<PAGE>
                                  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, 2005
                                       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
    incorporation or organization)                 Identification No.)

  130 A.C. MOORE DRIVE, BERLIN, NEW JERSEY                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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act            [ ] Yes    [X] No

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.  [ ] Yes    [X] No

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 (ss.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.               [X]

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

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

As of June 30, 2005, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $485,000,000 based on
$31.61, 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 6, 2006 was 19,852,075.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2006 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.
<PAGE>



                                     PART I

ITEM 1.        BUSINESS.

OUR COMPANY

         We are a 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 109
stores in December 2005. In 2005, for stores open for the full calendar year,
our average sales per square foot were $241, which we believe to be the highest
in our industry, and our average sales per store were $5.4 million.

         Our stores are located in the eastern United States from New England to
Florida. 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 over 50% of the U.S. 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. In the future we anticipate
opening stores in other regions.

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

OUR MARKET

         In its most recent Consumer Usage & Purchase Study, the Craft and Hobby
Association ("CHA") found that industry size was approximately $30.6 billion as
a result of a 3.8% annual growth since 2002. 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.

         The size and growth of our market is sustained by the popularity of
arts and crafts. A 2005 CHA survey reported that 75% of U.S. households have one
or more persons who craft currently or who have crafted in the past year. A
December 2005 Craftrends magazine consumer participation survey identified that
94% of all crafters are female, 70% are under the age of 55, 48% are between the
ages of 35 and 54, 74% have incomes over $40,000 per year and 44% have incomes
over $60,000 per year. The crafter is educated, with 92% having graduated from
high school and almost 60% having attended college.





                                        1
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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 the key elements in a customer's decision as to 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 regularly
interacting with our customers. We believe that our ability to rapidly 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 two to three
times per week throughout the year. In our peak selling season, our store
managers can replenish over 60% of their shelf merchandise assortment within two
to three days.






                                        2
<PAGE>


         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 presentations of various crafting techniques, live
in-store crafting demonstrations and frequent consumer crafting events. We offer
a multitude of in-store classes for children and adults in most of our stores on
a wide variety of craft skills such as scrapbooking and knitting. 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, six to 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 generally at 20% to 50% off their everyday low prices.
We believe that our price/value strategy exceeds our customers' expectations and
enhances customer loyalty.

GROWTH STRATEGY

         The market in which we operate is large and fragmented. We believe that
this presents an opportunity to continue to grow our business for the
foreseeable future. Our objective is to improve our market share in existing
geographic markets and to expand into new geographic markets while enhancing our
profitability through greater leverage of our corporate infrastructure. 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.





                                        3
<PAGE>

         OPENING NEW STORES:

         During the next two years we intend to increase our store base of 109
locations at December 31, 2005 by approximately 12% to 15% per year. Our current
strategy is to open new stores within the range of our corporate headquarters
and distribution center located in suburban Philadelphia. This geographic area
contains over 50% of the U.S. population. Ultimately, we believe that we can
operate a minimum of 175 stores within this geographic area without
significantly diluting the sales in our existing stores. In the future, we
anticipate opening 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,
including growth trends, customer traffic patterns, demographic analysis,
performance of other retailers within the area, co-tenants at the proposed site,
projected profitability and cash return on investment. We also employ the
services of an outside consulting firm and a network of real estate
professionals to assist us in real estate selection.

         We have developed a standardized procedure for opening new stores which
we continue to refine. Our new store opening team develops the floor plan and
inventory layout based on our store prototype and hires and trains team members
in preparation for the opening of each new store. For each new store we 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. Additionally, a number of new stores are
likely to be reconfigurations of previous retail space which may require our own
capital expenditures to retrofit the space for our purposes.

         INCREASING SALES IN EXISTING STORES:

         In 2005, for stores open at least one full calendar year, our average
sales per square foot were $241, which we believe to be the highest in our
industry, and our average sales per store were approximately $5.4 million. In
2005, sales in comparable stores declined by 2.6%. Previously, our comparable
store sales grew by 4% in 2004, 2% in 2003, 5% in 2002 and 8% in 2001. Stores
are added to the comparable store base at the beginning of their fourteenth full
month of operation. Our primary method of increasing sales in our existing
stores is to successfully execute our business and operating strategies,
including:

         o     providing the broadest and deepest merchandise assortment,

         o     maintaining a superior in-stock position,

         o     operating exciting and easy-to-shop stores,

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

         o     providing superior price/value for our customers.






                                        4
<PAGE>

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, 2003 through 2005:
<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                                 ----------------------------------
                                                                  2005          2004          2003
                                                                 ------        ------       -------
              <S>                                                <C>           <C>          <C>
              Art supplies, scrapbooking and frames........       33.0%         34.0%         35.0%
              Traditional crafts...........................       32.0          34.0          30.0
              Floral and accessories.......................       21.0          21.0          24.0
              Fashion crafts...............................       10.0           8.0           7.0
              Seasonal items...............................        4.0           3.0           4.0
                                                                 ------        ------       -------
              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 generally
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
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.





                                        5
<PAGE>

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.

         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 a multitude of in-store classes for children and adults on a
wide variety of craft skills 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, six to eight department managers, and a staff of
full-time and part-time team members. Our store managers and associate store
managers are responsible for store results, primarily merchandising, customer
service, training, hiring store level team members, inventory management, and
expense control. The department managers are responsible for merchandise
ordering, inventory management and customer service. All new store managers are
promoted from within our organization. We selectively hire experienced store
managers from other retailers who start at our stores as associate store
managers. We also develop associate store managers from retail trainees and
other internal candidates.

         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






                                        6
<PAGE>

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 20 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 2005, approximately 99% of our merchandise
orders were placed through our EDI (electronic data interchange) system.
Approximately 64% of our orders were shipped directly from vendors to our
stores; the remaining 36%, 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 2005, we purchased our inventory from more than 600 vendors
worldwide. One of the key criteria for the selection of vendors is their
responsiveness to our delivery requirements and timing needs. In 2005:

         o     the largest 25 domestic vendors accounted for approximately 51%
               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

         o     approximately 12% 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 two to three times per week throughout the
year, depending on store size.




                                        7
<PAGE>


         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 at least
175 stores located within reach of the new facility. The new facility includes
an automated picking and sortation system which has enabled us to achieve
significant increases in labor productivity. The total cost of this facility was
$46.3 million.

         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 60
of our 109 stores directly from our distribution center. Additionally, we have
contracted with a dedicated third-party carrier to deliver merchandise to the 49
stores where an overnight stay is required because of travel time. In 2005,
approximately 36% 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 magazine in December 2005 surveyed over 1,000 craft
customers across the country. Of the participants, 61% were between the ages of
26 and 54, 94% were female and 44% had an annual income greater than $60,000. We
believe that our target customer is consistent with this demographic profile.

         In 2005 we advertised each week of the year, typically in midweek
editions of local and/or regional newspapers. In 2005, we also 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.

         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
offers one of the largest selections of how-to videos on the web, a collection
of over 300 different proprietary segments that customers can view 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.
We recently launched an e-marketing campaign that allows us to email all
customers in our database our weekly advertisements, news flashes regarding
upcoming events and special offers. Gift cards may be purchased online, however
we do not sell our merchandise on our website.

