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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(MARK ONE)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the fiscal year ended December 31, 2004

                                       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                                   22-3527763
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

        130 A.C. MOORE DRIVE, BERLIN, NJ                      08009
    ----------------------------------------                ----------
    (Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (856) 768-4930

        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. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this Chapter) 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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [X] Yes [ ] No

As of June 30, 2004, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $320,000,000 based on $27.51,
the closing price per share of the registrant's common stock on such date, as
reported on the Nasdaq Stock Market. (1)

The number of shares of the registrant's common stock outstanding as of March
10, 2005 was 19,666,892.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2005 Annual Meeting of
Shareholders are incorporated into Part III of this Form 10-K; provided,
however, that the Compensation Committee Report, the Audit Committee Report, the
graph showing the performance of the Company's stock and any other information
in such proxy statement that is not required to be included in this Annual
Report on Form 10-K, shall not be deemed to be incorporated herein by reference.

----------
        (1) The aggregate market value of the voting stock set forth above
equals the number of shares of the registrant's common stock outstanding,
reduced by the number of shares of common stock held by executive officers,
directors and shareholders owning in excess of 10% of the registrant's common
stock, multiplied by the last reported sale price for the registrant's common
stock on the last business day of the registrant's most recently completed
second fiscal quarter. 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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                                     PART I

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 96 stores in December 2004. In 2004, for stores open for the full
calendar year, our average sales per square foot were $256, which we believe to
be the highest in our industry, and our average sales per store were
approximately $5.8 million.

        Our stores are located in the eastern United States from New England to
Alabama. For the next few years we intend to locate our new stores within a
distance that can be supported by our suburban Philadelphia distribution center,
an area encompassing approximately 50% of the United States population. We
believe we can support at least 175 stores in this geographic area from our new
distribution center which we opened in the third quarter of 2004.

        Our assortment of merchandise consists of more than 60,000 stock keeping
units, or SKUs, with approximately 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.

        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, a significant portion 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.

        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 top management team, consisting of our Chief
Executive Officer, President and Chief Operating Officer, Chief Financial
Officer, two Executive Vice Presidents of Merchandising, and our Executive Vice
President of Store Operations, has more than 150 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

        The Hobby Industry Association (HIA), in its most recent study,
announced that its Consumer Usage & Purchase Study revealed that industry sales
for 2002 were approximately $29.0 billion, a 13% increase from $25.7 billion in
2001. Our market is 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.

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        The size and growth of our market is sustained by the popularity of arts
and crafts. According to the 2002 HIA report, 60% of U.S. households
participated in crafts and craft-related hobbies. 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 in addition to the many craft publications. For example, major
newspapers such as the Wall Street Journal, the New York Times and the Chicago
Tribune have published articles highlighting the success of craft retailers and
how the industry is at the right place at the right time.

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:

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

        o       Traditional Crafts: stitchery, yarn, cake and candy making
                supplies, glass crafts, 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 more than 60,000 SKUs across five major merchandise
categories during the course of a year, with approximately 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

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regularly interacting with our customers. We believe that our ability to provide
new merchandise and crafting ideas 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
delivers merchandise to each of our stores three to five times per week during
our peak selling season of October to December, and two to three times per week
throughout the balance of the year. In our peak selling season, our store
managers can replenish 67% of their shelf merchandise assortment within two to
three days.

        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,
two or three associate managers, eight department managers and a staff of
full-time and part-time 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. We believe our focus on empowering and
rewarding our employees, all of whom are "team members," helps in recruiting,
hiring and retaining talented personnel.

        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 50% off their everyday low prices. We
believe that our price/value strategy exceeds our customers' expectations and
enhances customer loyalty.

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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. 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 96
locations at December 31, 2004 by approximately 15% to 20% per year. Our current
strategy is to open new stores within the reach of our corporate headquarters
and distribution center located in suburban Philadelphia. This geographic area
contains approximately 50% of the U.S. population. Ultimately, we believe that
we can almost 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.

        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 also hired an outside consulting firm to assist us in real estate selection
through customer profiling, drive-time trade area, and index performance models.

        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, $240,000 in pre-opening costs (including lease costs from date of
possession) and $700,000 for in-store inventory, net of accounts payable.

        INCREASING SALES IN EXISTING STORES:

        In 2004, for stores open at least one full calendar year, our average
sales per square foot were $256, which we believe to be the highest in our
industry, and our average sales per store were approximately $5.8 million. Our
comparable store sales growth was 4% in 2004, 2% in 2003, 5% in 2002, 8% in 2001
and 3% in 2000. 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,

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        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.

        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, 2002 through 2004:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                       --------------------------------
                                                         2004        2003        2002
                                                       --------    --------    --------
        <S>                                               <C>         <C>         <C>
        Art supplies, scrapbooking and frames ......       34.0%       35.0%       35.0%
        Traditional crafts .........................       34.0        30.0        29.0
        Floral and accessories .....................       21.0        24.0        24.0
        Fashion crafts .............................        8.0         7.0         7.0
        Seasonal items .............................        3.0         4.0         5.0
                                                       --------    --------    --------
        Total ......................................      100.0%      100.0%      100.0%
</TABLE>

        Our buyers develop 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 staff 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
50% 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

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seasonal merchandise is sold during the Christmas season. This includes
merchandise in our seasonal department as well as seasonal products sold in
other merchandise categories. 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. Rent escalations are
amortized over the initial lease term commencing on the date we take possession.
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.

        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.

        In 2004, we developed and implemented a new visual signage program in
one of our stores that introduced more color, icons and a more aesthetic, softer
point of view in our message. We will be implementing the new sign package in
all of our new stores as well as retrofitting it into a select number of our
existing stores.

        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. Classes are taught by team members and
outside professionals. Typical classes provide instruction on oil painting, cake
decorating, advanced stamping, or scrapbooking.

        STORE MANAGEMENT AND TRAINING

        Each store is managed by a store manager who is assisted by two or three
associate store managers, eight department managers, and a staff of full-time
and part-time team members. Our store managers and associate store managers are
responsible primarily for customer service, training, hiring

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store level team members, and inventory management. The department managers are
responsible for merchandise ordering, inventory management and customer service.
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 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. 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. Many of our team members are
crafters themselves and we provide them with the industry's most extensive
product 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.

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. Our buying staff of 21 professionals 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 2004, approximately 99% of our merchandise
orders were placed through our EDI (electronic data interchange) system.
Approximately 65% of our orders were shipped directly from vendors to our
stores; the remaining 35%, approximately one-third of which are floral and
seasonal items, were shipped from our distribution center. Merchandise
assortments at our stores can be enhanced by products ordered by store managers
to meet the unique needs of their customers. All purchases are monitored through
centralized system controls.

        In 2004, 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 2004:

        o       the largest 25 domestic vendors accounted for approximately 54%
                of our purchases,

        o       the largest vendor, SBAR'S, Inc., a specialty distributor of
                arts and crafts merchandise primarily to independent arts and
                crafts retailers, accounted for approximately 21% of our
                purchases, and

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        o       approximately 8% of our merchandise, primarily floral and
                seasonal items, was directly imported from foreign manufacturers
                or their agents, almost exclusively from the People's Republic
                of China.

All of our overseas purchases are denominated in U.S. dollars.

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.

        In the third quarter of 2004 we moved into our new distribution center
and office complex. This facility contains 710,000 square feet for distribution
and warehousing plus 60,000 square feet of office space. This state of the art
facility is positioned to handle the future expansion of the company and will
enable us to more effectively service all of our existing locations and a total
of approximately 175 store locations located within reach of the new facility.
The new facility includes an automated picking and sortation system which will
enable us to achieve significant increases in labor productivity. The total cost
of this facility was $45.0 million.

        The lease on our previous distribution facility of 253,000 square feet
expires at the end of March 2005.

        Our distribution center and warehouse operations are supported by our
real-time 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, which was upgraded in 2004, 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 56
of our 96 stores directly from our distribution center. Additionally, we have
contracted with a dedicated third-party carrier to deliver merchandise to the 40
stores where an overnight stay is required because of travel time. In 2004,
approximately 35% of our merchandise was delivered from our distribution center
to our stores.

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. In 2004 we ran 20 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 all of our advertising in-house.

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        Our website, www.acmoore.com, is designed to drive additional store
traffic by providing information, inspiration and ideas to our visitors. It also
serves as another marketing channel to build brand name awareness. Our website
has recently been completely redesigned, providing visitors with easier
navigation, more information and one of the largest selections of crafting
how-to videos on the web. This proprietary video collection allows customers to
view over two hundred different segments to learn the latest crafting tips,
techniques and project ideas. Our website also 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. Additionally, visitors are
able to preview various departments inside an A.C. Moore store through the use
of iPIX photography, which displays a 360 degree immersed view of select
merchandise. We do not sell our merchandise on our website, although gift cards
may be purchased online.

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.

        Our in-store POS system 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, fast and detailed sales and margin information is
available. We support 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 provides a speedy check-out process,
minimizes pricing errors and provides strong 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 seven retailers in the United States dedicated to
serving the arts and crafts market that have annual sales in excess of $100.0
million. We compete with many retailers and classify our principal competition
within the following three categories:

        o       Multi-store arts and crafts retailers. This category includes
                several multi-store arts and crafts chains operating more than
                35 stores and comprises: Michaels Stores, Inc., a chain which
                operates 844 Michaels stores throughout the United States;
                Jo-Ann Stores, Inc., which operates 737 traditional Jo-Ann
                Fabrics and Crafts stores and 114 Jo-Ann superstores nationwide;
                Hobby Lobby Stores, Inc., a chain which operates approximately

                                        9
<PAGE>

                340 stores primarily in the midwest United States; Garden Ridge,
                Inc., which operates approximately 35 stores primarily in the
                southeast and midwest United States; and Rag Shops, Inc., which
                operates approximately 65 stores located primarily in New Jersey
                and Florida.

        o       Mass merchandisers. This category includes Wal-Mart 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.

TEAM MEMBERS

        As of December 31, 2004, we had 2,371 full-time and 2,860 part-time team
members, 4,881 of whom worked at our stores, 158 at the distribution center and
192 at the corporate offices. None of our team members are covered by a
collective bargaining agreement, and we believe our relationship with our team
members to be good.

TRADEMARKS

        "A.C. Moore," "Fashion Forward" and "Creations for All Generations" are
trademarks that have been registered with the U. S. Patent and Trademark Office.
We use the "A.C. Moore" name and logo as a tradename and as a service mark in
connection with sale of our merchandise. The "Fashion Forward" name and logo is
used on the exclusive packaging of some of our picture frames. The "Creations
for All Generations" logo is used in advertising campaigns.

                     WEBSITE AND AVAILABILITY OF INFORMATION

        Our internet address is www.acmoore.com. We make available free of
charge on or through www.acmoore.com our annual report on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act, as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.

        In addition, we will provide, at no cost, paper or electronic copies of
our reports and other filings made with the SEC. Requests should be directed to:

                  Leslie H. Gordon
                  A.C. Moore Art & Crafts, Inc.
                  130 A.C. Moore Drive
                  Berlin, NJ  08009

                                       10
<PAGE>

        The information on the website listed above is not, and should not be
considered, part of this annual report on Form 10-K, and is not incorporated by
reference in this document. This website is only intended to be an inactive
textual reference.

           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 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, as amended 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
our 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.

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,

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

        o       the effectiveness of our advertising strategies.

                                       11
<PAGE>

OUR RESULTS COULD BE IMPACTED BY THE EXPENSING OF STOCK-BASED PAYMENTS.

        On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)). FAS 123(R)
revised FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS
123) and requires companies to expense the fair value of employee stock options
and other forms of stock-based compensation. FAS 123(R) must be adopted no later
than for periods beginning after June 15, 2005.

        Previously, in complying with FAS 123, the Company disclosed the fair
value of stock options granted and its pro-forma impact on the Company's net
income in a footnote to its financial statements. The Company is currently
considering which transition method it expects to select in adopting FAS 123(R),
and whether this new accounting requirement will result in any changes in
compensation strategies. Information contained in the Company's footnotes
provides the impact on pro forma net income for past financial statements. The
impact of the adoption of FAS 123(R) on future financial statements is expected
to be material.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE
ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD. AS A RESULT,
CURRENT AND POTENTIAL SHAREHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL
REPORTING, WHICH COULD HARM OUR BUSINESS AND THE TRADING PRICE OF OUR COMMON
STOCK.

