A C MOORE ARTS & CRAFTS INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________

Commission file number 000-23157

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

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

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

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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

As of March 16, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $30,109,500 based on the
closing price of the registrant's common stock on such date, $9.00, as reported
on the Nasdaq Stock Market.(1)

The number of shares of Common Stock outstanding as of March 16, 2001 was
7,425,500

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2000 Annual Meeting of
Shareholders are incorporated into Part III of this Form 10-K.

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

PART I

ITEM 1. BUSINESS.

General

A.C. Moore Arts & Crafts, Inc. (the "Company") is a leading operator of
arts and crafts stores that offer a vast assortment of traditional and
contemporary arts, crafts and floral merchandise for a wide range of customers.
The Company's business strategy is to provide the broadest and deepest selection
of high quality merchandise at the lowest prices in an inviting, attractive
store environment with superior customer service. The Company's objective is to
become the leading arts and crafts retailer in each of its markets. The Company
opened its first store in 1985 and since then has focused on developing and
refining its retail concept. The Company became a holding company in July 1997
by incorporating in Pennsylvania and exchanging 4,300,000 shares of Common Stock
for all the capital stock of its operating subsidiary which was organized in
Delaware in 1984. As of December 31, 2000, the Company was operating 50 stores
in the Eastern United States.

The Company's prototype store ranges in size from 20,000 to 25,000
square feet, with approximately 80% devoted to selling space. A typical store
offers approximately 65,000 SKUs across 26 merchandise categories during the
course of a year, with more than 45,000 SKUs offered at any one time.
Merchandise is presented in a distinctive manner designed to maximize shopping
convenience and to reinforce themes and colors often associated with holidays,
seasonal events or specific merchandise categories. Completed arts and crafts
projects are prominently displayed in each department throughout the store to
stimulate new project ideas for customers and to enhance the shopping
environment.

Business Strategy

The key elements of the Company's business strategy are as follows:

Vast Merchandise Selection. The Company's merchandising strategy is to
offer the broadest and deepest selection of arts and crafts merchandise so that
customers can obtain everything necessary to create and finish any arts and
crafts project. The Company's key merchandise categories include silk and dried
flowers, floral arrangements and accessories, ribbon, wedding crafts, potpourri,
stitchery, yarn, jewelry crafts, kids crafts, art supplies, picture frames,
stamps, doll-making, seasonal items and a variety of unfinished wood crafts. The
Company believes its merchandise appeals to a wide range of recreational and
professional crafters of all ages across diverse economic backgrounds. The
Company actively seeks new merchandise by monitoring industry trends, working
with domestic and international vendors, attending trade shows and craft fairs
and regularly interacting with customers. The Company has designed its
merchandise distribution systems to ensure rapid replenishment and the highest
levels of in-stock positions. Each store receives merchandise daily from vendors
or the Company's distribution center, which during peak periods will deliver a
minimum of three and up to five times per week to the stores.

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Customer Friendly Stores. The Company believes that its high level of
customer service and its attractive, easy-to-shop stores are important
competitive advantages. To ensure prompt and personalized service, the Company
staffs its stores with a high ratio of store personnel to customers, including a
store manager, three associate managers and a staff of up to 60 full-time and
part-time sales associates. Store personnel, many of whom are arts and crafts
enthusiasts, assist customers with merchandise selection and project ideas. All
stores are furnished with a customer service area, a counter for the free
arrangement of floral merchandise, eight to ten registers to ensure quick
customer checkout and a room in which classes are held up to seven days a week
for adults and children on a wide variety of craft skills. The Company's stores
are typically located in power strip centers with convenient parking and are
easily accessible from main arteries.

Price Leadership. The Company seeks to maintain the lowest prices on
all merchandise. Buyers and store managers actively monitor competitors' prices
to ensure that the Company maintains the lowest prices. The Company's policy to
beat any competitor's advertised price by 10% is clearly displayed in all
stores. In addition, on a weekly basis, the Company advertises select items at
20% to 40% off their everyday low prices. The Company believes that its strategy
of price leadership enhances customer loyalty and provides superior value.

Entrepreneurial Culture. Since inception, the Company has strived to
foster an ownership culture and merchandising creativity at all levels of the
organization. This culture allows the Company to have numerous merchandising
initiatives, which, if proven successful, can be implemented very quickly
throughout the Company. For example, each store manager is empowered to purchase
merchandise to meet the unique needs of the local customer base. Store managers
and associate managers earn incentive bonuses based upon annual increases in
store profitability, and in 2000, average compensation for store managers was
$98,000. The Company believes its focus on empowering and rewarding its
employees helps in recruiting, hiring and retaining talented personnel.

Growth Strategy

The Company has developed an expansion plan to become the leading arts
and crafts retailer in each of its markets and plans to open at least 22 stores
in 2001 and 2002. The Company has no current plans to expand through
acquisitions, but may consider possible acquisitions in the future. The Company
is targeting its expansion in both existing and new markets within an
approximate 500-mile radius of the Company's southern New Jersey distribution
center. This area contains more than 30% of the United States' population.

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Merchandising

The Company's typical store offers approximately 65,000 SKUs across 26
merchandise categories during the course of a year, with more than 45,000 SKUs
offered at any one time. The merchandise offered by the Company, by major
product category, is as follows:

Floral and Accessories

Silk Flowers - includes a wide, seasonally changing assortment
of high quality silk flowers, hand wrapped flowers, polystems, potted plants and
green and flowering bushes.

Dried Flowers - includes baby's breath, eucalyptus and many
styles and colors of a seasonally changing assortment of bouquets of dried
flowers.

Floral Accessories - includes clay, brass, glass and ceramic
containers, assorted mosses, styrofoam shapes, wreaths and other components to
create floral displays.

Floral Arrangements - the Company's floral designers work with
customers to make any arrangement, free of charge, from silk or dried flowers
purchased from the Company. The stores also carry a large assortment of pre-made
arrangements.

Ribbon - includes ribbon by the spool, lace, a large selection
of specialty ribbon sold by the yard and pre-made bows.

Wedding - includes wedding supplies, bridal headpieces, bridal
flowers, bouquet holders, ribbon roses and items used for christenings and baby
showers.

Potpourri - includes dried potpourri, potpourri oils, packaged
scents and a wide assortment of candles, ranging from tealights to five pound
three wick candles.

Candle Making - includes blocks of paraffin wax, wicks and
other materials necessary to make candles, as well as candle kits and brass and
glass candle holders.

Wicker - includes a wide assortment of wicker baskets in
various shapes and sizes.

In 2000, 1999 and 1998, floral and accessories accounted for
approximately 26%, 28% and 27% of sales, respectively.

Traditional Crafts

Stitchery - includes a broad range of stitchery kits which
appeal to beginner and experienced stitchers, cross stitch supplies, stitchery
accessories, floss and sewing notions.

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Yarn - includes acrylic, crochet cotton, cotton blends, rayon
and other blends, as well as a full assortment of hooks, needles and other
accessories.

Wood - includes a variety of unfinished wood products, such as
shelves, bird houses, clocks and other decorative pieces which can be finished
in various ways such as painting, staining or stenciling.

