<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                   For the fiscal year ended December 31, 2001

                                       OR

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

                   For the transition period from ____to_____

                        Commission file number 000-23157


                         A.C. MOORE ARTS & CRAFTS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Pennsylvania                                    23-3527763
--------------------------------                  ---------------------
(State or other jurisdiction of                     (I.R.S. Employer
 incorporation or organization)                    Identification No.)


  500 University Court, Blackwood, NJ                                08012
-----------------------------------------                           ------
(Address of principal executive offices)                          (Zip code)

       Registrant's telephone number, including area code: (856) 228-6700

        Securities registered pursuant to section 12(b) of the Act: None

           Securities registered pursuant to section 12(g) of the Act:
                           Common Stock, no par value
                                (Title of Class)

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 the 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. [ ]

As of February 15, 2002, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $121,617,000 based on the
closing price of the registrant's common stock on such date, $29.23, as reported
on the Nasdaq Stock Market.(1)

The number of shares of Common Stock outstanding as of February 15, 2002 was
7,472,235.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2002 Annual Meeting of
Shareholders are incorporated into Part III of this Form 10-K.

-----------------
         (1) The aggregate dollar amount of the voting stock set forth equals
the number of shares of Common Stock outstanding, reduced by the number of
shares of Common Stock held by executive officers, and directors and
shareholders owning in excess of 10% of the registrant's Common Stock. The
information provided shall in no way be construed as an admission that any
person whose holdings are excluded from this figure is an affiliate of the
registrant or that any person whose holdings are included in this figure is not
an affiliate of the registrant and any such admission is hereby disclaimed. The
information provided herein is included solely for record keeping purposes of
the Securities and Exchange Commission.


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ITEM 1. BUSINESS.

Our Company

         We are a rapidly growing specialty retailer offering a vast selection
of arts, crafts and floral merchandise to a broad demographic of consumers. Our
target customers are primarily women between the ages of 25 and 55 who are
looking for ideas to decorate their homes, create handmade items, or otherwise
engage in arts and crafts activities. We have grown from 17 stores in January
1997 to 61 stores in December 2001. In 2001, for stores open for the full
calendar year, our average sales per square foot were $273, which we believe to
be the highest in our industry, and our average sales per store were
approximately $6.1 million.

         Our stores are located in the eastern United States from New England to
the Carolinas. For the foreseeable future we intend to locate our new stores
within 700 miles of our distribution center, an area encompassing approximately
45% of the United States population. We believe we can support at least 120
stores in this geographic area from our distribution center.

         Our assortment of merchandise consists of approximately 60,000 stock
keeping units, or SKUs, with more than 45,000 SKUs offered at each store at any
one time. We believe we offer a superior shopping experience that is
differentiated by our broad merchandise assortment, high in-stock positions,
exciting stores, attentive and knowledgeable sales associates and competitive
prices.

         We have a highly experienced management team which is comprised of
executives who have each participated in the expansion of several large
retailers. Collectively, our Chief Executive Officer, President, Chief Operating
Officer and Chief Financial Officer have more than 125 years experience in
retailing.

         We became a holding company in July 1997 by incorporating in
Pennsylvania and exchanging 4,300,000 shares of our common stock for all the
capital stock of our operating subsidiary which was organized in Delaware in
1984.

Our Market

         We compete in a $23 billion market comprised primarily of arts and
crafts products, silk and dried flowers and picture frames. Our market is highly
fragmented and is served by multi-store arts and crafts retailers, mass
merchandisers, small, local specialty retailers, mail order vendors, hardware
stores and a variety of other retailers.

         The size and growth of our market is sustained by the popularity of
arts and crafts. According to a 2001 Hobby Industry Association report, 54% of
United States households participated in crafts and craft-related hobbies during
2000. Further, a June 2001 Harris Poll reports that the popularity of crafts is
similar to the popularity of watching sports, listening to music, playing golf,
boating, hunting and other similar leisure activities. The current popularity of
crafts is reflected in the national media. For example, crafts are prominently
featured on Martha Stewart Living(R) and The Rosie O'Donnell Show(R) and in
related publications.

Our Merchandise

         Our merchandising strategy is to offer the broadest and deepest
assortment of arts, crafts and floral merchandise and to provide our customers
with all of the components necessary for their crafting projects on a regular
basis. Below is a representative list of our merchandise:

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o    Art Supplies and Frames: paints, brushes, canvas, drawing tools, rubber
     stamps and stationery, scrapbooking supplies, stencils and frames.

o    Traditional Crafts: stitchery, yarn for knitting and rug hooking, cake and
     candy making supplies, glass crafts, decoupage, wood crafts, kids crafts,
     felt, glitter, dollmaking, dollhouses and furniture, and instructional
     books.

o    Floral and Accessories: silk and dried flowers, accessories like vases and
     other products to assist in the arrangement of flowers, pre-made and custom
     made floral arrangements, ribbon and lace, wedding related items,
     potpourri, candles, candle making supplies and wicker baskets.

o    Fashion Crafts: t-shirts and sweatshirts, decorative items like patches and
     rhinestones and jewelry making supplies like beads.

o    Seasonal Items: craft making materials, decorations and floral products for
     all major holidays and seasons, including Christmas, Fall/Halloween,
     Spring/Easter, Valentine's Day and St. Patrick's Day.

Business and Operating Strategy

         We believe that our customers expect exceptional service and a broad
assortment of in-stock merchandise at competitive prices in an exciting and
easy-to-shop store. Our goal is to consistently deliver an overall value
proposition that exceeds our customers' expectations and offers them a superior
shopping experience. In order to achieve this goal we pursue the following five
primary business and operating strategies:

         We strive to offer the broadest and deepest assortment of arts, crafts
and floral merchandise.

         We believe that key elements in a customer's decision where to shop are
variety and selection of merchandise. We believe our stores offer the broadest
and deepest selection of arts, crafts and floral merchandise in our industry.
Each of our stores stocks 60,000 SKUs across five major merchandise categories
during the course of a year, with more than 45,000 SKUs offered at each store at
any one time. Our buyers actively seek new merchandising opportunities by
monitoring industry trends, working with domestic and international vendors,
attending trade shows and craft fairs and regularly interacting with our
customers. We believe that our ability to provide new merchandise to our
customers on a continuous basis differentiates us from our competitors.

         We strive to maintain a superior in-stock merchandise position.

         Craft projects usually require multiple components. Providing all of
the components for a particular craft project in a single store on a regular
basis is critical to meeting the demands of our customers. Therefore, we
designed our merchandise distribution systems to ensure rapid replenishment of
inventory and the highest levels of in-stock positions in our stores. Our
distribution center will deliver merchandise to each of our stores three to five
times per week during our peak selling season, and two to three times per week
throughout the balance of the year. In our peak selling season, our store
managers can replenish 65% of their shelf merchandise assortment within two to
three days.

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         We strive to operate exciting, easy-to-shop stores.

         We provide our customers with project ideas by displaying samples of
completed craft projects throughout our stores. We believe that these displays
generate excitement and foster impulse buying and return visits to our stores.
We regularly provide video and live in-store crafting demonstrations. We offer
frequent in-store classes for children and adults in most of our stores on a
wide variety of craft skills. Our stores are designed to be uncluttered,
well-organized and well-lit. Wide aisles and easy to read signage help our
customers locate merchandise and make our stores easy-to-shop.

         To ensure prompt and personalized service, we staff our stores with a
high ratio of store personnel to customers, typically including a store manager,
three associate managers, nine department managers and a staff of approximately
49 additional full-time and part-time employee team members. Store personnel,
many of whom are crafters themselves, assist customers with merchandise
selection and project ideas.

         We strive to attract and retain experienced and entrepreneurial store
management.

         To provide optimal customer service, we strive to foster merchandising
creativity and an entrepreneurial culture throughout all levels of our
organization. Store managers are empowered and encouraged to identify
merchandising opportunities and to tailor displays to local preferences for
craft projects. While receiving direction and support from corporate level
management, this autonomy allows store managers to use individual creativity to
cater to the needs and demands of customers. If proven successful, merchandising
ideas generated by a store manager can be implemented quickly throughout our
chain. We believe this helps us to increase sales and profitability. Store
managers and associate managers earn incentive bonuses based on annual increases
in the profitability of their stores. The average compensation for our store
managers (based upon store managers in position for the full fiscal year)was
approximately $106,000 in 2001. We believe our focus on empowering and rewarding
our employees, all of whom are "team members," helps in recruiting, hiring and
retaining talented personnel. Our turnover rate for store managers averaged 7%
per year from 1997 through 2001.

         We strive to provide superior price/value for our customers.

         We believe that our customers consider the relationship between the
quality and price of our merchandise to be important factors in their buying
decisions. Therefore, we strive to be the price/value leader in all of our
merchandise categories. Our purchasing professionals and store managers actively
monitor competitors' prices to ensure we maintain low prices while preserving
merchandise quality and value. Our policy to beat any competitor's advertised
price by 10% is clearly displayed in our stores. In addition, on a weekly basis,
we advertise select items at 20% to 40% off their everyday low prices. We
believe that our price/value strategy exceeds our customers' expectations and
enhances customer loyalty.

Growth Strategy

         The market in which we operate is large and fragmented. We believe that
this presents an opportunity to continue to grow our business for the
foreseeable future. Our objective is to improve our market share in existing
geographic markets and to expand into new geographic markets while enhancing our
profitability through greater leverage of our corporate infrastructure. To
support our growth, we expect to expand our facilities, upgrade our management
information systems and hire additional corporate personnel. We believe by
increasing our store base we can obtain economies of scale in advertising,
distribution, purchasing and management costs and, as a result, improve our
operating margins.

         Opening New Stores.

         During the next two years we intend to increase our store base of 61
locations at December 31, 2001 by approximately 20% per year. Our current
strategy is to open new stores within a 700 mile radius of our existing
corporate headquarters and distribution center located in suburban Philadelphia.
This geographic area contains approximately 45% of the United States population.
Ultimately, we believe that we can at least double the number of our existing
stores within this geographic area without significantly diluting the sales in
our existing stores. In the future, we may open stores in other regions.

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         Our site selection strategy is overseen by a Vice President of Real
Estate who is responsible for identifying favorable store locations in both
existing and new geographic markets. Our site selection criteria include an
assessment of population and demographic characteristics of the market area,
customer traffic, performance of other retailers within the area, co-tenants at
the proposed site, projected profitability and cash return on investment.

         We have developed a standardized procedure for opening new stores. Our
new store opening team develops the floor plan and inventory layout based on our
store prototype and hires and trains team members in connection with the opening
of each new store. For each new store we plan to open in the next two years, we
expect to spend approximately $1.3 million, which includes $365,000 for fixtures
and equipment, $190,000 in pre-opening costs, and $700,000 for in-store
inventory, net of accounts payable.

         Increasing Sales in Existing Stores.

         In 2001, for stores open at least one full calendar year, our average
sales per square foot were $273, which we believe to be the highest in our
industry, and our average sales per store were approximately $6.1 million. Our
comparable store sales growth was 4% in 1997, 3% in 1998, 6% in 1999, 3% in 2000
and 8% in 2001. Stores are added to the comparable store base at the beginning
of their fourteenth full month of operation. Our primary method of increasing
sales in our existing stores is to successfully execute our business and
operating strategies, including:

o    providing the broadest and deepest merchandise assortment,

o    maintaining a superior in-stock position,

o    operating exciting and easy-to-shop stores,

o    providing new merchandise and crafting ideas to our customers,

o    hiring and retaining entrepreneurial and knowledgeable store managers and
     sales teams, and

o    providing superior price/value for our customers.

Merchandising

         Our merchandising strategy is to offer the broadest and deepest
assortment of arts, crafts and floral merchandise and to provide our customers
with all of the components necessary for their crafting projects on a regular
basis. We believe our merchandise appeals to a wide range of recreational and
professional crafters of all ages and economic backgrounds. However, our primary
customers are women ages 25 to 55. We maintain a fresh and exciting shopping
environment by frequently introducing new merchandise into our stores and by
regularly updating our displays of completed craft projects. Our buyers actively
seek new merchandising opportunities by monitoring industry trends, working with
domestic and international vendors, and regularly attending trade shows and
craft fairs.

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         The following table describes net sales for each of our merchandise
categories as a percentage of our total net sales for the years ended December
31, 1999 through 2001:

                                                Year Ended December 31,
                                             ------------------------------
                                              1999        2000        2001
                                             -------     ------      ------
Art supplies and frames...............        30.0%       31.0%       32.0%
Traditional crafts....................        31.0        30.0        30.0
Floral and accessories................        27.0        26.0        25.0
Fashion crafts........................         7.0         8.0         8.0
Seasonal items........................         5.0         5.0         5.0
                                             -----       -----       -----
Total.................................       100.0%      100.0%      100.0%

         Our corporate office develops a planogram for each of our basic and
seasonal merchandise categories which is implemented at the store level. A
planogram is a diagram that shows how and where each specific retail product
should be placed on shelves or displays. The planograms are developed by a team
consisting of our buyers and members of our planogram department, with input
from key vendors. The planograms are developed using information about the
products, such as size, shape, colors, or theme, sales volume and inventory
levels. By analyzing past and current sales patterns, we can then adjust our
planograms to present merchandise in a manner that helps maximize sales.