        Beginning in the middle of 2003, we began a process to document and
evaluate our internal controls over financial reporting in order to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related
regulations, which require annual management assessments of the effectiveness of
our internal controls over financial reporting and a report by our independent
registered public accounting firm addressing these assessments. In this regard,
management has dedicated internal resources, engaged outside consultants and
adopted a detailed work plan to (i) assess and document the adequacy of internal
controls over financial reporting, (ii) take steps to improve control processes,
where appropriate, (iii) validate through testing that controls are functioning
as documented and (iv) implement a continuous reporting and improvement process
for internal control over financial reporting. Our efforts to comply with
Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations
regarding our assessment of our internal controls over financial reporting and
our independent registered public accounting firm's audit of that assessment
have resulted, and are likely to continue to result, in increased expenses. We
cannot be certain that these measures will ensure that we maintain adequate
controls over our financial processes and reporting in the future. Any failure
to implement required new controls, or difficulties encountered in their
implementation, could harm our operating results or cause us to fail to meet our
reporting obligations. If compliance with policies or procedures deteriorate and
we fail to correct any associated issues in the design or operating
effectiveness of internal controls over financial reporting or fail to prevent
fraud, current and potential shareholders could lose confidence in our financial
reporting, which could harm our business and the trading price of our common
stock.

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:

                                       12
<PAGE>

        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 closing 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;

        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, a significant portion of
our net income for the entire year. In anticipation of increased sales activity
during the fourth quarter, we 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       adverse weather conditions,

                                       13
<PAGE>

        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 and political conditions.

We believe that period-to-period comparisons of past 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.

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 and Chief
Operating Officer. 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 demand.
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

                                       14
<PAGE>

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, 2004, we operated a chain of 96 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.

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 35% of the
merchandise sold in 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 21% of the aggregate dollar volume of our purchases in 2004. 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 operations 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,

                                       15
<PAGE>

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 8% of all of our
merchandise being purchased directly by us from overseas vendors in 2004. 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:

        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       revaluation of the Chinese currency,

        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.

                                       16
<PAGE>

WE FACE RISKS RELATING TO INVENTORY.

        We depend upon our in-store department managers to reorder the majority
of our 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.

OUR TWO LARGEST SHAREHOLDERS HAVE SUBSTANTIAL INFLUENCE OVER MATTERS REQUIRING A
SHAREHOLDER VOTE.

        Our two largest shareholders own approximately 24% 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.

AN INCREASE IN THE COST OF FUEL OIL AND OIL-BASED PRODUCTS COULD IMPACT OUR
EARNINGS AND MARGINS.

        Prices for oil have fluctuated dramatically in the past and have risen
in recent months as a result of disruptions in oil producing countries. These
fluctuations impact our distribution costs and the distribution costs of our
vendors. If the price of fuel oil continues to increase, our distribution costs
will increase, which could impact our earnings. In addition, many of the
products we sell, such as paints, are oil-based. If the price of oil continues
to increase, the price of the oil-based products we purchase and sell may
increase, which could impact our margins.

TERRORIST ATTACKS AND THREATS OR ACTUAL WAR MAY IMPACT ALL ASPECTS OF OUR
OPERATIONS, REVENUES, COSTS AND STOCK PRICE IN UNPREDICTABLE WAYS.

        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 U.S. 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

                                       17
<PAGE>

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.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

        Our executive officers are as follows:

<TABLE>
<CAPTION>
NAME                                     AGE                             POSITION
--------------------------------------   ---     -----------------------------------------------------
<S>                                       <C>    <C>
John E. (Jack) Parker.................    63     Chief Executive Officer and Director
Lawrence H. Fine......................    51     President, Chief Operating Officer and Director
Patricia A. Parker....................    62     Executive Vice President, Merchandising
Leslie H. Gordon......................    61     Executive Vice President and Chief Financial Officer
Janet Parker..........................    42     Executive Vice President, Merchandising and Marketing
Jeffrey C. Gerstel....................    40     Executive Vice President, Store Operations
</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, a
general merchandise retailer, 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 and our Chief
Operating Officer since February 2003. Mr. Fine was elected as a director in
August 2002. Previously Mr. Fine was 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., a specialty retailer of party merchandise. Prior to joining Party City,
Mr. Fine held a variety of merchandising positions with the Jamesway
Corporation, a retail mass-merchandiser, for nearly 16 years.

        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 served as a
director of the Company until August 2002. Ms. Parker is the wife of Jack Parker
and the mother of Janet Parker.

        Mr. Gordon has served as our Executive Vice President 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 Executive Vice President,
Merchandising and Marketing since February 2003. From 2001 to January 2003 Ms.
Parker served as Senior Vice President, Merchandising and Marketing and from
1994 to 2001 Ms. Parker served as Senior Vice President, Merchandising. 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.

                                       18
<PAGE>

        Mr. Gerstel has been Executive Vice President, Store Operations since
January 2005. Previously Mr. Gerstel was President/Chief Operating Officer for
fabrics and crafts retailer Rag Shops, Inc., a position he held since 2001. From
1999 until joining Rag Shops in 2001, he was Chief Operating Officer for The
Parts Plus Group, Inc., a distributor/retailer of automotive replacement parts
and from 1997 to 1999 he was their Chief Financial Officer. Prior to joining The
Parts Plus Group, Mr. Gerstel held a variety of financial and operating
positions with Family Bargain Corporation, an off-price apparel retailer, for
seven years.

                                       19
<PAGE>

ITEM 2.     PROPERTIES.

        As of December 31, 2004, we operated 96 stores in 17 states, all of
which are leased and located within an 800 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:

ALABAMA (2)       MASSACHUSETTS (9)   NEW YORK (17)         PENNSYLVANIA (18)
-------           -------------       --------              -------------
Birmingham        Bellingham          Amherst               Allentown
Montgomery        Brockton            Binghamton            Altoona
                  Danvers             Carle Place           Bensalem
CONNECTICUT (4)   Framingham          DeWitt                Broomall
-----------       Holyoke             Hamburg               Erie
Manchester        Hyannis             Hauppauge             Exton
New London        North Dartmouth     Holbrook              Hanover
Orange            Woburn              Ithaca                Harrisburg
Plainville        Worcester           Latham                Lancaster
                                      Middletown            Langhorne
DELAWARE (2)      NEW HAMPSHIRE (2)   Nanuet                Mechanicsburg
--------          -------------       Plainedge             Montgomeryville
Dover             Nashua              Poughkeepsie          Muncy
Wilmington        Salem               Saratoga Springs      Philadelphia
                                      Syracuse              Reading
GEORGIA (1)       NEW JERSEY (12)     Utica                 Scranton
-------           ----------          Yorktown Heights      Stroudsburg
Columbus          Brick Town                                Wilkes Barre
                  Clifton             NORTH CAROLINA (10)
MAINE (1)         Deptford            ---------------       RHODE ISLAND (1)
-----             East Brunswick      Ashville              ------------
Portland          English Creek       Cary                  Warwick
                  Hamilton            Concord
                  Linden              Durham                SOUTH CAROLINA (3)
MARYLAND (7)      Moorestown          Fayetteville          --------------
--------          Paramus             Greensboro            Columbia
Bowie             Parsippany          Hickory               Greenville
Frederick         Shrewsbury          Raleigh               N. Charleston
Glen Burnie       Watchung            Wilmington
Hagerstown                            Winston-Salem         TENNESSEE (1)
Rockville                                                   ---------
Waldorf                                                     Knoxville
White Marsh
                                                            VIRGINIA (4)
                                                            --------
                                                            Fairfax
                                                            Falls Church
                                                            Manassas
                                                            Virginia Beach

                                                            WEST VIRGINIA (2)
                                                            -------------
                                                            Clarksburg
                                                            Huntington

        Most 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. Rent
escalations are amortized over the initial lease term commencing on the date we
take possession. The pro rata portion of scheduled rent escalations has been
included in other long-term liabilities in our balance sheet.

                                       20
<PAGE>

        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.

        In the third quarter of 2004 we moved into our new distribution center
and office complex. This facility contains 710,000 square feet for distribution
and warehousing plus 60,000 square feet of office space. This state of the art
facility is positioned to handle the future expansion of the company and will
enable us to more effectively service all of our existing locations and a total
of approximately 175 store locations located within reach of the new facility.
The new facility includes an automated picking and sortation system which will
enable us to achieve significant increases in labor productivity. The total cost
of this facility was $45.0 million.

        The lease on our previous distribution facility of 253,000 square feet
expires at the end of March 2005.

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 2004, through the solicitation of proxies or otherwise.

                                       21
<PAGE>

                                     PART II

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

        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>
        YEAR ENDED DECEMBER 31, 2004                              HIGH         LOW
        -----------------------------------------------------   --------    --------
        <S>                                                     <C>         <C>
        First Quarter........................................   $  27.00    $  18.15
        Second Quarter.......................................      29.53       23.27
        Third Quarter........................................      27.76       19.97
        Fourth Quarter.......................................      31.37       23.06

<CAPTION>
        YEAR ENDED DECEMBER 31, 2003
        -----------------------------------------------------
        <S>                                                     <C>         <C>
        First Quarter........................................   $  15.15    $   9.95
        Second Quarter.......................................      20.47       13.52
        Third Quarter........................................      27.83       19.15
        Fourth Quarter.......................................      26.10       18.26
</TABLE>

        The number of record holders of our common stock as of March 10, 2005
was approximately 104.

        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.

        See Part III, Item 12 for a description of our equity compensation
plans.

                                       22
<PAGE>

ITEM 6.     SELECTED FINANCIAL DATA.

        The following selected financial data are derived from the consolidated
financial statements of A.C. Moore Arts & Crafts, Inc. and have been restated to
reflect adjustments to the originally filed financial statements. These
restatements are discussed in "Note 2. Restatement of Financial Statements"
under Notes to Consolidated Financial Statements included in Item 8, "Financial
Statements and Supplementary Data" of this Form 10-K. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the section "Cautionary
Statement Relating to Forward-Looking Statements" and the Company's Consolidated
Financial Statements and Notes thereto.

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                      ----------------------------------------------------------------------------
                                                                       2003           2002            2001              2000
                                                         2004      as restated    as restated   as restated (5)   as restated (5)
                                                      ----------   -----------    -----------   ---------------   ----------------
<S>                                                   <C>          <C>            <C>           <C>               <C>
Statement of Income Data:
  Net sales .......................................   $  497,626   $   433,928    $   393,392   $       332,413   $        262,057
  Gross margin (1) ................................      197,754       161,894        148,791           124,098             96,207
  Selling, general and administrative expenses(1)..      166,485       131,890        122,984           105,383             83,478
  Store pre-opening expenses ......................        4,036         2,842          2,884             3,308              2,187
  Income from operations ..........................       27,233        27,162         22,923            15,407             10,542
  Net income ......................................       16,848        17,034         14,208             9,060              6,420
  Net income per share, diluted(2) ................   $     0.84   $      0.86    $      0.75   $          0.58   $           0.43

Weighted average shares outstanding, diluted(2) ...       20,012        19,729         18,828            15,505             14,888

Balance Sheet Data (as of):
  Working capital .................................   $  150,414   $   112,751    $   123,811   $        56,422   $         47,168
  Total assets ....................................      304,112       235,163        198,559           124,354            107,599
  Total debt ......................................       29,357           504          1,846             3,174              1,201
  Shareholders' equity ............................      186,215       165,259        142,856            72,801             63,202

Other Data:
  Cash flows from operating activities ............   $   18,495   $    23,227    $     9,656   $         7,141   $          6,864
  Number of stores open at end of period ..........           96            81             71                61                 50
  Net sales per total square foot(3) ..............   $      256   $       260    $       272   $           273   $            271
  Average net sales per store (000's)(3) ..........   $    5,802   $     5,839    $     6,064   $         6,070   $          5,919
  Comparable store sales increase(4) ..............            4%            2%             5%                8%                 3%
</TABLE>

----------
(1)     For all vendor contracts entered into or modified after December 31,
        2002, the Company has adopted the Emerging Issues Task Force (EITF)
        02-16, Accounting by a Customer (including a Reseller) for Cash
        Consideration Received from a Vendor. EITF 02-16 addresses the
        accounting for cash consideration received by a customer from a vendor
        (e.g., slotting fees, cooperative advertising payments, buydowns) and
        rebates or refunds from a vendor that is payable only if the customer
        completes a specified cumulative level of purchases or remains a
        customer for a specified time period. The change in accounting means
        that vendor monies which support the Company's advertising programs are
        now being recorded as a reduction in the cost of inventory, and are
        recognized as a reduction of cost of goods sold when the inventory is
        sold. Previously, they were accounted for as an offset to advertising
        costs. This accounting change results in a timing difference as to when
        these monies are recognized in the Company's income statement. The
        adoption of EITF 02-16 reduced the Company's 2004 net income by $3.4
        million or $0.17 per share. The change increased gross margin by $11.9
        million, increased selling, general and administrative costs by $17.4
        million, and decreased inventory by $5.5 million.
(2)     All share and per share data reflect the two-for-one stock split paid
        July 31, 2002.
(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.

