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


                                 F O R M 10 - Q


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

For the Quarterly Period Ended June 30, 2003


[ ]  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 incorporation    (I.R.S. Employer Identification
               or organization)                              Number)


             80 Grasslands Road
             Elmsford, New York                              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 an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

       Yes            No  X
          -----         -----

As of August 14, 2003,  1,217.92 shares of Registrant's  common stock, par value
$0.10 ("Common Stock"), were outstanding.


<PAGE>


                              AMSCAN HOLDINGS, INC.
                                    FORM 10-Q

                                  June 30, 2003

                                Table of Contents



                                   Part I                                   Page

Item 1     Financial Statements  (Unaudited)

           Consolidated Balance Sheets at June 30, 2003 and
               December 31, 2002...........................................   3

           Consolidated Statements of Income for the Three and
               Six Months Ended June 30, 2003 and 2002.....................   4

           Consolidated Statement of Stockholders' Deficit for
               the Six Months Ended June 30, 2003..........................   5

           Consolidated Statements of Cash Flows for the Six Months
                Ended June 30, 2003 and 2002...............................   6

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

Item 2     Management's Discussion and Analysis of Financial Condition
               and Results of Operations...................................  25

Item 3     Quantitative and Qualitative Disclosures About Market Risk .....  31

Item 4     Controls and Procedures.........................................  31


                       Part II

Item 2     Changes in Securities and Use of Proceeds.......................  32

Item 6     Exhibits and Reports on Form 8-K................................  32

Signature  ................................................................  33



                                       2
<PAGE>


<TABLE>
                              AMSCAN HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except per share amounts )

<CAPTION>
                                                                                June 30,     December 31,
                                                                                  2003           2002
                                                                               ---------     ------------
                                                                              (Unaudited)       (Note)
<S>                                                                            <C>            <C>
                                     ASSETS
Current assets:
    Cash and cash equivalents ............................................     $   3,107      $   2,400
    Accounts receivable, net of allowances ...............................        78,714         74,247
    Inventories, net of allowances .......................................        89,360         93,890
    Prepaid expenses and other current assets ............................        14,024         15,233
                                                                               ---------      ---------
         Total current assets ............................................       185,205        185,770
Property, plant and equipment, net .......................................        99,643        100,304
Goodwill, net ............................................................        72,334         74,251
Notes receivable from officers ...........................................           402          1,942
Other assets, net ........................................................        10,720         10,230
                                                                               ---------      ---------
         Total assets ....................................................     $ 368,304      $ 372,497
                                                                               =========      =========

      LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND COMMON STOCK
                         AND STOCKHOLDERS' DEFICIT
Current liabilities:
    Accounts payable .....................................................     $  34,066      $  39,245
    Accrued expenses .....................................................        20,772         21,524
    Income taxes payable .................................................         1,446          2,525
    Current portion of long-term obligations .............................         3,157          3,220
                                                                               ---------      ---------
         Total current liabilities .......................................        59,441         66,514
Long-term obligations, excluding current portion .........................       293,847        295,420
Deferred income tax liabilities ..........................................        15,974         17,360
Other ....................................................................         2,361          2,317
                                                                               ---------      ---------
         Total liabilities ...............................................       371,623        381,611

Redeemable convertible preferred stock ($0.10 par value; 100.00 shares
    authorized; 44.94 and 42.40 shares issued and
    outstanding) .........................................................         6,843          6,646
Redeemable Common Stock ..................................................        10,642         30,523

Commitments and Contingencies

Stockholders' deficit:
    Common Stock ($0.10 par value; 3,000.00 shares authorized;
        1,223.92 and 1,233.27 shares issued and outstanding, respectively)          --             --
    Additional paid-in capital ...........................................        26,640         14,814
    Unamortized restricted Common Stock awards, net ......................          (233)          (323)
    Notes receivable from stockholders ...................................          (659)          (638)
    Deficit ..............................................................       (45,015)       (57,551)
    Accumulated other comprehensive loss .................................        (1,537)        (2,585)
                                                                               ---------      ---------
         Total stockholders' deficit .....................................       (20,804)       (46,283)
                                                                               ---------      ---------
         Total liabilities, redeemable convertible preferred and Common
           Stock and stockholders' deficit ...............................     $ 368,304      $ 372,497
                                                                               =========      =========
</TABLE>

        Note:  The balance sheet at December 31, 2002 has been derived from the
        audited consolidated financial statements at that date.

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>


<TABLE>
                              AMSCAN HOLDINGS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                             (Dollars in thousands)
                                   (Unaudited)

<CAPTION>
                                                       Three Months Ended            Six Months Ended
                                                             June 30,                    June 30,
                                                    ------------------------     ------------------------
                                                       2003           2002          2003           2002
                                                       ----           ----          ----           ----

<S>                                                 <C>            <C>           <C>            <C>
Net sales .....................................     $ 100,996      $  94,129     $ 200,840      $ 190,037
Cost of sales .................................        68,950         61,979       135,919        123,655
                                                    ---------      ---------     ---------      ---------
         Gross profit .........................        32,046         32,150        64,921         66,382

Operating expenses:
   Selling expenses ...........................         8,974          8,647        18,116         16,826
   General and administrative expenses ........         7,927          8,258        15,829         15,806
   Art and development costs ..................         2,286          2,700         4,823          4,976
   Provision for doubtful accounts ............         1,385            512         1,989          1,115
   Restructuring charges ......................           458            186           774            186
                                                    ---------      ---------     ---------      ---------
         Total operating expenses .............        21,030         20,303        41,531         38,909
                                                    ---------      ---------     ---------      ---------
         Income from operations ...............        11,016         11,847        23,390         27,473

Interest expense, net .........................         6,552          5,268        13,196         10,758
Other (income) expense, net ...................           (39)            48           (57)           (22)
                                                    ---------      ---------     ---------      ---------
         Income before income taxes and
            minority interests ................         4,503          6,531        10,251         16,737

Income tax expense ............................         1,778          2,580         4,049          6,611
Minority interests ............................            19             11            34            (45)
                                                    ---------      ---------     ---------      ---------
         Net income ...........................         2,706          3,940         6,168         10,171
         Dividend on redeemable convertible
            preferred stock
            convertible preferred stock .......           101             95           197            185
                                                    ---------      ---------     ---------      ---------
         Net income applicable to common shares     $   2,605      $   3,845     $   5,971      $   9,986
                                                    =========      =========     =========      =========
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


<TABLE>
                              AMSCAN HOLDINGS, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                         Six Months Ended June 30, 2003
                             (Dollars in thousands)
                                   (Unaudited)


<CAPTION>
                                                                 Unamortized
                                                                  Restricted
                                               Common               Common     Notes                    Accumulated
                                               Stock   Additional   Stock    Receivable                   Other
                                     Common     Par      Paid-in    Awards,     from                   Comprehensive
                                     Shares    Value     Capital     Net    Stockholders     Deficit       Loss       Total
                                     ------    -----     -------     ---    ------------     -------       ----       -----

<S>                                 <C>        <C>      <C>        <C>        <C>          <C>          <C>         <C>
Balance at December 31, 2002 ....   1,233.27   $ --     $ 14,814   $ (323)    $ (638)      $ (57,551)   $ (2,585)   $(46,283)

Net income ......................                                                              6,168                   6,168
Net change in cumulative
    translation adjustment ......                                                                          1,276       1,276
Change in fair value of
     available-for-sale
     investment, net of income
     taxes ......................                                                                             58          58
Change in fair value of interest
    rate swap and foreign
    exchange contracts, net of
    income taxes ................                                                                           (286)       (286)
                                                                                                                    --------
      Comprehensive income ......                                                                                      7,216

Exercise of stock options,
including tax benefits of $79 ...       6.65                 910                                                         910
Amortization of restricted
    Common Stock awards .........                                      90                                                 90
Increase in redeemable Common
    Stock due to exercise of
    stock options and vesting of
    restricted Common Stock award                         (1,537)                                                     (1,537)
Decrease in redeemable Common
    Stock due to change in market
    value of Common Stock .......                             50                                 368                     418
Purchase and retirement of
    Common Stock held by officer      (16.00)
Decrease in redeemable Common
    Stock due to expiration of
    redemption feature ..........                         12,600                               6,000                  18,600
  Redeemable convertible
    preferred stock dividend ....                           (197)                                                       (197)
   Accretion of interest income
    on notes receivable from
    stockholders ................                                                (21)                                    (21)
                                    --------   ------   --------   ------     ------      ---------     --------     --------
Balance at June 30, 2003 ........   1,223.92   $ --     $ 26,640   $ (233)    $ (659)      $ (45,015)   $ (1,537)   $(20,804)
                                    ========   ======   ========   ======     ======       =========    ========    ========
</TABLE>



     See accompanying notes to consolidated financial statements.


                                       5
<PAGE>


<TABLE>
                              AMSCAN HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)
<CAPTION>
                                                                                                Six Months Ended
                                                                                                ----------------
                                                                                                    June 30,
                                                                                                    --------
                                                                                              2003           2002
                                                                                              ----           ----

<S>                                                                                        <C>             <C>
Cash flows from operating activities:
   Net income ......................................................................       $  6,168        $ 10,171
   Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization ................................................          8,156           6,598
      Amortization of deferred financing costs .....................................          1,011             536
      Amortization of restricted Common Stock awards ...............................             90             118
      Provision for doubtful accounts ..............................................          1,989           1,115
      Deferred income tax expense ..................................................          1,757           3,227
      Loss on disposal of property and equipment ...................................            109
      Non-cash restructuring charges ...............................................            104
      Changes in operating assets and liabilities, net of acquisition:
         Increase in accounts receivable ...........................................         (6,456)         (5,703)
         Decrease (increase) in inventories ........................................          4,530          (6,979)
         Increase in prepaid expenses and other current assets .....................           (704)         (4,069)
         (Decrease) increase in accounts payable, accrued expenses and income taxes
                 payable ...........................................................         (7,597)          6,690
      Other, net ...................................................................           (374)         (1,115)
                                                                                           --------        --------
         Net cash provided by operating activities .................................          8,783          10,589

Cash flows from investing activities:
   Cash paid in connection with acquisition ........................................                        (13,547)
   Capital expenditures ............................................................         (7,560)         (7,610)
   Proceeds from disposal of property and equipment ................................             86              34
                                                                                           --------        --------
         Net cash used in investing activities .....................................         (7,474)        (21,123)

Cash flows from financing activities:
   Proceeds from short-term obligations ............................................                         13,300
   Repayment of loans, notes payable and long-term obligations .....................         (1,862)         (1,675)
   Proceeds from exercise of stock options .........................................            831
   Purchase of Common Stock from officer ...........................................         (2,115)
   Repayment of note receivable from officer .......................................          1,588
                                                                                           --------        --------
         Net cash (used in) provided by financing activities .......................         (1,558)         11,625
Effect of exchange rate changes on cash and cash equivalents .......................            956              93
                                                                                           --------        --------
         Net increase in cash and cash equivalents .................................            707           1,184
Cash and cash equivalents at beginning of period ...................................          2,400           1,016
                                                                                           --------        --------
Cash and cash equivalents at end of period .........................................       $  3,107        $  2,200
                                                                                           ========        ========
Supplemental Disclosures:
         Interest paid .............................................................       $ 11,145        $ 10,030
         Income taxes paid .........................................................       $  3,364        $  1,619
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       6
<PAGE>


                              AMSCAN HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                             (Dollars in thousands)
                                   (Unaudited)


Supplemental information on non-cash activities:

   In June 2003, the Company  purchased 16 shares of Common Stock from its Chief
   Executive  Officer at a price of $150 per  share,  or for an  aggregate  cash
   purchase price $2,400,  of which $2,115 and $285 were received by him in June
   2003 and July 2003, respectively.  The Chief Executive Officer used a portion
   of the proceeds to repay his outstanding loan balance of $1,588.  The Company
   retired 16 shares of Common Stock.