Cake and Candy Making - includes cake boards, bakeware, candy
molds, chocolate melts, cookie cutters, icing coloring and flavors and spices.

Miniatures - includes dollhouses and dollhouse furnishings,
such as room settings, wallpaper, flooring and lighting, as well as miniature
porcelains and ceramics.

Doll Making - includes bodies, heads and hair used to make
dolls and clothing for dolls, as well as teddy bears and other stuffed animals.

Kids Crafts - includes sand art, sidewalk chalk, bead art
supplies, children's stitchery kits, coloring and other books and children's
crafts similar to crafts done by adults.

Felt, Glitter - includes felt, glitter, pom-poms, chenille
stems and loupy, all of which are used in the creation of craft projects.

Books - includes a wide range of books to assist crafters in
all categories, such as how-to books for the beginner and books for the
experienced crafter.

In 2000, 1999 and 1998, traditional crafts accounted for approximately
29%, 29% and 30% of sales, respectively.

Art Supplies and Frames

Art Supplies - includes bottled and tube paints (oil, acrylic
and water based), pastels, brushes, tablets, canvas pieces, drawing pencils,
markers and art palettes.

Stamps and Stationery - includes decorative stamps, stamp
pads, fashion stickers, embossing tools, photo and memory albums, memory album
accessories, scissors, hole punchers and note and fashion papers.

Stencils - includes decorative stencils, crayons and paints
for use on walls, wood, metal, clothing and other products.

Frames - includes frames of all types and sizes, including
empty frames and frames with glass, matting, posters and framing hardware.

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In 2000, 1999 and 1998, art supplies and frames accounted for
approximately 31%, 30% and 28% of sales, respectively.

Fashion Crafts

Clothing - includes adult's and children's T-shirts and
sweatshirts to be decorated with fabric art, as well as related accessories.

Transfers - includes pictures which are ironed or sewn onto
clothing, most of which can be further embellished with glitter and fabric
paints.

Jewelry Making - includes jewelry making components such as
beads, sequins, rhinestones and findings, as well as the tools required to
complete the project.

In 2000, 1999 and 1998, fashion crafts accounted for approximately 8%,
7% and 7% of sales, respectively.

Seasonal Items

Seasonal items include a wide range of merchandise used as decorations
for all major holidays and seasons, including the two most popular holiday
seasons, Christmas and Easter. Other holidays, such as Valentine's Day, St.
Patrick's Day and Halloween also result in significant sales of seasonal
merchandise.

In 2000, 1999 and 1998, seasonal items accounted for approximately 6%,
7% and 8% of sales, respectively.

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Purchasing

The Company's purchasing programs are designed to support its business
strategy of providing customers with the broadest and deepest selection of high
quality arts and crafts merchandise at the lowest prices and maintaining high
in-stock positions. In order to manage its inventory of approximately 65,000
SKUs, the Company has organized its product offerings into 26 merchandise
categories. The Company's 24 person corporate buying staff develops corporate
buying programs to establish the merchandise direction for the Company and
creates "planograms" to provide store managers with detailed descriptions and
illustrations of store layout and merchandise presentation. The Company's
product offering at a store is often enhanced by merchandise purchased by that
store's manager to meet the unique needs of the store's customer base. The
Company monitors these purchases through vendor master file controls. In-store
department managers are responsible for daily reordering of merchandise and are
monitored by store managers. Ordering occurs frequently, and the Company seeks
vendors who can deliver on a timely basis. Approximately 96% of merchandise
orders are placed through the Company's Electronic Data Interchange ("EDI")
system, which allows for the automated reordering of merchandise from most
domestic vendors. Approximately 58% of orders are shipped directly from the
vendor to the Company's stores. The remaining 42%, over 35% of which are floral
and seasonal items, are shipped from the Company's distribution center. An early
morning stocking crew unpacks deliveries and stocks merchandise before the store
opens.

The Company purchases its inventory from more than 500 vendors
world-wide. The largest 25 suppliers accounted for approximately 43% of the
dollar volume of the Company's purchases in 2000, and the largest supplier,
SBAR'S, Inc. ("SBAR'S") accounted for approximately 19% of the dollar volume of
the Company's purchases in 2000. Approximately 10% of the Company's merchandise,
primarily floral and seasonal items, is imported directly from foreign
manufacturers or their agents, principally in the Far East. All of the Company's
overseas purchases are denominated in dollars.

SBAR'S is a large distributor of arts and crafts merchandise, primarily
to independent arts and crafts retailers. SBAR'S maintains an inventory of many
of the items the Company purchases directly from other vendors, thereby allowing
the Company to obtain merchandise from SBAR'S which cannot be delivered by
vendors on a timely basis. SBAR'S maintains a product development and design
department which assists the Company in identifying craft trends, and the
Company often obtains from SBAR'S product samples and displays which are
utilized in the Company's stores to generate customer interest. The Company has
developed a disciplined purchasing and ordering relationship with SBAR'S, which
includes daily reordering and two to five deliveries by SBAR'S per store each
week, depending on the size of the store and time of the year. Merchandise
purchased from SBAR'S typically has a high SKU count but small dollar volume,
requires greater volume purchases from a manufacturer to obtain competitive
pricing or involves a small number of SKUs from individual vendors with whom it
would be impractical for the Company to establish a direct buying relationship.
The Company does not have a purchase agreement or an exclusive arrangement with
SBAR'S, and ordering of merchandise typically occurs through the issuance of
individual purchase orders.

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The Company's buying operation is divided into two divisions. One
division, headed by an Executive Vice President assisted by three buyers,
handles merchandising for all floral and seasonal items. The other division,
headed by a Senior Vice President assisted by a divisional merchandise manager
and 10 buyers, is responsible for merchandising all other items, which comprised
approximately 84% of net sales in 2000. Buyers and store management regularly
attend trade shows and craft fairs to monitor industry trends and to obtain new
craft ideas.

Store Format and Operations

The Company's stores are typically located in power strip centers with
convenient parking and are easily accessible from main traffic arteries. The
Company's prototype store ranges in size from 20,000 to 25,000 square feet, with
approximately 80% devoted to selling space and the remainder consisting of
delivery, storage, classroom and office areas. Stores are typically open from
9:30 am to 9:00 pm, Monday through Saturday and from 10:00 am to 6:00 pm on
Sunday.

Stores are designed with a layout intended to lead customers through
the entire store in order to expose them to all 26 merchandise categories.
Merchandise is grouped to aid the customer in finding project related items.
Extensive use is made of the display shelving at both ends of each aisle to
present the best selling items. Generally, the center of the store contains the
floral area, which includes a counter for floral arrangement and a ribbon
center. Stores also contain a customer service area, eight to ten registers for
quick customer checkout and a room for classes.

Classes are regularly held on a wide variety of craft skills. Classes
are taught by sales associates as well as outside professionals. Typical classes
provide instruction on oil painting, cake decorating, advanced stamping, and on
making bows, children's beaded necklaces and memory albums. Classes are free of
charge unless there is an extensive use of materials.