                                       23
<PAGE>

(5)

<TABLE>
<CAPTION>
                                                                2001 DATA                               2000 DATA
                                                 --------------------------------------   --------------------------------------
                                                     AS                                       AS
                                                 PREVIOUSLY                               PREVIOUSLY
                                                  REPORTED    ADJUSTMENT    AS RESTATED    REPORTED    ADJUSTMENT    AS RESTATED
                                                 ----------   ----------    -----------   ----------   ----------    -----------
<S>                                              <C>          <C>           <C>           <C>          <C>           <C>
Selling, general and administrative expenses..   $  105,447   $      (64)   $   105,383   $   83,516   $      (38)   $    83,478
Pre-opening expenses .........................        2,518          790          3,308        1,928          259          2,187
Income from operations .......................       16,133         (726)        15,407       10,763         (221)        10,542
Net income ...................................        9,507         (447)         9,060        6,557         (137)         6,420
Net income per share, diluted ................         0.61        (0.03)          0.58         0.44        (0.01)          0.43
Total assets .................................      123,811          543        124,354      107,392          207        107,599
Shareholders' equity .........................       73,727         (926)        72,801       63,681         (479)        63,202
Cash flows from operating activities .........        6,768          373          7,141        6,709          155          6,864
</TABLE>

                                       24
<PAGE>

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

RESTATEMENT OF FINANCIAL STATEMENTS

        We have determined that our method of accounting for leasehold
improvements funded by landlord incentives or allowances (tenant improvement
allowances) and our method of accounting for rent holidays were not in
accordance with accounting principles generally accepted in the United States of
America. As a result, we have restated our consolidated financial statements for
each of the years ended December 31, 2003 and 2002in this annual report on
Form 10-K.

        We have historically accounted for tenant improvement allowances as a
reduction of the property, plant and equipment account on our balance sheet,
amortized the allowances as a reduction to depreciation expense in our income
statement and reflected the cash received within investing activities in our
statement of cash flows. FASB Technical Bulletin 88-1 ("FTB 88-1"), "Issues
Relating to Accounting for Leases," requires these allowances to be recorded as
deferred rent liabilities on the consolidated balance sheets and amortized as a
reduction to rent expense on the income statement. In addition, the cash
received by us should have been recorded as a component of operating activities
on our consolidated statements of cash flows. Depreciation of the leasehold
improvement begins effective with the opening of the store as we have accounted
for it in the past. However, amortization of the landlord allowance commences on
the date we have the right to control the use of the leased property, which is
consistent with the recording of rent expense as described below. Previously, we
had commenced amortization on the date the store was opened.

        We have historically recognized rent holiday periods on a straight-line
basis over the lease term commencing with the opening date for each store. The
period during which the store was being fixtured and stocked with merchandise
was excluded from the straight-line rent schedule. FASB Technical Bulletin 85-3
("FTB 85-3"), "Accounting for Operating Leases with Scheduled Rent Increases,"
states that rent holidays should be recognized on a straight-line basis over the
lease term, which commences on the date we have the right to control the use of
the leased property. For us, this is generally one to three months prior to a
store opening date. The amount of rent expensed prior to store opening will be
included in "Pre-opening expenses" on our consolidated statements of income.

        The effect of these adjustments is a reduction to retained earnings of
$926,000, net of tax, as of January 1, 2002 and decreases to net income of
$249,000 or $0.02 per share, and $277,000 or $0.02 per share, in 2003 and 2002,
respectively.

        See Note 2 to Consolidated Financial Statements of this annual report on
Form 10-K for a summary of the effects of these changes on our consolidated
balance sheet as of December 31, 2003, as well as on our consolidated statements
of income, changes in shareholders' equity and cash flows for 2003 and 2002. The
discussion contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" gives effect to these corrections.

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 96 stores in December 2004. Our stores are located in the eastern United
States from Maine to Alabama.

                                       25
<PAGE>

        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 2004 we continued to strengthen and expand our
management team, including the addition of Lawrence H. Fine as our President in
June 2001.

        We continued to develop our operating systems including a point of sale
system, a radio frequency re-order system, a real time merchandise information
and control system, a warehouse management system and an automated ordering
system using EDI (electronic data interchange) to link us electronically with
most of our vendors. We also implemented updated general ledger and payroll
systems.

        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 $16.0 million. We received an additional $52.1 million
from the sale of shares in March 2002.

        Our expansion plans continued as we opened 33 new stores in the period
2000 to 2002, 10 new stores in 2003 and 15 new stores in 2004. In 2002 we closed
two stores; one was destroyed by fire and the other was in an area which had
negative demographic changes and the lease had expired. During the next two
years, we intend to increase our store base by approximately 15% to 20% per
year, all within the reach of our suburban Philadelphia distribution center, an
area encompassing approximately 50% of the U.S. population. We believe we can
operate at least 175 stores in this area without significantly diluting sales in
our existing stores. To accommodate this growth, we constructed a new
distribution center which opened in the third quarter of 2004. The new
distribution center is 710,000 square feet plus 60,000 square feet of office
space.

        Starting in 2004, vendor monies which support our advertising programs
are recorded as a reduction in the cost of inventory, and are recognized as a
reduction to cost of goods sold when the inventory is sold. Previously, they
were accounted for as an offset to advertising costs. This accounting change
results in a timing difference as to when these monies are recognized in our
income statement. In 2004, this accounting change resulted in a reduction in the
Company's net income by $3.4 million, or $0.17 per share. For the year, the
change increased gross margin by $11.9 million, increased selling general and
administrative costs by $17.4 million and decreased inventory by $5.5 million.
In 2003 we recorded vendor advertising support as a reduction of selling general
and administrative expenses in the amount of $13.6 million.

        Our sales for the year ended December 31, 2004 were $497.6 million, an
increase of 14.7% over 2003 sales of $433.9 million. Same store sales increased
4%. Net income for the year 2004 decreased by 1.1% to $16.8 million or $0.84 per
fully-diluted share after the impact of an accounting change for vendor monies
which support our advertising programs. In 2003, our net income was $17.0
million or $0.86 per fully-diluted share.

        On July 27, 2004, a section of the roof on our Blackwood, New Jersey
warehouse and corporate headquarters facility collapsed. The facility employed
over 150 team members, none of whom were injured in the incident. At the time of
the incident, we had been in the process of moving into our new distribution
center in Winslow Township, New Jersey. The move of the offices was expedited
and completed on August 4, 2004.

                                       26
<PAGE>

        The roof collapse in our then existing distribution center was a major
disruption to our business. We lost the ability to ship any merchandise from our
warehouses for one week. During the next seven weeks, over $7.0 million in
merchandise at cost was unavailable to be shipped to the stores as we had to
relocate the merchandise to the new distribution center and ensure that the
merchandise was salable.

        The effort of recovering from the roof collapse resulted in delaying our
ability to bring our new facility up to the level of operation that we had
anticipated. We did not ship merchandise to stores in our customary manner. We
lost over $800,000 of imported fall ribbon, flags, fall seasonal and basic
floral merchandise that could not be replaced domestically. As we could not
ensure merchandise availability, we reduced two key promotions in August and
September of 2004. We estimate the unavailability of merchandise and the
reduction in promotional events negatively impacted third quarter sales in
excess of $4.0 million. The events surrounding the roof collapse also required
us to add to staff and delayed our ability to achieve the productivity we
anticipated in the new facility in the fourth quarter of 2004.

        We insure our warehouse inventory at selling value and therefore
anticipate collection on our insurance claim at amounts which cover our lost
profits. Included in our results is an estimate of the insurance claim recovery
for lost merchandise and other expenses related to the roof collapse at its
retail value of$3.3 million, which exceeds carrying value by $1.3 million. This
$1.3 million was recorded as a reduction in the cost of goods sold during the
third quarter of 2004.

        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.

        In addition, our success depends on our ability to locate and open new
store locations. We plan to open 15 new stores in 2005. We expect to open two
stores in the second quarter and the remainder split between quarters three and
four. We will also relocate one store.

        On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)). FAS 123(R)
revised FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS
123) and requires companies to expense the fair value of employee stock options
and other forms of stock-based compensation. FAS 123(R) must be adopted no later
than for periods beginning after June 15, 2005.

        Previously, in complying with FAS 123, we disclosed the value of stock
options granted and its pro-forma impact on our net income in a footnote to our
financial statements. We are currently considering which transition method we
expect to select in adopting FAS 123(R), and whether this new accounting
requirement will result in any changes in compensation strategies. Information
contained in our footnotes provide the impact on pro forma net income for past
financial statements. The impact of the adoption of FAS 123(R) on future
financial statements is expected to be material.

                                       27
<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,
                                                             ----------------------------------
                                                               2004         2003         2002
                                                             --------     --------     --------
        <S>                                                     <C>          <C>          <C>
        Net sales ........................................      100.0%       100.0%       100.0%
        Cost of sales ....................................       60.3         62.7         62.2
                                                             --------     --------     --------
        Gross margin .....................................       39.7         37.3         37.8
        Selling, general and administrative expenses .....       33.4         30.4         31.3
        Store pre-opening expenses .......................        0.8          0.6          0.7
                                                             --------     --------     --------
        Income from operations ...........................        5.5          6.3          5.8
        Interest expense (income), net ...................       (0.0)        (0.1)        (0.1)
                                                             --------     --------     --------
        Income before income taxes .......................        5.5          6.4          5.9
        Provision for income taxes .......................        2.1          2.5          2.3
                                                             --------     --------     --------
        Net income .......................................        3.4%         3.9%         3.6%
                                                             ========     ========     ========
        </TABLE>

2004 COMPARED TO 2003

        Net Sales. Net sales increased $63.7 million, or 14.7%, to $497.6
million in 2004 from $433.9 million in 2003. This increase resulted from (i) net
sales of $27.7 million from 15 new stores opened in 2004, (ii) net sales of
$20.0 million from stores opened in 2003 not included in the comparable store
base, and (iii) a comparable store sales increase of $16.0 million, or 4%. Sales
benefited from positive weather conditions in the first and fourth quarters but
were negatively impacted by weather conditions in the second quarter compared
with the comparable periods in 2003. Sales in the third quarter were impacted by
the roof collapse. For the year, customer transactions in comparable stores
increased by 2% compared with 2003 and the average sale increased 2%. Sales
growth was strongest in our scrapbooking, yarn, basic crafts, wedding and
jewelry making categories. 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 merchandise
which includes purchasing and receiving costs, inbound freight, duties related
to import purchases, internal transfer costs and warehousing costs. Gross margin
as a percent of net sales increased 2.4% in 2004, to 39.7% from 37.3% in 2003.
The impact of the change in accounting for cash consideration received from
vendors increased gross margin by $11.9 million, or an increase of 2.4% of
sales. An additional 0.2% is attributable to an estimated $0.9 million of
insurance proceeds in excess of cost from the insurance claim associated with
the roof collapse in our former warehouse in 2004 as compared with proceeds from
an insurance claim from the fire in a warehouse in 2003. Fewer sales at
promotional prices and the mix of merchandise sold increased margins by 0.1%.
Additional distribution costs associated with the move to our new distribution
center and a loss of productivity due to the events surrounding the roof
collapse reduced our gross margin by 0.3%.

        Selling, General and Administrative Expenses. Selling, general and
administrative expenses include (i) direct store level expenses, including rent
and related operating costs, payroll, advertising, depreciations 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 expenses.

                                       28
<PAGE>

        Selling, general and administrative expenses, as a percent of net sales,
increased 3.0% in 2004, to 33.4% from 30.4% in 2003. The impact of the change in
accounting for vendor monies received to support our advertising programs
increased expenses by $17.4 million, which represents 3.5% of this increase. As
a percent of net sales, store expense decreased by 0.3% and corporate office
costs decreased by 0.2% as both costs were leveraged over the larger sales base.
The decrease in corporate office costs was achieved despite an increase of
$670,000 in external fees and significant amounts of internal resources related
to the company's compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

        Net Interest (Income). In 2004 we had net interest income of $163,000
compared with net interest income of $404,000 in 2003. The decrease is
principally due to interest expense from our mortgages, which expense commenced
in August 2004.

        Store Pre-Opening Expenses. We expense store pre-opening costs as they
are incurred, which would include rent holidays prior to store opening.
Pre-opening expenses for the 15 new stores opened in 2004 and the two stores
which were relocated during the year, amounted to $4.0 million. In 2003, we
opened ten new stores and relocated one store and incurred pre-opening expenses
of $2.8 million.

        Income Taxes. Our effective income tax rate was 38.5% for 2004 and 38.2%
for 2003.

2003 COMPARED TO 2002

        Net Sales. Net sales increased $40.5 million, or 10.3%, to $433.9
million in 2003 from $393.4 million in 2002. This increase resulted from (i) net
sales of $19.4 million from ten new stores opened in 2003, (ii) net sales of
$14.6 million from stores opened in 2002 which were not included in the
comparable store base, and (iii) a comparable store sales increase of $6.5
million, or 2%. Sales were significantly impacted by the adverse weather
conditions we experienced in the first and fourth quarters of 2003.