   On April 10, 2003, a former officer's right to put 120 shares of Common Stock
   back to the Company expired and, as a result, the Company recorded a decrease
   in  redeemable  Common  Stock and a  decrease  in  stockholders'  deficit  of
   $18,600,000  (a  $12,600,000  increase in  additional  paid-in  capital and a
   $6,000,000  decrease  in  accumulated  deficit)  in April  2003.  The  former
   officer's  right  to put the  additional  6.648  shares  back to the  Company
   expired in July 2003 and as a result,  the  Company  recorded  a decrease  in
   redeemable  Common  Stock and an increase in  additional  paid-in  capital of
   $997.

   In February 2002, the Company issued 96.774 shares of its Common Stock,  at a
   value  of $155  per  share,  to  American  Greetings  Corporation  ("American
   Greetings")  in connection  with the  acquisition  of M&D  Industries,  Inc.,
   formerly known as M&D Balloons, Inc. ("M&D Industries") (see Note 10).

   In January 2002, 3.0 shares of restricted  Common Stock aggregating $465 were
   issued to an officer of the Company, subject to future vesting provisions.



          See accompanying notes to consolidated financial statements.

                                       7
<PAGE>


                              AMSCAN HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

         Amscan  Holdings,  Inc.  ("Amscan  Holdings"  and,  together  with  its
subsidiaries,  "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.  AHI designs,  manufactures,  contracts for manufacture and
distributes  party goods,  including  metallic  balloons,  gifts and stationery,
principally in North America, South America, Europe, Asia and Australia.

NOTE 2 - BASIS OF PRESENTATION

         The accompanying  unaudited  consolidated  financial statements include
the accounts of Amscan Holdings and its majority-owned and controlled  entities.
All material  intercompany  balances and  transactions  have been  eliminated in
consolidation.   The  unaudited  consolidated  financial  statements  have  been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States  for  interim  financial  information.  Accordingly,  they do not
include all of the information and footnotes  required by accounting  principles
generally  accepted in the United States for complete financial  statements.  In
the opinion of  management,  all  adjustments  (consisting  of normal  recurring
accruals)  considered  necessary  for a fair  presentation  have been  included.
Operating  results  for the three and six  months  ended  June 30,  2003 are not
necessarily  indicative  of the  results  to be  expected  for the  year  ending
December 31, 2003. The results of operations may be affected by seasonal factors
such as the timing of  holidays or  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 Amscan  Holdings'  Annual Report on Form 10-K for the
year  ended  December  31,  2002 as  filed  with  the  Securities  and  Exchange
Commission.


NOTE 3 - INVENTORIES

         Inventories consisted of the following (dollars in thousands):

                                                        June 30,    December 31,
                                                          2003         2002
                                                        --------     --------
Finished goods .....................................    $ 76,470     $ 80,783
Raw materials ......................................       8,904        8,763
Work-in-process ....................................       6,792        7,722
                                                        --------     --------
                                                          92,166       97,268
Less: reserve for slow moving and obsolete inventory      (2,806)      (3,378)
                                                        --------     --------
                                                        $ 89,360     $ 93,890
                                                        ========     ========

         Inventories are valued at the lower of cost,  determined on a first-in,
first-out basis, or market.


NOTE 4 - INCOME TAXES

         The consolidated  income tax expense for the three and six months ended
June 30, 2003 and 2002 was  determined  based upon  estimates  of the  Company's
consolidated  effective  income tax rates for the years ending December 31, 2003
and 2002,  respectively.  The  differences  between the  consolidated  effective
income tax rate and the U.S. Federal  statutory rate are primarily  attributable
to state income taxes and the effects of foreign operations.


                                       8
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

Note 5 - Comprehensive Income (Loss)

          Comprehensive   income   consisted  of  the   following   (dollars  in
thousands):
<TABLE>
<CAPTION>
                                                                                  Three Months Ended           Six Months Ended
                                                                                       June 30,                    June 30,
                                                                                ----------------------      ----------------------
                                                                                  2003          2002          2003          2002
                                                                                  ----          ----          ----          ----
<S>                                                                             <C>           <C>           <C>           <C>
Net income ................................................................     $  2,706      $  3,940      $  6,168      $ 10,171
Net change in cumulative translation adjustment ...........................        1,399         1,168         1,276           955
Change in fair value of available-for-sale investment, net of income  taxes
   of $91 and $38, respectively ...........................................          139                          58
Change in fair value of the Company's interest rate swap
   contract, net of income taxes of $(60), $(147), $(54) and $(190),
   respectively ...........................................................          (92)         (224)          (83)         (291)
Change in fair value of the Company's foreign exchange
   contracts, net of income taxes of $(137), $(275), $(133) and $(188),
   respectively ...........................................................         (210)         (422)         (203)         (288)
                                                                                --------      --------      --------      --------
                                                                                $  3,942      $  4,462      $  7,216      $ 10,547
                                                                                ========      ========      ========      ========
</TABLE>

         Accumulated  other   comprehensive  loss  consisted  of  the  following
(dollars in thousands):
<TABLE>
<CAPTION>
                                                                                         June 30,    December 31,
                                                                                           2003          2002
                                                                                         --------    ------------
<S>                                                                                       <C>          <C>
 Cumulative translation adjustment ..................................................     $  (199)     $(1,475)
 Unrealized gain on available-for-sale investment, net of income taxes of $38 .......          58
 Interest rate swap contract qualifying as a hedge, net of income taxes of $(475) and
    $(421), respectively ............................................................        (727)        (644)
 Foreign exchange contracts qualifying as hedges, net of income taxes of $(438) and
    $(305), pectively ...............................................................        (669)        (466)
                                                                                          -------      -------
                                                                                          $(1,537)     $(2,585)
                                                                                          =======      =======
</TABLE>


NOTE 6 - CAPITAL STOCK

         At June 30, 2003 and December 31, 2002, current and former employees of
the Company held 70.95 and 196.92 shares, respectively, of fully paid and vested
Common Stock.  Under the terms of the  stockholders'  agreement  ("Stockholders'
Agreement"),  the Company can be required to purchase  all of the shares held by
an employee  stockholder for a period of one year after the employee's  death or
three  months  after  their  disability,  at a  price  determined  by  a  market
valuation,  or for a period of three months following  termination of employment
by the  Company,  at the lower of the share's  cost,  as defined,  or the market
valuation.  All common  shares  subject to such put  provisions  are recorded as
redeemable  Common  Stock,  at the estimated  market value of the stock,  with a
corresponding adjustment to stockholders' deficit.

         On January 10, 2003, an executive officer of a wholly-owned subsidiary,
owning 120 shares of the Company's Common Stock,  terminated his employment with
the  Company  and, on April 9, 2003,  the former  officer  exercised  options to
purchase an additional  6.648 shares of the  Company's  Common Stock at $125,000
per share or for $831,000.  On April 10, 2003, the former officer's right to put
the 120 shares of Common Stock back to the Company expired and, as a result, the
Company  recorded a  decrease  in  redeemable  Common  Stock and a  decrease  in
stockholders'  deficit of  $18,600,000  (a  $12,600,000  increase in  additional
paid-in capital and a $6,000,000  decrease in accumulated  deficit).  The former
officer's  right to put the additional  6.648 shares back to the Company expired
in

                                       9
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

July 2003 and as a result,  the Company recorded a decrease in redeemable Common
Stock and an increase in additional paid-in capital of $997.

         At June 30, 2003 and December  31,  2002,  officers of the Company held
3.00 and 6.38  shares of Common  Stock,  respectively,  subject  to the  vesting
provisions of their  employment  agreements (the  "Restricted  Stock").  The 3.0
shares of Restricted  Stock  outstanding  at June 30, 2003 will vest in December
2004. During the three months ended June 30, 2003 and 2002, the Company recorded
the  amortization of Restricted Stock of $45,000 and $59,000,  respectively,  as
compensation expense,  which is included in general and administrative  expenses
in the Company's consolidated  statements of income. During the six months ended
June 30, 2003 and 2002,  the Company  recorded the  amortization  of  Restricted
Stock of $90,000 and $118,000, respectively, as compensation expense.

         At June 30,  2003  and  December  31,  2002,  the  Company  held  notes
receivable  from a former and current  officer  totaling  $659,000 and $638,000,
respectively.  These notes arose in  connection  with the  issuance of shares of
Common Stock to the officers. The notes bear interest at 6.65% and LIBOR plus 2%
and mature in March 2009 and January 2004,  respectively.  The notes  receivable
are shown on the  consolidated  balance  sheets as an increase in  stockholders'
deficit.

         In June 2003, the Company  purchased 16 shares of Common Stock from its
Chief  Executive  Officer at a price of $150,000 per share,  or for an aggregate
cash purchase price  $2,400,000,  of which $2,115,000 and $285,000 were received
by him in June 2003 and July 2003,  respectively.  The Chief  Executive  Officer
used a  portion  of the  proceeds  to repay  his  outstanding  loan  balance  of
$1,588,000. The Company retired 16 shares of Common Stock.