A major component of the Company's promotional strategy is its use of
in-store displays and samples. Because many customers browse for new craft
ideas, eye-catching displays of completed craft projects are effective at
motivating impulse purchases. These displays enhance the image of store
departments. Knowledgeable store personnel are available to describe displays in
detail to customers and to offer assistance on related arts and crafts projects.
The Company has four field design coordinators who are responsible for ensuring
high quality floral displays in all stores.

The Company's Chief Operating Officer is responsible for store
operations and is assisted by the Senior Vice President, Store Operations and
six Vice Presidents. Each Vice President is responsible for eight to ten stores.
Each store employs up to approximately 60 full and part-time sales associates
and is managed by a store manager, assisted by three associate store managers,

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each of whom is responsible for approximately one-third of a store's selling
space. New stores are opened by the Company's new store development team which
consists of the Vice President, New Store Development, a set-up-crew, and staff
from the human resources and planogram departments. The Company seeks to develop
the management capabilities of its managers through both Company training
programs and on-the-job training. In addition, store managers and associate
store managers attend several Company-sponsored conferences each year to refine
and develop their skills in merchandising, merchandise trends, store operations,
finance, interviewing, performance appraisals and general management. Training
sessions are also held for floral designers and classroom coordinators at
various times during the year.

Distribution

The Company's objective of maintaining high in-stock positions in all
merchandise categories in all store locations is supported by its distribution
system. Approximately 42% of the selling value of all merchandise is delivered
to stores from the Company's distribution center, 19% is delivered by SBAR'S and
the balance is drop-shipped by other vendors. Deliveries are made from the
Company's distribution center two or three times per week, depending on store
size, during eight months of the year and three to five times during the peak
selling season of September through December. The Company maintains its own
leased fleet of tractors and trailers. The Company has contracted with an
outside carrier to deliver to stores for which deliveries will require an
overnight stay.

The distribution center's mission is to support the Company's stores.
The distribution center is used strategically to distribute merchandise which is
imported, cannot be delivered by a vendor on a timely basis or in the small
quantities demanded by the store ordering process or is bulky and, therefore,
difficult to maintain in the stores. Also, the Company will order merchandise in
large quantities for delivery to the distribution center when the vendor offers
substantial volume discounts or other economic incentives.

The Company's 250,000 square foot distribution center and adjoining
10,000 square foot office complex in Blackwood, New Jersey is leased for a term
which expires in October 2004 with an option to renew for six years.
Approximately one-sixth of the distribution center is used for order picking,
with the balance used for receiving and bulk stock storage. The distribution
center was expanded to its current size in 1998. The Company also leases an
additional 150,000 square feet of warehouse space to house imported product and
seasonal merchandise.

Management of the distribution process is accomplished through the use
of a distribution center management system. The system includes the use of
handheld computers to record all merchandise movement throughout the
distribution center and to instantly update inventory records through the use of
radio frequency communication. The Company believes that this system, which
operates in a paperless environment, enables the Company to enhance the tracking
of inventory in the distribution center, increases the efficiency of
distribution center personnel and helps ensure the distribution center's ability
to maintain high in-stock positions in each of the Company's stores as the
Company expands its store base.

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Advertising and Promotion

The Company creates its own advertising using photo art scanned into a
Macintosh system supported by Pagemaker(R) software. The Company advertises 52
weeks per year, typically in midweek editions of local and/or regional
newspapers. Approximately twelve times per year the Company runs multi-page
newspaper inserts in local and regional newspapers. In addition, prior to store
openings, the Company uses radio advertisements to develop customer awareness
and runs special pre-opening ads, normal advertising copy and/or grand opening
inserts in newspapers. In 2000, the Company's net advertising expenditures were
approximately 3% of net sales.

The Company uses in-store displays and samples of completed arts and
crafts projects as a major component of its promotional strategy. Because many
customers browse for new craft ideas, eye-catching displays of completed craft
projects are effective at motivating impulse purchases. The Company also
promotes customer interest in crafting by offering classes on a wide variety of
craft skills.

The Company believes that teachers, who often purchase arts and crafts
merchandise for in-school projects, are an important customer segment. To
generate goodwill, the Company offers teachers who join its Teachers Program a
10% discount on all regularly and sale priced merchandise. Over 450,000 discount
cards have been issued to teachers.

The Company's "Crafty Kids Birthday Club" and "Teen Club" are intended
to develop future crafters as customers. Members of these clubs receive a
birthday card containing a $5.00 gift certificate each year through their
fifteenth birthday. These clubs have over 400,000 members.

Management Information Systems

The Company operates a high speed multi-platform local area network
(LAN) and a wide area network (WAN) which support the 10 servers and 250
workstations within its distribution center and corporate offices, and the 55
remote servers and 500 remote workstations located in the stores. In 1999 the
Company successfully installed a voice over frame telecommunications system over
its Virtual Private Network (VPN) that links its stores to its main office and
distribution center. A VPN uses virtual connectivity to give all users the look
and feel of a private network with the flexibility and economics of a public
network. All voice and data transmissions are passed over this VPN.

The LAN and WAN support the Company's corporate systems which include
its accounting, merchandising, store ordering and Radio Frequency (RF) warehouse
management system. The Company's management information and control system has
been designed to support the Company's key business objective of maintaining

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high in-stock merchandise positions in all of the Company's stores. This
internally developed system is based upon EDI with most of the Company's vendors
as well as with its distribution center. Stores electronically transmit their
orders over the VPN to the corporate office where data is electronically sorted,
processed and transmitted to the appropriate vendor. Orders are also fed
automatically into the accounts payable system. This system captures daily
purchases by SKU. The information is then used to develop planograms and is
integrated into reports for the buyers and store managers.

In August 2000 the Company completed the installation of its new Point
of Sale system (POS) in all of its stores. This new POS system which includes
merchandise UPC scanning at the registers along with the expansion of the
Company's Radio Frequency System, allows its stores to save or re-deploy
manpower that had previously been used to mark each piece of merchandise. This
system also improves the speed of the check-out process at the registers, cuts
down the number of pricing errors, and provides greater control over register
operations. With the POS data capturing capabilities, faster and more detailed
sales and margin information is now available. In 2001 the Company anticipates
completing a series of reports which will allow the organization to better
utilize the information captured.

Competition

The arts and crafts retailing business is highly competitive. The
Company currently competes against a diverse group of retailers, including
several national and regional chains of arts and crafts retailers (such as
publicly-held Michaels Stores and Rag Shops and privately-held Frank's Nursery
and Crafts), local merchants that specialize in one or more aspects of arts and
crafts and various mass merchandisers that typically dedicate a portion of their
selling space to a limited selection of arts and crafts items. These mass
merchandisers and some of the national chains have substantially greater
financial resources and operate more stores than the Company.

The Company believes that the principal competitive factors in its
business are pricing, breadth of merchandise selection, in-stock merchandise
position and customer service. The Company believes that it is well positioned
to compete on each of these factors.

Employees

As of December 31, 2000, the Company had 1,276 full-time and 2,063
part-time employees. Of the total 3,339, 3,094 worked at stores, 114 at the
distribution center and 131 at the corporate offices. None of the Company's
employees is covered by a collective bargaining agreement, and the Company
considers its relationship with its employees to be good.