        Gross Margin. Gross margin as a percent of net sales decreased 0.5% to
37.3% in 2003 from 37.8% in 2002. A general decline in our floral and
accessories business and accelerated markdowns to clear seasonal inventory after
major snow storms in the first and fourth quarters of 2003 accounted for 0.5% of
the decrease and an industry wide increase in domestic and international freight
costs accounted for 0.1% of the decrease. Net insurance proceeds of retail value
over cost resulting from an insurance claim from a fire in one of our warehouses
increased our margin by 0.1%.

        Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percent of net sales, decreased 0.9% in 2003 to
30.4% from 31.3% in 2002. A relative reduction of corporate office expenses
accounted for 0.5% of the decrease, additional vendor co-operative advertising
funds accounted for 0.5% of the decrease and there was a decrease of 0.1% as the
result of a) the proceeds in excess of costs resulting from an insurance claim
for a fire which destroyed one of our stores and b) the costs relating to the
early termination of a lease on a store which we relocated. Other store
expenses, principally store occupancy costs, increased by 0.2% of sales.

        Store Pre-Opening Expenses. Pre-opening expenses for the 10 new stores
opened in 2003 and one store which was relocated during the year, amounted to
$2.8 million. In 2002, we opened twelve new stores and incurred pre-opening
expenses of $2.9 million.

        Net Interest (Income). In 2003 we had net interest income of $404,000
compared with net interest income of $473,000 in 2002.

                                       29
<PAGE>

        Income Taxes. Our effective income tax rate was 38.2% for 2003 and 39.3%
for 2002. In 2002, we provided additional state taxes due to changes in state
tax laws which impacted 2002 and prior years.

QUARTERLY RESULTS AND SEASONALITY

        The following table sets forth our unaudited quarterly operating results
for our eight most recent quarterly periods, restated for the Company's
corrections to properly account for tenant improvement allowances and rent
holidays (see Note 2 to Consolidated Financial Statements), and the number of
stores open at the end of each period (dollars in thousands, except share and
store data).

<TABLE>
<CAPTION>
                                                              FIRST          SECOND         THIRD         FOURTH
                                                             QUARTER        QUARTER        QUARTER       QUARTER
                                                           ----------     ----------     ----------    ----------
<S>                                                        <C>            <C>            <C>           <C>
                         2004
Net sales ..............................................   $  111,469     $  101,194     $  107,713    $  177,250
Gross margin ...........................................       41,930         39,342         43,703        72,779
Income from operations (as previously reported) ........        1,838            486          1,617
Income from operations (as restated, see Note 2) .......        1,878            421          1,420        23,514
Net income (as previously reported) ....................        1,204            375            986
Net income (as restated, see Note 2) ...................        1,228            335            865        14,420
Net income  per  share, diluted (as previously
 reported) .............................................   $     0.06     $     0.02    $     0.05
Net income per share, diluted (as restated,  see
 Note 2) ...............................................   $     0.06     $     0.02     $     0.04    $     0.72
Diluted average shares outstanding .....................       20,043         20,108         20,114        20,167

Number of stores open at end of period .................           84             84             91            96
Comparable store sales increase (decrease) .............          9.4%          (1.0)%          0.3%          5.6%

2003
Net sales ..............................................   $   91,952     $   93,686     $   98,600    $  149,690
Gross margin ...........................................       33,535         34,793         36,613        56,953
Income from operations (as previously reported) ........          571          1,583          1,950        23,506
Income from operations (as restated, see Note 2) .......          601          1,532          1,764        23,265
Net income (as previously reported) ....................          420          1,051          1,262        14,578
Net income (as restated, see Note 2) ...................          438          1,019          1,148        14,429
Net income  per  share, diluted (as previously
reported) ..............................................   $     0.02     $     0.05     $     0.06    $     0.73
Net income per share, diluted (as restated, see Note 2).   $     0.02     $     0.05     $     0.06    $     0.72
Diluted average shares outstanding .....................       19,603         19,762         19,980        20,011

Number of stores open at end of period .................           73             74             78            81
Comparable store sales increase (decrease) .............         (2.0)%          4.0%           2.0%          3.0%
</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, a significant portion 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.

                                       30
<PAGE>

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 from a secondary offering
in 2002. In the first half of 2004 we borrowed $30.0 million under two mortgage
agreements we have with Wachovia Bank to finance our new distribution center and
corporate offices.

        At December 31, 2004 and 2003, our working capital was $150.4 million
and $112.8 million, respectively. During 2004, 2003 and 2002, cash of $18.5
million, $23.2 million and $9.7 million was generated by operations,
respectively. In these three periods, $21.3 million, $19.0 million and $16.8
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 $14.5 million, $9.8
million and $2.6 million, respectively. We also had the tax benefit from our
executives exercising stock options in the amount of $2.3 million in 2004 and
$2.7 million in 2003.

        Net cash used in investing activities during 2004, 2003 and 2002 was $
44.4 million, $42.5 million and $11.2 million, respectively. In 2004 this use of
cash was for capital expenditures of $41.0 million. We spent $27.0 million for
the construction of our new distribution center, $11.1 million for new stores
and the remainder for remodeling existing stores and upgrading systems. The
total cost of the new distribution center was $45.0 million, including
capitalized interest of $202,000. In 2003 and 2002, cash used in investing
activities was for capital expenditures including $16.6 million for land and the
construction of our distribution center, new stores, remodeling existing stores,
upgrading systems and warehouse equipment. In 2005, we expect to spend
approximately $17.5 million on capital expenditures, which includes $10.5
million for new store openings, and the remainder for remodeling existing
stores, upgrading systems in existing stores, warehouse equipment and corporate
systems development.

        On October 28, 2003 we signed two mortgage agreements with Wachovia Bank
relating to the new distribution center and corporate offices. The mortgages,
totaling $30.0 million of which $29.4 million was outstanding at December 31,
2004, are secured by land, building, and equipment. Of the $30.0 million, $22.5
million is repayable over 15 years and $7.5 million is repayable over 7 years.
Monthly payments totaling $214,000 started in October 2004. The mortgages bear
interest at rates that will vary between LIBOR plus 85 basis points and LIBOR
plus 135 basis points, depending on the debt service coverage ratio and the
length of the mortgage payment. We have the option of fixing the interest rate
at any time. The mortgages contain covenants that, among other things, restrict
our ability to incur additional indebtedness or guarantee obligations in excess
of $8.0 million, engage in mergers or consolidations, dispose of assets, make
acquisitions requiring a cash outlay in excess of $10.0 million, make loans or
advances in excess of $1.0 million, or change the nature of our business. We are
restricted in capital expenditures, paying dividends and making other
distributions unless certain financial covenants are maintained including those
relating to tangible net worth, funded debt and a current ratio. The mortgages
also define various events of default, including cross default provisions,
defaults for any material judgments or a change in control. At December 31,
2004, the Company was in compliance with these agreements.

        We currently have a $25.0 million line of credit agreement with Wachovia
Bank, which expires on May 1, 2006. Borrowing under this line will bear interest
at LIBOR plus 95 basis points and is subject to the same covenants as the
mortgages described above. As of December 31, 2004, there were no borrowings
outstanding under this agreement.

                                       31
<PAGE>

        In the year ended December 31, 2002, net cash provided by financing
activities was principally the $52.1 million proceeds from our sale of shares in
March 2002.

        We believe the cash generated from operations during the year and
available borrowings under our line of credit agreement with Wachovia Bank will
be sufficient to finance our working capital and capital expenditure
requirements for at least the next 12 months.

        We lease our retail stores and some vehicles under noncancelable
operating leases. The lease for our previous corporate headquarters expires
March 31, 2005. At December 31, 2004 our total obligations under these operating
leases were $240.3 million. The following table reflects as of December 31, 2004
the payments due for the periods indicated.

<TABLE>
<CAPTION>
                                                            PAYMENTS DUE BY PERIOD ($000)
                                           --------------------------------------------------------------
                                                         LESS THAN                               AFTER 5
CONTRACTUAL OBLIGATIONS                       TOTAL       1 YEAR      1-3 YEARS    4-5 YEARS      YEARS
----------------------------------------   ----------   ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>          <C>
Long-term debt .........................   $   29,357   $    2,571   $    7,713   $    5,142   $   13,931
Store Operating Leases (1) .............      240,345       28,672       86,393       49,481       75,799
Vehicle and Equipment Leases ...........        1,103          320          618          164            1
Purchase Obligations (2) ...............          204           99          105           --           --
Deferred Income Taxes (3) ..............           --           --           --           --           --
Total Contractual Cash Obligations .....   $  271,009   $   31,662   $   94,829   $   54,787   $   89,731
</TABLE>

----------
(1)     Most store leases have an average initial term of ten years, with two
        five year renewal options, and provide for predetermined escalation in
        future minimum annual rent. Rent escalations are amortized over the
        initial lease term commencing on the date we take possession. The pro
        rata portion of scheduled rent escalations has been included in other
        long-term liabilities in the balance sheet.

(2)     Purchase obligations include agreements for goods and services that are
        enforceable and legally binding on the Company and that specify all
        significant terms. As of December 31, 2004, such obligations include
        telephone services and software licenses and maintenance contracts for
        information technology.

(3)     The amount of deferred income taxes has been excluded from the above
        table as the timing of any cash payment is uncertain. See Note 7 of the
        Notes to Consolidated Financial Statements for additional information
        regarding our deferred tax position.

GENERAL

        On June 25, 2002, our Board of Directors approved a two-for-one stock
split to shareholders of record as of the close of business on July 15, 2002.
The shares were distributed on July 31, 2002.

CRITICAL ACCOUNTING ESTIMATES

        Our accounting policies are more fully described in Note 1 of the Notes
to Consolidated Financial Statements included herein. As disclosed in Note 1 of
the Notes to Consolidated Financial Statements, the preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions about future events that affect the
amounts reported in the Consolidated Financial Statements and accompanying
notes. Since future events and their effects cannot be determined with absolute
certainty, actual results may differ from those estimates. Management makes
adjustments to its assumptions and judgments when facts and circumstances
dictate. The amounts currently estimated by us are subject to change if
different assumptions as to the outcome of future events were made. We evaluate
our estimates and judgments on

                                       32
<PAGE>

an ongoing basis and predicate those estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances. Management believes the following critical accounting
estimates encompass the more significant judgments and estimates used in
preparation of the Consolidated Financial Statements.

        Merchandise Inventories. We value our inventories at stores at the lower
of cost or market with cost being determined using the retail inventory method.
Because we do not have perpetual inventory records for inventory in our stores,
we perform complete physical inventories in each of our stores at the end of
each year. The actual physical count of merchandise is made principally by
third-party inventory counting service firms. Warehouse inventories are
determined on a first-in, first-out basis. The Company includes as inventoriable
costs certain indirect costs, such as purchasing and receiving costs, inbound
freight, duties related to import purchases, internal transfer costs and
warehousing costs.

        Inventory valuation methods also require certain management estimates
and judgments. These include estimates of net realizable value on product
designated for clearance or on slow moving merchandise. Quarterly, our inventory
valuation includes estimates for shrinkage, capitalized buying, warehousing and
distribution costs related to inventory, and markdowns of merchandise
inventories. The accuracy of our estimates can be affected by many factors, some
of which are outside of our control, including changes in economic conditions
and consumer buying trends. Historically, we have not experienced significant
differences in our estimates of recovery compared with actual results. We
believe our process results in an appropriate value of our retail inventory on
hand at year-end.

        Impairment of Long-Lived Assets. We periodically review long-lived
assets for impairment by comparing the carrying value of assets with their
estimated future undiscounted cash flows. To the extent these future estimates
change, the conclusion regarding impairment may differ from our current
estimates, and the loss, if any, would be recognized at that time. The
impairment loss is calculated as the difference between asset carrying values
and the present value of estimated net cash flows or comparable market values,
giving consideration to recent operating performance and pricing trends.

        Income Taxes. We do business in various jurisdictions that impose income
taxes. Management determines the aggregate amount of income tax expense to
accrue and the amount currently payable based upon the tax statutes of each
jurisdiction. This process involves adjusting income determined using generally
accepted accounting principles for items that are treated differently by the
applicable taxing authorities. Deferred tax liabilities are reflected on our
balance sheet for temporary differences that will reverse in subsequent years.
If different judgments had been made, our tax expense, assets and liabilities
could have been different.

        Other Estimates. Management uses estimates in the determination of the
required accruals for general liability, workers' compensation and health
insurance. These estimates are based upon examination of historical trends,
industry claims experience and, in certain cases, calculations performed by
third-party experts. Projected claims information may change in the future and
may require management to revise these accruals.

        We are periodically involved in various legal actions arising in the
normal course of business. Management is required to assess the probability of
any adverse judgments as well as the potential range of any losses. Management
determines the required accruals after a careful review of the facts of each
legal action. Our accruals may change in the future due to new developments in
these matters.