         In June  2003,  the Stock  Incentive  Plan was  amended by the Board of
Directors  increasing  the total number of shares of Common  Stock  reserved and
available for grant from 150 to 200. In June 2003, the Chief  Executive  Officer
and the President  were each granted  Common Stock options to purchase 25 shares
of Common Stock at $150,000 per share.

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

         In February 2002, the Company issued 96.774 shares of its Common Stock,
at a value of $155,000 per share, to American Greetings  Corporation  ("American
Greetings") in connection with the acquisition of M&D Industries (see Note 10).

         On March 30,  2001,  the Board of  Directors  authorized  500 shares of
preferred  stock,  $0.10  par  value,  and  designated  100  shares  as Series A
Redeemable   Convertible  Preferred  Stock  ("Series  A  Redeemable  Convertible
Preferred  Stock").  Also on March 30,  2001,  the  Company  issued 40 shares of
Series A Redeemable  Convertible Preferred Stock to GS Capital Partners II, L.P.
and certain  other  private  investment  funds  managed by Goldman,  Sachs & Co.
(collectively,  "GSCP") for proceeds of $6,000,000. Dividends are cumulative and
payable  annually,  at 6% per  annum.  On March 30,  2003 and 2002,  the  annual
dividend was distributed in additional shares of Series A Redeemable Convertible
Preferred Stock. Dividends payable on or prior to March 30, 2004, are payable in
additional shares of Series A Redeemable Convertible Preferred Stock. Subsequent
to March 30, 2004,  dividends are payable, at the option of the Company,  either
in cash or additional shares of Series A Redeemable Convertible Preferred Stock.

         Each  share  of  Series A  Redeemable  Convertible  Preferred  Stock is
convertible at the option of the holder,  at any time,  into one share of Common
Stock of the Company, $0.10 par value, subject to adjustment for the effects of

                                       10
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

subsequent Common Stock splits or stock dividends.

         The Series A Redeemable  Convertible  Preferred Stock is not redeemable
on or prior to March 30,  2004.  To the  extent  the  Company  shall  have funds
legally  available to redeem these shares,  the Company may redeem these shares,
in whole or, with the  consent of the  holders of a majority of the  outstanding
Series A Redeemable  Convertible Preferred Stock, in part, at a redemption price
of $150,000 per share, in cash,  together with accrued and unpaid dividends.  To
the extent the Company shall have funds legally available to redeem these shares
on March 30, 2008, the Company is required to redeem all  outstanding  shares of
Series A Redeemable  Convertible Preferred Stock at a redemption price per share
equal to $150,000 in cash,  together  with  accrued  and unpaid  dividends.  The
holders of the Series A Redeemable  Convertible Preferred Stock have liquidation
rights equal to their original investment plus accrued but unpaid dividends.

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


NOTE 7 - SEGMENT INFORMATION

Industry Segment
----------------
         The Company  manages  its  operations  as one  industry  segment  which
involves the design,  manufacture,  contract for manufacture and distribution of
party goods, including metallic balloons, gifts, and stationery.

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

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

<TABLE>
<CAPTION>
                                                      Domestic       Foreign     Eliminations  Consolidated
                                                      --------       -------     ------------  ------------
Three Months Ended June 30, 2003
--------------------------------
<S>                                                   <C>           <C>           <C>            <C>
Sales to unaffiliated customers .................     $  87,570     $  13,426                    $ 100,996
Sales between geographic areas ..................         5,090                   $   (5,090)         --
                                                      ---------     ---------     ----------     ---------
Net sales .......................................     $  92,660     $  13,426     $   (5,090)    $ 100,996
                                                      =========     =========     ==========     =========

Income from operations ..........................     $   9,976     $     656     $      384     $  11,016
                                                      =========     =========     ==========
Interest expense, net ...........................                                                    6,552
Other income, net ...............................                                                      (39)
                                                                                                 ---------
Income before income taxes and minority interests                                                $   4,503
                                                                                                 =========

Long-lived assets, net at June 30, 2003 .........     $ 174,784     $   8,315                    $ 183,099
                                                      =========     =========                    =========
</TABLE>

                                       11
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                      Domestic       Foreign     Eliminations  Consolidated
                                                      --------       -------     ------------  ------------
Three Months Ended June 30, 2002
--------------------------------
<S>                                                   <C>           <C>           <C>            <C>
Sales to unaffiliated customers .................     $  81,040     $  13,089                    $  94,129
Sales between geographic areas ..................         6,003                   $   (6,003)         --
                                                      ---------     ---------     ----------     ---------
Net sales .......................................     $  87,043     $  13,089     $   (6,003)    $  94,129
                                                      =========     =========     ==========     =========

Income from operations ..........................     $  11,113     $     577     $      157     $  11,847
                                                      =========     =========     ==========
Interest expense, net ...........................                                                    5,268
Other expense, net ..............................                                                       48
                                                                                                 ---------
Income before income taxes and minority interests                                                $   6,531
                                                                                                 =========

Long-lived assets, net at June 30, 2002 .........     $ 176,723     $   6,750                    $ 183,473
                                                      =========     =========                    =========

<CAPTION>
                                                      Domestic       Foreign     Eliminations  Consolidated
                                                      --------       -------     ------------  ------------
Six Months Ended June 30, 2003
------------------------------
<S>                                                   <C>           <C>           <C>            <C>
Sales to unaffiliated customers .................     $ 174,600     $  26,240                    $ 200,840
Sales between geographic areas ..................         9,613                   $   (9,613)         --
                                                      ---------     ---------     ----------     ---------
Net sales .......................................     $ 184,213     $  26,240     $   (9,613)    $ 200,840
                                                      =========     =========     ==========     =========

Income from operations ..........................     $  21,959     $     780     $      651     $  23,390
                                                      =========     =========     ==========
Interest expense, net ...........................                                                   13,196
Other income, net ...............................                                                      (57)
                                                                                                 ---------
Income before income taxes and minority interests                                                $  10,251
                                                                                                 =========

<CAPTION>
                                                      Domestic       Foreign     Eliminations  Consolidated
                                                      --------       -------     ------------  ------------
Six Months Ended June 30, 2002
------------------------------
<S>                                                   <C>           <C>           <C>            <C>
Sales to unaffiliated customers .................     $ 164,832     $  25,205                    $ 190,037
Sales between geographic areas ..................        11,285                   $  (11,285)         --
                                                      ---------     ---------     ----------     ---------
Net sales .......................................     $ 176,117     $  25,205     $  (11,285)    $ 190,037
                                                      =========     =========     ==========     =========

Income from operations ..........................     $  26,463     $     543     $      467     $  27,473
                                                      =========     =========     ==========
Interest expense, net ...........................                                                   10,758
Other income, net ...............................                                                      (22)
                                                                                                 ---------
Income before income taxes and minority interests                                                $  16,737
                                                                                                 =========
</TABLE>


NOTE 8 - 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.

                                       12
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)


NOTE 9 - RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

         In July 2002,  Statement of Financial Accounting Standards ("SFAS") No.
146,  "Accounting for Costs Associated With Exit or Disposal  Activities" ("SFAS
No. 146"), was issued. SFAS No. 146 addresses accounting and reporting for costs
associated with exit or disposal  activities and nullifies  Emerging Issues Task
Force  Issue No. 94-3 (" EITF No.  94-3"),  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain  Costs  Incurred  in a  Restructuring)."  SFAS No. 146  requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
when the  liability  is incurred.  Under EITF No. 94-3, a liability  for an exit
cost was  recognized  at the  date an  entity  committed  to an exit  plan.  The
provisions of SFAS No. 146 are effective  for exit or disposal  activities  that
are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have
a material effect on the Company's consolidated financial statements.

         In January 2003,  the Financial  Accounting  Standards  Board  ("FASB")
issued  Interpretation No. 46,  "Consolidation of Variable Interest Entities, an
interpretation  of ARB 51" ("FIN No. 46"). The primary  objectives of FIN No. 46
are to provide guidance on the  identification  of entities for which control is
achieved  through means other than through  voting  rights  ("VIE's") and how to
determine when and which business  enterprise  should  consolidate the VIE. This
new model for consolidation  applies to an entity in which either (1) the equity
investors  (if  any) do not have a  controlling  financial  interest  or (2) the
equity  investment at risk is insufficient  to finance that entity's  activities
without receiving additional  subordinated financial support from other parties.
The  consolidation  provisions  of FIN No.  46  apply  immediately  to  variable
interests  in VIE's  created  after  January 31,  2003.  It applies in the first
fiscal year or interim period beginning after June 15, 2003 to VIE's in which an
enterprise  that is a public company holds a variable  interest that it acquired
before  February  1, 2003.  The  Company  does not expect the  adoption  of this
interpretation  to  have  a  material  effect  on  the  consolidated   financial
statements.

         Other  pronouncements   issued  by  the  FASB  or  other  authoritative
accounting   standards  groups  with  future  effective  dates  are  either  not
applicable or not significant to the  consolidated  financial  statements of the
Company.


NOTE 10-ACQUISITION

         On February  19, 2002,  the Company  purchased  all of the  outstanding
common  stock of M&D  Industries,  a  Manteno,  Illinois-based  manufacturer  of
metallic and plastic  balloons,  from American  Greetings for  $27,500,000  plus
certain other related costs of $1,048,000.  The Company financed the acquisition
by  borrowing  $13,289,000  in the  first  quarter  of 2002  (and an  additional
$258,000 in the second quarter of 2002) under its revolving  credit facility and
issuing  96.774  shares of its Common Stock to American  Greetings.  The Company
purchased M&D Industries to supplement its existing balloon operations. American
Greetings  continues to distribute  metallic  balloons under a supply  agreement
with the Company. The acquisition has been accounted for under the provisions of
SFAS No. 141, "Business  Combinations," and, accordingly,  the operating results
of M&D  Industries  have been included in the Company's  consolidated  financial
statements since the date of acquisition.

         The purchase  price has been  allocated  based upon the estimated  fair
value of net assets acquired at the date of acquisition.  Such  allocations were
based on studies and valuations.  The excess of the purchase price over tangible
net assets  acquired  has been  allocated to  intangible  assets  consisting  of
licensing  agreements  in the amount of  $1,070,000,  which are being  amortized
using the  straight-line  method over the lives of the  contracts  (one to three
years  with an  average  life of 2.7  years),  and  goodwill  in the  amount  of
$15,606,000, which is not being amortized.