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Trademarks

The Company uses the "A.C. Moore" name as a tradename and as a service
mark in connection with the sale of its merchandise. The Company's "A.C. Moore"
logo has been federally registered as a service mark.

Cautionary Statement Relating to Forward Looking Statements

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

Risks Associated With Expansion. The Company's strategy to increase its
net sales and earnings will depend in large part on its ability to open new
stores and to operate them on a profitable basis. The Company opened ten stores
in 2000 and anticipates opening 10-14 stores in 2001 and at least 12 stores in
2002, in both existing and new geographic markets. The opening of additional
stores in an existing market could result in lower net sales from the Company's
existing stores in that market. Opening stores in new geographic markets may
present competitive and merchandising challenges that are different from those
currently faced by the Company in its existing geographic markets. The Company
may incur higher costs related to advertising and distribution in connection
with entering new markets. If the Company opens stores that do not perform to
the Company's expectations or if store openings are delayed, the Company's
results of operations and financial condition could be materially adversely
affected. The success of the Company's planned expansion will be dependent upon

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many factors, including the identification of suitable markets, the availability
and leasing of suitable sites on acceptable terms, the availability of
acceptable financing, the hiring, training and retention of qualified management
and other store personnel and general economic conditions. The Company's
expansion will place significant demands on the Company's management, resources,
operations and existing information systems, and the Company must ensure the
continuing adequacy of its financial controls, operating procedures and
information systems. Also, the Company's continued growth will depend on its
ability to increase sales in its existing stores. There can be no assurance that
the Company will be successful in any of these areas, and, as a result, there
can be no assurance that the Company will achieve its planned expansion or that
new stores will be effectively integrated into the Company's existing operations
or will be profitable.

Dependence on Key Personnel. The success of the Company and its growth
strategy is dependent upon the active involvement of senior management
personnel, particularly John E. ("Jack") Parker, its President and Chief
Executive Officer. The loss of the services of Mr. Parker or other members of
senior management could have a materially adverse effect on the Company. The
Company has not entered into employment agreements with any members of its
senior management team nor does it maintain any key man life insurance on them.
The Company's success in the future will also be dependent upon its ability to
attract and retain other qualified personnel, including store managers.

Small Store Base. As of December 31, 2000 the Company operated a chain
of only 50 stores. The results achieved to date by the Company's relatively
small store base may not be indicative of the results of the larger number of
stores which the Company intends to operate in existing or new markets. Because
the Company's current and planned stores are located in the mid-Atlantic,
Northeast and Southeast regions, the effect on the Company of adverse events in
these regions (such as weather or unfavorable regional economic conditions) may
be greater than if the Company's stores were more geographically dispersed.
Furthermore, due to the Company's relatively small store base, one or more
unsuccessful new stores, or a decline in sales at an existing store, will have a
more significant effect on the Company's results of operations than would be the
case if the Company had a larger store base.

Quarterly Fluctuations. The Company's business is affected by the
seasonality pattern common to most retailers. Due to the importance of the fall
selling season, which includes Halloween, Thanksgiving and Christmas, the fourth
calendar quarter has historically contributed, and is expected to continue to
contribute, a substantial majority of the Company's operating income for the
entire year. As a result, any factors negatively affecting the Company during
the fourth quarter of any year, including adverse weather and unfavorable
economic conditions, would have a materially adverse effect on the Company's
results of operations for the entire year. The Company's quarterly results of
operations also may fluctuate based upon such factors as the timing of certain
holiday seasons, the number and timing of new store openings, the amount and
timing of store pre-opening expenses, the amount of net sales contributed by new
and existing stores, the mix of products sold, the timing and level of
markdowns, competitive factors, weather and general economic conditions.

13

Competition. The arts and crafts retailing business is highly
competitive. The Company currently competes against a diverse group of
retailers, including several national and regional chains of arts and crafts
retailers, a substantial number of local merchants that specialize in one or
more aspects of arts and crafts and various mass merchandisers that typically
dedicate a portion of their selling space to a limited selection of arts and
crafts items. These mass merchandisers and some of the national chains have
substantially greater financial resources and operate more stores than the
Company.

Risks Associated With Merchandising. The Company's success depends, in
large part, on its ability to anticipate and respond, in a timely manner, to
changing merchandise trends and consumer demands. Accordingly, any delay or
failure by the Company in identifying and responding to changing merchandise
trends could adversely affect consumer acceptance of the merchandise in the
Company's stores. In addition, the Company makes decisions regarding merchandise
well in advance of each of the seasons in which such merchandise will be sold.
Significant deviations from projected demand for products would have a
materially adverse effect on the Company's results of operations and financial
condition, either from lost sales due to insufficient inventory or lower margins
due to the need to mark down excess inventory.

Dependence on SBAR'S. SBAR'S is the Company's largest supplier of
merchandise to the Company who accounted for approximately 19% of the dollar
volume of the Company's purchases in 2000. The Company's future success is
dependent upon its ability to maintain a continuing good relationship with
SBAR'S and its other principal suppliers. The Company does not have any purchase
agreements or exclusive arrangements with SBAR'S or any other vendors, and
ordering of merchandise typically occurs through the issuance of individual
purchase orders. The failure to maintain such relationships could have a
materially adverse effect on the Company's results of operations, financial
condition and planned store expansion.

Risks Associated with Sourcing and Obtaining Merchandise from Foreign
Sources. The Company in recent years has placed increased emphasis on obtaining
floral and seasonal items from overseas vendors, with approximately 10% of all
merchandise being purchased from overseas vendors in 2000. A change in the
competitiveness of a particular country's exports, whether due to a change in
trade regulations, currency fluctuations or other reasons is likely to increase
the cost of items purchased by the Company overseas or make such items
unavailable with a possible resulting materially adverse effect on the Company's
results of operations and financial condition.

Inventory Risk. The Company depends upon in-store department managers
to reorder merchandise. The failure of the Company's staff to accurately respond
to inventory requirements could adversely affect consumer acceptance of the
merchandise in the Company's stores and thereby negatively impact sales which
could have a materially adverse effect on the Company's results of operations
and financial condition. In addition, as do most other retailers, the Company
conducts a physical inventory in the stores once a year, and quarterly results
are based on an estimated gross margin and accrual for estimated inventory
shrinkage.

14

Future Capital Needs. The Company currently intends to finance the
opening of new stores with cash flow from operations and borrowings. The Company
plans to open 10-14 stores in 2001 and at least 12 stores in 2002. The Company
expects that the average cash investment, including pre-opening expenses,
required to open a store will be approximately $1,250,000. There can be no
assurance that the actual cost of opening a store will not be significantly
greater than that expected by the Company. The Company may be required to seek
additional debt and/or equity financing in order to fund its continued
expansion. There can be no assurance that such additional financing will be
available on terms acceptable to the Company, if at all. In addition, the
Company's ability to incur additional indebtedness or issue equity or debt
securities could be limited by covenants in present and future loan agreements
and debt instruments.