         Our point of sale, or POS, system allows us to make better
merchandising decisions by identifying sales volume and seasonality patterns of
particular items of merchandise. With this information we can make better
decisions regarding when to stock, reorder, mark-down and discontinue
merchandise.

         Our purchasing professionals and store managers actively monitor
competitors' prices to ensure we maintain low prices while preserving
merchandise quality and value. Our policy of beating any competitor's advertised
price by 10% is clearly displayed in our stores. On a weekly basis, we advertise
select items at 20% to 40% off their everyday low prices. We also accept
competitors' coupons. We believe that our strategy of price/value leadership
enhances customer loyalty and provides superior value.

         Our stores regularly feature seasonal merchandise that complements our
core merchandising strategy. Seasonal merchandise is offered for all major
holidays and seasons, including Christmas, Fall/Halloween, Spring/Easter,
Valentine's Day and St. Patrick's Day. By far the greatest portion of our
seasonal merchandise is sold during the Christmas season. Our Christmas holiday
merchandise is given floor and shelf space in our stores beginning in late
summer. The Christmas holiday season is longer for our stores than for many
traditional retailers because of the project-oriented nature of Christmas crafts
and gift-making ideas. We believe that our holiday merchandise assortment
differs from some of our competitors because a substantial amount of our
seasonal merchandise is used to create holiday crafts and gifts rather than
consisting of traditional Christmas trees and decorations.

Stores

         Our stores are typically 20,000 to 25,000 square feet. Most of our
stores are located in strip centers that are easily accessible from main traffic
arteries and have convenient parking. Our store size varies based on market
demographics and real estate availability. Most of our store leases have an
average initial term of ten years, with two five year renewal options, and
provide for predetermined escalations in future minimum annual rent or
additional rent contingent upon store sales levels. Our stores are generally
open from 9:30 a.m. to 9:00 p.m., Monday through Saturday, and from 10:00 a.m.
to 6:00 p.m. on Sunday.

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         Store layout and operations

         Our stores provide a "one-stop-shopping" destination for arts, crafts
and floral merchandise in an exciting and spacious shopping environment. We
design our stores to be attractive and easy-to-shop with a layout intended to
lead customers through the entire store in order to expose them to all of our
merchandise categories. Wide aisles and easy to read signage help our customers
locate merchandise. We use end-of-aisle displays to feature best-selling items
and promotional merchandise. Generally, the center of the store contains the
floral area, which includes a ribbon center and counter for free floral
arrangement services. Our stores also contain a customer service area and eight
to 11 registers for quick checkout. Our prototype store is apportioned
approximately 80% to selling space with the remainder devoted to delivery,
storage, classroom and office areas.

         We emphasize the display of completed craft projects in each department
to provide customers with crafting ideas. Because many customers browse for new
craft ideas, we believe eye-catching displays of completed craft projects are
effective at motivating impulse purchases. Our knowledgeable store team members,
many of whom are crafters themselves, are available to explain the displays in
detail to customers and to offer assistance on related craft projects.

         We offer frequent in-store classes for children and adults in most of
our stores in a dedicated classroom typically located at the rear of the store.
Classes are taught by employee team members and outside professionals. Typical
classes provide instruction on oil painting, cake decorating, advanced stamping,
ribbon making or scrapbooking.

         Store management and training

         Each store is managed by a store manager who is typically assisted by
three associate store managers and nine department managers, and employs up to
approximately 49 additional full-time and part-time team members. Our store
managers and associate store managers are responsible primarily for customer
service, training, hiring store level team members, merchandise ordering and
inventory management. We develop new store managers by promoting from within our
organization. We selectively hire experienced store managers from other
retailers who start at our stores as associate store managers.

         A key part of our strategy and management style is to foster an
entrepreneurial culture and merchandising creativity throughout all levels of
our organization which we believe helps to promote customer loyalty. Store
managers are empowered and encouraged to identify merchandising opportunities
and to tailor displays to local preferences for craft projects. While receiving
direction and support from corporate level management, this autonomy allows
store managers to use their own creativity to cater to the needs and demands of
their customers. If proven successful, merchandising ideas generated by a store
manager can be implemented quickly throughout our chain. We believe this helps
to increase sales and profitability. Our store managers and associate store
managers earn incentive bonuses based upon annual increases in the profitability
of their stores. The average annual compensation for our store managers was
approximately $106,000 in 2001. We believe our focus on empowering and rewarding
our team members helps in recruiting, hiring and retaining talented personnel.

         Our training program for store managers and associate store managers
includes several annual company-sponsored conferences to refine and develop
their skills in merchandising, merchandise trends, store operations, financial
controls, human resources and general management. Training sessions are also
held for floral designers and classroom coordinators at various times during the
year. Many of our team members are crafters themselves and we provide them with
training to create a sales staff with a strong focus on customer service and a
willingness to assist customers in assembling and coordinating their craft
projects.

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Purchasing

         Our purchasing programs are designed to support our business strategy
of providing customers with the broadest and deepest assortment of high quality
arts, crafts and floral merchandise at value prices while maintaining high
in-stock positions. A 27 person corporate buying staff oversees all of our
purchasing. Buyers and store management regularly attend trade shows and craft
fairs to monitor industry trends and to obtain new craft ideas.

         In-store department managers are responsible for daily reordering of
merchandise for their departments. In 2001, approximately 96% of our merchandise
orders were placed through our EDI system. Approximately 59% of our orders were
shipped directly from vendors to our stores; the remaining 41%, approximately
one-third of which are floral and seasonal items, were shipped from our
distribution center. Merchandise assortments at our stores are often enhanced by
products ordered by store managers to meet the unique needs of their customers.
All of these purchases are monitored through centralized system controls.

         In 2001, we purchased our inventory from more than 500 vendors
worldwide. One of the key criteria for the selection of vendors is their
responsiveness to our delivery requirements and timing needs. In 2001:

o    the largest 25 domestic vendors accounted for approximately 44% of the
     aggregate dollar volume of our purchases,

o    the largest vendor, SBAR'S, Inc. or SBAR'S, accounted for approximately 18%
     of the aggregate dollar volume of our purchases, and

o    approximately 11% of our merchandise, primarily floral and seasonal items,
     was imported directly from foreign manufacturers or their agents, almost
     exclusively from the People's Republic of China.

All of our overseas purchases are denominated in United States dollars.

         SBAR'S is a specialty distributor of arts and crafts merchandise,
primarily to independent arts and crafts retailers. We believe that our
relationship with SBAR'S provides us with a significant competitive advantage
for the following reasons:

o    Merchandise purchased from SBAR'S typically has a high SKU count but small
     dollar volume, is uneconomical to purchase directly from a manufacturer or
     to distribute from our distribution center, has a low turnover, or has been
     developed by them.

o    Merchandise which cannot be timely delivered by other vendors can often be
     obtained quickly from SBAR'S because SBAR'S regularly maintains an
     inventory of many of the items we sell.

o    SBAR'S maintains a product development and design department which assists
     us in identifying craft trends, and we often obtain from SBAR'S merchandise
     samples and displays which are utilized in our stores to generate customer
     interest.

o    We have been purchasing merchandise from SBAR'S since our inception and
     have developed a disciplined purchasing and ordering relationship with
     them, which includes two to five deliveries by SBAR'S per store each week,
     depending on the size of the store and the time of the year.

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Distribution

         Our distribution strategy is focused on supporting our stores and
maintaining high in-stock positions in all of our merchandise categories. Our
stores receive merchandise deliveries three to five times per week from our
distribution center during our peak selling season, and two to three times per
week throughout the balance of the year, depending on store size.

         We lease 461,000 square feet of distribution and warehouse facilities,
consisting of our 253,000 square foot distribution center and adjoining 10,000
square foot office complex in suburban Philadelphia and our two nearby satellite
warehouses which total an additional 208,000 square feet. Our distribution
center is leased for a term which expires in March 2005, subject to our option
to renew the term for an additional six years. Our satellite warehouses are
leased for a term which expires in March 2003.

         Our distribution center and warehouse operations are supported by our
warehouse management system which uses hand-held computers and radio frequency
communication technology to track merchandise. Our warehouse management system
enables us to update our inventory records instantly to reflect all of the
merchandise receiving and shipping activities that occur at our distribution
center throughout the day. We believe our warehouse management system helps to
make our distribution center and warehouse operations efficient and is
instrumental in helping us meet our commitment to provide superior inventory
replenishment to each of our stores.

         We lease a fleet of tractors and trailers to deliver merchandise to 40
of our 61 stores directly from our distribution center. Additionally, we have
contracted with an outside carrier to deliver merchandise to the 21 stores where
an overnight stay is required because of travel time. In 2001, approximately 41%
of our merchandise was delivered from our distribution center to our stores.

         We are currently negotiating the leasing and construction of a new
distribution center and office complex. We anticipate that this new distribution
center, which will be located near our existing distribution center, will
initially be 450,000 square feet plus 30,000 square feet of office space. We
plan to expand the new distribution center to 900,000 square feet by the end of
2005. We intend to discontinue using our satellite warehouses once the first
450,000 square feet of the new distribution center is completed, which we
anticipate will be sometime in 2003. We will continue to operate our current
distribution center until the second phase of construction of our new
distribution center is completed. We believe that our new facility, when
completed, will enable us to effectively service all of our existing and planned
store locations within a 700 mile radius of the new distribution center.

Marketing

         Our marketing and advertising is designed to attract our target
customers consisting primarily of women between the ages of 25 and 55. A study
published in Craftrends in November 2001, surveyed 1,000 craft customers across
the country. Of the 1,000 participants, 66% were between the ages of 26 and 54,
89% were female and 46% had an income greater than $60,000. We believe that our
target customer is consistent with this demographic profile.

         We advertise 51 weeks per year, typically in midweek editions of local
and/or regional newspapers. Approximately 12 times per year, we run multi-page
newspaper inserts in local and regional newspapers. In addition, prior to store
openings, we use radio advertisements to develop customer awareness and we place
special pre-opening advertisements, normal advertising copy and/or grand opening
inserts in newspapers. We create most of our advertising in-house. Our net
advertising expense was 2.5% of net sales in 2001.

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         We believe that teachers, who often purchase arts and crafts
merchandise for in-school projects, are an important customer segment. To
generate goodwill, we offer teachers who join our "Teachers Program" a 10%
discount on all regularly and sale priced merchandise. We have issued over
500,000 discount cards to teachers in this program. Similarly, our "Crafty Kids
Birthday Club," with over 400,000 members, is intended to develop future
crafters as customers. Members of this club receive a birthday card containing a
$5.00 gift certificate each year through their twelfth birthday.

         We recently re-launched our website, www.acmoore.com. The primary goal
of our website is to drive additional store traffic and serve as an additional
marketing channel to build brand name awareness. Our website features weekly
advertisements, a store locator and an in-store class schedule, as well as
suggested craft projects for children and adults with accompanying instructions
and shopping lists for merchandise to be purchased at our stores. The craft
projects on our website change both seasonally and according to new trends. We
do not sell our merchandise on our website, although gift certificates may be
purchased on-line.

Management Information Systems

         We believe that we have implemented leading information technology
systems which support merchandising, store ordering, warehouse inventory
management, finance and administration. Our management information systems are
secure, redundant and scalable. We expect to continue to enhance the performance
of our systems through software and hardware upgrades and other improvements,
such as the systems integration of our stores and distribution center to improve
our inventory processing capabilities.

         In August 2000, we completed the installation of our POS system in
every store. This system, which includes merchandise universal product code or
bar code scanning at the registers along with the expansion of our radio
frequency re-order system, allows our stores to reduce or re-deploy employee
team members that had previously been used to price mark each SKU. With the POS
data capturing capabilities, faster and more detailed sales and margin
information is available. We have improved our merchandising efforts by polling
the POS system on a regular basis to evaluate sale and pricing trends for each
SKU. In addition, we are able to generate data to assess the performance of our
advertising and promotional programs. This system also improves the speed of the
check-out process, reduces pricing errors and provides greater control over
register operations.

         Our real-time management information and control system has been
designed to support our key business objective of maintaining a high in-stock
position. Utilizing a radio frequency based hand-held computer, our department
managers electronically record and then transmit their orders to the corporate
office. These orders are then automatically sent to the appropriate vendor. This
internally developed system is based upon electronic data interchange, or EDI,
and connects with most of our vendors as well as with our distribution center.
Those vendors that lack EDI capability are given an option to use a web-based
solution that links with our systems.

