<PAGE>

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

                                 ---------------

                                    FORM 10-Q

                                 ---------------

(MARK ONE)

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

      FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

                                       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 000-21827

                            -------------------------

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

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

    80 GRASSLANDS ROAD ELMSFORD, NY                        10523
(Address of Principal Executive Offices)                 (Zip Code)

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

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]

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

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

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

Yes [ ] No [X]

      As of August 14, 2006, 1,000.00 shares of Registrant's common stock, par
value $0.10, were outstanding.

<PAGE>

                              AMSCAN HOLDINGS, INC.
                                    FORM 10-Q

                                  JUNE 30, 2006

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                     PAGE
<S>                                                                                                  <C>
                                                  PART I

ITEM 1      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

            Condensed Consolidated Balance Sheets at June 30, 2006 and December 31, 2005 ........      3

            Condensed Consolidated Statements of Operations for the Three Months Ended June 30,
               2006 and 2005 ....................................................................      4

            Condensed Consolidated Statements of Operations for the Six Months Ended June 30,
               2006 and 2005 ....................................................................      5

            Condensed Consolidated Statement of Stockholders' Equity for the Six Months Ended
               June 30, 2006.....................................................................      6

            Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,
               2006 and 2005.....................................................................      7

            Notes to Condensed Consolidated Financial Statements.................................      8

ITEM 2      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
               OPERATIONS........................................................................     24

ITEM 3      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................     33

ITEM 4      CONTROLS AND PROCEDURES..............................................................     34

                                                  PART II

ITEM 6      EXHIBITS.............................................................................     35

SIGNATURE........................................................................................     36
</TABLE>

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

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

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                              JUNE 30,          DECEMBER 31,
                                                                                                2006                2005
                                                                                           --------------      --------------
                                                                                             (UNAUDITED)            (NOTE)
<S>                                                                                        <C>                 <C>
ASSETS
Current assets:
    Cash and cash equivalents.......................................................       $        4,634      $        8,745
    Accounts receivable, net of allowances..........................................               86,315              83,029
    Inventories, net of allowances..................................................              173,442             188,457
    Prepaid expenses and other current assets.......................................               37,396              39,561
                                                                                           --------------      --------------
         Total current assets ......................................................              301,787             319,792
Property, plant and equipment, net..................................................              145,291             150,877
Goodwill............................................................................              461,631             505,731
Trade names.........................................................................              111,900              68,500
Other intangible assets, net........................................................               41,712              48,699
Other assets........................................................................               24,124              25,348
                                                                                           --------------      --------------
         Total assets...............................................................       $    1,086,445      $    1,118,947
                                                                                           ==============      ==============

LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Loans and notes payable..........................................................      $       17,700      $           --
    Accounts payable.................................................................              68,656             105,787
    Accrued expenses.................................................................              48,930              50,806
    Income taxes payable.............................................................                 691               3,387
    Current portion of long-term obligations.........................................               3,455               2,643
                                                                                           --------------      --------------
         Total current liabilities...................................................             139,432             162,623
Long-term obligations, excluding current portion.....................................             559,855             561,567
Deferred income tax liabilities......................................................              59,219              63,782
Deferred rent and other long-term liabilities........................................               3,815               3,344
                                                                                           --------------      --------------
         Total liabilities...........................................................             762,321             791,316

Redeemable common securities.........................................................               7,685               6,821

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

Stockholders' equity:
     Common stock ($0.01 par value; 40,000.00 shares authorized; 27,997.39
      and 27,882.73 shares issued and outstanding at June 30, 2006 and
      December 31, 2005, respectively)...............................................                  --                  --
    Additional paid-in capital.......................................................             301,969             300,983
    Retained earnings................................................................              13,658              20,824
    Accumulated other comprehensive income (loss)....................................                 812                (997)
                                                                                           --------------      --------------
         Total stockholders' equity..................................................             316,439             320,810
                                                                                           --------------      --------------
         Total liabilities, redeemable common securities and stockholders' equity ...      $    1,086,445      $    1,118,947
                                                                                           ==============      ==============
</TABLE>

Note: The balance sheet at December 31, 2005 has been derived from the audited
consolidated financial statements at that date (see Note 3).

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED JUNE 30,
                                                                               ---------------------------
                                                                                  2006            2005
                                                                               -----------    ------------
<S>                                                                            <C>            <C>
Revenues:
   Net sales................................................................   $   223,847    $    101,285
   Royalties and franchise fees.............................................         4,886              --
                                                                               -----------    ------------
     Total revenues.........................................................       228,733         101,285

 Expenses:
   Cost of sales............................................................       157,204          68,762
   Selling expenses.........................................................         9,443           9,211
   Retail operating expenses................................................        24,363              --
   Franchise expenses.......................................................         3,142              --
   General and administrative expenses......................................        19,861           9,358
   Art and development costs................................................         2,476           2,352
                                                                               -----------    ------------
     Total expenses.........................................................       216,489          89,683
                                                                               -----------    ------------
        Income from operations..............................................        12,244          11,602

Interest expense, net.......................................................        13,880           7,704
Other (income) expense, net.................................................        (1,682)            363
                                                                               -----------    ------------
     Income before income taxes and minority interests......................            46           3,535

Income tax expense (benefit)................................................            19            (132)
Minority interests..........................................................            36              46
                                                                               -----------    ------------
     Net (loss) income......................................................   $        (9)   $      3,621
                                                                               ===========    ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                              AMSCAN HOLDINGS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED JUNE 30,
                                                                               ---------------------------
                                                                                  2006            2005
                                                                               -----------    ------------
<S>                                                                            <C>            <C>
Revenues:
   Net sales................................................................   $   428,030    $    201,661
   Royalties and franchise fees.............................................         9,043              --
                                                                               -----------    ------------
     Total revenues.........................................................       437,073         201,661

 Expenses:
   Cost of sales............................................................       305,871         135,563
   Selling expenses.........................................................        18,618          18,195
   Retail operating expenses................................................        48,562              --
   Franchise expenses.......................................................         5,979              --
   General and administrative expenses......................................        39,639          17,736
   Art and development costs................................................         4,958           4,614
                                                                               -----------    ------------
     Total expenses.........................................................       423,627         176,108
                                                                               -----------    ------------
        Income from operations..............................................        13,446          25,553

Interest expense, net.......................................................        27,103          15,231
Other (income) expense, net.................................................        (1,957)            422
                                                                               -----------    ------------
     (Loss) income before income taxes and minority interests...............       (11,700)          9,900

Income tax (benefit) expense................................................        (4,640)          2,223
Minority interests..........................................................           106              50
                                                                               -----------    ------------
     Net (loss) income......................................................   $    (7,166)   $      7,627
                                                                               ===========    ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                              AMSCAN HOLDINGS, INC.
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                         SIX MONTHS ENDED JUNE 30, 2006
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       ACCUMULATED
                                                             ADDITIONAL                   OTHER
                                           COMMON    COMMON    PAID-IN    RETAINED    COMPREHENSIVE
                                           SHARES     STOCK    CAPITAL    EARNINGS    (LOSS) INCOME       TOTAL
                                          ---------  ------  ----------   --------    --------------    ----------
<S>                                       <C>        <C>     <C>          <C>         <C>               <C>
Balance at December 31, 2005............  27,882.73  $   --  $  300,983   $ 20,824    $         (997)   $  320,810

 Net loss...............................                                    (7,166)                         (7,166)
 Net change in cumulative
  translation adjustment................                                                       1,525         1,525
 Change in fair value of interest
  rate swap contracts, net of
  income tax expense....................                                                         284           284
                                                                                                        ----------
     Comprehensive loss.................                                                                    (5,357)
 Issuance of shares of common stock.....     114.66               1,374                                      1,374
 Reclassification of common stock
  to redeemable common securities.......                           (864)                                      (864)
 Equity based compensation expense......                            476                                        476
                                          ---------  ------  ----------   --------    --------------    ----------
Balance at June 30, 2006................  27,997.39  $   --  $  301,969   $ 13,658    $          812    $  316,439
                                          =========  ======  ==========   ========    ==============    ==========
</TABLE>

                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                    SIX MONTHS ENDED JUNE 30,
                                                                                                 -------------------------------
                                                                                                      2006             2005
                                                                                                 --------------   --------------
<S>                                                                                              <C>              <C>
Cash flows (used in) provided by operating activities:
   Net (loss) income.........................................................................    $       (7,166)  $        7,627
   Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
       activities:
      Depreciation and amortization expense..................................................            20,254            7,348
      Amortization of deferred financing costs...............................................             1,309              738
      Provision for doubtful accounts........................................................               687              688
      Deferred income tax (benefit) expense..................................................            (4,200)             813
      Undistributed (gain) loss in unconsolidated joint venture..............................              (221)             432
      Gain on disposal of property, plant and equipment......................................            (2,018)              --
      Equity based compensation..............................................................               476              112
      Changes in operating assets and liabilities:
         Increase in accounts receivable.....................................................            (6,867)            (921)
         Decrease (increase) in inventories..................................................            14,443           (8,046)
         Increase in prepaid expenses, other current assets and other assets, net............            (2,984)          (2,787)
         (Decrease) increase in accounts payable, accrued expenses income taxes
          payable and other liabilities, net.................................................           (32,986)           1,409
      Other, net.............................................................................                --             (905)
                                                                                                 --------------   --------------
         Net cash (used in) provided by operating activities.................................           (19,273)           6,508

Cash flows used in investing activities:
   Cash paid in connection with Party City Acquisition.......................................              (862)              --
   Capital expenditures......................................................................           (15,899)          (6,216)
   Proceeds from disposal of property, plant and equipment...................................            13,004               --
                                                                                                 --------------   --------------
         Net cash used in investing activities...............................................            (3,757)          (6,216)

Cash flows provided by (used in) financing activities:
   Repayment of loans, notes payable and long-term obligations...............................            (1,314)          (1,720)
   Proceeds from short-term obligations......................................................            17,700               --
   Proceeds from the sale of common stock....................................................             1,374               --
   Purchase and retirement of redeemable common stock held by a former employee..............                --             (104)
                                                                                                 --------------   --------------
         Net cash provided by (used in) financing activities.................................            17,760           (1,824)
Effect of exchange rate changes on cash and cash equivalents.................................             1,159             (668)
                                                                                                 --------------   --------------
         Net decrease in cash and cash equivalents...........................................            (4,111)          (2,200)
Cash and cash equivalents at beginning of period.............................................             8,745            4,252
                                                                                                 --------------   --------------
Cash and cash equivalents at end of period...................................................    $        4,634   $        2,052
                                                                                                 ==============   ==============

Supplemental Disclosures:
         Interest paid.......................................................................    $       22,479   $       13,962
         Income taxes paid...................................................................             2,409            2,361
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       7
<PAGE>

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

NOTE 1 - DESCRIPTION OF BUSINESS

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

NOTE 2 - THE PARTY CITY ACQUISITION

      On December 23, 2005 (the "Party City Acquisition Date"), the Company
completed the acquisition of Party City Corporation ("Party City") pursuant to
an Agreement and Plan of Merger (the "Party City Acquisition") , dated September
26, 2005 (as amended, the "Acquisition Agreement"), by and among the Company,
Party City and BWP Acquisition, Inc. ("BWP"), a Delaware corporation and a
wholly-owned subsidiary of the Company. Pursuant to the terms of the Acquisition
Agreement, BWP merged with and into Party City, with Party City continuing as
the surviving corporation. Each share of common stock of Party City outstanding
at the Party City Acquisition Date was cancelled and converted into the right to
receive $17.50 in cash, without interest. Prior to the acquisition, Party City
settled all outstanding stock options and warrants at the spread between $17.50
and their exercise price. Transaction costs associated with the Party City
Acquisition totaled $9,592.