MANAGEMENT INFORMATION SYSTEMS

         We believe that we are proactive and aggressive in identifying,
investigating and implementing state of the art hardware, communications and
software systems from technology and industry leading companies. Combined with
our in-house developed systems, this technology creates an infrastructure that
fully supports all aspects of our merchandising, ordering, warehouse inventory
management, finance and administration, distribution and security needs.





                                        8
<PAGE>


         Our current in-store point of sale, or POS, system includes merchandise
universal product code or bar code scanning at the registers along with a radio
frequency re-order system. 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. In 2006 we will be upgrading our
existing system to provide an even speedier check-out process and provide the
capability of capturing customer data.

         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.

         During 2006 we will be focusing on the design and implementation of a
custom programmed, automated inventory replenishment system and an upgraded
in-store POS system. Additionally, a customer relations management system is
scheduled for development in 2006 and a vendor collaboration site is currently
being implemented.

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 890 Michaels stores throughout the United States and
               Canada; Jo-Ann Stores, Inc., which operates 688 traditional
               Jo-Ann Fabrics and Crafts stores and 154 Jo-Ann superstores
               nationwide; Hobby Lobby Stores, Inc., a chain which operates
               approximately 350 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.






                                        9
<PAGE>

         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, 2005, we had 2,246 full-time and 2,844 part-time
team members, 4,764 of whom worked at our stores, 163 at the distribution center
and 163 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 is good.

TRADEMARKS

         "A.C. Moore," "Fashion Forward," "Splendor of Spring," "Holiday Hues,"
"Harvest Hues," "Easy as 1*2*3," 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. All other logos
are 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. Additionally, charters for the Audit,
Compensation and Nominating and Corporate Governance Committees of our Board of
Directors and our Corporate Code of Ethics can be found on our Internet website
at www.acmoore.com under the heading "Investor Relations," "Corporate Profile."

         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

         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.










                                       10
<PAGE>

ITEM 1A.   RISK FACTORS.

           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>


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 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. 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:

         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 outstanding lease obligations;

         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;






                                       12
<PAGE>

         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,

         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.






                                       13
<PAGE>

OUR SUCCESS DEPENDS ON KEY PERSONNEL WHOM WE MAY NOT BE ABLE TO RETAIN OR HIRE.

         We are currently dependent upon the continued services, ability and
experience of our senior management team. John E. ("Jack") Parker, our Chief
Executive Officer, has announced his intention to retire no later than December
31, 2006. We currently have a search in process for a new Chief Executive
Officer. This search is led by a committee of our board of directors, chaired by
Michael J. Joyce, and by Korn/Ferry International. There are no assurances as to
when we will find a suitable candidate for this position, what the financial
cost of his or her compensation package will be, and what effect, if any, a new
Chief Executive Officer may have on our business and our ability to retain our
senior executives. The loss of the services of such senior executives or any
general instability in the composition of our senior management team could have
a negative impact on our ability to execute on our business and operating
strategy. In addition, due to competition for qualified executives, we may be
required to increase the level of compensation paid to existing and new
executives, which could increase our operating expenses.

         Once we hire a new Chief Executive Officer, our business may be
impacted by his or her familiarity with our business, his or her ability to
develop relationships with our team members and vendors, and his or her ability
to implement or change our business and operating strategy.

         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 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.






                                       14
<PAGE>

         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, 2005, we operated a chain of 109 stores. 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 36% 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 2005. 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, 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.








                                       15
<PAGE>


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 12% of all of our
merchandise being purchased directly by us from overseas vendors in 2005. 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.

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
substantially in 2005. 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 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.









                                       17
<PAGE>



                      EXECUTIVE OFFICERS OF THE REGISTRANT

         Our executive officers are as follows:
<TABLE>
<CAPTION>
                 NAME                     AGE                        POSITION
--------------------------------------    ---    ------------------------------------------------------
<S>                                       <C>    <C>
John E. ("Jack") Parker...............    64     Chief Executive Officer and Director
Lawrence H. Fine......................    52     President, Chief Operating Officer and Director
Patricia A. Parker....................    63     Executive Vice President, Merchandising
Leslie H. Gordon......................    62     Executive Vice President and Chief Financial Officer
Janet Parker..........................    43     Executive Vice President, Merchandising and Marketing
Jeffrey C. Gerstel....................    41     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. On November 28, 2005, Mr. Parker
announced his intention to retire from his position as our Chief Executive
Officer by December 31, 2006. Mr. Parker will continue to serve as our Chief
Executive Officer during 2006 until the Board of Directors appoints a new Chief
Executive Officer. Our Board of Directors has engaged the firm of Korn/Ferry
International to conduct a search for a successor. The search will include
internal as well as external candidates.

         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.

ITEM 1B.     UNRESOLVED STAFF COMMENTS.

             None.

































                                       19
<PAGE>



ITEM 2.      PROPERTIES.

         As of December 31, 2005, we operated 109 stores in 18 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:
<TABLE>
<CAPTION>
      ALABAMA (2)                MASSACHUSETTS (10)            NEW YORK (20)              PENNSYLVANIA (18)
      -------                    -------------                 --------                   ------------
      <S>                        <C>                           <C>                        <C>
       Birmingham                 Bellingham                    Amherst                    Allentown
       Montgomery                 Brockton                      Binghamton                 Altoona
                                  Danvers                       Carle Place                Bensalem
      CONNECTICUT (4)             Framingham                    DeWitt                     Broomall
      ----------                  Hanover                       Glendale                   Erie
       Manchester                 Holyoke                       Greece                     Exton
       New London                 Hyannis                       Hamburg                    Hanover
       Orange                     North Dartmouth               Hauppauge                  Harrisburg
       Plainville                 Woburn                        Holbrook                   Lancaster
                                  Worcester                     Ithaca                     Langhorne
      DELAWARE (2)                                              Latham                     Mechanicsburg
      --------                   NEW HAMPSHIRE (3)              Middletown                 Montgomeryville
       Dover                     -------------                  Nanuet                     Muncy
       Wilmington                 Manchester                    Plainedge                  Philadelphia
                                  Nashua                        Poughkeepsie               Reading
      FLORIDA (1)                 Salem                         Saratoga Springs           Scranton
      -------                                                   Staten Island              Stroudsburg
       Jacksonville              NEW JERSEY (14)                Syracuse                   Wilkes Barre
                                 ----------                     Utica
      GEORGIA (1)                 Brick Town                    Yorktown Heights          RHODE ISLAND (1)
      -------                     Clifton                                                 ------------
       Columbus                   Deptford                      NORTH CAROLINA (10)        Warwick
                                  East Brunswick                --------------
      MAINE (2)                   English Creek                 Ashville                  SOUTH CAROLINA (4)
      -----                       Hamilton                      Cary                      --------------
       Bangor                     Linden                        Concord                    Columbia
       Portland                   Manalapan                     Durham                     Greenville
                                  Moorestown                    Fayetteville               Myrtle Beach
      MARYLAND (7)                Paramus                       Greensboro                 N. Charleston
      --------                    Parsippany                    Hickory
       Bowie                      Secaucus                      Raleigh                   TENNESSEE (2)
       Frederick                  Shrewsbury                    Wilmington                ---------
       Glen Burnie                Watchung                      Winston-Salem              Chattanooga
       Hagerstown                                                                          Knoxville
       Rockville
       Waldorf                                                                            VIRGINIA (6)
       White Marsh                                                                        --------
                                                                                           Fairfax
                                                                                           Falls Church
                                                                                           Fredericksburg
                                                                                           Manassas
                                                                                           Sterling
                                                                                           Virginia Beach

                                                                                           WEST VIRGINIA (2)
                                                                                           -------------
                                                                                           Clarksburg
                                                                                           Huntington
</TABLE>
         Most store leases have an average initial term of 10 years, with three
five-year renewal options, and provide for predetermined escalations in future
minimum annual rent or additional rent contingent upon store sales levels. 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 at least
175 stores located within reach of the new facility. The new facility includes
an automated picking and sortation system which has enabled us to achieve
significant increases in labor productivity. The total cost of this facility was
$46.3 million.