Competition

         The market in which we compete is highly fragmented, containing
multi-store arts and crafts retailers, mass merchandisers, small local specialty
retailers, mail order vendors, hardware stores and a variety of other retailers.
We believe we are one of only six retailers in the United States dedicated to
serving the arts and crafts market that have annual sales in excess of $100
million. We compete with many retailers and classify our principal competition
within the following three categories:

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o    Multi-store specialty chains. This category includes several multi-store
     specialty chains operating more than 35 stores and comprises: Michaels
     Stores, Inc., a chain which operates approximately 700 Michaels Stores
     throughout the United States; Jo-Ann Stores, Inc. which operates
     approximately 1,000 Jo-Ann Stores and approximately 60 Jo-Ann etc. stores
     nationwide; Hobby Lobby Stores, Inc. a chain which operates approximately
     260 stores primarily in the Midwestern United States; Garden Ridge, Inc.,
     which operates approximately 40 stores primarily in the southeast and
     midwest United States; and Rag Shops, Inc. which operates approximately 70
     stores located primarily in New Jersey and Florida.

o    Mass merchandisers. This category includes companies such as Wal-Mart
     Stores, Inc., Ames Department Stores, Inc. and other mass merchandisers.
     These retailers typically dedicate only a relatively small portion of their
     selling space to a limited assortment of arts and crafts supplies and
     floral merchandise.

o    Small, local specialty retailers. This category includes thousands of local
     "Mom & Pop" arts and crafts retailers. Typically, these are single store
     operations managed by the owner. The stores generally offer a limited
     selection and have limited resources for advertising, purchasing and
     distribution. Many of these stores have established a loyal customer base
     within a given community and compete on customer service.

         We believe that the principal competitive factors of our business are
pricing, breadth of merchandise selection, in-stock position and customer
service. We believe that we are well positioned to compete on each of these
factors.

Employees

         As of December 31, 2001, we had 1,412 full-time and 2,679 part-time
team members, 3,809 of whom worked at our stores, 141 at the distribution center
and 141 at the corporate offices. None of our employees is covered by a
collective bargaining agreement, and we consider our relationship with our
employees to be good.

Trademarks

         We use the "A.C. Moore" name as a tradename and as a service mark in
connection with the sale of our merchandise. Our "A.C. Moore" logo has been
registered with the United States Patent and Trademark Office as a service mark.

Cautionary Statement Relating to Forward Looking Statements

         Certain oral statements made by our management from time to time and
certain statements contained herein or in other periodic reports filed by us
with the Securities and Exchange Commission or incorporated by reference herein
or therein are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, as amended ("Exchange Act"), with respect to our results of operations and
our business. All such statements, other than statements of historical facts,
including those regarding market trends, our financial position and results of
operations, business strategy, projected costs, and plans and objectives of
management for future operations, are forward-looking statements. In general,
such statements are identified by the use of forward-looking words or phrases
including, but not limited to, "intended," "will," "should," "may," "believes,"
"expects," "expected," "anticipates," and "anticipated" or the negative thereof
or variations thereon or similar terminology. These forward-looking statements
are based on our current expectations. Although we believe that the expectations
reflected in such forward looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. These forward-looking
statements represent our current judgment. We disclaim any intent or obligation
to update its forward-looking statements. Because forward-looking statements
involve risks and uncertainties, our actual results could differ materially.
Important factors that could cause actual results to differ materially from our
expectations ("Cautionary Statements") include those that are discussed below.
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
Cautionary Statements.

                                       10
<PAGE>

An increase in our sales, profitability and cash flow will depend on our ability
to increase the number of stores we operate and increase the productivity and
profitability of our existing stores.

         The key components of our growth strategy are to increase the number of
stores we operate and increase the productivity and profitability of our
existing stores. If we are unable to implement this strategy, our ability to
increase our sales, profitability and cash flow could be significantly impaired.
To the extent we are unable to open new stores as planned, our sales growth
would come only from increases in comparable store sales. Growth in
profitability in that case would depend significantly on our ability to increase
margins or reduce our costs as a percentage of sales. There are many factors,
some of which are beyond our control, which could impact our ability to
implement our strategy for opening new stores. These factors include:

o    our ability to identify suitable markets in which to expand,

o    the availability of suitable sites for additional stores,

o    the ability to negotiate acceptable lease terms for sites we identify,

o    the availability of acceptable financing to support our growth, and

o    our ability to hire, train and retain a sufficient number of qualified
     managers and other store personnel.

Our success will depend on how well we manage our growth.

         Even if we are able to implement, to a significant degree, our key
growth strategies of expanding our store base and increasing the productivity
and profitability of our existing stores, we may experience problems relating to
our growth, which may prevent any significant increase in profitability or
negatively impact our cash flow. For example:

o    The costs of opening and operating new stores may offset the increased
     sales generated by the additional stores;

o    The opening of additional stores in an existing market could reduce net
     sales from existing stores in that market;

o    The opening of stores in new geographic markets may present competitive and
     merchandising challenges that are different than those we face in our
     existing geographic markets;

o    The closure or relocation of under-performing stores may result in us
     retaining liability for expensive leases;

o    Our growth may outpace our ability to expand, upgrade and improve our
     administrative, operational and management systems, controls and resources;

                                       11
<PAGE>

o    We may be unable to hire and train sufficient qualified managers and other
     store personnel;

o    Our suppliers may be unable to meet our increased demand for merchandise as
     a result of the additional stores and increased productivity of our
     existing stores; and

o    We may be unable to expand our existing distribution capabilities, or
     employ third-party distribution services on a cost effective basis, to
     provide sufficient merchandise for sale by our new stores.

A weak fourth quarter would have a material adverse effect on our operating
results for the year.

         Our business is affected by the seasonality pattern common to most
retailers. Due to the importance of our peak selling season, which includes
Fall/Halloween, Thanksgiving and Christmas, the fourth quarter has historically
contributed, and is expected to continue to contribute, virtually all of our net
income for the entire year. In anticipation of increased sales activity during
the fourth quarter, we increase our short-term borrowings and incur significant
additional expense both prior to and during the fourth quarter. These expenses
may include acquisition of additional inventory, advertising, in-store
promotions, seasonal staffing needs and other similar items. As a result, any
factors negatively affecting us during the fourth quarter of any year, including
adverse weather and unfavorable economic conditions, would have a material
adverse effect on our results of operations for the entire year.

Our quarterly results fluctuate due to a variety of factors and are not a
meaningful indicator of future performance.

         Our quarterly results have fluctuated in the past and may fluctuate
significantly in the future depending upon a variety of factors, including,
among other things:

o    the mix of merchandise sold,

o    the timing and level of markdowns,

o    promotional events,

o    store openings and closings,

o    remodels or relocations of our stores,

o    length and timing of the holiday seasons,

o    competitive factors, and

o    general economic conditions.

Our comparable store sales growth was 15% in the fourth quarter of 2001, which
was somewhat higher than we had projected internally. We believe that this
growth and other period-to-period comparisons of our operating results cannot be
relied upon as indicators of future performance. If our operating results in any
future period fall below the expectations of securities analysts and investors,
the market price of our securities would likely decline.

                                       12
<PAGE>

Our success depends on key personnel whom we may not be able to retain or hire.

         We are currently dependent upon the continued services, ability and
experience of our senior management team, particularly John E. ("Jack") Parker,
our Chief Executive Officer and Lawrence H. Fine, our President. The loss of the
services of Mr. Parker or Mr. Fine or other members of senior management could
have a material adverse effect on us. We do not maintain any key man life
insurance on any members of our senior management team. Our success in the
future will also be dependent upon our ability to attract and retain other
qualified personnel, including store managers.

We face an extremely competitive retail business market.

         The arts and crafts retailing business is highly competitive. We
currently compete against a diverse group of retailers, including multi-store
arts and crafts retailers, mass merchandisers, small local specialty retailers,
mail order vendors, hardware stores and a variety of other retailers. Almost all
of our stores face aggressive competition in their market area from one or more
of our major competitors. In addition, alternative methods of selling crafts,
such as over the Internet or direct marketing, could result in additional future
competitors and increased price competition because our customers could more
readily comparison shop. Some of our competitors, particularly the mass
merchandisers and national arts and crafts chains, have substantially greater
financial resources and operate more stores than we do. We also compete with
these and other retailers for customers, suitable retail locations, suppliers
and qualified employees and management personnel. Moreover, increased
competition may result in potential or actual litigation between us and our
competitors relating to such activities as competitive sales and hiring
practices, exclusive relationships with key suppliers and manufacturers and
other matters. As a result, increased competition may adversely affect our
future financial performance, and we cannot assure you that we will be able to
compete effectively in the future.

We may not be able to successfully anticipate changes in merchandise trends and
consumer demands and our failure to do so may lead to loss of sales and the
closing of under-performing stores.

         Our success depends, in large part, on our ability to anticipate and
respond in a timely manner to changing merchandise trends and consumer demands.
Accordingly, any delay or failure by us in identifying and correctly responding
to changing merchandise trends and consumer demand could adversely affect
consumer acceptance of the merchandise in our stores. In addition, we make
decisions regarding merchandise well in advance of each of the seasons in which
such merchandise will be sold. Significant deviations from projected demand for
merchandise would have a material adverse effect on our results of operations
and financial condition, either from lost sales due to insufficient inventory or
lower margins due to the need to mark down excess inventory.

         A material decline in sales and other adverse conditions resulting from
our failure to accurately anticipate changes in merchandise trends and consumer
demands may require us to close under-performing stores. Closing stores would
subject us to additional costs including, but not limited to, taking reserves on
impaired assets, loss of customer goodwill and costs associated with outstanding
lease obligations.

Because of our small store base adverse events could have a greater impact on us
than if we had a larger store base.

         As of December 31, 2001, we operated a chain of 61 stores. The results
achieved to date by our relatively small store base may not be indicative of the
results of the larger number of stores which we intend to operate in existing
and new geographic markets. Because our current and planned stores are located
in the eastern United States, the effect on us of adverse events in this region
(such as weather or unfavorable regional economic conditions) may be greater
than if our stores were more geographically dispersed. Because overhead costs
are spread over a smaller store base, increases in our general and
administrative expenses could affect our profitability more negatively than if
we had a larger store base. Due to our relatively small store base, one or more
unsuccessful new stores, or a decline in sales at an existing store, will have a
more significant effect on our results of operations than would be the case if
we had a larger store base.

                                       13
<PAGE>

A disruption in the operations of our distribution center could have a material
adverse effect on our financial condition and results of operations.

         Our distribution center in suburban Philadelphia handles much of the
distribution for our stores. Our distribution center, and thus our distribution
operations, are vulnerable to damage or interruption from fire, flood, power
loss, break-ins and similar events. We have no formal disaster recovery plan.
The occurrence of unanticipated problems at our distribution center, all of
which may not be covered by insurance, could cause interruptions or delays in
our business which would have a material adverse effect on our financial
condition and results of operations.

We depend on a number of key vendors to supply our merchandise, and the loss of
any one of our key vendors may result in a loss of sales and significantly harm
our operating results.

         Our performance depends on our ability to purchase our merchandise in
sufficient quantities at competitive prices. Although we have many sources of
merchandise, SBAR'S, our largest supplier of merchandise, accounted for
approximately 18% of the aggregate dollar volume of our purchases in 2001. We
depend on SBAR'S to provide us with low-cost merchandise that would be less
efficient for us to obtain directly from other vendors or manufacturers. Our
future success is dependent upon our ability to maintain a good relationship
with SBAR'S and our other principal suppliers. We do not have any long-term
purchase agreements or other contractual assurances of continued supply, pricing
or access to new products, and any vendor or distributor could discontinue
selling to us at any time. We may not be able to acquire desired merchandise in
sufficient quantities or on terms acceptable to us in the future, or be able to
develop relationships with new vendors to replace discontinued vendors. Our
inability to acquire suitable merchandise in the future or the loss of one or
more key vendors and our failure to replace any one or more of them may have a
material adverse effect on our business, results of operation and financial
condition. Our smaller vendors generally have limited resources, production
capacities and operating histories, and some of our vendors have limited the
distribution of their merchandise in the past. These vendors may be susceptible
to cash flow problems, downturns in economic conditions, production
difficulties, quality control issues and difficulty delivering agreed-upon
quantities on schedule. We also cannot assure you that we would be able, if
necessary, to return product to these vendors and obtain refunds of our purchase
price or obtain reimbursement or indemnification from any of our vendors if
their products prove defective.

We face risks associated with sourcing and obtaining merchandise from foreign
sources.