      Financing for the Party City Acquisition, including the repayment of the
Company's borrowings under its 2004 Senior Secured Credit Facility, was provided
by: (i) an equity investment of $166,425 (the "Equity Investment") in the
Company's parent, AAH Holdings Corporation ("AAH"), a Delaware corporation
jointly controlled by funds affiliated with Berkshire Partners, LLC and Weston
Presidio (together the "Principal Investors"), (ii) borrowings under a First
Lien Credit Agreement (the "First Lien Credit Agreement") consisting of a
$325,000 term loan (net of an original issue discount of $3,250) (the "First
Term Loan") and a committed revolving credit facility in an aggregate principal
amount of $85,000 (the "First Term Loan Revolver"), (iii) borrowings under a
Second Lien Credit Agreement (the "Second Lien Credit Agreement," and, together
with the First Lien Credit Agreement, the "Credit Agreements") consisting of a
$60,000 term loan (net of an original issue discount of $1,500) (the "Second
Term Loan") and (iv) cash on-hand of $21,227, including $862 paid during the
six months ended June 30, 2006. Deferred financing costs associated with the
Credit Agreements totaled $7,437.

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

      The excess of the Party City purchase price over the tangible net assets
acquired has been allocated to intangible assets consisting of franchise
licenses ($27,100) and other intangibles ($261), each of which is being
amortized using the straight-line method over the assets' estimated useful life
(six months to nine years), and trade names ($78,400) and goodwill ($177,911),
which are not being amortized. In addition, there has been an allocation to step
property, plant and equipment up to market value ($5,000). The acquisition was
structured as a purchase of common stock and, accordingly, the amortization of
intangible assets is not deductible for income tax purposes. The allocation of
the purchase price is based, in-part, on our preliminary estimates of the fair
value of the tangible and identifiable intangible assets acquired and
liabilities assumed. Independent valuation specialists are currently conducting
a valuation of the net assets acquired as of the Party City Acquisition Date to
assist management with the final determination of fair value. Based on
preliminary valuation results, during the six months ended June 30, 2006, the
Company increased the allocation of the purchase price to trade names ($43,400)
and fixed assets ($5,000), reduced the allocation to franchise licenses ($2,900)
and adjusted other net liabilities, resulting in a net decrease in goodwill
related to the Party City Acquisition of $44,322.

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

<TABLE>
<CAPTION>

                                                  THREE MONTHS ENDED   SIX MONTHS ENDED
                                                    JUNE 30, 2005       JUNE 30, 2005
                                                  ------------------   ----------------
<S>                                               <C>                  <C>
Total revenues...............................       $      213,460       $    399,671
Net income (loss)............................                  894             (7,822)
</TABLE>

                                       8
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

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

NOTE 3 - BASIS OF PRESENTATION

      The accompanying unaudited condensed consolidated financial statements as
of June 30, 2006 and December 31, 2005 and for the three and six month periods
ended June 30, 2006 and 2005 include the accounts of the Company and its
majority-owned and controlled entities. All material intercompany balances and
transactions have been eliminated in consolidation. The unaudited condensed
consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring items) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30, 2006 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2006. Our business is subject to substantial seasonal variations,
as our retail segment has realized a significant portion of its net sales, cash
flow and net income in the fourth quarter of each year, principally due to the
sales in October for the Halloween season and, to a lesser extent, due to
holiday sales at the end of the calendar year. We expect that this general
pattern will continue. Our results of operations may also be affected by
industry factors that may be specific to a particular period, such as movement
in and the general level of raw material costs. For further information, see the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2005, as filed with
the Securities and Exchange Commission.

      Party City's fiscal year and related fiscal quarters are based on the
52-week or 53-week period nearest to December 31 of each year. Party City's
financial statements as of and for the quarter and six months ended June 30,
2006 are based on the 13-week and 26-week periods ended July 1, 2006,
respectively. The differences in Party City's quarter and year end close dates
are not significant.

NOTE 4 - INVENTORIES

      Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                                       JUNE 30,       DECEMBER 31,
                                                                         2006             2005
                                                                      ----------      ------------
<S>                                                                   <C>             <C>
Finished goods....................................................    $  158,067      $    172,232
Raw materials.....................................................        12,859            12,272
Work-in-process...................................................         6,285             6,139
                                                                      ----------      ------------
                                                                         177,211           190,643
Less: reserve for slow moving and obsolete inventory..............        (3,769)           (2,186)
                                                                      ----------      ------------
                                                                      $  173,442      $    188,457
                                                                      ==========      ============
</TABLE>

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

NOTE 5 - INCOME TAXES

      The consolidated income tax expense (benefit) for the three and six months
ended June 2006 and 2005, was determined based upon estimates of the Company's
consolidated effective income tax rate for the years ending December 31, 2006,
and 2005, respectively. The differences between the consolidated effective
income tax rate and the U.S. federal statutory rate are primarily attributable
to state income taxes, available domestic tax credits and the effects of foreign
operations, including available foreign tax credits. In addition, during the
three and six months ended June 30, 2005, the Company recorded a $1,400
reduction to its income tax expense and net deferred income tax liability to
reflect a change in its estimated state income tax rate. The tax rate change
results from a change in New York State tax law governing the apportionment of
income.

                                       9
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 6 - RESTRUCTURING

      In conjunction with the Party City Acquisition, the Company's management
approved and initiated plans to restructure Party City's operations and
involuntarily terminate a limited number of Party City personnel. We expect to
complete the planned restructuring of Party City's operations by December 31,
2006. Estimated restructuring costs associated with the Party City acquisition
of $1,700 were accrued for as part of the net assets acquired (see Note 2). To
date, we have incurred $1,219 in severance costs. The restructuring reserve, as
of June 30, 2006, is $481.

NOTE 7 - COMPREHENSIVE INCOME (LOSS)

      Comprehensive income (loss) consisted of the following:

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                                     ---------------------------   ---------------------------
                                                                         2006           2005           2006           2005
                                                                     ------------   ------------   ------------   ------------
<S>                                                                  <C>            <C>            <C>            <C>
Net (loss) income.................................................   $         (9)  $      3,621   $     (7,166)  $      7,627
Net change in cumulative translation adjustment...................          1,673           (386)         1,525         (1,087)
Change in fair value of interest rate swap contracts, net of
   income taxes of $119, ($113), $167 and $109....................            201           (193)           284            165
Change in fair value of foreign exchange contracts, net of
   income taxes of ($31) and $194.................................             --            (53)            --            259
                                                                     ------------   ------------   ------------   ------------
                                                                     $      1,865   $      2,989   $     (5,357)  $      6,964
                                                                     ============   ============   ============   ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                      JUNE 30,     DECEMBER 31,
                                                                                        2006           2005
                                                                                    ------------   ------------
<S>                                                                                 <C>            <C>
Cumulative translation adjustment................................................   $        528   $       (997)
Interest rate swap contracts, net of income tax expense of $167..................            284             --
                                                                                    ------------   ------------
                                                                                    $        812   $       (997)
                                                                                    ============   ============
</TABLE>

NOTE 8 - CAPITAL STOCK

      At June 30, 2006 and December 31, 2005, the Company's authorized capital
stock consisted of 10,000.00 shares of preferred stock, $0.01 par value, of
which no shares were issued or outstanding and 40,000.00 shares of common stock,
$0.01 par value, of which 27,997.39 and 27,882.73 shares were issued and
outstanding, respectively.

      Certain employee stockholders owned 573.08 and 501.08 shares of AAH common
stock at June 30, 2006 and December 31, 2005, respectively. Under the terms of
the AAH stockholders' agreement dated April 30, 2004, the Company has an option
to purchase all of the shares of common stock held by former employees and,
under certain circumstances, former employee stockholders can require the
Company to purchase all of the shares held by the former employee. The purchase
price as prescribed in the stockholders' agreements is to be determined through
a market valuation of the minority-held shares or, under certain circumstances,
based on cost, as defined therein. The aggregate amount that may be payable by
the Company to all employee stockholders based on the estimated fair market
value of fully paid and vested common securities is classified as redeemable
common securities on the consolidated balance sheet with a corresponding
adjustment to stockholders' equity. At June 30, 2006 and December 31, 2005, the
aggregate amount that may be payable by the Company to employee stockholders,
based on the estimated market value, was approximately $7,685 and $6,821,
respectively. As there is no active market for the Company's common stock, the
Company estimated the fair value of its common stock based on the valuation of
the Company common stock issued in connection with the Party City Acquisition.

                                       10
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 9 - SEGMENT INFORMATION

Industry Segments

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

    The Company's industry segment data is as follows:

<TABLE>
<CAPTION>
                                                   WHOLESALE         RETAIL         ELIMINATIONS     CONSOLIDATED
                                                 --------------  --------------   ----------------   ------------
<S>                                              <C>             <C>              <C>                <C>
THREE MONTHS ENDED JUNE 30, 2006
Revenues:
  Net sales:
      Net sales.............................     $      116,772  $      120,203   $        (13,128)  $    223,847
      Royalties and franchise fees..........                --            4,886                --           4,886
                                                 --------------  --------------   ----------------   ------------
Total revenues..............................     $      116,772  $      125,089   $        (13,128)  $    228,733
                                                 ==============  ==============   ================   ============

Income from operations......................     $        9,066  $        4,810   $         (1,632)  $     12,244
                                                 ==============  ==============   ================
Interest expense, net.......................                                                               13,880
Other income, net...........................                                                               (1,682)
                                                                                                     ------------
Income before income taxes and minority
interests...................................                                                         $         46
                                                                                                     ============

Long-lived assets...........................     $      446,425  $      347,639   $         (9,406)  $    784,658
                                                 ==============  ==============   ================   ============
</TABLE>

<TABLE>
<CAPTION>
                                                    WHOLESALE        RETAIL         ELIMINATIONS     CONSOLIDATED
                                                 --------------  --------------   ----------------   ------------
<S>                                              <C>             <C>              <C>                <C>
SIX MONTHS ENDED JUNE 30, 2006
Revenues:
  Net sales:
      Net sales.............................     $      239,959  $      217,102   $        (29,031)  $    428,030
      Royalties and franchise fees..........                --            9,043                --           9,043
                                                 --------------  --------------   ----------------   ------------
Total revenues..............................     $      239,959  $      226,145   $        (29,031)  $    437,073
                                                 ==============  ==============   ================   ============

Income (loss) from operations...............     $       23,369  $       (4,544)  $         (5,379)  $     13,446
                                                 ==============  ==============   ================
Interest expense, net.......................                                                               27,103
Other income, net...........................                                                               (1,957)
                                                                                                     ------------

Loss before income taxes and minority
interests...................................                                                         $    (11,700)
                                                                                                     ============

Long-lived assets...........................     $      446,425  $      347,639   $         (9,406)  $    784,658
                                                 ==============  ==============   ================   ============
</TABLE>

      Prior to the Party City Acquisition, the Company operated as a single
business segment - Wholesale.