15

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are currently as follows:

Name Age Position
---- --- --------

John E. (Jack) Parker................. 59 President, Chief Executive Officer and Director

Rex A. Rambo.......................... 59 Executive Vice President, Chief Operating Officer

Patricia A. Parker.................... 58 Executive Vice President, Merchandising and Director

Leslie H. Gordon...................... 57 Executive Vice President, Treasurer and Chief Financial
Officer

Janet Parker-Vandenberg............... 38 Senior Vice President, Merchandising

Mr. Parker is a co-founder of the Company and has been President, Chief
Executive Officer and a director of the Company since its inception. From 1959
to 1984, Mr. Parker worked for the F.W. Woolworth Company ("Woolworth") in
various management positions, most recently as President and Chief Executive
Officer of the U.S. General Merchandise Group where he had responsibility for
more than 1,000 stores, including the entire domestic chain of Woolworth retail
stores. Mr. Parker is the husband of Patricia A. Parker and the father of Janet
Parker-Vandenberg.

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

Ms. Parker has been Executive Vice President, Merchandising of the
Company since September 1990. From 1985 to 1990, she served as a Vice President
of the Company. Ms. Parker is responsible for purchasing all floral and seasonal
merchandise and the Company's import purchasing program. Ms. Parker is the wife
of Jack Parker.

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

16

Ms. Parker-Vandenberg has been Senior Vice President, Merchandising of
the Company since 1994. From 1990 to 1994, Ms. Parker-Vandenberg served as Vice
President of Administration of the Company, and from 1985 to 1990, she was the
Company's Accounting Manager. Ms. Parker-Vandenberg is the daughter of Jack and
Patricia A. Parker.

ITEM 2. PROPERTIES.

As of March 15, 2001, the Company operated twelve stores in
Pennsylvania, nine stores in New York, eight stores each in New Jersey and
Massachusetts, five stores in North Carolina, four stores in Maryland, three
stores in Connecticut, two stores in Delaware, and one store in each of New
Hampshire and Rhode Island, all of which are leased. In addition, the Company
has five stores (two each in North Carolina and New Jersey and one in West
Virginia) under lease, all of which the Company plans to open in 2001. Most
store leases have an average initial term of ten years, with three five-year
renewal options, and provide for predetermined escalations in future minimum
annual rent or additional rent contingent upon store sales levels. The pro rata
portion of scheduled rent escalations has been included in other long-term
liabilities in the Company's balance sheet.

The Company selects store sites on the basis of various factors,
including physical location, demographics, anchor and other tenants, location
within the center, parking and available lease terms. The Company looks for
co-tenants that generate a high rate of shopping traffic, such as specialty
value-oriented women's retailers, leading chain supermarkets, discount chains,
home improvement centers, book stores and domestics stores. The Company believes
its stores are attractive to developers because they attract high rates of
customer traffic and generate above average net sales per square foot. The
Company's store site selection process is headed by the Chief Operating Officer.

The Company's 250,000 square foot distribution center and adjoining
10,000 square foot office complex in Blackwood, New Jersey is leased for a term
which expires in October, 2004 with an option to renew for six years.
Approximately one-sixth of the distribution center is used for order picking,
with the balance used for receiving and bulk stock storage. The Company also
leases an additional 150,000 square feet of warehouse space to house imported
product and seasonal merchandise. That lease expires in February, 2003.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, the Company is involved in litigation arising in the
ordinary course of its business. None of the pending litigation, in the opinion
of management, is likely to have a materially adverse effect on the Company's
results of operations or financial condition. The Company maintains general
liability insurance in amounts deemed adequate by management.

17

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

No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2000, through the solicitation of proxies or otherwise.

PART II

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

The Company's Common Stock is traded on the NASDAQ National Market
under the symbol ACMR. The following table shows the quarterly range of high and
low sales prices of the Common Stock for each quarterly period within the two
most recent years:

Quarter Ended
2000 High Low
------------- ------ -----
March 31 $7.94 $4.63
June 30 7.88 4.50
September 30 9.50 6.31
December 31 8.63 5.75

1999
----
March 31 $6.50 $4.13
June 30 6.88 4.50
September 30 6.38 4.13
December 31 6.13 4.00

As of March 16, 2001, there were approximately 96 stockholders of
record.

The Company does not intend to pay any cash dividends as it intends to
retain its earnings to finance the expansion of its business. Future dividends,
if any, will depend upon the Company's results of operations, financial
condition, cash requirements and other factors deemed relevant by the Board of
Directors. Furthermore, the Company's credit agreement prohibits the payment of
cash dividends by the Company without the bank's consent.

18

ITEM 6. SELECTED FINANCIAL DATA.

The selected Financial data for the five years ended December 31, 2000
should be read in conjunction with the Company's consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein.

Year Ended December 31,
(dollars in thousands, except per share and per square foot data)
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----

STATEMENT OF INCOME DATA:
Net sales............................................ $262,057 $222,998 $187,005 $138,056 $109,319

Income from operations............................... 10,763 8,975 5,830 7,781 6,943

Net income........................................... 6,557 5,664 3,935 3,992 6,306

Net income per share, diluted........................ 0.88 0.76 0.52 0.79 1.46

Pro forma net income(1).............................. - -- -- 4,431 3,817

Pro forma diluted net income per share(1)............ - -- -- 0.87 0.88

Weighted average shares outstanding ................. 7,444,113 7,405,000 7,517,000 5,078,000 4,326,000

BALANCE SHEET DATA:
Working capital...................................... 47,168 $46,625 $42,721 $40,974 $20,597

Total assets......................................... 107,392 90,617 82,357 66,067 37,799

Long-term debt, excluding current portion............ 812 1,199 1,568 - 17,748

Shareholders' equity................................. 63,681 56,972 51,171 47,086 7,492

OTHER DATA:
Cash flows from operating activities................. 6,709 $9,808 $(4,445) $1,452 $6,653

EBITDA(2)............................................ 14,592 $11,874 $8,032 $9,242 $8,088

Stores open, end of year............................. 50 40 37 25 17

Comparable store sales increase...................... 3% 6% 3% 4% 5%

Average sales per store.............................. 5,919 $5,915 $6,329 $6,728 $6,586

Sales per total square foot.......................... $ 271 $ 271 $ 302 $ 326 $ 320

Footnotes on following page.

19

(1) Prior to the Company's initial public offering completed on October 9,
1997, the Company elected to be taxed under the S Corporation provisions of
the Internal Revenue Code. Under these provisions, the shareholders of the
Company included their pro rata share of income or loss in their individual
returns. The pro forma information has been computed as if the Company was
subject to federal and all applicable state corporate income taxes for each
year presented, assuming the tax rate that would have applied had the
Company been taxed as a C Corporation

(2) EBITDA is calculated as income before income taxes plus interest,
depreciation and amortization. EBITDA should not be considered as an
alternative to net income, as an indicator of operating performance or as
an alternative to cash flow as a measure of liquidity to service debt
obligations and is not in accordance with or superior to generally accepted
accounting principles, but provides additional information on the company's
ability to incur and service debt.

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

The following discussion of the Company's historical results of
operations and its liquidity and capital resources should be read in conjunction
with the selected financial data and the consolidated financial statements of
the Company and related notes thereto appearing elsewhere in this report.