         We have in recent years placed increased emphasis on obtaining floral
and seasonal items from overseas vendors, with approximately 11% of all of our
merchandise being purchased from overseas vendors in 2001. In addition, many of
our domestic suppliers purchase a portion of their merchandise from foreign
sources. Our future success will depend in large measure upon our ability to
maintain our existing foreign supplier relationships and to develop new ones.
While we rely on our long-term relationships with our foreign vendors, we have
no long-term contracts with them. In addition, virtually all of the merchandise
which we purchase from foreign sources is manufactured in the People's Republic
of China. Since adoption of an "open-door policy" in 1978, the Chinese
government has been pursuing economic reform policies, including the
encouragement of foreign trade and investment and greater economic
decentralization. We cannot assure you, however, that China will continue to
pursue these policies. Many of our imported products are subject to duties,
tariffs and quotas that may limit the quantity of some types of goods which we
may import into the United States. Our dependence on foreign imports also makes
us vulnerable to risks associated with products manufactured abroad, including,
among other things:

                                       14
<PAGE>

o    changes in import duties, tariffs and quotas,

o    loss of "most favored nation" trading status by the United States in
     relation to a particular foreign country, including the People's Republic
     of China,

o    work stoppages,

o    delays in shipments,

o    freight cost increases,

o    economic uncertainties, including inflation,

o    foreign government political unrest, and

o    trade restrictions, including the United States retaliating against
     protectionist foreign trade practices.

If any of these or other factors were to render the conduct of business in
particular countries undesirable or impractical, our financial condition and
results of operations could be materially and adversely affected because we
would have difficulty sourcing the merchandise we need to remain competitive. An
interruption or delay in supply from our foreign sources, or the imposition of
additional duties, taxes or other charges on these imports could have a material
adverse effect on our business, financial condition and results of operations
unless and until alternative supply arrangements are secured. Products from
alternative sources may be of lesser quality and/or more expensive than those we
currently purchase, resulting in a loss of sales to us.

Transition to a new distribution center may cause disruption in our operations.

         We are currently negotiating the leasing and construction of a new
450,000 square foot distribution center in suburban Philadelphia which we plan
to open in 2003 to support our growing store base. We intend to expand the new
distribution center to 900,000 square feet by the end of 2005 and use it at that
time as a replacement for our current distribution center. If the systems and
controls we set-up for the new facility do not work as planned, or if the new
facility is not ready at the time we anticipate, our ability to supply our
stores could be impaired which could have a material adverse effect on our sales
and financial performance.

We face risks relating to inventory.

         We depend upon our in-store department managers to reorder merchandise.
The failure of these department managers to accurately respond to inventory
requirements could adversely affect consumer acceptance of the merchandise in
our stores and negatively impact sales which could have a material adverse
effect on our results of operations and financial condition. If we misjudge the
market, we may significantly overstock unpopular products and be forced to take
significant inventory markdowns, which would have a negative impact on our
operating results and cash flow. Conversely, shortages of key items could have a
material adverse impact on our operating results. In addition, we conduct a
physical inventory in our stores once a year, and quarterly results are based on
an estimated gross margin and accrual for estimated inventory shrinkage.

Our management information systems may prove inadequate.

         We depend on our management information systems for many aspects of our
business. Some of our key software has been developed by our own programmers and
this software may not be easily integrated with other software and systems. Our
business will be materially and adversely affected if our management information
systems are disrupted or if we are unable to improve, upgrade, integrate or
expand upon our systems, particularly in light of our intention to significantly
increase the number of stores that we operate and our planned move to a new
distribution center.

                                       15

<PAGE>


Our two largest shareholders will continue to have substantial influence over
matters requiring a shareholder vote.

         Our two largest shareholders own approximately 49% of our outstanding
common stock. These shareholders, therefore, have the ability to exert
significant influence over our board of directors and the outcome of shareholder
votes. If these shareholders vote together, they may have the ability to elect
our board of directors and determine the outcome of all corporate actions
requiring shareholder approval.


Terrorist attacks and threats or actual war may impact all aspects of our
operations, revenues, costs and stock price in unpredictable ways.

         Recent terrorist attacks in the United States, as well as future events
occurring in response or in connection to them, including, without limitation,
future terrorist attacks against United States targets, rumors or threats of
war, actual conflicts involving the United States or its allies or military or
trade disruptions impacting our domestic or foreign suppliers of merchandise,
may impact our operations, including, among other things, causing delays or
losses in the delivery of merchandise to us and decreased sales of the products
we carry. More generally, any of these events could cause consumer confidence
and spending to decrease or result in increased volatility in the United States
and worldwide financial markets and economy. They also could result in a
deepening of any economic recession in the United States or abroad. These events
could also temporarily increase demand for our products as consumers respond by
traveling less and engaging in home-based leisure activities which could
contribute to a temporary increase in our sales which may not be sustainable.
Any of these occurrences could have a significant impact on our operating
results, revenues and costs and may result in the volatility of the market price
for our common stock and on the future price of our common stock.



                                       16
<PAGE>


EXECUTIVE OFFICERS OF THE REGISTRANT

         Our executive officers are as follows:
<TABLE>
<CAPTION>

                 Name                     Age                                Position
--------------------------------------  ------   -----------------------------------------------------------------
<S>                                       <C>       <C>
John E. (Jack) Parker.................    60     Chief Executive Officer and Director
Lawrence H. Fine......................    48     President
Rex A. Rambo..........................    60     Executive Vice President and Chief Operating Officer
Patricia A. Parker....................    59     Executive Vice President, Merchandising and Director
Leslie H. Gordon......................    58     Executive Vice President, Treasurer and Chief Financial Officer
Janet Parker..........................    39     Senior Vice President, Merchandising
</TABLE>

         Mr. Parker, our co-founder, has been Chief Executive Officer and a
director since our inception and was our President from inception until June,
2001. From 1959 to 1984, Mr. Parker worked for the F.W. Woolworth Company in
various management positions, most recently as President and Chief Executive
Officer of the United States General Merchandise Group where he was responsible
for more than 1,000 stores, including the entire domestic chain of Woolworth
retail stores. Mr. Parker is the husband of Patricia A. Parker and the father of
Janet Parker.

         Mr. Fine has served as our President since June 2001. Mr. Fine was most
recently Executive Vice President - General Merchandise Manager for arts and
crafts retailer Michaels Stores, Inc., a position he held since December 1996.
From 1995 until joining Michaels in December 1996, he was Senior Vice President
of Merchandising for Party City Corp. Prior to joining Party City, Mr. Fine held
a variety of merchandising positions with the Jamesway Corporation for nearly 16
years.

         Mr. Rambo has served as our Executive Vice President and Chief
Operating Officer since December 1997. From December 1996 to December 1997, he
was our Executive Vice President, Strategic Development, Merchandising and
Marketing. In 1995 and 1996, Mr. Rambo was Executive Vice President,
Merchandising and Marketing for Michaels Stores, Inc. From 1992 to 1995, Mr.
Rambo served in various management capacities with Montgomery Ward & Co. and its
affiliates, first, from 1992 to 1994, as a Vice President of Montgomery Ward and
most recently as President and Chief Operating Officer of Montgomery Ward's
subsidiary Lechmere, Inc., a retailer of electronics and other home products. In
July 1997, Lechmere, Inc. filed a petition in bankruptcy under Chapter 11. From
1963 to 1992, Mr. Rambo worked for Sears, Roebuck and Co. in various management
capacities, including National Marketing Manager.

         Ms. Patricia Parker has served as our Executive Vice President,
Merchandising since September 1990. From 1985 to 1990, she served as our Vice
President. Ms. Parker is responsible for purchasing all of our floral and
seasonal merchandise and our import purchasing program. Ms. Parker is the wife
of Jack Parker and the mother of Janet Parker.

         Mr. Gordon has served as our Executive Vice President, Treasurer and
Chief Financial Officer since February 1999. From March 1996 to January 1999,
Mr. Gordon served as our Senior Vice President, Treasurer and Chief Financial
Officer. From 1992 to 1995, Mr. Gordon was Senior Vice President, Finance of C &
J Clark America, Inc., a shoe manufacturer, wholesaler and retailer. From 1986
to 1992, Mr. Gordon served as Senior Vice President, Finance, of SILO, Inc., an
electronics retailer.

         Ms. Janet Parker has served as our Senior Vice President, Merchandising
since 1994. From 1990 to 1994, Ms. Parker served as our Vice President of
Administration and from 1985 to 1990, she served as our Accounting Manager. Ms.
Parker is the daughter of Jack and Patricia A. Parker.


                                       17
<PAGE>


ITEM 2.  PROPERTIES.

         As of December 31, 2001, we operated 61 stores in twelve states, all of
which are leased and located within a 700 mile radius of our suburban
Philadelphia distribution center. The number of our stores located in each state
and the city in which each store is located is shown in the following table:
<TABLE>
<CAPTION>

Connecticut (3)            New Hampshire (1)          North Carolina (6)        Rhode Island (1)
---------------            -----------------          ------------------        ----------------
<S>                         <C>                            <C>                      <C>
  New London                 Nashua                     Cary                      Warwick
  Orange                                                Concord
  Plainville               New Jersey (11)              Hickory                 South Carolina (1)
                           ---------------              Raleigh                 ------------------
                             Brick Town                 Wilmington                Greenville
Delaware (2)                 Clifton                    Winston-Salem
------------                 Deptford
  Dover                      Edison                                             West Virginia (1)
  Wilmington                 English Creek                                      -----------------
                             Hamilton                                              Clarksburg
                             Linden                     Pennsylvania (14)
Maryland (4)                 Moorestown                 -----------------
------------                 Parsippany                 Allentown
  Frederick                  Shrewsbury                 Altoona
  Glen Burnie                Watchung                   Bensalem
  Hagerstown                                            Broomall
  White Marsh                                           Exton
                                                        Hanover
Massachusetts (8)                                       Harrisburg
-----------------                                       Lancaster
  Bellingham               New York (9)                 Langhorne
  Brockton                 ------------                 Montgomeryville
  Danvers                    Binghamton                 Muncy
  Framingham                 Latham                     Philadelphia
  Holyoke                    Middletown                 Reading
  Hyannis                    Nanuet                     Scranton
  Medford                    Poughkeepsie
  North Dartmouth            Saratoga Springs
                             Syracuse
                             Utica
                             Yorktown Heights
</TABLE>

         Most store leases have an average initial term of ten years, with three
five-year renewal options, and provide for predetermined escalations in future
minimum annual rent or additional rent contingent upon store sales levels. The
pro rata portion of scheduled rent escalations has been included in other
long-term liabilities in our balance sheet.

         We select store sites on the basis of various factors, including
physical location, demographics, anchor and other tenants, location within the
center, parking and available lease terms. We look for co-tenants that generate
a high rate of shopping traffic, such as specialty value-oriented women's
retailers, leading chain supermarkets, discount chains, home improvement
centers, book stores and domestics stores. We believe our stores are attractive
to developers because they attract high rates of customer traffic and generate
above average net sales per square foot.

         We lease 461,000 square feet of distribution and warehouse facilities,
consisting of our 253,000 square foot distribution center and adjoining 10,000
square foot office complex in suburban Philadelphia and our two nearby satellite
warehouses which total an additional 208,000 square feet. Our distribution
center is leased for a term which expires in March 2005, subject to our option
to renew the term for an additional six years. Our satellite warehouses are
leased for a term which expires in March 2003.



                                       18
<PAGE>

         We are currently negotiating the leasing and construction of a new
distribution center and office complex. We anticipate that this new distribution
center, which will be located near our existing distribution center, will
initially be 450,000 square feet plus 30,000 square feet of office space. We
plan to expand the new distribution center to 900,000 square feet by the end of
2005. We intend to discontinue using our satellite warehouses once the first
450,000 square feet of the new distribution center is completed, which we
anticipate will be sometime in 2003. We will continue to operate our current
distribution center until the second phase of construction of our new
distribution center is completed. We believe that our new facility, when
completed, will enable us to effectively service all of our existing and planned
store locations within a 700 mile radius of the new distribution center.

ITEM 3.  LEGAL PROCEEDINGS.

         From time to time, we are involved in litigation arising in the
ordinary course of our business. None of the pending litigation, in the opinion
of management, is likely to have a materially adverse effect on our results of
operations or financial condition. We maintain general liability insurance in
amounts deemed adequate by management.

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

          No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2001, through the solicitation of proxies or otherwise.



                                       19
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Our common stock is quoted on the Nasdaq National Market and trades
under the symbol "ACMR." The following table sets forth the high and low sales
prices per share of our common stock as reported on the Nasdaq National Market
for the periods indicated.
<TABLE>
<CAPTION>

                                                               High              Low
             Year Ended December 31, 2000                     ------           -------
<S>                                                            <C>               <C>
First Quarter........................................          $7.94             $4.63
Second Quarter.......................................           7.88              4.50
Third Quarter........................................           9.50              6.31
Fourth Quarter.......................................           8.63              5.75

             Year Ended December 31, 2001
First Quarter........................................          $9.44             $7.94
Second Quarter.......................................          15.40              8.63
Third Quarter........................................          19.05             11.65
Fourth Quarter.......................................          34.00             15.15

</TABLE>

         The number of record holders of our common stock as of December 31,
2001 was approximately 87.