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 2005, 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>
                                                                             HIGH          LOW
                                                                           -------       -------
               <S>                                                         <C>           <C>
                             YEAR ENDED DECEMBER 31, 2005
               -----------------------------------------------------
               First Quarter........................................       $ 30.09       $ 24.91
               Second Quarter.......................................         31.89         24.81
               Third Quarter........................................         33.25         18.52
               Fourth Quarter.......................................         19.84         12.40

                             YEAR ENDED DECEMBER 31, 2004
               -----------------------------------------------------
               First Quarter........................................       $ 27.00       $ 18.15
               Second Quarter.......................................         29.53         23.27
               Third Quarter........................................         27.76         19.97
               Fourth Quarter.......................................         31.37         23.06
</TABLE>
         The number of record holders of our common stock as of March 6, 2006
was 105.

         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. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Risk Factors" and the Company's
Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------------------------
                                                        2005       2004        2003        2002          2001
                                                     ---------   ---------   --------    --------      --------
<S>                                                  <C>         <C>         <C>         <C>           <C>
Statement of Income Data:
  Net sales.......................................   $ 539,436   $ 497,626   $433,928    $393,392      $332,413
  Gross margin (1)................................     212,855     197,754    161,894     148,791       124,098
  Selling, general and administrative expenses (1)     192,878     166,485    131,890     122,984       105,383
  Store pre-opening expenses......................       3,459       4,036      2,842       2,884         3,308
  Income from operations..........................      16,518      27,233     27,162      22,923        15,407
  Net income......................................      10,042      16,848     17,034      14,208         9,060
  Net income per share, diluted (2)...............   $    0.50   $    0.84   $   0.86    $   0.75      $   0.58


Weighted average shares outstanding, diluted (2)..      20,149      20,012     19,729      18,828        15,505

Balance Sheet Data (as of):
  Working capital.................................   $ 158,585   $ 150,414   $112,751    $123,811      $ 56,422
  Total assets....................................     312,757     304,112    235,163     198,559       124,354
  Total debt .....................................      26,786      29,357        504       1,846         3,174
  Shareholders' equity............................     198,509     186,215    165,259     142,856        72,801

Other Data:
  Cash flows from operating activities............   $  14,620   $  18,495   $ 23,227    $  9,656      $  7,141
  Number of stores open at end of period..........         109          96         81          71            61
  Net sales per total square foot (3).............   $     241   $     256   $    260    $    272      $    273
  Average net sales per store (3).................   $   5,417   $   5,802   $  5,839    $  6,064      $  6,070
  Comparable store sales increase (decrease)(4)...         (3%)         4%         2%          5%            8%
</TABLE>
---------------------------------
(1)   As of January 1, 2004, for all vendor contracts entered into or modified
      after December 31, 2002, the Company 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. In 2004, net income was
      reduced by $3.4 million or $0.17 per share, gross margin increased by
      $11.9 million, selling, general and administrative costs increased by
      $17.4 million and inventory decreased 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>

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

OVERVIEW

         We are a 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
109 stores in December 2005. Our stores are located in the eastern United States
from Maine to Florida.

         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 2005 we continued to strengthen and expand our
management team, including the addition of Lawrence H. Fine as our President in
June 2001 and Jeffery C. Gerstel as our Executive Vice President, Store
Operations in January 2005.

         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 43 new stores in the period
2000 to 2003, 15 new stores in 2004 and 13 new stores in 2005. 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 12% to 15% per
year, all within the reach of our suburban Philadelphia distribution center, an
area encompassing over 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 2005, this accounting change resulted in a reduction in our
net income by $1.3 million, or $0.06 per share. For the year, the change
increased gross margin by $16.7 million, increased selling, general and
administrative costs by $18.7 million and decreased inventory by $2.0 million.
In 2004, net income was reduced by $3.4 million, or $0.17 per share, gross
margin increased by $11.9 million, selling general and administrative costs
increased by $17.4 million and inventory decreased 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.





                                       24
<PAGE>


         Our sales for the year ended December 31, 2005 were $539.4 million, an
increase of 8.4% over 2004 sales of $497.6 million. Same store sales decreased
2.6%. Net income for the year 2005 decreased to $10.0 million or $0.50 per
diluted share. In 2004, our net income was $16.8 million or $0.84 per diluted
share.

         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 13 to 16 new stores in 2006. We expect to open
four stores in the first quarter and the remainder split between quarters three
and four.

         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 fiscal years 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 Information contained in our footnotes provide the impact
on pro forma net income for past financial statements. Effective January 1, 2006
we adopted the modified prospective application of implementing FAS 123(R). As
of December 31, 2005, the compensation cost related to non-vested stock options
not yet recognized totals $3.4 million. This amount will be recognized over the
next 32 months. The impact of the adoption of FAS 123(R) on 2006 net income,
including an estimate of options to be granted in 2006, is expected to be $0.08
per diluted share.

















                                       25
<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,
                                                                    ----------------------------------
                                                                      2005         2004          2003
                                                                    -------       ------        ------
         <S>                                                        <C>           <C>           <C>
         Net sales.............................................      100.0%       100.0%        100.0%
         Cost of sales.........................................       60.5         60.3          62.7
                                                                    -------       ------        ------
         Gross margin..........................................       39.5         39.7          37.3
         Selling, general and administrative expenses..........       35.8         33.4          30.4
         Store pre-opening expenses............................        0.6          0.8           0.6
                                                                    -------       ------        ------
         Income from operations................................        3.1          5.5           6.3
         Interest expense (income), net........................        0.1         (0.0)         (0.1)
                                                                    -------       ------        ------
         Income before income taxes............................        3.0          5.5           6.4
         Provision for income taxes............................        1.1          2.1           2.5
                                                                    -------       ------        ------
         Net income............................................        1.9%         3.4%          3.9%
                                                                    =======       ======        ======
</TABLE>
2005 COMPARED TO 2004

         Net Sales. Net sales increased $41.8 million, or 8.4%, to $539.4
million in 2005 from $497.6 million in 2004. This increase resulted from (i) net
sales of $19.4 million from 13 new stores opened in 2005, (ii) net sales of
$35.0 million from stores opened in 2004 not included in the comparable store
base, and (iii) a comparable store sales decrease of $12.6 million, or 2.6%. For
the year, customer transactions in comparable stores decreased by 3.2% compared
with 2004 and the average sale increased by 0.6%. Stores are added to the
comparable store base at the beginning of the fourteenth full month of
operation.