Geographic Segments

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

                                       11
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

      The Company's geographic area data are as follows:

<TABLE>
<CAPTION>
                                                    DOMESTIC        FOREIGN         ELIMINATIONS     CONSOLIDATED
                                                 --------------  --------------   ----------------   ------------
<S>                                              <C>             <C>              <C>                <C>
THREE MONTHS ENDED JUNE 30, 2006
Revenues:
    Net sales to unaffiliated customers.....     $      207,405  $       16,442   $             --   $    223,847
    Net sales between geographic areas......              5,247              --             (5,247)            --
                                                 --------------  --------------   ----------------   ------------
        Net sales...........................            212,652          16,442             (5,247)       223,847
    Royalties and franchise fees............              4,886              --                 --          4,886
                                                 --------------  --------------   ----------------   ------------
Total revenues..............................     $      217,538  $       16,442   $         (5,247)  $    228,733
                                                 ==============  ==============   ================   ============

Income from operations......................     $       10,612  $        1,234   $            398   $     12,244
                                                 ==============  ==============   ================
Interest expense, net.......................                                                               13,880
Other income, net...........................                                                               (1,682)
                                                                                                     ------------
Income before income taxes and minority
  interests.................................                                                         $         46
                                                                                                     ============

Long-lived assets...........................     $      808,243  $       11,667   $        (35,252)  $    784,658
                                                 ==============  ==============   ================   ============
</TABLE>

<TABLE>
<CAPTION>
                                                    DOMESTIC        FOREIGN         ELIMINATIONS     CONSOLIDATED
                                                 --------------  --------------   ----------------   ------------
<S>                                              <C>             <C>              <C>                <C>

THREE MONTHS ENDED JUNE 30, 2005
Revenues:
    Net sales to unaffiliated customers.....     $       85,743  $       15,542   $             --   $    101,285
    Net sales between geographic areas......              5,455              --             (5,455)            --
                                                 --------------  --------------   ----------------   ------------
Total revenues..............................     $       91,198  $       15,542   $         (5,455)  $    101,285
                                                 ==============  ==============   ================  ==============

Income from operations......................     $       10,104  $        1,398   $            100   $     11,602
                                                 ==============  ==============   ================
Interest expense, net.......................                                                                7,704
Other expense, net..........................                                                                  363
                                                                                                     ------------
Income before income taxes and minority
  interests.................................                                                         $      3,535
                                                                                                     ============

Long-lived assets...........................     $      474,868  $        8,686   $        (28,904)  $    454,650
                                                 ==============  ==============   ================   ============
</TABLE>

<TABLE>
<CAPTION>
                                                    DOMESTIC        FOREIGN         ELIMINATIONS     CONSOLIDATED
                                                 --------------  --------------   ----------------   ------------
<S>                                              <C>             <C>              <C>                <C>
SIX MONTHS ENDED JUNE 30, 2006
Revenues:
    Net sales to unaffiliated customers.....     $      396,519  $       31,511   $             --   $    428,030
    Net sales between geographic areas......              9,190              --             (9,190)            --
                                                 --------------  --------------   ----------------   ------------
        Net sales...........................            405,709          31,511             (9,190)       428,030
    Royalties and franchise fees............              9,043              --                 --          9,043
                                                 --------------  --------------   ----------------   ------------
Total revenues..............................     $      414,752  $       31,511   $         (9,190)  $    437,073
                                                 ==============  ==============   ================   ============

Income from operations......................     $       10,369  $        2,142   $            935   $     13,446
                                                 ==============  ==============   ================
Interest expense, net.......................                                                               27,103
Other income, net...........................                                                               (1,957)
                                                                                                     ------------
Loss before income taxes and minority
  interests.................................                                                         $    (11,700)
                                                                                                     ============

Long-lived assets...........................     $      808,243  $       11,667   $        (35,252)  $    784,658
                                                 ==============  ==============   ================   ============
</TABLE>

                                       12
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                    DOMESTIC        FOREIGN         ELIMINATIONS     CONSOLIDATED
                                                 --------------  --------------   ----------------   ------------
<S>                                              <C>             <C>              <C>                <C>
SIX MONTHS ENDED JUNE 30, 2005
Revenues:
    Net sales to unaffiliated customers.....     $      172,307  $       29,354   $             --   $    201,661
    Net sales between geographic areas......              9,991              --             (9,991)            --
                                                 --------------  --------------   ----------------   ------------
Total revenues..............................     $      182,298  $       29,354   $         (9,991)  $    201,661
                                                 ==============  ==============   ================   ============

Income from operations......................     $       22,855  $        2,360   $            338   $     25,553
                                                 ==============  ==============   ================
Interest expense, net.......................                                                               15,231
Other expense, net..........................                                                                  422
                                                                                                     ------------
Income before income taxes and minority
   interests                                                                                         $      9,900
                                                                                                     ============

Long-lived assets...........................     $      474,868  $        8,686   $        (28,904)  $    454,650
                                                 ==============  ==============   ================   ============
</TABLE>

NOTE 10 - LEGAL PROCEEDINGS

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

NOTE 11 - RELATED PARTY TRANSACTIONS

      In connection with its acquisition in April 2004, the Company executed a
management agreement with Berkshire Partners LLC and Weston Presidio. Pursuant
to the management agreement, Berkshire Partners LLC and Weston Presidio will be
paid annual management fees of $833 and $417, respectively. At June 30, 2006 and
December 31, 2005, accrued management fees payable to Berkshire Partners LLC and
Weston Presidio totaled $139 and $69, respectively. Although the indenture
governing our senior subordinated notes will permit the payments under the
management agreement, such payments will be restricted during an event of
default under the notes and will be subordinated in right of payment to all
obligations due with respect to the notes in the event of a bankruptcy or
similar proceeding of Amscan.

NOTE 12 - STOCK OPTION PLAN

      On May 1, 2004, the Company adopted the 2004 Equity Incentive Plan under
which the Company may grant incentive awards in the form of options to purchase
shares of the Company's common stock ("Company Stock Options") and shares of
restricted and unrestricted shares of the Company's common stock to certain
directors, officers, employees and consultants of the Company and its
affiliates. A committee of the Company's board of directors (the "Committee"),
or the board itself in the absence of a Committee, is authorized to make grants
and various other decisions under the 2004 Equity Incentive Plan. Unless
otherwise determined by the Committee, any participant granted an award under
the 2004 Equity Incentive Plan must become a party to, and agree to be bound by,
the Company's stockholders' agreement. Company Stock Options reserved under the
2004 Equity Incentive Plan total 2,901.4097 and may include incentive stock
options, nonqualified stock options or both types of Company Stock Options.
Company Stock Options are nontransferable (except under certain limited
circumstances) and, unless otherwise determined by the Committee, vest over five
years and have a term of ten years from the date of grant.

   In April 2005, the Company granted 722 time-based options ("TBOs") and 760
performance based options ("PBOs") to key employees and its outside directors.
Under the PBO feature, option awards are contingent on meeting various
company-wide performance goals based primarily on revenue growth and
profitability over a multi-year period. The Company used a minimum value method
under SFAS No. 123, as amended by SFAS No.148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," to determine the fair value of the
Company Stock Options granted in April 2005 and recorded compensation expense of
approximately $111 and $222 during the three and six months ended June 30, 2006
and $112 during the three and six months ended June 30, 2005, in general and
administrative expenses. It has been assumed that the estimated fair value of
the options granted in 2005 under the Equity Incentive Plan is amortized on a
straight line basis to compensation expense, net of taxes, over the vesting
period of the grant of four years. The estimated fair value of each option on
the date of grant was determined using the minimum value method with the
following assumptions:

                                       13
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

dividend yield of 0%, risk-free interest rate of 3.1%, forfeitures and expected
cancellation of 3% for TBOs and 6% for PBOs and an expected life of four years.

      On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123(R) "Share-Based Payment," which is a revision of SFAS
No. 123 "Accounting for Stock-Based Compensation" as amended. SFAS No. 123(R)
establishes standards for the accounting for transactions where an entity
exchanges its equity for goods or services and transactions that are based on
the fair value of the entity's equity instruments or that may be settled by the
issuance of those equity instruments. SFAS No. 123(R) focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. Generally, the fair value approach in SFAS No.
123(R) is similar to the fair value approach described in SFAS No. 123.

      The Company adopted SFAS No. 123(R) using the prospective method. Since
the Company's stock is not publicly traded, options that were granted under SFAS
No. 123 continue to be expensed under the provisions of SFAS No. 123 using a
minimum value method while options issued subsequent to January 1, 2006 are
expensed under the provisions of SFAS No. 123(R).

      During the quarter ended June 30, 2006, the Company granted an additional
434.5 TBOs and 790.5 PBOs to key employees and outside directors. The Company
recorded compensation of $254 for the three and six months ended June 30, 2006
related to options granted under SFAS No. 123(R) in general and administrative
expenses. The fair value of each grant is estimated on the grant date using a
Black-Scholes option valuation model based on the assumptions in the following
table.

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                               JUNE 30, 2006
                                                             ------------------
<S>                                                          <C>
Expected dividend rate....................................           --
Risk free interest rate...................................         4.85%
Weighted average expected lives, in years.................          7.5
Price volatility..........................................           15%
</TABLE>

      The weighted average expected lives (estimated period of time outstanding)
was estimated using the simplified method for determining the expected term.
Expected volatility was based on implied historical volatility of an applicable
Dow Jones Industrial Average sector index for a period equal to the stock
option's expected life.

NOTE 13 - SALES LEASEBACK TRANSACTION

      On May 25, 2006, the Company sold a warehouse located in Chester, New York
and entered into a leaseback for the same warehouse under a one-year lease
agreement. Net proceeds to the Company for the sale of the property were
approximately $12,613 and the gain on the transaction was $2,666. Of the total
gain, $1,353 was recognized in the second quarter of 2006 under the caption
other (income) expense, and $1,313 was deferred and will be recognized as income
over the one-year leaseback period. Additionally, $1,363 of rent expense
will be recognized on a straight-line basis over the one-year leaseback period.

NOTE 14 - RECENTLY ISSUED ACCOUNTING STANDARDS

      In July 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. ("FIN") 48, "Accounting for Uncertainty in Income
Taxes." Among other things, FIN 48 requires applying a "more likely than not"
threshold to the recognition and derecognition of tax positions. The new
guidance will be effective for the Company on January 1, 2007. The Company is in
the process of determining the effect, if any, of the adoption of FIN 48 on the
Company's consolidated financial statements.

NOTE 15 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION

      On December 23, 2005, the Company financed the Party City Acquisition with
(i) the Equity Investment of $166,425, (ii) the First Term Loan of $325,000,
which includes the $85,000 First Term Loan Revolver, (iii) borrowings under the
Second Term Loan of $60,000, and (iv) cash on-hand of $21,227 including $862
paid during the six months ended June 30, 2006.

      Borrowings under the First Term Loan, First Term Loan Revolver, Second
Term Loan and the Company's 8.75% $175,000 senior subordinated notes issued in
April 30, 2004 and due in April 30, 2014 are guaranteed jointly and severally,
fully and unconditionally, by the following wholly-owned domestic subsidiaries
of the Company (the "Guarantors"):

                                       14
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

      -     Amscan Inc.

      -     Am-Source, LLC

      -     Anagram International, Inc.

      -     Anagram International Holdings, Inc.

      -     Anagram International, LLC

      -     M&D Industries, Inc.

      -     Party City Corporation

      -     SSY Realty Corp.