         The  following   unaudited  pro  forma  information   assumes  the  M&D
Industries acquisition had occurred on

                                       13
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)


January  1,  2002.  The  pro  forma  information,  as  presented  below,  is not
necessarily  indicative  of the results  that would have been  obtained  had the
transaction occurred on January 1, 2002, nor is it necessarily indicative of the
Company's future results (dollars in thousands):

                                                Six Months
                                              Ended June 30,
                                              --------------
                                                  2002
                                                  ----
                       Net sales.........       $194,144
                       Net income .......         10,564

         The net income amount reflects  adjustments  for interest  expense from
additional  borrowings  necessary to finance the acquisition and amortization of
other intangible  assets and income tax effects based upon a pro forma effective
tax  rate  of  39.5%.  The  pro  forma  information  gives  effect  only  to the
adjustments  described above and does not reflect  management's  estimate of any
anticipated cost savings or other benefits as a result of the acquisition.

         During the three and six months ended June 30,  2003,  the Company sold
$1,634,000 and $2,249,000,  respectively,  of metallic  balloons and other party
goods to American  Greetings.  During the three and six months  ended,  June 30,
2002, the Company sold  $2,557,000  and  $3,516,000,  respectively,  of metallic
balloons and other party goods to American Greetings.  Trade accounts receivable
from American  Greetings at June 30, 2003 and December 31, 2002 were  $1,380,000
and $2,632,000, respectively.


NOTE 11 - RESTRUCTURING CHARGES

         During  the three and six  months  ended  June 30,  2003,  the  Company
incurred  charges of $458,000 and  $774,000,  respectively,  resulting  from the
consolidation of certain domestic and foreign distribution  operations,  and the
ongoing integration of M&D Industries into our balloon operations.

         During the second  quarter of 2002,  the  Company  incurred  charges of
$186,000  relating  to  the  consolidation  of  certain  domestic   distribution
operations and the closure of its distribution facilities in Spain and France.

         The  consolidation  of our  domestic  distribution  operations  and the
ongoing  integration of M&D  Industries  may result in additional  restructuring
charges in subsequent periods.


NOTE 12 - STOCK OPTION PLAN

         The Company  accounts  for stock based  awards in  accordance  with the
provisions  of Statement of Financial  Accounting  Standards  No. 123 ("SFAS No.
123"), "Accounting for Stock-Based  Compensation." SFAS No. 123 permits entities
to  recognize  as  expense,  over the  vesting  period,  the  fair  value of all
stock-based  awards on the date of grant.  Alternatively,  SFAS No.  123  allows
entities to apply the provisions of Accounting  Principles Board Opinion ("APB")
No.  25,  "Accounting  for  Stock  Issued  to  Employees,"  which  requires  the
recognition  of  compensation  expense at the date of grant only if the  current
market price of the underlying  stock exceeds the exercise price, and to provide
pro forma net income  disclosures  for employee  stock  option  grants as if the
fair-value-based  method  defined in SFAS No. 123 had been applied.  The Company
has elected to continue to apply the  intrinsic  value  method of APB No. 25 for
awards granted under its stock-based compensation plans and has provided the pro
forma disclosures  required by SFAS No. 123.  Accordingly,  no compensation cost
has been  recognized in  connection  with the issuance of options under the 1997
Stock  Incentive Plan as all options were granted with exercise  prices equal to
the estimated fair market value of the Common Stock on the date of grant.

                                       14
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

         Had the Company determined  stock-based  compensation based on the fair
value of the  options  granted  at the grant  date,  consistent  with the method
prescribed  under SFAS No. 123, the Company's net income would have been reduced
to amounts indicated below (dollars in thousands):
<TABLE>
<CAPTION>
                                                             Three Months        Six Months
                                                            Ended June 30,      Ended June 30,
                                                            --------------      --------------
                                                            2003     2002       2003     2002
                                                            ----     ----       ----     ----
<S>                                                       <C>       <C>       <C>       <C>
Net income:
     As reported ......................................   $ 2,706   $ 3,940   $ 6,168   $10,171
     Less: Total stock-based employee compensation
         expense determined under the fair value based
         method for all awards, net of tax of $40, $85,
         $70, and $169, respectively ..................        62       129       107       258
                                                          -------   -------   -------   -------
        SFAS No. 123 pro forma net income .............   $ 2,644   $ 3,811   $ 6,061   $ 9,913
                                                          =======   =======   =======   =======
</TABLE>


NOTE 13 - PROVISION FOR DOUBTFUL ACCOUNTS

         During  the  second  quarter  of 2003,  a  customer  filed a  voluntary
petition for relief under Chapter 11 of the United States  Bankruptcy Code. This
customer accounted for approximately 2.6% and 1.7% of the Company's consolidated
net sales for the three and six months ended June 30, 2003, respectively, and at
June 30, 2003,  the gross  accounts  receivable  balance due from this  customer
totaled  $4.2  million.  As a result,  the  Company  has charged a total of $3.1
million to the  provision  for  doubtful  accounts,  of which $1.6  million  was
charged  during the second  quarter of 2003.  The  Company  does not believe the
potential  loss of this  customer  will have a  material  adverse  effect on the
Company's future results of operations or its financial condition.


NOTE 14 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION

         On December 20, 2002,  Amscan amended and restated its credit  facility
with various  lenders (the  "Lenders"),  and with Goldman Sachs Credit  Partners
L.P. as sole lead arranger,  sole  bookrunner and syndication  agent.  Under the
terms of the Second  Amended and  Restated  Credit and Guaranty  Agreement  (the
"Credit  Agreement")  the Lenders agreed to amend and restate the Company's then
existing bank credit agreements (the "Bank Credit Facilities") in their entirety
and  to  provide  a  $200,000,000   senior  secured  facility  consisting  of  a
$170,000,000  term  loan  (the  "Term  Loan")  and up to  $30,000,000  aggregate
principal amount of revolving loans (the  "Revolver").  The proceeds of the Term
Loan were used to  redesignate  and  replace  the  Company's  AXEL term loan and
revolver  borrowings  existing  under the Bank Credit  Facilities at the closing
date and to pay certain fees and expenses associated with the refinancing.

         On December 19, 1997,  the Company also issued  $110,000,000  aggregate
principal  amount of 9.875%  senior  subordinated  notes  (the  `Notes")  due in
December 2007.

                                       15
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)


         The repayment of the  borrowings  under the Credit  Agreement and Notes
are  guaranteed  jointly  and  severally,  fully  and  unconditionally,  by  the
following wholly-owned domestic subsidiaries of the Company (the "Guarantors"):

      o  Amscan Inc.
      o  Trisar, Inc.
      o  Am-Source, LLC
      o  Anagram International, Inc.
      o  Anagram International Holdings, Inc.
      o  Anagram International, LLC
      o  M&D Industries, Inc.
      o  SSY Realty Corp.
      o  JCS Realty Corp.
      o  Anagram Eden Prairie Property Holdings LLC

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

      o  Amscan Distributors (Canada) Ltd.
      o  Amscan Holdings Limited
      o  Amscan (Asia-Pacific) Pty. Ltd.
      o  Amscan Partyartikel GmbH
      o  Amscan Svenska AB
      o  Amscan de Mexico, S.A. de C.V.
      o  Anagram International (Japan) Co., Ltd.
      o  Anagram Mexico S. de R.L. de C.V.
      o  Anagram Espana, S.A.
      o  Anagram France S.C.S.

         The following  information presents  consolidating balance sheets as of
June 30, 2003 and December 31, 2002, and the related consolidating statements of
income  for  the  three  and six  months  ended  June  30,  2003  and  2002  and
consolidating  statements  of cash flows for the six months  ended June 30, 2003
and  2002  for the  combined  Guarantors  and the  combined  Non-guarantors  and
elimination  entries  necessary  to  consolidate  the  entities  comprising  the
combined companies.


                                       16
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

<TABLE>
                           CONSOLIDATING BALANCE SHEET

                                  June 30, 2003
                             (Dollars in thousands)

<CAPTION>
                                                        Amscan
                                                     Holdings and     Combined
                                                       Combined         Non-
                                                      Guarantors     Guarantors    Eliminations   Consolidated
                                                      ----------     ----------    ------------   ------------
<S>                                                    <C>            <C>            <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents .....................     $   2,807      $     300                     $   3,107
   Accounts receivable, net of allowances ........        65,613         13,101                        78,714
   Inventories, net of allowances ................        77,820         12,396      $    (856)        89,360
   Prepaid expenses and other current assets .....        11,736          2,930           (642)        14,024
                                                       ---------      ---------      ---------      ---------
     Total current assets ........................       157,976         28,727         (1,498)       185,205
Property, plant and equipment, net ...............        98,000          1,643                        99,643
Goodwill, net ....................................        66,455          5,879                        72,334
Note receivable from officer .....................           402                                          402
Other assets, net ................................        37,239          1,561        (28,080)        10,720
                                                       ---------      ---------      ---------      ---------
     Total assets ................................     $ 360,072      $  37,810      $ (29,578)     $ 368,304
                                                       =========      =========      =========      =========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND COMMON STOCK
    AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
   Accounts payable ..............................     $  32,066      $   2,000                     $  34,066
   Accrued expenses ..............................        14,124          6,648                        20,772
   Income taxes payable ..........................         2,068                     $    (622)         1,446
   Current portion of long-term obligations ......         3,021            136                         3,157
                                                       ---------      ---------      ---------      ---------
     Total current liabilities ...................        51,279          8,784           (622)        59,441
Long-term obligations, excluding current portion .       293,742            105                       293,847
Deferred income tax liabilities ..................        15,974                                       15,974
Other ............................................         1,520         17,433        (16,592)         2,361
                                                       ---------      ---------      ---------      ---------
     Total liabilities ...........................       362,515         26,322        (17,214)       371,623

Redeemable convertible preferred stock ...........         6,843                                        6,843
Redeemable Common Stock ..........................        10,642                                       10,642

Commitments and Contingencies

Stockholders' (deficit) equity:
     Common Stock ................................                          339           (339)          --
     Additional paid-in capital ..................        26,640            658           (658)        26,640
     Unamortized restricted Common Stock
        awards, net ..............................          (233)                                        (233)
     Notes receivable from stockholders ..........          (659)                                        (659)
     (Deficit) retained earnings .................       (44,139)        11,344        (12,220)       (45,015)
     Accumulated other comprehensive loss ........        (1,537)          (853)           853         (1,537)
                                                       ---------      ---------      ---------      ---------
         Total stockholders' (deficit) equity ....       (19,928)        11,488        (12,364)       (20,804)
                                                       ---------      ---------      ---------      ---------
         Total liabilities, redeemable convertible
             preferred and Common Stock and
             stockholders' (deficit) equity ......     $ 360,072      $  37,810      $ (29,578)     $ 368,304
                                                       =========      =========      =========      =========
</TABLE>