         Sales in 2005 were impacted by adverse weather conditions in the first
three quarters of the year, and by the significant decline in the yarn category
in the second half of the year. We had achieved major sales increases in yarn
during 2004 and the spring of 2005, at which time there was a large supply of
yarn in the marketplace coupled with a decline in customer demand. This resulted
in our yarn sales declining by approximately 30% in the second half of the year.
Merchandise categories that exhibited strength during the year included jewelry
making, wearables and basic crafts. Additionally, our floral and seasonal
businesses strengthened considerably in the fourth quarter.

         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 decreased 0.2% in 2005, to 39.5 % from 39.7% in 2004.

         The mix of merchandise sold decreased margins by 0.9%, principally as
the result of heavy discounting that occurred throughout the arts and crafts
sector during the fourth quarter. The application of EITF 02-16 relating to our
accounting for vendor monies which support our advertising programs on our gross
margin resulted in an increase of 0.7% in margin rate for the year ended
December 31, 2005 compared with the year ended December 31, 2004. Improved
productivity in our warehouse increased margins by 0.3% in 2005 as a result of a
reduction in distribution costs. Insurance claim proceeds added 0.3% to the
margins in 2004.






                                       26
<PAGE>

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

         Selling, general and administrative expenses, as a percent of net
sales, increased 2.4% in 2005, to 35.8% from 33.4% in 2004. As a percent to net
sales on a per store basis, selling, general and administrative expenses
increased by 2.4% in 2005 as compared with 2004. Selling, general and
administrative costs increased by 1.3% in the comparable store base as a result
of the decline in comparable store sales. There was a 1.1% increase attributable
to new stores opened in 2004 and 2005 which have higher selling, general and
administrative expenses as a percentage of sales than existing stores.

         Net Interest Expense (Income). In 2005 we had net interest expense of
$450,000 compared with net interest income of $163,000 in 2004. The increase is
principally due to interest expense from mortgages related to our new
distribution center and corporate offices which were outstanding for a full year
in 2005 compared with five months in 2004.

         Store Pre-Opening Expenses. We expense store pre-opening costs as they
are incurred, which would include straight-line expense of rent holidays prior
to store opening. Pre-opening expenses for the 13 new stores opened in 2005 and
the one store which was relocated during the year, amounted to $3.5 million. In
2004, we opened fifteen new stores and relocated two stores and incurred
pre-opening expenses of $4.0 million.

         Income Taxes. Our effective income tax rate was 37.5% for 2005 and
38.5% for 2004. The reduction in rates is consistent with the lower level of
profits and the graduated income tax rates.

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 4.0%.
Sales in 2004 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
of 2004 were impacted by the roof collapse. In 2004, customer transactions in
comparable stores increased by 2.0% compared with 2003 and the average sale
increased 2.0%. In 2004, 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 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%.






                                       27
<PAGE>

         Selling, General and Administrative Expenses. 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 our 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 mortgages related to our new
distribution center and corporate offices, which expense commenced in August
2004.

         Store Pre-Opening Expenses. 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.



























                                       28
<PAGE>

QUARTERLY RESULTS AND SEASONALITY

         The following table sets forth our unaudited quarterly operating
results for our eight most recent quarterly periods, and the number of stores
open at the end of each period (dollars in thousands, except share and store
data).
<TABLE>
<CAPTION>
                                                           FIRST        SECOND        THIRD        FOURTH
                                                          QUARTER       QUARTER      QUARTER      QUARTER
                                                          --------     --------      --------     --------
   <S>                                                    <C>          <C>           <C>          <C>
   2005
   Net sales...........................................   $122,879     $113,489      $115,094      187,974
   Gross margin........................................     48,128       45,689        46,692       72,346
   Income (loss) from operations.......................      2,123          (21)       (2,928)      17,344
   Net income (loss)...................................      1,252          (50)       (1,900)      10,740
   Net income (loss) per share, diluted................   $   0.06     $  (0.00)     $   (.10)    $   0.53
   Diluted average shares outstanding..................     20,209       19,743        19,808       20,105

   Number of stores open at end of period..............         96           98           105          109
   Comparable store sales increase (decrease)..........       (2.0%)        1.0%        (4.0%)       (4.0%)


   2004
   Net sales...........................................   $111,469     $101,194      $107,713     $177,250
   Gross margin........................................     41,930       39,342        43,703       72,779
   Income from operations..............................      1,878          421         1,420       23,514
   Net income .........................................      1,228          335           865       14,420
   Net income per share, diluted ......................   $   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%
</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.

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 2004 we borrowed $30.0 million under two mortgage agreements we have
with Wachovia Bank to finance our new distribution center and corporate offices.






                                       29
<PAGE>


         At December 31, 2005 and 2004, our working capital was $158.6 million
and $150.4 million, respectively. During 2005, 2004 and 2003, cash of $14.6
million, $18.5 million and $23.2 million was generated by operations,
respectively. In these three periods, $9.8 million, $21.3 million and $19.0
million of cash, respectively, was used to increase inventory levels to support
both new and existing stores. In 2004 and 2003, part of the inventory increase
was financed through increases in accounts payable of $14.5 million and $9.8
million, respectively. We also had the tax benefit from our executives
exercising stock options in the amount of $1.2 million in 2005, $2.3 million in
2004, and $2.7 million in 2003.

         Net cash used in investing activities during 2005, 2004 and 2003 was
$3.8 million, $44.4 million and $42.5 million, respectively. In 2005 this use of
cash was for capital expenditures of $16.1 million, paid for in part through the
sale of $12.2 million in marketable securities. We spent $11.0 million for new
stores and the remainder for remodeling existing stores and upgrading systems.
In 2004 we spent $27.0 million for the construction of our new distribution
center, $11.1 million for new stores and $6.3 million for remodeling existing
stores and upgrading systems. In 2003 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 2006, we expect to spend approximately $19.0
million on capital expenditures, which includes $11.0 million for new store
openings, and the remainder for remodeling existing stores, upgrading systems in
existing stores, warehouse equipment and corporate systems development.

         We maintain two mortgage agreements with Wachovia Bank related to our
new distribution center and corporate offices, of which $26.8 and $29.4 million
was outstanding at December 31, 2005 and 2004, respectively. The mortgages are
secured by land, building, and equipment. Of the original $30.0 million in
mortgages, $22.5 million ($20.6 million at December 31, 2005) is repayable over
15 years and $7.5 million ($6.2 million at December 31, 2005) is repayable over
7 years. Fixed 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, 2005, we were in compliance with these agreements.

         At December 31, 2005 we had a $25.0 million line of credit agreement
with Wachovia Bank, which expired 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, 2005, there were no
borrowings outstanding under this agreement. On February 22, 2006 we amended our
line of credit agreement to increase the aggregate amount available from $25.0
million to $35.0 million and to extend the expiration date from May 1, 2006 to
May 31, 2007.

         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.






