rule on Franchising, which
requires us, among other things, to furnish prospective franchisees with a
franchise offering circular. We also must comply with a number of state laws
that regulate the offer and sale of our franchises and certain substantive
aspects of franchisor-franchisee relationships. These laws vary in their
application and in their regulatory requirements. State laws that regulate the
offer and sale of franchises typically require us to, among other things,
register before the offer and sale of a franchise can be made in that state and
to provide a franchise offering circular to prospective franchises.

     State laws that regulate the franchisor-franchisee relationship presently
exist in a substantial number of states. Those laws regulate the franchise
relationship, for example, by restricting a franchisor's rights with regard to
the termination, transfer and renewal of a franchise agreement (for example, by
requiring "good cause" to exist as a basis for the termination and the
franchisor's decision to refuse to permit the franchisee to exercise its
transfer or renewal rights), by requiring the franchisor to give advance notice
to the franchisee of the termination and give the franchisee an opportunity to
cure most defaults. To date, those laws have not precluded us from seeking
franchisees in any given area and have not had a material adverse effect on our
operations.

     Each of our stores must also comply with applicable regulations adopted by
federal agencies and with licensing and other regulations enforced by state and
local health, sanitation, safety, fire and other departments. Difficulties or
failures in obtaining the required licenses or approvals can delay and sometimes
prevent the opening of a new store or shut down an existing store.

     Our stores must comply with applicable federal and state environmental
regulations, although the cost of complying with these regulations to date has
not been material. More stringent and varied requirements of local governmental
bodies with respect


                                       12

<PAGE>

to zoning, land use, and environmental factors can delay, and sometimes prevent,
development of new stores in particular locations.

     Our stores must comply with the Fair Labor Standards Act and various state
laws governing various matters such as minimum wages, overtime and other working
conditions. Our stores must also comply with the provisions of the Americans
with Disabilities Act, which requires that employers provide reasonable
accommodation for employees with disabilities and that stores must be accessible
to customers with disabilities.

COPYRIGHTS AND TRADEMARKS

     We own copyrights on the designs we create and use on our products and
trademarks on the words and designs used on or in connection with our products.
It is our practice to register our copyrights with the United States Copyright
Office to the extent we deem reasonable. We do not believe that the loss of
copyrights or trademarks with respect to any particular product or products
would have a material adverse effect on our business. We hold approximately 110
licenses, allowing us to use various cartoon and other characters and designs
principally on our metallic balloons. None of these licenses is individually
material to our aggregate business.

     We own and permit our franchisees to use a number of trademarks and service
marks registered with the United States Patent and Trademark Office, including
Party City(R), The Discount Party Super Store(R) and Halloween Costume
Warehouse(R).

INFORMATION SYSTEMS

     We continually evaluate and upgrade our information systems to enhance the
quantity, quality and timeliness of information available to management and to
improve the efficiency of our manufacturing and distribution facilities as well
as our service at the store level. During the past two years, Party City
completed significant store and corporate system installations to improve
certain store processes, such as customer check-out, product receiving and
inventory management, as well as to reduce in store labor costs. We plan to
implement new merchandise replenishment software beginning in 2006 to complement
our distribution, planning and allocation processes. The system is intended to
enhance the store replenishment function by improving in-stocks, leveraging our
distribution infrastructure and allowing us to become more effective in our use
of store labor.

EMPLOYEES

     As of December 31, 2005, the Company had approximately 3,550 full-time
employees and 3,170 part-time employees, none of whom is represented by a
collective bargaining agreement. The Company considers its relationship with its
employees to be good.

ITEM 1A. RISK FACTORS

Consumer Demands and Preferences

     As a manufacturer, distributor and retailer, our products must appeal to a
broad range of consumers whose preferences cannot be predicted with certainty
and are subject to rapid change. Our success depends on our ability to identify
product trends as well as to anticipate and respond to changing merchandise
trends and consumer demand in a timely manner. We cannot assure you that we will
be able to continue to offer assortments of products that appeal to our
customers or that we will satisfy changing consumer demands in the future. In
addition, if consumer demand for single-use, disposable party goods were to
diminish in favor of reusable products for environmental or other reasons our
sales could decline. We also sell certain licensed products that are in great
demand for short time periods, making it difficult to project our inventory
needs for these products. Accordingly, if:

          -    we are unable to identify and respond to emerging trends;

          -    we miscalculate either the market for the merchandise in our
               stores or our customers' purchasing habits; or

          -    consumer demand dramatically shifts away from disposable party
               supplies,

our business, results of operations, financial condition and cash flow could be
materially adversely affected. In addition, we may be faced with significant
excess inventory of some products and missed opportunities for other products,
which would decrease our profitability.


                                       13
<PAGE>

Competition

     The party goods industry is highly competitive. We compete with many other
manufactures and distributors, including smaller, independent specialty
manufacturers and divisions or subsidiaries of larger companies with greater
financial and other resources than we have. Some of our competitors control
licenses for widely recognized images, such as cartoon or motion picture
characters, and have broader access to mass market retailers which could provide
them with a competitive advantage.

     Our retail stores compete with a variety of smaller and larger retailers.
Our stores compete, among other things, on the basis of location and store
layout, product mix, customer convenience and price. Some of our competitors in
our markets have greater financial resources than we do. We cannot guarantee
that we will continue to be able to compete successfully against existing or
future competitors. Expansion into markets served by our competitors and entry
of new competitors or expansion of existing competitors into our markets could
materially adversely affect our business, results of operations, cash flows and
financial condition.

Raw Material and Production Costs

     The costs of our key raw materials (paper and petroleum-based resin)
fluctuate. Generally, the Company absorbs movements in raw material costs it
considers temporary or insignificant. However, cost increases that are
considered other than temporary may require the Company to increase its prices
to maintain its margins. Customers may resist such price increases.

     Products we manufacture, primarily tableware and metallic balloons,
generally represent approximately 60% of our net sales at wholesale. During the
past three years, we have invested approximately $27.3 million in printing,
fabrication, packaging and other manufacturing equipment, which has allowed us
to increase productivity rates, thereby lowering labor and overhead as a
percentage of manufacturing costs. We believe our ability to manufacture product
representing approximately 60% of our sales enables us to lower production costs
by optimizing production while minimizing inventory investment, to ensure
product quality through rigid quality control procedures during production and
to be responsive to our customers' product design demands.

Interest Rates

     Although we may utilize interest rate swap agreements to manage the risk
associated with fluctuations in interest rates, we are exposed to fluctuations
in interest rates on a significant portion of our variable rate debt.

Exchange Rates

     We are exposed to foreign currency risk, predominately in European
countries, principally from fluctuations in the Euro and British Pound Sterling
and their impact on our profitability in foreign markets. Although we
periodically enter into foreign currency forward contracts to hedge against the
earnings effects of such fluctuations, we may not be able to hedge such risks
completely or permanently.

Execution of Key Initiatives

     During the past year, Party City undertook a series of related initiatives
to make fundamental improvements in its business, profitability and cash flow,
including initiatives focused on: improving the breadth of assortment and
quality of our products and related product pricing; reconfiguring our in-store
product layout to better align product categories and facilitate an easier
shopping experience for our customers; improving financial, distribution and
inventory systems; and building our talent base.

     We believe these initiatives along with increased promotional and
advertising activity should provide the basis for improved financial performance
during 2006. Should our customers respond less favorably to our merchandise
offerings, it could have a material adverse impact on our revenues and operating
income.

Franchise Program

     Our growth and success depends in part upon our ability to contract with
and retain qualified franchisees, as well as the ability of those franchisees to
operate their stores and promote and develop our store concept. Although we have
established criteria to evaluate prospective franchisees and our franchise
agreements include certain operating standards, each franchisee operates
independently. We cannot assure you that our franchisees will operate stores in
a manner consistent with our concept and standards, which could reduce the gross
revenues of these stores and therefore reduce our franchise revenue. The closing
of


                                       14

<PAGE>

unprofitable stores or the failure of franchisees to comply with our policies
could adversely affect our reputation and could reduce the amount of our
franchise revenues. These factors could have a material adverse effect on our
revenues and operating income.

     If we are unable to attract new franchisees or to convince existing
franchisees to open additional stores, any growth in royalties from franchised
stores will depend solely upon increases in revenues at existing franchised
stores. In addition, our ability to open additional franchise locations is
limited by the territorial restrictions in our existing franchise agreements as
well as our ability to identify additional markets in the United States that are
not currently saturated with the products we offer. If we are unable to open
additional franchise locations, we will have to sustain additional growth
through acquisitions, opening new company-owned stores and by attracting new and
repeat customers to our existing locations. If we are unable to do so, our
revenues and operating income may decline significantly.

Economic Downturn

     In general, our retail sales represent discretionary spending by our
customers. Discretionary spending is affected by many factors, including, among
others, general business conditions, interest rates, the availability of
consumer credit, taxation, weather and consumer confidence in future economic
conditions. Our customers' purchases of discretionary items, including our
products, could decline during periods when disposable income is lower or during
periods of actual or perceived unfavorable economic conditions. If this occurs,
our revenues and profitability will decline. In addition, our sales could be
adversely affected by a downturn in the economic conditions in the markets in
which we operate.

Key Vendors

     While Party City has historically purchased a significant portion of its
other brand merchandise from a relatively small number of sources, we do not
believe our retail business is dependent upon any single source of supply for
these products. However, certain of these suppliers may control various product
licenses for widely recognized images, such as cartoon or motion picture
characters and the loss of such suppliers could materially adversely affect our
future business, results of operations, financial condition and cash flow.

     Many of our vendors currently provide us with incentives such as volume
purchasing allowances and trade discounts. If our vendors were to reduce or
discontinue these incentives, prices from our vendors could increase and our
profitability would be reduced. As is customary in our industry, we generally do
not have long-term contracts with any vendor and any vendor may discontinue
selling to us at any time.

Additional Capital Requirements

     Our management currently believes that the cash generated by operations,
together with the borrowing availability under the Credit Agreements, will be
sufficient to meet our working capital needs for the next twelve months,
including investments made and expenses incurred in connection with technology
to improve merchandising and distribution systems, support cost reduction
initiatives, and improved efficiencies. However, if we are unable to generate
sufficient cash from operations, we may be required to adopt one or more
alternatives to raise cash, such as incurring indebtedness, selling our assets,
seeking to raise additional debt or equity capital or restructuring. If adequate
financing is unavailable or is unavailable on acceptable terms, we may be unable
to maintain, develop or enhance our operations, products and services, take
advantage of future opportunities or respond to competitive pressures.

Seasonal and Quarterly Fluctuations

     Our retail business is subject to significant seasonal variations.
Historically, Party City realized a significant portion of its revenues, net
income and cash flow in the fourth quarter of the year, principally due to the
sales in October for the Halloween season and, to a lesser extent, due to sales
for end of year holidays. We believe this general pattern will continue in the
future. An economic downturn during this period could adversely affect us to a
greater extent than if such downturn occurred at other times of the year. Our
results of operations and cash flows may also fluctuate significantly as a
result of a variety of other factors, including the timing of new store
openings, store closings and timing of the potential disposition and acquisition
of stores.

Key Personnel

     Our success depends to a large extent on the continued service of our
executive management team. Departures by our executive officers could have a
negative impact on our business, as we may not be able to find suitable
management personnel to


                                       15

<PAGE>

replace departing executives on a timely basis. We do not maintain key executive
life insurance on any of our executive officers.

     As our business expands, we believe that our future success will depend
greatly on our continued ability to attract and retain highly skilled and
qualified personnel. Although we generally have been able to meet our staffing
requirements in the past, our ability to meet our labor needs while controlling
costs is subject to external factors, such as unemployment levels, minimum wage
legislation and changing demographics. Our inability to meet our staffing
requirements in the future at costs that are favorable to us, or at all, could
impair our ability to increase revenue, and our customers could experience lower
levels of customer care.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

     The Company maintains its corporate headquarters in Elmsford, New York and
conducts its principal design, manufacturing and distribution operations at the
following facilities:

<TABLE>
<CAPTION>
                                                                                                         OWNED OR LEASED
            LOCATION                          PRINCIPAL ACTIVITY                  SQUARE FEET         (WITH EXPIRATION DATE)
            --------              -----------------------------------------   -------------------   -------------------------
<S>                               <C>                                         <C>                   <C>
Elmsford, New York                Executive offices, show rooms, design and   189,846 square feet   Leased (expiration date:
                                     art production of party products and                              December 31, 2014)
                                     decorations

Harriman, New York                Manufacture of paper napkins                 75,000 square feet   Leased (expiration date:
                                                                                                       March 31, 2011)

Narragansett, Rhode Island        Manufacture and distribution of plastic      48,455 square feet   Leased (expiration date:
                                     plates, cups and bowls                                            April 26, 2006)

Newburgh, New York                Manufacture of paper napkins and cups        53,000 square feet   Leased (expiration date:
                                                                                                       May 31, 2008)

Louisville, Kentucky              Manufacture and distribution of paper       189,000 square feet   Leased (expiration date:
                                     plates                                                            March 31, 2010)

Eden Prairie, Minnesota           Manufacture and distribution of balloons    115,600 square feet   Owned
                                     and accessories

Tijuana, Mexico                   Manufacture and distribution of party        75,000 square feet   Leased (expiration dates:
                                     products                                                          May 16, 2007 and
                                                                                                       May 31, 2009)

Chester, New York (1) (2)         Distribution of decorative party and gift   544,000 square feet   Owned
                                     products

Chester, New York (2)             Distribution of decorative party products   287,000 square feet   Owned

Milton Keynes, Buckinghamshire,   Distribution of party products throughout   110,000 square feet   Leased (expiration date:
   England                           the United Kingdom and Europe                                     June 30, 2017)

Edina, Minnesota                  Distribution of balloons and accessories    122,312 square feet   Leased (expiration date:
                                                                                                       December 31, 2010)
</TABLE>

(1)  Property is subject to a lien mortgage note in the original principal
     amount of $10.0 million with the New York State Job Development Authority.
     The lien mortgage note bears interest at a rate of 3.31%, subject to change
     under certain conditions. The mortgage note is for a term of 96 months and
     requires monthly payments based on a 180-month amortization period with a
     balloon payment upon maturity in January 2010. At December 31, 2005, the
     principal amount outstanding under the lien mortgage note is approximately
     $7.9 million.

(2)  We plan to expand our 544,000 square foot Chester distribution facility by
     approximately 350,000 square feet in 2006, at an estimated cost of $15.0
     million. A substantial portion of the cost is expected to be provided by
     the net proceeds from the anticipated sale of our 287,000 square foot, less
     technologically sophisticated Chester distribution facility.


                                       16

<PAGE>

     In addition to the facilities listed above, we maintain smaller
distribution facilities in Australia, Canada and Mexico. We also maintain sales
offices in Australia, Canada, Hong Kong and Japan and showrooms in New York,
California, Georgia, Texas, Canada and Hong Kong.

     We lease Party City's 106,000 square feet corporate headquarters, located
in Rockaway, New Jersey. The initial term expires in 2017, with two five-year
renewal options. The lease contains escalation clauses and obligations for
reimbursement of common area maintenance and real estate taxes.

     As of December 31, 2005, there were 248 company-owned Party City stores
open in the United States. We leased the property for all of our company-owned
stores. Our stores range in size from 6,750 to 19,800 square feet, with a
typical store size between 10,000 and 12,000 square feet. We do not believe that
any individual store property is material to our financial condition or results
of operation. Of the leases for the company-owned stores, 13 expire in 2006, 48
expire in 2007, 62 expire in 2008, 50 expire in 2009 and the balance expire in
2010 or thereafter. We have options to extend most of these leases for a minimum
of five years.

     The following table shows the change in Party City's network of stores for
each of the years in the three-year period ended December 31, 2005.

<TABLE>
<CAPTION>
                                              2005   2004   2003
                                              ----   ----   ----
<S>                                           <C>    <C>    <C>
Company-owned:
   Stores open at beginning of year .......   248    247    239
      Stores opened .......................     2      4     11
      Stores closed .......................    (2)    (3)    (3)
                                              ---    ---    ---
      Stores open at end of year ..........   248    248    247
Franchise:
   Stores open at beginning of year .......   259    254    240
      Stores opened .......................    11      8     14
      Stores closed .......................   (16)    (3)    --
                                              ---    ---    ---
      Stores open at end of year ..........   254    259    254
                                              ---    ---    ---
Total company-owned and franchise stores ..   502    507    501
                                              ===    ===    ===
</TABLE>

     As of December 31, 2005, Company and franchise-owned Party City stores were
located in the following states and Puerto Rico:

<TABLE>
<CAPTION>
      STATE         COMPANY-OWNED   FRANCHISE   CHAIN-WIDE
      -----         -------------   ---------   ----------
<S>                 <C>             <C>         <C>
Alabama..........         --             8            8
Arizona..........         --             9            9
Arkansas.........         --             3            3
California.......         52            13           65
Colorado.........          5            --            5
Connecticut......          4             3            7
Delaware.........         --             1            1
Florida..........         13            39           52
Georgia..........         --            27           27
Hawaii...........         --             1            1
Illinois.........         22            --           22
Indiana..........          5            --            5
Kansas...........         --             4            4
Kentucky.........          1            --            1
Louisiana........          3             8           11
</TABLE>


                                       17

<PAGE>

<TABLE>
<CAPTION>
      STATE         COMPANY-OWNED   FRANCHISE   CHAIN-WIDE
      -----         -------------   ---------   ----------
<S>                 <C>             <C>         <C>
Maryland.........          3            10           13
Massachusetts....          5            --            5
Michigan.........         10            --           10
Minnesota........          5            --            5
Mississippi......         --             3            3
Missouri.........          4             1            5
Nevada...........          5            --            5
New Jersey.......          9            22           31
New Mexico.......         --             3            3
New York.........         32            17           49
North Carolina...         --            18           18
Ohio.............         10            --           10
Oregon...........         --             4            4
Pennsylvania.....          9            16           25
Rhode Island.....         --             2            2
South Carolina...         --             6            6
Tennessee........          1             9           10
Texas............         27            11           38
Utah.............          2            --            2
Virginia.........          6             9           15
Washington.......         14             2           16
Wisconsin........          1            --            1
Puerto Rico......         --             5            5
                         ---           ---          ---
   Total.........        248           254          502
                         ===           ===          ===
</TABLE>

     In 2005, Party City began evaluating a program of temporary Halloween
stores operating under the Halloween Costume Warehouse name. Under the program,
we will operate temporary stores under short-term leases with terms of
approximately four months, to cover the early September through early November
Halloween season.

     We believe that our properties have been adequately maintained, are in
generally good condition and are suitable for our business as presently
conducted. We believe our existing manufacturing facilities provide sufficient
production capacity for our present needs and for our anticipated needs in the
foreseeable future. To the extent such capacity is not needed for the
manufacture of our products, we generally use such capacity for the manufacture
of products for others pursuant to terminable agreements. All manufacturing and
distribution facilities generally are used on a basis of two shifts per day. We
also believe that upon the expiration of our current leases, we will be able
either to secure renewal terms or to enter into leases for alternative locations
at market terms.

ITEM 3. LEGAL PROCEEDINGS

     We are a party to certain claims and litigation in the ordinary course of
business. We do not believe any of these proceedings will have, individually or
in the aggregate, a material adverse effect on our financial condition or future
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
     AND ISSUER PURCHASES OF EQUITY SECURITIES

     There is no public trading market for the Company's common stock.

     As of the close of business on March 29, 2006, there were 63 holders of
record of the Company's common stock.


                                       18
<PAGE>

DIVIDENDS

     The Company has not paid any dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain its earnings for working capital, repayment of
indebtedness, capital expenditures and general corporate purposes. In addition,
the Company's current credit facility and the indenture governing its notes
contain restrictive covenants which have the effect of limiting the Company's
ability to pay cash dividends or distributions to its stockholders.

ISSUER PURCHASES OF EQUITY SECURITIES

     Under the terms of our stockholders' agreement, we have an option to
purchase all of the shares of common stock held by former employees and, under
certain circumstances, former employee stockholders can require us to purchase
all of the shares held by them. The purchase price as prescribed in the
stockholders' agreements is to be determined through a market valuation of the
minority-held shares or, under certain circumstances, based on cost, as defined
therein. During the year ended December 31, 2005, we purchased and retired 10.4
shares of redeemable Common Stock held by a former employee at the share's
estimated fair value of $10,000 per share.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information as of December 31, 2005,
concerning our equity compensation plans (1);

<TABLE>
<CAPTION>
                                                                                                               (c)
                                               (a)                                                NUMBER OF SECURITIES REMAINING
                                    NUMBER OF SECURITIES TO BE                 (b)                AVAILABLE FOR FUTURE ISSUANCE
                                     ISSUED UPON EXERCISE OF        WEIGHTED-AVERAGE EXERCISE    UNDER EQUITY COMPENSATION PLANS
                                  OUTSTANDING OPTIONS, WARRANTS       PRICE OF OUTSTANDING       (EXCLUDING SECURITIES REFLECTED
                                           AND RIGHTS             OPTIONS, WARRANTS AND RIGHTS            IN COLUMN (A))
                                  -----------------------------   ----------------------------   -------------------------------
<S>                               <C>                             <C>                            <C>
Equity compensation plans
   approved by security holders             1,580.182                        $9,534                          276.228
Equity compensation plans not
   approved by security holders                    --                            --                               --
                                            ---------                        ------                          -------
   Total                                    1,580.182                        $9,534                          276.228
                                            =========                        ======                          =======
</TABLE>

(1)  See Note 15 to our consolidated financial statements included herein for a
     description of our equity compensation plan.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The selected consolidated financial data presented below under the captions
"Statement of Operations Data," and "Balance Sheet Data" as of and for the year
and the eight months ended December 31, 2005 and 2004, respectively, and for the
four months ended April 30, 2004 and as of and for each of the years in the
three-year period ended December 31, 2003 (Predecessor), are derived from the
consolidated financial statements of the Company. The consolidated financial
statements as of and for the year and eight months ended December 31, 2005 and
2004, respectively, and for the four months ended April 30, 2004 and the year
ended December 31, 2003, (Predecessor), are included in this report under Item
8, "Financial Statements and Supplementary Data." The selected consolidated
financial data should be read in conjunction with the consolidated financial
statements and the related notes thereto and Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."


                                       19

<PAGE>

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       YEAR      EIGHT MONTHS  FOUR MONTHS
                                                       ENDED         ENDED        ENDED        YEARS ENDED DECEMBER 31,
                                                   DECEMBER 31,  DECEMBER 31,   APRIL 30,   ------------------------------
                                                     2005 (1)        2004          2004       2003       2002       2001
                                                   ------------  ------------  -----------  --------   --------   --------
                                                                                           (PREDECESSOR)
<S>                                                <C>           <C>           <C>          <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
   Revenues:
      Net sales .................................    $417,226      $265,556      $133,660   $402,816   $385,603   $345,183
      Royalties and franchise fees ..............         509            --            --         --         --         --
                                                     --------      --------      --------   --------   --------   --------
   Total revenues ...............................     417,735       265,556       133,660    402,816    385,603    345,183
   Expenses:
      Cost of sales .............................     281,632       178,210        88,247    269,125    252,980    225,036
      Selling expenses ..........................      36,181        23,529        12,430     36,515     34,619     31,414
      Retail operating expenses .................       1,824            --            --         --         --         --
      Franchise expenses ........................         779            --            --         --         --         --
      General and administrative expenses .......      36,026        22,718        10,874     34,513     35,064     37,075
      Art and development costs .................       8,941         6,713         3,332      9,395     10,301      8,772
      Non-recurring expenses and restructuring
         charges (2) (3) (4) ....................       3,988            --        11,757      1,007      3,924         --
                                                     --------      --------      --------   --------   --------   --------
   Income from operations .......................      48,364        34,386         7,020     52,261     48,715     42,886
      Interest expense, net .....................      31,907        19,124         8,384     26,368     21,792     24,069
      Other (income) expense, net (5) ...........        (764)          882            31     (1,434)      (311)        24
                                                     --------      --------      --------   --------   --------   --------
   Income (loss) before income taxes and minority
      interests .................................      17,221        14,380        (1,395)    27,327     27,234     18,793
         Income tax expense (benefit) ...........       4,940         5,679          (551)    10,065     10,757      7,423
         Minority interests .....................          21           137            46         99         12         68
                                                     --------      --------      --------   --------   --------   --------
   Net income (loss) ............................      12,260         8,564          (890)    17,163     16,465     11,302
   Dividend on redeemable convertible preferred
      stock .....................................          --            --           136        399        376        270
                                                     --------      --------      --------   --------   --------   --------
   Net income (loss) applicable to common
      shares ....................................    $ 12,260      $  8,564      $ (1,026)  $ 16,764   $ 16,089   $ 11,032
                                                     ========      ========      ========   ========   ========   ========

OTHER FINANCIAL DATA:
   Capital expenditures, including assets under
      capital leases ............................    $ 17,051      $  7,910      $  3,757   $ 12,668   $ 17,765   $ 37,623
   Depreciation and amortization (6) ............      18,602         9,519         5,296     16,119     13,962     15,468
   Ratio of earnings to fixed charges (7) .......         1.5x          1.7x          0.9x       1.9x       2.0x       1.6x
</TABLE>

<TABLE>
<CAPTION>
                                                        AT DECEMBER 31,           AT DECEMBER 31,
                                                     --------------------  ----------------------------
                                                      2005 (1)     2004      2003      2002      2001
                                                     ----------  --------  --------  --------  --------
                                                                                   (PREDECESSOR)
<S>                                                  <C>         <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
   Working capital ................................  $  157,169  $126,372  $120,559  $119,256  $ 96,713
   Total assets (9)(10) ...........................   1,118,947   647,266   382,102   372,497   310,464
   Short-term obligations (8) .....................  $    2,643  $  4,832  $ 23,237  $  3,220  $  4,155
   Long-term obligations (9) (10) .................     561,567   384,993   272,272   295,420   278,443
                                                     ----------  --------  --------  --------  --------
   Total obligations ..............................  $  564,210  $389,825  $295,509  $298,640  $282,598
                                                     ==========  ========  ========  ========  ========
   Redeemable convertible preferred stock (11) ....  $       --  $     --  $  7,045  $  6,646  $  6,270
   Redeemable common securities (12) (13) .........       6,821     3,705     9,498    30,523    29,949
   Stockholders' equity (deficit) (9) (10) (12) ...     320,810   146,728    (8,619)  (46,283)  (77,305)
</TABLE>


                                       20

<PAGE>

(1)  Party City is included in the balance sheet data for December 31, 2005 and
     the statement of operations and other financial data from the date of the
     Party City Acquisition, December 23, 2005.

(2)  In connection with the Party City Acquisition in December 2005 and the 2004
     Transactions in April 2004, the Company recorded non-recurring expenses of
     $4.0 million and $11.8 million, respectively, which included $6.2 million
     of debt retirement costs in 2004 and the write-off of $4.0 million and $5.6
     million of deferred financing costs associated with the repayment of debt
     in 2005 and 2004, respectively.

(3)  During the fourth quarter of 2002, we amended and restated our credit
     facility with various lenders which resulted in a $1.5 million write-off of
     deferred financing costs associated with the facility. Additionally, during
     the fourth quarter of 2002, we decided not to pursue an initial public
     offering ("IPO") of shares of our Common Stock given valuations available
     in the equity markets at that time, which resulted in a $0.8 million
     write-off of costs associated with the offering. On March 12, 2003, we
     filed a Form RW with the Commission withdrawing our registration statement
     for the IPO.

(4)  During 2003 and 2002, we incurred restructuring charges of $1.0 million and
     $1.7 million, respectively, resulting from the consolidation of certain
     domestic and foreign distribution operations, and during 2003, the
     integration of M&D Industries.

(5)  During 2004 and 2003, we sold common stock of a customer received in
     connection with the customer's reorganization in bankruptcy, receiving net
     proceeds of approximately $0.07 million and $2.0 million and recognizing
     gains of approximately $0.05 million and $1.5 million, respectively.

(6)  Depreciation and amortization for the year ended December 31, 2001 includes
     amortization of goodwill of $2.6 million.

(7)  For purposes of determining the ratio of earnings to fixed charges,
     earnings are defined as earnings before income taxes and minority interests
     plus fixed charges. Fixed charges consist of interest expense on all
     obligations, amortization of deferred financing costs and an estimate of
     the rental expense on operating leases representing that portion of rental
     expense deemed by the Company to be attributable to interest.

(8)  Short-term obligations consist primarily of borrowings under bank lines of
     credit and the current portion of long-term debt. At December 31, 2003, the
     current portion of long-term debt included $20.2 million of the Company's
     then existing term loan which was paid in March 2004 as required based on
     the Company's excess cash flows, as defined, for the year ended December
     31, 2003.

(9)  Cash paid to consummate the Party City Acquisition totaled $567.0 million.
     Financing for the acquisition, including the repayment of borrowings under
     the Company's 2004 Senior Secured Credit Facility, was provided by: (i) the
     $166.4 million Equity Investment in the Company's parent, AAH, (ii) the
     $325 million First Term Loan (net of an original issue discount of $3.25
     million), (iii) the $60 million Second Term Loan (net of an original issue
     discount of $1.5 million) and (iv) cash on-hand of $20.4 million. Party
     City's balance sheet at December 31, 2005, is based, in-part, on our
     preliminary estimates of the fair value of the tangible and identifiable
     intangible assets acquired and liabilities assumed on the Party City
     Acquisition Date. Independent valuation specialists are currently
     conducting a valuation of the net assets acquired as of the Party City
     Acquisition Date to assist management with the final determination of fair
     value.

(10) Cash paid to consummate the 2004 Transactions in April 2004 totaled $530.0
     million and was financed with initial borrowings (before deducting deferred
     financing costs of $13.1 million) consisting of a $205.0 million term loan
     under a new senior secured credit facility, the proceeds from the issuance
     of $175.0 million of 8.75% senior subordinated notes due 2014, an equity
     contribution by the Principal Investors and employee stockholders of $140.5
     million, borrowings under the revolver of $23.6 million and available cash
     on hand.

(11) On March 30, 2001, the Board of Directors authorized 500 shares of our
     preferred stock, $0.10 par value, and designated 100 shares as Series A
     Redeemable Convertible Preferred Stock. Also on March 30, 2001, the Company
     issued 40 shares of Series A Redeemable Convertible Preferred Stock to
     GSCP, for proceeds of $6.0 million. Dividends were cumulative and payable
     annually, at 6% per annum. On March 30, 2003 and 2002, the annual dividend
     was distributed in additional shares of Series A Redeemable Convertible
     Preferred Stock. As of December 31, 2003, accrued dividends aggregated $0.3
     million, and were included in redeemable convertible preferred stock on the
     Predecessor's consolidated balance sheet. At December 31, 2003, 44.94
     shares of our Series A Redeemable Convertible Preferred Stock were issued
     and outstanding. Each share of Series A Redeemable Convertible Preferred
     Stock was convertible at the option of the holder at any time into shares
     of Common Stock, $0.10 par value, at a conversion rate of 1.0 share of
     Common Stock for each share of Series A Redeemable Convertible Preferred
     Stock, subject to adjustment under certain conditions. Upon completion of


                                       21

<PAGE>

     the 2004 Transactions, no shares of the Series A Redeemable Convertible
     Preferred Stock were outstanding.