                                       17
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

<TABLE>
                           CONSOLIDATING BALANCE SHEET

                                December 31, 2002
                             (Dollars in thousands)

<CAPTION>
                                                         Amscan
                                                      Holdings and     Combined
                                                        Combined         Non-
                                                       Guarantors     Guarantors    Eliminations   Consolidated
                                                       ----------     ----------    ------------   ------------

<S>                                                    <C>            <C>            <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents .....................     $   1,483      $     917                      $   2,400
   Accounts receivable, net of allowances ........        62,520         11,727                         74,247
   Inventories, net of allowances ................        83,659         11,138      $     (907)        93,890
   Prepaid expenses and other current assets .....        13,411          2,280            (458)        15,233
                                                       ---------      ---------      ----------      ---------
     Total current assets ........................       161,073         26,062          (1,365)       185,770
Property, plant and equipment, net ...............        98,951          1,353                        100,304
Goodwill, net ....................................        68,611          5,640                         74,251
Notes receivable from officers ...................         1,942                                         1,942
Other assets, net ................................        34,788            627         (25,185)        10,230
                                                       ---------      ---------      ----------      ---------
     Total assets ................................     $ 365,365      $  33,682      $  (26,550)     $ 372,497
                                                       =========      =========      ==========      =========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND COMMON STOCK
    AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
   Accounts payable ..............................     $  37,813      $   1,432                      $  39,245
   Accrued expenses ..............................        15,937          5,587                         21,524
   Income taxes payable ..........................         3,037                     $     (512)         2,525
   Current portion of long-term obligations ......         3,052            168                          3,220
                                                       ---------      ---------      ----------      ---------
     Total current liabilities ...................        59,839          7,187            (512)        66,514
Long-term obligations, excluding current portion .       295,274            146                        295,420
Deferred income tax liabilities ..................        17,360                                        17,360
Other ............................................         1,153         16,052         (14,888)         2,317
                                                       ---------      ---------      ----------      ---------
Total liabilities ................................       373,626         23,385         (15,400)       381,611

Redeemable convertible preferred stock ...........         6,646                                         6,646
Redeemable Common Stock ..........................        30,523                                        30,523

Commitments and Contingencies

Stockholders' (deficit) equity:
     Common Stock ................................                          339            (339)          --
     Additional paid-in capital ..................        14,814            658            (658)        14,814
     Unamortized restricted Common Stock
        awards, net ..............................          (323)                                         (323)
     Notes receivable from stockholders ..........          (638)                                         (638)
     (Deficit) retained earnings .................       (56,698)        11,198         (12,051)       (57,551)
     Accumulated other comprehensive loss ........        (2,585)        (1,898)          1,898         (2,585)
                                                       ---------      ---------      ----------      ---------
         Total stockholders' (deficit) equity ....       (45,430)        10,297         (11,150)       (46,283)
                                                       ---------      ---------      ----------      ---------
         Total liabilities, redeemable convertible
             preferred and Common Stock and
             stockholders' (deficit) equity ......     $ 365,365      $  33,682      $  (26,550)     $ 372,497
                                                       =========      =========      ==========      =========
</TABLE>

                                       18
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

<TABLE>
                        CONSOLIDATING STATEMENT OF INCOME
                    For the Three Months Ended June 30, 2003
                             (Dollars in thousands)



<CAPTION>
                                                      Amscan
                                                   Holdings and     Combined
                                                     Combined         Non-
                                                    Guarantors     Guarantors   Eliminations  Consolidated
                                                    ----------     ----------   ------------  ------------

<S>                                                 <C>            <C>           <C>            <C>
Net sales .....................................     $  92,660      $  13,426     $  (5,090)     $ 100,996
Cost of sales .................................        64,757          9,367        (5,174)        68,950
                                                    ---------      ---------     ---------      ---------
         Gross profit .........................        27,903          4,059            84         32,046
Operating expenses:
    Selling expenses ..........................         7,481          1,493                        8,974
    General and administrative expenses .......         6,498          1,729          (300)         7,927
    Art and development costs .................         2,286                                       2,286
    Provision for doubtful accounts ...........         1,231            154                        1,385
    Restructuring charges .....................           431             27                          458
                                                    ---------      ---------     ---------      ---------
         Total operating expenses .............        17,927          3,403          (300)        21,030
                                                    ---------      ---------     ---------      ---------
         Income from operations ...............         9,976            656           384         11,016
Interest expense, net .........................         6,398            154                        6,552
Other (income) expense, net ...................          (605)            23           543            (39)
                                                    ---------      ---------     ---------      ---------
         Income before income taxes and
           minority interests .................         4,183            479          (159)         4,503
Income tax expense ............................         1,528            217            33          1,778
Minority interests ............................                           19                           19
                                                    ---------      ---------     ---------      ---------
         Net income ...........................         2,655            243          (192)         2,706
         Dividend on redeemable convertible
            preferred stock ...................           101                                         101
                                                    ---------      ---------     ---------      ---------
         Net income applicable to common shares     $   2,554      $     243     $    (192)     $   2,605
                                                    =========      =========     =========      =========
</TABLE>


                                       19
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

<TABLE>
                        CONSOLIDATING STATEMENT OF INCOME
                    For the Three Months Ended June 30, 2002
                             (Dollars in thousands)


<CAPTION>
                                                     Amscan
                                                  Holdings and    Combined
                                                    Combined        Non-
                                                   Guarantors    Guarantors   Eliminations  Consolidated
                                                   ----------    ----------   ------------  ------------

<S>                                                 <C>           <C>           <C>           <C>
Net sales .....................................     $ 87,043      $ 13,089      $ (6,003)     $ 94,129
Cost of sales .................................       58,463         9,436        (5,920)       61,979
                                                    --------      --------      --------      --------
         Gross profit .........................       28,580         3,653           (83)       32,150
Operating expenses:
    Selling expenses ..........................        7,230         1,417                       8,647
    General and administrative expenses .......        7,033         1,465          (240)        8,258
    Art and development costs .................        2,700                                     2,700
    Provision for doubtful accounts ...........          411           101                         512
    Restructuring charges .....................           93            93                         186
                                                    --------      --------      --------      --------
         Total operating expenses .............       17,467         3,076          (240)       20,303
                                                    --------      --------      --------      --------
         Income from operations ...............       11,113           577           157        11,847
Interest expense, net .........................        5,111           157                       5,268
Other (income) expense, net ...................         (426)          (64)          538            48
                                                    --------      --------      --------      --------
         Income before income taxes
           and minority interests .............        6,428           484          (381)        6,531
Income tax expense ............................        2,405           175                       2,580
Minority interests ............................                         11                          11
                                                    --------      --------      --------      --------
         Net income ...........................        4,023           298          (381)        3,940
         Dividend on redeemable convertible
            preferred stock ...................           95                                        95
                                                    --------      --------      --------      --------
         Net income applicable to common shares     $  3,928      $    298      $   (381)     $  3,845
                                                    ========      ========      ========      ========
</TABLE>


                                       20
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

<TABLE>
                        CONSOLIDATING STATEMENT OF INCOME
                     For the Six Months Ended June 30, 2003
                             (Dollars in thousands)



<CAPTION>
                                                      Amscan
                                                   Holdings and     Combined
                                                     Combined         Non-
                                                    Guarantors     Guarantors   Eliminations  Consolidated
                                                    ----------     ----------   ------------  ------------

<S>                                                 <C>            <C>           <C>            <C>
Net sales .....................................     $ 184,213      $  26,240     $  (9,613)     $ 200,840
Cost of sales .................................       126,944         18,639        (9,664)       135,919
                                                    ---------      ---------     ---------      ---------
         Gross profit .........................        57,269          7,601            51         64,921
Operating expenses:
    Selling expenses ..........................        15,071          3,045                       18,116
    General and administrative expenses .......        12,981          3,448          (600)        15,829
    Art and development costs .................         4,823                                       4,823
    Provision for doubtful accounts ...........         1,688            301                        1,989
    Restructuring charges .....................           747             27                          774
                                                    ---------      ---------     ---------      ---------
         Total operating expenses .............        35,310          6,821          (600)        41,531
                                                    ---------      ---------     ---------      ---------
         Income from operations ...............        21,959            780           651         23,390
Interest expense, net .........................        12,881            315                       13,196
Other (income) expense, net ...................          (830)            27           746            (57)
                                                    ---------      ---------     ---------      ---------
         Income before income taxes
           and minority interests .............         9,908            438           (95)        10,251
Income tax expense ............................         3,771            258            20          4,049
Minority interests ............................                          34                            34
                                                    ---------      ---------     ---------      ---------
         Net income ...........................         6,137            146          (115)         6,168
         Dividend on redeemable convertible
            preferred stock ...................           197                                         197
                                                    ---------      ---------     ---------      ---------
         Net income applicable to common shares     $   5,940      $     146     $    (115)     $   5,971
                                                    =========      =========     =========      =========
</TABLE>

                                       21
<PAGE>



                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

<TABLE>
                        CONSOLIDATING STATEMENT OF INCOME
                     For the Six Months Ended June 30, 2002
                             (Dollars in thousands)



<CAPTION>
                                                      Amscan
                                                   Holdings and     Combined
                                                     Combined         Non-
                                                    Guarantors     Guarantors    Eliminations   Consolidated
                                                    ----------     ----------    ------------   ------------

<S>                                                 <C>            <C>            <C>            <C>
Net sales .....................................     $ 176,117      $  25,205      $ (11,285)     $ 190,037
Cost of sales .................................       116,859         18,068        (11,272)       123,655
                                                    ---------      ---------      ---------      ---------
         Gross profit .........................        59,258          7,137            (13)        66,382
Operating expenses:
    Selling expenses ..........................        13,934          2,892                        16,826
    General and administrative expenses .......        13,311          2,975           (480)        15,806
    Art and development costs .................         4,976                                        4,976
    Provision for doubtful accounts ...........           481            634                         1,115
    Restructuring charges .....................            93             93                           186
                                                    ---------      ---------      ---------      ---------
         Total operating expenses .............        32,795          6,594           (480)        38,909
                                                    ---------      ---------      ---------      ---------
         Income from operations ...............        26,463            543            467         27,473
Interest expense, net .........................        10,442            316                        10,758
Other (income), net ...........................          (609)            (6)           593            (22)
                                                    ---------      ---------      ---------      ---------
         Income before income taxes
           and minority interests .............        16,630            233           (126)        16,737
Income tax expense ............................         6,446            165                         6,611
Minority interests ............................                          (45)                          (45)
                                                    ---------      ---------      ---------      ---------
         Net income ...........................        10,184            113           (126)        10,171
         Dividend on redeemable convertible
            preferred stock ...................           185                                          185
                                                    ---------      ---------      ---------      ---------
         Net income applicable to common shares     $   9,999      $     113      $    (126)     $   9,986
                                                    =========      =========      =========      =========
</TABLE>