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

      -     Anagram Eden Prairie Property Holdings LLC

      -     Trisar, Inc.

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

      -     Amscan Distributors (Canada) Ltd.

      -     Amscan Holdings Limited

      -     Amscan (Asia-Pacific) Pty. Ltd.

      -     Amscan Partyartikel GmbH

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

      -     Anagram International (Japan) Co., Ltd.

      -     Anagram Espana, S.A.

      -     Anagram France S.C.S.

      -     JCS Hong Kong Ltd.

   The following information presents condensed consolidating balance sheets as
of June 30, 2006 and December 31, 2005, and the related condensed consolidating
statements of operations for the three and six month periods ended June 30, 2006
and 2005 and the consolidated statement of cash flows for the six months ended
June 30, 2006 and 2005 for the combined Guarantors and the combined
Non-guarantors and elimination entries necessary to consolidate the entities
comprising the consolidated financial statements.

                                       15
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                      CONDENSED CONSOLIDATING BALANCE SHEET
                                  JUNE 30, 2006

<TABLE>
<CAPTION>
                                                                    AHI AND
                                                                   COMBINED       COMBINED NON-
                                                                  GUARANTORS       GUARANTORS      ELIMINATIONS      CONSOLIDATED
                                                                --------------   --------------   --------------    --------------
<S>                                                             <C>              <C>              <C>               <C>
ASSETS
Current assets:
    Cash and cash equivalents...............................    $        3,913   $          721   $                 $        4,634
    Accounts receivable, net................................            71,485           14,830                             86,315
    Inventories, net........................................           160,488           13,264             (310)          173,442
    Prepaid expenses and other current assets...............            34,876            2,520                             37,396
                                                                --------------   --------------   --------------    --------------
       Total current assets.................................           270,762           31,335             (310)          301,787
  Property, plant and equipment, net........................           142,949            2,342                            145,291
  Goodwill..................................................           457,620            4,011                            461,631
  Trade names...............................................           111,900               --                            111,900
  Other intangible assets, net..............................            41,712               --                             41,712
  Other assets..............................................            54,062            5,314          (35,252)           24,124
                                                                --------------   --------------   --------------    --------------
       Total assets.........................................    $    1,079,005   $       43,002   $      (35,562)   $    1,086,445
                                                                ==============   ==============   ==============    ==============

LIABILITIES, REDEEMABLE COMMON SECURITIES AND
  STOCKHOLDERS' EQUITY
Current liabilities:
    Loans and notes payable.................................    $       17,700   $           --   $                 $       17,700
    Accounts payable........................................            65,999            2,657                             68,656
    Accrued expenses........................................            42,695            6,235                             48,930
    Income taxes payable....................................               588               --              103               691
    Current portion of long-term obligations................             3,274              181                              3,455
                                                                --------------   --------------   --------------    --------------
       Total current liabilities............................           130,256            9,073              103           139,432
Long-term obligations, excluding current portion............           559,719              136                            559,855
Deferred income tax liabilities.............................            58,558              661                             59,219
Deferred rent and other long-term liabilities...............             5,962           33,222          (35,369)            3,815
                                                                --------------   --------------   --------------    --------------
       Total liabilities....................................           754,495           43,092          (35,266)          762,321

Redeemable common securities................................             7,685               --                              7,685

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

Stockholders' equity:
    Common stock............................................                --              339             (339)               --
    Additional paid-in capital..............................           301,969               --                            301,969
    Retained earnings.......................................            14,044             (349)             (37)           13,658
    Accumulated other comprehensive income (loss)                          812              (80)              80               812
                                                                --------------   --------------   --------------    --------------
       Total stockholders' equity...........................           316,825              (90)            (296)          316,439
                                                                --------------   --------------   --------------    --------------
       Total liabilities, redeemable
          common securities and stockholders' equity........    $    1,079,005   $       43,002   $      (35,562)   $    1,086,445
                                                                ==============   ==============   ==============    ==============
</TABLE>

                                       16
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                      CONDENSED CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2005

<TABLE>
<CAPTION>
                                                             AHI AND
                                                            COMBINED       COMBINED NON-
                                                           GUARANTORS       GUARANTORS      ELIMINATIONS      CONSOLIDATED
                                                         --------------   --------------   --------------    --------------
<S>                                                      <C>              <C>              <C>               <C>
ASSETS
Current assets:
    Cash and cash equivalents..........................  $        7,695   $        1,050   $                 $        8,745
    Accounts receivable, net...........................          71,234           11,795                             83,029
    Inventories, net...................................         175,087           13,955             (585)          188,457
    Prepaid expenses and other current assets..........          37,851            1,710                             39,561
                                                         --------------   --------------   --------------    --------------
       Total current assets............................         291,867           28,510             (585)          319,792
  Property, plant and equipment, net...................         148,580            2,297                            150,877
  Goodwill, net........................................         501,985            3,746                            505,731
  Trade names..........................................          68,500               --                             68,500
  Other intangible assets, net.........................          48,699               --                             48,699
  Other assets.........................................          52,650            5,448          (32,750)           25,348
                                                         --------------   --------------   --------------    --------------
       Total assets....................................  $    1,112,281   $       40,001   $      (33,335)   $    1,118,947
                                                         ==============   ==============   ==============    ==============

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

Redeemable common securities...........................           6,821               --                              6,821

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

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

                                       17
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2006

<TABLE>
<CAPTION>
                                                                   AHI AND
                                                                   COMBINED       COMBINED NON-
                                                                  GUARANTORS       GUARANTORS      ELIMINATIONS      CONSOLIDATED
                                                                --------------   --------------   --------------    --------------
<S>                                                             <C>              <C>              <C>               <C>
Revenues:
    Net sales...............................................    $      212,652   $       16,442   $       (5,247)   $      223,847
    Royalties and franchise fees............................             4,886               --                              4,886
                                                                --------------   --------------   --------------    --------------
          Total revenues....................................           217,538           16,442           (5,247)          228,733

Expenses:
    Cost of sales...........................................           151,298           11,221           (5,315)          157,204
    Selling expenses........................................             7,529            1,914                              9,443
    Retail operating expenses...............................            24,363               --                             24,363
    Franchise expenses......................................             3,142               --                              3,142
    General and administrative expenses.....................            18,118            2,073             (330)           19,861
    Art and development costs...............................             2,476               --                              2,476
                                                                --------------   --------------   --------------    --------------
         Total expenses.....................................           206,926           15,208           (5,645)          216,489
                                                                --------------   --------------   --------------    --------------
           Income from operations...........................            10,612            1,234              398            12,244

Interest expense, net.......................................            13,843               37                             13,880
Other (income) expense, net.................................            (2,966)             299              985            (1,682)
                                                                --------------   --------------   --------------    --------------
         (Loss) income before income taxes and minority
             interests......................................              (265)             898             (587)               46

Income tax (benefit) expense................................              (213)             207               25                19
Minority interests..........................................                --               36                                 36
                                                                --------------   --------------   --------------    --------------
         Net (loss) income..................................    $          (52)  $          655   $         (612)   $           (9)
                                                                ==============   ==============   ==============    ==============
</TABLE>

                                       18
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005

<TABLE>
<CAPTION>
                                                                   AHI AND
                                                                   COMBINED       COMBINED NON-
                                                                  GUARANTORS       GUARANTORS      ELIMINATIONS      CONSOLIDATED
                                                                --------------   --------------   --------------    --------------
<S>                                                             <C>              <C>              <C>               <C>
Revenues:
    Net sales...............................................    $       91,198   $       15,542   $       (5,455)   $      101,285
Expenses:
    Cost of sales...........................................            63,692           10,295           (5,225)           68,762
    Selling expenses........................................             7,330            1,881                              9,211
    General and administrative expenses.....................             7,720            1,968             (330)            9,358
    Art and development costs...............................             2,352               --                              2,352
                                                                --------------   --------------   --------------    --------------
         Total expenses.....................................            81,094           14,144           (5,555)           89,683
                                                                --------------   --------------   --------------    --------------
           Income from operations...........................            10,104            1,398              100            11,602

Interest expense, net.......................................             7,676               28                              7,704
Other income, net...........................................              (909)              (2)           1,274               363
                                                                --------------   --------------   --------------    --------------
         Income before income taxes and minority interests..             3,337            1,372           (1,174)            3,535

Income tax (benefit) expense................................              (431)             382              (83)             (132)
Minority interests..........................................                --               46                                 46
                                                                --------------   --------------   --------------    --------------
         Net income.........................................    $        3,768   $          944   $       (1,091)   $        3,621
                                                                ==============   ==============   ==============    ==============
</TABLE>

                                       19
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2006

<TABLE>
<CAPTION>
                                                                   AHI AND
                                                                   COMBINED       COMBINED NON-
                                                                  GUARANTORS       GUARANTORS      ELIMINATIONS      CONSOLIDATED
                                                                --------------   --------------   --------------    --------------
<S>                                                             <C>              <C>              <C>               <C>
Revenues:
    Net sales...............................................    $      405,709   $       31,511   $       (9,190)   $      428,030
    Royalties and franchise fees............................             9,043               --                              9,043
                                                                --------------   --------------   --------------    --------------
          Total revenues....................................           414,752           31,511           (9,190)          437,073

Expenses:
    Cost of sales...........................................           293,906           21,430           (9,465)          305,871
    Selling expenses........................................            14,752            3,866                             18,618
    Retail operating expenses...............................            48,562               --                             48,562
    Franchise expenses......................................             5,979               --                              5,979
    General and administrative expenses.....................            36,226            4,073             (660)           39,639
    Art and development costs...............................             4,958               --                              4,958
                                                                --------------   --------------   --------------    --------------
          Total expenses....................................           404,383           29,369          (10,125)          423,627
                                                                --------------   --------------   --------------    --------------
           Income from operations...........................            10,369            2,142              935            13,446

Interest expense, net.......................................            27,031               72                             27,103
Other (income) expense, net.................................            (4,104)             336            1,811            (1,957)
                                                                --------------   --------------   --------------    --------------
         (Loss) income before income taxes and minority
            interests.......................................           (12,558)           1,734             (876)          (11,700)

Income tax (benefit) expense................................            (5,220)             477              103            (4,640)
Minority interests..........................................                --              106                                106
                                                                --------------   --------------   --------------    --------------
         Net (loss) income..................................    $       (7,338)  $        1,151   $         (979)   $       (7,166)
                                                                ==============   ==============   ==============    ==============
</TABLE>

                                       20
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2005

<TABLE>
<CAPTION>
                                                                   AHI AND
                                                                   COMBINED       COMBINED NON-
                                                                  GUARANTORS       GUARANTORS      ELIMINATIONS      CONSOLIDATED
                                                                --------------   --------------   --------------    --------------
<S>                                                             <C>              <C>              <C>               <C>
Revenues:
    Net sales...............................................    $      182,298   $       29,354   $       (9,991)   $      201,661

 Expenses:
    Cost of sales...........................................           125,972           19,260           (9,669)          135,563
    Selling expenses........................................            14,329            3,866                             18,195
    General and administrative expenses.....................            14,528            3,868             (660)           17,736
    Art and development costs...............................             4,614               --                              4,614
                                                                --------------   --------------   --------------    --------------
         Total expenses.....................................           159,443           26,994          (10,329)          176,108
                                                                --------------   --------------   --------------    --------------
           Income from operations...........................            22,855            2,360              338            25,553