(12) Under the terms of Amscan's amended and restated stockholders' agreement,
     dated February 20, 2002 and the AAH stockholders' agreement effective April
     30, 2004, we have an option to purchase all of the shares of common stock
     held by former employees and, under certain circumstances, including death
     and disability, former employee stockholders can require us to purchase all
     of the shares held by them. The purchase price as prescribed in the
     stockholders' agreements is to be determined through a market valuation of
     the minority-held shares or, under certain circumstances, based on cost, as
     defined therein. The aggregate amount that may be payable by us to all
     employee stockholders based on fully paid and vested shares is classified
     as redeemable common securities.

(13) In connection with the 2004 Transactions, our Chief Executive Officer and
     President exchanged 5.4945 and 2.7472 of their shares of Company Common
     Stock for 100 and 50 shares of AAH Common Stock with an equivalent value of
     $1.0 million and $0.5 million, respectively. In addition, our Chief
     Executive Officer and President exchanged their 5.607 and 2.804 vested
     options to purchase shares of Company Common Stock, which had intrinsic
     values of $0.6 million and $0.3 million, respectively, for vested options
     to purchase 65.455 and 32.727 shares of AAH Common Stock under the new
     equity incentive plan with intrinsic values of $0.5 million and $0.2
     million and estimated fair values of $0.6 million and $0.3 million,
     respectively. The fair value of the AAH options was included in the equity
     contribution related to the 2004 Transactions; however, as the AAH options
     are options to purchase redeemable common stock, their estimated redemption
     value is classified as redeemable common securities on the consolidated
     balance sheet.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
     OF OPERATIONS

GENERAL

     The party goods industry continues to experience changes in both
distribution channels and product offerings. Following the consolidation in the
party superstore distribution channel, which began in 1997 and appears to have
ended in 2003, the party superstore distribution channel has been stable for the
past two years. With the continued success of the party superstore distribution
channel, party goods manufacturers, distributors and retailers have broadened
their product offerings to support the celebration of a greater number of
occasions. Our growth and the growth of the entire industry have been directly
affected by these changes.

     To achieve further sales growth and expansion, our sales efforts are also
focused on card and gift and other independent retailers as well as the further
penetration of key European hypermarket and supermarket accounts. We have
expanded our gift lines, which encompass home, baby and wedding products for
general gift giving or self-purchase, principally for the card and gift
distribution channels. To deepen our retail penetration at key European
hypermarket and supermarket accounts, we have strengthened our international
management infrastructure and will focus on broadening our distribution network,
increasing accessorization and customization of our products to local tastes and
holidays.

     Our wholesale revenues are generated from the sales of approximately 35,000
SKU's consisting of party goods for all occasions, including paper and plastic
tableware, accessories and novelties, metallic balloons, stationery and gift
items. Tableware (plates, cups, cutlery, napkins and tablecovers) is our core
product category, with coordinating accessories (e.g., balloons, banners, gifts
and stationery) and novelties (e.g., party favors) being offered to complement
these tableware products. As a metallic balloon manufacturer, we have a strong
presence in grocery, gifts and floral distribution channels, and have leveraged
our strong presence to bring additional party goods to these markets. With the
Party City Acquisition, we became the operator of 248 retail party superstores
within the continental United States and the franchisor of individual store and
franchise areas throughout the United States and Puerto Rico. At December 31,
2005, our network included 254 franchise stores. Our retail operations generate
revenue primarily through the sale of more than 15,000 Amscan, private label and
other brand SKU's through our company-owned stores and through the imposition of
an initial one-time franchise fee and ongoing royalty payments based on retail
sales.

RESULTS OF OPERATIONS

     The results of operations for the year ended December 31, 2005 include the
results of Party City's operations for the eight-day period following its
acquisition on December 23, 2005. However, for purposes of management's
discussion and analysis of financial condition and results of operations,
financial information has not been broken out by segments. In addition, for the
purpose of management's discussion and analysis of financial condition and
results of operations, financial information for the Predecessor (periods prior
to May 1, 2004) and the Successor (the period subsequent to April 30, 2004) have
been combined to


                                       22

<PAGE>

compare yearly information and therefore the term "Company" refers to Amscan
Holdings, Inc. and its subsidiaries for all periods presented. This presentation
is not in accordance with generally accepted accounting principles.

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

PERCENTAGE OF TOTAL REVENUES

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                                             DECEMBER 31,
                                                            -------------
                                                             2005    2004
                                                            -----   -----
<S>                                                         <C>     <C>
Total revenues:
   Net sales ............................................    99.9%  100.0%
   Royalties and franchise fees .........................     0.1      --
                                                            -----   -----
      Total revenues ....................................   100.0   100.0
Total expenses:
   Cost of sales ........................................    67.4    66.7
   Selling expenses .....................................     8.7     9.0
   Retail operating expenses ............................     0.4      --
   Franchise expenses ...................................     0.2      --
   General and administrative expenses ..................     8.6     8.4
   Art and development costs ............................     2.1     2.5
   Non-recurring expenses ...............................     1.0     3.0
                                                            -----   -----
      Total expenses ....................................    88.4    89.6
                                                            -----   -----
         Income from operations .........................    11.6    10.4
Interest expense, net ...................................     7.6     6.9
Other (income) expense, net .............................    (0.1)    0.2
                                                            -----   -----
   Income before income taxes and minority interest .....     4.1     3.3
Income tax expense ......................................     1.2     1.3
Minority interest .......................................      --      --
                                                            -----   -----
         Net income .....................................     2.9%    2.0%
                                                            =====   =====
</TABLE>

     TOTAL REVENUES. Total revenues for the year ended December 31, 2005
consists of net sales of $417.2 million and franchise related revenues of $0.5
million. Net sales for the year ended December 31, 2005 consisted of $405.4
million of net sales, at wholesale, and $11.8 million of retail sales occurring
during the eight-day period following the Party City Acquisition Date. Net
sales, at wholesale, also reflect the elimination of intercompany sales to Party
City of $1.7 million during the eight-day period. Before the elimination of
intercompany sales, net sales, at wholesale, were $8.0 million or 2.0% higher
than for the year ended December 31, 2004. Net sales for the year ended December
31, 2005 include a $2.3 million decrease in sales to Party City, prior to its
acquisition, principally due to a reduction in sales of private label product
manufactured by the Company. Net sales for the year ended December 31, 2004 were
adversely affected by a general softness in retail markets, the rationalization
of inventories by certain national superstore chains including Party City, and
inventory shortages on certain products as a result of a production disruption
at one of our foreign vendors. Net sales of metallic balloons totaled $79.3
million, or 2.0% higher than in 2004, with the increase partially attributable
to the introduction of a newly licensed musical balloon line. International
sales totaled $60.4 million, or 8.8% higher than in 2004 (including the effects
of foreign exchange fluctuations).

     GROSS PROFIT. Gross profit margin for the year ended December 31, 2005 was
32.5% or 80 basis points lower than in 2004. The decrease in gross profit margin
principally reflects changes in product sales mix across the Company's many
product lines. The impact of higher raw material and freight costs was
substantially offset by price increases instituted during the second half of
2005 and increased leveraging of distribution costs.

     OPERATING EXPENSES. Selling expenses of $36.2 million for the year ended
December 31, 2005 were comparable to selling expenses for the year ended
December 31, 2004. As a percent of net sales, selling expenses were 8.7% for the
year ended December 31, 2005, as compared to 9.0% in 2004, principally due to a
reduction in our sales force and the higher level of net sales.


                                       23
<PAGE>

     Retail operating and franchise expenses of $1.8 million and $0.8 million,
respectively, for the year ended December 31, 2005 represent the expenses of
Party City for the eight-day period following its acquisition on December 23.
2005.

     General and administrative expenses of $36.0 million for the year ended
December 31, 2005 were $2.4 million higher than in 2004. General and
administrative expense for 2005 includes Party City expenses for the eight days
following the acquisition, increased depreciation and amortization expense as a
result of the final purchase accounting for the 2004 Transactions and higher
compensation and professional and management fees. These increases were
partially offset by a lower provision for doubtful accounts. General and
administrative expenses increased, as a percentage of total revenues, to 8.6% in
2005 from 8.4% in 2004.

     Art and development costs of $8.9 million for the year ended December 31,
2005 were $1.1 million lower than in 2004, reflecting reduced development of
custom product lines. As a percentage of total revenue, art and development
costs were 2.1% for the year ended December 31, 2005 or 40 basis points lower
than in 2004.

     In connection with the Party City Acquisition in December 2005 and the 2004
Transactions in April 2004, the Company recorded non-recurring expenses of $4.0
million and $11.8 million, respectively, which included the write-off of $4.0
million and $5.6 million of deferred financing costs in 2005 and 2004,
respectively, and other debt retirement costs of $6.2 million in 2004.

     INTEREST EXPENSE, NET. Interest expense of $31.9 million for the year ended
December 31, 2005 was $4.4 million higher than for the year ended December 31,
2004, due to the impact of higher variable interest rates and higher average
borrowings following the Party City acquisition in December 2005 and the 2004
Transactions in April 2004.

     OTHER (INCOME) EXPENSE, NET. Other income of $0.8 million for the year
ended December 31, 2005 consisted of gains on the change in the fair value of
foreign exchange contracts of $1.2 million and other income items of $0.6
million, offset by undistributed loss in unconsolidated joint venture of $1.0
million. For the year ended December 31, 2004, other expense of $0.9 million
consisted of undistributed loss in unconsolidated joint venture of $1.2 million
offset by other income items of $0.3 million. The undistributed loss in
unconsolidated joint venture represents our share of the loss from our Mexican
balloon distribution joint venture, including the elimination of intercompany
profit in the joint venture's inventory at December 31, 2005 and 2004 .

     INCOME TAXES. Income taxes for the years ended December 31, 2005 and 2004
were based upon estimated consolidated effective income tax rates of 28.8% and
39.5%, respectively. The reduction in the effective income tax rate reflects a
$1.4 million reduction in income tax expense and net deferred income tax
liability as a result of a change in the estimated state income tax rate
following a change in New York State tax law governing the apportionment of
income in 2005, as well as the inclusion of additional tax items required in
2004.


                                       24

<PAGE>

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                                -------------
                                                                 2004    2003
                                                                -----   -----
<S>                                                             <C>     <C>
Net sales ...................................................   100.0%  100.0%
Cost of sales ...............................................    66.7    66.8
                                                                -----   -----
   Gross profit .............................................    33.3    33.2
Operating expenses:
   Selling expenses .........................................     9.0     9.1
   General and administrative expenses ......................     8.4     8.5
   Art and development costs ................................     2.5     2.3
   Non-recurring expenses related to the 2004 Transactions ..     3.0      --
   Restructuring charges ....................................      --     0.3
                                                                -----   -----
      Total operating expenses ..............................    22.9    20.2
                                                                -----   -----
         Income from operations .............................    10.4    13.0
Interest expense, net .......................................     6.9     6.5
Other expense (income), net .................................     0.2    (0.3)
                                                                -----   -----
      Income before income taxes and minority interest ......     3.3     6.8
Income tax expense ..........................................     1.3     2.5
Minority interest ...........................................      --      --
                                                                -----   -----
         Net income .........................................     2.0%    4.3%
                                                                =====   =====
</TABLE>

     NET SALES. Net sales of $399.2 million for the year ended December 31, 2004
were $3.6 million lower than net sales for the year ended December 31, 2003. The
decrease in net sales reflects a general softness in retail markets that
occurred earlier in the year, the impact of inventory shortages of certain
products as a result of a production disruption at one of the Company's foreign
vendors and the rationalization of inventories and changes in the promotional
pricing activities at certain national chains. These decreases in net sales were
partially offset by higher net international sales, principally as a result of
foreign currency exchange fluctuations.

     GROSS PROFIT. Gross profit margin for the year ended December 31, 2004 was
33.3% and comparable to the gross profit margin for the year ended December 31,
2003. However, the gross profit margin for 2004 principally reflects higher
inventory costs from the write-up of finished goods inventories as a result of
purchase accounting for the 2004 Transactions, increased raw material costs and
higher freight costs (including nonrecurring air freight incurred to expedite
the replenishment of inventory shortages noted above). These increases in costs
were offset by the full synergies arising from the completed integration of M&D
Industries, Inc., our 2002 balloon business acquisition, and the elimination of
redundant distribution costs incurred in 2003 arising from the transition from
four to three east coast distribution facilities.

     OPERATING EXPENSES. Selling expenses of $36.0 million for the year ended
December 31, 2004 were $0.6 million lower than for the year ended December 31,
2003 primarily as a result of a consolidation of sales territories. As a
percentage of net sales, selling expenses were 9.0%, or 0.1% lower than in 2003.

     General and administrative expenses of $33.6 million for the year ended
December 31, 2004 were $0.9 million lower than for the year ended December 31,
2003. The decrease in general and administrative expenses principally reflects
the closure, in 2003, of certain international facilities and the contribution,
in December 2003, of our metallic balloon distribution operations located in
Mexico to a newly created joint venture. The joint venture distributes certain
metallic balloons principally in Mexico and Latin America. In addition, the
provision for doubtful accounts for the year ended December 31, 2004 was $0.6
lower than the year ended December 31, 2003. During the second quarter of 2003,
a customer filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code and, as a result, the Company charged $1.8 million to the
provision for doubtful accounts during 2003. This customer accounted for
approximately 2.1% of our net sales for 2003. These decreases in general and
administrative expenses were partially offset by management fees paid to our
Principal Investors in 2004.


                                       25

<PAGE>
     Art and development costs of $10.0 million for the year ended December 31,
2004 were $0.7 million higher as compared to 2003 principally due to increased
development of custom product lines. As a percentage of net sales, art and
development costs were 2.5% for the year ended December 31, 2004 or 0.2% higher
than in 2003.

     In connection with the 2004 Transactions in April 2004, the Company
recorded non-recurring expenses of $11.8 million comprised of $6.2 million of
debt retirement costs and the write-off of $5.6 million of deferred financing
costs associated with the repayment of debt.

     During the year ended December 31, 2003, the Company incurred restructuring
charges of $1.0 million resulting from the consolidation of certain domestic and
foreign distribution operations and the integration of M&D Industries, Inc. into
our balloon operations.

     INTEREST EXPENSE, NET. Interest expense, net, of $27.5 million for the year
ended December 31, 2004 was $1.1 million higher than for the year ended December
31, 2003, due to the impact of higher average borrowings partially offset by
lower interest rates.

     OTHER EXPENSE (INCOME), net. Other expense in 2004 consists of
undistributed loss in unconsolidated joint venture partially offset by gains on
sales of available-for-sale securities. Other income in 2003 consists of gains
on sales of available-for-sale securities. Undistributed loss in unconsolidated
joint venture represents our share of our Mexican balloon distribution joint
venture's start-up losses, including the elimination of intercompany profit in
the joint venture's inventory on hand at December 31, 2004. During 2004 and
2003, the Company sold common stock of a customer that it received in connection
with the customer's reorganization in bankruptcy, receiving net proceeds of
$0.07 million and $2.0 million and recognizing gains of $0.05 million and $1.5
million, respectively.

     INCOME TAXES. Income taxes for the years ended December 31, 2004 and 2003
were provided for at consolidated effective income tax rates of 39.5% and 36.8%,
respectively. Our effective income tax rates exceed the federal statutory income
tax rate primarily due to state income taxes, partially offset, for the year
ended December 31, 2003, by the benefit of foreign tax credits.

LIQUIDITY AND CAPITAL RESOURCES

CAPITAL STRUCTURE

     THE FIRST LIEN CREDIT AGREEMENT. Our First Lien Credit Agreement consists
of (i) the $325 million First Term Loan and (ii) the $85 million First Term
Revolver, which is available for working capital, general corporate purposes and
the issuance of letters of credit. The First Term Loan was issued at a 1%
discount, or $3.25 million, that is being amortized by the effective interest
method over the term of the loan. The net proceeds of the First Term Loan and
the Second Term Loan were used, together with the Equity Investment and cash
on-hand, to (a) pay the purchase price of the Acquisition, (b) repay the
outstanding balances under the Company's then existing term loan, (c) pay all
other amounts payable as of the Party City Acquisition Date pursuant to the
Party City Acquisition Agreement and (d) pay transaction costs. The First Term
Loan Revolver was unused as of the Party City Acquisition Date and December 31,
2005, except for outstanding standby letters of credit totaling $13.6 million.

     The First Lien Credit Agreement provides for two interest rate options: (i)
loans on which interest is payable quarterly at a Base Rate equal to the higher
of (x) the Federal Funds rate plus 50 basis points or (y) the prime rate plus an
applicable margin initially equal to 2.00% and subject to adjustment downward
based on improvements in the Company's leverage ratio and (ii) loans on which
interest accrues for one, two, three, six or, if generally available, nine or
twelve month interest periods, at a rate of interest per annum equal to the
reserve adjusted Eurodollar rate, plus an applicable margin initially equal to
3.00% per annum,


                                       26

<PAGE>

subject to downward adjustment based on improvements in the leverage ratio. In
addition to paying interest on outstanding principal under the First Term Loan
and First Term Revolver, the Company is required to pay a commitment fee to the
lenders under the First Term Loan Revolver based on the unutilized commitments
thereunder. The initial commitment fee rate is 0.50% per annum. The Company must
also pay customary letter of credit fees.

     The Company is required to repay the First Term Loan in quarterly principal
installment amounts of 0.25% of the funded total principal amount for the first
six years and nine months, with the remaining principal balance payable on the
seventh anniversary of the closing of the First Lien Credit Agreement. The First
Term Loan Revolver expires on December 23, 2011. The obligations of the Company
under the First Lien Credit Agreement are jointly and severally guaranteed by
AAH and each wholly-owned domestic subsidiary of the Company. Each guarantor has
secured its obligations under the guaranty by a first priority lien on
substantially all of its assets.

     THE SECOND LIEN CREDIT AGREEMENT. The Second Lien Credit Agreement consists
of the Second Term Loan of $60 million. The Second Term Loan was issued at a
2.5% discount, or $1.5 million, that is being amortized by the effective
interest method over the term of the loan. The Second Lien Credit Agreement
provides for two interest rate options: (i) loans on which interest is payable
quarterly at a Base Rate equal to the higher of (x) the Federal Funds rate plus
50 basis points or (y) the prime rate plus an applicable margin equal to 4.00%
and (ii) loans on which interest accrues for one, two, three, six or, if
generally available, nine or twelve month interest periods at a rate of interest
per annum equal to the reserve adjusted Eurodollar rate, plus an applicable
margin initially equal to 5.00% per annum.

     The Second Lien Credit Agreement is not subject to any mandatory sinking
fund payments and is payable on the seventh anniversary of the closing of the
Second Lien Credit Facility. The obligations of the Company under the Second
Lien Credit Agreement are jointly and severally guaranteed by AAH and each
wholly-owned domestic subsidiary of the Company. Each guarantor has secured its
obligations under the guaranty by a second priority lien on substantially all of
its assets.

     Our Credit Agreements contain financial covenants and maintenance tests,
including a minimum interest coverage test and a maximum total leverage test,
and restrictive covenants, including restrictions on our ability to make capital
expenditures or pay dividends. Borrowings under our Credit Agreements are
secured by substantially all of our assets and the assets of some of our
subsidiaries, and by a pledge of all of our domestic subsidiaries' capital stock
and a portion of our wholly owned foreign subsidiaries' capital stock.

     In connection with the Party City Acquisition on December 23, 2005 and the
2004 Transactions on April 30, 2004, the Company repaid term loans of $202.4
million and $147.7 million outstanding under the then existing senior secured
credit facilities, respectively, and all commitments under these facilities were
terminated.

     At December 31, 2005, we have a $0.4 million Canadian dollar denominated
revolving credit facility which bears interest at the Canadian prime rate plus
0.6% and expires in April 2006, a 1.0 million British Pound Sterling denominated
revolving credit facility which bears interest at the U.K. base rate plus 1.75%
and expires on May 31, 2006, and a $1.0 million revolving credit facility which
bears interest at LIBOR plus 1.0% and expires on December 31, 2006. No
borrowings were outstanding under these revolving credit facilities at December
31, 2005. We expect to renew these revolving credit facilities upon expiration.

     Long-term borrowings at December 31, 2005 include a mortgage note with the
New York State Job Development Authority of $7.9 million which requires monthly
payments based on a 180-month amortization period with a balloon payment upon
maturity in January 2010. The mortgage note bears interest at the rate of 4.86%,
and is subject to review and adjustment semi-annually based on the New York
State Job Development Authority's confidential internal protocols. The mortgage
note is collateralized by a distribution facility located in Chester, New York.

     Our senior subordinated notes, totaling $175 million, were sold to their
initial purchasers in the Note Offering. In connection with the Note Offering,
the Company entered into a Registration Rights Agreement, which granted holders
of the new notes certain exchange and registration rights. In August 2004, the
Company filed with the Securities and Exchange Commission a Registration
Statement on Form S-4 offering to exchange registered notes for the notes issued
in connection with the Note Offering. The terms of the notes and the exchange
notes are substantially identical. The exchange was completed in October 2004.
The senior subordinated notes due 2014 bear interest at a rate of 8.75% per
annum. Interest is payable semi-annually on May 1 and November 1 of each year.

     We have entered into various capital leases for machinery, equipment and
automobiles with implicit interest rates ranging from 7.70% to 8.80% which
extend to 2008.


                                       27

<PAGE>

     The Company has numerous non-cancelable operating leases for its retail
stores sites as well as several leases for its offices, distribution and
manufacturing facilities, showrooms and warehouse equipment. These leases expire
on various dates through 2018 and generally contain renewal options and require
the Company to pay real estate taxes, utilities and related insurance costs.
Rent expense for the years ended December 31, 2005, 2004 and 2003 totaled $12.7
million, $11.4 million and $13.2 million, respectively. The minimum lease
payments currently required under non-cancelable operating leases for the year
ending December 31, 2006 approximates $57.4 million.

     As a result of the Party City Acquisition, in 2005 the Company breached the
terms of an operating lease that requires future minimum lease payments of $3.5
million at December 31, 2005. The Company obtained a waiver for the breach and
amended the terms of the lease.

     In connection with the 2004 Transactions, we executed a management
agreement with our Principal Investors, Berkshire Partners LLC and Weston
Presidio. Pursuant to the management agreement, Berkshire Partners LLC and
Weston Presidio will be paid annual management fees of $0.8 million and $0.4
million, respectively. Although the indenture governing the 8.75% senior
subordinated notes will permit the payments under the management agreement, such
payments will be restricted during an event of default under the notes and will
be subordinated in right of payment to all obligations due with respect to the
notes in the event of a bankruptcy or similar proceeding of Amscan.

     Based on our current level of operations, we believe our cash flow from
operations and available cash and available borrowings under our Credit
Agreements will be adequate to meet our liquidity needs for at least the next
twelve months. We cannot assure you, however, that our business will generate
sufficient cash flow from operations or that future borrowings will be available
to us under our Credit Agreements in an amount sufficient to enable us to repay
our indebtedness, including the notes, or to fund our other liquidity needs.

     Cash Flow Data - Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004

     Net cash provided by operating activities during the years ended December
31, 2005 and 2004, totaled $15.5 million and $34.2 million, respectively. Net
cash flow provided by operating activities before changes in operating assets
and liabilities for the years ended December 31, 2005 and 2004, was $39.9
million and $40.7 million, respectively. Changes in operating assets and
liabilities for the year ended December 31, 2005 and 2004 resulted in the use of
cash of $24.4 million and $6.5 million, respectively.

     Net cash used in investing activities during the year ended December 31,
2005 of $342.5 million consisted of our $325.6 million investment in Party City,
net of acquired cash, and $17.1 million of additional investments in
distribution and manufacturing equipment and other assets. During the year ended
December 31, 2004, net cash used in investing activities of $540.7 million
included payments of $530.0 million to consummate the 2004 Transactions on April
30, 2004 and $11.4 million of additional investments principally in distribution
and manufacturing equipment, partially offset by proceeds from the sales of
equipment and available-for-sale securities.

     During the year ended December 31, 2005, net cash provided by financing
activities totaled $333.4 million. In connection with the Party City
Acquisition, the Company received equity contributions from its Principal
Investors, management and other investors totaling $166.4 million, incurred long
term borrowings under its Credit Facilities of $372.8 million, net of deferred
finance charges and original issue discounts of $12.2 million, and repaid then
existing borrowings under the 2004 Senior Credit Facility of $202.4 million. The
Company also received proceeds from the sale of shares of Commons Stock to its
outside directors totaling $0.6 million and repurchased shares from a former
employee for $0.1 million. In addition, during the year ended December 31, 2005,
the Company made scheduled payments under the 2004 Senior Credit Facility and
other long-term obligations of $3.9 million. During the year ended December 31,
2004, net cash provided by financing activities of $478.8 million included
proceeds totaling $368.9 million from short-term borrowings under the revolver
and debt issued in connection with the 2004 Transactions, net of deferred
financing costs of $13.1 million. Net cash provided by financing activities for
the year ended December 31, 2004, also included a cash contribution of $139.0
million in connection with the 2004 Transactions, partially offset by scheduled
payments on other long-term obligations of $2.8 million, a required prepayment
of the Predecessor's term loan of $20.2 million based on the Company's excess
cash flows for the year ended December 31, 2003, and debt retirement costs
totaling $6.2 million paid in connection with the 2004 Transactions..

Cash Flow Data - Year Ended December 31, 2004 Compared to Year Ended December
31, 2003

     Net cash provided by operating activities during the years ended December
31, 2004 and 2003, totaled $34.2 million and $42.1 million, respectively. Net
cash flow provided by operating activities before changes in operating assets
and liabilities for the


                                       28

<PAGE>

years ended December 31, 2004 and 2003, was $40.7 million and $42.1 million,
respectively. Changes in operating assets and liabilities for the year ended
December 31, 2004 resulted in the use of cash of $6.5 million.

     During the year ended December 31, 2004, net cash used in investing
activities of $540.7 million included payments of $530.0 million to consummate
the 2004 Transactions on April 30, 2004 and $11.4 million of additional
investments principally in distribution and manufacturing equipment, partially
offset by proceeds from the sales of equipment and available-for-sale
securities. Net cash used in investing activities during the year ended December
31, 2003 of $10.3 million consisted of additional investments in distribution
and manufacturing equipment and other assets partially offset by proceeds of
$2.2 million received from both the disposal of equipment and the sale of a
portion of our investment in the common stock of a customer received in
connection with the customer's reorganization in bankruptcy.

     During the year ended December 31, 2004, net cash provided by financing
activities of $478.8 million included proceeds totaling $368.9 million from
short-term borrowings under the revolver and debt issued in connection with the
2004 Transactions, net of deferred financing costs of $13.1 million. Net cash
provided by financing activities for the year ended December 31, 2004, also
included a cash contribution of $139.0 million in connection with the 2004
Transactions, partially offset by scheduled payments on other long-term
obligations of $2.8 million, a required prepayment of the Predecessor's term
loan of $20.2 million based on the Company's excess cash flows for the year
ended December 31, 2003 and debt retirement costs totaling $6.2 million paid in
connection with the 2004 Transactions. During the year ended December 31, 2003,
net cash used in financing activities of $4.2 million consisted of the scheduled
payments on the term loan and other long-term obligations and the purchase of
Common Stock from both our Chief Executive Officer and President, partially
offset by proceeds from the exercise of stock options and the repayment of the
notes receivable by both the Chief Executive Officer and President.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

     Our contractual obligations at December 31, 2005 are summarized by the year
in which the payments are due in the following table (dollars in thousands):

<TABLE>
<CAPTION>
                                               TOTAL      2006      2007      2008      2009      2010    THEREAFTER
                                             --------   -------   -------   -------   -------   -------   ----------
<S>                                          <C>        <C>       <C>       <C>       <C>       <C>       <C>
Long-term debt obligations (a) ...........   $563,183   $ 2,249   $ 3,098   $ 3,137   $ 3,180   $ 8,157    $543,362
Capital lease obligations (a) ............      1,027       394       576        57        --        --          --
Operating lease obligations (b) ..........    264,055    57,404    53,528    40,162    28,852    22,274      61,835
Merchandise purchase commitments..........     10,800    10,800        --        --        --        --          --
Minimum product royalty obligations (b) ..     13,420     2,386     3,251     2,186     1,460     1,137       3,000
                                             --------   -------   -------   -------   -------   -------    --------
   Total contractual obligations .........   $852,485   $73,233   $60,453   $45,542   $33,492   $31,568    $608,197
                                             ========   =======   =======   =======   =======   =======    ========
</TABLE>

(a)  See Note 8 to our Consolidated Financial Statements which are included in
     this report beginning on page F-2.

(b)  We are also an assignor, with continuing lease liability, for 22 stores we
     have sold to franchisees, that expire through 2011. These assigned lease
     obligations continue until the applicable leases expire. The maximum amount
     of the assigned lease obligations may vary, but is limited to the sum of
     the total amount due under the lease. At December 31, 2005, the maximum
     amount of the assigned lease obligations was approximately $9.2 million,
     which is not included in the table above.

     The operating leases included in the above table also do not include
     contingent rent based upon sales volume (which represented less than 1% of
     Party City's minimum lease obligations in Fiscal 2005), or other variable
     costs such as maintenance, insurance and taxes.. See Note 17 to our
     Consolidated Financial Statements which are included in this report
     beginning on page F-2.

     At December 31, 2005 there were no non-cancelable purchase orders related
to capital expenditures.

     At December 31, 2005, there were no borrowings under our First Term Loan
Revolver. Standby letters of credit totaling $13.6 million were outstanding at
December 31, 2005. See Note 8 to our Consolidated Financial Statements which are
included in this report beginning on page F-2.


                                       29
<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS

     We do not have any off-balance sheet arrangements, as defined in Item
303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as
amended.

EFFECTS OF INFLATION

     Inflation has not had a material impact on our operations during the past
three years.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
appropriate application of certain accounting policies, many of which require
estimates and assumptions about future events and their impact on amounts
reported in the financial statements and related notes. Since future events and
their impact cannot be determined with certainty, the actual results will
inevitably differ from our estimates. Such differences could be material to the
consolidated financial statements included herein.

     We believe our application of accounting policies, and the estimates
inherently required by the policies, are reasonable. These accounting policies
and estimates are constantly reevaluated and adjustments are made when facts and
circumstances dictate a change. Historically, we have found the application of
accounting policies to be reasonable, and actual results generally do not differ
materially from those determined using necessary estimates.

Revenue Recognition

     Our terms of sale to retailers and other distributors are principally
F.O.B. shipping point and, accordingly, title and the risks and rewards of
ownership are transferred to the customer, and revenue is recognized, when goods
are shipped. We estimate reductions to revenues for volume-based rebate programs
at the time sales are recognized. Should customers earn rebates higher than
estimated by us, additional reductions to revenues may be required.