Overview

The Company is a rapidly growing operator of arts and crafts stores
that offers a vast assortment of traditional and contemporary arts and crafts
merchandise for a wide range of customers.

In 1995, the Company implemented a plan to build its infrastructure to
position the Company for rapid future growth. By the end of 1996, the Company
had recruited experienced senior retail executives in the areas of operations,
merchandising and finance, made key additions in other areas such as buying,
information systems, human resources and real estate, leased a new 130,000
square foot distribution center and office complex (expanded to 250,000 square
feet in 1998), developed its automated ordering system to electronically link
the Company with most vendors, and developed a real estate program to
accommodate the Company's expansion plan. In 1996, the Company opened one new
store. In 1997 and 1998, the Company continued the implementation of its
expansion strategy by opening a total of 20 new stores and achieved a sales
growth in the existing store base of 3% in 1998 and 4% in 1997. Newer stores, on
average, do not generate the volume levels of older stores. As a result, average
sales per store in 1998 of $6.3 million was lower than the average sales per
store of $6.7 million in 1997, and sales per square foot of $302 in 1998 was
lower than sales per square foot of $326 in 1997.

In 1998, the Company did not meet its sales and profit objectives and
as a result made the decision to slow down its store expansion so that it could
concentrate on improving the operations and profits of its existing stores. In
1999, the Company opened three new stores, improved its departmental

20

plan-o-grams and also improved its internal communications between various
components of its organization. In 1999, the sales growth in existing stores was
6%. Average sales per store and sales per square foot continued to decline in
1999 to $5.9 million and $271, respectively, from the previous year due to the
factors cited above.

With the changes made by the Company in 1999, the Company
re-established its aggressive opening schedule and opened 10 stores in 2000. The
Company plans to open at least 22 new stores in 2001 and 2002, all within 500
miles of its southern New Jersey distribution center. This area contains more
than 30% of the United States' population.

Results of Operations

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

Year Ended December 31,
----------------------------------------------------
2000 1999 1998
-------- -------- --------

Net sales............................................ 100.0% 100.0% 100.0%
Cost of sales........................................ 63.3 64.2 63.5
---- ---- ----
Gross margin......................................... 36.7 35.8 36.5
Selling, general and administrative expenses......... 31.9 31.5 32.2
Store pre-opening expenses........................... .7 .3 1.2
---- ---- ----
Income from operations............................... 4.1 4.0 3.1
Interest (income) expense, net....................... 0.1 (0.0) (0.2)
---- ---- ----
Income before income taxes........................... 4.0 4.0 3.3
Provision for income taxes........................... 1.5 1.5 1.2
---- ---- ----
Net income........................................... 2.5% 2.5% 2.1%
=== === ===

2000 Compared to 1999

Net Sales. Net sales increased $39.1 million, or 17.5%, to $262.1
million from $223.0 million in 1999. This increase resulted from (i) net sales
of $25.2 million from 10 new stores opened during the period, (ii) net sales of
$7.5 million from stores opened in 1999 not included in the comparable store
base, and (iii) a comparable store sales increase of $6.4 million, or 3%. Stores
are added to the comparable store base at the beginning of the fourteenth full
month of operation.

Gross Margin. Cost of sales includes the cost of merchandise, plus
certain distribution and purchasing costs. Cost of sales increased $22.8
million, or 15.9%, to $165.9 million in 2000 from $143.1 million in 1999. The
gross margin increased $16.3 million, or 20.4%, to $96.2 million in 2000 from
$79.9 million in 1999. The gross margin increased to 36.7% of net sales in 2000
from 35.8% in 1999 mainly due to reductions in clearance sales in the fourth
quarter and also reductions in costs obtained from both domestic and import
suppliers.

21

Selling, General and Administrative Expenses. Selling, general and
administrative expenses include (a) direct store level expenses, including rent
and related operating costs, payroll, advertising, depreciation and other direct
costs, and (b) corporate level costs not directly associated with or allocable
to cost of sales including executive salaries, accounting and finance, corporate
information systems, office facilities and other corporate expenses. Selling,
general and administrative expenses increased $13.2 million, or 18.7%, in 2000
to $83.5 million from $70.3 million in 1999. Of the increase, $10.2 million was
attributable to the ten stores open during 2000 which were not open during 1999
and the stores opened in 1999 not in the comparable store base. The remainder of
the increase is attributable to $1.6 million in operating expenses in the
comparable stores (2.7%) and $1.4 million in corporate costs. The increase in
corporate costs is the result of continued expansion of the infrastructure to
support the growth of the Company. As a percentage of sales, selling, general
and administrative costs increased to 31.9% of net sales in 2000 from 31.5% of
net sales in 1999. This increase is primarily due to the new stores which, on
average, have higher operating costs as a percent of sales than older stores.

Store pre-Opening Expenses. The Company expenses store pre-opening
costs as incurred. Pre-opening expenses for the ten new stores opened in 2000
amounted to $1.9 million. In 1999, the Company opened 3 stores and had
pre-opening expenses of $609,000.

Interest Expense. Interest expense was $345,000 for 2000, an increase
of $173,000 from 1999. This increase was the result of greater short-term bank
borrowings as compared with 1999.

Interest Income. Interest income was $158,000 in 2000, a decrease of
$53,000 from 1999. The decrease was due to lower cash investments as monies
received from the sale of common shares in 1997 have been used to fund the
Company's growth.

Income Taxes. For 2000, the effective tax rate was 38.0%, .8% greater
than the effective rate in 1999 due to the level of income which moved the
Company into a higher federal income tax bracket.

1999 Compared to 1998

Net Sales. Net sales increased $36.0 million, or 19.2%, to $223.0
million from $187.0 million in 1998. This increase resulted from (i) net sales
of $4.1 million from three new stores opened during the period, (ii) net sales
of $21.1 million from stores opened in 1998 not included in the comparable store
base, and (iii) a comparable store sales increase of $10.8 million, or 6%.
Stores are added to the comparable store base at the beginning of the fourteenth
full month of operation.

22

Gross Margin. Cost of sales increased $24.4 million, or 20.5%, to
$143.1 million in 1999 from $118.7 million in 1998. The gross margin increased
$11.6 million, or 17.1%, to $79.9 million in 1999 from $68.3 million in 1998.
The gross margin decreased to 35.8% of net sales in 1999 from 36.5% in 1998
mainly due to competitive discounting in the marketplace.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.1 million, or 16.8%, in 1999 to $70.3
million from $60.2 million in 1998. Of the increase, $9.8 million was
attributable to the three stores open during 1999 which were not open during
1998 and the stores opened in 1998 not in the comparable store base. The
remainder of the increase is attributable to $200,000 in operating expenses in
the comparable stores and $100,000 in corporate costs. As a percentage of sales,
selling, general and administrative costs decreased to 31.5% of net sales in
1999 from 32.2% of net sales in 1998. This decrease is primarily due to
leveraging of corporate general and administrative expenses.

Store pre-Opening Expenses. Pre-opening expenses for the three new
stores opened in 1999 amounted to $609,000. In 1998, the Company opened 12
stores and had pre-opening expenses of $2.2 million.