Interest expense, net.......................................            15,174               57                             15,231
Other (income) expense, net.................................            (1,925)             (16)           2,363               422
                                                                --------------   --------------   --------------    --------------
         Income before income taxes and minority interests..             9,606            2,319           (2,025)            9,900

Income tax expense..........................................             1,776              566             (119)            2,223
Minority interests..........................................                --               50                                 50
                                                                --------------   --------------   --------------    --------------
         Net income.........................................    $        7,830   $        1,703   $       (1,906)   $        7,627
                                                                ==============   ==============   ==============    ==============
</TABLE>

                                       21
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2006

<TABLE>
<CAPTION>
                                                                            AHI AND
                                                                            COMBINED   COMBINED NON-
                                                                           GUARANTORS    GUARANTORS   ELIMINATIONS  CONSOLIDATED
                                                                           ----------  -------------  ------------  ------------
<S>                                                                        <C>         <C>            <C>           <C>
Cash flows used in operating activities:
  Net (loss) income .....................................................  $  (7,338)    $  1,151       $   (979)     $ (7,166)
  Adjustments to reconcile net (loss) income to net cash used in
          operating activities:
          Depreciation and amortization expense .........................     19,869          385                       20,254
          Amortization of deferred financing costs ......................      1,309           --                        1,309
          Provision for doubtful accounts ...............................        536          151                          687
          Deferred income tax benefit ...................................     (4,200)          --                       (4,200)
          Undistributed gain in unconsolidated joint venture ............       (221)          --                         (221)
          (Gain) loss on disposal of property, plant and equipment ......     (2,024)           6                       (2,018)
          Equity based compensation .....................................        476           --                          476
           Changes in operating assets and liabilities:
              Increase in accounts receivable ...........................     (3,681)      (3,186)                      (6,867)
              Decrease in inventories ...................................     14,027          691           (275)       14,443
              Increase in prepaid expenses, other current assets and
                  other, net ............................................     (3,925)        (210)         1,151        (2,984)
               (Decrease) increase in accounts payable, accrued
                  expenses, income taxes payable and other
                  liabilities ...........................................    (33,105)          16            103       (32,986)
                                                                           ---------     --------       --------      --------
                Net cash used in operating activities ...................    (18,277)        (996)            --       (19,273)
  Cash flows used in investing activities:
          Cash paid in connection with Party City Acquisition ...........       (862)          --                         (862)
          Capital expenditures ..........................................    (15,562)        (337)                     (15,899)
          Proceeds from disposal of property, plant and equipment .......     12,980           24                       13,004
                                                                           ---------     --------       --------      --------
                Net cash used in investing activities ...................     (3,444)        (313)            --        (3,757)
   Cash flows provided by (used in) financing activities:
          Repayment of loans, notes payable and long-term obligations....     (1,176)        (138)                      (1,314)
          Proceeds from short term obligations ..........................     17,700           --                       17,700
          Proceeds from the sale of common stock ........................      1,374           --                        1,374
                                                                           ---------     --------       --------      --------
             Net cash provided by (used in) financing activities ........     17,898         (138)            --        17,760
   Effect of exchange rate changes on cash and cash equivalents .........         41        1,118                        1,159
                                                                           ---------     --------       --------      --------
                  Net decrease in cash and cash equivalents .............     (3,782)        (329)                      (4,111)
   Cash and cash equivalents at beginning of period .....................      7,695        1,050                        8,745
                                                                           ---------     --------       --------      --------
   Cash and cash equivalents at end of period ...........................  $   3,913     $    721       $             $  4,634
                                                                           =========     ========       ========      ========
</TABLE>

                                       22
<PAGE>

                              AMSCAN HOLDINGS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2005

<TABLE>
<CAPTION>
                                                                                   AHI AND    COMBINED
                                                                                   COMBINED     NON-
                                                                                  GUARANTORS  GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                                                  ----------  ----------  ------------  ------------
<S>                                                                               <C>         <C>         <C>           <C>
Cash flows provided by operating activities:
  Net income ...................................................................   $ 7,830     $ 1,703      $(1,906)      $ 7,627
  Adjustments to reconcile net income to net cash provided by operating
          activities:
          Depreciation and amortization expense ................................     7,017         331                      7,348
          Amortization of deferred financing costs .............................       738          --                        738
          Provision for doubtful accounts ......................................       524         164                        688
          Deferred income tax expense ..........................................       813          --                        813
          Undistributed loss in unconsolidated joint venture ...................       432          --                        432
          Equity based compensation ............................................       112          --                        112
           Changes in operating assets and liabilities, net of acquisitions:
               Decrease (increase) in accounts receivable ......................     1,146      (2,067)                      (921)
               Increase in inventories, net ....................................    (7,001)     (1,367)         322        (8,046)
               Increase in prepaid expenses, other current assets and other
                  assets, net ..................................................    (2,003)       (784)                    (2,787)
               Increase in accounts payable, accrued expenses, income taxes
                  payable and other liabilities, net ...........................     1,290         238         (119)        1,409
                Other, net .....................................................    (5,557)      2,949        1,703          (905)
                                                                                   -------     -------      -------       -------
                  Net cash provided by operating activities.....................     5,341       1,167           --         6,508
  Cash flows used in investing activities:
          Capital expenditures .................................................    (5,856)       (360)                    (6,216)
                                                                                   -------     -------      -------       -------
               Net cash used in investing activities ...........................    (5,856)       (360)                    (6,216)
   Cash flows used in financing activities:
          Repayment of loans, notes payable and long-term obligations ..........    (1,620)       (100)                    (1,720)
          Purchase and retirement of redeemable common stock held by former
               employee ........................................................      (104)        --                        (104)
                                                                                   -------     -------      -------       -------
               Net cash used in financing activities ...........................    (1,724)       (100)                    (1,824)
   Effect of exchange rate changes on cash and cash equivalents ................        73        (741)                      (668)
                                                                                   -------     -------      -------       -------
             Net decrease  in cash and cash equivalents ........................    (2,166)        (34)                    (2,200)
   Cash and cash equivalents at beginning of period ............................     3,153       1,099                      4,252
                                                                                   -------     -------      -------       -------
   Cash and cash equivalents at end of period ..................................   $   987     $ 1,065       $   --       $ 2,052
                                                                                   =======     =======      =======       =======
</TABLE>

                                       23
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE PARTY CITY ACQUISITION

      On December 23, 2005 (the "Party City Acquisition Date"), the Company
completed the acquisition of Party City Corporation ("Party City") pursuant to
an Agreement and Plan of Merger (the "Party City Acquisition"), dated September
26, 2005 (as amended, the "Acquisition Agreement"), by and among the Company,
Party City and BWP Acquisition, Inc. ("BWP"), a Delaware corporation and a
wholly-owned subsidiary of the Company. Pursuant to the terms of the Acquisition
Agreement, BWP merged with and into Party City, with Party City continuing as
the surviving corporation. Each share of common stock of Party City outstanding
at the Party City Acquisition Date was cancelled and converted into the right to
receive $17.50 in cash, without interest. Prior to the acquisition, Party City
settled all outstanding stock options and warrants at the spread between $17.50
and their exercise price. Transaction costs associated with the Party City
Acquisition totaled $9.6 million.

      Financing for the Party City Acquisition, including the repayment of the
Company's borrowings under its 2004 senior secured credit facility, was provided
by: (i) an equity investment of $166.4 million (the "Equity Investment") in AAH,
(ii) borrowings under a First Lien Credit Agreement (the "First Lien Credit
Agreement") consisting of a $325.0 million term loan (net of an original issue
discount of $3.25 million) (the "First Term Loan") and a committed revolving
credit facility in an aggregate principal amount of $85.0 million (the "First
Term Loan Revolver"), (iii) borrowings under a Second Lien Credit Agreement (the
"Second Lien Credit Agreement," and, together with the First Lien Credit
Agreement, the "Credit Agreements") consisting of a $60.0 million term loan (net
of an original issue discount of $1.5 million) (the "Second Term Loan") and (iv)
cash on-hand of $21.2 million including $0.9 million paid during the six months
ended June 20, 2006. Deferred financing costs associated with the Credit
Agreements totaled $7.4 million.

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

      The excess of the Party City purchase price over the tangible net assets
acquired has been allocated to intangible assets consisting of franchise
licenses ($27.1 million) and other intangibles ($0.3 million), each of which is
being amortized using the straight-line method over the assets' estimated useful
life (one to nine years), and trade names ($78.4 million) and goodwill ($177.9
million), which are not being amortized. In addition, there has been an
allocation to step property, plant and equipment up to market value ($5.0
million). The acquisition was structured as a purchase of common stock and,
accordingly, the amortization of intangible assets is not deductible for income
tax purposes. The allocation of the purchase price is based, in-part, on our
preliminary estimates of the fair value of the tangible and identifiable
intangible assets acquired and liabilities assumed. Independent valuation
specialists are currently conducting a valuation of the net assets acquired as
of the Party City Acquisition Date to assist management with the final
determination of fair value. Based on preliminary valuation results, during the
six months ended June 30, 2006, the Company increased the allocation of the
purchase price to trade names ($43.4 million) and fixed assets ($5.0 million),
reduced the allocation to franchise licenses ($2.9 million) and adjusted other
net liabilities resulting in a net decrease in goodwill related to the Party
City Acquisition of $44.3 million.

      The results of Party City's operations are included in the Company's
consolidated results of operations from the date of acquisition. As a result of
the acquisition of Party City Corporation on December 23, 2005, the Company's
historical consolidated results of operations for the three and six months ended
June 30, 2006 and 2005 vary significantly. Accordingly, the Company has provided
and made comparisons to the Company's historical consolidated results of
operations for the three and six months ended June 30, 2005, as well as its pro
forma consolidated results, as if the acquisition had occurred on January 1,
2005. The pro forma consolidated results of operations reflect the following
items: (i) adjustments to interest expense for new borrowings related to the
Party City Acquisition and the elimination of historical interest on debt repaid
in connection therewith, (ii) the elimination of non-recurring expenses related
to the Party City Acquisition, (iii) adjustments to depreciation and
amortization expense arising from the valuation of depreciable and amortizable
tangible and intangible assets, as a result of a preliminary purchase price
allocation , and (vi) the related income tax effects of the above items based
upon a pro forma effective income tax rate of 39.5%. The pro forma information,
as presented below, is not necessarily indicative of the results that would have
been obtained had the Party City Acquisition occurred on January 1, 2005, nor is
it necessarily indicative of the Company's future results.

                                       24
<PAGE>

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THREE MONTHS ENDED JUNE 30, 2005

PERCENTAGE OF TOTAL REVENUES

      The following table sets forth the Company's consolidated statements of
operations for the three months ended June 30, 2006 and 2005 and, on a pro forma
basis, for the three months ended June 30, 2005, respectively.