         Since becoming a public company we have never declared or paid any cash
dividends on our common stock. We currently intend to retain our future
earnings, if any, to finance the expansion of our business and do not expect to
pay any cash dividends in the foreseeable future.



                                       20
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA.

         The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes included elsewhere herein. The statement of income data for the years
ended December 31, 1999, 2000 and 2001 and the balance sheet data at December
31, 2000 and 2001 are derived from our audited consolidated financial statements
appearing elsewhere herein. The statement of income data for the years ended
December 31, 1997 and 1998 and the balance sheet data at December 31, 1997, 1998
and 1999 are derived from our audited consolidated financial statements not
included herein.
<TABLE>
<CAPTION>

                                                           Year Ended December 31,
                                             ---------------------------------------------------
                                                1997      1998       1999       2000      2001
                                             --------    ------     -------   -------    -------
                                             (In thousands, except per share and operating data)
<S>                                            <C>       <C>        <C>        <C>       <C>
Statement of Income Data:
  Net sales................................    $138,056  $187,005   $222,998   $262,057  $332,413
  Gross margin.............................      51,229    68,278     79,920     96,207   124,098
  Selling, general and administrative
  expenses.................................      41,971    60,214     70,336     83,516   105,447
  Store pre-opening expenses...............       1,477     2,234        609      1,928     2,518
  Income from operations...................       7,781     5,830      8,975     10,763    16,133
  Net income...............................       3,992     3,935      5,664      6,557     9,507
  Net income per share, diluted............     $  0.79   $  0.52   $   0.76    $  0.88    $ 1.23

  Weighted average shares outstanding,
  diluted..................................       5,078     7,517      7,405      7,444     7,753

Pro Forma  Income Data: (1)
  Pro forma net income.....................     $ 4,431
  Pro forma net income per share...........     $  0.87
  Pro forma weighted average
  shares outstanding.......................       5,093


Balance Sheet Data (as of):
  Working capital..........................     $40,974   $42,721   $ 46,625   $ 47,168  $ 56,422
  Total assets.............................      66,067    82,357     90,617    107,392   123,811
  Total debt...............................          --     1,918      1,568      1,201     3,174
  Shareholders' equity.....................      47,086    51,171     56,972     63,681    73,727

Other Data:
  Cash flows from operating activities.....     $ 1,452   $(4,445)  $  9,808   $  6,709  $  6,768
  EBITDA (2) ..............................       9,242     8,032     11,874     14,592    21,353
  Number of stores open at end of period...          25        37         40         50        61
  Net sales per total square foot (3)......     $   326   $   302   $    271   $    271  $    273
  Average net sales per store (000's) (3)..     $ 6,728   $ 6,329   $  5,915   $  5,919  $  6,070
  Comparable store sales increase (4)......          4%        3%         6%         3%        8%
</TABLE>

-------------
(1)  Until October 1997, we were an S Corporation and, accordingly, we were not
     subject to federal and certain state corporate income taxes. The pro forma
     information has been computed as if we were subject to federal and all
     applicable state corporate income taxes for 1997, assuming the tax rate
     that would have applied had we been taxed as a C Corporation.
(2)  EBITDA is defned as earnings before interest, taxes, depreciation and
     amortization. EBITDA is not intended to represent cash flow from operations
     as defined by accounting principles generally accepted in the United States
     of America and should not be considered as an alternative to net income as
     an indicator of operating performance or to cash flows as a measure of
     liquidity.
(3)  Includes only stores open during the entire period.
(4)  Stores are added to the comparable store base at the beginning of their
     fourteenth full month of operation.

                                       21
<PAGE>


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

Overview

         We are a rapidly growing specialty retailer offering a vast selection
of arts, crafts and floral merchandise to a broad demographic of consumers. Our
target customers are primarily women between the ages of 25 and 55 who are
looking for ideas to decorate their homes, create handmade items, or otherwise
engage in arts and crafts activities. We have grown from 17 stores in January
1997 to 61 stores in December 2001. Our stores are located in the eastern United
States from New England to the Carolinas.

         We established our first store in Moorestown, New Jersey in 1984 and
grew to five stores by the end of 1993. We added a total of 12 additional stores
in 1994 and 1995. In 1995, we began implementing an aggressive expansion plan
and built our infrastructure to position us for that growth. By the end of 1996,
we had recruited experienced senior retail executives in the areas of
operations, merchandising and finance, and made key additions and changes in
other areas such as buying, information systems, human resources and real
estate. From 1997 through 2001 we continued to strengthen and expand our
management team including the addition of Lawrence H. Fine as our President in
June 2001. We also continued to develop our operating systems, the most
important of which was our POS system implemented in August 2000.

         In 1996, we leased a new 131,000 square foot distribution center and
office complex in suburban Philadelphia, which was expanded to 263,000 square
feet in 1998. We also developed an automated ordering system using EDI to link
us electronically with most of our vendors and developed a real estate program
to accommodate our expansion plan. In 1997, we received financing for our growth
through an initial public offering of our common stock with net proceeds, after
the payment of outstanding debt, of approximately $16 million. In 1997 and 1998,
we continued implementing our expansion strategy by opening a total of 20 new
stores.

         In 1998 we did not meet our profit objectives. As a result, in 1999, we
made a decision to concentrate on improving the profitability of our existing
store base and to open only three stores. We revamped our store opening
procedures, prepared our systems for further expansion, and strengthened our
merchandising with improved communication between our store management and our
buyers.

         With the changes we made in 1999, we re-established our expansion plan
and opened ten new stores in 2000 and 11 new stores in 2001. During the next two
years, we intend to increase our store base by approximately 20% per year, all
within 700 miles of our suburban Philadelphia distribution center, an area
encompassing approximately 45% of the United States population. We believe we
can operate at least 120 stores in this area without significantly diluting
sales in our existing stores. To accommodate this growth, we are in the process
of negotiating the leasing and construction of a new distribution center which
will initially be 450,000 square feet plus 30,000 square feet of office space
and will be located near our existing distribution center. We plan to expand the
new distribution center to 900,000 square feet by the end of 2005 and then
vacate our existing distribution center.



                                       22
<PAGE>

Results of Operations

         The following table sets forth, for the periods indicated, selected
statement of operations data expressed as a percentage of net sales:

<TABLE>
<CAPTION>

                                                                Year Ended December 31,
                                                            --------------------------------
                                                             1999         2000          2001
                                                            ------       ------        ------
<S>                                                         <C>          <C>           <C>
Net sales.............................................      100.0%       100.0%        100.0%
Cost of sales.........................................       64.2         63.3          62.7
                                                            -----        -----         -----
Gross margin..........................................       35.8         36.7          37.3
Selling, general and administrative expenses..........       31.5         31.9          31.7
Store pre-opening expenses............................        0.3          0.7           0.7
                                                            -----        -----         -----
Income from operations................................        4.0          4.1           4.9
Interest expense(income), net.........................       (0.0)         0.1           0.2
                                                            -----        -----         -----
Income before income taxes............................        4.0          4.0           4.7
Provision for income taxes............................        1.5          1.5           1.8
                                                            -----        -----         -----
Net income............................................        2.5%         2.5%          2.9%
                                                            =====        =====         =====
</TABLE>

2001 Compared to 2000

         Net Sales. Net sales increased $70.4 million, or 26.8%, to $332.4
million in 2001 from $262.1 million in 2000. This increase resulted from (i) net
sales of $28.9 million from eleven new stores opened in 2001, (ii) net sales of
$19.9 million from stores opened in 2000 which were not included in the 2000
comparable store base, and (iii) a comparable store sales increase of $21.6
million, or 8%. Stores are added to the comparable store base at the beginning
of the fourteenth full month of operation.

         Gross Margin. Gross margin is net sales minus the cost of sales and
certain distribution and purchasing costs. The gross margin increased to 37.3%
of net sales in 2001 from 36.7% in 2000. The increase is due to changes in our
product mix, cost reductions obtained from our vendors and from leveraging our
buying and distribution expense over a larger store base, offset somewhat by
higher freight costs.

                                       23
<PAGE>

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses include (i) direct store level expenses, including rent
and related operating costs, payroll, advertising, depreciation and other direct
costs, and (ii) corporate level costs not directly associated with or allocable
to cost of sales including executive salaries, accounting and finance, corporate
information systems, office facilities and other corporate expenses. Selling,
general and administrative expenses increased $21.9 million, or 26.3%, in 2001
to $105.4 million from $83.5 million in 2000. Of the $21.9 million increase,
$15.8 million was attributable to the stores opened in 2001 which were not open
during 2000 and the stores opened in 2000 which were not included in the 2000
comparable store base. Of the remainder, $3.9 million is due to increases in the
comparable stores and $2.2 million is attributable to the increase in corporate
costs to support our growth. As a percentage of net sales, selling, general and
administrative costs decreased to 31.7% of net sales in 2001 from 31.9% of net
sales in 2000. This decrease is primarily due to leveraging store and central
costs over a greater sales base.

         Store Pre-Opening Expenses. We expense store pre-opening costs as they
are incurred. Pre-opening expenses for the 11 new stores opened in 2001, and two
stores which were relocated during the year amounted to $2.5 million. In 2000,
we opened ten new stores and incurred pre-opening expenses of $1.9 million.

         Interest Expense. Interest expense was $781,000 for 2001, an increase
of $436,000 from 2000. The increase is due to the use of short term borrowings
to fund the new stores added in 2000 and 2001.

         Interest Income. Interest income was $106,000 in 2001, a decrease of
$52,000 from 2000. The decrease was due to a lower balance of cash investments
as the proceeds of our 1997 initial public offering of common stock were used to
fund our growth.

         Income Taxes. Our effective income tax rate was 38.5% for 2001 and
38.0% for 2000.

2000 Compared to 1999

         Net Sales. Net sales increased $39.1 million, or 17.5%, to $262.1
million in 2000 from $223.0 million in 1999. This increase resulted from (i) net
sales of $25.2 million from ten new stores opened during 2000, (ii) net sales of
$7.5 million from stores opened in 1999 not included in the 1999 comparable
store base and (iii) a comparable store sales increase of $6.4 million, or 3%.

         Gross Margin. Gross margin increased to 36.7% of net sales in 2000 from
35.8% in 1999 mainly due to cost reductions obtained from both domestic and
foreign suppliers and also because of fewer seasonal markdowns in the fourth
quarter of 2000 as compared to the fourth quarter of 1999.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $13.2 million, or 18.7%, in 2000 to $83.5
million from $70.3 million in 1999. Of the $13.2 million increase, $10.2 million
was attributable to the ten stores open during 2000 which were not open during
1999 and the stores opened in 1999 not included in the 1999 comparable store
base. The remainder of the increase is attributable to $1.6 million in operating
expenses in the comparable stores and $1.4 million in corporate costs. The
increase in corporate costs is the result of continued expansion of our
infrastructure to support our growth. As a percentage of sales, selling, general
and administrative costs increased to 31.9% of net sales in 2000 from 31.5% of
net sales in 1999. This increase is primarily due to the new stores which, on
average, initially have higher operating costs as a percent of sales than older
stores.

         Store Pre-Opening Expenses. Pre-opening expenses for the ten new stores
opened in 2000 amounted to $1.9 million. In 1999, we opened three stores and had
pre-opening expenses of $609,000.

         Interest Expense. Interest expense was $345,000 for 2000, an increase
of $173,000 from 1999. This increase was the result of greater short-term bank
borrowings to fund the new stores added in 2000.

                                       24
<PAGE>

         Interest Income. Interest income was $158,000 in 2000, a decrease of
$53,000 from 1999. The decrease was due to a lower balance of cash investments
as the proceeds of our 1997 initial public offering of common stock were used to
fund our growth.

         Income Taxes. Our effective tax rate was 38.0% for 2000, which was 0.8%
greater than the effective rate in 1999 due to the level of income which moved
us into a higher federal income tax bracket.