Interest Expense. Interest expense was $172,000 for 1999, an increase
of $106,000 from 1998. This increase was the result of greater short-term bank
borrowings as compared with 1998.

Interest Income. Interest income was $211,000 in 1999, a decrease of
$260,000 from 1998. The decrease was due to lower cash investments as monies
received from the sale of common shares in 1997 have been used to fund the
Company's growth.

Income Taxes. For 1999, the effective tax rate was 37.2%, .3% greater
than the effective rate in 1998.

Seasonality and Quarterly Results

Due to the importance of the fall selling season, which includes
Halloween, Thanksgiving and Christmas, the fourth calendar quarter has
historically contributed, and is expected to continue to contribute, a
substantial majority of the Company's profitability for the entire year. As a
result, any factors negatively affecting the Company during the fourth quarter
of any year, including adverse weather and unfavorable economic conditions,
would have a materially adverse effect on the Company's results of operations
for the entire year.

The Company's quarterly results of operations also may fluctuate based
upon such factors as the timing of certain holiday seasons, the number and
timing of new store openings, the amount of store pre-opening expenses, the
amount of net sales contributed by new and existing stores, the mix of products
sold, the timing and level of markdowns, competitive factors, weather and
general economic conditions.

23

Set forth below is certain summary information with respect to the
Company's operations for the most recent eight fiscal quarters:

First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ -------------
(in thousands except per share amounts)

Year ended December 31, 2000
Net sales.................................... $52,783 $55,186 $60,906 $93,182
Income (loss) from operations................ 167 36 2 10,558
Income (loss) before income taxes............ 233 24 (147) 10,466
Net income (loss)............................ 144 15 (91) 6,489
Net income (loss) per share, diluted......... .02 .00 (.01) .87
Weighted average shares outstanding.......... 7,411 7,435 7,472 7,463

Year ended December 31, 1999
Net sales.................................... $48,136 $45,460 $50,245 $79,157
Income (loss) from operations................ 700 (268) (82) 8,625
Income (loss) before income taxes............ 771 (258) (130) 8,631
Net income (loss)............................ 470 (157) (79) 5,430
Net income (loss) per share, diluted......... 0.06 (0.02) (0.01) .73
Weighted average shares outstanding.......... 7,405 7,405 7,405 7,405

Liquidity and Capital Resources

The Company's cash needs are primarily for working capital to support
its inventory requirements and capital expenditures, pre-opening expenses and
beginning inventory for new stores.

At December 31, 2000 and 1999, the Company's working capital was $47.2
million and $46.6 million, respectively. During 2000 and 1999 cash of $6.7
million and $9.8 million was generated by operations, respectively. In 2000 and
1999, $13.5 million and $4.9 million of cash, respectively, was used to increase
inventory levels to support both new and existing stores. In these periods, part
of the inventory increase was financed through increases in accounts payable of
$8.1 million and $2.6 million, respectively.

Net cash used in investing activities during 2000 and 1999 was $10.6
million and $1.7 million, respectively. This use of cash was attributed to
capital expenditures of $10.6 million in 2000 and $5.5 million in 1999. In 1999
capital expenditures included $2.5 million for new store openings and for major
renovations in existing stores and $2.0 million relating to point of sale and
other systems development. In 2000 capital expenditures related principally to
new store openings and the implementation of the point of sale system. In 1999,
the Company received the proceeds of $3.9 million of marketable securities. In
2001, the Company expects to spend approximately $11.0 million on capital
expenditures, which includes approximately $9.0 million for new store openings
and the remainder for remodeling and systems in existing stores, warehouse
equipment and systems development.

24

The Company believes the cash generated from operations and available
borrowings under the financing agreement will be sufficient to finance its
working capital and capital expenditure requirements for at least the next 12
months.

Inflation

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

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

Not applicable.

25

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

A.C. MOORE ARTS & CRAFTS, INC.

Page
----
Report of Independent Accountants..................................... 27

Consolidated Balance Sheets at December 31, 2000 and 1999............. 28

Consolidated Statements of Income for each of the three years
in the period ended December 31, 2000........................ 29

Statements of Changes in Shareholders' Equity for each of the
three years in the period ended December 31, 2000............ 30

Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2000.................. 31

Notes to Consolidated Financial Statements............................ 32

26

Report of Independent Accountants

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

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of A.C.
Moore Arts & Crafts, Inc. and its subsidiaries at December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedules listed in the accompanying index
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
February 21, 2001

27

A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

December 31
-----------------------------
2000 1999
---------- ---------

ASSETS
Current assets:
Cash and cash equivalents........................................... $ 10,310 $ 14,553
Accounts receivable................................................. 830 491
Inventories......................................................... 72,786 59,327
Prepaid expenses and other current assets........................... 1,222 903
---------- ---------
85,148 75,274

Property and equipment, net.............................................. 21,517 14,711
Other assets............................................................. 727 632
---------- ---------
$ 107,392 $ 90,617
========== =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases............................... $ 389 $ 369
Trade accounts payable.............................................. 26,237 20,224
Accrued payroll and payroll taxes................................... 3,822 3,019
Accrued expenses.................................................... 4,274 3,005
Income taxes payable................................................ 3,258 2,032
---------- ---------
37,980 28,649
---------- ---------
Long-term liabilities:
Capitalized equipment leases........................................ 812 1,199
Deferred tax liability.............................................. 2,320 1,720
Other long-term liabilities......................................... 2,599 2,077
---------- ---------
5,731 4,996
---------- ---------
43,711 33,645
---------- ---------

Commitments and contingencies

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

Common stock, no par value, 20,000,000 shares
authorized, 7,415,333 outstanding at December 31,
2000 and 7,405,000 shares at December 31, 1999...................... 43,268 43,116

Retained earnings................................................... 20,413 13,856
---------- ---------
63,681 56,972
---------- ---------
$ 107,392 $ 90,617
========== =========

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

28

A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)

December 31,
-------------------------------------------------
2000 1999 1998
---------- --------- ----------

Net sales............................................ $ 262,057 $ 222,998 $ 187,005
Cost of sales (including buying and
distribution costs)............................... 165,850 143,078 118,727
---------- --------- ----------
Gross margin......................................... 96,207 79,920 68,278
Selling, general and administrative expenses......... 83,516 70,336 60,214
Store pre-opening expenses........................... 1,928 609 2,234
---------- --------- ----------
Income from operations............................... 10,763 8,975 5,830
Interest expense.................................. 345 172 66
Interest income................................... (158) (211) (471)
---------- --------- ----------
Income before income taxes........................... 10,576 9,014 6,235
Provision for income taxes ........................ 4,019 3,350 2,300
---------- --------- ----------
Net income........................................... $ 6,557 $ 5,664 $ 3,935
========== ========= ==========
Basic net income per share........................... $ 0.89 $ 0.76 $ 0.53
========== ========= ==========
Weighted average shares outstanding.................. 7,405,897 7,405,000 7,405,000

Diluted net income per share......................... $ 0.88 $ 0.76 $ 0.52
========== ========= ==========
Weighted average shares outstanding
plus impact of stock options...................... 7,444,113 7,405,000 7,517,000