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED JUNE 30,
                                                                               2005
                                                            2006     2005    PRO FORMA
                                                           ------   ------   ---------
<S>                                                        <C>      <C>      <C>
Revenues:
   Net sales ............................................   97.9%   100.0%      97.8%
   Royalties and franchise fees .........................    2.1       --        2.2
                                                           -----    -----      -----
      Total revenues ....................................  100.0    100.0      100.0

Expenses:
   Cost of sales ........................................   68.7     67.9       65.8
   Selling expenses .....................................    4.1      9.1        4.3
   Retail operating expenses ............................   10.6       --       12.1
   Franchise expenses ...................................    1.4       --        1.4
   General and administrative expenses ..................    8.7      9.2        8.8
   Art and development costs ............................    1.1      2.3        1.1
                                                           -----    -----      -----
     Total expenses .....................................   94.6     88.5       93.5
                                                           -----    -----      -----
         Income from operations .........................    5.4     11.5        6.5

Interest expense, net ...................................    6.1      7.6        6.2
Other (income) expense, net .............................   (0.7)     0.4        0.2
                                                           -----    -----      -----
   Income before income taxes and minority  interests....     --      3.5        0.1

Income tax benefit ......................................     --     (0.1)      (0.6)
Minority interests ......................................     --       --         --
                                                           -----    -----      -----
     Net income .........................................     --%     3.6%       0.7%
                                                           =====    =====      =====
</TABLE>

TOTAL REVENUES

      The following table sets forth the Company's total revenues for the three
months ended June 30, 2006 and 2005 and, on a pro forma basis, for the three
months ended June 30, 2005, respectively.

<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED
                                           THREE MONTHS ENDED      THREE MONTHS ENDED       JUNE 30, 2005
                                             JUNE 30, 2006            JUNE 30, 2005            PRO FORMA
                                         ----------------------  ---------------------  ----------------------
                                                     % OF TOTAL             % OF TOTAL             % OF TOTAL
                                              $       REVENUES       $       REVENUES      $        REVENUES
                                         ----------  ----------  ---------  ----------  --------   -----------
<S>                                      <C>         <C>         <C>        <C>         <C>        <C>
Net sales:
      Wholesale sales..................  $ 116,772      51.1%    $ 101,285     100.0%   $110,980      52.0%
      Eliminations.....................    (13,128)     (5.8)           --        --     (13,432)     (6.3)
                                         ---------     -----     ---------    ------    --------     -----
           Wholesale net sales.........    103,644      45.3       101,285     100.0      97,548      45.7
      Retail sales.....................    120,203      52.6            --        --     111,307      52.1
                                         ---------     -----     ---------    ------    --------     -----
          Total net sales..............    223,847      97.9       101,285     100.0     208,855      97.8
Royalties and franchise fees...........      4,886       2.1            --        --       4,605       2.2
                                         ---------     -----     ---------    ------    --------     -----
          Total revenues...............  $ 228,733     100.0%    $ 101,285     100.0%   $213,460     100.0%
                                         =========     =====     =========    ======    ========     =====
</TABLE>

      For the quarter ended June 30, 2006, revenues totaled $228.7 million,
consisting of net sales, at wholesale, of $103.6 million, retail sales of $120.2
million and franchise related revenues of $4.9 million. For the quarter ended
June 30, 2005, revenue consisted of net sales at wholesale, totaling $101.3
million. Assuming the Party City Acquisition had occurred on January 1, 2005,
pro forma revenue for

                                       25
<PAGE>

the second quarter of 2005 totaled $213.5 million, consisting of net sales at
wholesale of $97.5 million, retail net sales of $111.3 million and
franchise-related revenue of $4.6 million.

   WHOLESALE

      Net sales, at wholesale, of $103.6 million were $6.1 million or 6.2%
higher than the pro forma sales for the second quarter of 2005. Net sales to
party superstores, including sales to Party City franchisees, totaled $23.3
million or 2.7% higher than in 2005. The Company attributes the increase in
sales to party superstores principally to synergistic growth, as the Company
expands the number of product lines available to Party City franchise stores.
International sales totaled $16.4 million or 5.8% higher than in 2005. The
Company attributes the increase in international sales to the favorable
reception of our new 2006 ensemble designs and product lines. Net sales of
metallic balloons were $25.8 million or 15.9% higher than in 2005, with the
increase primarily attributable to the introduction of a new musical balloon
line in the fourth quarter of 2005, strong retail demand for shaped and other
specialty balloons and strong sales of flexible packaging during the second
quarter.

   RETAIL

      Net retail sales for company-owned stores for the second quarter of 2006
totaled $120.2 million or 8.0% higher than the pro forma net retail sales for
the second quarter of 2005. Same-store net retail sales for company-owned stores
during the second quarter 2006 totaled $118.7 million or 7.5% higher than the
pro forma net retail sales for the second quarter of 2005. The improvement
reflects an increase of 5.6% in same-store sales of non-seasonal merchandise and
an 18.6% increase in same-store net sales of seasonal merchandise, principally
due to a sales shift because of Easter falling in April 2006 and March 2005..
The increase in net retail sales also reflects a 3.1% increase in the average
net sale per retail transaction and a 4.2% increase in customer count at our
company-owned stores.

   ROYALTIES AND FRANCHISE FEES

      Franchise related revenue for the second quarter of 2006 totaled $4.9
million or 6.1% higher than the pro forma revenue for the second quarter of
2005. During the second quarter of 2006, our franchise store count increased by
six stores, as compared to one store in the second quarter of 2005. In addition,
franchise stores reported same-store net sales of $121.3 million, or an increase
of 7.4% when comparing the second quarters of 2006 and 2005.

GROSS PROFIT

      The following table sets forth the Company's consolidated gross profit on
net sales for the three months ended June 30, 2006 and 2005 and, on a pro forma
basis, for the three months ended June 30, 2005, respectively.

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                  THREE MONTHS ENDED    THREE MONTHS ENDED     JUNE 30, 2005
                                     JUNE 30, 2006        JUNE 30, 2005         PRO FORMA
                                  -------------------  -------------------  -------------------
                                             % OF                  % OF                % OF
                                           ASSOCIATED           ASSOCIATED           ASSOCIATED
                                     $      NET SALES     $      NET SALES     $     NET SALES
                                  -------  ----------  -------  ----------  -------  ----------
<S>                               <C>      <C>         <C>      <C>         <C>      <C>
GROSS PROFIT:
      Wholesale ................  $29,270     28.2%    $32,523     32.1%    $31,019     31.8%
      Retail ...................   37,373     31.1          --       --      37,447     33.6
                                  -------              -------              -------
          Total gross profit....  $66,643     29.8%    $32,523     32.1%    $68,466     32.8%
                                  =======     ====     =======     ====     =======     ====
</TABLE>

      The gross profit margin on net sales, for the quarter ended
June 30, 2006 was 28.2% or 390 basis points lower than in 2005. The decrease in
gross profit margin principally reflects the inclusion, in 2006, of $9.7 million
of net sales from Party City to its franchisees, which historically have lower
margins and account for a 320 basis point reduction in our overall gross profit
margin. The remaining 70 basis point reduction in margin is attributable to
changes in product sales mix across the Company's many product lines. Retail
gross profit margin for the second quarter 2006 of 31.1% was 250 basis points
lower than the gross profit margin, on a pro forma basis, for the second quarter
2005 and principally reflects lower vendor rebates and discounts.

OPERATING EXPENSES.

      Selling expenses of $9.4 million for the quarter ended June 30, 2006 were
$0.2 million higher than for the second quarter of 2005 as increases in base
compensation and employee benefits were substantially offset by a reduction in
the size of our sales force. As a percent of total revenues, selling expenses
were 4.1% for the three months ended June 30, 2006, or 20 basis points lower
than selling expenses as a percentage of pro forma total revenue for the second
quarter of 2005.

                                       26
<PAGE>

      Retail operating expenses of $24.4 million were $1.5 million lower than in
the comparable quarter of 2005 and decreased from 12.1% to 10.6% of revenues
when compared to the pro forma expenses for the second quarter of 2005. The
decrease in retail operating expenses principally reflects the timing of
advertising expenses and lower payroll and supplies expense. Franchise expenses
for the second quarter of 2006 of $3.1 million were comparable to the pro forma
expenses for the second quarter of 2005, at 1.4% of total revenues.

      General and administrative expenses of $19.9 million for the quarter ended
June 30, 2006 were $0.9 million higher than the pro forma expenses for the
second quarter of 2005. As a percentage of total revenues, general and
administrative expenses were 8.7% for the second quarter of 2006 as compared to
8.8%, on a pro forma basis, for the quarter ended June 30, 2005. The increase in
general and administrative expenses principally reflects higher base
compensation and employee benefits, including compensation expense for stock
options partially offset by lower reserves for compensated absences at our
retail operations and lower corporate spending.

      Art and development costs of $2.5 million for the quarter ended June 30,
2006 were $0.1 million higher than costs for the second quarter of 2005. As a
percentage of total revenues, art and development costs were 1.1% of total
revenue for the second quarter of 2006 and pro forma total revenue for the
comparable quarter of 2005.

INTEREST EXPENSE, NET.

      Interest expense of $13.9 million for the three months ended June 30, 2006
was $6.2 million higher than for the three months ended June 30, 2005,
reflecting higher average borrowings following the Party City Acquisition in
December 2005 and higher variable interest rates during the second quarter of
2006 compared to the second quarter of 2005.

OTHER (INCOME) EXPENSE, NET.

      Other income, net, for the second quarter of 2006 principally consists of
a gain on the sale-leaseback of a warehouse in Chester, New York of $1.4
million, the gain on sales of two Party City corporate stores of $0.7 million
and the undistributed income in an unconsolidated joint venture. The other
expense, net, for the second quarter of 2005 principally consists of the
undistributed loss in an unconsolidated joint venture. The undistributed
(income) loss represents our share of the operations of a Mexican balloon
distribution joint venture, including the elimination of intercompany profit in
the joint venture's inventory at June 30, 2006 and 2005.

INCOME TAXES.

      Income taxes for the second quarter of 2006 and 2005 were based upon the
estimated consolidated effective income tax rates of 39.7% and 37.0% for the
years ending December 31, 2006 and 2005, respectively. The increase in the 2006
effective income tax rate is primarily attributable to a higher average state
income tax rate based on the numerous jurisdictions in which our retail stores
operate. In addition, during the three months ended June 30, 2005, the Company
recorded a $1.4 million reduction to its income tax expense and net deferred
income tax liability to reflect a change in its estimated state income tax rate.
The tax rate change results from a change in New York State tax law governing
the apportionment of income.

                                       27
<PAGE>

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED JUNE 30, 2005

PERCENTAGE OF TOTAL REVENUES

      The following table sets forth the Company's consolidated statements of
operations for the six months ended June 30, 2006 and 2005 and, on a pro forma
basis, for the six months ended June 30, 2005, respectively.

<TABLE>
<CAPTION>
                                                                  SIX MONTHS ENDED JUNE 30,
                                                                  --------------------------
                                                                                     2005
                                                                   2006     2005   PRO FORMA
                                                                  -------  ------  ---------
<S>                                                               <C>      <C>     <C>
Revenues:
   Net sales ...................................................   97.9%   100.0%    97.9%
   Royalties and franchise fees ................................    2.1       --      2.1
                                                                  -----    -----    -----
      Total revenues ...........................................  100.0    100.0    100.0

Expenses:
   Cost of sales ...............................................   70.0     67.2     68.0
   Selling expenses ............................................    4.2      9.0      4.6
   Retail operating expenses ...................................   11.1       --     12.6
   Franchise expenses ..........................................    1.4       --      1.5
   General and administrative expenses .........................    9.1      8.8      9.3
   Art and development costs ...................................    1.1      2.3      1.1
                                                                  -----    -----    -----
     Total expenses ............................................   96.9     87.3     97.1
                                                                  -----    -----    -----
         Income from operations ................................    3.1     12.7      2.9

Interest expense, net ..........................................    6.2      7.6      6.5
   Other (income) expense, net .................................   (0.4)     0.2      0.1
                                                                  -----    -----    -----
   (Loss) income before income taxes and minority  interests....   (2.7)     4.9     (3.7)

   Income tax (benefit) expense ................................   (1.1)     1.1     (1.8)
   Minority interests ..........................................     --       --       --
                                                                  -----    -----    -----
     Net (loss) income .........................................   (1.6)%    3.8%    (1.9)%
                                                                  =====    =====    =====
</TABLE>

TOTAL REVENUES

      The following table sets forth the Company's total revenues for the six
months ended June 30, 2006 and 2005 and, on a pro forma basis, for the six
months ended June 30, 2005, respectively.