                                       33
<PAGE>

CHANGE IN ACCOUNTING PRINCIPLE

        For all vendor contracts entered into or modified after December 31,
2002, we have adopted the Emerging Issues Task Force (EITF) 02-16, Accounting by
a Customer (including a Reseller) for Cash Consideration Received from a Vendor.
EITF 02-16 addresses the accounting for cash consideration received by a
customer from a vendor (e.g., slotting fees, cooperative advertising payments,
buydowns) and rebates or refunds from a vendor that is payable only if the
customer completes a specified cumulative level of purchases or remains a
customer for a specified time period. The change in accounting means that vendor
monies which support our advertising programs are now being recorded as a
reduction in the cost of inventory, and are recognized as a reduction of cost of
goods sold when the inventory is sold. Previously, they were accounted for as an
offset to advertising costs. This accounting change results in a timing
difference as to when these monies are recognized on our income statement. The
adoption of EITF 02-16 reduced our 2004 net income by $3.4 million or $0.17 per
share. The change increased our gross margin by $11.9 million, increased our
selling, general and administrative costs by $17.4 million, and decreased our
inventory by $5.5 million. In 2003 we recorded vendor advertising support as a
reduction of selling, general and administrative expenses in the amount of $13.6
million.

RECENT ACCOUNTING PRONOUNCEMENTS

        On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)). FAS 123(R)
revised FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS
123) and requires companies to expense the fair value of employee stock options
and other forms of stock-based compensation. FAS 123(R) must be adopted no later
than for periods beginning after June 15, 2005.

        Previously, in complying with FAS 123, we disclosed the value of stock
options granted and its pro-forma impact on our net income in a footnote to our
financial statements. We are currently considering which transition method we
expect to select in adopting FAS 123(R), and whether this new accounting
requirement will result in any changes in compensation strategies. Information
contained in our footnotes provides the impact on pro forma net income for past
financial statements. The impact of the adoption of FAS 123(R) on future
financial statements is expected to be material.

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

        We invest cash balances in excess of operating requirements primarily in
money market mutual funds and to a lesser extent in interest-bearing securities
with maturities of less than two years. The fair value of our cash and
equivalents at December 31, 2004 approximated carrying value. We had no
borrowings outstanding under the line of credit at December 31, 2004. The
interest rates on our mortgages fluctuate with market rates and therefore the
value of these financial instruments will not be impacted by a change in
interest rates. Based on the amounts existing at December 31, 2004, the impact
of a hypothetical increase or decrease in interest rates of 10% compared with
the rates in effect at December 31, 2004 would result in an increase or decrease
in our interest expense of $98,000 annually, and an increase or decrease in our
interest income of $89,000 annually.

                                       34
<PAGE>

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                         A.C. MOORE ARTS & CRAFTS, INC.

                                                                           PAGE
                                                                           ----

Report of Independent Registered Public Accounting Firm ..................   36

Consolidated Balance Sheets at December 31, 2004 and 2003 ................   38

Consolidated Statements of Income for each of the three years
 in the period ended December 31, 2004 ...................................   39

Consolidated Statements of Changes in Shareholders' Equity for each of the
 three years in the period ended December 31, 2004 .......................   40

Consolidated Statements of Cash Flows for each of the three
 years in the period ended December 31, 2004 .............................   41

Notes to Consolidated Financial Statements ...............................   42

                                       35
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

        We have completed an integrated audit of A.C. Moore Arts & Crafts,
Inc.'s 2004 consolidated financial statements and of its internal control over
financial reporting as of December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.

CONSOLIDATED FINANCIAL STATEMENTS

        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,
2004 and 2003, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2004 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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements 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 our opinion.

        As discussed in Note 2 to the financial statements, the Company has
restated its 2003 and 2002 financial statements in order to correct certain
errors in its accounting for operating leases.

INTERNAL CONTROL OVER FINANCIAL REPORTING

        Also, in our opinion, management's assessment, included in Management's
Report on Internal Control Over Financial Reporting appearing under Item 9A,
that the Company maintained effective internal control over financial reporting
as of December 31, 2004 based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects, based on
those criteria. Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal Control - Integrated
Framework issued by COSO. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal

                                       36
<PAGE>

control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.

        A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
------------------------------
Philadelphia, PA
March 16, 2005

                                       37
<PAGE>

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

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                -----------------------
                                                                               2003
                                                                             as restated,
                                                                   2004       see Note 2
                                                                ----------   ------------
<S>                                                             <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents .................................   $   48,428   $    43,700
  Marketable securities .....................................       17,558            --
  Inventories ...............................................      142,832       121,493
  Prepaid expenses and other current assets .................        7,655         2,962
  Deferred taxes ............................................        2,673            --
                                                                ----------   -----------
                                                                   219,146       168,155
Non current Assets:
  Marketable securities .....................................           --        14,132
  Property and equipment, net ...............................       83,219        51,075
  Other assets ..............................................        1,747         1,801
                                                                ----------   -----------
                                                                $  304,112   $   235,163
                                                                ==========   ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt .........................   $    2,571   $       504
  Trade accounts payable ....................................       50,256        33,558
  Accrued payroll and payroll taxes .........................        3,706         4,501
  Accrued expenses ..........................................        8,573        10,015
  Income taxes payable ......................................        3,626         6,826
                                                                ----------   -----------
                                                                    68,732        55,404
                                                                ----------   -----------
Non current liabilities:
  Long term debt ............................................       26,786            --
  Deferred taxes ............................................        8,584         3,977
  Accrued lease liability ...................................       13,795        10,523
                                                                ----------   -----------
                                                                    49,165        14,500
                                                                ----------   -----------
                                                                   117,897        69,904
                                                                ----------   -----------
Commitments and contingencies

Shareholders' Equity:
 Preferred stock, no par value, 10,000,000 shares authorized;
  none issued ...............................................           --            --

  Common stock, no par value, 40,000,000 shares authorized;
   issued and outstanding 19,655,100 shares at December
   31, 2004 and 19,357,541 shares at December 31, 2003  .....      109,131       105,023
  Retained earnings .........................................       77,084        60,236
                                                                ----------   -----------
                                                                   186,215       165,259
                                                                ----------   -----------
                                                                $  304,112   $   235,163
                                                                ==========   ===========
</TABLE>

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

                                       38
<PAGE>

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

                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                          --------------------------------------------
                                                                              2003            2002
                                                                          as restated,    as restated,
                                                              2004         see Note 2      see Note 2
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
Net sales .............................................   $    497,626    $    433,928    $    393,392
Cost of sales (including buying and distribution costs)        299,872         272,034         244,601
                                                          ------------    ------------    ------------
Gross margin ..........................................        197,754         161,894         148,791
Selling, general and administrative expenses ..........        166,485         131,890         122,984
Pre-opening expenses ..................................          4,036           2,842           2,884
                                                          ------------    ------------    ------------
Income from operations ................................         27,233          27,162          22,923
  Interest expense ....................................            380              92             277
  Interest income .....................................           (543)           (496)           (750)
                                                          ------------    ------------    ------------
Income before income taxes ............................         27,396          27,566          23,396
  Provision for income taxes ..........................         10,548          10,532           9,188
                                                          ------------    ------------    ------------
Net income ............................................   $     16,848    $     17,034    $     14,208
                                                          ============    ============    ============
Basic net income per share ............................   $       0.86    $       0.89    $       0.80
                                                          ============    ============    ============
Weighted average shares outstanding ...................     19,481,623      19,112,816      17,861,897
                                                          ============    ============    ============
Diluted net income per share ..........................   $       0.84    $       0.86    $       0.75
                                                          ============    ============    ============
Weighted average shares outstanding plus impact
 of stock options .....................................     20,011,503      19,729,418      18,828,130
                                                          ============    ============    ============
</TABLE>

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

                                       39
<PAGE>

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

                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                           RETAINED
                                                                                           EARNINGS
                                                                            COMMON       as restated,
                                                            SHARES           STOCK        see Note 2          TOTAL
                                                         -------------   -------------   -------------    -------------
<S>                                                         <C>          <C>             <C>              <C>
Balance, December 31, 2001 (as previously reported) ..      14,932,012   $      43,807   $      29,920    $      73,727
Prior year adjustment (see Note 2) ...................              --              --            (926)            (926)
                                                         -------------   -------------   -------------    -------------
Balance, December 31, 2001 (as restated, see Note 2) .      14,932,012          43,807          28,994           72,801
Net income (as restated, see Note 2) .................              --              --          14,208           14,208
Proceeds from the sale of common stock ...............       3,500,000          52,125              --           52,125
Exercise of stock options ............................         374,035           1,481              --            1,481
Compensation expense related to stock options ........              --             300              --              300
Tax benefit from exercise of stock options ...........              --           1,941              --            1,941
                                                         -------------   -------------   -------------    -------------
Balance, December 31, 2002 (as restated, see Note 2) .      18,806,047          99,654          43,202          142,856
Net income (as restated, see Note 2) .................              --              --          17,034           17,034
Exercise of stock options ............................         551,494           2,719              --            2,719
Tax benefit from exercise of stock options ...........              --           2,650              --            2,650
                                                         -------------   -------------   -------------    -------------
Balance, December 31, 2003 (as restated, see Note 2) .      19,357,541         105,023          60,236          165,259
Net income ...........................................                              --          16,848           16,848
Exercise of stock options ............................         297,559           1,805                            1,805
Tax benefit from exercise of stock options ...........              --           2,303              --            2,303
                                                         -------------   -------------   -------------    -------------
Balance, December 31, 2004 ...........................      19,655,100   $     109,131   $      77,084    $     186,215
                                                         -------------   -------------   -------------    -------------
</TABLE>

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

                                       40
<PAGE>

                         A.C. MOORE ARTS & CRAFTS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                        -----------------------------------------------
                                                                                             2003             2002
                                                                                         as restated,     as restated,
                                                                             2004         see Note 2       see Note 2
                                                                        -------------    -------------    -------------
<S>                                                                     <C>              <C>              <C>
Cash flows from operating activities:
Net income ..........................................................   $      16,848    $      17,034    $      14,208
Adjustments to reconcile net income to net cash provided by operating
 activities:
  Depreciation and amortization .....................................           8,967            7,178            6,330
  Non-cash change in accrued lease liability ........................           3,272            2,671            2,526
  Compensation expense related to stock options .....................              --               --              300
  Provision for deferred income taxes, net ..........................           1,934             (371)           1,561
  Changes in assets and liabilities:
    Inventories .....................................................         (21,339)         (18,996)         (16,823)
    Prepaid expenses and other current assets .......................          (4,693)            (233)            (751)
    Accounts payable, accrued payroll and payroll taxes
     and accrued expenses ...........................................          14,461            9,758            2,649
    Income taxes payable ............................................            (897)           6,135              682
    Other ...........................................................             (58)              51           (1,026)
                                                                        -------------    -------------    -------------
Net cash provided by operating activities ...........................          18,495           23,227            9,656
                                                                        -------------    -------------    -------------
Cash flows from investing activities:
  Capital expenditures ..............................................         (40,999)         (28,356)         (11,168)
  Investment in marketable securities ...............................          (3,426)         (14,132)              --
                                                                        -------------    -------------    -------------
Cash flows (used in) investing activities ...........................         (44,425)         (42,488)         (11,168)
                                                                        -------------    -------------    -------------
Cash flows from financing activities:
  Sale of shares-net ................................................              --               --           52,125
  Exercise of stock options .........................................           1,805            2,719            1,481
  Increase in long-term debt ........................................          30,000               --
  Repayment of long-term debt .......................................            (643)
  Proceeds from line of credit ......................................              --               --            2,000
  Repayment of line of credit .......................................              --               --           (2,000)
  Repayment of equipment leases .....................................            (504)          (1,342)          (1,328)
                                                                        -------------    -------------    -------------
Net cash provided by financing activities ...........................          30,658            1,377           52,278
                                                                        -------------    -------------    -------------
Net increase (decrease) in cash and cash equivalents ................           4,728          (17,884)          50,766
Cash and cash equivalents at beginning of period ....................          43,700           61,584           10,818
                                                                        -------------    -------------    -------------
Cash and cash equivalents at end of period ..........................   $      48,428    $      43,700    $      61,584
                                                                        =============    =============    =============
Supplemental cash flow information:
Cash paid during the year for:
  Interest ..........................................................   $         496    $          95    $         316
                                                                        =============    =============    =============
  Income taxes ......................................................   $       9,553    $       4,807    $       6,945
                                                                        =============    =============    =============
Non-cash items:
  Tax benefit of stock options ......................................   $       2,303    $       2,650    $       1,941
                                                                        =============    =============    =============
</TABLE>

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

                                       41
<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, 2004, the Company operated a 96-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, such as purchasing and receiving costs, inbound
freight, duties related to import purchases, internal transfer costs and
warehousing costs.

Marketable Securities. Marketable securities represent investments in municipal
bonds with maturities of three months or longer from time of purchase. They are
classified as held-to-maturity and recorded at amortized cost.

Property and equipment. Property and equipment are stated at cost. In
constructing the new distribution center, the Company capitalized interest in
the amount of $202,000. Depreciation is provided on a straight-line basis over
the estimated useful lives of the assets. Buildings are depreciated over 40
years and building improvements are depreciated principally over 20 years.
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 original 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 the carrying values of the asset 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 2004, 2003 or 2002.