     Revenue from retail operations is recognized at the point of sale. We
estimate future retail sales returns and, when material, record a provision in
the period that the related sales are recorded based on historical information.
Should actual returns differ from our estimates, we would be required to revise
estimated sales returns.

Store Closure Costs

     We record estimated store closure costs, estimated lease commitment costs
net of estimated sublease income and other miscellaneous store closing costs
when the liability is incurred. Such estimates, including sublease income, may
be subject to change.

Product Royalty Agreements

     Commitments for minimum payments under product royalty agreements, a
portion of which may be paid in advance, are charged to expense ratably, based
on our estimate of total sales of related products. If all or a portion of the
minimum guarantee subsequently appears not to be recoverable, the unrecoverable
portion is charged to expense at that time.

Doubtful Accounts

     We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers and franchisees to make required payments. A
considerable amount of judgment is required in assessing the ultimate
realization of these receivables, including consideration of our history of
receivable write-offs, the level of past due accounts and the economic status of
our customers. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances would be required.


                                       30

<PAGE>

Inventories

     Our policy requires that we state our inventories at the lower of cost or
market. In assessing the ultimate realization of inventories, we are required to
make judgments regarding, among other things, future demand and market
conditions, current inventory levels and the impact of the possible
discontinuation of product designs. If actual conditions are less favorable than
those projected by us, additional inventory write-downs to market value may be
required.

     We estimate retail inventory shortage, for the period from the last
inventory date to the end of the reporting period, on a store-by-store basis.
Our inventory shortage estimate can be affected by changes in merchandise mix
and changes in actual shortage trends. The shrinkage rate from the most recent
physical inventory, in combination with historical experience, is the basis for
estimating shrinkage.

Long-Lived and Intangible Assets

     We review the recoverability of our long-lived assets, including
definite-lived intangible assets other than goodwill, whenever facts and
circumstances indicate that the carrying amount may not be fully recoverable.
For purposes of recognizing and measuring impairment, we evaluate long-lived
assets other than goodwill based upon the lowest level of independent cash flows
ascertainable to evaluate impairment. If the sum of the undiscounted future cash
flows expected over the remaining asset life is less than the carrying value of
the assets, we may recognize an impairment loss. The impairment related to
long-lived assets is measured as the amount by which the carrying amount of the
assets exceeds the fair value of the asset. When fair values are not readily
available, we estimate fair values using expected discounted future cash flows.

     In the evaluation of the fair value and future benefits of finite
long-lived assets attached to retail stores, we perform our cash flow analysis
on a by-store basis. Various factors including future sales growth and profit
margins are included in this analysis. To the extent these future projections or
strategies change, the conclusion regarding impairment may differ from the
current estimates.

     Goodwill is reviewed for potential impairment, on an annual basis or more
frequently if circumstances indicate a possible impairment, by comparing the
fair value of a reporting unit with its carrying amount, including goodwill. If
the carrying amount of a reporting unit exceeds its fair value, the excess, if
any, of the fair value of the reporting unit over amounts allocable to the
unit's other assets and liabilities is the implied fair value of goodwill. If
the carrying amount of a reporting unit's goodwill exceeds the implied fair
value of that goodwill, an impairment loss will be recognized in an amount equal
to that excess. The fair value of a reporting unit refers to the amount at which
the unit as a whole could be sold in a current transaction between willing
parties.

     In connection with the Party City Acquisition, the purchase price has been
allocated based upon preliminary estimates of the fair value of net assets
acquired at the Party City Acquisition Date. The final allocations will be based
on independent valuations that have not yet been completed and will be subject
to change when the valuations are completed, which is expected to be during the
second quarter of 2006. The Company does not expect the final allocation to be
significantly different from the preliminary estimates currently reflected in
the consolidated financial statements

Insurance accruals

     Our consolidated balance sheet at December 31, 2005, includes significant
liabilities with respect to Party City's self-insured workers' compensation and
general liability claims. We estimated the required liability of such claims
utilizing an actuarial method based upon various assumptions, which include, but
are not limited to, our historical loss experience, projected loss development
factors, actual payroll and other data. The required liability is also subject
to adjustment in the future based upon the changes in claims experience,
including changes in the number of incidents (frequency) and changes in the
ultimate cost per incident (severity). Adjustments to earnings resulting from
changes in historical loss trends have been insignificant. Further, we do not
anticipate any significant change in loss trends, settlements or other costs
that would cause a significant change in our earnings.

Income Taxes

     Temporary differences arising from differing treatment of income and
expense items for tax and financial reporting purposes result in deferred tax
assets and liabilities that are recorded on the balance sheet. These balances,
as well as income tax expense, are determined through management's estimations,
interpretation of tax law for multiple jurisdictions and tax planning. If our
actual results differ from estimated results due to changes in tax laws, new
store locations or tax planning, our effective tax rate


                                       31

<PAGE>

and tax balances could be affected. As such these estimates may require
adjustment in the future as additional facts become known or as circumstances
change.

     The Company's income tax returns are periodically audited by the Internal
Revenue Service and by various state and local jurisdictions. The Company
reserves for tax contingencies when it is probable that a liability has been
incurred and the contingent amount is reasonably estimable. These reserves are
based upon the Company's best estimation of the potential exposures associated
with the timing and amount of deductions as well as various tax filing
positions.

LEGAL PROCEEDINGS

     We are a party to certain claims and litigation in the ordinary course of
business. We do not believe any of these proceedings will result, individually
or in the aggregate, in a material adverse effect upon our financial condition
or future results of operations.

INCOME TAXES

     For information regarding income tax matters, see Note 16 of the Notes to
Consolidated Financial Statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In December 2004, Financial Accounting Standards Board ( "FASB ") issued
Statement of Financial Accounting Standards ("SFAS") No. 153, "Exchanges of
Nonmonetary Assets - an amendment of APB Opinion No. 29 ", which eliminates
certain narrow differences between APB 29 and international accounting
standards. SFAS No. 153 is effective for fiscal periods beginning on or after
June 15, 2005. The adoption of SFAS No. 153 did not have a material impact on
the Company's consolidated financial statements.

     In March 2005, the SEC issued Staff Accounting Bulletin ( "SAB ") No. 107
"Share-Based Payment ". SAB No. 107 expresses views of the SEC staff regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations
and provides the staff's views regarding the valuation of share-based payment
arrangements.

     In March 2005, the FASB issued SFAS Interpretation Number 47 ("FIN 47"),
"Accounting for Conditional Asset Retirement Obligations". FIN 47 provides
clarification regarding the meaning of the term "conditional asset retirement
obligation" as used in FASB 143, "Accounting for Asset Retirement Obligations".
This Interpretation is effective no later than the end of fiscal years ending
after December 15, 2005. The adoption of FIN 47 did not have a material impact
on the Company's consolidated financial statements.

     In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3".
SFAS No. 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. This statement is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The Company does not expect the adoption of SFAS 154 to have a
material impact on the Company's consolidated financial statements.

     In June 2005, the Emerging Issues Task Force ("EITF") reached consensus on
EITF 05-6, "Determining the Amortization Period for Leasehold Improvements".
Under EITF 05-6, leasehold improvements placed in service significantly after
and not contemplated at or near the beginning of the lease term, should be
amortized over the lesser of the useful life of the assets or a term that
includes renewals that are reasonably assured at the date the leasehold
improvements are purchased. EITF 05-6 is effective for periods beginning after
June 29, 2005. The adoption of EITF 05-6 did not have a material impact on the
consolidated financial statements.

"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     This report includes "forward-looking statements" within the meaning of
various provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this report
that address activities, events or developments that we expect or anticipate
will or may occur in the future, future capital expenditures (including the
amount and nature thereof), business strategy and measures to implement
strategy, including any changes to operations, goals, expansion and growth of
our business and operations, plans, references to future success and other such
matters are forward-looking statements. These statements are based on certain
assumptions and analyses made by us in light of our experience and our
perception of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate in the
circumstances. Actual results may differ materially from those discussed.
Whether actual results and


                                       32

<PAGE>

developments will conform with our expectations and predictions is subject to a
number of risks and uncertainties, including, but not limited to (1) the
concentration of sales by us to party superstores where the reduction of
purchases by a small number of customers could materially reduce our sales and
profitability, (2) the concentration of our credit risk in party superstores,
several of which are privately held and have expanded rapidly in recent years,
(3) the failure by us to anticipate changes in tastes and preferences of party
goods retailers and consumers, (4) the introduction by us of new product lines,
(5) the introduction of new products by our competitors, (6) the inability to
increase prices to recover fully future increases in raw material prices,
especially increases in prices of paper and petroleum-based resin, (7) the loss
of key employees, (8) changes in general business conditions, (9) other factors
which might be described from time to time in our filings with the Commission,
and (10) other factors which are beyond our control. Consequently, all of the
forward-looking statements made in this report are qualified by these cautionary
statements, and the actual results or developments anticipated by us may not be
realized or, even if substantially realized, may not have the expected
consequences to or effects on our business or operations. Although we believe
that we have the product offerings and resources needed for growth in revenues
and margins, future revenue and margin trends cannot be reliably predicted.
Changes in such trends may cause us to adjust our operations in the future.
Because of the foregoing and other factors, recent trends should not be
considered reliable indicators of future financial results. In addition, our
highly leveraged nature may impair our ability to finance our future operations
and capital needs and our flexibility to respond to changing business and
economic conditions and business opportunities.

QUARTERLY RESULTS (UNAUDITED)

     Despite a concentration of holidays in the fourth quarter of the year, as a
result of our expansive product lines and wholesale customer base and increased
promotional activities, the impact of seasonality on the quarterly results of
our wholesale operations in recent years has been limited. Promotional
activities, including special dating terms, particularly with respect to
Halloween and Christmas products sold to retailers and other distributors in the
third quarter, and the introduction of our new everyday products and designs
during the fourth quarter result in higher accounts receivables and inventory
balances and higher interest costs to support these balances. The retail
operations of Party City are subject to substantial seasonal variations.
Historically, Party City has realized a significant portion of its net sales,
net income and cash flow in the fourth quarter of the year, principally due to
the sales in October for the Halloween season and, to a lesser extent, due to
sales for end of year holidays. However, operations of Party City are included
in the Company's 2005 result of operations for only the eight-day period from
the Party City Acquisition Date through December 31, 2005. The following table
sets forth our historical revenues, gross profit, income (loss) from operations
and net income (loss), by quarter, for 2005 and 2004.

<TABLE>
<CAPTION>
                                                     FOR THE THREE MONTHS ENDED,
                                       ------------------------------------------------------
                                       MARCH 31,   JUNE 30,      SEPTEMBER 30,   DECEMBER 31,
                                       ---------   --------      -------------   ------------
                                                       (DOLLARS IN THOUSANDS)
<S>                                    <C>         <C>           <C>             <C>
2005
Revenues:
   Net sales .......................    $100,376   $101,285         $105,582        $109,983 (a)
   Royalties and franchise fees ....          --         --               --             509 (a)
Gross profit .......................      33,575     32,523           36,022          33,474 (a)
Income from operations .............      13,951     11,602           16,487           6,324 (a)(b)(c)
Net income (loss) ..................       4,006      3,621            5,279            (646) (a)(b)(c)

2004
Revenues:
   Net sales .......................    $100,525   $ 96,316         $ 97,834        $104,541
   Royalties and franchise fees ....          --         --               --              --
Gross profit .......................      34,444     30,726           31,744          35,845
Income (loss) from operations ......      14,580     (1,298)(d)       12,270          15,854
Net income (loss) ..................       4,939     (5,127)(d)        2,815           5,047
</TABLE>

(a)  The results of operations for the fourth quarter of 2005 include the
     results of Party City for the eight-day period from the Party City
     Acquisition date through December 31, 2005.

(b)  In connection with the Party City Acquisition, we recorded non-recurring
     expenses of $4.0 million due to the


(c)  The results of operations for the fourth quarter of 2005 include an
     adjustment to increase depreciation and amortization expense by $1,932,
     representing the difference between the actual depreciation and
     amortization expense following the completion of purchase accounting for
     the 2004 Transactions in the second quarter of 2005 and the amounts
     previously recorded.

                                       33

<PAGE>

     write-off of deferred financing costs associated with the repayment of
     debt.

(d)  In connection with the 2004 Transactions in April 2004, we recorded
     non-recurring expenses of $11.8 million comprised of $6.2 million of debt
     retirement costs and the write-off of $5.6 million of deferred financing
     costs associated with the repayment of debt.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our earnings are affected by changes in interest rates as a result of our
variable rate indebtedness. However, we utilize interest rate swap agreements to
manage the market risk associated with fluctuations in interest rates. If market
interest rates for our variable rate indebtedness averaged 2% more than the
interest rate actually paid for the years ended December 31, 2005, 2004 and
2003, our interest expense, after considering the effects of our interest rate
swap agreements, would have increased, and income before income taxes would have
decreased, by $4.3 million, $3.3 million and $2.1 million, respectively. These
amounts are determined by considering the impact of the hypothetical interest
rates on our borrowings and interest rate swap agreements. This analysis does
not consider the effects of the reduced level of overall economic activity that
could exist in such an environment. Further, in the event of a change of such
magnitude, management would likely take actions to further mitigate our exposure
to the change. However, due to the uncertainty of the specific actions that we
would take and their possible effects, the sensitivity analysis assumes no
changes in our financial structure.

     Our earnings are also affected by fluctuations in the value of the U.S.
dollar as compared to foreign currencies, predominately in European countries,
as a result of the sales of our products in foreign markets. Although we
periodically enter into foreign currency forward contracts to hedge against the
earnings effects of such fluctuations, we (1) may not be able to achieve hedge
effectiveness to qualify for hedge-accounting treatment and, therefore, would
record any gain or loss on the fair value of the derivative in other income
(expense) and (2) may not be able to hedge such risks completely or permanently.
A uniform 10% strengthening in the value of the dollar relative to the
currencies in which our foreign sales are denominated would have resulted in a
decrease in gross profit of $4.0 million, $3.7 million and $3.5 million for the
years ended December 31, 2005, 2004 and 2003, respectively. These calculations
assume that each exchange rate would change in the same direction relative to
the U.S. dollar. In addition to the direct effects of changes in exchange rates,
which could change the U.S. dollar value of the resulting sales, changes in
exchange rates may also affect the volume of sales or the foreign currency sales
price as competitors' products become more or less attractive. Our sensitivity
analysis of the effects of changes in foreign currency exchange rates does not
factor in a potential change in sales levels or local currency prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the consolidated financial statements and supplementary data listed in
the accompanying Index to Consolidated Financial Statements and Financial
Statement Schedule on page F-1 herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
     FINANCIAL DISCLOSURE

     Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

     The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures as of December 31, 2005.
Based on that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2005. There were no material
changes to the Company's internal controls over financial reporting during the
fourth quarter of 2005.

ITEM 9B. OTHER INFORMATION

Not applicable.


                                       34
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below are the names, ages and positions with the Company of the
persons who are serving as directors and executive officers of the Company at
March 29, 2006.

<TABLE>
<CAPTION>
NAME                       AGE   POSITION
----                       ---   --------
<S>                        <C>   <C>
Gerald C. Rittenberg ...    54   Chief Executive Officer and Director
James M. Harrison ......    54   President, Chief Operating Officer and Director
Michael A. Correale ....    48   Chief Financial Officer
Robert J. Small ........    39   Chairman of the Board of Directors
Michael F. Cronin ......    52   Director
Jordan A. Kahn .........    64   Director
Kevin M. Hayes .........    37   Director
Richard K. Lubin .......    59   Director
John R. Ranelli ........    59   Director
</TABLE>

     Gerald C. Rittenberg became our Chief Executive Officer in December 1997.
From May 1997 until December 1997, Mr. Rittenberg served as acting Chairman of
the Board. Prior to that time, Mr. Rittenberg served as the President of Amscan
Inc., from April 1996 to October 1996, and as our President from the time of our
formation in October 1996.

     James M. Harrison became our President in December 1997 and our Chief
Operating Officer in March 2002. From February 1997 to March 2002, Mr. Harrison
also served as our Chief Financial Officer and Treasurer. From February 1997 to
December 1997, Mr. Harrison served as our Secretary. Prior to that time, Mr.
Harrison served as the Chief Financial Officer of Amscan Inc., from August 1996
to February 1997.

     Michael A. Correale became our Chief Financial Officer in March 2002. Prior
to that time, Mr. Correale served as our Vice President -- Finance, from May
1997 to March 2002.

     Robert J. Small became one of our directors upon the consummation of the
2004 Transactions. Mr. Small has been a Managing Director of Berkshire Partners
LLC since January 2000.

     Michael F. Cronin became one of our directors upon the consummation of the
2004 Transactions. From 1991 to the present, Mr. Cronin has served as Managing
Partner of Weston Presidio, a management company for several venture capital
limited liability partnerships. Mr. Cronin also serves as a Director of Nebraska
Books, Inc., Tekni-Plex, Inc., Tweeter Home Entertainment Group, Inc. and
several privately held companies.

     Kevin M. Hayes became one of our directors upon the consummation of the
2004 Transactions. Mr. Hayes is a General Partner of Weston Presidio and has
served in that position since 2000. From 1996 to 1999, he was a Principal at
Weston Presidio. Mr. Hayes is also a director of Associated Materials
Incorporated.

     Jordan A. Kahn became a director on January 20, 2005. Mr. Kahn was the
founder and Chairman of the Board of Directors of The Holmes' Group and served
as President and Chief Executive Officer since Holmes' organization in 1982.
Since 1968, Mr. Kahn has also been President of Jordan Kahn Co., Inc. a
manufacturer's representative representing small electric personal appliance
manufacturers to retailers across the Northeast.

     Richard K. Lubin became one of our directors upon the consummation of the
2004 Transactions. Mr. Lubin is a Managing Director of Berkshire Partners LLC,
which he co-founded in 1986. He has been a director of many of Berkshire
Partners' manufacturing, retailing and transportation investments, and is a
director of The Holmes' Group.

     John R. Ranelli became a director on January 20, 2005. Mr. Ranelli served
as the Chairman of the Board and Chief Executive Officer of FGX, a brand leader
in sunglasses and reading glasses. Mr. Ranelli has also served as a Director and
the President and Chief Operating Officer of Deckers Outdoor Corporation and has
held executive officer positions with The Stride Rite Corporation and
Timberland.


                                       35

<PAGE>

BOARD OF DIRECTORS

     The Board of Directors is led by Robert J. Small, a Non-Executive Chairman
of the Board, and is comprised of five additional non-employee directors and two
employee directors. The Board of Directors has determined that Jordan A. Kahn
and John Ranelli are independent directors, as used in Item 7(d)(iv) of Schedule
14A under the Securities Exchange Act.

     The Board of Directors holds regularly scheduled meetings each quarter. In
addition to the quarterly meetings, there are typically other regularly
scheduled meetings and several special meetings annually. At each quarterly
meeting, time is set aside for the non-management directors to meet without
management present.

Audit Committee

     The Audit Committee of the Board of Directors consists of Robert J. Small,
Chairman, Michael F. Cronin and James M. Harrison. The Audit Committee is
responsible for evaluating and recommending independent auditors, reviewing with
the independent auditors the scope and results of the audit engagement and
establishing and monitoring the Company's financial policies and control
procedures. The Audit Committee holds regularly scheduled meetings each quarter.
In addition to the quarterly meetings, there are typically other regularly
scheduled meetings and several special meetings each year.

     As required by SEC rules, the Audit Committee has established procedures
for the receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters, as well
as the confidential and anonymous submission of information, written or oral, by
Company employees regarding questionable accounting or auditing matters.

     The Board of Directors has determined that Mr. Harrison has the requisite
financial knowledge and experience and qualifies as an "audit committee
financial expert" within the meaning of SEC regulations. Because of his role as
an executive officer of the Company, Mr. Harrison is not "independent" within
the meaning of SEC regulations.

Compensation Committee.

     The Compensation Committee of the Board of Directors consists of Richard K.
Lubin, Chairman, Kevin M. Hayes and Gerald C. Rittenberg. The Compensation
Committee is responsible for setting and administering the Company's policies
that govern executive compensation and for establishing the compensation of the
Company's executive officers. The Compensation Committee is also responsible for
the administration of, and grants under, the Company's equity incentive plan.

CODE OF ETHICS

     The Company has adopted a Code of Business Conduct, a copy of which is
filed with the Securities and Exchange Commission as an exhibit to this report.
The Company's Code of Business Conduct is a "code of ethics," as defined in Item
406(b) of Regulation S-K of the Securities and Exchange Commission.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Because the Company's common stock is not registered under the Exchange
Act, none of the Company's directors, officers or stockholders is obligated to
file reports of beneficial ownership of Company common stock pursuant to Section
16 of the Exchange Act.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table sets forth information concerning the compensation
earned for the past three years by the Company's Chief Executive Officer and all
other executive officers of the Company as of December 31, 2005 whose aggregate
salary and bonus for 2005 exceeded $100,000. The amounts shown include
compensation for services in all capacities that were provided to the Company or
its subsidiaries. Amounts shown were paid by the Company's principal subsidiary,
Amscan Inc.


                                       36

<PAGE>

<TABLE>
<CAPTION>
                                                             Long-Term Compensation
                                                            No. of Securities Under-       All Other
Name and Principal Position   Year    Salary    Bonus (a)     lying Options Granted    Compensation (b)
---------------------------   ----   --------   ---------   ------------------------   ----------------
<S>                           <C>    <C>        <C>         <C>                        <C>
Gerald C. Rittenberg          2005   $525,000    $500,000              456                  $6,011
   Chief Executive Officer    2004    500,000     330,000                                    9,139
                              2003    500,000     766,263               25                   7,694

James M. Harrison             2005   $472,500    $450,000              304                  $6,011
   President and Chief        2004    450,000     297,000                                    9,139
   Operating Officer          2003    450,000     689,058               25                   7,694

Michael A. Correale           2005   $208,000    $125,000               40                  $5,620
   Chief Financial Officer    2004    195,000      70,000                                    8,589
                              2003    193,269      75,000                4                   7,544
</TABLE>

(a)  Represents amounts earned with respect to the years indicated, whether paid
     or accrued.

(b)  Represents contributions by the Company under a profit sharing and savings
     plan, as well as insurance premiums paid by the Company with respect to
     term life insurance for the benefit of the named executive officer.

OPTION GRANTS TABLE

     The following table sets forth information concerning options which were
granted during 2005 to the executive officers named in the Summary Compensation
Table.

<TABLE>
<CAPTION>
                                                                                       POTENTIAL REALIZABLE
                                                                                         VALUE AT ASSUMED
                NUMBER OF       % OF                                                   ANNUAL RATES OF STOCK
               SECURITIES   TOTAL OPTIONS                                               PRICE APPRECIATION
               UNDERLYING    GRANTED TO                   MARKET                        FOR OPTION TERM (1)
                 OPTIONS    EMPLOYEES IN   EXERCISE  PRICE AT DATE OF    EXPIRATION   ----------------------
     NAME        GRANTED     FISCAL YEAR     PRICE       GRANT (2)          DATE          5%          10%
     ----      ----------  --------------  --------  ----------------  -------------  ----------  ----------
<S>            <C>         <C>             <C>       <C>               <C>            <C>         <C>
Gerald C.
   Rittenberg      456           31%        $10,000       $10,000      April 1, 2015  $2,868,000  $7,267,000
James M.
   Harrison        304           21%         10,000        10,000      April 1, 2015   1,912,000   4,845,000
Michael A.
   Correale         40           3%          10,000        10,000      April 1, 2015     252,000     637,000
</TABLE>

(1)  Amounts rounded to the nearest thousand

(2)  Assumes a fair market value of the Common Stock underlying the options of
     $10,000, based on the value of Company on the date of grant.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

No options were exercised during the year ended December 31, 2005


                                       37

<PAGE>

2005 YEAR END OPTION VALUES

<TABLE>
<CAPTION>
                         Number of Securities        Value of Unexercised
                        Underlying Unexercised           In the Money
                                Options           Options at Fiscal Year End
                      --------------------------  --------------------------
Name                  Exercisable  Unexercisable  Exercisable  Unexercisable
----                  -----------  -------------  -----------  -------------
<S>                   <C>          <C>            <C>          <C>
Gerald C. Rittenberg    156.655        364.8        $804,000      $730,000
James M. Harrison        93.527        243.2         433,000       486,000
Michael A. Correale         8.0           32          16,000        64,000
</TABLE>

     The value of unexercised in the money options is based on the value of
Company Common Stock of $12,000 per share at December 31, 2005. Amounts are
rounded to the nearest thousand.

EMPLOYMENT ARRANGEMENTS

     Employment Agreement with Gerald C. Rittenberg. Gerald C. Rittenberg
entered into an employment agreement with us, dated June 19, 2003, which is
referred to as the Rittenberg Employment Agreement, pursuant to which Mr.
Rittenberg will serve as our Chief Executive Officer through December 31, 2006.
The term will be extended automatically for successive additional one-year
periods, unless either we give Mr. Rittenberg, or Mr. Rittenberg gives us
written notice of the intention not to extend the term. Such notices must be
given no less than twelve months prior to the end of the term then in effect.
During 2005, Mr. Rittenberg received an annual base salary of $525,000, which
will increase by 5% annually for the term of the Rittenberg Employment
Agreement. Mr. Rittenberg will be eligible for an annual bonus for each calendar
year if certain operational and financial targets are attained as determined by
both our compensation committee and board of directors in consultation with Mr.
Rittenberg. A discretionary bonus may be awarded in the sole discretion of our
board of directors. The Rittenberg Employment Agreement also provides for other
customary benefits including incentive, savings and retirement plans, paid
vacation, health care and life insurance plans and expense reimbursement.

     Under the Rittenberg Employment Agreement, if we terminate Mr. Rittenberg's
employment other than for cause, death or disability, we would be obligated to
pay Mr. Rittenberg a lump sum cash payment in an amount equal to the sum of (1)
accrued unpaid salary, earned but unpaid bonus for any prior year, any deferred
compensation and accrued but unpaid vacation pay, collectively referred to as
Accrued Obligations, plus (2) severance pay equal to his annual base salary,
provided, however, that in connection with a termination by us other than for
cause or due to his death or disability, such severance pay will be equal to Mr.
Rittenberg's annual base salary multiplied by the number of years we elect as
the Restriction Period (as defined hereafter). Upon termination of Mr.
Rittenberg's employment by us for cause, death or disability or if he terminates
his employment, Mr. Rittenberg will be entitled to his unpaid Accrued
Obligations. Additionally, upon termination of Mr. Rittenberg's employment
during the current term or any additional term (1) by us other than for cause,
(2) by reason of his death or disability or (3) if the current term or any
additional term is not renewed at its expiration (other than for cause), the
Rittenberg Employment Agreement provides for payment of a prorated portion of
the bonus to which Mr. Rittenberg would otherwise have been entitled.

     The Rittenberg Employment Agreement also provides that during his current
term, any additional term and during the three-year period following any
termination of his employment, referred to as the Restriction Period, Mr.
Rittenberg will not participate in or permit his name to be used or become
associated with any person or entity that is or intends to be engaged in any
business that is in competition with our business, or any of our subsidiaries or
controlled affiliates, in any country in which we or any of our subsidiaries or
controlled affiliates operate, compete or are engaged in such business or at
such time intend to so operate, compete or become engaged in such business.
However, if we terminate Mr. Rittenberg's employment other than for cause or due
to his death or disability, the Restriction Period will be instead a one, two or
three-year period at our election. If all, or substantially all, of our stock or
assets is sold or otherwise disposed of to a third party not affiliated with us
and Mr. Rittenberg is not offered employment on substantially similar terms by
us or by one of our continuing affiliates immediately thereafter, then for all
purposes of the Rittenberg Employment Agreement, Mr. Rittenberg's employment
shall be deemed to have been terminated by us other than for cause effective as
of the date of such sale or disposition, provided, however, that we shall have
no obligations to Mr. Rittenberg if he is hired or offered employment on
substantially similar terms by the purchaser of our stock or assets. The
Rittenberg Employment Agreement also provides for certain other restrictions
during the Restriction Period in connection with (a) the solicitation of persons
or entities with whom we have business relationships and (b) inducing any of our
employees to terminate


                                       38

<PAGE>

their employment or offering employment to such persons, in each case subject to
certain conditions.

     Employment Agreement with James M. Harrison. James M. Harrison entered into
an employment agreement with us, dated June 19, 2003, which is referred to as
the Harrison Employment Agreement, pursuant to which Mr. Harrison will serve as
our President through December 31, 2006. During 2005, Mr. Harrison received an
annual base salary of $472,500, which will increase by 5% annually during the
term of the Harrison Employment Agreement. The Harrison Employment Agreement
contains provisions for additional renewal terms, salary increases during
additional terms, non-discretionary and discretionary bonus payments, severance,
other benefits, definitions of cause and disability, and provisions for
non-competition and non-solicitation similar to those in the Rittenberg
Employment Agreement.

2004 EQUITY INCENTIVE PLAN

     Following the consummation of the 2004 Transactions, the Company adopted
the AAH Holdings Corporation 2004 Equity Incentive Plan (the "Equity Incentive
Plan") under which the Company may grant incentive awards in the form of options
to purchase shares of Company Common Stock ("Company Stock Options") and shares
of restricted and unrestricted Company Common Stock to certain directors,
officers, employees and consultants ("Participants") of the Company and its
affiliates. A committee of the Company's board of directors (the "Committee"),
or the board itself in the absence of a Committee, is authorized to make grants
and various other decisions under the Equity Incentive Plan. Unless otherwise
determined by the Committee, any Participant granted an award under the Equity
Incentive Plan must become a party to, and agree to be bound by, the
Stockholders' Agreement.

     Company Stock Option awards under the Equity Incentive Plan reserved and
available for grant total 1,856.4097 and may include incentive stock options,
nonqualified stock options, or both types of Company Stock Options. Company
Stock Options are nontransferable (except under certain limited circumstances)
and, unless otherwise determined by the Committee, have a term of ten years.
Upon a Participant's death or when the Participant's employment with the Company
or the applicable affiliate of the Company is terminated for any reason, such
Participant's previously unvested Company Stock Options are forfeited and the
Participant or his or her legal representative may, within 60 days (if
termination of employment is for any reason other than death) or 90 days (in the
case of the Participant's death), exercise any previously vested Company Stock
Options and in the case of performance based Options, within 30 days following
the date value is determined as specified by the Board in the Option agreement
evidencing the grant of such Options.

     Unless otherwise provided in the related award agreement or, if applicable,
the Stockholders' Agreement, immediately prior to certain change of control
transactions described in the Equity Incentive Plan, all outstanding Company
Stock Options will, subject to certain limitations, become fully exercisable and
vested and any restrictions and deferral limitations applicable to any
restricted stock awards will lapse.