                                       30
<PAGE>

         We lease our retail stores and some vehicles under noncancelable
operating leases. At December 31, 2005 our total obligations under these
operating leases were $263.0 million. The following table reflects as of
December 31, 2005 the payments due for the periods indicated.
<TABLE>
<CAPTION>
                                                                  PAYMENTS DUE BY PERIOD ($000)
                                               ---------------------------------------------------------------
                                                               LESS THAN                               AFTER
          CONTRACTUAL OBLIGATIONS                 TOTAL         1 YEAR      1-3 YEARS     4-5 YEARS   5 YEARS
------------------------------------------     ----------      --------    ----------     ---------   --------
<S>                                            <C>             <C>         <C>            <C>         <C>
Long-term Debt(1).........................     $   35,330      $  3,931    $   10,976     $  6,371    $ 14,052

Store Operating Leases (2)................        263,038        33,956        96,142       55,113      77,827
Vehicle and Equipment Leases..............          1,656           452         1,006          198          --
Purchase Obligations (3)..................            105            90            15           --          --
Deferred Tax Liability (4)................             --            --            --           --          --
Total Contractual Cash Obligations........     $  300,129      $ 38,429    $  108,139     $ 61,682    $ 91,879
</TABLE>
------------------------------------
(1)  Includes interest calculated using the effective rate of 5.3% as of
     December 31, 2005.

(2)  Most store leases have an average initial term of ten years, with three
     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

(3)  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, 2005, such obligations include
     telephone services and software licenses and maintenance contracts for
     information technology.

(4)  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.

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 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. We include 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.






                                       31
<PAGE>

         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. In accordance with generally accepted
accounting principles, we 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.

CHANGE IN ACCOUNTING PRINCIPLE

         As of January 1, 2004, 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. In 2004, net income
was reduced by $3.4 million, or $0.17 per share, gross margins increased by
$11.9 million, selling, general and administrative costs increased by $17.4
million and inventory decreased by $5.5 million.





                                       32
<PAGE>


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 fiscal years 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. Information contained in our footnotes provides the impact
on pro forma net income for past financial statements. Effective January 1, 2006
we adopted the modified prospective application of implementing FAS123(R). As of
December 31, 2005, the compensation cost related to non-vested stock options not
yet recognized totals $3.4 million. This amount will be recognized over the next
32 months. The impact of the adoption of FAS 123(R) on 2006 net income,
including an estimate of options to be granted in 2006, is expected to be $0.08
per diluted share.

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, 2005 approximated carrying value. We had no
borrowings outstanding under the line of credit at December 31, 2005. 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, 2005, the impact
of a hypothetical increase or decrease in interest rates of 10% compared with
the rates in effect at December 31, 2005 would result in an increase or decrease
in our interest expense of $143,000 annually, and an increase or decrease in our
interest income of $183,000 annually.























                                       33
<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
                                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                           A.C. MOORE ARTS & CRAFTS, INC.

                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                            <C>
Report of Independent Registered Public Accounting Firm.........................................................35

Consolidated Balance Sheets at December 31, 2005 and 2004.......................................................37

Consolidated Statements of Income for each of the three years
         in the period ended December 31, 2005..................................................................38

Consolidated Statements of Changes in Shareholders' Equity for each of the
         three years in the period ended December 31, 2005......................................................39

Consolidated Statements of Cash Flows for each of the three years
         in the period ended December 31, 2005..................................................................40

Notes to Consolidated Financial Statements......................................................................41
</TABLE>

































                                       34
<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 integrated audits of A.C. Moore Arts & Crafts, Inc.'s December
31, 2005 and December 31, 2004 consolidated financial statements and of its
internal control over financial reporting as of December 31, 2005, and an audit
of its December 31, 2003 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, 2005 and December
31, 2004, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2005 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.

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, 2005 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,
2005, based on criteria established in Internal Control - Integrated Framework
issued by the 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 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.









                                       35
<PAGE>

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 7, 2006

































                                       36
<PAGE>
<TABLE>
<CAPTION>
                                 A.C. MOORE ARTS & CRAFTS, INC.
                                  CONSOLIDATED BALANCE SHEETS

                                     (DOLLARS IN THOUSANDS)

                                                                            December 31,
                                                                    --------------------------
                                                                      2005             2004
                                                                    ---------        ---------
<S>                                                                 <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents...................................     $  57,748        $  48,428
   Marketable securities.......................................         5,224           17,558
   Inventories.................................................       152,646          142,832
   Prepaid expenses and other current assets...................         6,900            7,655
   Deferred tax asset..........................................           734            2,673
                                                                    ---------        ---------
                                                                      223,252          219,146
Non current assets:
    Property and equipment, net................................        88,098           83,219
    Other assets...............................................         1,407            1,747
                                                                    ---------        ---------
                                                                    $ 312,757        $ 304,112
                                                                    =========        =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt...........................     $   2,571        $   2,571
   Trade accounts payable......................................        46,445           50,256
   Accrued payroll and payroll taxes...........................         3,928            3,706
   Accrued expenses............................................        10,044            8,573
   Income taxes payable........................................         1,679            3,626
                                                                    ---------        ---------
                                                                       64,667           68,732
                                                                    ---------        ---------
Non current liabilities:
   Long-term debt..............................................        24,215           26,786
   Deferred tax liability......................................         8,039            8,584
   Accrued lease liability.....................................        17,327           13,795
                                                                    ---------        ---------
                                                                       49,581           49,165
                                                                    ---------        ---------
                                                                      114,248          117,897
                                                                    ---------        ---------
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 19,816,774 shares at December 31,
     2005 and 19,655,100 shares at December 31, 2004...........       111,383          109,131

   Retained earnings...........................................        87,126           77,084
                                                                    ---------        ---------
                                                                      198,509          186,215
                                                                    ---------        ---------
                                                                    $ 312,757        $ 304,112
                                                                    =========        =========
</TABLE>

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











                                       37
<PAGE>
<TABLE>
<CAPTION>
                                         A.C. MOORE ARTS & CRAFTS, INC.
                                       CONSOLIDATED STATEMENTS OF INCOME

                                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)



                                                                                     DECEMBER 31,
                                                                    ------------------------------------------
                                                                      2005             2004            2003
                                                                    ---------        ---------       ---------
<S>                                                                 <C>              <C>             <C>
Net sales...................................................        $ 539,436        $ 497,626       $ 433,928
Cost of sales (including buying and distribution costs).....          326,581          299,872         272,034
                                                                    ---------        ---------       ---------
Gross margin................................................          212,855          197,754         161,894
Selling, general and administrative expenses................          192,878          166,485         131,890
Store pre-opening expenses..................................            3,459            4,036           2,842
                                                                    ---------        ---------       ---------
Income from operations......................................           16,518           27,233          27,162
    Interest expense........................................            1,234              380              92
    Interest (income).......................................             (784)            (543)           (496)
                                                                    ---------        ---------       ---------
Income before income taxes..................................           16,068           27,396          27,566
    Provision for income taxes..............................            6,026           10,548          10,532
                                                                    ---------        ---------       ---------
Net income..................................................        $  10,042        $  16,848       $  17,034
                                                                    =========        =========       =========
Basic net income per share..................................        $    0.51        $    0.86       $    0.89
                                                                    =========        =========       =========
Diluted net income per share...............................         $    0.50        $    0.84       $    0.86
                                                                    =========        =========       =========
</TABLE>