Quarterly Results and Seasonality

         The following tables set forth our unaudited quarterly operating
results for our eight most recent quarterly periods and the number of stores
open at the end of each period (dollars in thousands, except share and store
data).
<TABLE>
<CAPTION>
                                                          2000                                2001
                                          ------------------------------------------------------------------------
                                           First   Second     Third    Fourth    First  Second    Third    Fourth
                                          Quarter  Quarter   Quarter   Quarter  Quarter Quarter  Quarter   Quarter
                                          ------------------------------------------------------------------------
<S>                                       <C>      <C>        <C>      <C>     <C>      <C>      <C>      <C>
Net sales............................     $52,783  $55,186    $60,906  $93,182 $66,423  $67,131  $76,220  $122,639
Cost of sales........................      33,374   34,919     38,550   59,007  41,978   42,264   47,951    76,122
                                          ------------------------------------------------------------------------
  Gross margin.......................      19,409   20,267     22,356   34,175  24,445   24,867   28,269    46,517
  Selling, general and administrative      18,597   19,920     21,778   23,221  23,438   24,718   26,936    30,355
  Pre-opening expense................         645      311        576      396   1,075      374      625       444
                                          ------------------------------------------------------------------------
Income (loss) from operations........         167       36          2   10,558    (68)    (225)      708    15,718
  Interest expense (income), net.....        (66)       12        149       92      32      149      297       197
                                          ------------------------------------------------------------------------
Income (loss) before income taxes....         233       24      (147)   10,466   (100)    (374)      411    15,521
Income tax expense (benefit).........          89        9       (56)    3,977    (38)    (141)      156     5,974
                                          ------------------------------------------------------------------------
Net income (loss)....................         144       15       (91)    6,489    (62)    (233)      255     9,547
                                          ========================================================================
Net income (loss)  per share, diluted     $  0.02   $ 0.00    $(0.01)   $ 0.87 $(0.01)  $(0.03)   $ 0.03    $ 1.20
Weighted average shares outstanding..       7,411    7,435      7,472    7,463   7,423    7,429    7,788     7,957

Number of stores open at end of period         42       45         48       50      53       55       58        61
Comparable store sales increase......          3%       7%         5%     (1%)      4%       4%       7%       15%

</TABLE>

         Due to the importance of our peak selling season, which includes
Fall/Halloween, Thanksgiving and Christmas, the fourth quarter has historically
contributed, and is expected to continue to contribute, virtually all of our
profitability for the entire year. As a result, any factors negatively affecting
us during the fourth quarter of any year, including adverse weather and
unfavorable economic conditions, would have a material adverse effect on our
results of operations for the entire year.

         Our quarterly results of operations also may fluctuate based upon such
factors as the length of holiday seasons, the date on which holidays fall, the
number and timing of new store openings, the amount of store pre-opening
expenses, the amount of net sales contributed by new and existing stores, the
mix of products sold, the amount of sales returns, the timing and level of
markdowns and other competitive factors.

         Our success depends, in large part, on our ability to anticipate and
respond in a timely manner to changing merchandise trends and consumer demands.
Accordingly, any delay or failure by us in identifying and correctly responding
to changing merchandise trends and consumer demand could adversely affect
consumer acceptance of the merchandise in our stores. In addition, we make
decisions regarding merchandise well in advance of each of the seasons in which
such merchandise will be sold. Significant deviations from projected demand for
merchandise would have a material adverse effect on our results of operations
and financial condition, either from lost sales due to insufficient inventory or
lower margins due to the need to mark down excess inventory.

Liquidity and Capital Resources

         Our cash is used primarily for working capital to support our inventory
requirements and fixtures and equipment, pre-opening expenses and beginning
inventory for new stores. In recent years, we have financed our operations and
new store openings primarily with cash from operations, the net proceeds we
received from our initial public offering in 1997 and with borrowings under bank
financing agreements.

         At December 31, 2001 and 2000, our working capital was $56.4 million
and $47.2 million, respectively. During 2001, 2000 and 1999, cash of $6.8
million, $6.7 million and $9.8 million was generated by operations,
respectively. In these three periods, $12.9 million, $13.5 million and $4.9
million of cash, respectively, was used to increase inventory levels to support
both new and existing stores. In these periods, part of the inventory increase
was financed through increases in accounts payable of $1.3 million, $8.1 million
and $2.6 million, respectively.

                                       25
<PAGE>

         Net cash used in investing activities during 2001, 2000 and 1999 was
$8.7 million, $10.6 million and $1.7 million, respectively. This use of cash was
for capital expenditures of $8.7 million in 2001, $10.6 million in 2000, and
$5.5 million in 1999. In 2001, capital expenditures related principally to new
store openings. In 2000, capital expenditures related principally to new store
openings and the implementation of the POS system. In 1999 capital expenditures
included $2.5 million for new store openings and for major renovations in
existing stores and $2.0 million relating to POS and other systems development.
In 1999, we received $3.9 million in cash upon the maturity of investment grade
securities held by us. In 2002, we expect to spend approximately $12.0 million
on capital expenditures, which includes approximately $8.0 million for new store
openings, and the remainder for remodeling existing stores, upgrading systems in
existing stores, warehouse equipment and corporate systems development. There
are no other material commitments for capital expenditures.

         In the year ended December 31, 2001, net cash provided by financing
activities was $2.4 million, principally as a result of $2.8 million of proceeds
received from equipment financing.

         On August 3, 2001, we replaced our $25 million credit facility with a
new $50 million three year revolving credit agreement with KeyBank National
Association, on its own behalf and as administrative agent, and First Union
National Bank. Borrowings under this credit facility accrue interest at rates
that will vary between LIBOR plus 150 basis points and LIBOR plus 200 basis
points, depending on the fixed charge coverage ratio at the time of borrowing.
The borrowings under our credit facility are secured by all of our assets. At
December 31, 2001, based upon the eligibility criteria contained in the
agreement, the maximum borrowings available were $43.3 million.

         We believe that cash generated from our operations and available
borrowings under our credit facility, will be sufficient to finance our working
capital and capital expenditure requirements for at least the next 12 months.

         We lease our retail stores, distribution center, satellite warehouse
facilities and corporate headquarters under noncancelable operating leases. At
December 31, 2001 our total obligations under these operating leases was $160.7
million. In addition, we had capital lease obligations of $3.2 million at
December 31, 2001. The following table reflects as of December 31, 2001 the
payments due for the periods indicated under our capital and operating leases.
<TABLE>
<CAPTION>

                                           Payments Due By Period ($000)
    Contractual       -----------------------------------------------------------------------------------------------
    Obligations             Total         Less than 1 Year       1-3 Years          4-5 Years         After 5 Years
---------------------------------------------------------------------------------------------------------------------
<S>                       <C>                 <C>                 <C>
Capital Lease
Obligations.......        $  3,174            $ 1,329             $ 1,845              --                  --
Operating
Leases............        $160,656            $18,710             $52,809            $31,995             $57,142
</TABLE>

Inflation

         Management does not believe that inflation has had a material effect on
its financial condition or results of operations during the past three years.


Recent Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities, which requires that all
derivative financial instruments be recognized as either assets or liabilities
in the balance sheet. SFAS No. 133, which was effective for our first quarter of
2001, has not had a material impact on our consolidated results of operation,
financial position or cash flows.

                                       26
<PAGE>

         In July 2001, FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles, effective January 1, 2002. We do not believe that the adoption of
these pronouncements will have a material impact on our financial statements.
FASB also recently issued Statement No. 143, "Accounting for Asset Retirement
Obligations" and Statement No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." Statement No. 143 requires the recognition of a liability
for the estimated cost of disposal as part of the initial cost of a long-lived
asset. Statement No. 144 supersedes Statement No. 121 to supply a single
accounting approach for measuring impairment of long-lived assets, including
segment of a business accounted for as a discontinued operation or those to be
sold or disposed of other than by sale. We must adopt Statement No. 143 in 2003
and Statement No. 144 in 2002. We believe that adopting these pronouncements on
our financial statements will not have a material impact on our consolidated
results of operation, financial position or cash flows.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                         A.C. MOORE ARTS & CRAFTS, INC.

                                                                          Page

Report of Independent Accountants.....................................      28

Consolidated Balance Sheets at December 31, 2000 and 2001.............      29

Consolidated Statements of Income for each of the three years
         in the period ended December 31, 2001........................      30

Consolidated Statements of Changes in Shareholders' Equity for each of
         the three years in the period ended December 31, 2001........      31

Consolidated Statements of Cash Flows for each of the three
         years in the period ended December 31, 2001..................      32

Notes to Consolidated Financial Statements............................      33



                                       27
<PAGE>


                        Report of Independent Accountants


To the Board of Directors and Shareholders of
A.C. Moore Arts & Crafts, Inc.

         In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of A.C. Moore Arts & Crafts, Inc. and its subsidiaries at December 31,
2001 and 2000, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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 the opinion expressed above.



PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
February 15, 2002


                                       28
<PAGE>



                         A.C. MOORE ARTS & CRAFTS, INC.
                           CONSOLIDATED BALANCE SHEETS

                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                                          December 31,
                                                                   ---------------------------
                                                                      2000             2001
                                                                   ----------       ----------
<S>                                                                <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents.............................          $   10,310       $   10,818
   Accounts receivable...................................                 830              703
   Inventories...........................................              72,786           85,674
   Prepaid expenses and other current assets.............               1,222              823
                                                                   ----------       ----------
                                                                       85,148           98,018

Property and equipment, net..............................              21,517           24,969
Other assets.............................................                 727              824
                                                                   ----------       ----------
                                                                   $  107,392       $  123,811
                                                                   ==========       ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of equipment leases...................          $      389       $    1,329
   Trade accounts payable................................              26,237           23,322
   Accrued payroll and payroll taxes.....................               3,822            5,098
   Accrued expenses......................................               4,274            7,247
   Income taxes payable..................................               3,258            4,600
                                                                   ----------       ----------
                                                                       37,980           41,596
                                                                   ----------       ----------
Long-term liabilities:
   Capitalized equipment leases, less current portion....                 812            1,845
   Deferred tax liability................................               2,320            3,427
   Other long-term liabilities...........................               2,599            3,216
                                                                   ----------       ----------
                                                                        5,731            8,488
                                                                   ----------       ----------
                                                                       43,711           50,084
                                                                   ----------       ----------
Commitments and contingencies

Shareholders' equity:
   Preferred stock, no par value, 5,000,000 shares
   authorized, none issued...............................                  --               --

   Common stock, no par value, 20,000,000 shares authorized,
     7,415,333 shares at December 31, 2000 and 7,466,006
     shares at December 31, 2001.........................              43,268           43,807

   Retained earnings.....................................              20,413           29,920
                                                                   ----------       ----------
                                                                       63,681           73,727
                                                                   ----------       ----------
                                                                   $  107,392       $  123,811
                                                                   ==========       ==========

</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       29
<PAGE>


                         A.C. MOORE ARTS & CRAFTS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME

                  (dollars in thousands except per share data)
<TABLE>
<CAPTION>

                                                                December 31,
                                                ---------------------------------------
                                                   1999           2000           2001
                                                ----------    -----------    ----------

<S>                                             <C>           <C>            <C>
Net sales..................................     $  222,998    $   262,057    $  332,413
Cost of sales (including buying and
   distribution costs).....................        143,078        165,850       208,315
                                                ----------    -----------    ----------
Gross margin...............................         79,920         96,207       124,098
Selling, general and administrative
   expenses................................         70,336         83,516       105,447

Store pre-opening expenses.................            609          1,928         2,518
                                                ----------    -----------    ----------
Income from operations.....................          8,975         10,763        16,133
   Interest expense........................            172            345           781
   Interest income.........................           (211)          (158)         (106)
                                                ----------    -----------    ----------
Income before income taxes.................          9,014         10,576        15,458
  Provision for income taxes ..............          3,350          4,019         5,951
                                                ----------    -----------    ----------
Net income ................................     $    5,664    $     6,557    $    9,507
                                                ==========    ===========    ==========

Basic net income per share.................     $     0.76    $      0.89    $     1.28
                                                ==========    ===========    ==========

Weighted average shares outstanding........      7,405,000      7,405,897     7,437,199

Diluted net income per share...............     $     0.76    $      0.88    $     1.23
                                                ==========    ===========    ==========

Weighted average shares outstanding
   plus impact of stock options............      7,405,000      7,444,113     7,752,645

</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       30
<PAGE>


                         A.C. MOORE ARTS & CRAFTS, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                        (in thousands except share data)

<TABLE>
<CAPTION>
                                                                          Common   Retained
                                                            Shares         Stock   Earnings       Total
                                                           ---------     -------   --------     --------
<S>                                                          <C>            <C>         <C>         <C>
Balance, December 31, 1998...........................      7,405,000     $42,979    $ 8,192      $51,171
Net income...........................................             --          --      5,664        5,664
Compensation expense related to stock options........             --         137         --          137
                                                           ---------     -------    -------      -------
Balance, December 31, 1999...........................      7,405,000      43,116     13,856       56,972
Net income...........................................             --          --      6,557        6,557
Compensation expense related to stock options........             --         102         --          102
Exercise of stock options............................         10,333          50         --           50
                                                           ---------     -------    -------      -------
Balance, December 31, 2000...........................      7,415,333      43,268     20,413       63,681
Net income...........................................             --          --      9,507        9,507
Exercise of stock options ...........................         50,673         439         --          439
Tax benefit from exercise of stock options...........             --         100         --          100
                                                           ---------     -------    -------      -------
Balance, December 31, 2001 ..........................      7,466,006     $43,807    $29,920      $73,727
                                                           =========     =======    =======      =======
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                       31
<PAGE>