     The Equity Incentive Plan will terminate ten years after its effective
date; however, awards outstanding as of such date will not be affected or
impaired by such termination. The Company's board of directors and the Committee
has authority to amend the Equity Incentive Plan and awards granted thereunder,
subject to the terms of the Equity Incentive Plan.

COMPENSATION OF DIRECTORS

     During 2005, the Company did not compensate its directors other than for
expense reimbursement. The Company has agreed to pay its independent directors
an annual retainer fee of $20,000 and fees of $1,500 and $2,500 for regular and
special meetings of the Board.

STOCK PERFORMANCE GRAPH

     The Company's Common Stock has not traded publicly during the past five
years. For this reason a graph indicating the relative performance of the
Company Common Stock price to other standard measures has not been included
since it would provide no meaningful information.


                                       39

<PAGE>

COMPENSATION COMMITTEE POLICIES

     During 2005, the compensation of executive officers of the Company, with
the exception of Mr. Correale, was paid pursuant to the terms of existing
employment agreements. The compensation paid to Mr. Correale was based on
competitive salaries observed within the labor market.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     To the knowledge of the Company, no relationship of the type described in
Item 402(j)(3) of Regulation S-K existed during 2005 with respect to the
Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
     RELATED STOCKHOLDER MATTERS

     As of December 31, 2005, the issued and outstanding capital stock of AAH
consisted of 27,882.7265 shares of common stock, par value $.01 per share. The
number of shares of AAH common stock outstanding used in calculating the
percentage for each listed person includes the shares of AAH common stock
underlying the options beneficially owned by that person that are exercisable
within 60 days following December 31, 2005. The stockholders agreement of AAH
governs the stockholders' exercise of their voting rights with respect to the
election of directors and other material events. See "Certain Relationships and
Related Transactions"

     The following table sets forth information with respect to the beneficial
ownership of AAH common stock as of March 29, 2006 (i) by each person known by
us to own beneficially more than 5% of such class of securities, (ii) by each
director and named executive officer and (iii) by all directors and executive
officers as a group. Unless otherwise noted, to our knowledge, each of such
stockholders has sole voting and investment power as to the shares shown.

<TABLE>
<CAPTION>
                                        SHARES OF COMPANY    PERCENTAGE
                                          COMMON STOCK        OF CLASS
NAME OF BENEFICIAL OWNER               BENEFICIALLY OWNED   OUTSTANDING
------------------------               ------------------   -----------
<S>                                    <C>                  <C>
Berkshire Partners LLC (1) .........    18,081.1483            64.85%
Weston Presidio (2) ................     9,040.5743            32.42%
Michael A. Correale (3)++ ..........        19.7667                *
Michael F. Cronin (4)+ .............     9,040.5743            32.42%
James M. Harrison (5)+, ++ .........       201.8606                *
Kevin M. Hayes (4)+ ................     9,040.5743            32.42%
Jordan A. Kahn+ ....................        91.6667                *
Richard K. Lubin (6)+ ..............    18,081.1483            64.85%
John R. Ranelli+ ...................        12.0000                *
Gerald C. Rittenberg (7)+, ++ ......       381.6545             1.36%
Robert J. Small (6)+ ...............    18,081.1483            64.85%
All directors and executive officers
   as a group (9 persons) ..........    27,570.4893            98.88%
</TABLE>

*    Less than 1%

+    Director

++   Named Executive Officer

(1)  Consists of (i) 4,118.3209 shares of common stock owned by Berkshire Fund
     V, Limited Partnership, (ii) 13,371.3235 shares of common stock owned by
     Berkshire Fund VI, Limited Partnership, (iii) 31.4740 shares of common
     stock owned by Berkshire Investors III LLC and (iv) 560.0299 shares of
     common stock owned by Berkshire Investors LLC. The address of Berkshire
     Partners LLC is One Boston Place, Suite 3300, Boston, Massachusetts 02108.


                                       40

<PAGE>

(2)  Consists of (i) 8899.6993 shares of common stock owned by Weston Presidio
     Capital IV, L.P. and (ii) 140.8750 shares of common stock owned by WPC
     Entrepreneur Fund II, L.P. The address of Weston Presidio is 200 Clarendon
     Street, 50th Floor, Boston, Massachusetts 02116.

(3)  Includes 8.000 shares which could be acquired by Mr. Correale within 60
     days upon exercise of options.

(4)  Mr. Cronin is a Managing Partner of Weston Presidio and Mr. Hayes is a
     General Partner of Weston Presidio. Mr. Cronin and Mr. Hayes each disclaims
     beneficial ownership of the shares held by Weston Presidio, except to the
     extent of his pecuniary interest therein. Their addresses are 200 Clarendon
     Street, 50th Floor, Boston, Massachusetts 02116.

(5)  Includes 93.5273 shares which could be acquired by Mr. Harrison within 60
     days upon exercise of options.

(6)  Mr. Lubin and Mr. Small are Managing Directors of Berkshire Partners LLC.
     Mr. Lubin and Mr. Small each disclaims beneficial ownership of the shares
     held by Berkshire Partners LLC, except to the extent of his pecuniary
     interest therein. Their addresses are One Boston Place, Suite 3300, Boston,
     Massachusetts 02108.

(7)  Includes 156.6545 shares which could be acquired by Mr. Rittenberg within
     60 days upon exercise of options.

STOCKHOLDERS AGREEMENT

     As of April 30, 2004, the Company entered into a stockholders' agreement
with the Principal Investors, other investors and certain employees of the
Company listed as parties thereto (the "Stockholders' Agreement"). The following
discussion summarizes the terms of the Stockholders' Agreement which the Company
believes are material to an investor in the debt or equity securities of the
Company. The Stockholders' Agreement provides, among other things, for (i) the
right of the non-principal investors to participate in, and the right of the
Principal Investors to require the non-principal investors to participate in,
certain sales of the Company's common stock by the Principal Investors, (ii)
prior to an initial public offering of the stock of the Company (as defined in
the Stockholders' Agreement), certain rights of the Company to purchase, and
certain rights of the non-principal investors to require the Company to purchase
(except in the case of termination of employment by such non-principal
investors) all, but not less than all, of the shares of the Company's common
stock owned by a non-principal investor upon the termination of employment or
death of such non-principal investor, at prices determined in accordance with
the Stockholders' Agreement and (iii) certain additional restrictions on the
rights of the non-principal investors to transfer shares of the Company's common
stock. The Stockholders' Agreement also contains certain provisions granting the
Principal Investors and the non-principal investors certain rights in connection
with registrations of the Company's common stock in certain offerings and
provides for indemnification and certain other rights, restrictions and
obligations in connection with such registrations.

     For information concerning our equity compensation plans, see "Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In connection with the 2004 Transactions, the Company executed a management
agreement with Berkshire Partners LLC and Weston Presidio. Pursuant to the
management agreement, Berkshire Partners LLC and Weston Presidio will be paid
annual management fees of $833,000 and $417,000, respectively. At December 31,
2005, accrued management fees payable to Berkshire Partners LLC and Weston
Presidio totaled $139,000 and $69,000, respectively. Although the indenture
governing the 8.75% senior subordinated notes will permit the payments under the
management agreement, such payments will be restricted during an event of
default under the notes and will be subordinated in right of payment to all
obligations due with respect to the notes in the event of a bankruptcy or
similar proceeding of Amscan.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

     Fees for audit services totaled $1,370,000 and $1,130,000 for the years
ended December 31, 2005 and 2004, respectively. These fees included the audit of
the consolidated financial statements; reviews of financial statements included
in the Company's Quarterly Reports on Form 10-Q; assistance with SEC filings,
including comfort letters, consents and comment letters; and


                                       41

<PAGE>

accounting consultations on matters addressed during the audit or interim
reviews.

AUDIT-RELATED FEES

     Fees for audit-related services totaled $121,000 and $132,000 for the years
ended December 31, 2005 and 2004, respectively. Such fees related to the audits
of the Company's employee benefit plans; due diligence services; statutory
audits incremental to the audit of the consolidated financial statements; and
general assistance with implementation of the requirements of SEC rules pursuant
to the Sarbanes-Oxley Act of 2002.

TAX FEES

     Fees for tax services, including tax compliance, tax advice and tax
planning, totaled $30,250 and $44,000 for the years ended December 31, 2005 and
2004, respectively.

ALL OTHER FEES

     All other fees totaled $1,500 for each of the years ended December 31, 2005
and 2004, respectively, and related to a subscription to the Ernst & Young
Global Accounting and Auditing Information Tool.

     The Company's Audit Committee appoints the independent registered public
accounting firm and pre-approves the fee arrangements with respect to the above
accounting fees and services.


                                       42

<PAGE>

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  Documents filed as part of this report:

          1.   and 2. Financial Statements and Schedule.

               See Index to Consolidated Financial Statements and Financial
               Statement Schedule which appears on page F-1 herein.

          3.   Exhibits

<TABLE>
<CAPTION>
Exhibit
Number                                  Description
-------                                 -----------
<S>       <C>
2         Party City Acquisition Merger Agreement, dated as of September 26,
          2005 (incorporated by reference from the Company's Current report on
          Form 8-K filed September 27, 2005).

3(1)      Certificate of Incorporation of Amscan Holdings, Inc., dated October
          3, 1996, as amended to March 30, 2001 (incorporated by reference to
          Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the
          year ended December 31, 2000 (Commission File No. 000-21827))

3(2)      Amended By-Laws of Amscan Holdings, Inc. (incorporated by reference to
          Exhibit 3.2 to the Registrant's Registration Statement on Form S-4
          (Registration No. 333-45457))

3(3)      Amended Articles of Incorporation of Anagram International, Inc.
          (incorporated by reference to Exhibit 3(1) to the Registrant's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
          (Commission File No. 000-21827))

3(4)      By-Laws of Anagram International, Inc. (incorporated by reference to
          Exhibit 3(2) to the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended June 30, 2004 (Commission File No. 000-21827))

3(5)      Articles of Incorporation of Anagram International Holdings, Inc.
          (incorporated by reference to Exhibit 3(3) to the Registrant's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
          (Commission File No. 000-21827))

3(6)      By-Laws of Anagram International Holdings, Inc. (incorporated by
          reference to Exhibit 3(4) to the Registrant's Quarterly Report on Form
          10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))

3(7)      Articles of Organization of Anagram International, LLC (incorporated
          by reference to Exhibit 3(5) to the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))

3(8)      Operating Agreement of Anagram International, LLC (incorporated by
          reference to Exhibit 3(6) to the Registrant's Quarterly Report on Form
          10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))

3(9)      Certificate of Formation of Anagram Eden Prairie Property Holdings LLC
          (incorporated by reference to Exhibit 3(7) to the Registrant's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
          (Commission File No. 000-21827))

3(10)     Plan of Merger of Am-Source, Inc. into Am-Source, LLC dated February
          28, 2000 and Articles of Organization of Am-Source, LLC. (incorporated
          by reference to Exhibit 3(8) to the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))
</TABLE>


                                       43

<PAGE>

<TABLE>
<S>       <C>
3(11)     Operating Agreement of Am-Source, LLC. (incorporated by reference to
          Exhibit 3(9) to the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended June 30, 2004 (Commission File No. 000-21827))

3(12)     Certificate of Incorporation of M&D Industries, Inc. (incorporated by
          reference to Exhibit 3(10) to the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))

3(13)     By-Laws of M&D Industries, Inc. (incorporated by reference to Exhibit
          3(11) to the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended June 30, 2004 (Commission File No. 000-21827))

4(1)      Indenture, dated as of April 30, 2004, by and among the Company, the
          Guarantors named therein and The Bank of New York with respect to the
          8.75% Senior Subordinated Notes due 2014. (incorporated by reference
          to Exhibit 4(1) to the Registrant's Quarterly Report on Form 10-Q for
          the quarter ended June 30, 2004 (Commission File No. 000-21827))

4(2)      First Supplemental Indenture, dated as of June 21, 2004 by and among
          the Company, the Guarantors named therein and The Bank of New York
          with respect to the 8.75% Senior Subordinated Notes due 2014
          (incorporated by reference to Exhibit 4(2) to the Registrant's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
          (Commission File No. 000-21827))

4(3)      Exchange and Registration Rights Agreement dated April 30, 2004 by and
          among the Company, the Guarantors named therein and Goldman, Sachs &
          Co. and Credit Suisse First Boston LLC. (incorporated by reference to
          Exhibit 4(3) to the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended June 30, 2004 (Commission File No. 000-21827))

10(1)     Credit and Guaranty Agreement, dated as of April 30, 2004, by and
          among AAH Holdings Corporation, Amscan Holdings, Inc., certain
          subsidiaries of Amscan Holdings, Inc., Goldman Sachs Credit Partners,
          L.P., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication
          Agent, General Electric Capital Corporation, as Administrative Agent
          and Collateral Agent, and J.P. Morgan Securities Inc., as Joint Lead
          Arranger, Joint Bookrunner and Co-Syndication Agent. (incorporated by
          reference to Exhibit 10(1) to the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))

10(2)     Counterpart Agreement, dated as of July 16, 2004, of Anagram
          International, LLC to the Credit and Guaranty Agreement (incorporated
          by reference to Exhibit 10(2) to the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))

10(3)     Purchase Agreement dated April 27, 2004 by and among AAH Holdings
          Corporation, Amscan Holdings, Inc., the Guarantors named therein and
          Goldman, Sachs & Co. and Credit Suisse First Boston LLC. (incorporated
          by reference to Exhibit 10(3) to the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))

10(4)     Stockholders' Agreement of AAH Holdings Corporation dated as of April
          30, 2004 (incorporated by reference to Exhibit 10(4) to the
          Registrant's Quarterly Report on Form 10-Q for the quarter ended June
          30, 2004 (Commission File No. 000-21827))

10(5)     Amendment No. 1 to the Stockholders' Agreement of AAH Holdings
          Corporation dated as of May 24, 2004 (incorporated by reference to
          Exhibit 10(5) to the Registrant's Quarterly Report on Form 10-Q for
          the quarter ended June 30, 2004 (Commission File No. 000-21827))

10(6)     2004 Equity Incentive Plan of AAH Holdings Corporation (incorporated
          by reference to Exhibit 10(6) to the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended June 30, 2004 (Commission File No.
          000-21827))

10(7)     Stock Purchase Agreement, dated as of August 6, 1998, by and among
          Amscan Holdings, Inc. and certain stockholders of Anagram
          International, Inc. and certain related companies (incorporated by
          reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form
          8-K dated August 6, 1998 (Commission File No. 000-21827))

10(8)     Tax Indemnification Agreement between Amscan Holdings, Inc., and John
          A. Svenningsen, dated as of
</TABLE>


                                       44

<PAGE>

<TABLE>
<S>       <C>
          December 18, 1996 (incorporated by reference to Exhibit 10(j) to the
          Registrant's 1996 Annual Report on Form 10-K (Commission File No.
          000-21827))

10(9)     Tax Indemnification Agreement between Amscan Holdings, Inc., Christine
          Svenningsen and the Estate of John A. Svenningsen, dated as of August
          10, 1997 (incorporated by reference to Exhibit 10.17 to the
          Registrant's Registration Statement on Form S-4 (Registration No.
          333-40235))

10(10)    The MetLife Capital Corporation Master Lease Purchase Agreement
          between MetLife Capital Corporation and Amscan Inc., Deco Paper
          Products, Inc., Kookaburra USA Ltd., and Trisar, Inc., dated November
          21, 1991, as amended (incorporated by reference to Exhibit 10(n) to
          Amendment No. 2 to the Registrant's Registration Statement on Form S-1
          (Registration No. 333-14107))

10(11)    Form of Indemnification Agreement between the Company and each of the
          directors of the Company (incorporated by reference to Exhibit 10(o)
          to Amendment No. 2 to the Registrant's Registration Statement on Form
          S-1 (Registration No. 333-14107))

10(12)    Employment Agreement, dated as of June 19, 2003, by and among the
          Company and Gerald C. Rittenberg (incorporated by reference to Exhibit
          10(b) to the Registrant's Current Report on Form 10-Q for the quarter
          ended September 30, 2003 (Commission File No. 000-21827))

10(13)    Employment Agreement, dated as of June 19, 2003, by and among the
          Company and James M. Harrison (incorporated by reference to Exhibit
          10(c) to the Registrant's Current Report on Form 10-Q for the quarter
          ended September 30, 2003 (Commission File No. 000-21827))

10(14)    Agreement and Plan of Merger, dated as of March 26, 2004, by and among
          Amscan Holdings, Inc., AAH Holdings Corporation and AAH Acquisition
          Corporation (incorporated by reference to Exhibit 2.1 to the
          Registrant's Current Report on Form 8-K dated March 29, 2004
          (Commission File No. 000-21827))

10(15)    Form of Support Agreement, dated as of March 26, 2004, by and among
          AAH Holdings Inc. and Stockholder (incorporated by reference to
          Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated March
          29, 2004 (Commission File No. 000-21827))

10(16)    Press Release, dated as of March 29, 2004, jointly issued by Amscan
          Holdings, Inc., Berkshire Partners LLC and Weston Presidio
          (incorporated by reference to Exhibit 99.1 to the Registrant's Current
          Report on Form 8-K dated March 29, 2004 (Commission File No.
          000-21827))

11        Statement re: computation of ratio of earnings to fixed charges

14        Code of Business Conduct (incorporated by reference to Exhibit 14 to
          the Registrant's Current Report on Form 10-K for the year ended
          December 31, 2003 (Commission File No. 000-21827))

21        Subsidiaries of the Registrant (incorporated by reference to Exhibit
          21 to the Registrant's Registration Statement on Form S-1
          (Registration No. 333-90404))

23        Consent of Ernst & Young LLP

31.1      Certification by Chief Executive Officer Pursuant to Rule 15d-14 (a)

31.2      Certification by Chief Financial Officer Pursuant to Rule 15d-14 (a)

32        Certification of Chief Executive Officer and Chief Financial Officer
          Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002
</TABLE>

     SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
        SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
                  SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

     The Company will not send to its security holders an annual report for the
year ended December 31, 2005.


                                       45

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                       AMSCAN HOLDINGS, INC.


                                       By: /s/ Michael A. Correale
                                           ------------------------------------
                                           Michael A. Correale
                                           Chief Financial Officer

Date: March 29, 2006

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
        Signature                               Title                             Date
        ---------                               -----                             ----
<S>                        <C>                                               <C>


/s/ Robert J. Small
------------------------
Robert J. Small            Chairman of the Board of Directors                March 29, 2006


/s/ Michael F. Cronin
------------------------
Michael F. Cronin          Director                                          March 29, 2006


/s/ Kevin M. Hayes
------------------------
Kevin M. Hayes             Director                                          March 29, 2006


/s/ Jordan A. Kahn
------------------------
Jordan A. Kahn             Director                                          March 29, 2006


/s/ Richard K. Lubin
------------------------
Richard K. Lubin           Director                                          March 29, 2006


/s/ John R. Ranelli
------------------------
John R. Ranelli            Director                                          March 29, 2006


/s/ Gerald C. Rittenberg
------------------------
Gerald C. Rittenberg       Chief Executive Officer and Director              March 29, 2006


/s/ James M. Harrison
------------------------
James M. Harrison          President, Chief Operating Officer and Director   March 29, 2006


/s/ Michael A. Correale
------------------------
Michael A. Correale        Chief Financial Officer
                           (Principal financial and accounting officer)      March 29, 2006
</TABLE>


                                       46

<PAGE>

                              AMSCAN HOLDINGS, INC.
                                    FORM 10-K
                           ITEM 8, ITEM 15(A) 1 AND 2

                              AMSCAN HOLDINGS, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

On April 30, 2004, Amscan Holdings, Inc. ("Amscan" or the "Company") completed
the merger of Amscan with AAH Acquisition Corporation ("AAH Acquisition"), a
wholly-owned subsidiary of AAH Holdings Corporation, ("AAH"), a privately held
corporation jointly controlled by funds affiliated with Berkshire Partners LLC
and Weston Presidio (together the "Principal Investors"). Amscan continued as
the surviving entity and as a wholly-owned subsidiary of AAH. For the periods
prior to and including April 30, 2004, the Company is referred to as the
"Predecessor" or "Predecessor Company." (See Note 1 - Organization and
Description of Business, in the accompanying Notes to Consolidated Financial
Statements.)

<TABLE>
<S>                                                                          <C>
Report of Independent Registered Public Accounting Firm...................    F-2

Consolidated Balance Sheets at December 31, 2005 and December 31, 2004....    F-3

Consolidated Statements of Operations for the Year Ended December 31, 2005
   and the Eight Months Ended December 31, 2004 and for the Four Months
   Ended April 30, 2004 (Predecessor) and the Year Ended
   December 31, 2003 (Predecessor)........................................    F-4

Consolidated Statements of Stockholders' (Deficit) Equity for the Year
   Ended December 31, 2003 (Predecessor) and the Four Months Ended
   April 30, 2004 (Predecessor) and for the Eight Months Ended
   December 31, 2004 and the Year Ended December 31, 2005.................    F-5

Consolidated Statements of Cash Flows for the Year Ended December 31,
   2005 and the Eight Months Ended December 31, 2004 and for the Four
   Months Ended April 30, 2004 (Predecessor) and the Year Ended December
   31, 2003 (Predecessor).................................................    F-8

Notes to Consolidated Financial Statements................................   F-10

Financial Statement Schedule for the Year Ended December 31, 2005 and the
   Eight Months Ended December 31, 2004 and for the Four Months Ended
   April 30, 2004 (Predecessor) and the Year Ended December 31, 2003
   (Predecessor):

Schedule II - Valuation and Qualifying Accounts...........................   F-46
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission ("SEC") are not required
under the related instructions or are inapplicable and therefore have been
omitted.


                                       F-1

<PAGE>

                              AMSCAN HOLDINGS, INC.

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Amscan Holdings, Inc.

We have audited the accompanying consolidated balance sheet of Amscan Holdings,
Inc. as of December 31, 2005 and 2004 and the related consolidated statements of
operations, stockholders' (deficit) equity, and cash flows for the year ended
December 31, 2005, the eight month period from May 1, 2004 to December 31, 2004,
the four month period from January 1, 2004 to April 30, 2004 (Predecessor
Company) and the year ended December 31, 2003 (Predecessor Company). Our audits
also included the consolidated financial statement schedule listed in the Index
at Item 15(a). The consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements and schedule based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. We were not
engaged to perform an audit of the Company's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Amscan
Holdings, Inc. at December 31, 2005 and 2004, and the consolidated results of
its operations and its cash flows for the year ended December 31, 2005 and the
eight month period from May 1, 2004 through December 31, 2004, in conformity
with U.S. generally accepted accounting principles. Further, in our opinion, the
Predecessor Company consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of its operations and
its cash flows for the four month period from January 1, 2004 through April 30,
2004, and the year ended December 31, 2003, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.


                                                           /s/ Ernst & Young LLP

Stamford, Connecticut
March 28, 2006

                                       F-2
<PAGE>

                             AMSCAN HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE)

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,   DECEMBER 31,
                                                                               2005           2004
                                                                           ------------   ------------
<S>                                                                        <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents ...........................................    $    8,745      $  4,252
   Accounts receivable, net ............................................        83,029        83,968
   Inventories, net ....................................................       188,457        88,159
   Prepaid expenses and other current assets ...........................        39,561        15,241
                                                                            ----------      --------
      Total current assets .............................................       319,792       191,620
   Property, plant and equipment, net ..................................       150,877        96,134
   Goodwill ............................................................       505,731       282,921
   Trade names .........................................................        68,500        33,500
   Other intangible assets, net ........................................        48,699        23,289
   Other assets ........................................................        25,348        19,802
                                                                            ----------      --------
      Total assets .....................................................    $1,118,947      $647,266
                                                                            ==========      ========
LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Loans and notes payable .............................................    $       --      $  2,025
   Accounts payable ....................................................       105,787        36,842
   Accrued expenses ....................................................        50,806        20,980
   Income taxes payable ................................................         3,387         2,594
   Current portion of long-term obligations ............................         2,643         2,807
                                                                            ----------      --------
      Total current liabilities ........................................       162,623        65,248
Long-term obligations, excluding current portion .......................       561,567       384,993
Non-current deferred income tax liabilities ............................        63,782        43,175
Deferred rent and other long-term liabilities ..........................         3,344         3,417
                                                                            ----------      --------
      Total liabilities ................................................       791,316       496,833

Redeemable common securities ...........................................         6,821         3,705

Commitments and contingencies ..........................................

Stockholders' equity:
   Common stock ($0.01 par value; 40,000.00 shares authorized; 27,882.73
      shares and 13,962.38 shares issued and outstanding at December 31,
      2005 and 2004, respectively) .....................................            --            --
   Additional paid-in capital ..........................................       300,983       136,819
   Retained earnings ...................................................        20,824         8,564
   Accumulated other comprehensive (loss) income .......................          (997)        1,345
                                                                            ----------      --------
      Total stockholders' equity .......................................       320,810       146,728
                                                                            ----------      --------
      Total liabilities, redeemable
         common securities and stockholders' equity ....................    $1,118,947      $647,266
                                                                            ==========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-3

<PAGE>

                                       AMSCAN HOLDINGS, INC.
                              CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   EIGHT MONTHS   FOUR MONTHS
                                                                     YEAR ENDED        ENDED         ENDED       YEAR ENDED
                                                                    DECEMBER 31,   DECEMBER 31,    APRIL 30,    DECEMBER 31,
                                                                        2005           2004           2004          2003
                                                                    ------------   ------------   -----------   ------------
                                                                                                         (PREDECESSOR)
<S>                                                                 <C>            <C>            <C>           <C>
Revenues:
   Net sales ....................................................     $417,226       $265,556       $133,660      $402,816
   Royalties and franchise fees .................................          509             --             --            --
                                                                      --------       --------       --------      --------
      Total revenues ............................................      417,735        265,556        133,660       402,816

Total expenses:
   Cost of sales ................................................      281,632        178,210         88,247       269,125
   Selling expenses .............................................       36,181         23,529         12,430        36,515
   Retail operating expenses ....................................        1,824             --             --            --
   Franchise expenses ...........................................          779             --             --            --
   General and administrative expenses ..........................       36,026         22,718         10,874        34,513
   Art and development costs ....................................        8,941          6,713          3,332         9,395
   Non-recurring expenses .......................................        3,988             --         11,757            --
   Restructuring charges ........................................           --             --             --         1,007
                                                                      --------       --------       --------      --------
      Total expenses ............................................      369,371        231,170        126,640       350,555
                                                                      --------       --------       --------      --------
            Income from operations ..............................       48,364         34,386          7,020        52,261
Interest expense, net ...........................................       31,907         19,124          8,384        26,368
   Other (income) expense, net ..................................         (764)           882             31        (1,434)
                                                                      --------       --------       --------      --------
      Income (loss) before income taxes and minority interests ..       17,221         14,380         (1,395)       27,327
Income tax expense (benefit) ....................................        4,940          5,679           (551)       10,065
Minority interests ..............................................           21            137             46            99
                                                                      --------       --------       --------      --------
            Net income (loss) ...................................       12,260          8,564           (890)       17,163
            Dividend on redeemable convertible preferred stock ..           --             --            136           399
                                                                      --------       --------       --------      --------
            Net income (loss) applicable to common shares .......     $ 12,260       $  8,564       $ (1,026)     $ 16,764
                                                                      ========       ========       ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

                              AMSCAN HOLDINGS, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
  FOR THE YEAR ENDED DECEMBER 31, 2003 AND THE FOUR MONTHS ENDED APRIL 30, 2004
   (PREDECESSOR) AND FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2004 AND THE YEAR
                             ENDED DECEMBER 31, 2005
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   UNAMORTIZED       NOTES                ACCUMULATED
                                                       ADDITIONAL   RESTRICTED    RECEIVABLE   RETAINED      OTHER
                                      COMMON   COMMON    PAID-IN   COMMON STOCK      FROM      EARNINGS  COMPREHENSIVE
PREDECESSOR                           SHARES    STOCK    CAPITAL      AWARDS     STOCKHOLDERS  (DEFICIT)      LOSS        TOTAL
-----------                          --------  ------  ----------  ------------  ------------  --------  -------------  --------
<S>                                  <C>       <C>     <C>         <C>           <C>           <C>       <C>            <C>
Balance at December 31, 2002.......  1,233.27    $--    $14,814       $(323)        $(638)     $(57,551)    $(2,585)    $(46,283)
Net income.........................                                                              17,163                   17,163
Net change in cumulative
   translation adjustment..........                                                                           2,161        2,161
Change in fair value of
   available-for-sale
   securities, net of income
   taxes...........................                                                                             949          949
Reclassification adjustment for
   available-for-sale
   securities sold during the
   period, net of income taxes.....                                                                            (899)        (899)
Change in fair value of
   interest rate swap and
   foreign exchange contracts,
   net of taxes....................                                                                             (72)         (72)
                                                                                                                        --------
Comprehensive income...............                                                                                       19,302
Exercise of stock options,
   including income tax
   benefits........................      6.65               910                                                              910
Amortization of restricted
   common stock awards.............                                     168                                                  168
Increase in redeemable common
   stock due to exercise of
   stock options and vesting
   of restricted common stock
   award...........................                      (1,537)                                                          (1,537)
Decrease in redeemable common
   stock due to the expiration
   of redemption feature...........                      13,597                                   6,000                   19,597
Decrease in redeemable common
   stock due to change in
   market value of common stock....                          50                                     368                      418
Increase in redeemable common
   stock due to employee
   purchases of common stock.......                        (753)                                                            (753)
Purchase and retirement of
   redeemable common stock
   held by officers................    (22.00)
Accretion of interest income.......                                                   (42)                                   (42)
Redeemable convertible
   preferred stock dividend........                        (399)                                                            (399)
                                     --------    ---    -------       -----         -----      --------     -------     --------
Balance at December 31, 2003.......  1,217.92    $--    $26,682       $(155)        $(680)     $(34,020)    $  (446)    $ (8,619)
                                     ========    ===    =======       =====         =====      ========     =======     ========
</TABLE>