The Company capitalizes certain costs incurred in connection with developing or
obtaining internal use software in accordance with Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." These capitalized software costs are included in Property and
Equipment, net in the consolidated balance sheets. These costs are being
amortized over the estimated useful life of the software, not to exceed five
years.

                                       42
<PAGE>

Other Assets. Includes amounts to obtain store leases. These amounts are being
amortized over the life of the original lease.

Revenue recognition. The Company recognizes revenue at the time of sale of
merchandise to its customers. The value of point of sale coupons, which have a
very limited life, and other discounts that result in a reduction of the price
paid by the customer are recorded as a reduction of sales. Sales returns, which
are reserved for based on historical experience, are provided for in the period
that the related sales are recorded. Proceeds from the sale of gift cards are
recorded as gift card liability and recognized as revenue when redeemed by the
holder.

Lease Accounting. The Company commences accounting for store leases on the date
they take possession of the leased space. Landlord allowances and incentives are
recorded as deferred rent liabilities and are amortized as a reduction of rent
expense over the initial term of the lease, commencing with the date of
possession.

Store pre-opening expenses. Direct incremental costs incurred to prepare a store
for opening, including straight-line rent expense, 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. Co-op advertising funds
are only recognized when we have performed our contractual obligations under a
co-op advertising agreement. Advertising expense before the consideration of
cooperative advertising allowances was $23.9 million , $20.4 million and $18.7
million for 2004, 2003 and 2002 respectively, and is included in selling,
general, and administrative expense

Fair value of financial instruments. 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 Company
invests cash balances in excess of operating requirements primarily in money
market mutual funds and to a lesser extent in interest-bearing securities with
maturities of less than two years. The fair value of the Company's cash and
equivalents at December 31, 2004 approximated carrying value. The Company had no
borrowings outstanding under the line of credit at December 31, 2004. The
interest rates on the Company's mortgages fluctuate with market rates and
therefore the value of these financial instruments will not be impacted by a
change in interest rates. Based on the amounts existing at December 31, 2004,
the impact of a hypothetical increase or decrease in interest rates of 10%
compared with the rates in effect at December 31, 2004 would result in an
increase or decrease in the Company's interest expense of $98,000 annually, and
an increase or decrease in the Company's interest income of $89,000 annually.

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. No stock-based employee compensation has been included in the
determination of net income. See Recent Accounting Pronouncements.

                                       43
<PAGE>

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>
                                                                                        2003            2002
                                                                        2004        as restated     as restated
                                                                    ------------    ------------    -------------
<S>                                                                 <C>             <C>             <C>
Net income..................... -- As reported                      $ 16,848,000    $ 17,034,000    $  14,208,000
                                -- Compensation cost, net of tax       1,749,000       1,268,000          725,000
                                -- Pro forma                          15,099,000      15,766,000       13,483,000

Basic earnings per share....... -- As reported                      $        .86    $        .89    $         .80
                                -- Pro forma                                 .78             .82              .75
Diluted earnings per share..... -- As reported                      $        .84    $        .86    $         .75
                                -- Pro forma                                 .75             .80              .72
</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:

<TABLE>
<CAPTION>
                                                  2004        2003        2002        2001
                                                --------    --------    --------    --------
<S>                                             <C>         <C>         <C>         <C>
Average fair value of options granted .......   $  11.15    $  12.99    $  10.08    $   4.59
Risk free interest rate .....................        3.8%        3.2%        4.1%        5.1%
Dividend yield ..............................         --          --          --          --
Average expected life .......................    4.9 yrs     4.5 yrs       7 yrs       7 yrs
Expected stock price volatility .............       54.9%         56%       45.2%       48.4%
</TABLE>

Income Taxes. The Company uses the asset and liability method of accounting for
income taxes. The Company does business in various jurisdictions that impose
income taxes. Management determines the aggregate amount of income tax expense
to accrue and the amount currently payable based upon the tax statutes of each
jurisdiction. This process includes adjusting income determined using generally
accepted accounting principles for items that are treated differently by the
applicable taxing authorities. Deferred tax liabilities are reflected on the
Company's balance sheet for temporary differences that will reverse in
subsequent years.

Recent Accounting Pronouncements. On December 16, 2004, the Financial Accounting
Standards Board (FASB) issued FASB Statement No. 123(R), Share-Based Payment
(FAS 123(R)). FAS 123(R) revised FASB Statement No. 123, Accounting for
Stock-Based Compensation (FAS 123) and requires companies to expense the fair
value of employee stock options and other forms of stock-based compensation. FAS
123(R) must be adopted no later than for periods beginning after June 15, 2005.

Previously, in complying with FAS 123, the Company disclosed the fair value of
stock options granted and its pro-forma impact on the Company's net income in a
footnote to its financial statements. The Company is currently considering which
transition method it expects to select in adopting FAS 123(R), and whether this
new accounting requirement will result in any changes in compensation
strategies. Information contained in the Company's footnotes provide the impact
on pro forma net income for past financial statements. The adoption of FAS
123(R) on future financial statements is expected to be material.

                                       44
<PAGE>

Reclassification. Certain reclassifications have been made to the prior years'
financial statements to conform to the current year presentation.

2.      RESTATEMENT OF FINANCIAL STATEMENTS

The Company has determined that its method of accounting for leasehold
improvements funded by landlord incentives or allowances (tenant improvement
allowances) and its method of accounting for rent holidays were not in
accordance with accounting principles generally accepted in the United States of
America. As a result, the Company has restated its consolidated financial
statements for each of the years ended December 31, 2003 and 2002.

The Company has historically accounted for tenant improvement allowances as a
reduction of the property, plant and equipment account on its balance sheet,
amortized the allowances as a reduction to depreciation expense in its income
statement and reflected the cash received within investing activities in its
statement of cash flows. FASB Technical Bulletin 88-1 ("FTB 88-1"), "Issues
Relating to Accounting for Leases," requires these allowances to be recorded as
deferred rent liabilities on the consolidated balance sheets and amortized as a
reduction to rent expense on the income statement. In addition, the cash
received by the Company should have been recorded as a component of operating
activities on the consolidated statements of cash flows. Depreciation of the
leasehold improvement begins effective with the opening of the store as the
Company has accounted for it in the past. However, amortization of the landlord
allowance commences on the date the Company has the right to control the use of
the leased property, which is consistent with the recording of rent expense as
described below. Previously, the Company had commenced amortization on the date
the store was opened.

The Company has historically recognized rent holiday periods on a straight-line
basis over the lease term commencing with the opening date for each store. The
period during which the store was being fixtured and stocked with merchandise
was excluded from the straight-line rent schedule. FASB Technical Bulletin 85-3
("FTB 85-3"), "Accounting for Operating Leases with Scheduled Rent Increases,"
states that rent holidays should be recognized on a straight-line basis over the
lease term, which commences on the date the Company has the right to control the
use of the leased property. For our Company, this is generally one to three
months prior to a store opening date. The amount of rent expensed prior to store
opening will be included in "Pre-opening expenses" on the Company's consolidated
statements of income.

The correction of this accounting resulted in the Company recording additional
deferred rent in "Accrued lease liability", additional leasehold improvements in
"Property and equipment, net" and to adjust "Retained earnings" on the
consolidated balance sheets, as well as to correct "Pre-opening expenses" and
"selling, general, and administrative expenses" in the consolidated statements
of income for each of the two years in the period ended December 31, 2003. The
cumulative impacts of these adjustments reduced retained earnings as of
January 1, 2002 by $926,000, net of tax.

                                       45
<PAGE>

Following is a summary of the effects of these adjustments on the Company's
consolidated statements of income and of cash flows for the year ended December
31, 2003 and 2002, as well as the Company's balance sheet as of December 31,
2003 (in thousands, except per share data):

                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                    AS
                                                PREVIOUSLY
                                                 REPORTED       ADJUSTMENT       AS RESTATED
                                               -------------   -------------    -------------
<S>                                            <C>             <C>              <C>
YEAR ENDED DECEMBER 31, 2003
Selling, general and administrative expenses   $     132,108   $        (218)   $     131,890
Pre-opening expenses .......................           2,176             666            2,842
Income from operations .....................          27,610            (448)          27,162
Income before income taxes .................          28,014            (448)          27,566
Provision for income taxes .................          10,703            (171)          10,532
Net income .................................          17,311            (277)          17,034
Basic net income per share .................             .91           (0.02)            0.89
Diluted net income per share ...............             .88           (0.02)            0.86

YEAR ENDED DECEMBER 31, 2002
Selling, general and administrative expenses   $     123,117   $        (133)   $     122,984
Pre-opening expenses .......................           2,340             544            2,884
Income from operations .....................          23,334            (411)          22,923
Income before income taxes .................          23,807            (411)          23,396
Provision for income taxes .................           9,350            (162)           9,188
Net income .................................          14,457            (249)          14,208
Basic net income per share .................            0.81           (0.01)             .80
Diluted net income per share ...............            0.77           (0.02)             .75
</TABLE>

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                    AS
                                                PREVIOUSLY
                                                 REPORTED       ADJUSTMENT       AS RESTATED
                                               -------------   -------------    -------------
<S>                                            <C>             <C>              <C>
DECEMBER 31, 2003
Property and equipment, net ................   $      47,706   $       3,369    $      51,075
Deferred tax liability .....................           4,950            (973)           3,977
Accrued lease liability ....................           4,729           5,794           10,523
Retained earnings ..........................          61,688          (1,452)          60,236
Shareholder's equity .......................         166,711          (1,452)         165,259
Total liabilities and shareholders' equity .         231,794           3,369          235,163
</TABLE>

                                       46
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                    AS
                                                PREVIOUSLY
                                                 REPORTED       ADJUSTMENT       AS RESTATED
                                               -------------   -------------    -------------
<S>                                            <C>             <C>              <C>
YEAR ENDED DECEMBER 31, 2003
Net cash provided by operating activities ..   $      21,473   $       1,754    $      23,227
Cash flows (used in) investing activities ..         (40,734)         (1,754)         (42,488)

YEAR ENDED DECEMBER 31, 2002
Net cash provided by operating activities ..   $       8,171   $       1,485    $       9,656
Cash flows (used in) investing activities ..          (9,683)         (1,485)         (11,168)
</TABLE>

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<S>                                            <C>             <C>              <C>
DECEMBER 31, 2001
Retained earnings                              $      29,920   $        (926)   $      28,994
</TABLE>

3.      CHANGE IN ACCOUNTING PRINCIPLE

For all vendor contracts entered into or modified after December 31, 2002, the
Company has adopted the Emerging Issues Task Force (EITF) 02-16, Accounting by a
Customer (including a Reseller) for Cash Consideration Received from a Vendor.
EITF 02-16 addresses the accounting for cash consideration received by a
customer from a vendor (e.g., slotting fees, cooperative advertising payments,
buydowns) and rebates or refunds from a vendor that is payable only if the
customer completes a specified cumulative level of purchases or remains a
customer for a specified time period. The change in accounting means that vendor
monies which support the Company's advertising programs are now being recorded
as a reduction in the cost of inventory, and are recognized as a reduction of
cost of goods sold when the inventory is sold. Previously, they were accounted
for as an offset to advertising costs. This accounting change results in a
timing difference as to when these monies are recognized in the Company's income
statement. The adoption of EITF 02-16 reduced the Company's 2004 net income by
$3.4 million or $0.17 per share. In 2004, the change increased gross margin by
$11.9 million, increased selling, general and administrative costs by $17.4
million, and decreased inventory by $5.5 million. In 2003 and 2002 we recorded
vendor advertising support as a reduction of selling general and administrative
expenses in the amount of $13.6 million and $10.2 million respectively.

4.      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,
                                               ----------------------------------------------
                                                   2004            2003             2002
                                               -------------   -------------    -------------
                                                              (in thousands)
<S>                                                   <C>             <C>              <C>
Basic ......................................          19,482          19,113           17,862
Effect of dilutive options .................             530             616              966
                                               -------------   -------------    -------------
Diluted ....................................          20,012          19,729           18,828
                                               =============   =============    =============
</TABLE>

                                       47
<PAGE>

        Options whose exercise price is in excess of the average market price,
305,799 shares in 2004, 614,719 shares in 2003 and 309,850 shares in 2002, have
not been considered as dilutive options.