<TABLE>
<CAPTION>
                                                                                         SIX MONTHS ENDED
                                           SIX MONTHS ENDED       SIX MONTHS ENDED         JUNE 30, 2005
                                             JUNE 30, 2006          JUNE 30, 2005            PRO FORMA
                                         ---------------------  ---------------------  ----------------------
                                                    % OF TOTAL             % OF TOTAL              % OF TOTAL
                                            $        REVENUES       $       REVENUES       $        REVENUES
                                         --------   ----------  ---------  ----------  ---------   ----------
<S>                                      <C>        <C>         <C>        <C>         <C>         <C>
Net sales:
      Wholesale sales..................  $239,959      54.9%    $ 201,661    100.0%    $ 218,033      54.6%
      Eliminations.....................   (29,031)     (6.6)          --        --       (29,017)     (7.3)
                                         --------     -----     ---------    -----     ---------     -----
           Wholesale net sales.........   210,928      48.3       201,661    100.0       189,016      47.3
      Retail sales.....................   217,102      49.6            --       --       202,287      50.6
                                         --------     -----     ---------    -----     ---------     -----
          Total net sales..............   428,030      97.9       201,661    100.0       391,303      97.9
Royalties and franchise fees...........     9,043       2.1            --       --         8,368       2.1
                                         --------     -----     ---------    -----     ---------     -----
          Total revenues...............  $437,073     100.0%    $ 201,661    100.0%    $ 399,671     100.0%
                                         ========     =====     =========    =====     =========     =====
</TABLE>

      For the six months ended June 30, 2006, revenues totaled $437.1 million,
consisting of net sales, at wholesale, of $210.9 million, retail sales of $217.1
million and franchise related revenues of $9.0 million. For the six months ended
June 30, 2006, revenue consisted

                                       28
<PAGE>

of net sales at wholesale, totaling $201.7 million. Assuming the Party City
Acquisition had occurred on January 1, 2005, pro forma revenue for the second
quarter of 2005 totaled $399.7 million, consisting of net sales at wholesale of
$189.0 million, retail net sales of $202.3 million and franchise-related revenue
of $8.4 million.

   WHOLESALE

      Net sales, at wholesale, of $210.9 million were $21.9 million or 11.6%
higher than the pro forma sales for the six months ended June 30, 2005. Net
sales to party superstores, including sales to Party City franchisees, totaled
$51.2 million and were 9.1% higher than in 2005. International sales totaled
$31.5 million or 7.3% higher than in 2005. The Company attributes the increase
in sales to party superstores and international sales during the first quarter
of 2006 principally to the favorable reception and increased demand for our new
2006 ensemble designs and product lines. In addition, the Company attributes the
increase in sales to party superstores during the second quarter of 2006
principally to synergistic growth, as the Company expands the number of product
lines available to Party City franchise stores. Net sales of metallic balloons
were $49.5 million or 13.7% higher than in 2005, with the increase primarily
attributable to the introduction of a new musical balloon line in the fourth
quarter of 2005, strong retail demand for shaped and other specialty balloons
and strong flexible packaging sales during the first half of 2006.

   RETAIL

      Net retail sales for company-owned stores for the six months ended June
30, 2006 totaled $217.1 million or 7.3% higher than the pro forma net retail
sales for the six months ended June 30, 2005. Same-store net retail sales for
company-owned stores during the six months ended June 30, 2006 totaled $214.7
million or 6.7% higher than the pro forma net retail sales for the comparable
period of 2005. The improvement reflects an increase of 7.2% in same-store net
sales of non-seasonal merchandise and a 4.8% increase in same-store net sales of
seasonal merchandise. The increase in net retail sales also reflects a 4.3%
increase in the average net sale per retail transaction and a 2.4% increase in
customer count at our company-owned stores.

   ROYALTIES AND FRANCHISE FEES

      Franchise related revenue for the six months ended June 30, 2006 totaled
$9.0 million or 8.1% higher than the pro forma revenue for the comparable period
of 2005. During the six months ended June 30, 2006, our franchise store count
increased by eight stores, as compared to one new store in the first half of
2005. In addition, franchise stores reported same-store net sales of $223.8
million, or an increase of 7.4% when comparing the six months ended June 30,
2006 and 2005.

GROSS PROFIT

      The following table sets forth the Company's consolidated gross profit on
net sales for the six months ended June 30, 2006 and 2005 and, on a pro forma
basis, for the six months ended June 30, 2005, respectively.

<TABLE>
<CAPTION>
                                                                                        SIX MONTHS ENDED
                                             SIX MONTHS ENDED      SIX MONTHS ENDED      JUNE 30, 2005
                                               JUNE 30, 2006        JUNE 30, 2005          PRO FORMA
                                           --------------------  -------------------  --------------------
                                                        % OF                % OF                   % OF
                                                     ASSOCIATED           ASSOCIATED            ASSOCIATED
                                              $       NET SALES     $      NET SALES     $       NET SALES
                                           --------  ----------  -------  ----------  --------  ----------
<S>                                        <C>       <C>         <C>      <C>         <C>       <C>
GROSS PROFIT:
      Wholesale..........................  $ 60,981     28.9%    $66,098    32.8%     $ 60,985    32.3%
      Retail.............................    61,178     28.2          --      --        58,365    28.9
                                           --------     ----     -------    ----      --------    ----
          Total gross profit.............  $122,159     28.5%    $66,098    32.8%     $119,350    30.5%
                                           ========     ====     =======    ====      ========    ====
</TABLE>

      The gross profit margin on net sales, at wholesale, for the six months
ended June 30, 2006 was 28.9% or 390 basis points lower than in 2005. The
decrease in gross profit margin principally reflects the inclusion, in 2006, of
$19.8 million of net sales from Party City to its franchisees, which
historically have lower margins and account for a 310 basis point reduction in
our overall gross profit margin. The remaining 80 basis point reduction in
margin is attributable to changes in product sales mix across the Company's many
product lines. Retail gross profit margin for the first two quarters of 2006 of
28.2% was 70 basis points lower than the gross profit margin, on a pro forma
basis, for the first half of 2005.

OPERATING EXPENSES.

        Selling expenses of $18.6 million for the six months ended June 30, 2006
were $0.4 million higher than the comparable period of 2005 as increases in base
compensation and employee benefits were substantially offset by a reduction in
the size of our sales force.

                                       29
<PAGE>

As a percent of total revenues, selling expenses were 4.2% for the six months
ended June 30, 2006, or 40 basis points lower than selling expenses as a
percentage of pro forma total revenue for the same period in 2005.

      Retail operating expenses of $48.6 million were $1.7 million lower than
during the first half of 2005 and decreased from 12.6% to 11.1% of revenues
compared to the pro forma expenses for the first two quarter of 2005 due to
timing of advertising expenses, lower payroll and supplies expense. Franchise
expenses for the six months ended June 30, 2006 of $6.0 million were comparable
to the pro forma expenses for the first half of 2005.

      General and administrative expenses of $39.6 million for the six months
ended June 30, 2006 increased by $2.4 million over the pro forma expenses for
the same period in 2005. As a percentage of total revenues, general and
administrative expenses were 9.1% for the first half of 2006 as compared to
9.3%, on a pro forma basis, for the comparable period in 2005. The increase in
general and administrative expenses principally reflects higher base
compensation and employee benefits, including compensation expense for stock
options , partially offset by a lower reserve for compensated absences and lower
corporate spending.

      Art and development costs of $5.0 million for the six months ended June
30, 2006 were $0.3 million higher than costs for the comparable period of 2005.
As a percentage of total revenues, art and development costs were 1.1% of total
revenue for the six months ended June 30, 2006 and 2005.

INTEREST EXPENSE, NET.

      Interest expense of $27.1 million for the six months ended June 30, 2006
was $11.9 million higher than for the six months ended June 30, 2005, reflecting
higher average borrowings following the Party City Acquisition in December 2005
and higher variable interest rates during the first six months 2006 compared to
the first six months of 2005.

OTHER (INCOME) EXPENSE, NET.

      Other income, net for the first six months of 2006 principally consists of
a gain on the sale-leaseback of a warehouse in Chester, New York of $1.4
million, the gain on sales of two Party City corporate stores of $0.7 million
and the undistributed income in an unconsolidated joint venture. The other
expense, net, for the first half of 2005 principally consists of the
undistributed loss in an unconsolidated joint venture. The undistributed
(income) loss represents our share of the operations of a Mexican balloon
distribution joint venture, including the elimination of intercompany profit in
the joint venture's inventory at June 30, 2006 and 2005.

INCOME TAXES.

      Income taxes for the second quarter of 2006 and 2005 were based upon the
estimated consolidated effective income tax rates of 39.7% and 37.0% for the
years ending December 31, 2006 and 2005, respectively. The increase in the 2006
effective income tax rate is primarily attributable to a higher average state
income tax rate based on the numerous jurisdictions in which our retail stores
operate. In addition, during the three months ended June 30, 2005, the Company
recorded a $1.4 million reduction to its income tax expense and net deferred
income tax liability to reflect a change in its estimated state income tax rate.
The tax rate change results from a change in New York State tax law governing
the apportionment of income.

LIQUIDITY AND CAPITAL RESOURCES

CAPITAL STRUCTURE

      THE FIRST LIEN CREDIT AGREEMENT. Our First Lien Credit Agreement consists
of (i) the $325 million First Term Loan and (ii) the $85 million First Term
Revolver, which is available for working capital, general corporate purposes and
the issuance of letters of credit. The First Term Loan was issued at a 1%
discount, or $3.25 million, that is being amortized by the effective interest
method over the term of the loan. The net proceeds of the First Term Loan and
the Second Term Loan were used, together with the Equity Investment and cash
on-hand, to (a) pay the cash portion of the purchase price of the Party City
Acquisition, (b) repay the outstanding balances under the Company's then
existing term loan, (c) pay all other amounts payable as of the Party City
Acquisition Date pursuant to the Party City Acquisition Agreement and (d) pay
transaction costs. At June 30, 2006 borrowings under the First Term Loan
Revolver totaled $17.7 million and outstanding standby letters of credit totaled
$13.6 million.

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

                                       30
<PAGE>

commitments thereunder. The initial commitment fee rate is 0.50% per annum. The
Company must also pay customary letter of credit fees.

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

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

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

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

      At June 30, 2006, we have a $0.4 million Canadian dollar denominated
revolving credit facility which bears interest at the Canadian prime rate plus
0.6% and expires in April 2007, a 1.0 million British Pound Sterling denominated
revolving credit facility which bears interest at the U.K. base rate plus 1.75%
and expires on May 31, 2007 and a $1.0 million revolving credit facility which
bears interest at LIBOR plus 1.0% and expires on December 31, 2006. No
borrowings were outstanding under these revolving credit facilities at June 30,
2006 and December 31, 2005. We expect to renew these revolving credit facilities
upon expiration.