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




















                                       38
<PAGE>

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

                                          (IN THOUSANDS EXCEPT SHARE DATA)


                                                                              Common       Retained
                                                               Shares         Stock        Earnings        Total
                                                             ----------      --------      --------       --------
<S>                                                          <C>             <C>           <C>            <C>
Balance, December 31, 2002............................       18,806,047        99,654       43,202         142,856
Net income............................................               --            --       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............................       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
Net income............................................           --             --          10,042          10,042
Exercise of stock options.............................         161,674          1,023         --             1,023
Tax benefit from exercise of stock options............           --             1,229         --             1,229
                                                             ----------      --------      -------        --------
Balance, December 31, 2005............................       19,816,774      $111,383      $87,126        $198,509
                                                             ==========      ========      =======        ========
</TABLE>





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
























                                       39
<PAGE>
<TABLE>
<CAPTION>
                                    A.C. MOORE ARTS & CRAFTS, INC.
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (IN THOUSANDS)


                                                                      YEAR ENDED DECEMBER 31,
                                                               -------------------------------------
                                                                 2005           2004          2003
                                                               --------       --------      --------
<S>                                                            <C>            <C>           <C>
Cash flows from operating activities:
Net income...............................................      $ 10,042       $ 16,848      $ 17,034
Adjustments to reconcile net income to net cash provided
   by operating activities:
   Depreciation and amortization.........................        10,769          8,967         7,178
   Loss on disposal of assets                                       438             --            --
   Provision for (benefit of) deferred income taxes, net.          (484)         1,934          (371)
   Changes in assets and liabilities:
     Inventories.........................................        (9,814)       (21,339)      (18,996)
     Prepaid expenses and other current assets...........           755         (4,693)         (233)
     Accounts payable, accrued payroll and payroll taxes
       and accrued expenses..............................        (2,118)        14,461         9,758
     Deferred lease liability............................         3,532          3,272         2,671
     Income taxes payable................................         1,160           (897)        6,135
     Other ..............................................           340            (58)           51
                                                               --------       --------      --------
Net cash provided by operating activities................        14,620         18,495        23,227
                                                               --------       --------      --------
Cash flows from investing activities:
   Capital expenditures..................................       (16,086)       (40,999)      (28,356)
   Proceeds from maturation of marketable securities.....        22,570            686            --
   Investment in marketable securities...................       (10,236)        (4,112)      (14,132)
                                                               --------       --------      --------
Cash flows (used in) investing activities................        (3,752)       (44,425)      (42,488)
                                                               --------       --------      --------
Cash flows from financing activities:
   Exercise of stock options.............................         1,023          1,805         2,719
   Increase in long-term debt............................            --         30,000            --
   Repayment of long-term debt ..........................        (2,571)          (643)           --
   Repayment of equipment leases.........................            --           (504)       (1,342)
                                                               --------       --------      --------
Net cash provided by (used in) by financing activities...        (1,548)        30,658         1,377
                                                               --------       --------      --------
Net increase (decrease) in cash and cash equivalents.....         9,320          4,728       (17,884)
Cash and cash equivalents at beginning of period.........        48,428         43,700        61,584
                                                               --------       --------      --------
Cash and cash equivalents at end of period...............      $ 57,748       $ 48,428      $ 43,700
                                                               ========       ========      ========

Supplemental cash flow information:
Cash paid during the year for:
   Interest..............................................      $  1,197       $    496      $     95
                                                               ========       ========      ========
   Income taxes..........................................      $  5,345       $  9,553      $  4,807
                                                               ========       ========      ========
Non-cash items:
    Tax benefit of stock options.........................      $  1,229       $  2,303      $  2,650
                                                               ========       ========      ========
----------------------------------------------------------------------------------------------------
</TABLE>


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



















                                       40
<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, 2005, the Company operated a 109-store chain of retail arts and
crafts stores in the eastern region of the United States.

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.

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.

In accordance with generally accepted accounting principles, the Company 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
2005, 2004 or 2003.






                                       41
<PAGE>

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.

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 liabilities 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 $29.8 million, $23.9 million and $20.4
million for 2005, 2004 and 2003 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, 2005 and December 31, 2004 approximated carrying
value. The Company had no borrowings outstanding under the line of credit at
December 31, 2005 or 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, 2005, the impact of a hypothetical increase or
decrease in interest rates of 10% compared with the rates in effect at December
31, 2005 would result in an increase or decrease in the Company's interest
expense of $143,000 annually, and an increase or decrease in the Company's
interest income of $183,000 annually.

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.






                                       42
<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>
                                                                        2005           2004             2003
                                                                     ------------   -------------    -------------
                                                                         (In thousands, except per share data)
<S>                                                                  <C>            <C>              <C>
Net income.....................  -- As reported                      $     10,042   $      16,848    $      17,034
                                 -- Compensation cost, net of tax           1,827           1,749            1,268
                                 -- Pro forma                               8,215          15,099           15,766

Basic earnings per share.......  -- As reported                      $       0.51   $        0.86    $        0.89
                                 -- Pro forma                                0.42            0.78             0.82
Diluted earnings per share.....  -- As reported                      $       0.50   $        0.84    $        0.86
                                 -- Pro forma                                0.41            0.75             0.80
</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>
                                                                2005           2004          2003         2002
                                                              ----------    -----------  ------------  ----------
<S>                                                           <C>           <C>          <C>           <C>
Average fair value of options granted....................     $  9.79       $  11.15     $   12.99     $   10.08
Risk free interest rate..................................        4.4%           3.8%          3.2%          4.1%
Dividend yield...........................................           -              -            -             -
Average expected life....................................        5.0 yrs        4.9 yrs       4.5 yrs       7 yrs
Expected stock price volatility..........................       38.9%          54.9%         56%           45.2%
</TABLE>
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. Companies must adopt FAS 123(R) no later than
the beginning of their next fiscal year that begins after June 15, 2005. The
Company adopted FAS 123(R) in its first quarter of 2006.

Previously, in complying with FAS 123, the Company disclosed the value of stock
options granted and its pro forma impact on its net income in a footnote to its
financial statements. Information contained in the Company's footnotes provides
the impact on pro forma net income for past financial statements. The Company
adopted the modified prospective application of implementing FAS 123(R).

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.







                                       43
<PAGE>

2.       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 2005 net income by
$1.3 million or $0.07 per share. In 2005, the change increased gross margin by
$16.7 million, increased selling, general and administrative costs by $18.7
million, and decreased inventory by $2.0 million. In 2004 net income was reduced
by $3.4 million, $0.17 per share, gross margin increased by $11.9 million,
selling, general and administrative costs increased by $17.4 million and
inventory decreased by $5.5 million. In 2003 the Company recorded vendor
advertising support as a reduction of selling general and administrative
expenses in the amount of $13.6 million.