5.      PROPERTY AND EQUIPMENT

Property and equipment consists of:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           --------------------------
                                                                             2003
                                                              2004        as restated
                                                           -----------    -----------
                                                                 (in thousands)
        <S>                                                <C>            <C>
        Land ...........................................   $     2,466    $     2,238
        Buildings and improvements .....................        38,133             --
        Furniture, fixtures and equipment ..............        74,907         54,138
        Leasehold improvements .........................         6,364          4,333
        Distribution Center under construction .........            --         15,399
        Equipment for future stores ....................           309            711
        Capital leases .................................            --          4,715
                                                           -----------    -----------
                                                               122,179         81,534
        Less: Accumulated depreciation and amortization        (38,960)       (30,459)
                                                           -----------    -----------
                                                           $    83,219    $    51,075
                                                           ===========    ===========
</TABLE>

6.      FINANCING AGREEMENT

On October 28, 2003 we signed two mortgage agreements with Wachovia Bank
relating to the new corporate offices and distribution center. The mortgages
totaled $30.0 million of which $29.4 million was outstanding at December 31,
2004. These mortgages are secured by land, building, and equipment. Borrowings
under the mortgages are repayable at between seven and 15 years and will bear
interest rates that will vary between LIBOR plus 85 basis points (3.25% at
December 31, 2004) and LIBOR plus 135 basis points (3.75% at December 31, 2004),
depending on the debt service coverage ratio and the length of the mortgage
payment. We have the option of fixing the interest rate at any time. The
mortgages contain covenants that, among other things, restrict our ability to
incur additional indebtedness or guarantee obligations in excess of $8 million,
engage in mergers or consolidations, dispose of assets, make acquisitions
requiring a cash outlay in excess of $10 million, make loans or advances in
excess of $1 million, or change the nature of our business. We are restricted in
capital expenditures, paying dividends and making other distributions unless
certain financial covenants are maintained including those relating to tangible
net worth, funded debt and a current ratio. The mortgages also define various
events of default, including cross default provisions, defaults for any material
judgments or a change in control. At December 31, 2004 the Company was in
compliance with these agreements. Maturities of the mortgages are $2,571,000 per
year for the next five years.

We currently have a $25.0 million line of credit agreement with Wachovia Bank,
which expires on May 1, 2006. Borrowings under this line will bear interest at
LIBOR plus 95 basis points, 3.35% at December 31, 2004. There were no amounts
outstanding at December 31, 2004 under this agreement nor were there amounts
outstanding at December 31, 2003 under the previous revolving line of credit.

                                       48
<PAGE>

7.      INCOME TAXES

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,
                                                             -----------------------------------------
                                                                               2003           2002
                                                                2004        as restated    as restated
                                                             -----------    -----------    -----------
                                                                          (in thousands)
        <S>                                                  <C>            <C>            <C>
        United States federal taxes at statutory rate ....   $     9,595    $     9,643    $     8,190
        State and local taxes, net .......................         1,236          1,163            982
        Non-deductible stock option expense ..............            --             --            105
        Other ............................................          (283)          (274)           (89)
                                                             -----------    -----------    -----------
        Income tax provision .............................   $    10,548    $    10,532    $     9,188
                                                             ===========    ===========    ===========
</TABLE>

The income tax provision consists of the following:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                             -----------------------------------------
                                                                               2003           2002
                                                                2004        as restated    as restated
                                                             -----------    -----------    -----------
                                                                          (in thousands)
        <S>                                                  <C>            <C>            <C>
        Current tax expense:
          Federal .......................................    $     6,407    $     8,083    $     6,245
          State .........................................          2,207          2,820          1,382
                                                             -----------    -----------    -----------
            Total current ...............................          8,614         10,903          7,627
                                                             -----------    -----------    -----------
        Deferred tax expense:
          Federal .......................................          2,239           (354)         1,402
          State .........................................           (305)           (17)           159
                                                             -----------    -----------    -----------
            Total deferred ..............................          1,934           (371)         1,561
                                                             -----------    -----------    -----------
            Total income tax provision ..................    $    10,548    $    10,532    $     9,188
                                                             ===========    ===========    ===========
</TABLE>

        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. The
tax effect of temporary differences and carry forwards that compromise
significant portions of deferred tax assets and liabilities is as follows:

                                       49
<PAGE>

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           --------------------------
                                                                             2003
                                                              2004        as restated
                                                           -----------    -----------
                                                                 (in thousands)
        <S>                                                <C>            <C>
        CURRENT DEFERRED TAXES
        Inventory Valuation ............................   $     3,276    $        --
        Insurance claim receivable .....................          (537)            --
        Other ..........................................           (66)            --
                                                           -----------    -----------
        Total current deferred taxes ...................   $     2,673    $
                                                           -----------    -----------
        LONG-TERM DEFERRED TAXES
        Property and equipment .........................       (12,860)        (7,276)
        Accrued rent expense ...........................         4,276          2,877
        Other ..........................................            --            422
                                                           -----------    -----------
        Total long-term deferred taxes .................        (8,584)        (3,977)
                                                           -----------    -----------
        Net deferred tax ...............................   $    (5,911)   $    (3,977)
                                                           -----------    -----------
</TABLE>

8.      SHAREHOLDER'S EQUITY

The Company has authorized 10,000,000 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.

On June 25, 2002 the Company's Board of Directors approved a two-for-one common
stock split to shareholders of record as of the close of business on July 15,
2002. The shares were distributed on July 31, 2002. All references to the number
of shares of Common Stock (except for shares authorized), per share prices, and
earning per share amounts in the consolidated financial statements and related
notes thereto have been adjusted to reflect the stock split on a retroactive
basis, unless otherwise expressly stated.

Under the Company's Employee, Director and Consultant Stock Option Plan (the
"1997 Plan"), the Company may grant up to 2,000,000 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 under the 1997 Plan
amounted to 7,309 at December 31, 2004 and 375 at December 31, 2003.

In March 2002, the Company's Board of Directors adopted the Company's 2002 Stock
Option Plan (the "2002 Plan"). This Plan was approved by majority shareholder
vote at the Company's Annual Meeting of Shareholders on May 16, 2002. Under the
2002 Plan, the Company may grant up to 1,500,000 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 under the 2002 Plan amounted to
845,460 at December 31, 2004 and 1,036,632 at December 31, 2003.

                                       50
<PAGE>

For 2004, 2003 and 2002, the Company's stock option activity is summarized
below:

<TABLE>
<CAPTION>
                                            2004                      2003                      2002
                                   -----------------------   -----------------------   -----------------------
                                                 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    1,544,452   $    12.23    1,798,275   $     7.48    1,752,708   $     5.02
Granted ........................      215,875        21.95      322,375        26.63      312,300        19.13
Forfeited ......................       31,636        22.40       24,704        15.44       21,698         6.27
Exercised ......................      297,559         6.07      551,494         4.93      245,035         4.82
                                   ----------   ----------   ----------   ----------   ----------   ----------
Outstanding at end of year .....    1,431,132   $    14.76    1,544,452   $    12.23    1,798,275   $     7.48
                                   ==========   ==========   ==========   ==========   ==========   ==========
Exercisable at end of year .....      930,105   $    10.14      931,224   $     6.12    1,188,980   $     4.68
                                   ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

Using a Black-Scholes options pricing model, the average grant date fair value
of options granted was $11.15, $12.99 and $10.08 for options granted in 2004,
2003 and 2002, respectively.

Also in 2002, options were exercised for 129,000 shares at an exercise price of
$2.33 by a Board Member. These shares had been granted in 1995 in recognition of
financial consulting services.

        The following table summarizes information about stock options
outstanding at December 31, 2004.

<TABLE>
<CAPTION>
                             STOCK OPTIONS OUTSTANDING              STOCK OPTIONS EXERCISABLE
                  -----------------------------------------------   --------------------------
                              WEIGHTED AVERAGE       WEIGHTED                     WEIGHTED
   RANGE OF                    REMAINING LIFE    AVERAGE EXERCISE             AVERAGE EXERCISE
EXERCISE PRICES    SHARES         (YEARS)             PRICE          SHARES         PRICE
---------------   ---------   ----------------   ----------------   -------   ----------------
  <S>             <C>               <C>             <C>             <C>           <C>
   2.88-3.94        281,947         5.1          $           3.54   281,947   $           3.54
   4.50-5.45        178,867         3.1                      4.65   178,867               4.65
   7.69-8.32        195,605         5.5                      8.12   195,605               8.12
  19.11-21.95       468,914         8.5                     20.36   169,435              19.11
     26.67          305,799         8.7                     26.67   104,251              26.67
                  ---------   ----------------   ----------------   -------   ----------------
                  1,431,132         6.8          $          14.76   930,105   $          10.14
                  =========   ================   ================   =======   ================
</TABLE>

9.      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 100%
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 2004, 2003 and 2002 was $298,000, $287,000, and $277,000,
respectively.

                                       51
<PAGE>

10.     COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company leases its retail stores and some vehicles under noncancelable
operating leases. Most 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. Rent escalations are amortized over the initial term commencing on the
date the Company takes possession. The pro rata portion of rent holidays and
scheduled rent escalations has been included in accrued lease liabilities in the
accompanying balance sheet. For the years 2004 and 2003 the amounts of rent
expense recognized over the amounts paid were $1,674,000 and $1,197,000,
respectively, and has been included in other accrued lease liabilities in the
accompanying consolidated balance sheet.

Rent expense under operating leases consists of:

                                            YEAR ENDED DECEMBER 31,
                                         ------------------------------
                                           2004       2003       2002
                                         --------   --------   --------
                                                 (in thousands)
        Minimum rentals ..............   $ 27,017   $ 23,503   $ 20,450
        Contingent payments ..........         84        107        148
                                         --------   --------   --------
                                         $ 27,101   $ 23,610   $ 20,598
                                         ========   ========   ========

As of December 31, 2004, the Company entered into seven leases for stores to
open in 2005.

Future minimum lease payments (including those for unopened stores) as of
December 31, 2004 for non-cancelable operating leases with terms in excess of
one year are as follows (in thousands):

                2005...........................................      $  28,992
                2006...........................................         30,365
                2007...........................................         29,510
                2008...........................................         27,136
                2009...........................................         25,290
                Thereafter.....................................        100,155
                                                                     ---------
                Total minimum future rentals...................      $ 241,448
                                                                     =========

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.

11.     RELATED PARTY TRANSACTIONS

As of December 31, 2004 the Company had a receivable based on premiums it had
paid in years prior to 2003 for a split-dollar second-to-die life insurance
policy on the lives of Jack Parker and Patricia A. Parker. Subsequent to
year-end, Mr. Parker reimbursed the Company for the full amount of the
receivable, $516,000.

                                       52
<PAGE>

Richard J. Drake, a director of the Company, is a member of a law firm which the
Company retains. The Company has paid fees to Mr. Drake's firm in the amount of
$83,000, $121,000 and $93,000 during the years ended December 31, 2004, 2003 and
2002, respectively.

In 2003 and 2002, the Company reimbursed L'egent International, Ltd. and related
companies ("L'egent") $352,000 and $374,000, respectively, for merchandise sold
in the Company's stores. William Kaplan, a director of the Company, is Chairman
of the Board of Directors and an executive officer and principal shareholder of
L'egent.

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(b) of Regulation S-K.

ITEM 9A.    CONTROLS AND PROCEDURES.

CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES

        We carried out an evaluation, with the participation of our principal
executive officer and principal financial officer, of the effectiveness of our
disclosure controls and procedures as of December 31, 2004. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that, as of December 31, 2004, our disclosure controls and procedures,
as defined in Rule 13a-15(e), were effective to ensure that information required
to be disclosed by the issuer in the reports that it files or submits under the
Securities Exchange Act of 1934 (the "Exchange Act") are recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

        Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
carried out an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2004 based on the Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO"). Based on this evaluation, our management concluded
that our internal control over financial reporting was effective as of
December 31, 2004.

        PricewaterhouseCoopers LLP, the independent registered public accounting
firm that audited our financial statements included in this Annual Report on
Form 10-K, has audited our management's assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2004 as stated in
their report which is included herein.

MANAGEMENT'S CONSIDERATION OF THE RESTATEMENT

        In coming to the conclusion that our internal control over financial
reporting was effective as of December 31, 2004, our management considered,
among other things, the control deficiency related to periodic review of the
application of generally accepted accounting principles, which resulted in the
need to restate our previously issued financial statements as disclosed in "Note
2" to the accompanying consolidated financial statements included in this Form
10-K. After reviewing and analyzing the

                                       53
<PAGE>

Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 99,
"Materiality," Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting," paragraph 29 and SAB Topic 5 F, "Accounting Changes Not
Retroactively Applied Due to Immateriality," and taking into consideration (i)
that the restatement adjustments did not have a material impact on the financial
statements of prior interim or annual periods taken as a whole; (ii) that the
cumulative impact of the restatement adjustments on stockholders' equity was not
material to the financial statements of prior interim or annual periods; and
(iii) that we decided to restate our previously issued financial statements
solely because the cumulative impact of the error, if recorded in the current
period, would have been material to the current year's reported net income, our
management concluded that the control deficiency that resulted in the
restatement of the prior period financial statements was not a material
weakness. Furthermore, our management concluded that, as of December 31, 2004,
we had no material weaknesses.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

        Our management carried out an evaluation, with the participation of our
principal executive officer and principal financial officer, of changes in our
internal control over financial reporting, as defined in Exchange Act Rule 13a
-15(f). Based on this evaluation, our management determined that no change in
our internal control over financial reporting occurred during the fourth quarter
of 2004 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

        None.