                                       22
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

<TABLE>
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                     For the Six Months Ended June 30, 2003
                             (Dollars in thousands)



<CAPTION>
                                                                      Amscan Holdings   Combined
                                                                       and Combined       Non-
                                                                        Guarantors     Guarantors    Eliminations  Consolidated
                                                                        ----------     ----------    ------------  ------------

<S>                                                                       <C>            <C>            <C>           <C>
Cash flows from operating activities:
   Net income .....................................................       $ 6,137        $   146        $  (115)      $ 6,168
   Adjustments to reconcile net income to net
     cash provided by (used in) operating activities:
      Depreciation and amortization ...............................         7,885            271                        8,156
      Amortization of deferred financing costs ....................         1,011                                       1,011
      Amortization of restricted Common Stock awards ..............            90                                          90
      Provision for doubtful accounts .............................         1,688            301                        1,989
      Deferred income tax expense .................................         1,757                                       1,757
      Loss on disposal of property and equipment ..................            80             29                          109
      Non-cash restructuring charges ..............................           104                                         104
   Changes in operating assets and liabilities, net of acquisition:
            Increase in accounts receivable .......................        (4,781)        (1,675)                      (6,456)
            Decrease (increase) in inventories ....................         5,839         (1,258)           (51)        4,530
            Increase in prepaid expenses and other current
               assets .............................................          (238)          (466)                        (704)
            (Decrease) increase in accounts payable, accrued
               expenses and income taxes payable ..................        (8,859)         1,242             20        (7,597)
       Other, net .................................................          (969)           449            146          (374)
                                                                          -------        -------        -------       -------
            Net cash provided by (used in) operating activities ...         9,744           (961)          --           8,783

Cash flows from investing activities:
   Capital expenditures ...........................................        (7,049)          (511)                      (7,560)
   Proceeds from disposal of property and equipment ...............            63             23                           86
                                                                          -------        -------        -------       -------
            Net cash used in investing activities .................        (6,986)          (488)          --          (7,474)

Cash flows from financing activities:
     Repayment of loans, notes payable and long-term
         obligations ..............................................        (1,773)           (89)                      (1,862)
     Proceeds from exercise of stock options ......................           831                                         831
     Purchase of Common Stock from officer ........................        (2,115)                                     (2,115)
     Repayment of note receivable from officer ....................         1,588                                       1,588
                                                                          -------        -------        -------       -------
            Net cash used in financing activities .................        (1,469)           (89)          --          (1,558)
Effect of exchange rate changes on cash and cash equivalents ......            35            921                          956
                                                                          -------        -------        -------       -------
            Net increase (decrease) in cash and cash
                      equivalents .................................         1,324           (617)                         707
Cash and cash equivalents at beginning of period ..................         1,483            917                        2,400
                                                                          -------        -------        -------       -------
Cash and cash equivalents at end of period ........................       $ 2,807        $   300        $  --         $ 3,107
                                                                          =======        =======        =======       =======
</TABLE>


                                       23
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

<TABLE>
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                     For the Six Months Ended June 30, 2002
                             (Dollars in thousands)



<CAPTION>
                                                                        Amscan Holdings     Combined
                                                                         and Combined         Non-
                                                                           Guarantors      Guarantors   Eliminations  Consolidated
                                                                           ----------      ----------   ------------  ------------

<S>                                                                         <C>            <C>            <C>           <C>
Cash flows from operating activities:
   Net income ........................................................      $ 10,184       $    113       $   (126)     $ 10,171
   Adjustments to reconcile net income to net cash
     provided by operating activities:
      Depreciation and amortization ..................................         6,411            187                        6,598
      Amortization of deferred financing costs .......................           536                                         536
      Amortization of restricted Common Stock awards .................           118                                         118
      Provision for doubtful accounts ................................           481            634                        1,115
      Deferred income tax expense ....................................         3,227                                       3,227
      Changes in operating assets and liabilities, net of acquisition:
            Increase in accounts receivable ..........................        (2,854)        (2,849)                      (5,703)
            (Increase) decrease in inventories .......................        (5,676)        (1,316)            13        (6,979)
            Increase in prepaid expenses and other current
               assets, net ...........................................        (3,149)          (920)                      (4,069)
            Increase in accounts payable, accrued expenses
               and income taxes payable ..............................         5,130          1,560                        6,690
       Other, net ....................................................        (4,021)         2,793            113        (1,115)
                                                                            --------       --------       --------      --------
            Net cash provided by operating activities ................        10,387            202           --          10,589

Cash flows from investing activities:
   Cash paid in connection with the acquisition ......................       (13,547)                                    (13,547)
   Capital expenditures ..............................................        (7,405)          (205)                      (7,610)
   Proceeds from disposal of property and equipment ..................                           34                           34
                                                                            --------       --------       --------      --------
            Net cash used in investing activities ....................       (20,952)          (171)                     (21,123)

Cash flows from financing activities:
   Proceeds from short-term obligations ..............................        13,300                                      13,300
   Repayment of loans, notes payable and
         long-term obligations .......................................        (1,669)            (6)                      (1,675)
                                                                            --------       --------       --------      --------
            Net cash provided by (used in) financing activities ......        11,631             (6)          --          11,625
Effect of exchange rate changes on cash ..............................          (328)           421                           93
                                                                            --------       --------       --------      --------
            Net increase in cash and cash equivalents ................           738            446                        1,184
Cash and cash equivalents at beginning of period .....................            42            974                        1,016
                                                                            --------       --------       --------      --------
Cash and cash equivalents at end of period ...........................      $    780       $  1,420       $   --        $  2,200
                                                                            ========       ========       ========      ========
</TABLE>

                                       24
<PAGE>


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

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Percentage of Net Sales
-----------------------
                                                              Three Months Ended
                                                              ------------------
                                                                   June 30,
                                                                   --------
                                                               2003       2002
                                                               ----       ----
Net sales ..............................................      100.0%     100.0%
Cost of sales ..........................................       68.3       65.8
                                                              -----      -----
       Gross profit ....................................       31.7       34.2
Operating expenses:
    Selling expenses ...................................        8.9        9.2
    General and administrative expenses ................        7.8        8.8
    Art and development costs ..........................        2.3        2.9
    Provision for doubtful accounts ....................        1.4        0.5
    Restructuring charges ..............................        0.4        0.2
                                                              -----      -----
       Total operating expenses ........................       20.8       21.6
                                                              -----      -----
       Income from operations ..........................       10.9       12.6
Interest expense, net ..................................        6.5        5.6
Other (income) expense, net ............................       (0.1)       0.1
                                                              -----      -----
       Income before income taxes and minority interests        4.5        6.9
Income tax expense .....................................        1.8        2.7
Minority interests .....................................
                                                              -----      -----
       Net income ......................................        2.7%       4.2%
                                                              =====      =====

         Net sales of $101.0  million for the  quarter  ended June 30, 2003 were
$6.9 million  higher than net sales for the quarter ended June 30, 2002.  During
the  second  quarter  of 2003,  the  Company's  domestic  sales of party  goods,
including  metallic  balloons,  grew by 6.8% over the  second  quarter  of 2002.
Domestic  sales  performance  during the second  quarter of 2003 continued to be
adversely  affected by general  economic  conditions  resulting in a weak retail
environment. Contract manufacturing during the second quarter increased by 26.7%
over the second quarter of 2002. Net international  sales reported for the three
months ended June 30, 2003 were relatively flat as compared to the corresponding
period  in 2002 with a small  decrease  in volume  offset  by  foreign  currency
exchange fluctuations.

         Gross profit  margin for the quarter  ended June 30, 2003, of 31.7% was
2.5% lower than during the quarter  ended June 30,  2002.  Gross  profit  margin
during the  second  quarter of 2003  reflects  the impact of product  sales mix,
particularly  solid color tableware and the increase in contract  manufacturing,
additional depreciation, amortization and equipment rental costs relating to the
new distribution  facility that became operational in the fourth quarter of 2002
and redundant  costs arising from the  Company's  transition  from four to three
east coast  distribution  facilities.  The Company  expects the  benefits of the
transition to be realized beginning in the latter half of 2003.

         Selling  expenses of $9.0  million for the quarter  ended June 30, 2003
were $0.3 million higher than in the corresponding period in 2002. However, as a
percent  of  sales,  selling  expenses  were  8.9%,  or  0.3%  less  than in the
corresponding  period in 2002,  reflecting  the further  leveraging of our sales
infrastructure, and the maturation of our specialty sales force.

         General and  administrative  expenses  of $7.9  million for the quarter
ended June 30, 2003 were $0.3  million  lower than the  corresponding  period in
2002. As a percentage of sales,  general and  administrative  expenses were 7.8%
for the second quarter of 2003, or 1.0% lower than in the  corresponding  period
in 2002.  The net decrease in general and  administrative  expenses  principally
reflects synergies realized from the integration of the administrative functions
of M&D  Industries,  Inc.,  ("M&D  Industries")  into  our  existing  operations
partially offset by higher insurance and occupancy costs.


                                       25
<PAGE>


         Art and  development  costs of $2.3 million for the quarter  ended June
30,  2003  were $0.4  million  lower as  compared  to 2002,  principally  due to
synergies  realized from the  integration of M&D Industries' art and development
departments  into our existing  operations.  As a percentage  of sales,  art and
development  costs  were 2.3% for the  second  quarter  of 2003 and 2.9% for the
second quarter of 2002.

         During  the  second  quarter  of 2003,  a  customer  filed a  voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code and as
a result,  the  Company  charged  $1.6  million to the  provision  for  doubtful
accounts  during  the  second  quarter  of 2003.  This  customer  accounted  for
approximately 2.6% of the Company's  consolidated net sales for the three months
ended June 30,  2003.  The Company does not believe the  potential  loss of this
customer will have a material  adverse effect on the Company's future results of
operations or its financial condition.

         During the three  months  ended  June 30,  2003 and 2002,  the  Company
incurred  restructuring charges of $0.5 million and $0.2 million,  respectively,
resulting from the  consolidation of certain  domestic and foreign  distribution
operations,  and during 2003, the ongoing integration of M&D Industries into our
balloon operations.  The consolidation of our domestic  distribution  operations
and the  continued  integration  of M&D  Industries  may  result  in  additional
restructuring charges in subsequent periods.