3.       EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
                                                             YEAR ENDED
                                                             DECEMBER 31,
                                               -------------------------------------
                                                 2005           2004          2003
                                               --------       --------       -------
                                               (In thousands, except per share data)
<S>                                            <C>            <C>            <C>
Net income.................................    $ 10,042       $ 16,848       $ 17,034
                                               ========       ========       ========
Weighted average shares:
     Basic................................       19,758         19,482         19,113
     Incremental shares from assumed
       exercise of stock options..........          391            530            616
                                               --------      ---------       --------
     Diluted..............................       20,149         20,012         19,729
                                               ========      =========       ========
Basic net income per share................     $   0.51      $    0.86       $   0.89
                                               ========      =========       ========
Diluted net income per share..............     $   0.50      $    0.84       $   0.86
                                               ========      =========       ========
Stock options excluded from calculation
     because exercise price was greater than
     average market price.................          308            306            615
                                               --------      ---------       --------
</TABLE>







                                       44
<PAGE>

4.       PROPERTY AND EQUIPMENT

Property and equipment consists of:
<TABLE>
<CAPTION>
                                                                                         YEAR ENDED
                                                                                ----------------------------
                                                                                        DECEMBER 31,
                                                                                ----------------------------
                                                                                   2005              2004
                                                                                ----------        ----------
                                                                                       (in thousands)
         <S>                                                                    <C>               <C>
         Land..............................................................     $    2,466        $    2,466
         Buildings and improvements.......................................          38,370            38,133
         Furniture, fixtures and equipment.................................         88,932            74,907
         Leasehold improvements............................................          6,205             6,364
         Equipment for future stores.......................................            525               309
                                                                                ----------        ----------
                                                                                   136,498           122,179
         Less:  Accumulated depreciation and amortization..................        (48,400)          (38,960)
                                                                                ----------        ----------
                                                                                $   88,098        $   83,219
                                                                                ==========        ==========
</TABLE>
6.       FINANCING AGREEMENT

We maintain two mortgage agreements with Wachovia Bank on our new corporate
offices and distribution center of which $26.8 million was outstanding at
December 31, 2005. The mortgages are secured by land, building and equipment. Of
the original $30.0 million in mortgages, $22.5 million ($20.6 million as of
December 31, 2005) is repayable over 15 years and $7.5 million ($6.2 million as
of December 31, 2005) is repayable over 7 years. Fixed 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. At December 31, 2005, LIBOR was 4.4%. 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, 2005, we were in compliance with these agreements.

At December 31, 2005 we had a $25.0 million line of credit agreement with
Wachovia Bank, which expired 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. At December 31, 2005 and 2004, there were no
borrowings outstanding under this agreement. On February 22, 2006, we amended
our line of credit agreement to increase the aggregate amount available from
$25.0 million to $35.0 million and to extend the expiration date from May 1,
2006 to May 31, 2007.








                                       45
<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,
                                                             ---------------------------------
                                                              2005        2004          2003
                                                             ------     --------      --------
                                                                     (in thousands)
  <S>                                                        <C>        <C>           <C>
  United States federal taxes at statutory rate........      $5,624     $  9,595      $  9,643
  State and local taxes, net...........................         673        1,236         1,163
  Other, principally tax free interest.................        (271)        (283)         (274)
                                                             ------     --------      --------
  Income tax provision.................................      $6,026     $ 10,548      $ 10,532
                                                             ======     ========      ========
</TABLE>
The income tax provision consists of the following:
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             ---------------------------------
                                                              2005        2004          2003
                                                             ------     --------      --------
                                                                     (in thousands)
<S>                                                          <C>        <C>           <C>
Current tax expense:
  Federal..............................................      $5,487     $  6,407      $  8,083
  State................................................       1,023        2,207         2,820
                                                             ------     --------      --------
     Total current.....................................       6,510        8,614        10,903
                                                             ------     --------      --------
Deferred tax expense:
  Federal..............................................        (497)       2,239          (354)
  State................................................          13         (305)          (17)
                                                             ------     --------      --------
     Total deferred....................................        (484)       1,934          (371)
                                                             ------     --------      --------
     Total income tax provision........................      $6,026     $ 10,548      $ 10,532
                                                             ======     ========      ========
</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:
<TABLE>
<CAPTION>
                                                                              December 31,
                                                                        ----------------------
                                                                          2005          2004
                                                                        --------      --------
                                                                            (in thousands)
           <S>                                                          <C>           <C>
           CURRENT DEFERRED TAXES
           Inventory valuation........................................  $    677      $  3,276
           Insurance claim receivable.................................      (345)         (537)
           Other......................................................       402           (66)
                                                                        --------      --------
           Total current deferred taxes...............................  $    734      $  2,673
                                                                        --------      --------

           NON-CURRENT DEFERRED TAXES
           Property and equipment.....................................   (12,747)      (12,860)
           Other......................................................       402           (66)
           Accrued rent expense.......................................     4,708         4,276
                                                                        --------      --------
           Total non-current deferred taxes...........................    (8,039)       (8,584)
                                                                        --------      --------
           Net deferred tax...........................................  $ (7,305)     $ (5,911)
                                                                        --------      --------
</TABLE>







                                       46
<PAGE>

8.       SHAREHOLDERS' 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.

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 9,877 at December 31, 2005 and 7,309 at December 31, 2004.

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
627,283 at December 31, 2005 and 845,460 at December 31, 2004.

For 2005, 2004, and 2003, the Company's stock option activity is summarized
below:
<TABLE>
<CAPTION>
                                                      2005                    2004                     2003
                                           -----------------------  ----------------------  -----------------------
                                                          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......      1,431,132      $ 14.76   1,544,452     $ 12.23   1,798,275      $  7.48
Granted...............................        237,375        23.74     215,875       21.95     322,375        26.63
Forfeited.............................         21,766        24.42      31,636       22.40      24,704        15.44
Exercised.............................        161,674         6.37     297,559        6.07     551,494         4.93
                                           ----------      -------  ----------     -------  ----------      -------
Outstanding at end of year............      1,485,067      $ 16.97   1,431,132     $ 14.76   1,544,452      $ 12.23
                                           ==========      =======  ==========     =======  ==========      =======
Exercisable at end of year............      1,019,544      $ 13.83     930,105     $ 10.14     931,224      $  6.12
                                           ==========      =======  ==========     =======  ==========      =======
</TABLE>
Using a Black-Scholes options pricing model, the average grant date fair value
of options granted was $9.79, $11.15, and $12.99 for options granted in 2005,
2004 and 2003, respectively.














                                       47
<PAGE>

The following table summarizes information about stock options outstanding at
December 31, 2005.
<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          233,179           4.2               $   3.48            233,179           $    3.48
     4.50-5.45          126,417           2.3                   4.67            126,417                4.67
     7.69-8.32          143,871           4.5                   8.10            143,871                8.10
    19.11-21.95         453,482           7.6                  20.36            242,058                9.77
   23.51 - 27.15        528,118           8.6                  25.37            274,019               26.67
                      ---------     ----------------    ----------------      ---------         ----------------
                      1,485,067           6.7                $ 16.97          1,019,544           $   14.38
                      =========     ================    =================     =========         ================
</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 2005, 2004 and 2003 was $339,000, $298,000, and $287,000,
respectively.

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 three 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 2005, 2004 and 2003 the amounts of
rent expense recognized over the amounts paid were $1,027,000, $1,674,000, and
$1,197,000 respectively, and has been included in other accrued lease
liabilities in the accompanying consolidated balance sheet.