                                       54
<PAGE>

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

        Incorporated by reference from our Proxy Statement relating to our 2005
Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K, except information concerning our executive
officers which is set forth in Part I of this Annual Report on Form 10-K and
which is incorporated herein by reference.

        CODE OF ETHICS

        We have adopted a Code of Business Ethics and Conflict of Interest
Policy that applies to all of our directors and employees including, without
limitation, our principal executive officer, our principal financial officer,
our principal accounting officer and all of our employees performing similar
functions. Our Code of Business Ethics and Conflict of Interest Policy is
available on our website, located at www.acmoore.com/corporate.asp. We intend to
satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an
amendment to a provision of our Code of Business Ethics and Conflict of Interest
Policy by posting such information on our website at the location specified
above.

ITEM 11.    EXECUTIVE COMPENSATION.

        Incorporated by reference from our Proxy Statement relating to our 2005
Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.

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

        Incorporated by reference from our Proxy Statement relating to our 2005
Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.

                                       55
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

        The following table details information regarding our existing equity
compensation plans as of December 31, 2004:

<TABLE>
<CAPTION>
                                                                                                             (c)
                                                                                                    NUMBER OF SECURITIES
                                                        (a)                                        REMAINING AVAILABLE FOR
                                                NUMBER OF SECURITIES               (b)              FUTURE ISSUANCE UNDER
                                                 TO BE ISSUED UPON           WEIGHTED-AVERAGE        EQUITY COMPENSATION
                                                EXERCISE OF OUTSTANDING     EXERCISE PRICE OF         PLANS (EXCLUDING
                                                OPTIONS, WARRANTS AND      OUTSTANDING OPTIONS,    SECURITIES REFLECTED IN
              PLAN CATEGORY                           RIGHTS               WARRANTS AND RIGHTS           COLUMN (a))
------------------------------------------      -----------------------    --------------------    -----------------------
<S>                                                    <C>                      <C>                        <C>
Equity compensation plans approved by
security holders (1)......................             1,431,132                $  14.76                   852,769

Equity compensation plans not approved by
security holders..........................               -                             -                         -
Total.....................................             1,431,132                $  14.76                   852,769
</TABLE>

----------
(1) These plans are our 1997 Employee, Director and Consultant Stock Option Plan
and our 2002 Stock Option Plan.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        Incorporated by reference from our Proxy Statement relating to our 2005
Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

        Incorporated by reference from our Proxy Statement relating to our 2005
Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.

                                       56
<PAGE>

                                     PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

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

            (1)   Financial Statements:

                  Report of Independent Registered Public Accounting Firm

                  Consolidated Balance Sheets at December 31, 2004 and 2003

                  Consolidated Statements of Income for each of the three years
                  in the period ended December 31, 2004

                  Consolidated Statements of Changes in Shareholders'
                  Equity for each of the three years in the period
                  ended December 31, 2004

                  Consolidated Statements of Cash Flows for each of the
                  three years in the period ended December 31, 2004

                  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 15.

     (b)    Exhibits:

            EXHIBIT NUMBER    DESCRIPTION
            --------------    --------------------------------------------------
                 3.1(1)       Articles of Incorporation

                 3.2(2)       Amended and Restated Bylaws

               +10.1(1)       1997 Employee, Director and Consultant Stock
                              Option Plan

               +10.2(3)       2002 Stock Option Plan

               +10.3(1)       Form of Stock Option Award Agreement under the
                              1997 Employee, Director and Consultant Stock
                              Option Plan

               +10.4(2)       Form of Option Agreement under the 2002 Stock
                              Option Plan

                                       57
<PAGE>

            EXHIBIT NUMBER    DESCRIPTION
            --------------    --------------------------------------------------
                 10.5(1)      Tax Indemnification Agreement, dated
                              July 22, 1997, among the Company, John E. Parker
                              and William Kaplan

                 10.6(4)      Lease, dated August 14, 1995, between Freeport 130
                              L.L.C. and A.C. Moore, Inc.

                 10.7(5)      Second  Amendment to Lease,  dated as of
                              March 25, 1998,  between  Freeport 130 L.L.C. and
                              A.C. Moore, Inc.

                 10.8(6)      Loan Agreement dated as of October 28, 2003, by
                              and between Wachovia Bank, National Association
                              and A.C. Moore Arts & Crafts, Inc., A.C. Moore
                              Incorporated, Moorestown Finance, Inc., Blackwood
                              Assets, Inc. and A.C. Moore Urban Renewal, LLC.
                              A.C. Moore will furnish to the Securities and
                              Exchange Commission a copy of any omitted exhibits
                              or schedules upon request.

                 10.9(6)      Construction Loan Agreement dated as of
                              October 28, 2003, by and between Wachovia Bank,
                              National Association and A.C. Moore Arts & Crafts,
                              Inc., A.C. Moore Incorporated, Moorestown Finance,
                              Inc., Blackwood Assets, Inc. and A.C. Moore Urban
                              Renewal, LLC. A.C. Moore will furnish to the
                              Securities and Exchange Commission a copy of any
                              omitted exhibits or schedules upon request.

                 10.10(6)     Mortgage, Assignment of Rents and Security
                              Agreement and Financing Statement dated as of
                              October 28, 2003, by and between A.C. Moore Urban
                              Renewal, LLC and Wachovia Bank, National
                              Association. A.C. Moore will furnish to the
                              Securities and Exchange Commission a copy of any
                              omitted exhibits upon request.

                 10.11        Modification Number One to Promissory Note dated
                              as of November 3, 2004, by and between Wachovia
                              Bank, National Association and A.C. Moore Arts &
                              Crafts, Inc., A.C. Moore Incorporated, Moorestown
                              Finance, Inc., Blackwood Assets, Inc. and A.C.
                              Moore Urban Renewal, LLC

                +10.12        Description of Directors and Named Executive
                              Officers Compensation

                 21.1         Subsidiaries of the Company

                 23.1         Consent of PricewaterhouseCoopers LLP

                 31.1         Certification of Chief Executive Officer pursuant
                              to Rule 13a-14(a) promulgated under the Securities
                              Exchange Act of 1934, as amended (the "Exchange
                              Act")

                                       58
<PAGE>

            EXHIBIT NUMBER    DESCRIPTION
            --------------    --------------------------------------------------
                 31.2         Certification of Chief Financial Officer pursuant
                              to Rule 13a-14(a) promulgated under the Exchange
                              Act

                 32           Certification of the Company's Chief Executive
                              Officer and Chief Financial Officer pursuant to
                              18 U.S.C. Section 1350, as adopted pursuant to
                              Section 906 of the Sarbanes-Oxley Act of 2002

----------
+       Management contract or compensatory plan or arrangement.

(1)     Incorporated by reference to the Company's Registration Statement on
        Form S-1 (File No. 333-32859), filed on August 5, 1997.

(2)     Incorporated by reference to the Company's Form 8-K filed on August 27,
        2004.

(3)     Incorporated by reference to the Company's Definitive Proxy Statement
        filed on April 22, 2002.

(4)     Incorporated by reference to Amendment No. 1 to the Company's
        Registration Statement on Form S-1 (File No. 333-32859), filed on
        September 16, 1997.

(5)     Incorporated by reference to the Company's Form 10-K for the year ended
        December 31, 1998.

(6)     Incorporated by reference to the Company's Form 10-Q for the quarter
        ended September 30, 2003.

                                       59
<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: March 16, 2005                              By:  /s/ John E. Parker
                                                       -------------------------
                                                       John E. Parker
                                                       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             Chief Executive Officer and Director            March 16, 2005
---------------------------    (Principal Executive Officer)
John E. Parker


/s/ Leslie H. Gordon           Executive Vice President and Chief Financial    March 16, 2005
---------------------------    Officer (Principal Financial and Accounting
Leslie H. Gordon               Officer)


/s/ William Kaplan             Chairman of the Board                           March 16, 2005
---------------------------
William Kaplan


/s/ Lawrence H. Fine           Director                                        March 16, 2005
---------------------------
Lawrence H. Fine


/s/ Richard Lesser             Director                                        March 16, 2005
---------------------------
Richard Lesser


/s/ Richard J. Bauer           Director                                        March 16, 2005
---------------------------
Richard J. Bauer


/s/ Richard J. Drake           Director                                        March 16, 2005
---------------------------
Richard J. Drake


/s/ Eli J. Segal               Director                                        March 16, 2005
---------------------------
Eli J. Segal


/s/ Michael J. Joyce           Director                                        March 16, 2005
---------------------------
Michael J. Joyce
</TABLE>

<PAGE>

                                  EXHIBIT INDEX

            EXHIBIT NUMBER    DESCRIPTION
            --------------    --------------------------------------------------
                  3.1(1)      Articles of Incorporation

                  3.2(2)      Amended and Restated Bylaws

                +10.1(1)      1997 Employee, Director and Consultant Stock
                              Option Plan

                +10.2(3)      2002 Stock Option Plan

                +10.3(1)      Form of Stock Option Award Agreement under the
                              1997 Employee, Director and Consultant Stock
                              Option Plan

                +10.4(2)      Form of Option Agreement under the 2002 Stock
                              Option Plan

                 10.5(1)      Tax Indemnification Agreement, dated
                              July 22, 1997, among the Company, John E. Parker
                              and William Kaplan

                 10.6(4)      Lease, dated August 14, 1995, between Freeport 130
                              L.L.C. and A.C. Moore, Inc.

                 10.7(5)      Second  Amendment to Lease,  dated as of  March
                              25, 1998,  between  Freeport 130 L.L.C. and
                              A.C. Moore, Inc.

                 10.8(6)      Loan Agreement dated as of October 28, 2003, by
                              and between Wachovia Bank, National Association
                              and A.C. Moore Arts & Crafts, Inc., A.C. Moore
                              Incorporated, Moorestown Finance, Inc., Blackwood
                              Assets, Inc. and A.C. Moore Urban Renewal, LLC.
                              A.C. Moore will furnish to the Securities and
                              Exchange Commission a copy of any omitted exhibits
                              or schedules upon request.

                 10.9(6)      Construction Loan Agreement dated as of October
                              28, 2003, by and between Wachovia Bank, National
                              Association and A.C. Moore Arts & Crafts, Inc.,
                              A.C. Moore Incorporated, Moorestown Finance, Inc.,
                              Blackwood Assets, Inc. and A.C. Moore Urban
                              Renewal, LLC. A.C. Moore will furnish to the
                              Securities and Exchange Commission a copy of any
                              omitted exhibits or schedules upon request.

                10.10(6)      Mortgage, Assignment of Rents and Security
                              Agreement and Financing Statement dated as of
                              October 28, 2003, by and between A.C. Moore Urban
                              Renewal, LLC and Wachovia Bank, National
                              Association. A.C. Moore will furnish to the
                              Securities and Exchange Commission a copy of any
                              omitted exhibits upon request.

<PAGE>

            EXHIBIT NUMBER    DESCRIPTION
            --------------    --------------------------------------------------
                 10.11        Modification Number One to Promissory Note dated
                              as of November 3, 2004, by and between Wachovia
                              Bank, National Association and A.C. Moore Arts &
                              Crafts, Inc., A.C. Moore Incorporated, Moorestown
                              Finance, Inc., Blackwood Assets, Inc. and A.C.
                              Moore Urban Renewal, LLC

                +10.12        Description of Directors and Named Executive
                              Officers Compensation

                 21.1         Subsidiaries of the Company

                 23.1         Consent of PricewaterhouseCoopers LLP

                 31.1         Certification of Chief Executive Officer pursuant
                              to Rule 13a-14(a) promulgated under the Securities
                              Exchange Act of 1934, as amended (the "Exchange
                              Act")

                 31.2         Certification of Chief Financial Officer pursuant
                              to Rule 13a-14(a) promulgated under the Exchange
                              Act

                 32           Certification of the Company's Chief Executive
                              Officer and Chief Financial Officer pursuant to 18
                              U.S.C. Section 1350, as adopted pursuant to
                              Section 906 of the Sarbanes-Oxley Act of 2002

----------
+       Management contract or compensatory plan or arrangement.

(1)     Incorporated by reference to the Company's Registration Statement on
        Form S-1 (File No. 333-32859), filed on August 5, 1997.

(2)     Incorporated by reference to the Company's Form 8-K filed on August 27,
        2004.

(3)     Incorporated by reference to the Company's Definitive Proxy Statement
        filed on April 22, 2002.

(4)     Incorporated by reference to Amendment No. 1 to the Company's
        Registration Statement on Form S-1 (File No. 333-32859), filed on
        September 16, 1997.

(5)     Incorporated by reference to the Company's Form 10-K for the year ended
        December 31, 1998.

(6)     Incorporated by reference to the Company's Form 10-Q for the quarter
        ended September 30, 2003.