                                   -Continued-


                                      F-5

<PAGE>

                              AMSCAN HOLDINGS, INC.
      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY - CONTINUED
  FOR THE YEAR ENDED DECEMBER 31, 2003 AND THE FOUR MONTHS ENDED APRIL 30, 2004
  (PREDECESSOR) AND FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2004 AND YEAR ENDED
                                DECEMBER 31, 2005
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   UNAMORTIZED       NOTES                ACCUMULATED
                                                       ADDITIONAL   RESTRICTED    RECEIVABLE   RETAINED      OTHER
                                      COMMON   COMMON    PAID-IN   COMMON STOCK      FROM      EARNINGS  COMPREHENSIVE
PREDECESSOR                           SHARES    STOCK    CAPITAL      AWARDS     STOCKHOLDERS  (DEFICIT)      LOSS       TOTAL
-----------                          --------  ------  ----------  ------------  ------------  --------  -------------  -------
<S>                                  <C>       <C>     <C>         <C>           <C>           <C>       <C>            <C>
Balance at December 31, 2003.......  1,217.92    $--    $26,682       $(155)        $(680)     $(34,020)     $(446)     $(8,619)
Net income.........................                                                                (890)                   (890)
Net change in cumulative
   translation adjustment..........                                                                           (673)        (673)
Change in fair value of
   available-for-sale
   securities, net of income
   taxes...........................                                                                            (22)         (22)
Reclassification adjustment for
   available-for-sale
   securities sold during the
   period, net of income taxes.....                                                                            (28)         (28)
Reclassification adjustment
   for terminated interest rate
   swap contracts, net of taxes....                                                                            408          408
Change in fair value of
   interest rate swap and
   foreign exchange contracts,
   net of taxes....................                                                                            306          306
                                                                                                                        -------
Comprehensive income...............                                                                                        (899)
Amortization of restricted
   common stock awards.............                                      52                                                  52
Redeemable convertible
   preferred stock dividend........                        (136)                                                           (136)
Repayment of note receivable
   from stockholder................                                                    25                                    25
Accretion of interest income.......                                                   (14)                                  (14)
                                     --------    ---    -------       -----         -----      --------      -----      -------
Balance at April 30, 2004..........  1,217.92    $--    $26,546       $(103)        $(669)     $(34,910)     $(455)     $(9,591)
                                     ========    ===    =======       =====         =====      ========      =====      =======
</TABLE>

                                   -Continued-


                                      F-6
<PAGE>

                             AMSCAN HOLDINGS, INC.
      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY - CONTINUED
 FOR THE YEAR ENDED DECEMBER 31, 2003 AND THE FOUR MONTHS ENDED APRIL 30, 2004
 (PREDECESSOR) AND FOR EIGHT MONTHS ENDED DECEMBER 31, 2004 AND THE YEAR ENDED
                               DECEMBER 31, 2005
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                         ACCUMULATED
                                                                ADDITIONAL                  OTHER
                                             COMMON    COMMON     PAID-IN    RETAINED   COMPREHENSIVE
                                             SHARES     STOCK     CAPITAL    EARNINGS        LOSS         TOTAL
                                           ---------   ------   ----------   --------   -------------   --------
<S>                                        <C>         <C>      <C>          <C>        <C>             <C>
Net income .............................                                      $ 8,564                   $  8,564
Net change in cumulative translation
   adjustment ..........................                                                   $ 1,702         1,702
Change in fair value of interest rate
   swap and foreign exchange contracts,
   net of taxes ........................                                                      (357)         (357)
                                                                                                        --------
Comprehensive income ...................                                                                   9,909
Issuances of shares of common stock in
   connection with the 2004
   Transactions ........................   13,962.38             $140,524                                140,524
Reclassification of common stock to
   redeemable common securities ........                           (3,705)                                (3,705)
                                           ---------     ---     --------     -------      -------      --------
Balance at December 31, 2004 ...........   13,962.38      --      136,819       8,564        1,345       146,728

Net income .............................                                       12,260                     12,260
Net change in cumulative translation
   adjustment ..........................                                                    (2,699)       (2,699)
Reclassification adjustment for
   terminated interest rate swap and
   foreign exchange contracts, net of
   taxes ...............................                                                       357           357
                                                                                                        --------
Comprehensive income ...................                                                                   9,918
Issuances of shares of common stock ....       62.00                  624                                    624
Issuances of shares of common stock in
   connection with the Party City
   Acquisition .........................   13,868.75              166,425                                166,425
Purchase and retirement of
   redeemable Common Stock
   held by a former employee ...........       (10.4)
Reclassification of common stock to
   redeemable common securities ........                           (3,220)                                (3,220)
Stock option compensation expense ......                              335                                    335
                                           ---------     ---     --------     -------      -------      --------
Balance at December 31, 2005 ...........   27,882.73     $--     $300,983     $20,824      $  (997)     $320,810
                                           =========     ===     ========     =======      =======      ========
</TABLE>


                                      F-7

<PAGE>

                              AMSCAN HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            YEAR ENDED    EIGHT MONTHS ENDED   FOUR MONTHS ENDED    YEAR ENDED
                                                           DECEMBER 31,       DECEMBER 31,         APRIL 30,       DECEMBER 31,
                                                               2005              2004                 2004             2003
                                                           ------------   ------------------   -----------------   ------------
                                                                                                        (PREDECESSOR)
<S>                                                        <C>            <C>                  <C>                 <C>
Cash flows provided by operating activities:
   Net income (loss) ...................................    $  12,260         $   8,564            $   (890)         $ 17,163
   Adjustments to reconcile net income (loss) to net
      cash provided by operating activities:
      Depreciation and amortization expense ............       18,602             9,519               5,296            16,119
      Amortization of deferred financing costs .........        1,582             1,022                 709             2,131
      Amortization of restricted Common Stock
         awards ........................................           --                --                  52               168
      Deferred rent ....................................           32                --                  --                --
      Provision for doubtful accounts ..................          795             1,308                 729             2,588
      Deferred income tax expense (benefit) ............        1,243             3,638              (2,220)            5,231
      Loss (gain) on disposal of property, plant
         and equipment .................................           34                (4)                (35)              122
      Undistributed loss in unconsolidated joint
         venture .......................................          987             1,168                  89                --
      Debt retirement costs incurred in connection
         with the 2004 Transactions ....................                             --               6,209                --
      Write-off of deferred financing costs ............        3,988                --               5,548                --
      Gain on sales of available-for-sale
         securities ....................................           --                --                 (47)           (1,486)
      Non-cash restructuring charges ...................           --                --                  --               104
      Equity based compensation ........................          335                --                  --                --
      Changes in operating assets and liabilities,
         net of acquisitions:
         (Increase) decrease in accounts
            receivable .................................       (1,154)            1,552             (15,247)           (3,628)
         (Increase) decrease in inventories ............      (18,635)           (6,594)              6,229             7,113
         (Increase) decrease in prepaid expenses,
            other current assets and other assets, net..          626              (527)             (1,001)            2,250
         Increase (decrease) in accounts payable,
            accrued expenses, income taxes
            payable and other liabilities ..............       (5,209)            5,116               3,991            (5,713)
                                                            ---------         ---------            --------          --------
         Net cash provided by operating
            activities .................................       15,486            24,762               9,412            42,162
   Cash flows used in investing activities:
      Cash paid to consummate the 2004 Transactions.....           --          (529,982)                 --                --
      Cash paid in connection with Party City
         Acquisition net of cash acquired ..............     (325,562)               --                  --                --
      Capital expenditures .............................      (17,051)           (7,709)             (3,726)          (12,525)
      Proceeds from sale of available-for-sale
         securities ....................................           --                --                  65             2,005
      Proceeds from disposal of property, plant and
         equipment .....................................           88               559                  53               204
                                                            ---------         ---------            --------          --------
            Net cash used in investing activities ......     (342,525)         (537,132)             (3,608)          (10,316)
   Cash flows provided by (used in) financing
      activities .......................................
      Proceeds from loans, notes payable and long-term
         obligations, net of debt issuance costs
         (including original issue discount in 2005) of
         $12,187 and $13,084 in 2005 and 2004,
         respectively ..................................      372,813           368,941                  --                --
      Repayment of loans, notes payable and long-term
         obligations ...................................     (206,372)           (1,768)            (21,251)           (3,723)
      Capital contributions in connection with the
         Party City Acquisition and 2004 Transactions ..      166,425           139,024                  --                --
      Issuances of common stock ........................          624                --                  --                --
      Debt retirement costs paid in connection with the
         2004 Transactions .............................           --                --              (6,209)               --
      Proceeds from the exercise of common stock
         options .......................................           --                --                  --               831
      Purchase of common stock from officers ...........         (109)               --                  --            (3,300)
      Repayment of notes receivable from officers ......           --                --                  25             1,990
                                                            ---------         ---------            --------          --------
            Net cash provided by (used in) financing
               activities ..............................      333,381           506,197             (27,435)           (4,202)
   Effect of exchange rate changes on cash and cash
      equivalents ......................................       (1,849)            1,188                (594)            1,418
                                                            ---------         ---------            --------          --------
            Net increase (decrease) in cash and cash
               equivalents .............................        4,493            (4,985)            (22,225)           29,062
   Cash and cash equivalents at beginning of period ....        4,252             9,237              31,462             2,400
                                                            ---------         ---------            --------          --------
   Cash and cash equivalents at end of period ..........    $   8,745         $   4,252            $  9,237          $ 31,462
                                                            =========         =========            ========          ========
Supplemental disclosures of cash flow information:
   Cash paid during the period for:
      Interest .........................................    $  32,219         $  16,208            $  6,531          $ 22,982
      Income taxes .....................................        2,851             3,287               1,002             4,395
</TABLE>


                                      F-8
<PAGE>

                             AMSCAN HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE)

Supplemental information on non-cash activities (dollars in thousands):

     In connection with the 2004 Transactions (see Note 1), certain officers of
the Company exchanged 8.2417 of their shares of common stock of the Predecessor
(as defined hereafter) for 150 shares of common stock of the Company with an
equivalent value of $1,500. In addition, the aforementioned officers exchanged
their vested options to purchase 8.411 shares of Predecessor common stock, which
had an intrinsic value of $900, for vested options to purchase 98.182 shares of
common stock under the Company's equity incentive plan with an intrinsic value
of $737 and a fair value of $880.

     Capital lease obligations of $292, $31, $207 and $143 were incurred during
the year ended December 31, 2005 and the eight months ended December 31, 2004
and the four months ended April 30, 2004 and the year ended December 31, 2003
(Predecessor), respectively.

     In December 2004, the Company acquired a 20% ownership in a French party
goods company in exchange for its French wholly-owned metallic balloon
distribution subsidiary. The Company accounts for its investment in the French
party goods company using the cost method.

     In December 2003, the Predecessor Company acquired the balloon assets of a
competitor, in exchange for 50.1% of the common stock of its wholly-owned
metallic balloon distribution subsidiary located in Mexico, thereby creating a
joint venture to distribute certain metallic balloons principally in Mexico and
Latin America. The Company accounts for its investment in the joint venture
using the equity method.

          See accompanying notes to consolidated financial statements.


                                      F-9

<PAGE>

                              AMSCAN HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

     Amscan Holdings, Inc. ("Amscan" or the "Company") was incorporated on
October 3, 1996 for the purpose of becoming the holding company for Amscan Inc.
and certain affiliated entities. The Company designs, manufactures, contracts
for manufacture, and distributes party goods, including metallic balloons, gifts
and stationery, throughout the world, including in North America, South America,
Europe, Asia and Australia. In addition, through the Party City Acquisition
(defined hereafter) in December 2005, the Company operates retail party supply
superstores within the United States and sells franchises on an individual store
and franchise area basis throughout the United States and Puerto Rico.

THE 2004 TRANSACTIONS

     On March 26, 2004, Amscan signed an agreement providing for a merger of
Amscan with AAH Acquisition Corporation ("AAH Acquisition"), a wholly-owned
subsidiary of AAH Holdings Corporation ("AAH"), a privately held corporation
jointly controlled by funds affiliated with Berkshire Partners LLC and Weston
Presidio (together the "Principal Investors"). On April 30, 2004, the merger
with AAH Acquisition was consummated, with Amscan continuing as the surviving
entity and as a wholly-owned subsidiary of AAH. Under the terms of the
agreement, the equity interests of all Amscan stockholders, other than certain
management investors, were cancelled in exchange for the right to receive cash.
Cash paid to consummate the transactions totaled $529,982 and was financed with
initial borrowings (before deducting deferred financing costs of $13,084)
consisting of a $205,000 term loan (the "Old Term Loan") under a senior secured
credit facility (the "2004 Senior Secured Credit Facility") which includes a
$50,000 revolving loan facility (the "Old Term Loan Revolver"), the proceeds
from the issuance of $175,000 of 8.75% senior subordinated notes (the "Senior
Sub Notes") due 2014, an equity contribution, including contributions from the
Principal Investors and employee stockholders, of $140,524, borrowings under the
revolver of $23,551 and available cash on-hand. Certain existing employee
shareholders participated in the 2004 Transactions by purchasing approximately
296.91 shares of common stock. The Chief Executive Officer and the President of
the Company exchanged 5.4945 and 2.7472 of their shares of common stock of the
Predecessor Company for 100 and 50 shares of common stock of the Company with an
equivalent value of $1,000 and $500, respectively. In addition, the Chief
Executive Officer and President of the Company exchanged vested options to
purchase 5.607 and 2.804 shares of Predecessor common stock, which had intrinsic
values of $600 and $300, respectively, for vested options to purchase 98.182
shares of Company Common Stock under its equity incentive plan with intrinsic
values of $492 and $245 and fair values of $590 and $290, respectively. The
acquisition has been accounted for under the purchase method of accounting which
required that the Company adjust its assets and liabilities to their relative
fair values. In order to reflect the ultimate beneficial ownership of the
Company, the capital structure disclosed in the Company's consolidated financial
statements is the capital structure of AAH.

     The following unaudited pro forma information assumes the 2004 Transactions
had occurred on January 1, 2004 and 2003, respectively. The pro forma
information, as presented below, is not necessarily indicative of the results
that would have been obtained had the 2004 Transactions occurred on January 1,
2004 and 2003, nor is it necessarily indicative of the Company's future results:

<TABLE>
<CAPTION>
                       YEARS ENDED
               ---------------------------
               DECEMBER 31,   DECEMBER 31,
                   2004           2003
               ------------   ------------
<S>            <C>            <C>
Net sales...     $399,216       $402,816
Net income..       16,855         15,531
</TABLE>

     The pro forma net income amounts reflect the following items: (i)
adjustments for interest expense from new borrowings related to the 2004
Transactions and the elimination of historical interest on debt repaid in the
2004 Transactions, (ii) management fees to be paid to our Principal Investors,
(iii) the elimination of non-recurring expenses related to the 2004
Transactions, (iv) the elimination of the increase in cost of sales in 2004
arising from the revaluation of inventories as a result of purchase price
allocation, (v) adjustments to depreciation and amortization expense arising
from the valuation of property, plant and equipment and amortizable intangible
assets, as a result of the purchase price allocation, and (vi) the related
income tax effects of the above items based upon a pro forma effective income
tax rate of 39.5%.


                                      F-10

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

THE PARTY CITY ACQUISITION

     On December 23, 2005 (the "Party City Acquisition Date"), the Company
completed the acquisition of Party City (the "Party City Acquisition") pursuant
to the Agreement and Plan of Merger, dated September 26, 2005 (as amended, the
"Acquisition Agreement"), by and among the Company, Party City and BWP
Acquisition, Inc. ("BWP"), a Delaware corporation and a wholly-owned subsidiary
of the Company. Pursuant to the terms of the Acquisition Agreement, BWP merged
with and into Party City, with Party City continuing as the surviving
corporation. Each share of common stock of Party City outstanding at the Party
City Acquisition Date was cancelled and converted into the right to receive
$17.50 in cash, without interest. Prior to the acquisition, Party City settled
all outstanding stock options and warrants at the spread between $17.50 and
their exercise price. Transaction costs associated with the Party City
Acquisition totaled $9,370.

     Financing for the Party City Acquisition, including the repayment of the
Company's borrowings under the 2004 Senior Secured Credit Facility, was provided
by: (i) an equity investment of $166,425 (the "Equity Investment") in AAH,
(ii) borrowings under a First Lien Credit Agreement (the "First Lien Credit
Agreement") consisting of a $325,000 term loan (net of an original issue
discount of $3,250) (the "First Term Loan") and a committed revolving credit
facility in an aggregate principal amount of $85,000 (the First Term Loan
Revolver"), (iii) borrowings under a Second Lien Credit Agreement (the "Second
Lien Credit Agreement," and, together with the First Lien Credit Agreement, the
"Credit Agreements") consisting of a $60,000 term loan (net of an original issue
discount of $1,500) (the "Second Term Loan") and (iv) cash on-hand of $20,365.
Deferred financing costs associated with the Credit Agreements totaled $7,437.

     The Equity Investment consisted of the sale of 13,868.75 shares of AAH
common stock to funds affiliated with Berkshire Partners, LLC and Weston
Presidio, certain members of management and certain other investors.

     The excess of the Party City purchase price over the tangible net assets
acquired has been allocated to intangible assets consisting of franchise
licenses ($30,000) and other intangibles ($300), each of which is being
amortized using the straight-line method over the assets' estimated useful life
(15 to 17 years), and trade names ($35,000) and goodwill ($222,200), which are
not being amortized. The acquisition was structured as a purchase of common
stock and, accordingly, the amortization of intangible assets is not deductible
for income tax purposes. The allocation of the purchase price is based, in-part,
on our preliminary estimates of the fair value of the tangible and identifiable
intangible assets acquired and liabilities assumed. Independent valuation
specialists are currently conducting a valuation of the net assets acquired as
of the Party City Acquisition Date to assist management with the final
determination of fair value.

     The following unaudited pro forma information assumes the Party City
Acquisition had occurred on January 1, 2005 and 2004, respectively. The pro
forma information, as presented below, is not necessarily indicative of the
results that would have been obtained had the Party City Acquisition occurred on
January 1, 2005 and 2004, nor is it necessarily indicative of the Company's
future results (dollars in thousands):

<TABLE>
<CAPTION>
                            YEARS ENDED
                    ---------------------------
                    DECEMBER 31,   DECEMBER 31,
                        2005           2004
                    ------------   ------------
<S>                 <C>            <C>
Net sales........     $886,113       $848,129
Net income.......        7,272         10,326
</TABLE>

     The pro forma net income amounts reflect the following items: (i)
adjustments to interest expense from new borrowings related to the Party City
Acquisition and the elimination of historical interest on debt repaid in
connection therewith, (ii) the elimination of non-recurring expenses related to
the Party City Acquisition, (iii) adjustments to amortization expense arising
from the valuation of amortizable intangible assets, as a result of the
preliminary purchase price allocation, and (vi) the related income tax effects
of the above items based upon a pro forma effective income tax rate of 39.5%.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATED FINANCIAL STATEMENTS

     The consolidated financial statements of the Company include the accounts
of the Amscan Holdings and all majority-owned subsidiaries and controlled
entities. All significant intercompany balances and transactions have been
eliminated.


                                      F-11

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

     Prior to its acquisition, Party City defined a fiscal year as the 52-week
period or 53-week period ended nearest June 30 of each year. Party City defined
its fiscal quarters as a the four interim 13-week periods following the end of
the previous fiscal year, except in the case of a 53-week fiscal year when the
fourth fiscal quarter is extended to 14 weeks. Following the acquisition, Party
City's fiscal year and related fiscal quarters will be based on the 52-week or
53-week period nearest to December 31 of each year. The Company expects the
difference between Party City's fiscal year and the calendar year to be
insignificant and will be reconciled in the financial consolidation process.

USE OF ESTIMATES

     The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

     Management periodically evaluates estimates used in the preparation of the
consolidated financial statements for continued reasonableness. Appropriate
adjustments, if any, to the estimates used are made prospectively based on such
periodic evaluations.

CASH EQUIVALENTS

     Highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.

INVENTORIES

     Inventories are valued at the lower of cost or market. The Company
determines the cost of inventory at its retail stores using the weighted average
method. All other inventory cost is determined using the first-in, first-out
method.

     The Company estimates retail inventory shortage, for the period between
physical inventory dates on a store-by-store basis. Inventory shrinkage
estimates are affected by changes in merchandise mix and changes in actual
shortage trends. The shrinkage rate from the most recent physical inventory, in
combination with historical experience, is the basis for estimating shrinkage.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of the Company's customers to make required
payments. A considerable amount of judgment is required in assessing the
ultimate realization of these receivables including consideration of our history
of receivable write-offs, the level of past due accounts and the economic status
of our customers. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

LONG-LIVED AND INTANGIBLE ASSETS

     Property, plant and equipment are stated at cost. Depreciation is
calculated principally on the straight-line method over the estimated useful
lives of the assets. Equipment under capital leases are stated at the present
value of the minimum lease payments at the inception of the lease. Equipment
under capital leases and leasehold improvements are amortized on a straight-line
basis over the shorter of the lease term or the estimated useful life of the
asset.

     Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the net assets acquired. The Company adopted
SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") effective
January 1, 2001. SFAS No. 142 changed the accounting for goodwill from an
amortization method to an "impairment only" approach. Under SFAS No. 142,
goodwill and other intangibles with indefinite lives are no longer amortized but
reviewed for impairment annually or more frequently if certain indicators arise.
The Company evaluates the goodwill associated with its acquisitions and other
intangibles with indefinite lives as of October 1, 2005 based on current and
projected performance. During 2005, the Company completed its review and
determined that goodwill and other intangible assets with indefinite lives were
not impaired.

     The Company evaluates finite-lived assets in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets" ("SFAS No.
144"). Finite-lived assets are evaluated for recoverability in accordance with
SFAS No. 144 whenever events or changes in circumstances indicate that an asset
may have been impaired. In evaluating an asset for recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and
eventual disposition. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than


                                      F-12

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

the carrying amount of the asset, an impairment loss, equal to the excess of the
carrying amount over the fair market value of the asset is recognized.

DEFERRED FINANCING COSTS AND ORIGINAL ISSUE DISCOUNT

     Deferred financing costs (included in other assets) and original issue
discount (netted against the related debt) are both amortized to interest
expense using the effective interest method over the lives of the related debt.

INVESTMENTS

     In December 2004, the Company acquired a 20% ownership in a French party
goods company, S.A.S. Rubie's France,  in exchange for its French metallic
balloon distribution business. The Company accounts for its investment in the
French party goods company, which is included in other assets, using the cost
method. At December 31, 2005 the carrying value of this investment is $1,613.

     In December 2003, the Predecessor Company acquired the balloon assets of a
competitor, in exchange for 50.1% of the common stock of its wholly-owned
metallic balloon distribution subsidiary located in Mexico, thereby creating a
joint venture to distribute metallic balloons principally in Mexico and Latin
America. The Company accounts for its investment in the joint venture,
Convergram Mexico, using the equity method. The Company's investment in the
joint venture is included in other assets on the consolidate balance sheet and
the results of the joint venture's operations are separately disclosed in Note
13. Prior to the date of the exchange, the individual accounts of the
wholly-owned Mexican balloon distribution subsidiary were included in the
Predecessor's consolidated financial statements.

INSURANCE ACCRUALS

     As a result of the Party city Acquisition, the Company maintains certain
self-insured workers' compensation and general liability insurance plans. The
Company estimates the required liability of claims under such plans utilizing an
actuarial method based upon various assumptions, which include, but are not
limited to, our historical loss experience, projected loss development factors,
actual payroll and other data. The required liability is also subject to
adjustment in the future based upon the changes in claims experience, including
changes in the number of incidents (frequency) and changes in the ultimate cost
per incident (severity).

REVENUE RECOGNITION

     The Company's terms of sale to retailers and other distributors are
generally F.O.B. shipping point and, accordingly, title and the risks and
rewards of ownership are generally transferred to the customer, and revenue is
recognized, when goods are shipped. The Company estimates reductions to revenues
for volume-based rebate programs at the time sales are recognized.

     Revenue from retail operations is recognized at the point of sale. We
estimate future retail sales returns and, when material, record a provision in
the period that the related sales are recorded based on historical information.

SHIPPING AND HANDLING

     Outbound shipping and handling costs billed to customers are included in
net sales. The costs of shipping and handling incurred by the Company are
included in cost of sales.

STORE CLOSURE COSTS

     We record estimated store closure costs, estimated lease commitment costs
net of estimated sublease income and other miscellaneous store closing costs
when the liability is incurred.

PRODUCT ROYALTY AGREEMENTS

     The Company enters into product royalty agreements that allow the Company
to use licensed designs on certain of its products. These contracts require the
Company to pay royalties, generally based on the sales of such product, and may
require guaranteed minimum royalties, a portion of which may be paid in advance.
The Company matches royalty expense with revenue by recording royalties at the
time of sale, at the greater of the contractual rate or an effective rate
calculated based on the guaranteed minimum royalty and the Company's estimate of
sales during the contract period. If a portion of the guaranteed minimum royalty
is determined not to be recoverable, the unrecoverable portion is charged to
expense at that time. Guaranteed minimum royalties paid in advance are recorded
in the consolidated balance sheets as other assets.


                                      F-13

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

CATALOGUE COSTS

     The Company expenses costs associated with the production of annual
catalogues when incurred.

ART AND DEVELOPMENT COSTS

     Art and development costs are primarily internal costs that are not easily
associated with specific designs, some of which may not reach commercial
production. Accordingly, the Company expenses these costs as incurred.

DERIVATIVE FINANCIAL INSTRUMENTS

     The Company accounts for derivative financial instruments pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and
interpreted, requires that all derivative financial instruments be recognized on
the balance sheet at fair value and establishes criteria for both the
designation and effectiveness of hedging activities. The Company may use
derivatives in the management of interest rate and foreign currency exposure.
SFAS No. 133 requires the Company to formally document the assets, liabilities
or other transaction the Company designates as hedged items, the risk being
hedged and the relationship between the hedged items and the hedging
instruments. The Company must measure the effectiveness of the hedging
relationship at the inception of the hedge and on an on-going basis.

     As of December 31, 2005, we did not have any derivative contracts
designated as cash flow hedges as defined in SFAS No. 133. Should we designate
these or other contracts in the future as cash flow hedges, they would continue
to be recorded at fair value on the balance sheet, but the effective portion of
the change in their fair value from the designation date would be reflected in
other comprehensive income until their settlement month or until they lost their
hedge designation. (See Note 20).

     If derivative financial instruments qualify as fair value hedges, the gain
or loss on the instrument and the offsetting loss or gain on the hedged item
attributable to the hedged risk are recognized in current earnings during the
period of the change in fair values. For derivative financial instruments that
qualify as cash flow hedges (i.e., hedging the exposure to variability in
expected future cash flows that is attributable to a particular risk), the
effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income and reclassified into earnings in
the same period or periods during which the hedged transaction affects earnings.
The ineffective portion of a cash flow hedge, if any, is determined based on the
dollar-offset method (i.e., the gain or loss on the derivative financial
instrument in excess of the cumulative change in the present value of future
cash flows of the hedged item) and is recognized in current earnings during the
period of change. As long as hedge effectiveness is maintained, interest rate
swap arrangements and foreign currency exchange agreements qualify for hedge
accounting as cash flow hedges.

INCOME TAXES

     The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes." Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of assets and
liabilities and operating loss and tax credit carryforwards applying enacted
statutory tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation allowance when, in
the judgment of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.

STOCK-BASED COMPENSATION

     Effective with the consummation of the 2004 Transactions (see Note 1), the
Company elected to apply the fair value recognition provisions of SFAS No. 123,
as amended by SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based
Compensation -- Transition and Disclosure" ("SFAS 123"). SFAS 123 permits
entities to recognize as expense, over the vesting period, the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 allows entities
to apply the provisions of Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," which requires the recognition of
compensation expense at the date of grant only if the current market price of
the underlying stock exceeds the exercise price, and to provide pro forma net
income disclosures for employee stock option grants as if the fair value based
method defined in SFAS No. 123 had been applied. SFAS No. 148 provides
alternative methods of transition to FAS 123's fair value method of accounting
for stock-based employee compensation and amends the disclosure provisions of
SFAS 123 (see Note 15).


                                      F-14

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

     Prior to the 2004 Transactions, the Predecessor Company elected to apply
the intrinsic value method of Accounting Principle Board Opinion No. 25 for
awards granted under its stock-based compensation plans and to provide the pro
forma disclosures required by SFAS No. 123. Accordingly, no compensation cost
had been recognized in connection with the issuance of options under the Amscan
Holdings, Inc. 1997 Equity Incentive Plan, the Predecessor's prior plan, through
April 30, 2004 as all options were granted with exercise prices equal to the
estimated fair market value of the Common Stock on the date of grant.

     Had the Company determined stock-based compensation based on the fair value
of the options granted at the grant date, consistent with the method prescribed
under FAS 123, the Predecessor's net loss would have been increased or net
income would have been reduced to the amounts indicated below:

<TABLE>
<CAPTION>
                                                                       FOUR MONTHS      YEAR ENDED
                                                                     ENDED APRIL 30,   DECEMBER 31,
                                                                          2004             2003
                                                                     ---------------   ------------
<S>                                                                  <C>               <C>
Net (loss) income:
   As reported....................................................       $  (890)         $17,163
   Less: Total stock-based employee compensation expense
      determined under the fair value based method for all awards,
      net of income taxes of $125 and $193, respectively..........           192              296
                                                                         -------          -------
SFAS No. 123 pro forma net (loss) income..........................       $(1,082)         $16,867
                                                                         =======          =======
</TABLE>

     It has been assumed that the estimated fair value of the options granted in
2003 and 2002 under the 1997 Equity Incentive Plan is amortized on a straight
line basis to compensation expense, net of taxes, over the vesting period of the
grant, ranging from 2.5 to 5.0 years. The estimated fair value of each option on
the date of grant was determined using the minimum value method with the
following assumptions: dividend yield of 0%, risk-free interest rate of 3.9% and
expected lives of 2.5 and 7.0 years.

     In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment
(Revised 2004), which requires companies to recognize in the income statement
the fair value of all employee share-based payments, including grants of
employee stock options as well as compensatory employee stock purchase plans.
SFAS No. 123(R) became effective for the Company for the quarter ending March
31, 2006. The Company has adopted the "modified prospective" valuation method of
SFAS No. 123(R), whereby compensation cost is recognized beginning with the
effective date (a) based on the requirements of SFAS No. 123(R) for all
share-based payments granted after the effective date and (b) based on the
requirements of SFAS No. 123 for all awards granted to employees prior to the
effective date of SFAS No. 123(R) that remain unvested on the effective date.
The Company has not issued any employee share based payments since the adoption
of SFAS No. 123(R). However, the Company expects the adoption of SFAS No. 123(R)
to have a similar effect as currently disclosed under SFAS No. 123.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

     Accumulated other comprehensive income (loss) at December 31, 2005 and 2004
consisted of the Company's foreign currency translation adjustment and the fair
value of interest rate swap and foreign exchange contracts qualifying as hedges
(see Notes 20 and 21).

FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION

     The functional currencies of the Company's foreign operations are the local
currencies in which they operate. Realized foreign currency exchange gains or
losses resulting from the settlement of receivables or payables in currencies
other than the functional currencies are credited or charged to operations.
Unrealized gains or losses on foreign currency transactions are insignificant.
The balance sheets of foreign subsidiaries are translated into U.S. dollars at
the exchange rates in effect on the balance sheet date. The results of
operations of foreign subsidiaries are translated into U.S. dollars at the
average exchange rates effective for the periods presented. The differences from
historical exchange rates are recorded as comprehensive income (loss) and are
included as a component of accumulated other comprehensive income (loss).