                                       48
<PAGE>



Rent expense under operating leases consists of:
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                               2005            2004             2003
                                                              -------         -------         -------
                                                                           (in thousands)
       <S>                                                    <C>             <C>             <C>
       Minimum rentals..............................          $29,017         $27,017         $23,503
       Contingent payments..........................               62              84             107
                                                              -------         -------         -------
                                                              $29,079         $27,101         $23,610
                                                              =======         =======         =======
</TABLE>
As of December 31, 2005, the Company entered into nine leases for stores to open
in 2006.

Future minimum lease payments (including those for unopened stores) as of
December 31, 2005 for non-cancelable operating leases with terms in excess of
one year are as follows (in thousands):
<TABLE>
                 <S>                                                    <C>
                 2006................................................    $   34,409
                 2007................................................        34,671
                 2008................................................        32,125
                 2009................................................        30,351
                 2010................................................        29,344
                 Thereafter..........................................       103,795
                                                                         ----------
                 Total minimum future rentals........................    $  264,695
                                                                         ==========
</TABLE>
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. In the first quarter
of 2005, Mr. Parker reimbursed the Company for the full amount of the
receivable, $516,000.

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
$112,000, $83,000 and $121,000 during the years ended December 31, 2005, 2004
and 2003, respectively.

Michael J. Joyce, a director of the Company since 2004 and chair of the
Company's Audit Committee, is a director of Heritage Property Investment Trust,
Inc. ("Heritage"). The Company leased 1 of its store locations in 2005 and 2004
from Heritage. The Company paid rent to Heritage in the amount of $206,000 and
$193,000 during the years ended December 31, 2005 and 2004, respectively.

In 2003 the Company paid Regal Bag Corporation and related companies ("Regal")
$352,000 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 Regal.




                                       49
<PAGE>



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

         We had no changes in or disagreements with accountants on accounting
and financial disclosure of the type referred to in Item 304(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, 2005. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that, as of December 31, 2005, our disclosure controls and procedures,
as defined in Rule 13a-15(e), were effective at the reasonable assurance level,
to ensure that (i) 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") is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms
and (ii) information required to be disclosed by an issuer in the reports that
it files or submits under the Exchange Act is accumulated and communicated to
the issuer's management including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.

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, 2005 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, 2005.

         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, 2005 as stated in their report which is included herein.

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 2005 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





                                       50
<PAGE>

ITEM 9B. OTHER INFORMATION

         On March 10, 2006, the Board of Directors agreed that William Kaplan
would receive annual compensation for services in 2006 equal to the same amounts
paid to the Company's other non-employee directors. Accordingly, for his
services in 2006, Mr. Kaplan will receive an annual cash retainer of $30,000, an
additional annual cash retainer of $2,500 for his service as a member of the
Nominating and Corporate Governance Committee and an annual stock option grant
pursuant to the Company's 2002 Stock Option Plan. The amount of shares subject
to the option grant and the exercise price will be determined by the Company's
Board of Directors in August 2006.

         As previously disclosed, Eli J. Segal, Lead Director of the Company's
Board of Directors, passed away on February 20, 2006. In consideration of Mr.
Segal's prior services as the Lead Director of the Company, on March 9, 2006,
the Board of Directors approved an award to Mr. Segal's estate of a death
benefit equal to $50,000 in cash. In addition, the Board of Directors agreed to
have the Company continue to pay the expenses related to Mr. Segal's secretary
for a period of two months from the date of his death.


























                                       51
<PAGE>

                                    PART III


ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Incorporated by reference from our Proxy Statement relating to our 2006
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 2006
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 2006
Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.



























                                       52
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

         The following table details information regarding our existing equity
compensation plans as of December 31, 2005:
<TABLE>
<CAPTION>
                                                                                                            (C)
                                                        (A)                                         NUMBER OF SECURITIES
                                                NUMBER OF SECURITIES              (B)             REMAINING AVAILABLE FOR
                                                 TO BE ISSUED UPON           WEIGHTED-AVERAGE      FUTURE ISSUANCE UNDER
                                                     EXERCISE OF            EXERCISE PRICE OF     EQUITY COMPENSATION PLANS
                                                 OUTSTANDING OPTIONS,     OUTSTANDING OPTIONS,    (EXCLUDING SECURITIES
                PLAN CATEGORY                    WARRANTS AND RIGHTS      WARRANTS AND RIGHTS    REFLECTED IN COLUMN (A))
------------------------------------------      ---------------------     -------------------    ---------------------------
<S>                                             <C>                       <C>                    <C>
Equity compensation plans approved by
security holders (1)......................            1,485,067               $ 16.97                   637,160
Equity compensation plans not approved by
security holders..........................               -                       -                         -
Total.....................................            1,485,067               $ 16.97                   637,160
</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 2006
Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.

ITEM 14.      PRINCIPAL ACCOUNTING FEES AND SERVICES.

         Incorporated by reference from our Proxy Statement relating to our 2006
Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.























                                       53
<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, 2005 and 2004

                   Consolidated Statements of Income for each of the three years
                   in the period ended December 31, 2005

                   Consolidated Statements of Changes in Shareholders'
                   Equity for each of the three years in the period
                   ended December 31, 2005

                   Consolidated Statements of Cash Flows for each of the
                   three years in the period ended December 31, 2005

                   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






                                       54
<PAGE>

             EXHIBIT NUMBER      DESCRIPTION
             --------------      -----------------------------------------------

               +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.

              10.11(7)           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              Promissory Note and Loan Modification Agreement
                                 dated as of February 22, 2006, 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

             +10.13              Description of Directors and Named Executive
                                 Officers Compensation

               21.1(7)           Subsidiaries of the Company





                                       55
<PAGE>


             EXHIBIT NUMBER      DESCRIPTION
             --------------      -----------------------------------------------
               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.

(7)   Incorporated by reference to the Company's Form 10-K for the year ended
      December 31, 2004.






                                       56
<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 13, 2006                           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 13, 2006
   ---------------------------             (Principal Executive Officer)
   John E. Parker

    /s/ Leslie H. Gordon                   Executive Vice President and Chief Financial     March 13, 2006
   ---------------------------             Officer (Principal Financial and Accounting
   Leslie H. Gordon                        Officer)


    /s/ William Kaplan                     Chairman of the Board                            March 13, 2006
   ---------------------------
   William Kaplan

    /s/ Lawrence H. Fine                   Director                                         March 13, 2006
   ---------------------------
   Lawrence H. Fine
                                                                                            March 13, 2006
    /s/ Richard Lesser                     Director
   ---------------------------
   Richard Lesser

    /s/ Richard J. Bauer                   Director                                         March 13, 2006
   ---------------------------
   Richard J. Bauer
                                                                                            March 13, 2006
    /s/ Richard J. Drake                   Director
   ---------------------------
   Richard J. Drake

   /s/ Michael J. Joyce                    Director                                         March 13, 2006
   ---------------------------
   Michael J. Joyce

   /s/ Lori J. Schafer                     Director                                         March 13, 2006
   ---------------------------
   Lori J. Schafer
</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(7)           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              Promissory Note and Loan Modification Agreement
                             dated as of February 22, 2006, 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

         +10.13              Description of Directors and Named Executive
                             Officers Compensation

          21.1(7)            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.

(7)    Incorporated by reference to the Company's Form 10-K for the year ended
       December 31, 2004.