         Interest expense,  net, of $6.6 million for the three months ended June
30, 2003 was $1.3 million  higher than for the three months ended June 30, 2002,
principally due to the impact of higher average  borrowings and a higher average
effective interest rate (8.6% in 2003 versus 7.1% in 2002).

         Income  taxes for the  second  quarter of 2003 and 2002 were based upon
estimated  consolidated effective income tax rates of 39.5% for the years ending
December 31, 2003 and 2002.


Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Percentage of Net Sales
-----------------------
<TABLE>
<CAPTION>
                                                           Six Months Ended June 30,
                                                           -------------------------
                                                               2003        2002
                                                               ----        ----
<S>                                                           <C>         <C>
Net sales ..............................................      100.0%      100.0%
Cost of sales ..........................................       67.7        65.1
                                                              -----       -----
       Gross profit ....................................       32.3        34.9
Operating expenses:
    Selling expenses ...................................        9.0         8.8
    General and administrative expenses ................        7.9         8.3
    Art and development costs ..........................        2.4         2.6
    Provision for doubtful accounts ....................        1.0         0.6
    Restructuring charges ..............................        0.4         0.1
                                                              -----       -----
       Total operating expenses ........................       20.7        20.4
                                                              -----       -----
       Income from operations ..........................       11.6        14.5
Interest expense, net ..................................        6.5         5.7
Other income, net ......................................
                                                              -----       -----
       Income before income taxes and minority interests        5.1         8.8
Income tax expense .....................................        2.0         3.4
Minority interests .....................................
                                                              -----       -----
       Net income ......................................        3.1%        5.4%
                                                              =====       =====
</TABLE>

         Net sales of $200.8 million for the six months ended June 30, 2003 were
$10.8  million  higher  than net sales for the six months  ended June 30,  2002.
During the six months ended June 30, 2003, the Company's domestic sales of party
goods,  including metallic balloons,  grew by 5.9% over the corresponding period
in 2002. Domestic sales

                                       26
<PAGE>


performance during the six months ended June 30, 2003 were adversely affected by
general economic  conditions  resulting in a weak retail environment and, during
the first quarter of 2003,  severe weather  conditions.  Contract  manufacturing
during  the six  months  ended  June  30,  2003  increased  by  16.9%  over  the
corresponding  period in 2002.  Net  international  sales  reported  for the six
months ended June 30, 2003 increased by 4.1%, principally as a result of foreign
currency exchange fluctuations.

         Gross profit  margin for the six months  ended June 30, 2003,  of 32.3%
was 2.6% lower than  during the six months  ended June 30,  2002.  Gross  profit
margin for the six months  ended June 30,  2003  reflects  the impact of product
sales mix  (particularly  solid color  tableware  and  contract  manufacturing),
additional depreciation and amortization, and equipment rental costs relating to
the new distribution  facility that became  operational in the fourth quarter of
2002.  Gross  profit  margin for the  current  period also  reflects  additional
production  costs  incurred  in  connection  with  the  integration  of the  M&D
Industries into our balloon operations,  additional  distribution costs incurred
as a result of severe  weather  conditions  during the first quarter of 2003 and
redundant  costs arising from the Company's  transition  from four to three east
coast  distribution  facilities.   The  Company  expects  the  benefits  of  the
integration and transition to be realized beginning in the latter half of 2003.

         Selling  expenses of $18.1  million  for the six months  ended June 30,
2003  were  $1.3  million  higher  than  in the  corresponding  period  in  2002
principally due to the inclusion of the operating  results of M&D Industries for
an additional two additional months in 2003 and the continued development of the
Company's specialty sales force. Selling expenses, as a percentage of net sales,
increased from 8.8% to 9.0%.

         General and administrative expenses of $15.8 million for the six months
ended June 30, 2003 were relatively  consistent with the corresponding period in
2002 as  increased  insurance  and  occupancy  costs  were  offset by  synergies
realized from the integration of M&D Industries'  administrative  functions into
our existing  operations.  As a percentage of sales,  general and administrative
expenses decreased by 0.4% to 7.9%.

         Art and development costs of $4.8 million for the six months ended June
30, 2003 were $0.2 million lower than in the first half of 2002, principally due
to  synergies   realized  from  the  integration  of  M&D  Industries'  art  and
development departments into our existing operations.  As a percentage of sales,
art and  development  costs were 2.4% for the six months ended June 30, 2003 and
2.6% for the corresponding period in 2002.

         During  the  second  quarter  of 2003,  a  customer  filed a  voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code and as
a result,  the  Company  charged  $1.6  million to the  provision  for  doubtful
accounts  during  the  second  quarter  of 2003.  This  customer  accounted  for
approximately  1.7% of the Company's  consolidated  net sales for the six months
ended June 30,  2003.  The Company does not believe the  potential  loss of this
customer will have a material  adverse effect on the Company's future results of
operations or its financial condition.

         During  the six  months  ended  June 30,  2003 and  2002,  the  Company
incurred  restructuring charges of $0.8 million and $0.2 million,  respectively,
resulting from the  consolidation of certain  domestic and foreign  distribution
operations,  and during 2003, the ongoing integration of M&D Industries into our
balloon operations.  The consolidation of its domestic  distribution  operations
and the  continued  integration  of M&D  Industries  may  result  in  additional
restructuring charges in subsequent periods.

         Interest  expense,  net, of $13.2 million for the six months ended June
30, 2003 was $2.4 million  higher than in the  corresponding  period in 2002 and
reflects the impact of higher average  borrowings and a higher average effective
interest rate (8.6% in 2003 versus 7.2% in 2002).

         Income taxes for the six months ended June 30, 2003 and 2002 were based
upon estimated  consolidated  effective  income tax rates of 39.5% for the years
ending December 31, 2003 and 2002.

                                       27
<PAGE>


Liquidity and Capital Resources
-------------------------------

         On December  20, 2002,  we amended and  restated  our  existing  credit
facility  with  various  lenders  (the  "Lenders"),  with  Goldman  Sachs Credit
Partners L.P. as sole lead  arranger,  sole  bookrunner and  syndication  agent.
Under the terms of the Second Amended and Restated Credit and Guaranty Agreement
(the "Credit  Agreement")  the Lenders agreed to amend and restate the Company's
existing bank credit  agreements in their entirety and to provide a $200,000,000
senior secured facility consisting of a $170,000,000 term loan (the "Term Loan")
and up to  $30,000,000  aggregate  principal  amount  of  revolving  loans  (the
"Revolver").  The proceeds of the Term Loan were used to redesignate and replace
the Company's AXEL term loan of $148.5 million and revolver  borrowings of $16.0
million  existing  at the  closing  date and to pay  certain  fees and  expenses
associated with the refinancing.

         The Term Loan was funded at a 1.0% original issue discount and provides
for amortization (in quarterly  installments) of 1.0% per annum through June 15,
2006, and will then amortize in equal quarterly  payments through June 15, 2007.
The Term Loan bears  interest,  at the option of the Company,  at the index rate
plus 3.50% per annum or at LIBOR plus  4.50% per  annum,  with a LIBOR  floor of
2.0%.  At June 30,  2003,  the  Term  Loan,  net of  unamortized  discount,  was
$167,668,000  and the  floating  interest  rate on the Term Loan was 6.50%.  The
Company is required to make  prepayments  under the Credit  Agreement based upon
the net proceeds from certain asset sales and insurance or condemnation  awards,
the  issuances of certain debt and equity  securities,  and based on annual cash
flows, as defined.

         The  Revolver  expires on June 15,  2007,  and bears  interest,  at the
option of the Company,  at the index rate plus,  based on performance,  a margin
ranging from 2.00% to 3.50% per annum, or at LIBOR plus, based on performance, a
margin  ranging  from 3.00% to 4.50% per annum,  with a LIBOR floor of 2.0%.  At
June 30, 2003, the Company had no borrowings under the Revolver. Standby letters
of credit  totaling $7.0 million were  outstanding and the Company had borrowing
capacity of approximately  $23.0 million under the terms of the Revolver at June
30, 2003.

         The Term Loan and borrowings  under the Revolver are secured by a first
priority lien on substantially all of the Company's assets and are guaranteed by
the Company's domestic subsidiaries. The Company is required to maintain certain
financial ratios during the term of the Credit Agreement, including leverage and
interest coverage ratios.

         At June 30, 2003, the Company had  $110,000,000 of senior  subordinated
notes (the "Notes") outstanding. The Notes bear interest at a rate of 9.875% per
annum and mature in December 2007. Interest is payable  semi-annually on June 15
and  December  15 of each year.  The Notes are  redeemable  at the option of the
Company,  in whole or in part,  at  redemption  prices  ranging from 104.937% to
100%,  plus  accrued  and unpaid  interest to the date of  redemption.  Upon the
occurrence of a Change of Control, as defined in the note indenture, the Company
will be obligated  to make an offer to purchase the Notes,  in whole or in part,
at a price equal to 101% of the aggregate  principal  amount of the Notes,  plus
accrued and unpaid  interest,  if any, to the date of  purchase.  If a Change of
Control were to occur, the Company may not have the financial resources to repay
all of its obligations  under the Credit  Agreement,  the note indenture and the
other  indebtedness that would become payable upon the occurrence of such Change
of Control.

         In addition to the Revolver,  the Company has a 400,000 Canadian dollar
denominated revolving credit facility which bears interest at the Canadian prime
rate plus 0.6% and  expires  on April 30,  2004,  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 June 1, 2004 and a $1.0  million  revolving
credit  facility which bears interest at LIBOR plus 1.0% and expires on December
31, 2003. We expect to renew these revolving credit  facilities upon expiration.
No borrowings were outstanding  under these revolving credit  facilities at June
30, 2003.

         The  Company  financed  the cost to  purchase  property  in 2000 and to
construct a new domestic  distribution facility completed in 2001 (total cost of
$30.2  million)  using  borrowings  under  the then  existing  revolving  credit
facility and, in 2001, the proceeds from the issuance of the Series A Redeemable
Convertible Preferred Stock of $6.0

                                       28
<PAGE>


million (noted below) and long-term borrowings  consisting of a first and second
lien mortgage note in the original principal amount of $10.0 million each with a
financial  institution  and  the  New  York  State  Job  Development  Authority,
respectively.  The first lien mortgage note bears  interest at LIBOR plus 2.75%.
However, the Company has utilized an interest rate swap agreement to effectively
fix the loan rate at 8.40% for the term of the loan.  The second  lien  mortgage
note  bears  interest  at the  rate of  3.77%,  and is  subject  to  review  and
adjustment semi-annually based on the New York State Job Development Authority's
confidential  internal  protocols.  Both  notes are for a term of 96 months  and
require monthly payments based on a 180-month  amortization  period with balloon
payments upon maturity in January 2010.