                         A.C. MOORE ARTS & CRAFTS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                         -------------------------------
                                                           1999        2000       2001
                                                         -------     --------   --------
<S>                                                      <C>        <C>        <C>
Cash flows from operating activities:
Net income ..........................................    $  5,664   $   6,557  $   9,507
Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization.....................       2,899       3,829      5,220
   Compensation expense related to stock options.....         137         102         --
   Provision for deferred income taxes...............         739         600      1,107
   Changes in assets and liabilities:
     Accounts receivable.............................         378        (339)       127
     Inventories.....................................      (4,948)    (13,459)   (12,888)
     Prepaid expenses and other current assets.......         177        (319)       399
     Accounts payable, accrued payroll and payroll
       taxes and accrued expenses....................       2,582       8,085      1,334
     Income taxes payable............................       1,791       1,226      1,342
     Other long-term liabilities.....................         416         522        617
     Other...........................................         (27)        (95)         3
                                                         --------   ---------   --------
Net cash provided by operating activities............       9,808       6,709      6,768
                                                         --------   ---------   --------
Cash flows from investing activities:
   Capital expenditures..............................      (5,526)    (10,635)    (8,672)
   Proceeds from maturity of marketable securities...       3,865          --         --
                                                         --------   ---------   --------
Net cash (used in) investing activities..............      (1,661)    (10,635)    (8,672)
                                                         --------   ---------   --------
Cash flows from financing activities:
   Proceeds from exercise of stock options...........          --          50        439
   Repayment of bank overdraft.......................      (2,719)         --         --
   Proceeds from line of credit......................       9,500       9,750     20,250
   Repayment of line of credit.......................      (9,500)     (9,750)   (20,250)
   Proceeds from equipment financing.................          --          --      2,791
   Repayment of equipment financing..................        (350)       (367)      (818)
                                                         --------   ---------   --------
Net cash provided by (used in) financing activities..      (3,069)       (317)     2,412
                                                         --------   ---------   --------
Net increase (decrease) in cash and cash equivalents.       5,078      (4,243)       508
Cash and cash equivalents at beginning of year.......       9,475      14,553     10,310
                                                         --------   ---------   --------
Cash and cash equivalents at end of year.............    $ 14,553   $  10,310  $  10,818
                                                         ========   =========  =========
Supplemental cash flow information:..................
Cash paid during the year for:
   Interest .........................................    $    171   $     339  $     756
                                                         ========   =========  =========
   Income taxes .....................................    $    701   $   2,249  $   3,399
                                                         ========   =========  =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       32
<PAGE>
                         A.C. MOORE ARTS & CRAFTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Organization and basis of presentation. A.C. Moore Arts & Crafts, Inc. became a
holding company in July 1997 by incorporating in Pennsylvania and exchanging its
common stock for all of the capital stock of A.C. Moore Inc. held by its
shareholders. The consolidated financial statements include the accounts of A.C.
Moore Arts & Crafts, Inc. and its wholly owned subsidiaries (collectively the
"Company"). All intercompany accounts and transactions have been eliminated. As
of December 31, 2001, the Company operated a 61-store chain of retail arts and
crafts stores in the eastern region of the United States.

Cash and cash equivalents. Cash and cash equivalents are stated at cost, which
approximates market value. Cash equivalents include only securities having an
original maturity of three months or less.

Concentration of credit risk. Financial instruments, which potentially subject
the Company to concentrations of credit risk, are cash and cash equivalents. The
Company limits its credit risk by placing its investments in highly rated,
highly liquid funds.

Inventories. Inventories, which consist of general consumer merchandise held for
sale, are stated at the lower of cost or market. The cost of store inventories
is determined by the retail inventory method. Warehouse inventories are
determined on a first-in, first-out basis. The Company includes as inventoriable
costs certain indirect costs, principally purchasing, warehousing and
distribution.

Property and equipment. Property and equipment are stated at cost. Depreciation
is provided on a straight-line basis over the estimated useful lives of the
assets. Furniture, fixtures and equipment are depreciated over periods of five
to ten years and leasehold improvements are depreciated over the shorter of
their estimated useful lives or the term of the related lease. Maintenance and
repairs are charged to operations as incurred and major improvements are
capitalized. Amortization of assets recorded under capital leases is included in
depreciation expense.

The Company periodically reviews long-lived assets for impairment by comparing
the carrying value of assets with their estimated future undiscounted cash
flows. If it is determined that an impairment loss has occurred, the loss would
be recognized during that period. The impairment loss is calculated as the
difference between assets carrying values and the present value of estimated net
cash flows or comparable market values, giving consideration to recent operating
performance and pricing trends. The Company had no impairment losses related to
long-lived assets during 1999, 2000 or 2001.

Revenue recognition. Revenue is recognized at point of retail sale.

Store pre-opening expenses. Direct incremental costs incurred to prepare a store
for opening are charged to expense as incurred.

Advertising costs. The costs incurred for advertising are expensed the first
time the advertising takes place and are offset by reimbursements received under
cooperative advertising programs with certain vendors. Net advertising expense
during 1999, 2000 and 2001 was $6,305,000, $6,518,000 and $8,173,000,
respectively.

Fair value of financial investments. The carrying amounts of cash, cash
equivalents and marketable securities, accounts receivable, other current
assets, accounts payable, accrued expenses and other liabilities approximate
fair value because of the short maturity of these instruments. The carrying
amount of capital lease obligations approximate fair value, as the interest
rates on the obligations approximate rates currently available to the Company
for obligations with similar terms and remaining maturities.

                                       33
<PAGE>
                         A.C. MOORE ARTS & CRAFTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the amount
of revenues and expenses during the reporting period. Differences from those
estimates, if any, are recorded in the period they become known.

Stock option plan. The Company accounts for its employee stock options using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25). Compensation cost for stock
options is measured as the excess of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock.

Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board, or FASB, issued Statement of Financial Accounting Standards, or
SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities,
which requires that all derivative financial instruments be recognized as either
assets or liabilities in the balance sheet. SFAS No. 133, which was effective
for our first quarter of 2001, has not had a material impact on our consolidated
results of operation, financial position or cash flows.

In July 2001, FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles, effective January 1, 2002. We do not believe that the adoption of
these pronouncements will have a material impact on our financial statements.
FASB also recently issued Statement No. 143, "Accounting for Asset Retirement
Obligations" and Statement No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." Statement No. 143 requires the recognition of a liability
for the estimated cost of disposal as part of the initial cost of a long-lived
asset. Statement No. 144 supersedes Statement No. 121 to supply a single
accounting approach for measuring impairment of long-lived assets, including
segment of a business accounted for as a discontinued operation or those to be
sold or disposed of other than by sale. We must adopt Statement No. 143 in 2003
and Statement No. 144 in 2002. We believe that adopting these pronouncements on
our financial statements will not have a material impact on our consolidated
results of operation, financial position or cash flows.

2. Earnings Per Share

The following is a reconciliation of the denominators of the basic and diluted
earnings per share computations:
<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                                                -----------------------------------
                                                                1999           2000            2001
                                                                ----           ----            ----
                                                                          (in thousands)
<S>                                                             <C>             <C>            <C>
Basic................................................           7,405           7,406          7,437
Effect of dilutive options...........................              --              38            316
                                                                -----           -----          -----
Diluted..............................................           7,405           7,444          7,753
                                                                =====           =====          =====

</TABLE>

                                       34
<PAGE>
                         A.C. MOORE ARTS & CRAFTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Options whose exercise price is in excess of the average market price have not
been considered as dilutive options.


3. Property and Equipment

Property and equipment consists of:
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                              -----------------------
                                                                                2000           2001
                                                                              --------       --------
                                                                                   (in thousands)
<S>                                                                           <C>            <C>
Furniture, fixtures and equipment...................................          $ 29,725       $ 37,066
Leasehold improvements..............................................               599            548
Equipment for future stores.........................................             2,489            542
Capital leases......................................................             1,924          4,715
                                                                              --------       --------
                                                                                34,737         42,871
Less:  Accumulated depreciation and amortization....................            13,220         17,902
                                                                              --------       --------
                                                                              $ 21,517       $ 24,969
                                                                              ========       ========
</TABLE>




4 Financing Agreement

On August 3, 2001 the Company entered into a new $50 million three year
revolving credit agreement with KeyBank National Association, agent, and First
Union National Bank (the "Credit Facility"). Borrowings under the credit
agreement will bear interest rates that will vary between LIBOR plus 150 basis
points and LIBOR plus 200 basis points, depending on the fixed charge coverage
ratio. The maximum amount of borrowings under this facility is equal to 50% of
the value of inventory as defined in the agreement. The agreement is
collateralized by all of the Company's assets.

The Credit Facility contains certain financial covenants including those related
to the ratio of funded debt to total capital, a fixed charge coverage ratio, and
a capital expenditures limitation. The Company was in compliance with this
agreement at December 31, 2001. At December 31, 2001, interest was based on
LIBOR plus 175 basis points.

There were no amounts outstanding at December 31, 2001 under this revolving line
of credit nor were there amounts outstanding at December 31, 2000 under the
previous revolving line of credit. The average outstanding borrowings in 2001
under these agreements was $10.4 million.

5 Income Taxes

The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax liabilities and assets are recognized for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. As of December 31,
2000 and 2001, the deferred tax liability of $2,320,000 and $3,427,000,
respectively is comprised principally of temporary differences related to
depreciation.

                                       35
<PAGE>

                         A.C. MOORE ARTS & CRAFTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A reconciliation of income tax expense at the federal income tax rate to the
income tax provision is as follows:
<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                                              ----------------------------------------
                                                               1999             2000           2001
                                                              --------        --------       ---------
                                                                          (in thousands)
<S>                                                           <C>             <C>             <C>
United States federal taxes at statutory rate........         $  3,065        $  3,701        $  5,410
State and local taxes, net...........................              193             206             514
Non-deductible stock option expense..................               47              31              --
Other................................................               45              81              27
                                                              --------        --------        --------
Income tax provision.................................         $  3,350        $  4,019        $  5,951
                                                              ========        ========        ========
</TABLE>

The income tax provision consists of the following:
<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                                              -----------------------------------------
                                                                 1999            2000            2001
                                                              ---------        --------        --------
<S>                                                            <C>             <C>             <C>
Current tax expense:
  Federal..............................................        $  2,566        $  3,254        $  4,253
  State................................................              45             165             591
                                                               --------        --------        --------
     Total current.....................................           2,611           3,419           4,844
                                                               --------        --------        --------
Deferred tax expense:
  Federal..............................................             526             448             909
  State..................................................           213             152             198
                                                               --------        --------        --------
     Total deferred....................................             739             600           1,107
                                                               --------        --------        --------
     Total income tax provision........................        $  3,350        $  4,019        $  5,951
                                                               ========        ========        ========

</TABLE>


6. Shareholders' Equity

The Company has authorized 5,000,000 shares of undesignated preferred stock. The
Company may issue preferred stock in one or more series by vote of its Board of
Directors having the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices and liquidation preferences
approved by the Board of Directors.

At December 31, 2001, under the Company's Employee, Director and Consultant
Stock Option Plan (the "1997 Plan"), the Company may grant up to 1,000,000
shares of common stock. Stock options expire ten years from the date of grant
and vest ratably over a three year period. Shares available for future grants
amounted to 198,384 at December 31, 2000 and 62,640 at December 31, 2001.

                                       36
<PAGE>


                         A.C. MOORE ARTS & CRAFTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For 1999, 2000 and 2001, the Company's stock option activity is summarized
below:

<TABLE>
<CAPTION>
                                                      1999                     2000                    2001
                                              --------------------    ---------------------   ---------------------

                                                          Weighted                Weighted                 Weighted
                                                           Average                 Average                  Average
                                                          Exercise                Exercise                 Exercise
                                              Options       Price      Options      Price      Options       Price
                                             ---------   ----------   --------    --------    ---------    --------
<S>                                           <C>          <C>         <C>           <C>       <C>           <C>
Outstanding at beginning of year......        507,000      $ 10.80     665,300       $9.31     791,283       $ 7.21
Granted...............................        203,900         5.62     184,200        7.88     153,300        15.15
Forfeited.............................         45,600         9.59      47,884       10.88      17,556         8.98
 Exercised............................             --           --      10,333        4.78      50,673         8.66
                                              -------      -------     -------      ------     -------      -------
Outstanding at end of year............        665,300        $9.31     791,283       $7.21     876,354      $ 10.04
                                              =======      =======     =======      ======     =======      =======
Exercisable at end of year............        279,385      $ 10.00     405,268      $10.17     562,447      $  9.47
                                              =======      =======     =======      ======     =======      =======
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 2001.
<TABLE>
<CAPTION>


                                 Stock Options Outstanding                         Stock Options Exercisable
                        ----------------------------------------------------     -----------------------------
                                      Weighted Average
  Range of Exercise                   Remaining Life        Weighted Average                  Weighted Average
       Prices            Shares           (Years)           Exercise Price       Shares        Exercise Price
 ------------------      ------       ---------------       ----------------     -------      ----------------
<S>                      <C>                 <C>                <C>              <C>                <C>
      5.75-7.88          321,254             8.0                $  6.84          159,547            $  6.48
     9.00-10.90          346,450             6.1                   9.27          296,450               9.00
     13.38-15.38         107,450             6.5                  15.28          106,450              15.29
        16.64             95,200             9.5                  16.64               --                 --
     20.00-28.05           6,000             9.8                  26.71               --                 --
                         -------             ---                -------          -------            -------
                         876,354             7.3                $ 10.04          562,447            $  9.47
                         =======             ===                =======          =======            =======
</TABLE>

Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant date for awards under those
plans, consistent with the requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," net income and earnings per share would have been
reduced to the following pro-forma amounts:
<TABLE>
<CAPTION>

                                                              1999          2000          2001
                                                          ----------    ----------    ----------
<S>                                     <C>                  <C>           <C>           <C>
Net income .................      -- As reported          $5,664,000    $6,557,000    $9,507,000
                                  -- Pro forma             5,223,000     6,034,000     9,029,000
Basic earnings per share....      -- As reported          $      .76    $      .89    $     1.28
                                  -- Pro forma                   .71           .81          1.21
Diluted earnings per share..      -- As reported          $      .76    $      .88    $     1.23
                                  -- Pro forma                   .71           .81          1.16
</TABLE>

The pro forma results may not be representative of the effects on reported
operations for future years. The fair value of the options was calculated using
a Black-Scholes options pricing model with the following weighted-average
assumptions: risk-free interest rate of 5.7% for 1999, 6.3% for 2000, 5.1% for
2001 and; no dividend yield; and a weighted average expected life of the options
of seven years. In accordance with the provisions of SFAS No. 123 the expected
stock price volatility was 54.6% for 1999, 46.6% for 2000, and 48.4% for 2001.