                                      F-15

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

CONCENTRATION OF CREDIT RISK

     While the Company's customers are geographically dispersed throughout North
America, South America, Europe, Asia and Australia, there is a concentration of
sales made to and accounts receivable from the stores that operate in the party
superstore distribution channel. From time to time, we have made significant
additional provisions for credit losses and have restructured the terms of
accounts receivable because of changes in the credit condition of certain
superstore customers. However, no superstore chain, other than Party City, has
accounted for more than 10% of our annual sales at wholesale. No other group or
combination of customers subjected the Company to a concentration of credit
risk.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In December 2004, Financial Accounting Standards Board ("FASB") issued SFAS
No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29",
which eliminates certain narrow differences between APB 29 and international
accounting standards. SFAS No. 153 is effective for fiscal periods beginning on
or after June 15, 2005. The adoption of SFAS No. 153 did not have a material
impact on the Company's consolidated financial statements.

     In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107
"Share-Based Payment ". SAB No. 107 expresses views of the SEC staff regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations
and provides the staff's views regarding the valuation of share-based payment
arrangements.

     In March 2005, the FASB issued SFAS Interpretation Number 47 ("FIN 47"),
"Accounting for Conditional Asset Retirement Obligations". FIN 47 provides
clarification regarding the meaning of the term "conditional asset retirement
obligation" as used in FASB 143, "Accounting for Asset Retirement Obligations".
This Interpretation is effective no later than the end of fiscal years ending
after December 15, 2005. The adoption of FIN 47 did not have a material impact
on the Company's consolidated financial statements.

     In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3."
SFAS No. 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. This statement is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The Company does not expect the adoption of SFAS 154 to have a
material impact on the Company's consolidated financial statements.

     In June 2005, the Emerging Issues Task Force ("EITF") reached consensus on
EITF 05-6, "Determining the Amortization Period for Leasehold Improvements".
Under EITF 05-6, leasehold improvements placed in service significantly after
and not contemplated at or near the beginning of the lease term, should be
amortized over the lesser of the useful life of the assets or a term that
includes renewals that are reasonably assured at the date the leasehold
improvements are purchased. EITF 05-6 is effective for periods beginning after
June 29, 2005. The adoption of EITF 05-6 did not have a material impact on the
consolidated financial statements.


                                      F-16

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

NOTE 3 - INVENTORIES

     Inventories at December 31, 2005 and 2004 consisted of the following:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,   DECEMBER 31,
                                                                         2005           2004
                                                                     ------------   ------------
<S>                                                                  <C>            <C>
Finished goods....................................................     $172,232        $70,896
Raw materials.....................................................       12,272         11,080
Work-in process...................................................        6,139          7,167
                                                                       --------        -------
                                                                        190,643         89,143
Less: reserve for slow moving and obsolete inventory..............       (2,186)          (984)
                                                                       --------        -------
                                                                       $188,457        $88,159
                                                                       ========        =======
</TABLE>



                                      F-17
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET

     Property, plant and equipment, net at December 31, 2005 and 2004 consisted
of the following (dollars in thousands):

<TABLE>
<CAPTION>
                                    DECEMBER 31,   DECEMBER 31,      USEFUL
                                        2005           2004          LIVES
                                    ------------   ------------   -----------
<S>                                 <C>            <C>            <C>
Machinery and equipment..........     $ 64,315       $ 46,168      3-15 years
Buildings........................       40,669         40,818     31-40 years
Data processing equipment........       21,938          2,724       3-5 years
Leasehold improvements...........       22,964          2,446      2-20 years
Furniture and fixtures...........       13,874          2,830        10 years
Land                                     7,130          7,156
                                      --------       --------
                                       170,890        102,142
Less: accumulated depreciation...      (20,013)        (6,008)
                                      --------       --------
                                      $150,877       $ 96,134
                                      ========       ========
</TABLE>

     Depreciation expense related to property, plant and equipment was $13,251
$6,008, $5,184, and $15,757 for the year ended December 31, 2005, eight months
ended December 31, 2004, the four months ended April 30, 2004 and the year ended
December 31, 2003, respectively.

     The Company is obligated under various capital leases for certain machinery
and equipment which expire on various dates through 2008 (see Note 8). At
December 31, 2005 and 2004, the amount of machinery and equipment and related
accumulated amortization recorded under capital leases and included within
property, plant and equipment, net consisted of the following:

<TABLE>
<CAPTION>
                                    DECEMBER 31,   DECEMBER 31,
                                        2005           2004
                                    ------------   ------------
<S>                                 <C>            <C>
Machinery and equipment..........      $1,202          $372
Less: accumulated depreciation...        (161)          (25)
                                       ------          ----
                                       $1,041          $347
                                       ======          ====
</TABLE>

     Amortization of assets held under capitalized leases is included in
depreciation expense.

NOTE 5 - PARTY CITY ACQUISITION AND 2004 TRANSACTIONS

PARTY CITY ACQUISITION

     On December 23, 2005, the Company completed the acquisition of Party City,
pursuant to the 2005 Acquisition Agreement, dated September 26, 2005, by and
among the Company, Party City and BWP, a Delaware corporation and a wholly-owned
subsidiary of the Company. Pursuant to the terms of the Acquisition Agreement,
BWP merged with and into Party City, with Party City continuing as the surviving
corporation. Each share of common stock of Party City outstanding at the
Acquisition Date was cancelled and converted into the right to receive $17.50 in
cash, without interest. Prior to the Party City Acquisition, Party City settled
all outstanding stock options and warrants at the spread between $17.50 and
their exercise price. Financing for the Party City Acquisition, including the
repayment of certain of the Company's other senior debt, was provided by: (i)
the Equity Investment of $166,425, (ii) the First Term Loan of $325,000 and the
First term Loan Revolver. a committed revolving credit facility in an aggregate
principal amount of $85,000, (iii) the Second Term Loan of $60,000 and (iv) cash
on-hand of $20,365.


                                      F-18
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

     The Party City Acquisition has been accounted for as a purchase business
combination. Assets acquired and liabilities assumed were recorded at their
estimated fair values at the date of the Party City Acquisition. The total
preliminary purchase price of $356,189 is comprised of:

<TABLE>
<S>                                                 <C>
Purchase of all the outstanding common
   stock of Party City at $17.50 per share ......   $346,819
Related transaction costs .......................      9,370
                                                    --------
   Total purchase price .........................   $356,189
                                                    ========
</TABLE>

     Under purchase business combination accounting, the total purchase price is
allocated to net tangible and identifiable intangible assets acquired based on
their estimated fair values at the date of the Party City Acquisition. The total
preliminary purchase price was allocated as follows:

<TABLE>
<S>                                                 <C>
Goodwill ........................................   $222,233
Identifiable intangible assets ..................     65,261
Tangible assets .................................    186,427
Current deferred tax assets .....................      7,144
Liabilities assumed .............................    (97,670)
Reserves for the exiting of certain
   activities and related severance .............     (3,680)
Non-current deferred income tax liabilities .....    (23,526)
                                                    --------
   Total preliminary purchase price allocation ..   $356,189
                                                    ========
</TABLE>

     The preliminary allocation of the purchase price was based upon
management's estimate of fair value. Independent valuation specialists are
currently conducting a valuation of the acquired tangible and identifiable
intangible assets as of the Acquisition Date in order to assist the management
of the Company in determining their fair values.

     In connection with the Party City Acquisition, the Company recorded
non-recurring expenses of $3,988 consisting of the write-off of deferred
financing costs associated with the repayment of the Old Term Loan (see Note 8).

     2004 TRANSACTIONS

     On March 26, 2004, the Company signed an agreement providing for a merger
of the Company with AAH Acquisition. On April 30, 2004, the merger with AAH
Acquisition was consummated, with the Company continuing as the surviving entity
and as a wholly-owned subsidiary of AAH, a privately held corporation. Under the
terms of the agreement, the equity interests in the Company held by GSCP, and
all other stockholders, other than certain management investors, were cancelled
in exchange for the right to receive cash

     The purchase price was allocated based upon independent valuations of the
fair value of net assets acquired at the date of acquisition. The purchase price
was principally allocated to accounts receivable ($91,200), inventories
($81,600), property plant and equipment ($94,400), goodwill ($283,500), other
intangible assets ($60,800), prepaid expenses and other current and non-current
assets ($21,400), and accounts payable, accrued expenses and other current and
non-current liabilities of ($101,800). The acquisition was structured as a
purchase of common stock and, accordingly, the amortization of intangible assets
is not deductible for income tax purposes. The goodwill is not amortizable (see
Note 2).

     As part of the 2004 Transactions, the following financing transactions were
also consummated: the repayment of a term loan of $147,724 under our then
existing senior secured credit facility and the termination of all commitments
thereunder; the redemption of $87,200 of the $110,000 aggregate principal amount
outstanding of our 9.875% senior subordinated notes due 2007 for $93,500 or
103.542% of the principal amount of such notes plus accrued and unpaid interest
following our tender offer and consent solicitation; and repayment of a $8,500
mortgage obligation with a financial institution.

     On May 31, 2004, the remaining outstanding 9.875% senior subordinated notes
due 2007 were redeemed pursuant to the redemption notice and replaced with the
Senior Sub Notes. The Company financed the redemption with borrowings under its
new revolving credit facility.

     The Senior Sub Notes were sold to the initial purchasers on April 30, 2004,
and were subsequently resold to qualified institutional buyers and non-U.S.
persons in reliance upon Rule 144A and Regulation S under the Securities Act of
1933 (the "Note Offering"). In connection with the Note Offering, the Company
entered into a Registration Rights Agreement, which granted holders of the new
notes certain exchange and registration rights. In August 2004, the Company
filed with


                                      F-19

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

the SEC a Registration Statement on Form S-4 offering to exchange registered
notes for the notes issued in connection with the Note Offering. The terms of
the notes and the exchange notes are substantially identical. The exchange was
completed in October 2004.

     In connection with the 2004 Transactions, the Predecessor Company recorded
non-recurring expenses of $11,757 consisting of $6,209 of debt retirement costs
and the write-off of $5,548 of deferred financing costs associated with the
repayment of debt.

NOTE 6 - OTHER INTANGIBLE ASSETS, NET

     At December 31, 2005, the Company had the following balances of other
identifiable intangible assets as a result of the 2004 Transactions and Party
City Acquisition:

<TABLE>
<CAPTION>
                                                      AT DECEMBER 31, 2004
                                      ----------------------------------------------------
                                                 ACCUMULATED   NET CARRYING
                                        COST    AMORTIZATION       VALUE      USEFUL LIVES
                                      -------   ------------   ------------   ------------
<S>                                   <C>       <C>            <C>            <C>
Customer lists and relationships ..   $14,000      $  622         $13,378        15 years
Copyrights, designs and other .....    12,800       2,889           9,911       2-3 years
                                      -------      ------         -------
                                      $26,800      $3,511         $23,289
                                      =======      ======         =======
</TABLE>

<TABLE>
<CAPTION>
                                                      AT DECEMBER 31, 2005
                                      ----------------------------------------------------
                                                 ACCUMULATED   NET CARRYING
                                        COST    AMORTIZATION       VALUE      USEFUL LIVES
                                      -------   ------------   ------------   ------------
<S>                                   <C>       <C>            <C>            <C>
Retail franchise license fees .....   $30,000      $   44         $29,956        15 years
Customer lists and relationships ..    14,500       1,608          12,892        15 years
Copyrights, designs and other .....    12,800       7,210           5,590       2-3 years
Trademarks and other Party City
   intangibles ....................       261          --             261        15 years
                                      -------      ------         -------
                                      $57,561      $8,862         $48,699
                                      =======      ======         =======
</TABLE>

     The amortization expense for finite-lived intangible assets for the year
ended December 31, 2005 and eight months ended December 31, 2004 was $5,351 and
$3,511. Estimated amortization expense for each of the next five years will be
approximately $7,250, $4,295, $2,984, $2,984 and $2,984, respectively.

NOTE 7 - LOANS AND NOTES PAYABLE

     On December 23, 2005, in connection with the consummation of the Party City
Acquisition, the Old Term Loan Revolver was terminated and replaced with the
First Term Loan Revolver, an $85,000 revolving credit facility. The First Term
Loan Revolver was not used in connection with the Party City Acquisition and
there were no borrowings outstanding at December 31, 2005. Loans under the First
Term Loan Revolver expire on December 23, 2011.

     The First Lien Credit Agreement provides for two interest rate options for
the First Term Loan and First Term Loan revolver: (i) loans on which interest is
payable quarterly at a Base Rate equal to the higher of (x) the Federal Funds
rate plus 50 basis points or (y) the prime rate plus an applicable margin
initially equal to 2.00% and subject to adjustment downward based on
improvements in the Company's leverage ratio and (ii) loans on which interest
accrues for one, two, three, six or, if generally available, nine or twelve
month interest periods, at a rate of interest per annum equal to the reserve
adjusted Eurodollar rate, plus an applicable margin initially equal to 3.00% per
annum, subject to downward adjustment based on improvements in the leverage
ratio. In addition to paying interest on outstanding principal under the First
Term Loan and First Term Loan Revolver, the Company is required to pay a
commitment fee to the lenders under the First Term Loan Revolver based on the
unutilized commitments thereunder. The initial commitment fee rate is 0.50% per
annum. The Company must also pay customary letter of credit fees.

     At December 31, 2005, standby letters of credit of $13,600 were outstanding
and the Company had borrowing capacity of $71,400 under the terms of the New
Term Loan Revolver at December 31, 2005. The obligations of the Company under
the First Lien Credit Agreement are jointly and severally guaranteed by AAH and
each wholly-owned domestic subsidiary of the Company. (See Note 8)

     At December 31, 2004, the Company had borrowings under the Old Term Loan
Revolver totaling $2,025 at a floating interest rate of 6.75%. Standby letters
of credit of $7,346 were outstanding at December 31, 2004.

     In addition to the First Term Loan Revolver, at December 31, 2005 we have a
400 Canadian dollar denominated revolving credit facility which bears interest
at the Canadian prime rate plus 0.6% and expires in April, 2006, a 1,000 British
Pound Sterling denominated revolving credit facility which bears interest at the
U.K. base rate plus 1.75% and


                                      F-20

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

expires on May 31, 2006, and a $1,000 revolving credit facility which bears
interest at LIBOR plus 1.0% and expires on December 31, 2006. We expect to renew
these revolving credit facilities upon expiration. No borrowings were
outstanding under these revolving credit facilities at December 31, 2005 and
2004.

NOTE 8 - LONG-TERM OBLIGATIONS

     Long-term obligations at December 31, 2005 and 2004 consisted of the
following:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,   DECEMBER 31,
                                                             2005           2004
                                                         ------------   ------------
<S>                                                      <C>            <C>
8.750% senior subordinated notes (a) .................     $175,000       $175,000
First Term Loan due 2012 (b) .........................      321,761             --
Second Term Loan due 2012 (c) ........................       58,505             --
Old Term Loan due 2012 (d) ...........................           --        203,975
Mortgage obligations (e) .............................        7,917          8,454
Capital lease obligations (f) ........................        1,027            371
                                                           --------       --------
   Total long-term obligations .......................      564,210        387,800
Less: current portion ................................       (2,643)        (2,807)
                                                           --------       --------
   Long-term obligations, excluding current portion ..     $561,567       $384,993
                                                           ========       ========
</TABLE>

     In connection with the Party City Acquisition, the Company entered into the
Credit Agreements on December 23, 2005 (the "Closing Date"), which included the
First Term Loan, First Term Loan Revolver and Second Term Loan and repaid all
outstanding borrowings under the 2004 Senior Secured Credit Facility.

     Under the terms of the Credit Agreements, the Company is required to make
prepayments under the following circumstances:

     -    The First Lien Credit Agreement provides that the First Term Loan may
          be prepaid and the First Term Loan Revolver may be permanently
          reduced; provided that if the First Term Loan is repaid, the Company
          shall pay to its lenders a prepayment premium of 2% in the first year
          following the Closing Date and 1% in the second year following the
          Closing Date. The First Term Loan is subject to mandatory prepayment
          and, under certain circumstances, reduction in the commitments for (i)
          net cash proceeds arising from certain asset sales, (ii) net cash
          proceeds arising from equity issuances, (iii) net cash proceeds
          arising from debt issuances, (iv) net cash proceeds arising from
          insurance and condemnation proceeds and (v) commencing with the year
          ending December 31, 2006, 50% of the excess cash flow of the Company.

     -    The Second Lien Credit Agreement provides that the Second Term Loan
          may in no event be prepaid prior to the second anniversary of the
          Closing Date. If the Second Term Loan is repaid after the second
          anniversary of the Closing Date but on or prior to the fifth
          anniversary of the Closing Date, the Company shall pay to its lenders
          a prepayment premium of 3% in the third year following the Closing
          Date, 2% in the fourth year following the Closing Date and 1% in the
          fifth year following the Closing Date. The Second Term Loan is subject
          to mandatory prepayment and, under certain circumstances, reduction in
          the commitments out of (i) net cash proceeds arising from asset sales,
          (ii) net cash proceeds arising from equity issuances, (iii) net cash
          proceeds arising from debt issuances, (iv) net cash proceeds arising
          from insurance and condemnation proceeds and (v) commencing with the
          year ending December 31, 2006, 50% of the excess cash flow of the
          Company.

     Subject to certain exceptions, all borrowings related to the Party City
Acquisition Debt under the Credit Agreements, and all guarantees are secured by
all existing and after acquired personal property of the Company and the
Guarantors, including, subject to certain exceptions, a pledge of all the stock
of domestic subsidiaries owned by the Company or any of the Guarantors and a
portion of our wholly owned foreign subsidiaries' capital stock, and first
priority liens on after acquired real property and leasehold interests of the
Company and the Guarantors. The guarantees are joint and several guarantees, and
are irrevocable, full and unconditional.

          (a)  The $175,000 senior subordinated notes due 2014 will bear
               interest at a rate equal to 8.75% per annum. Interest is payable
               semi-annually on May 1 and November 1 of each year. The senior
               subordinated notes are redeemable at the option of the Company,
               in whole or in part, at any time on or after May 1, 2009, at
               redemption prices ranging from 104.375% to 100%, plus accrued and
               unpaid interest to the date of redemption. In addition, at any
               time prior to May 1, 2007, up to an aggregate of 35% of the
               principal amount of the senior


                                      F-21

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

               subordinated notes will be redeemable at the option of the
               Company, on one or more occasions, from the net proceeds of
               public or private sales of common stock of, or contributions to
               the common equity capital of the Company at a price of 108.75% of
               the principal amount of the senior subordinated notes, together
               with accrued and unpaid interest, if any, to the date of
               redemption; provided that at least 65% of the aggregate principal
               amount of senior subordinated notes remain outstanding
               immediately after each such redemption. If a Change of Control,
               as defined in the note indenture, were to occur, the Company will
               be obligated to make an offer to purchase the senior subordinated
               notes, in whole or in part, at a price equal to 101% of the
               aggregate principal amount of the senior subordinated notes, plus
               accrued and unpaid interest, if any, to the date of purchase. If
               a Change of Control were to occur, the Company may not have the
               financial resources to repay all of its obligations under the
               Credit Facility, the note indenture and the other indebtedness
               that would become payable upon the occurrence of such Change of
               Control.

          (b)  The First Lien Credit Agreement provides for two interest rate
               options: (i) loans on which interest is payable quarterly at a
               Base Rate equal to the higher of (x) the Federal Funds rate plus
               50 basis points or (y) the prime rate plus an applicable margin
               initially equal to 2.00% and subject to adjustment downward based
               on improvements in the Company's leverage ratio and (ii) loans on
               which interest accrues for one, two, three, six or, if generally
               available, nine or twelve month interest periods, at a rate of
               interest per annum equal to the reserve adjusted Eurodollar rate,
               plus an applicable margin initially equal to 3.00% per annum,
               subject to downward adjustment based on improvements in the
               leverage ratio. In addition to paying interest on outstanding
               principal under the First Term Loan and First Term Loan Revolver,
               the Company is required to pay a commitment fee to the lenders
               under the First Term Loan Revolver based on the unutilized
               commitments thereunder. The initial commitment fee rate is 0.50%
               per annum. The Company must also pay customary letter of credit
               fees. At December 31, 2005, the First Term Loan was $321,761,
               net of an original issue discount of $3,239, and the floating
               interest rate was 7.37%.

          (c)  The Second Lien Credit Agreement provides for two interest rate
               options: (i) loans on which interest is payable quarterly at a
               Base Rate equal to the higher of (x) the Federal Funds rate plus
               50 basis points or (y) the prime rate plus an applicable margin
               equal to 4.00% and (ii) loans on which interest accrues for one,
               two, three, six or if, generally available, nine or twelve month
               interest periods at a rate of interest per annum equal to the
               reserve adjusted Eurodollar rate, plus an applicable margin
               initially equal to 5.00% per annum. At December 31, 2005, the
               Second Term Loan was $58,505, net of an original issue discount
               of $1,495, and the floating interest rate was 9.37%.

          (d)  The Old Term Loan provided for amortization (in quarterly
               installments) of 1.0% per annum through June 30, 2010, and will
               then amortize in equal quarterly payments through June 30, 2012.
               The Old Term Loan bore interest, at the option of the Company, at
               the index rate plus 1.75% per annum or at LIBOR plus 2.75% per
               annum. At December 31, 2004, the Old Term Loan was $203,975 and
               the floating interest rate was 4.72%. To hedge the risk
               associated with fluctuations in interest rates, the Company
               entered into two interest rate swap transactions with a financial
               institution during 2004, for an initial aggregate notional amount
               of $17,425 increasing over three years to $62,597. The interest
               rate swap contracts required the Company to settle the difference
               in interest obligations quarterly. Net payments to the
               counterparty under the swap contracts for the eight months ended
               December 31, 2004, which have been recorded as additional
               interest expense, were as follows:

<TABLE>
<CAPTION>
                                                                    ADDITIONAL
                                  NOTIONAL                           INTEREST
               DATE OF CONTRACT    AMOUNT      TERM    FIXED RATE     EXPENSE
               ----------------   --------   -------   ----------   ----------
               <S>                <C>        <C>       <C>          <C>
               June 25, 2004 ..    $10,429   3 years      4.13%        $115
               July 2, 2004 ...      6,953   3 years      3.80%          65
                                                                       ----
                                                                       $180
                                                                       ====
</TABLE>

          (e)  In conjunction with the construction of a new distribution
               facility, on December 21, 2001, the Company borrowed $10,000 each
               from a financial institution and the New York State Job
               Development Authority, pursuant to the terms of a first and
               second lien mortgage note, respectively. The first lien mortgage
               note bore interest at LIBOR plus 2.75% and required monthly
               payments based on a 180-month amortization period with a balloon
               payment upon maturity in January 2010. However, the Company
               utilized an interest rate swap agreement to effectively fix the
               loan rate at 8.40% for the term of the loan. The interest rate
               swap contract


                                      F-22

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

               required the Company to settle the difference in interest
               obligations monthly. Net payments to the counterparty under the
               swap contracts for the four months ended April 30, 2004 and year
               ended December 31, 2003, respectively, which were recorded as
               additional interest expense, were $129 and $404. On April 30,
               2004, in connection with the 2004 Transactions, the first lien
               mortgage note was paid in full and, as a result, the related
               interest rate swap agreement was terminated at a cost of $674.
               The second lien mortgage note bore interest at a rate of 4.86%
               and 3.41% at December 31, 2005 and 2004, respectively, and is
               subject to review and adjustment semi-annually based on the New
               York State Job Development Authority's confidential internal
               protocols. The second lien loan is for a term of 96 months and
               requires monthly payments based on a 180-month amortization
               period with a balloon payment upon maturity in January 2010. The
               principal amount outstanding under the first lien mortgage as of
               December 31, 2003 was $8,722. The principal amounts outstanding
               under the second lien mortgage as of December 31, 2005 and 2004,
               were $7,917 and $8,454, respectively. At December 31, 2005, the
               new distribution facility had a carrying value of $29,065.

          (f)  The Company has entered into various capital leases for machinery
               and equipment with implicit interest rates ranging from 7.70% to
               8.80% which extend to 2008.

     At December 31, 2005, maturities of long-term obligations consisted of the
following:

<TABLE>
<CAPTION>
                              LONG-TERM DEBT   CAPITAL LEASE
                                OBLIGATIONS     OBLIGATIONS     TOTALS
                              --------------   -------------   --------
<S>                           <C>              <C>             <C>
2006 ......................      $  2,249          $  394      $  2,643
2007 ......................         3,098             576         3,674
2008 ......................         3,137              57         3,194
2009 ......................         3,180              --         3,180
2010 ......................         8,157              --         8,157
Thereafter ................       543,362              --       543,362
                                 --------          ------      --------
   Long-term obligations ..      $563,183          $1,027      $564,210
                                 ========          ======      ========
</TABLE>

     NOTE 9 - CAPITAL STOCK

     At December 31, 2005 and 2004, the Company's authorized capital stock
consisted of 10,000.00 shares of preferred stock, $0.01 par value, of which no
shares were issued or outstanding and 40,000.00 shares of common stock, $0.01
par value, of which 27,882.73 and 13,962.38 shares were issued and outstanding,
respectively.

     In connection with the 2004 Transactions and Party City Acquisition (see
Note 1), certain existing employee stockholders purchased 296.91 and 204.17
shares of AAH common stock, respectively, based at the same price and terms per
share as paid by the other equity investors. Under the terms of the AAH
stockholders' agreement dated April 30, 2004, the Company has an option to
purchase all of the shares of common stock held by former employees and, under
certain circumstances, former employee stockholders can require the Company to
purchase all of the shares held by the former employee. The purchase price as
prescribed in the stockholders' agreements is to be determined through a market
valuation of the minority-held shares or, under certain circumstances, based on
cost, as defined therein. The aggregate amount that may be payable by us to all
employee stockholders based on fully paid and vested common securities is
classified as redeemable common securities on the consolidated balance sheet at
the estimated fair market value of the common stock, with a corresponding
adjustment to stockholders' equity (deficit). At December 31, 2005 and 2004, the
aggregate amount that may be payable by the Company to employee stockholders and
employee option holders, based on the estimated market value, was approximately
$6,821 and $3,705, respectively. As there is no active market for the Company's
common stock, the Company estimated the fair value of its common stock based on
the valuation of the Company common stock issued in connection with the 2004
Transactions and Party City Acquisition. During the year ended December 31,
2005, the Company purchased and retired 10.4 shares of redeemable Common Stock
held by a former employee at the share's estimated fair value of $10,000 per
share.

     At December 31, 2003, an officer of the Company held 3.00 shares of common
stock (the "Restricted Stock"), which were to vest in December 2004 under the
terms of his employment agreement. In connection with the 2004 Transactions, the
3.00 shares of Restricted Stock vested immediately on April 30, 2004 (see Note
1). During the four months ended April 30, 2004, and the year ended December 31,
2003, the Company recorded the amortization of Restricted Stock of $52 and $168,
respectively, as compensation expense, which is included in general and
administrative expenses in the Company's consolidated statements of operations.


                                      F-23
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

     At December 31, 2003, the Company held a note receivable from a former
officer for $655, which bore interest at 6.65% and was to mature in March 2009.
In connection with the 2004 Transactions, the note receivable from the former
officer was repaid on April 30, 2004. In addition, at December 31, 2003, the
Company held a note receivable from a former employee for $25, which bore
interest at Libor plus 2% and matured and was repaid in January 2004. These
notes arose in connection with the issuance of shares of common stock and were
reported on the consolidated balance sheet at December 31, 2003, as an increase
in stockholders' deficit.

     On January 10, 2003, an executive officer of a wholly-owned subsidiary and
stockholder terminated his employment with the Company and, on April 9, 2003,
exercised options to purchase 6.648 shares of the Company's common stock at $125
per share or for $831 (exclusive of an income tax benefit of $79 ). The former
officer's right to put 126.648 shares of common stock back to the Company
expired during 2003, and, as a result, the Company recorded a decrease in
redeemable common stock and a decrease in stockholders' deficit of $19,597 (a
$13,597 increase in additional paid-in capital and a $6,000 decrease in
deficit).

     In June 2003, the Company purchased 16 shares of common stock from its
Chief Executive Officer at a price of $150,000 per share, for an aggregate cost
of $2,400. The Chief Executive Officer used a portion of the proceeds to repay
his outstanding loan balance of $1,588. The Company retired the 16 shares of
common stock.

     In July 2003, the Company purchased 6 shares of common stock from its
President at a price of $150,000 per share, for an aggregate cost of $900. The
President used a portion of the proceeds to repay his outstanding loan balance
of $402. The Company retired the 6 shares of common stock.

     In January 2004 and December 2003, the estate of John A. Svenningsen (the
"Estate") sold its shares of Common Stock to Goldman Sachs and other current
shareholders, including 5.02 shares to employees of the Company. In December
2003, the sale of 5.02 shares to employees increased redeemable Common Stock by
$753.

     On March 30, 2001, the Board of Directors authorized 500 shares of
preferred stock, $0.10 par value, and designated 100 shares as Series A
Redeemable Convertible Preferred Stock ("Series A Redeemable Convertible
Preferred Stock"). Also on March 30, 2001, the Company issued 40 shares of
Series A Redeemable Convertible Preferred Stock to GSCP for proceeds of $6,000.
In connection with the 2004 Transactions on April 30, 2004, the Company redeemed
all outstanding shares of Series A Redeemable Convertible Preferred Stock,
including accrued dividends of $34. Dividends were cumulative and payable
annually, at 6% per annum. On March 30, 2002, 2003 and 2004, the annual
dividends were distributed in additional shares of Series A Redeemable
Convertible Preferred Stock. Dividends payable on or prior to March 30, 2004,
were payable in additional shares of Series A Redeemable Convertible Preferred
Stock. Subsequent to March 30, 2004, dividends were to be payable, at the option
of the Company, either in cash or additional shares of Series A Redeemable
Convertible Preferred Stock.

     Each share of the Series A Redeemable Convertible Preferred Stock was
convertible at the option of the holder, at any time, into one share of Common
Stock of the Company, $0.10 par value. At December 31, 2003, the redeemable
convertible preferred stock was convertible into Common Stock at a price of
$150,000 per common share. As of December 31, 2003, there were 46.97 shares of
Common Stock reserved for such conversion.

     The Company has not paid any dividends on the Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain its earnings for working capital, repayment of
indebtedness, capital expenditures and general corporate purposes. In addition,
the Company's current credit facility and the indenture governing its notes
contain restrictive covenants which have the effect of limiting the Company's
ability to pay dividends or distributions to its stockholders.

NOTE 10 - PROVISION FOR DOUBTFUL ACCOUNTS

     The provision for doubtful accounts is included in general and
administrative expenses. For the year ended December 31, 2005, the eight months
ended December 31, 2004, the four months ended April 30, 2004 and the year ended
December 31, 2003, the provision for doubtful accounts was $795, $1,308, $729
and $2,588, respectively. During the second quarter of 2003, a customer filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code and as a result, the Company charged a total of $1,800 to the provision for
doubtful accounts in 2003. This customer accounted for approximately 2.1% of the
Company's consolidated net sales for the year ended December 31, 2003.