         On March 30,  2001,  the Board of  Directors  authorized  500 shares of
preferred  stock,  $0.10  par  value,  and  designated  100  shares  as Series A
Redeemable  Convertible  Preferred  Stock.  Also on March 30, 2001,  the Company
issued  40  shares  of Series A  Redeemable  Convertible  Preferred  Stock to GS
Capital Partners II, L.P. and certain other private  investment funds managed by
Goldman,  Sachs & Co.  (collectively,  "GSCP")  for  proceeds  of $6.0  million.
Dividends are cumulative and payable annually at 6% per annum. Dividends payable
on or prior to March 30,  2004,  are  payable in  additional  shares of Series A
Redeemable  Convertible  Preferred Stock based on a value of $150,000 per share.
Subsequent  to March 30,  2004,  dividends  are  payable,  at the  option of the
Company,  either in cash or additional shares of Series A Redeemable Convertible
Preferred  Stock.  On March 30, 2003,  the annual  dividend was  distributed  in
additional  shares of Series A Redeemable  Convertible  Preferred Stock. At June
30, 2003, 44.94 shares of Series A Redeemable  Convertible  Preferred Stock were
issued and outstanding.

         On February  19, 2002,  the Company  purchased  all of the  outstanding
Common  Stock of M&D  Industries,  a  Manteno,  Illinois-based  manufacturer  of
metallic and plastic balloons,  from American Greetings  Corporation  ("American
Greetings")  for $27.5  million plus  related  costs.  The Company  financed the
acquisition by borrowing $13.5 million under its then existing  revolving credit
facility and issuing 96.774 shares of its Common Stock to American Greetings, at
a value of  $155,000  per share.  American  Greetings  continues  to  distribute
metallic balloons under a supply agreement with the Company.

         The Company has several non-cancelable operating leases principally for
office,  distribution  and  manufacturing  facilities,  showrooms  and warehouse
equipment.  These leases  expire on various  dates  through  2017 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, 2003 and 2002, totaled $6.5 million and $5.4 million, respectively. The
minimum lease payments currently required under non-cancelable  operating leases
for the year ending December 31, 2003, approximate $12.9 million.

         On June 13, 2002, the Company filed a  registration  statement with the
Commission for an IPO of its Common Stock. However, during the fourth quarter of
2002,  the  Company  decided  not to pursue the IPO,  which  resulted  in a $0.8
million write-off of costs associated with the offering.  On March 12, 2003, the
Company filed a Form RW with the Securities and Exchange Commission  withdrawing
its registration statement for the IPO.

          The Credit Agreement and the Notes may affect the Company's ability to
make future capital expenditures and potential acquisitions. However, management
believes  that current  asset levels  provide  adequate  capacity to support its
operations  for at least the next 12 months.  At June 30, 2003,  the Company did
not have material  commitments for capital  expenditures or other  acquisitions.
Based upon the current level of operations and anticipated  growth,  the Company
anticipates  that its operating cash flow,  together with  available  borrowings
under the Revolver will be adequate to meet anticipated future  requirements for
working capital and operating expenses for at least the next 12 months. However,
the  Company's  ability to make  scheduled  payments of principal  of, or to pay
interest  on,  or to  refinance  its  indebtedness  and  to  satisfy  its  other
obligations will depend upon its future performance, which, to a certain extent,
will be subject to general economic, financial,  competitive, business and other
factors beyond its control.

                                       29
<PAGE>


Cash Flow Data - Six Months  Ended June 30, 2003  Compared  to Six Months  Ended
--------------------------------------------------------------------------------
June 30, 2002
-------------

         Net cash provided by operating  activities  during the six months ended
June 30, 2003 and 2002,  totaled $8.8 million and $10.6  million,  respectively.
Net cash flow  provided by  operating  activities  before  changes in  operating
assets and  liabilities  for the six months  ended June 30,  2003 and 2002,  was
$19.4 million and $21.8 million,  respectively.  Changes in operating assets and
liabilities, net of acquisition for the six months ended June 30, 2003 and 2002,
resulted in the use of cash of $10.6 million and $11.2 million, respectively.

         Net cash used in investing  activities during the six months ended June
30, 2003 of $7.5 million consisted of additional investments in distribution and
manufacturing  equipment.  Net cash used in investing  activities during the six
months ended June 30, 2002 of $21.1 million  consisted of $13.5 million relating
to the  acquisition of M&D Industries and $7.6 million of costs  associated with
the new domestic distribution facility as well as additional investments in data
processing and manufacturing equipment.

         During the six months ended June 30,  2003,  net cash used in financing
activities of $1.6 million  consisted of the scheduled  payment on the Term Loan
and other  long-term  obligations,  the  purchase of Common Stock from the Chief
Executive  Officer,  partially  offset by  proceeds  from the  exercise of stock
options and the repayment of the note from the Chief Executive  Officer.  During
the  comparable  period in 2002,  net cash  provided by financing  activities of
$11.6 million  included  proceeds from  short-term  borrowings,  including $13.5
million used to finance the acquisition of M&D Industries,  partially  offset by
the scheduled  payments on the then  outstanding  term loan and other  long-term
obligations.


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.


"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
------------------------------------------------------------------------------

         This report includes "forward-looking statements" within the meaning of
various provisions of the Private Securities  Litigation Reform Act of 1995. All
statements,  other than statements of historical facts,  included in this report
that address  activities,  events or  developments  that the Company  expects or
anticipates  will  or may  occur  in the  future,  future  capital  expenditures
(including  the amount and nature  thereof),  business  strategy and measures to
implement strategy,  including any changes to operations,  goals,  expansion and
growth of the Company's  business and  operations,  plans,  references to future
success and other such matters are forward-looking statements.  These statements
are based on certain  assumptions  and analyses  made by the Company in light of
its experience and its perception of historical  trends,  current conditions and
expected  future   developments  as  well  as  other  factors  it  believes  are
appropriate  in the  circumstances.  Actual results may differ  materially  from
those discussed.  Whether actual results and developments  will conform with the
Company's  expectations  and  predictions  is  subject  to a number of risks and
uncertainties,  including,  but not limited to (1) the concentration of sales by
the Company to party goods  superstores  where the  reduction  of purchases by a
small  number of  customers  could  materially  reduce the  Company's  sales and
profitability, (2) the concentration of the Company's credit risk in party goods
superstores,  several of which are privately  held and have expanded  rapidly in
recent years, (3) the failure by the Company to anticipate changes in tastes and
preferences of party goods  retailers and  consumers,  (4)  introduction  of new
product  lines by the  Company,  (5) the  introduction  of new  products  by the
Company's  competitors,  (6) the inability of the Company to increase  prices to
recover fully future increases in raw material prices,  especially  increases in
paper prices,  (7) the loss of key  employees,  (8) changes in general  business
conditions,  (9) other factors which might be described from time to time in the
Company's  filings with the  Commission  and (10) other factors which are beyond
the control of the Company.  Consequently, all of the forward-looking statements
made in this report are qualified by these cautionary statements, and the actual
results or developments  anticipated by the Company may not be realized or, even
if substantially  realized, may not have the expected consequences to or effects
on the Company or its

                                       30
<PAGE>


business or  operations.  Although the Company  believes that it has the product
offerings  and resources  needed for  continued  growth in revenues and margins,
future revenue and margin trends cannot be reliably  predicted.  Changes in such
trends may cause the Company to adjust its operations in the future.  Because of
the foregoing and other factors, recent trends should not be considered reliable
indicators of future financial results. In addition, the highly leveraged nature
of the  Company  may impair its  ability to finance  its future  operations  and
capital needs and its  flexibility to respond to changing  business and economic
conditions and business opportunities.


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  utilize  interest  rate  swap
agreements to manage the market risk  associated  with  fluctuations in interest
rates. If market interest rates for our variable rate  indebtedness  averaged 2%
more than the interest  rate  actually  paid for the three months ended June 30,
2003 and 2002,  our  interest  expense,  after  considering  the  effects of our
interest rate swap  agreements,  would have increased,  and income before income
taxes would have decreased, by $0.9 million and $0.8 million,  respectively.  If
market interest rates for our variable rate  indebtedness  averaged 2% more than
the interest rate actually paid for the six months ended June 30, 2003 and 2002,
our interest  expense,  after  considering the effects of our interest rate swap
agreements,  would have  increased,  and income  before  income taxes would have
decreased,  by $1.8 million and $1.7  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 $0.4 million for the three
months ended June 30, 2003 and 2002. 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 $0.8 million
and $0.7 million for the six months ended June 30, 2003 and 2002,  respectively.
These  calculations  assume  that each  exchange  rate would  change in the same
direction  relative to the U.S.  dollar.  In  addition to the direct  effects of
changes in exchange  rates,  which  could  change the U.S.  dollar  value of the
resulting  sales,  changes in exchange rates may also affect the volume of sales
or the foreign currency sales price as competitors' products become more or less
attractive.  Our  sensitivity  analysis  of the  effects  of  changes in foreign
currency exchange rates does not factor in a potential change in sales levels or
local currency prices.


ITEM 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 have been 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 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

                                       31
<PAGE>


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, 2003 that have materially  affected,  or is reasonably  likely to materially
affect, the Company's internal control over financial reporting.

                                     PART II

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

         a) Not applicable.

         b) Not applicable.

         c) On April 7, 2003, the Company issued 6.648 shares of Common Stock to
            a former  employee  upon  exercise of stock  options for $831,000 in
            cash.  No  underwriting   discounts  or  commissions  were  paid  in
            connection with such sale.  These shares were part of an offering to
            a limited  number  of  accredited  investors  and  employees  of the
            Company.  Such sale was exempt under Section 4 (2) of the Securities
            Act of 1933.

         d) Not applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

         a) Exhibits

     31(1) Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer.

     31(2) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

     32    Section 1350 Certification.

         b) Reports on Form 8-K

                None.


                                       32
<PAGE>


                                    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 financial and accounting
Date: August 14, 2003                  officer)
      ---------------




                                       33

<PAGE>


                                 EXHIBIT INDEX


      NO.                               DESCRIPTION
      ---                               -----------

     31(1) Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer.

     31(2) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

     32    Section 1350 Certification.