Effective September 15, 1997, options to purchase 444,500 shares of common stock
were granted under the 1997 Plan at an exercise price per share of $9.00 with an
exercise term of ten years. The estimated fair value of the shares on the
measurement date was $10.20. The related compensation expense is being amortized
ratably over the three year vesting period. At December 31, 2000, all such
compensation had been recognized.

                                       37
<PAGE>

                         A.C. MOORE ARTS & CRAFTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On February 28, 1995, in recognition of financial consulting services, the
Company granted a Board member an option to purchase 64,500 shares of common
stock, representing a 1.5% ownership interest in the Company. The option, which
expires February 28, 2005, has an exercise price of $4.66. The Company utilized
the Black-Scholes option-pricing model to estimate the fair value of the option.
The fair value of the option did not materially impact the results of operations
over the periods benefited.

7 Retirement Plan

In January 1999 the Company established a 401(k) savings plan (the "401(k)
Plan") for eligible team members. Participation in the 401(k) Plan is voluntary
and available to any team member who is 21 years of age and has completed a
three month eligibility period. Participants may elect to contribute up to 20%
of their compensation. In accordance with the provisions of the 401(k) Plan, the
Company makes a matching contribution to the account of each participant in an
amount equal to 25% of the first 6% of eligible compensation contributed by each
participant with a maximum match of $1,500. The Company's matching contribution
expense for 1999 was $168,000, for 2000 was $170,000 and for 2001 was $206,000.

8 Commitments and Contingencies

Commitments

The Company leases its retail stores, administrative offices and warehouse
facilities under noncancelable operating leases. The lease for the
administrative offices and distribution center has an initial lease term of six
years with a six-year renewal option. Most store leases have an average initial
term of ten years, with three five year renewal options, and provide for
predetermined escalations in future minimum annual rent or additional rent
contingent upon store sales levels. The pro rata portion of scheduled rent
escalations has been included in other long-term liabilities in the accompanying
balance sheet. For the years 2000 and 2001 the amounts of accrued rent expense
recognized over the amounts paid were $522,000 and $617,000, respectively and
has been included in other long-term liabilities in the accompanying
consolidated balance sheet.

Rent expense under operating leases consists of:
<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                        -------------------------------------
                                                         1999             2000           2001
                                                        -------         -------        -------
<S>                                                     <C>             <C>            <C>
(in thousands)
Minimum rentals .............................           $10,846         $12,883        $16,124
Contingent payments .........................               146             118            150
                                                        -------         -------        -------
                                                        $10,992         $13,001        $16,274
                                                        =======         =======        =======
</TABLE>


In 2001, the Company entered into 3 leases for stores to open in 2002.

                                       38
<PAGE>

                         A.C. MOORE ARTS & CRAFTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments (including those for unopened stores) as of
December 31, 2001 for non-cancelable operating leases with terms in excess of
one year are as follows (in thousands):

2002...........................................................        $ 18,710
2003...........................................................          18,576
2004...........................................................          17,574
2005...........................................................          16,660
2006...........................................................          16,419
Thereafter.....................................................          72,717
                                                                       --------
Total minimum future rentals...................................        $160,656
                                                                       ========


Contingencies

The Company is not a party to any material legal proceedings other than routine
litigation incidental to its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially affect
the financial position, operating results or cash flows of the Company.


                                       39
<PAGE>


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

         We had no changes in or disagreements with accountants on accounting
and financial disclosure of the type referred to in Item 304 of Regulation S-K.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information concerning our directors is set forth in the Proxy
Statement to be delivered to shareholders in connection with our 2002 Annual
Meeting of Shareholders (the "Proxy Statement") under the heading "Election of
Directors," which information is incorporated herein by reference. The name, age
and position of each of our executive officers is set forth under the heading
"Executive Officers of the Registrant" in Item 1 of this report, which
information is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION.

         The information concerning executive compensation is set forth in the
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

             The information concerning security ownership of certain beneficial
owners and management is set forth in the Proxy Statement under the heading
"Principal Stockholders and Management Ownership," which information is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

             The information concerning certain relationships and related
transactions is set forth in the Proxy Statement under the heading "Certain
Transactions," which information is incorporated herein by reference.

                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)   The following documents are filed as part of this Annual Report on
      Form 10-K:

                  (1)      Financial Statements:

                           Report of Independent Accountants

                           Consolidated Balance Sheets at December 31, 2001
                           and 2000

                           Consolidated Statements of Income for each of the
                           three years in the period ended December 31, 2001

                           Consolidated Statements of Changes in Shareholders'
                           Equity for each of the three years in the period
                           ended December 31, 2001

                           Consolidated Statements of Cash Flows for each of the
                           three years in the period ended December 31, 2001

                           Notes to Consolidated Financial Statements

                  (2)      Financial Statement Schedules:

                  No financial statement schedules are required to be filed as
part of this report.

                  (3)   Exhibits:

                           The exhibits filed as part of this report are listed
under exhibits at subsection (c) of this Item 14.

             (b)  Current Reports on Form 8-K:

                           No report on Form 8-K was filed on behalf of the
                    Registrant during the last quarter of the period covered by
                    this report.

                                       40
<PAGE>



             (c)  Exhibits:
<TABLE>
<CAPTION>

 Exhibit Number            Description
 ---------------           -------------
<S>                         <C>
        *3.1               Articles of Incorporation

        *3.2               Bylaws

      *+10.1               1997 Employee, Director and Consultant Stock Option Plan

      *+10.2               Form of Stock Option Award Agreement

      *+10.3               Correspondence reflecting option granted to Richard Lesser

       *10.4               Tax Indemnification Agreement, dated July 22, 1997, among the
                           Company, John E. Parker and William Kaplan

       *10.5               Lease, dated August 14, 1995, between Freeport 130 LLC and A.C. Moore,
                           Inc.

     ***10.6               Second Amendment to Lease, dated as of March 25, 1998, between Freeport
                           IBO LLC and A.C. Moore, Inc.

   ****+10.7               Employment Agreement, dated June 4, 2001, between Rex A. Rambo and
                           A.C. Moore, Inc.

   ****+10.8               Employment Agreement, dated June 11, 2001, between Lawrence H. Fine and
                           A.C. Moore, Inc.

    ****10.9               Credit Agreement, dated as of August 3, 2001, among A.C. Moore Incorporated,
                           The Lenders Party Thereto, and KeyBank National Association, As
                           Administrative Agent and Lead Manager.

   ****10.10               Security Agreement, dated as of August 3, 2001, among A.C. Moore
                           Incorporated, A.C. Moore Arts & Crafts, Inc., Moorestown Finance, Inc.,
                           Blackwood Assets, Inc., each of A.C. Moore Incorporated's subsidiaries,
                           and KeyBank National Association.

   ****10.11               Guarantee Agreement, dated as of August 3, 2001, among A.C. Moore Arts &
                           Crafts, Inc., A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood.
                           Assets, Inc., each of the subsidiaries of A.C. Moore Incorporated listed in
                           Schedule 1 to the Guarantee Agreement, and KeyBank National Association.

     ***21.1               Subsidiaries of the Company

        23.1               Consent of PricewaterhouseCoopers LLP

</TABLE>

------------------
+     Management contract or compensatory plan or arrangement.
*     Incorporated by reference to the Company's Registration Statement on
      Form S-1 (#333-32859).
***   Incorporated by reference to the Company's Form 10-K for the year ended
      December 31, 1998.
****  Incorporated by reference to the Company's Form 10-Q for the quarter
      ended June 30, 2001.

                                       41
<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.



                                        A.C. MOORE ARTS & CRAFTS, INC.

Date: February 19, 2002                 By:      /s/ John E. Parker
                                            ------------------------------------
                                                 John E. Parker, President and
                                                 Chief Executive Officer


              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 and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

                 SIGNATURE                                   CAPACITY                            DATE
   --------------------------------------  ---------------------------------------        ------------------


<S>                                              <C>                                             <C>
    /s/ John E. Parker                     President, Chief Executive Officer, and         February 19, 2002
   --------------------------------------  Director (Principal Executive Officer)
   John E. Parker



    /s/ Leslie H. Gordon                   Executive Vice President and Chief              February 19, 2002
   --------------------------------------  Financial Officer (Principal Financial and
   Leslie H. Gordon                        Accounting Officer)



    /s/ William Kaplan                     Chairman of the Board                           February 19, 2002
   --------------------------------------
   William Kaplan


    /s/ Patricia A. Parker                 Director                                        February 19, 2002
   --------------------------------------
   Patricia A. Parker


    /s/ Richard Lesser                     Director                                        February 19, 2002
   --------------------------------------
   Richard Lesser


    /s/ Richard J. Bauer                   Director                                        February 19, 2002
   --------------------------------------
   Richard J. Bauer


    /s/ Richard J. Drake                   Director                                        February 19, 2002
   --------------------------------------
   Richard J. Drake

</TABLE>

                                       42
<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

    Exhibit No.             Description
    -----------            -------------
<S>                           <C>
        *3.1               Articles of Incorporation

        *3.2               Bylaws

      *+10.1               1997 Employee, Director and Consultant Stock Option Plan

      *+10.2               Form of Stock Option Award Agreement

      *+10.3               Correspondence reflecting option granted to Richard Lesser

       *10.4               Tax Indemnification Agreement, dated July 22, 1997, among the
                           Company, John E. Parker and William Kaplan

       *10.5               Lease, dated August 14, 1995, between Freeport 130 LLC and A.C. Moore,
                           Inc.

     ***10.6               Second Amendment to Lease, dated as of March 25, 1998, between Freeport
                           IBO LLC and A.C. Moore, Inc.

   ****+10.7               Employment Agreement, dated June 4, 2001, between Rex A. Rambo and
                           A.C. Moore, Inc.

   ****+10.8               Employment Agreement, dated June 11, 2001, between Lawrence H. Fine and
                           A.C. Moore, Inc.

    ****10.9               Credit Agreement, dated as of August 3, 2001, among A.C. Moore Incorporated,
                           The Lenders Party Thereto, and KeyBank National Association, As
                           Administrative Agent and Lead Manager.

   ****10.10               Security Agreement, dated as of August 3, 2001, among A.C. Moore
                           Incorporated, A.C. Moore Arts & Crafts, Inc., Moorestown Finance, Inc.,
                           Blackwood Assets, Inc., each of A.C. Moore Incorporated's subsidiaries,
                           and KeyBank National Association.

   ****10.11               Guarantee Agreement, dated as of August 3, 2001, among A.C. Moore Arts &
                           Crafts, Inc., A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood.
                           Assets, Inc., each of the subsidiaries of A.C. Moore Incorporated listed in
                           Schedule 1 to the Guarantee Agreement, and KeyBank National Association.

     ***21.1               Subsidiaries of the Company

        23.1               Consent of PricewaterhouseCoopers LLP
</TABLE>

------------
+        Management contract or compensatory plan or arrangement.
*        Incorporated by reference to the Company's Registration
         Statement on Form S-1 (#333-32859).
***      Incorporated by reference to the Company's Form 10-K for the year
         ended December 31, 1998.
****     Incorporated by reference to the Company's Form 10-Q for the quarter
         ended June 30, 2001.