NOTE 11 - NON-RECURRING EXPENSES RELATED TO THE PARTY CITY ACQUISITION AND 2004
     TRANSACTIONS AND WRITE-OFF OF DEFERRED FINANCING AND IPO-RELATED COSTS


                                      F-24

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

     In connection with the Party City Acquisition in December 2005, the Company
wrote-off $3,988 of deferred financing costs associated with the repayment of
debt. In April 2004, the Company recorded non-recurring expenses of $11,757
consisting of $6,200 of debt retirement costs and the write-off of $5,600 of
deferred financing costs associated with the repayment of debt in connection
with the 2004 Transactions.

NOTE 12 - RESTRUCTURING CHARGES

     During the years ended December 31, 2003, the Company incurred
restructuring charges of $1,007 resulting from the consolidation of certain
domestic and foreign distribution operations and the integration of M&D
Balloons, Inc. (since renamed M&D Industries, Inc.) following its acquisition in
2002.

NOTE 13 - OTHER EXPENSE (INCOME)

<TABLE>
<CAPTION>
                                                                                             FOUR MONTHS
                                                      YEAR ENDED      EIGHT MONTHS ENDED        ENDED           YEAR ENDED
                                                  DECEMBER 31, 2005    DECEMBER 31, 2004   APRIL 30, 2004   DECEMBER 31, 2003
                                                  -----------------   ------------------   --------------   -----------------
                                                                                                      (PREDECESSOR)
<S>                                               <C>                 <C>                  <C>              <C>
Undistributed loss in unconsolidated joint
   venture ....................................        $   987              $1,168              $ 89             $    --
Change in fair value of foreign exchange
   contracts ..................................         (1,220)                 --                --                  --
Gain on sale of marketable securities .........             --                  --               (47)             (1,486)
Other (income) expense, net ...................           (531)               (286)              (11)                 52
                                                       -------              ------              ----             -------
   Other expense (income), net ................        $  (764)             $  882              $ 31             $(1,434)
                                                       =======              ======              ====             =======
</TABLE>

     During the year ended December 31, 2004 and 2003, the Company sold shares
of marketable securities and received net proceeds of approximately $65 and
$2,005, and recognized gains of $47 and $1,486, respectively. For the purpose of
computing the gains, cost was based on the fair value of the shares on the
initial date received by the Company.

NOTE 14 - EMPLOYEE BENEFIT PLANS

     Certain subsidiaries of the Company maintain profit-sharing plans for
eligible employees providing for annual discretionary contributions to a trust.
Eligible employees are full-time domestic employees who have completed a certain
length of service, as defined, and attained a certain age, as defined. The plans
require the subsidiaries to match from 25% to 100% of voluntary employee
contributions to the plan, not to exceed a maximum amount of the employee's
annual salary, which ranges from 4% to 6%. Profit sharing expense for the year
ended December 31, 2005, eight months ended December 31, 2004, the four months
ended April 30, 2004 and the year ended December 31, 2003 totaled $1,999,
$1,362, $938 and $2,943, respectively.

NOTE 15 - STOCK OPTION PLAN

          Following the consummation of the 2004 Transactions, the Company
adopted the Equity Incentive Plan under which the Company may grant incentive
awards in the form of options to purchase shares of the Company's common stock
("Company Stock Options") and shares of restricted and unrestricted shares of
the Company's common stock to certain directors, officers, employees and
consultants of the Company and its affiliates. A committee of the Company's
board of directors (the "Committee"), or the board itself in the absence of a
Committee, is authorized to make grants and various other decisions under the
Equity Incentive Plan. Unless otherwise determined by the Committee, any
participant granted an award under the Equity Incentive Plan must become a party
to, and agree to be bound by, the stockholders' agreement. Company Stock Option
awards under the Equity Incentive Plan reserved and available for grant total
1,856.4097 and may include incentive stock options, nonqualified stock options,
or both types of Company Stock Options. Company Stock Options are
nontransferable (except under certain limited circumstances) and, unless
otherwise determined by the Committee, vest over five years and have a term of
ten years from the date of grant.


                                      F-25

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

     In connection with the 2004 Transactions, all options granted under the
Predecessor's 1997 Equity Incentive Plan vested immediately on April 30, 2004
and, except for those held by the Chief Executive Officer and the President (see
Note 1), all were exercised. An income tax benefit of $4,890 associated with the
exercise of the options was recorded in connection with the 2004 Transactions.
The Chief Executive Officer and the President exchanged 5.607 and 2.804 vested
options to purchase shares of Amscan Holdings Common Stock, which had intrinsic
values of $600 and $300, respectively, for vested options to purchase 65.455 and
32.727 shares of AAH common stock under the new equity incentive plan with
intrinsic values of $492 and $245 and estimated fair values of $590 and $290,
respectively. The fair value of such options was recorded as part of the
purchase price allocations and has been classified as redeemable common
securities on the Company's consolidated balance sheet.

     The following table summarizes the changes in outstanding options under the
Equity Incentive Plan for the eight months ended December 31, 2004 and the year
ended December 31, 2005:

<TABLE>
<CAPTION>
                                                                                   AVERAGE FAIR MARKET
                                                                AVERAGE EXERCISE   VALUE OF OPTIONS AT
                                                     OPTIONS          PRICE             GRANT DATE
                                                   ----------   ----------------   -------------------
<S>                                                <C>          <C>                <C>
Outstanding at May 1 and December 31, 2004......      98.1818        $ 2,500
   Granted......................................   1,482.0000         10,000              $1,094
   Exercised....................................           --
   Canceled.....................................           --
                                                   ----------
Outstanding at December 31, 2005................   1,580.1818        $ 9,534
                                                   ==========
Exercisable at December 31, 2005................     394.5818        $ 8,133
</TABLE>

     In 2005, the Company granted 722 time-based options and 760 performance
based options ("PBOs") to key employees and its outside directors. Under the PBO
feature, the vesting of share option awards is contingent on meeting various
company-wide performance goals based primarily on revenue growth and
profitability over a multi-year period.

     The Company used a minimum value method to determine the fair value of the
options granted and recorded approximately $335 in compensation expense, in
general and administrative expenses, during the year ended December 31, 2005.
The estimated fair value of the options granted in 2005 under the Equity
Incentive Plan is amortized on a straight line basis to compensation expense,
net of taxes, over the vesting period of the grant of 4.0 years. The estimated
fair value of each option on the date of grant was determined using the minimum
value method with the following assumptions: dividend yield of 0%, risk-free
interest rate of 3.1%, forfeitures and expected cancellation of 6% for PBOs and
3% for time-based options and an expected life of 4.0 years.

     The following table summarizes the changes in outstanding options under the
Predecessor's 1997 Equity Incentive Plan for the four months ended April 30,
2004, and the year ended December 31, 2003:

<TABLE>
<CAPTION>
                                                                     AVERAGE FAIR MARKET
                                                  AVERAGE EXERCISE   VALUE OF OPTIONS AT
                                        OPTIONS         PRICE             GRANT DATE
                                       --------   ----------------   -------------------
<S>                                    <C>        <C>                <C>
Outstanding at December 31, 2002....    132.074
   Granted..........................     50.000       $150,000             $21,850
   Granted..........................     30.000        150,000              53,474
   Exercised........................     (6.648)       125,000
   Canceled.........................    (18.941)        79,730
                                       --------
Outstanding at December 31, 2003....    186.485
   Exercised/Exchanged..............   (186.485)       113,715
                                       --------
Outstanding at April 30, 2004.......         --
                                       ========
Exercisable at December 31, 2003....     98.147         82,086
</TABLE>

     In June 2003, the Company granted 25 options to each of the Chief Executive
Officer and the President that would have vested and become exercisable two and
one-half years from the date of grant and would have expired on the third
anniversary of the date of grant. All other options granted under the
Predecessor stock incentive plan (the "1997 Equity Incentive Plan") vested in
five equal annual installments from the Company's the grant date and had a term
of ten years. The options were non-transferable (except under certain limited
circumstances).


                                      F-26

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

NOTE 16 - INCOME TAXES

     A summary of domestic and foreign income (loss) before income taxes and
minority interest follows:

<TABLE>
<CAPTION>
                 YEAR ENDED     EIGHT MONTHS    FOUR MONTHS    YEAR ENDED
                DECEMBER 31,   ENDED DECEMBER   ENDED APRIL   DECEMBER 31,
                    2005          31, 2004        30, 2004        2003
                ------------   --------------   -----------   ------------
                                                       (PREDECESSOR)
<S>             <C>            <C>              <C>           <C>
Domestic ....      $11,542         $10,076        $(2,233)       $24,974
Foreign......        5,679           4,304            838          2,353
                   -------         -------        -------        -------
Total .......      $17,221         $14,380        $(1,395)       $27,327
                   =======         =======        =======        =======
</TABLE>

     The income tax expenses (benefit) consisted of the following:

<TABLE>
<CAPTION>
                                               YEAR ENDED     EIGHT MONTHS    FOUR MONTHS    YEAR ENDED
                                              DECEMBER 31,   ENDED DECEMBER   ENDED APRIL   DECEMBER 31,
                                                  2005          31, 2004        30, 2004        2003
                                              ------------   --------------   -----------   ------------
                                                                                     (PREDECESSOR)
<S>                                           <C>            <C>              <C>           <C>
Current:
   Federal ................................      $1,611          $  523         $ 1,103        $ 3,368
   State ..................................         511             100             219            709
   Foreign ................................       1,575           1,418             347            757
                                                 ------          ------         -------        -------
      Total current provision .............       3,697           2,041           1,669          4,834
Deferred:
   Federal ................................       2,748           2,950          (1,894)         4,531
   State ..................................      (1,954)            688            (326)           700
   Foreign ................................         449              --              --             --
                                                 ------          ------         -------        -------
      Total deferred provision (benefit) ..       1,243           3,638          (2,220)         5,231
                                                 ------          ------         -------        -------
Income tax expense (benefit) ..............      $4,940          $5,679         $  (551)       $10,065
                                                 ======          ======         =======        =======
</TABLE>


                                      F-27
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

     Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred income tax
assets and liabilities from domestic jurisdictions consisted of the following at
December 31:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,   DECEMBER 31,
                                                                                2005           2004
                                                                            ------------   ------------
<S>                                                                         <C>            <C>
Current deferred income tax assets:
   Inventory valuation ..................................................     $ 6,103        $ 2,194
   Allowance for doubtful accounts ......................................         652            697
   Accrued liabilities ..................................................       3,081            609
   Charitable contributions carryforward ................................         890            219
   Tax loss carryforward ................................................          --          2,431
   Tax credit carryforward ..............................................         595            815
                                                                              -------        -------
      Current deferred income tax assets (included in prepaid expenses
         and other current assets).......................................     $11,321        $ 6,965
                                                                              =======        =======
Non-current deferred income tax liabilities, net:
   Property, plant and equipment ........................................     $14,703        $17,683
   Intangible assets ....................................................      37,202         13,108
   Amortization of goodwill and other assets ............................      12,239         12,758
   Product royalty reserves .............................................          --           (102)
   Interest rate swap and foreign exchange contracts ....................         366           (231)
   Other ................................................................        (728)           (41)
                                                                              -------        -------
      Non-current deferred income tax liabilities, net ..................     $63,782        $43,175
                                                                              =======        =======
</TABLE>

     At December 31, 2004, the Company had a net operating loss carryforward of
approximately $6,200 that was used in 2005. At December 31, 2005 and 2004 the
Company had foreign tax credit carryforwards of $595. In addition, the Company
had alternative minimum tax credit carryforwards of $220 at December 31, 2004
which do not expire. The foreign tax credit carryforward expires in 2009.

     A non-current foreign deferred income tax asset of $543 and $789 at
December 31, 2005 and 2004, respectively, is primarily attributable to
non-current obligations recognized in connection with the acquisition of Anagram
International Inc. and certain related companies ("Anagram") in 1998 and is
included in other assets, net.

     The difference between the Company's effective income tax rate and the
federal statutory income tax rate is reconciled below:

<TABLE>
<CAPTION>
                                                          YEAR ENDED     EIGHT MONTHS    FOUR MONTHS    YEAR ENDED
                                                         DECEMBER 31,   ENDED DECEMBER   ENDED APRIL   DECEMBER 31,
                                                             2005          31, 2004        30, 2004        2003
                                                         ------------   --------------   -----------   ------------
                                                                                               (PREDECESSOR)
<S>                                                      <C>            <C>              <C>           <C>
Provision at federal statutory income tax rate .......       35.0%           35.0%          35.0%           35.0%
State income tax, net of federal income tax benefit ..        2.9             3.1            4.9             3.6
Effective of New York apportionment change ...........       (8.3)             --             --              --
Other ................................................       (0.8)            1.4           (0.4)           (1.8)
                                                             ----            ----           ----            ----
   Effective income tax rate .........................       28.8%           39.5%          39.5%           36.8%
                                                             ====            ====           ====            ====
</TABLE>

     During 2005, the Company recorded a $1,435 reduction to its income tax
expense and net deferred income tax liability to reflect a change in New York
State tax law governing the apportionment of income to New York State.

     At December 31, 2005 and 2004, the Company's share of the cumulative
undistributed earnings of foreign subsidiaries was approximately $20,344 and
$20,220, respectively. No provision has been made for U.S. or additional foreign
taxes on the undistributed earnings of foreign subsidiaries because such
earnings are expected to be reinvested indefinitely in the subsidiaries'
operations. It is not practical to estimate the amount of additional tax that
might be payable


                                      F-28

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

on these foreign earnings in the event of distribution or sale;
however, under existing law, foreign tax credits would be available to
substantially reduce incremental U.S. taxes payable on amounts repatriated.

     On October 22, 2004, H.R. 4520 The American Jobs Creation Act of 2004 (Act)
was enacted. The Act contains numerous provisions related to corporate and
international taxation including repeal of the Extraterritorial Income (ETI)
regime, creation of a new Domestic Production Activities ("DPA") deduction and a
temporary dividends received deduction related to repatriation of foreign
earnings. The Act contains various effective dates and transition periods
related to its provisions. Under the guidance provided in Financial Accounting
Standards Board Staff Position ("FSP")109-1 "Application of FASB Statement No.
109, 'Accounting for Income Taxes,' to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004." the new DPA
deduction will be treated as a "special deduction" as described in SFAS No. 109.
As such, the special deduction has no effect on the Company's deferred tax
assets and liabilities existing at the enactment date. Rather, the impact of
this deduction will be reported in the period in which the deduction is claimed
on our income tax return. The repeal of ETI and its replacement with a DPA
deduction were not in effect in 2004 and therefore, did not have an affect on
our income tax provision for the years ended December 31, 2004. We do
not expect the net effect of the phase-out of the ETI deduction and phase-in of
the new DPA deduction to result in a material impact on our effective income tax
rate in 2005.

NOTE 17 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

Lease Agreements

     The Company has non-cancelable operating leases for its numerous retail
stores sites as well as for its corporate offices, certain distribution and
manufacturing facilities, showrooms, and warehouse equipment that expire on
various dates through 2017. These leases generally contain renewal options and
require the Company to pay real estate taxes, utilities and related insurance.

     At December 31, 2005, future minimum lease payments under all operating
leases consisted of the following:

<TABLE>
<S>            <C>
2006........   $ 57,404
2007........     53,528
2008........     40,162
2009........     28,852
2010........     22,274
Thereafter..     61,835
               --------
               $264,055
               ========
</TABLE>

     As a result of the Party City Acquisition, in 2005 the Company breached the
terms of an operating lease that requires future minimum lease payments of
$3,535 at December 31, 2005. The Company obtained a waiver for the breach and
amended the terms of the lease.

     We are also obligated for guarantees, subleases or assigned lease
obligations for 22 of the franchise stores through 2011. The majority of the
guarantees, subleases and assigned lease obligations were given when we sold
stores in 1999 as part of our restructuring. The guarantees, subleases and
assigned lease obligations continue until the applicable leases expire. The
maximum amount of the guarantees, subleases and assigned lease obligations may
vary, but is limited to the sum of the total amount due under the lease. As of
July 2, 2005, the maximum amount of the guarantees, subleases and assigned lease
obligations was approximately $9,200, which is not included in the table above.

     The operating leases included in the above table also do not include
contingent rent based upon sales volume or other variable costs such as
maintenance, insurance and taxes.

     Rent expense for the year ended December 31, 2005, eight months ended
December 31, 2004, the four months ended April 30, 2004, and the year ended
December 31, 2003, was $12,723, $7,610, $3,768 and $13,267, respectively.

Product Royalty Agreements

     The Company has entered into product royalty agreements with various
licensors of copyrighted and trademarked characters and designs that are used on
the Company's products which require royalty payments based on sales of the
Company's products, and, in some cases, include annual minimum royalties.


                                      F-29

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

     At December 31, 2005, the Company's commitment to pay future minimum
product royalties was as follows:

<TABLE>
<S>            <C>
2006........   $ 2,386
2007........     3,251
2008........     2,186
2009........     1,460
2010........     1,137
Thereafter..     3,000
               -------
               $13,420
               =======
</TABLE>

     Product royalty expense for the year ended December 31, 2005, eight months
ended December 31, 2004, the four months ended April 30, 2004 and the year ended
December 31, 2003, was $5,913, $3,885, $2,126 and $6,522, respectively.

Legal Proceedings

     The Company is a party to certain claims and litigation in the ordinary
course of business. The Company does not believe any of these proceedings will
result, individually or in the aggregate, in a material adverse effect upon its
financial condition or future results of operations.

Related Party Transactions

     In connection with the 2004 Transactions, the Company executed a management
agreement with Berkshire Partners LLC and Weston Presidio. Pursuant to the
management agreement, Berkshire Partners LLC and Weston Presidio will be paid
annual management fees of $833 and $417, respectively. For the year ended
December 31, 2005, management fees to Berkshire Partners LLC and Weston Presidio
were $833 and $417, respectively. For the eight months ended December 31, 2004,
management fees to Berkshire Partners LLC and Weston Presidio were $556 and
$277, respectively. At December 31, 2004, accrued management fees payable to
Berkshire Partners LLC and Weston Presidio totaled $139, and $277, respectively
and are included in accrued expenses on the consolidated balance sheet. Although
the indenture governing the 8.75% senior subordinated notes will permit the
payments under the management agreement, such payments will be restricted during
an event of default under the notes and will be subordinated in right of payment
to all obligations due with respect to the notes in the event of a bankruptcy or
similar proceeding of Amscan.

     Goldman Sachs and its affiliates received fees totaling $8,123 for services
provided in connection with the 2004 Transactions. No fees were paid to Goldman
Sachs and its affiliates in 2003.

     During the four months ended April 30, 2004 and the year ended December 31,
2003, the Company sold $836 and $7,400, respectively, of metallic balloons and
other party goods to American Greetings Corporation, a minority stockholder from
February 2002 through the date of the 2004 Transactions.


                                      F-30
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

NOTE 18 - SEGMENT AND QUARTERLY INFORMATION

Industry Segments

     Following the acquisition of Party City on December 23, 2005, the Company
has two identifiable business segments. The Wholesale segment includes the
design, manufacture, contract for manufacture and distribution of party goods,
including paper and plastic tableware, metallic balloons, accessories,
novelties, gifts and stationery, at wholesale. The Retail segment includes the
operation of company-owned specialty retail party supply stores in the United
States and the sale of franchises on an individual store and franchise area
basis throughout the United States and Puerto Rico.

     The Company's industry segment data for the year ended December 31, 2005 is
as follows:

<TABLE>
<CAPTION>
                                      WHOLESALE    RETAIL    ELIMINATIONS   CONSOLIDATED
                                      ---------   --------   ------------   ------------
<S>                                   <C>         <C>        <C>            <C>
YEAR ENDED DECEMBER 31, 2005
Total Revenues:
      Net sales.....................   $407,187   $ 11,766    $  (1,727)      $417,226
      Royalties and franchise fees..         --        509           --            509
                                       --------   --------    ---------       --------
Total revenues......................   $407,187   $ 12,275    $  (1,727)      $417,735
                                       ========   ========    =========       ========
Income from operations..............   $ 47,376   $  1,473    $    (485)      $ 48,364
                                       ========   ========    =========
Interest expense, net...............                                            31,907
Other income, net...................                                              (764)
                                                                              --------
Income before income taxes and
   minority interests...............                                          $ 17,221
                                                                              ========
Long-lived assets...................   $814,430   $361,280    $(376,555)      $799,155
                                       ========   ========    =========       ========
</TABLE>

Prior to the Party City Acquisition, the Company operated as one segment -
Wholesale.

Geographic Segments

     The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in foreign markets. No single foreign operation is significant to the Company's
consolidated operations. Sales between geographic areas are made at cost plus a
share of operating profit.

     The Company's geographic area data are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                          DOMESTIC   FOREIGN   ELIMINATIONS   CONSOLIDATED
                                          --------   -------   ------------   ------------
<S>                                       <C>        <C>       <C>            <C>
YEAR ENDED DECEMBER 31, 2005
Total Revenues -
   Net sales:
      Sales to unaffiliated customers..   $356,801   $60,425     $     --       $417,226
      Sales between geographic areas...     19,858        --      (19,858)            --
                                          --------   -------     --------       --------
      Net sales........................    376,659    60,425      (19,858)       417,226
   Royalties and franchise fees........        509        --           --            509
                                          --------   -------     --------       --------
Total revenues.........................   $377,168   $60,425     $(19,858)      $417,735
                                          ========   =======     ========       ========
Income from operations.................   $ 41,690   $ 5,660     $  1,014       $ 48,364
                                          ========   =======     ========
Interest expense, net..................                                           31,907
Other loss, net........................                                             (764)
                                                                                --------
Income before income taxes and
   minority interests..................                                         $ 17,221
                                                                                ========
Long-lived assets......................   $820,414   $11,491     $(32,750)      $799,155
                                          ========   =======     ========       ========
</TABLE>


                                      F-31

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

<TABLE>
<CAPTION>
                                       DOMESTIC   FOREIGN   ELIMINATIONS   CONSOLIDATED
                                       --------   -------   ------------   ------------
<S>                                    <C>        <C>       <C>            <C>
EIGHT MONTHS ENDED DECEMBER 31, 2004
Net sales:
   Sales to unaffiliated customers..   $227,733   $37,823     $     --       $265,556
   Sales between geographic areas...     11,539        --      (11,539)            --
                                       --------   -------     --------       --------
Net sales...........................   $239,272   $37,823     $     --       $265,556
                                       ========   =======     ========       ========
Income from operations..............   $ 29,893   $ 3,588     $    905       $ 34,386
                                       ========   =======     ========
Interest expense, net...............                                           19,124
Other loss, net.....................                                              882
                                                                             --------
Income before income taxes and
   minority interests...............                                         $ 14,380
                                                                             ========
Long-lived assets...................   $470,542   $10,508     $(25,404)      $455,646
                                       ========   =======     ========       ========
</TABLE>

<TABLE>
<CAPTION>
                                       DOMESTIC   FOREIGN   ELIMINATIONS   CONSOLIDATED
                                       --------   -------   ------------   ------------
<S>                                    <C>        <C>       <C>            <C>
PREDECESSOR
FOUR MONTHS ENDED APRIL 30, 2004
Net sales:
   Sales to unaffiliated customers..   $115,939   $17,721     $     --       $133,660
   Sales between geographic areas...      5,487        --       (5,487)            --
                                       --------   -------     --------       --------
Net sales...........................   $121,426   $17,721     $ (5,487)      $133,660
                                       ========   =======     ========       ========
Income from operations..............   $  5,517   $ 1,156     $    347       $  7,020
                                       ========   =======     ========
Interest expense, net...............                                            8,384
Other loss, net.....................                                               31
                                                                             --------
loss before income tax benefit and
   minority interests...............                                         $ (1,395)
                                                                             ========
Long-lived assets...................   $187,796   $ 8,473     $(25,224)      $171,045
                                       ========   =======     ========       ========
</TABLE>

<TABLE>
<CAPTION>
                                       DOMESTIC   FOREIGN   ELIMINATIONS   CONSOLIDATED
                                       --------   -------   ------------   ------------
<S>                                    <C>        <C>       <C>            <C>
YEAR ENDED DECEMBER 31, 2003
Net sales:
   Sales to unaffiliated customers..   $346,575   $56,241     $     --       $402,816
   Sales between geographic areas...     20,533        --      (20,533)            --
                                       --------   -------     --------       --------
Net sales...........................   $367,108   $56,241     $(20,533)      $402,816
                                       ========   =======     ========       ========
Income from operations..............   $ 47,341   $ 3,680     $  1,240       $ 52,261
                                       ========   =======     ========
Interest expense, net...............                                           26,368
Other income, net...................                                           (1,434)
                                                                             --------
Income before income taxes and
   minority interests                                                        $ 27,327
                                                                             ========
Long-lived assets...................   $194,261   $ 8,729     $(22,899)      $186,727
                                       ========   =======     ========       ========
</TABLE>

QUARTERLY RESULTS (UNAUDITED)

     Despite a concentration of holidays in the fourth quarter of the year, as a
result of our expansive product lines and wholesale customer base and increased
promotional activities, the impact of seasonality on the quarterly results of
our wholesale operations in recent years has been limited. Promotional
activities, including special dating terms, particularly with respect to
Halloween and Christmas products sold to retailers and other distributors in the
third quarter, and the introduction of our new everyday products and designs
during the fourth quarter result in higher accounts receivables and inventory
balances and higher interest costs to support these balances. The retail
operations of Party City are subject to substantial seasonal variations.
Historically, Party City has realized a significant portion of its net sales,
net income and cash flow in the fourth quarter of the year, principally due to
the sales in October for the Halloween season and, to a lesser extent, due to
sales for end of year holidays. However, operations of Party City are included
in the Company's 2005 result of operations for only the eight-day period from
the Party City Acquisition Date through December 31, 2005. The following table
sets forth our historical revenues, gross profit, income (loss) from operations
and net income (loss), by quarter, for 2005 and 2004.

<TABLE>
<CAPTION>
                                                     FOR THE THREE MONTHS ENDED,
                                       ------------------------------------------------------
                                       MARCH 31,   JUNE 30,      SEPTEMBER 30,   DECEMBER 31,
                                       ---------   --------      -------------   ------------
                                                       (DOLLARS IN THOUSANDS)
<S>                                    <C>         <C>           <C>                <C>
2005
Revenues:
   Net sales .......................    $100,376   $101,285         $105,582        $109,983 (a)
   Royalties and franchise fees ....          --         --               --             509 (a)
Gross profit .......................      33,575     32,523           36,022          33,474 (a)
Income from operations .............      13,951     11,602           16,487           6,324 (a)(b)(c)
Net income (loss)...................       4,006      3,621            5,279            (646)(a)(b)(c)

2004
Revenues:
   Net sales .......................    $100,525   $ 96,316         $ 97,834        $104,541
   Royalties and franchise fees ....          --         --               --              --
Gross profit .......................      34,444     30,726           31,744          35,845
Income (loss) from operations ......      14,580     (1,298)(d)       12,270          15,854
Net income (loss) ..................       4,939     (5,127)(d)        2,815           5,047
</TABLE>

(a)  The results of operations for the fourth quarter of 2005 include the
     results of Party City for the eight-day period from the Party City
     Acquisition date through December 31, 2005.

(b)  In connection with the Party City Acquisition, we recorded non-recurring
     expenses of $4.0 million due to the write-off of deferred financing costs
     associated with the repayment of debt.

(c)  The results of operations for the fourth quarter of 2005 include an
     adjustment to increase depreciation and amortization expense by $1,932,
     representing the difference between the actual depreciation and
     amortization expense following the completion of purchase accounting for
     the 2004 Transactions and the amounts recorded.

(d)  In connection with the 2004 Transactions in April 2004, we recorded
     non-recurring expenses of $11.8 million comprised of $6.2 million of debt
     retirement costs and the write-off of $5.6 million of deferred financing
     costs associated with the repayment of debt.

NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts for cash and cash equivalents, accounts receivables,
prepaid expenses and other current assets, accounts payable, accrued expenses
and other current liabilities approximate fair value at December 31, 2005 and
2004 because of the short-term maturity of those instruments or their variable
rates of interest.

     The carrying amounts of the Company's $175,000 Senior Sub Notes at December
31, 2005 and 2004 approximated fair value, based on market price. The carrying
amounts of the Company's borrowings under the First Term Loan and Second Term
Loan at December 31, 2005 and Old Term Loan and Old Term Loan Revolver at
December 31, 2004 approximate fair value because such obligations generally bear
interest at floating rates. The carrying


                                      F-32
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

amounts for other long-term debt approximate fair value at December 31, 2005 and
2004, based on the discounted future cash flow of each instrument at rates
currently offered for similar debt instruments of comparable maturity.

NOTE 20 - DERIVATIVE FINANCIAL INSTRUMENTS

Interest Rate Risk Management

     As part of the Company's risk management strategy, the Company periodically
uses interest rate swap agreements to hedge the variability of cash flows on
floating rate debt obligations (see Notes 7 and 8). Accordingly, the interest
rate swap agreements are reflected in the consolidated balance sheets at fair
value and the related gains and losses on these contracts are deferred in
stockholders' equity (deficit) and recognized in interest expense over the same
period in which the related interest payments being hedged are recognized in
income. The fair value of the interest rate swap is the estimated amount that
the counterparty would receive or pay to terminate the swap agreement at the
reporting date, taking into account current interest rates and the current
creditworthiness of the swap counterparty.

     To effectively fix the interest rate on a portion of its Old Term Loan (see
Note 8), the Company entered into two interest rate swap agreements with a
financial institution during 2004, for an initial aggregate notional amount of
$17,425, increasing over three years to $62,597. At December 31, 2004, this
hedge had an unrealized net loss of ($184), which was included in accumulated
other comprehensive income (loss) (see Note 21). No components of the agreements
were excluded in the measurement of hedge effectiveness. As this hedge was 100%
effective, there was no current impact on earnings due to hedge ineffectiveness.
The fair value of interest rate contracts at December 31, 2004 of ($304) is
reported in accrued expenses in the consolidated balance sheet. In 2005, these
swap agreements were terminated and the unrealized pre-tax loss of ($304) and
net loss of ($184) were recorded in the statement of operations for the year
ended December 31, 2005 and eliminated from accumulated other comprehensive
income (loss) (see Note 21).

     To effectively fix the interest rate of its $10,000 first lien mortgage
note (see Note 8), the Company entered into an interest rate swap agreement with
a financial institution for a notional amount of $10,000, agreeing to receive
30-day LIBOR and to pay 5.65%. As this hedge was 100% effective, there was no
impact on earnings due to hedge ineffectiveness. On April 30, 2004, in
connection with the 2004 Transactions, the first lien mortgage note was paid in
full and, as a result, the interest rate swap agreement was terminated at a cost
of $674.