      Long-term borrowings at June 30, 2006 include a mortgage note with the New
York State Job Development Authority of $7.7 million which requires monthly
payments based on a 180-month amortization period with a balloon payment upon
maturity in January 2010. The mortgage note bears interest at the rate of 4.86%,
and is subject to review and adjustment semi-annually based on the New York
State Job Development Authority's confidential internal protocols. The mortgage
note is collateralized by a distribution facility located in Chester, New York.

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

      We have entered into various capital leases for machinery and equipment
and automobiles with implicit interest rates ranging from 7.70% to 8.80% which
extend to 2008. The Company has numerous non-cancelable operating leases for its
retail stores sites as well as several leases for offices, distribution and
manufacturing facilities, showrooms and equipment. These leases expire on
various dates through 2018 and generally contain renewal options and require the
Company to pay real estate taxes, utilities and related insurance costs. Rent
expense for the six months ended June 30, 2006 and 2005 totaled $29.6 million
and $6.0 million, respectively. In addition, on May 25, 2006, the Company sold a
warehouse located in Chester, New York and entered into a leaseback for the same
warehouse under a one-year lease agreement. Net proceeds to the Company for the
sale of the property were approximately $12.3 million and the gain on the
transaction was $2.7 million. Of the total gain, $1.4 million was recognized in
the second quarter of 2006 under the caption other (income) expense, and $1.3
million was deferred and will be recognized as income over the one-year
leaseback period. Additionally, $1.4 million of rent expense will be recognized
on a straight-line basis over the one-year leaseback period. The minimum lease
payments currently required under non-cancelable operating leases for the year
ending December 31, 2006 approximates $59.8 million.

                                       31
<PAGE>

      In conjunction with the Party City Acquisition, the Company's management
approved and initiated plans to restructure Party City's operations and
involuntarily terminate a limited number of Party City personnel. We expect to
complete the planned restructuring of Party City's operations by December 31,
2006. Estimated restructuring costs associated with the Party City acquisition
of $1,700 were accrued for as part of the net assets acquired (see Note 2). To
date, we have incurred $1,219 in severance costs. The restructuring reserve, as
of June 30, 2006, is $481. In connection with the acquisition of the Company on
April 30, 2004, we executed a management agreement with our Principal Investors,
Berkshire Partners LLC and Weston Presidio. Pursuant to the management
agreement, Berkshire Partners LLC and Weston Presidio will be paid annual
management fees of $0.8 million and $0.4 million, respectively. Although the
indenture governing the 8.75% senior subordinated notes will permit the payments
under the management agreement, such payments will be restricted during an event
of default under the notes and will be subordinated in right of payment to all
obligations due with respect to the notes in the event of a bankruptcy or
similar proceeding of Amscan.

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

CASH FLOW DATA - SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED
JUNE 30, 2005

      Net cash used in operating activities during the six months ended June,
2006 totaled $19.3 million while net cash provided by operating activities
during the six months ended June 30, 2005 totaled $6.5 million. Net cash flow
provided by operating activities before changes in operating assets and
liabilities for the six months ended June 30, 2006 and 2005, was $9.1 million
and $17.8 million, respectively. Changes in operating assets and liabilities for
the six months ended June 30, 2006 and 2005 resulted in the use of cash of $28.4
million and $11.3 million, respectively. The increase in the use of cash during
the six months ended June 30, 2006 principally reflects the payment of Halloween
and other fourth quarter seasonal, retail trade payables following the year
ended December 31, 2005, using borrowings under the First Term Loan Revolver.

      Net cash used in investing activities during the six months ended June 30,
2006 and 2005, totaled $3.8 million and $6.2 million, respectively. During the
first six months of 2006, the Company paid professional and other fees
associated with the acquisition of Party City of $0.9 million. During the first
half of 2006 and 2005, the Company invested $8.2 million and $6.2 million,
respectively, in its wholesale operations, principally in additional
manufacturing and distribution assets. In addition, during the first half of
2006, the Company invested $7.7 million in its retail operations, which included
leasehold improvements and furniture and fixtures in company-owned stores as
well as the Company's retail headquarters in Rockaway, New Jersey. During the
six months ended June 30, 2006, the Company also received proceeds from the sale
of property, plant and equipment of $13.0 million, primarily from the
sale-leaseback of a Chester, New York warehouse and the sale of company-owned
retail stores.

      During the six months ended June 30, 2006, net cash provided by financing
activities of $17.8 million included borrowings under the First Term Loan
Revolver of $17.7 million used principally to pay down trade payables from
seasonally higher year end balances and proceeds from the sale of common stock
to directors and certain employees of $1.4 million, partially offset by
scheduled payments of $0.8 million on the First Term Loan and $0.5 million on
capital leases and other long-term obligations. During the six months ended June
30, 2005 net cash used in financing activities of $1.8 million included
repayments of $0.3 million of short-term borrowings under the revolver,
scheduled payments of $1.4 million on the term loan and other long-term
obligations, as well as the purchase of redeemable common stock held by a former
employee totaling $0.1 million.

LEGAL PROCEEDINGS

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

SEASONALITY

      Our business is subject to substantial seasonal variations. Historically,
our retail segment has realized a significant portion of its net sales, cash
flow and net income in the fourth quarter of each year principally due to the
sales in October for the Halloween season and, to a lesser extent, due to
holiday sales at the end of the calendar year. We expect that this general
pattern will continue.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This quarterly report on Form 10-Q may contain "forward-looking
statements." Forward-looking statements give our current

                                       32
<PAGE>

expectations or forecasts of future events. Forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "intend," "estimate," "anticipate," "believe," "project" or
"continue" or the negative thereof and similar words. From time to time, we also
may provide oral or written forward-looking statements in other materials we
release to the public. Any or all of our forward-looking statements in this
quarterly report and in any public statements we make may turn out to be wrong.
They can be affected by inaccurate assumptions we might make or by known or
unknown risks or uncertainties. Consequently, no forward-looking statement can
be guaranteed. Actual results may vary materially. Investors are cautioned not
to place undue reliance on any forward-looking statements. Important factors
that could cause actual results to differ materially from the forward-looking
statements include, but are not limited to: our inability to satisfy our debt
obligations, the reduction of volume of purchases by one or more of our large
customers, our inability to collect receivables from our customers, the
termination of our licenses, our inability to identify and capitalize on
changing design trends and customer preferences, changes in the competitive
environment, increases in the costs of raw materials and the possible risks and
uncertainties that have been noted in reports filed by us with the Securities
and Exchange Commission, including our annual report on Form 10-K for the year
ended December 31, 2005.

CHANGE IN ACCOUNTING PRINCIPLE

      On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123(R) "Share-Based Payment," which is a revision of SFAS
No. 123 "Accounting for Stock-Based Compensation." SFAS No. 123(R) establishes
standards for the accounting for transactions where an entity exchanges its
equity for goods or services and transactions that are based on the fair value
of entity's equity instruments or that may be settled by the issuance of those
equity instruments. SFAS No. 123(R) focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. Generally, the fair value approach in SFAS No. 123(R) is similar
to the fair value approach described in SFAS No. 123.

      The Company adopted SFAS No. 123(R) using the prospective method. Since
the Company's stock is not publicly, options granted under SFAS No. 123 continue
to be expensed under the provisions of SFAS No. 123 using a minimum value method
while options issued subsequent to adoptions are expensed under the provisions
of SFAS No. 123(R). During the second quarter of 2006, the Company granted an
additional options to key employees and outside directors and recorded
compensation of $0.3 million for the three and six months ended June 30, 2006 in
general and administrative expenses. The fair value of each grant is estimated
on the grant date using a Black-Scholes option valuation model. The Company also
recorded compensation expense related to options granted under SFAS No. 123 of
$0.1 million and $0.2 million for the three and six months ended June 30, 2006,
respectively, and $0.1 million for the three and six months end June 30, 2005.

RECENTLY ISSUED ACCOUNTING STANDARDS

      In July 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. ("FIN") 48, "Accounting for Uncertainty in Income
Taxes." Among other things, FIN 48 requires applying a "more likely than not"
threshold to the recognition and derecognition of tax positions. The new
guidance will be effective for the Company on January 1, 2007. The Company is in
the process of determining the effect, if any, of the adoption of FIN 48 on the
Company's consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Our earnings are affected by changes in interest rates as a result of our
variable rate indebtedness. However, we have utilized interest rate swap
agreements to manage the market risk associated with fluctuations in interest
rates. If market interest rates for our variable rate indebtedness averaged 2%
more than the interest rate actually paid for the six months ended June, 2006
and 2005, our interest expense, after considering the effects of our interest
rate swap agreements, would have increased, and the loss before income taxes and
minority interest for the quarter and six months ended June 30, 2006 would have
increased by $3.3 million and income before income taxes and minority interest
for the quarter and six months ended June 30, 2005 would have decreased by $2.0
million, respectively. These amounts are determined by considering the impact of
the hypothetical interest rates on our borrowings and interest rate swap
agreements. This analysis does not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate our exposure to the change. However, due to the uncertainty of
the specific actions that we would take and their possible effects, the
sensitivity analysis assumes no changes in our financial structure.

      Our earnings are also affected by fluctuations in the value of the U.S.
dollar as compared to foreign currencies, predominately in European countries,
as a result of the sales of our products in foreign markets. Although we
periodically enter into foreign currency forward contracts to hedge against the
earnings effects of such fluctuations, we may not be able to hedge such risks
completely or permanently. A uniform 10% strengthening in the value of the U.S.
dollar relative to the currencies in which our foreign sales are denominated
would have resulted in a decrease in gross profit of $2.1 million and $1.9
million for the six months ended June 30, 2006 and 2005, respectively. These
calculations assume that each exchange rate would change in the same direction
relative to the U.S. dollar. In addition to the direct effects of changes in
exchange rates, which could change the U.S. dollar value of the resulting sales,
changes in exchange rates may also affect the volume of sales or the foreign
currency sales price as competitors' products become more or less

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attractive. Our sensitivity analysis of the effects of changes in foreign
currency exchange rates does not factor in a potential change in sales levels or
local currency prices.

ITEM 4. CONTROLS AND PROCEDURES

      Based on an evaluation of the effectiveness of the Company's disclosure
controls and procedures performed by the Company's management, with the
participation of the Company's Chief Executive Officer and its Chief Financial
Officer, as of the end of the period covered by this report, the Company's Chief
Executive Officer and its Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective.

      As used herein, "disclosure controls and procedures" means controls and
other procedures of the Company that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is accumulated and communicated to the
Company's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.

      There were no changes in the Company's internal control over financial
reporting identified in connection with the evaluation described in the
preceding paragraph that occurred during the Company's fiscal quarter ended June
30, 2006 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.

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                                     PART II

ITEM 6. EXHIBITS

31(1) Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a) of the Securities Exchange Act, as amended.

31(2) Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a) of the Securities Exchange Act, as amended.

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

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                                    SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                               AMSCAN HOLDINGS, INC.

                               By: /s/ Michael A. Correale
                                   ---------------------------------------------
                                   Michael A. Correale
                                   Chief Financial Officer
                                   (on behalf of the registrant and as principal
Date: August 14, 2006              financial and accounting officer)

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