Foreign Exchange Risk Management

     A portion of the Company's cash flows is derived from transactions
denominated in foreign currencies. The United States dollar value of
transactions denominated in foreign currencies fluctuates as the United States
dollar strengthens or weakens relative to these foreign currencies. In order to
reduce the uncertainty of foreign exchange rate movements on transactions
denominated in foreign currencies, including the British Pound Sterling and the
Euro, the Company enters into foreign exchange contracts with major
international financial institutions. These forward contracts, which typically
mature within one year, are designed to hedge anticipated foreign currency
transactions, primarily inter-company inventory purchases and trade receivables.
No components of the contracts are excluded in the measurement of hedge
effectiveness. The critical terms of the foreign exchange contracts are the same
as the underlying forecasted transactions; therefore, changes in the fair value
of foreign exchange contracts should be highly effective in offsetting changes
in the expected cash flows from the forecasted transactions.

     At December 31, 2005 and 2004, the Company had foreign currency exchange
contracts with notional amounts of $8,456 and $15,400, respectively. The foreign
currency exchange contracts are reflected in the consolidated balance sheets at
fair value. The fair value of the foreign currency exchange contracts is the
estimated amount that a counterparty would receive or pay to terminate the
foreign currency exchange contracts at the reporting date, taking into account
current foreign exchange spot rates. The fair value adjustment at December 31,
2005 resulted in a gain of $1,220 recorded as other income (see Note 13). In
2004, foreign exchange contracts qualified for hedge accounting treatment,
resulting in a net loss of $173, which has been included in accumulated other
comprehensive income (loss) for the year ended December 31, 2004 (see Note 21).
The fair value of foreign exchange contracts for the year ended December 31,
2005 and 2004 of $183 and ($1,060), respectively, are reported in other current
assets and accrued expenses, respectively, in the consolidated balance sheet.

     As of December 31, 2005, the Company did not have any derivative contracts
designated as cash flow hedges as defined in SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Should we designate these or
other contracts in the future as cash flow hedges, they would continue to be
recorded at fair value on the balance sheet, but the effective portion of the
change in their fair value from the designation date would be reflected in other
comprehensive


                                      F-33

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

income until their settlement month or until they lost their hedge designation.
Derivative financial instruments that qualify for hedge accounting, such as
interest rate swaps and foreign currency exchange agreements, are recognized on
the consolidated balance sheets at fair value and changes in fair value are
recognized periodically in either income or stockholders' equity (as a component
of accumulated other comprehensive income).

NOTE 21 - COMPREHENSIVE INCOME (LOSS)

     Comprehensive income (loss) consisted of the following:

<TABLE>
<CAPTION>
                                                                                                  EIGHT     FOUR
                                                                                                 MONTHS    MONTHS     YEAR
                                                                                    YEAR ENDED    ENDED     ENDED     ENDED
                                                                                     DECEMBER   DECEMBER    APRIL   DECEMBER
                                                                                     31, 2005   31, 2004  30, 2004  31, 2003
                                                                                    ----------  --------  --------  --------
                                                                                                             (PREDECESSOR)
<S>                                                                                 <C>         <C>       <C>      <C>
Net income (loss) ................................................................   $12,260     $8,564    $(890)   $17,163
Net change in cumulative translation adjustment ..................................    (2,699)     1,702     (673)     2,161
Change in fair value of available-for-sale securities, net of income tax (benefit)
   of $(14) and $620, respectively ...............................................        --         --      (22)       949
Reclassification adjustment for available-for-sale securities sold during the
   period, net of income tax benefit of $(19) and $(587), respectively ...........        --         --      (28)      (899)
Change in fair value of interest rate swap contracts, net of income tax (benefit)
   of $(120), $54 and $101, respectively .........................................        --       (184)      82        154
Reclassification adjustment for terminated interest rate swap and foreign
   exchange contracts, net of income taxes of $233 and $266 ......................       357         --      408         --
Change in fair value of the foreign exchange contracts, net of income tax
   (benefit) of $(113), $146 and $(148), respectively ............................        --       (173)     224       (226)
                                                                                    --------     ------    -----    -------
                                                                                    $  9,918     $9,909    $(899)   $19,302
                                                                                    ========     ======    =====    =======
</TABLE>

     Accumulated other comprehensive income (loss) consisted of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,   DECEMBER 31,
                                                                 2005           2004
                                                             ------------   ------------
<S>                                                          <C>            <C>
Cumulative translation adjustment ........................      $(997)         $1,702
Interest rate swap contracts, net of income tax benefit
   of $(120) .............................................         --            (184)
Foreign exchange contracts, net of income tax benefit
   of $(113) .............................................         --            (173)
                                                                -----          ------
   Total accumulated other comprehensive (loss) income ...      $(997)         $1,345
                                                                =====          ======
</TABLE>

NOTE 22 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)

     On December 23, 2005, in connection with the 2005 Acquisition, the Company
repaid all borrowings under the Old Term Loan. The Company financed the
acquisition with (i) the Equity Investment of $166,425, (ii) the First Term Loan
of $325,000, which includes the $85,000 First Term Loan Revolver, (iii)
borrowings under the Second Term Loan of $60,000, and (iv) cash on-hand of
$20,365. In addition, the $175,000 of Senior Sub Notes from the 2004
Transactions remains outstanding as of December 31, 2005.

     Borrowings under the Senior Sub Notes, First Term, First Term Loan Revolver
and Second Term Loan and are guaranteed jointly and severally, fully and
unconditionally, by the following wholly-owned domestic subsidiaries of the
Company (the "Guarantors"):

          -    Amscan Inc.

          -    Am-Source, LLC

          -    Anagram International, Inc.

          -    Anagram International Holdings, Inc.

          -    Anagram International, LLC


                                      F-34

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

          -    M&D Industries, Inc.

          -    Party City Corporation

          -    SSY Realty Corp.

          -    JCS Packaging Inc. (formerly JCS Realty Corp.)

          -    Anagram Eden Prairie Property Holdings LLC

          -    Trisar, Inc.

     Non-guarantor subsidiaries ("Non-guarantors") include the following:

          -    Amscan Distributors (Canada) Ltd.

          -    Amscan Holdings Limited

          -    Amscan (Asia-Pacific) Pty. Ltd.

          -    Amscan Partyartikel GmbH

          -    Amscan de Mexico, S.A. de C.V.

          -    Anagram International (Japan) Co., Ltd.

          -    Anagram Espana, S.A.

          -    Anagram France S.C.S.

          -    JCS Hong Kong Ltd.

     The following consolidating information presents consolidating balance
sheets as of December 31, 2005 and 2004, and the related consolidating
statements of operations and cash flows for the year ended December 31, 2005,
and the eight months ended December 31, 2004 and the four months ended April
30, 2004 (Predecessor) and the year ended December 31, 2003 (Predecessor) for
the combined Guarantors and the combined Non-guarantors and elimination entries
necessary to consolidate the entities comprising the combined companies.


                                      F-35
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                           CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2005
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      AAH AND COMBINED      COMBINED
                                                         GUARANTORS      NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                      ----------------   --------------   ------------   ------------
<S>                                                   <C>                <C>              <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents ......................      $    7,695         $ 1,050                       $    8,745
   Accounts receivable, net .......................          71,234          11,795                           83,029
   Inventories, net ...............................         175,087          13,955         $   (585)        188,457
   Prepaid expenses and other current assets ......          37,851           1,710                           39,561
                                                         ----------         -------         --------      ----------
      Total current assets ........................         291,867          28,510             (585)        319,792
   Property, plant and equipment, net .............         147,340           2,297                          150,877
   Goodwill, net ..................................         501,985           3,746                          505,731
   Trade names ....................................          68,500              --                           68,500
   Other intangible assets, net ...................          48,699              --                           48,699
   Other assets ...................................          52,650           5,448          (32,750)         25,348
                                                         ----------         -------         --------      ----------
      Total assets ................................      $1,112,281         $40,001         $(33,335)     $1,118,947
                                                         ==========         =======         ========      ==========

LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable ...............................      $  102,259         $ 3,528                       $  105,787
   Accrued expenses ...............................          46,093           4,713                           50,806
   Income taxes payable ...........................           3,331             168         $   (112)          3,387
   Current portion of long-term obligations .......           2,438             205                            2,643
                                                         ----------         -------         --------      ----------
      Total current liabilities ...................         154,121           8,614             (112)        162,623
Long-term obligations, excluding current portion ..         561,366             201                          561,567
Non-current deferred income tax liabilities .......          63,164             618                           63,782
Deferred rent and other long-term liabilities .....           5,553          30,552          (32,761)          3,344
                                                         ----------         -------         --------      ----------
      Total liabilities ...........................         784,204          39,985          (32,873)        791,316
Redeemable common securities ......................           6,821              --                            6,821

Commitments and contingencies .....................

Stockholders' equity:
   Common stock ...................................              --             339             (339)             --
   Additional paid-in capital .....................         300,983              --                          300,983
   Retained earnings ..............................          21,270            (243)            (203)         20,824
   Accumulated other comprehensive (loss) income ..            (997)            (80)              80            (997)
                                                         ----------         -------         --------      ----------
      Total stockholders' equity ..................         321,256              16             (462)        320,810
                                                         ----------         -------         --------      ----------
      Total liabilities, redeemable common
         securities and stockholders' equity ......      $1,112,281         $40,001         $(33,335)     $1,118,947
                                                         ==========         =======         ========      ==========
</TABLE>


                                      F-36

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                           CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2004
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      AAH AND COMBINED      COMBINED
                                                         GUARANTORS      NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                      ----------------   --------------   ------------   ------------
<S>                                                   <C>                <C>              <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents.......................       $  3,153           $ 1,099                       $  4,252
   Accounts receivable, net........................         72,353            11,615                         83,968
   Inventories, net................................         77,386            11,052        $   (279)        88,159
   Prepaid expenses and other current assets.......         13,914             1,327                         15,241
                                                          --------           -------        --------       --------
      Total current assets.........................        166,806            25,093            (279)       191,620
   Property, plant and equipment, net..............         94,179             1,955                         96,134
   Goodwill, net...................................        277,699             5,222                        282,921
   Trade names.....................................         33,500                --                         33,500
   Other intangible assets, net....................         23,289                --                         23,289
   Other assets....................................         41,875             3,331         (25,404)        19,802
                                                          --------           -------        --------       --------
      Total assets.................................       $637,348           $35,601        $(25,683)      $647,266
                                                          ========           =======        ========       ========

LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Loans and notes payable.........................       $  2,025           $    --                       $  2,025
   Accounts payable................................         34,918             1,924                         36,842
   Accrued expenses................................         14,425             6,555                         20,980
   Income taxes payable............................          2,319               302        $    (27)         2,594
   Current portion of long-term obligations........          2,627               180                          2,807
                                                          --------           -------        --------       --------
      Total current liabilities....................         56,314             8,961             (27)        65,248
Long-term obligations, excluding current portion...        384,802               191                        384,993
Non-current deferred income tax liabilities........         43,175                --                         43,175
Deferred rent and other long-term liabilities......          2,372            23,310         (22,265)         3,417
                                                          --------           -------        --------       --------
      Total liabilities............................        486,663            32,462         (22,292)       496,833
Redeemable common securities.......................          3,705                --               --         3,705
Commitments and contingencies......................

Stockholders' equity:
   Common stock....................................            --                339            (339)            --
   Additional paid-in capital......................        136,819                --                        136,819
   Retained earnings...............................          8,816             1,384          (1,636)         8,564
   Accumulated other comprehensive (loss) income...          1,345             1,416          (1,416)         1,345
                                                          --------           -------        --------       --------
      Total stockholders' equity...................        146,980             3,139          (3,391)       146,728
                                                          --------           -------        --------       --------
      Total liabilities, redeemable common
         securities and stockholders' equity.......       $637,348           $35,601        $(25,683)      $647,266
                                                          ========           =======        ========       ========
</TABLE>


                                      F-37

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                        FOR YEAR ENDED DECEMBER 31, 2005
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            AAH AND COMBINED      COMBINED
                                                               GUARANTORS      NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                            ----------------   --------------   ------------   ------------
<S>                                                         <C>                <C>              <C>            <C>
Revenues:
   Net sales.............................................       $376,659          $60,425         $(19,858)      $417,226
   Royalties and franchise fees..........................            509               --                             509
                                                                --------          -------         --------       --------
      Total revenues.....................................        377,168           60,425          (19,858)       417,735

Total expenses:
   Cost of sales.........................................        261,210           39,974          (19,552)       281,632
   Selling expenses......................................         28,756            7,425                          36,181
   Retail operating expenses.............................          1,824               --                           1,824
   Franchise expenses....................................            779               --                             779
   General and administrative expenses...................         29,980            7,366           (1,320)        36,026
   Art and development costs.............................          8,941               --                           8,941
   Non-recurring expenses................................          3,988               --                           3,988
                                                                --------          -------         --------       --------
      Total expenses.....................................        335,478           54,765          (20,872)       369,371
                                                                --------          -------         --------       --------
         Income from operations..........................         41,690            5,660            1,014         48,364

Interest expense, net....................................         31,774              133                          31,907
   Other (income) loss, net..............................         (6,062)            (994)           6,292           (764)
                                                                --------          -------         --------       --------
      Income before income taxes and minority interests..         15,978            6,521           (5,278)        17,221
         Income tax expense (benefit)....................          3,524            1,528             (112)         4,940
         Minority interests..............................             --               21                              21
                                                                --------          -------         --------       --------
         Net income (loss)...............................       $ 12,454          $ 4,972         $ (5,166)      $ 12,260
                                                                ========          =======         ========       ========
</TABLE>


                                      F-38
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                  FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2004
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            AAH AND COMBINED      COMBINED
                                                               GUARANTORS      NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                            ----------------   --------------   ------------   ------------
<S>                                                         <C>                <C>              <C>            <C>
Revenues:
   Net sales.............................................       $239,272          $37,823         $(11,539)      $265,556
   Cost of sales.........................................        165,028           24,746          (11,564)       178,210
                                                                --------          -------         --------       --------
      Gross profit.......................................         74,244           13,077               25         87,346
Operating expenses:
   Selling expenses......................................         18,959            4,570                          23,529
   General and administrative expenses...................         18,679            4,919             (880)        22,718
   Art and development costs.............................          6,713               --                           6,713
                                                                --------          -------         --------       --------
      Total operating expenses...........................         44,351            9,489             (880)        52,960
                                                                --------          -------         --------       --------
         Income from operations..........................         29,893            3,588              905         34,386
Interest expense, net ...................................         19,022              102                          19,124
Other (income) loss, net.................................         (2,385)             (80)           3,347            882
                                                                --------          -------         --------       --------
      Income before income taxes and minority interests..         13,256            3,566           (2,442)        14,380
Income tax expense.......................................          4,707              962               10          5,679
Minority interests.......................................             --              137                             137
                                                                --------          -------         --------       --------
      Net income (loss)..................................       $  8,549          $ 2,467         $ (2,452)      $  8,564
                                                                --------          -------         --------       --------
</TABLE>


                                      F-39

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE FOUR MONTHS ENDED APRIL 30, 2004
                                  (PREDECESSOR)
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    AAH AND COMBINED      COMBINED
                                                                       GUARANTORS      NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                                    ----------------   --------------   ------------   ------------
<S>                                                                 <C>                <C>              <C>            <C>
Net sales .......................................................       $121,426           $17,721        $(5,487)       $133,660
   Cost of sales ................................................         81,845            11,796         (5,394)         88,247
                                                                        --------           -------        -------        --------
      Gross profit ..............................................         39,581             5,925            (93)         45,413
Operating expenses:
   Selling expenses .............................................         10,095             2,335                         12,430
   General and administrative expenses ..........................          8,880             2,434           (440)         10,874
   Art and development costs ....................................          3,332                --                          3,332
   Non-recurring expenses .......................................         11,757                --                         11,757
                                                                        --------           -------        -------        --------
      Total operating expenses ..................................         34,064             4,769           (440)         38,393
                                                                        --------           -------        -------        --------
      Income from operations ....................................          5,517             1,156            347           7,020
Interest expense, net ...........................................          8,320                64                          8,384
   Other income (loss), net .....................................         (1,105)              (39)         1,175              31
                                                                        --------           -------        -------        --------
      (Loss) income before income taxes and minority interests ..         (1,698)            1,131           (828)         (1,395)
Income tax (benefit) expense ....................................           (864)              350            (37)           (551)
Minority interests ..............................................             --                46                             46
                                                                        --------           -------        -------        --------
      Net (loss) income .........................................           (834)              735           (791)           (890)
      Dividend on redeemable convertible preferred stock ........            136                --                            136
                                                                        --------           -------        -------        --------
      Net (loss) income applicable to common shares .............          $(970)          $   735        $  (791)       $ (1,026)
                                                                        ========           =======        =======        ========
</TABLE>


                                      F-40

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2003
                                  (PREDECESSOR)
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              AAH AND COMBINED      COMBINED
                                                                 GUARANTORS      NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                              ----------------   --------------   ------------   ------------
<S>                                                           <C>                <C>              <C>            <C>
Net sales .................................................       $367,108           $56,241        $(20,533)      $402,816
   Cost of sales ..........................................        250,242            39,456         (20,573)       269,125
                                                                  --------           -------        --------       --------
      Gross profit ........................................        116,866            16,785              40        133,691
Operating expenses:
   Selling expenses .......................................         30,296             6,219                         36,515
   General and administrative expenses ....................         28,854             6,859          (1,200)        34,513
   Art and development costs ..............................          9,395                --                          9,395
   Restructuring charges ..................................            980                27                          1,007
                                                                  --------           -------        --------       --------
      Total operating expenses ............................         69,525            13,105          (1,200)        81,430
                                                                  --------           -------        --------       --------
      Income from operations ..............................         47,341             3,680           1,240         52,261
Interest expense, net .....................................         25,610               758                         26,368
   Other (income) expense, net ............................         (4,414)              136           2,844         (1,434)
                                                                  --------           -------        --------       --------
      Income before income taxes and minority interests ...         26,145             2,786          (1,604)        27,327
Income tax expense ........................................          9,022             1,043                         10,065
Minority interests ........................................             --                99                             99
                                                                  --------           -------        --------       --------
      Net income (loss) ...................................         17,123             1,644          (1,604)        17,163
      Dividend on redeemable convertible preferred stock ..            399                --                            399
                                                                  --------           -------        --------       --------
      Net income (loss) applicable to common shares .......        $16,724           $ 1,644        $ (1,604)      $ 16,764
                                                                  ========           =======        ========       ========
</TABLE>


                                      F-41

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR YEAR ENDED DECEMBER 31, 2005
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                          AAH AND
                                                                         COMBINED       COMBINED
                                                                        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                                        ----------   --------------   ------------   ------------
<S>                                                                     <C>          <C>              <C>            <C>
Cash flows provided by operating activities:
   Net income (loss) ................................................    $  12,454       $ 4,972         $(5,166)      $  12,260
   Adjustments to reconcile net income (loss) to net cash provided
      by operating activities:
      Depreciation and amortization expense .........................       17,924           678                          18,602
      Amortization of deferred financing costs ......................        1,582            --                           1,582
      Deferred rent .................................................           32            --                              32
      Provision for doubtful accounts ...............................          627           168                             795
      Deferred income tax expense (benefit) .........................        1,242             1                           1,243
      (Gain) loss on disposal of property, plant and equipment ......           30             4                              34
      Undistributed loss in unconsolidated joint venture ............          987            --                             987
      Write-off of deferred financing costs .........................        3,988            --                           3,988
      Equity based compensation .....................................          335            --                             335
      Changes in operating assets and liabilities, net of
         acquisitions:
         Increase in accounts receivable ............................         (847)         (307)                         (1,154)
         (Increase) decrease in inventories .........................      (16,038)       (2,903)            306         (18,635)
         Decrease (increase) in prepaid expenses, other current
            assets and other, net ...................................        1,009          (383)                            626
         (Decrease) increase in accounts payable, accrued expenses,
            income taxes payable and other liabilities ..............      (10,933)          864           4,860          (5,209)
                                                                         ---------       -------         -------       ---------
         Net cash provided by operating activities ..................       12,392         3,094              --          15,486
Cash flows used in investing activities:
      Cash paid in connection with Party City Acquisition ...........     (325,562)           --                        (325,562)
      Capital expenditures ..........................................      (16,119)         (932)                        (17,051)
      Proceeds from disposal of property, plant and equipment .......           22            66                              88
                                                                         ---------       -------         -------       ---------
         Net cash used in investing activities ......................     (341,659)         (866)                       (342,525)
Cash flows provided by (used in) financing activities ...............
      Proceeds from loans, notes payable and long-term
         obligations, net of debt issuance costs ....................      372,813            --                         372,813
      Repayment of loans, notes payable and long-term obligations ...     (206,155)         (217)                       (206,372)
      Capital contributions .........................................      167,049            --                         167,049
      Purchase of common stock from officers ........................         (109)           --                            (109)
                                                                         ---------       -------         -------       ---------
         Net cash provided by (used in) financing activities ........      333,598          (217)                        333,381
      Effect of exchange rate changes on cash and cash equivalents ..          211        (2,060)                         (1,849)
                                                                         ---------       -------         -------       ---------
         Net increase (decrease) in cash and cash equivalents .......        4,542           (49)                          4,493
      Cash and cash equivalents at beginning of period ..............        3,153         1,099                           4,252
                                                                         ---------       -------         -------       ---------
      Cash and cash equivalents at end of period ....................    $   7,695       $ 1,050         $             $   8,745
                                                                         =========       =======         =======       =========
</TABLE>


                                      F-42
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                  FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2004
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           AAH AND
                                                                          COMBINED       COMBINED
                                                                         GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                                         ----------   --------------   ------------   ------------
<S>                                                                      <C>          <C>              <C>            <C>
Cash flows provided by (used in) operating activities:
   Net income ........................................................    $   8,549       $ 2,467        $(2,452)       $   8,564
   Adjustments to reconcile net income to net cash provided by
      (used in) operating activities
      Depreciation and amortization expense ..........................        9,070           449                           9,519
      Amortization of deferred financing costs .......................        1,022            --                           1,022
      Provision for doubtful accounts ................................          975           333                           1,308
      Deferred income tax benefit ....................................        3,638            --                           3,638
      Gain on disposal of equipment ..................................           (1)           (3)                             (4)
      Undistributed loss in unconsolidated joint venture .............        1,168            --                           1,168
      Changes in operating assets and liabilities:
         Decrease in accounts receivable .............................        1,350           202                           1,552
         Increase in inventories, net ................................       (4,571)       (1,998)           (25)          (6,594)
         (Increase) decrease in prepaid expenses, other current
         assets and other, net .......................................          (56)       (2,938)         2,467             (527)
         Increase in accounts payable, accrued expenses
            and income taxes payable .................................        4,212           894             10            5,116
                                                                          ---------       -------        -------        ---------
               Net cash provided by (used in) operating activities ...       25,356          (594)                         24,762
  Cash flows used in investing activities:
      Cash paid to consummate the 2004 Transactions ..................     (529,982)           --                        (529,982)
      Capital expenditures ...........................................       (7,384)         (325)                         (7,709)
      Proceeds from disposal of property and equipment ...............          160           399                             559
                                                                          ---------       -------        -------        ---------
               Net cash used in investing activities .................     (537,206)           74                        (537,132)
  Cash flows provided by (used in) financing activities:
      Proceeds from loans, notes payable and long-term obligations,
         net of debt issuance costs of $12,705 .......................      368,941            --                         368,941
      Repayment of loans, notes payable and long-term obligations ....       (1,651)         (117)                         (1,768)
      Capital contributions in connection with the 2004
         Transactions ................................................      139,024            --                         139,024
                                                                          ---------       -------        -------        ---------
               Net cash provided by (used in) financing activities ...      506,314          (117)                        506,197
   Effect of exchange rate changes on cash and cash equivalents ......           43         1,145                           1,188
                                                                          ---------       -------        -------        ---------
   Net (decrease) increase in cash and cash equivalents ..............       (5,493)          508                          (4,985)
   Cash and cash equivalents at beginning of period ..................        8,646           591                           9,237
                                                                          ---------       -------        -------        ---------
   Cash and cash equivalents at end of period ........................    $   3,153       $ 1,099        $              $   4,252
                                                                          =========       =======        =======        =========
</TABLE>


                                      F-43

<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE FOUR MONTHS ENDED APRIL 30, 2004
                                  (PREDECESSOR)
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           AAH AND
                                                                          COMBINED       COMBINED
                                                                         GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                                         ----------   --------------   ------------   ------------
<S>                                                                      <C>          <C>              <C>            <C>
Cash flows provided by operating activities:
   Net (loss) income .................................................    $   (834)       $   735        $  (791)       $   (890)
   Adjustments to reconcile net (loss) income to net cash provided
      by operating activities:
      Depreciation and amortization expense ..........................       5,076            220                          5,296
      Amortization of deferred financing costs .......................         709             --                            709
      Amortization of restricted Common Stock award ..................          52             --                             52
      Provision for doubtful accounts ................................         600            129                            729
      Deferred income tax benefit ....................................      (2,220)            --                         (2,220)
      Gain on disposal of equipment ..................................          --            (35)                           (35)
      Undistributed loss in unconsolidated joint venture .............          89             --                             89
      Debt retirement costs incurred in connection with the 2004
         Transactions ................................................       6,209             --                          6,209
      Write-off of deferred financing costs ..........................       5,548             --                          5,548
      Gain on sale of available-for-sale securities ..................         (47)            --                            (47)
      Changes in operating assets and liabilities:
         Increase in accounts receivable .............................     (13,843)        (1,404)                       (15,247)
         Decrease in inventories, net ................................       5,833            303             93           6,229
         (Increase) decrease in prepaid expenses and other
            current assets ...........................................      (2,400)           664            735          (1,001)
         Increase (decrease) in accounts payable, accrued expenses
            and income taxes payable .................................       3,663            365            (37)          3,991
                                                                          --------        -------        -------        --------
            Net cash provided by operating activities ................       8,435            977                          9,412
   Cash flows used in investing activities:
      Capital expenditures............................................      (3,205)          (521)                        (3,726)
      Proceeds from sale of available-for-sale securities ............          65             --                             65
      Proceeds from disposal of property and equipment ...............          --             53                             53
                                                                          --------        -------        -------        --------
            Net cash used in investing activities ....................      (3,140)          (468)                        (3,608)
   Cash flows used in financing activities:
      Repayment of loans, notes payable and long-term obligations ....     (21,184)           (67)                       (21,251)
      Debt retirement costs paid in connection with the 2004
         Transactions ................................................      (6,209)            --                         (6,209)
      Repayment of note receivable from stockholder ..................          25             --                             25
                                                                          --------        -------        -------        --------
            Net cash used in financing activities ....................     (27,368)           (67)                       (27,435)
   Effect of exchange rate changes on cash and cash equivalents ......         (21)          (573)                          (594)
                                                                          --------        -------        -------        --------
   Net decrease in cash and cash equivalents .........................     (22,094)          (131)                       (22,225)
   Cash and cash equivalents at beginning of period ..................      30,740            722                         31,462
                                                                          --------        -------        -------        --------
   Cash and cash equivalents at end of period ........................    $  8,646        $   591        $              $  9,237
                                                                          ========        =======        =======        ========
</TABLE>


                                      F-44
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    (DOLLARS IN THOUSANDS; EXCEPT PER SHARE)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2003
                                  (PREDECESSOR)
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         AAH AND     COMBINED
                                                                        COMBINED       NON-
                                                                       GUARANTORS   GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                                       ----------   ----------   ------------   ------------
<S>                                                                    <C>          <C>          <C>            <C>
Cash flows provided by (used in) operating activities:
   Net income ......................................................    $ 17,123     $ 1,644       $(1,604)       $ 17,163
   Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
      Depreciation and amortization ................................      15,540         579                        16,119
      Amortization of deferred financing costs .....................       2,131          --                         2,131
      Loss on disposal of property, plant and equipment ............         109          13                           122
      Provision for doubtful accounts ..............................       2,515          73                         2,588
      Amortization of restricted Common Stock awards ...............         168          --                           168
      Gain on sale of available-for-sale securities ................      (1,486)         --                        (1,486)
      Non-cash restructuring charges ...............................         104          --                           104
      Deferred income tax provision ................................       5,231          --                         5,231
      Changes in operating assets and liabilities:
         Increase in accounts receivables ..........................        (972)     (2,656)                       (3,628)
         Decrease (increase) in inventories ........................       7,553        (400)          (40)          7,113
         Decrease (increase) in prepaid expenses, other
            current assets and other, net ..........................       1,337        (731)        1,644           2,250
         Increase (decrease) in accounts payable, accrued
            expenses and income taxes payable ......................      (6,547)        834                        (5,713)
                                                                        --------     -------       -------        --------
            Net cash provided by (used in) operating activities ....      42,806        (644)                       42,162
Cash flows used in investing activities:
   Capital expenditures ............................................     (11,660)       (865)                      (12,525)
   Proceeds from sale of available-for-sale securities .............       2,005          --                         2,005
   Proceeds from disposal of property, plant and equipment .........         117          87                           204
                                                                        --------     -------       -------        --------
            Net cash used in investing activities ..................      (9,538)       (778)                      (10,316)
Cash flows used in financing activities:
   Proceeds from exercise of Common Stock options ..................         831          --                           831
   Repayment of loans, notes payable and long-term obligations .....      (3,530)       (193)                       (3,723)
   Purchase of Common Stock from officers ..........................      (3,300)         --                        (3,300)
   Repayment of notes receivable from officers .....................       1,990          --                         1,990
                                                                        --------     -------       -------        --------
            Net cash used in financing activities ..................      (4,009)       (193)                       (4,202)
Effect of exchange rate changes on cash and cash equivalents .......          (2)      1,420                         1,418
                                                                        --------     -------       -------        --------
Net increase (decrease) in cash and cash equivalents ...............      29,257        (195)                       29,062
Cash and cash equivalents at beginning of year .....................       1,483         917                         2,400
                                                                        --------     -------       -------        --------
Cash and cash equivalents at end of year ...........................    $ 30,740     $   722       $              $ 31,462
                                                                        ========     =======       =======        ========
</TABLE>


                                      F-45

<PAGE>

                                   SCHEDULE II
                              AMSCAN HOLDINGS, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 2005, EIGHT MONTHS ENDED DECEMBER 31, 2004, FOUR MONTHS
              ENDED APRIL 30, 2004 AND YEAR ENDED DECEMBER 31, 2003
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      BEGINNING
                                                       BALANCE    WRITE-OFFS   ADDITIONS   ENDING BALANCE
                                                      ---------   ----------   ---------   --------------
<S>                                                   <C>         <C>          <C>         <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
   Predecessor
   For the year ended December 31, 2003 ..........      $5,127      $4,890       $2,588        $2,825
   For the four months ended April 30, 2004 ......       2,825         444          729         3,110
   For the eight months ended December 31, 2004...       3,110       1,811        1,294         2,593
   For the year ended December 31, 2005 ..........       2,593       1,590          795         1,798

INVENTORY RESERVES::
   Predecessor
   For the year ended December 31, 2003 ..........      $3,378      $2,267       $1,614        $2,725
   For the four months ended April 30, 2004 ......       2,725         277          583         3,031
   For the eight months ended December 31, 2004 ..          --          --          984           984
   For the year ended December 31, 2005 ..........         984       1,859        3,061         2,186
</TABLE>


                                      F-46