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

29

A.C. MOORE ARTS & CRAFTS INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)

Common Retained
Shares Stock Earnings Total
-------------- ---------------- ----------------- -------------

Balance, December 31, 1997.............. 7,405,000 42,829 4,257 47,086
Net income.............................. -- -- 3,935 3,935
Compensation expense related to
stock options.................. -- 150 -- 150
--------- ------ ------ ------
Balance, December 31, 1998.............. 7,405,000 42,979 8,192 51,171
Net income ............................. -- -- 5,664 5,664
Compensation expense related to
stock options.................. -- 137 -- 137
--------- ------ ------ ------

Balance, December 31, 1999.............. 7,405,000 43,116 13,856 56,972
Net income ............................. -- -- 6,557 6,557
Compensation expense related to
stock options.................. -- 102 -- 102
Exercise of stock options .............. 10,333 50 - 50
--------- ------ ------ ------
Balance, December 31, 2000.............. 7,415,333 43,268 20,413 63,681
========= ====== ====== ======

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

30

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

Year Ended December 31,
-----------------------------------------------
2000 1999 1998
-------- --------- --------

Cash flows from operating activities:
Net income $ 6,557 $ 5,664 $ 3,935
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 3,829 2,899 2,202
Compensation expense related to stock options............ 102 137 150
Provision for deferred income taxes...................... 600 739 151
Changes in assets and liabilities:
Accounts receivable................................ (339) 378 (738)
Inventories........................................ (13,459) (4,948) (17,357)
Prepaid expenses and other current assets.......... (319) 177 (177)
Accounts payable, accrued payroll and
payroll taxes and accrued expenses............... 8,085 2,582 6,745
Income taxes payable............................... 1,226 1,791 241
Other long-term liabilities........................ 522 416 431
Other.............................................. (95) (27) (28)
-------- --------- --------
Net cash provided by (used in) operating activities............... 6,709 9,808 (4,445)
-------- --------- --------
Cash flows from investing activities:
Capital expenditures..................................... (10,635) (5,526) (4,682)
Proceeds from maturity of marketable securities.......... - 3,865 4,004
Investment in marketable securities...................... - -- (3,950)
-------- --------- --------
Net cash (used in) investing activities........................... (10,635) (1,661) (4,628)
-------- --------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options.................. 50 -- --
Proceeds from bank overdraft............................. - -- 2,719
Repayment of bank overdraft.............................. - (2,719) --
Proceeds from short-term debt............................ 9,750 9,500 3,606
Repayment of short-term debt............................. (9,750) (9,500) (3,606)
Repayment of capital leases.............................. (367) (350) (6)
-------- --------- --------
Net cash provided by (used in) financing activities............... (317) (3,069) 2,713
-------- --------- --------
Net increase (decrease) in cash and cash equivalents.............. (4,243) 5,078 (6,360)
Cash and cash equivalents at beginning of year.................... 14,553 9,475 15,835
-------- --------- --------
Cash and cash equivalents at end of year.......................... $ 10,310 $ 14,553 $ 9,475
======== ========= ========
Supplemental cash flow information:
Cash paid during the year for:
Interest ................................................ $ 339 $ 171 $ 68
======== ========= ========
Income taxes ............................................ $ 2,249 $ 701 $ 2,180
======== ========= ========

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

31

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

1. Summary of Significant Accounting Policies

Organization and basis of presentation. A.C. Moore Arts & Crafts, Inc. became a
holding company in July 1997 by incorporating in Pennsylvania and exchanging its
common stock for all of the capital stock of A.C. Moore Inc. held by its
shareholders. The consolidated financial statements include the accounts of A.C.
Moore Arts & Crafts, Inc. and its wholly owned subsidiaries (collectively the
"Company"). All intercompany accounts and transactions have been eliminated. As
of December 31, 2000, the Company operated a 50-store chain of retail arts and
crafts stores in the eastern region of the United States.

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

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

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

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

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

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

Advertising costs. The costs incurred for advertising are expensed the first
time the advertising takes place and are offset by reimbursements received under
cooperative advertising programs with certain vendors. Net advertising expense
during 2000, 1999 and 1998 was $6,518,000, $6,305,000 and $5,748,000,
respectively.

32

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

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

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

2. Earnings Per Share

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

Year Ended December 31,
--------------------------------------
2000 1999 1998
------ -------------- -----
(in thousands)
Basic............................... 7,406 7,405 7,405
Effect of dilutive options.......... 38 - 112
----- ----- -----
Diluted............................. 7,444 7,405 7,517
===== ===== =====

Options in excess of the fair market value have not been considered as dilutive
options.

3. Property and Equipment

Property and equipment consists of:
December 31,
----------------------
2000 1999
------- -------
(in thousands)
Furniture, fixtures and equipment...................... $29,725 $20,865
Leasehold improvements................................. 599 599
Equipment for future stores............................ 2,489 897
Capital leases......................................... 1,924 1,924
------- -------
34,737 24,285
Less: Accumulated depreciation and amortization....... 13,220 9,574
------- -------
$21,517 $14,711
======= =======

33

4. Financing Agreement

The Company has a financing agreement through April 1, 2002 with a bank which
provides a $25,000,000 revolving credit facility. The agreement is
collateralized by all of the Company's assets and bears elective interest rates
which vary based upon the bank's prime rate or LIBOR. Available amounts under
this facility are reduced by amounts outstanding under capital lease obligations
with the bank. There were no amounts outstanding at December 31, 2000 or 1999
under the revolving line of credit.

5. Income Taxes

The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax liabilities and assets are recognized for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. As of December 31,
2000 and 1999, the deferred tax liability of $2,320,000 and $1,720,000,
respectively comprised principally temporary differences related to
depreciation.

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

Year Ended December 31,
-----------------------------------------
2000 1999 1998
------ -------------- ------
(in thousands)

U.S. federal taxes at statutory rate........... $3,701 $3,065 $2,120
State and local taxes, net..................... 206 193 32
Non-deductible stock option expense............ 31 47 51
Other.......................................... 81 45 97
------ ------ ------
Income tax provision........................... $4,019 $3,350 $2,300
====== ====== ======

The income tax provision consists of the following:

Year Ended December 31,
-----------------------------------------
2000 1999 1998
------ ------ ------

Current tax expense:
Federal ................................. $3,254 $2,566 $2,139
State ................................. 165 45 10
------ ------ ------
Total current......................... 3,419 2,611 2,149
------ ------ ------

Deferred tax expense:
Federal - current year.................... 448 526 112
State ................................. 152 213 39
------ ------ ------
Total deferred........................ 600 739 151
------ ------ ------
Total income tax provision............ $4,019 $3,350 $2,300
====== ====== ======

6. Shareholders' Equity

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

34

At December 31, 2000, under the Company's Employee, Director and Consultant
Stock Option Plan (the "1997 Plan"), the Company may grant up to 1,000,000
shares of common stock. Stock options expire ten years from the date of grant
and vest ratably over a three year period. Shares available for future grants
amounted to 198,384 at December 31, 2000 and 334,700 at December 31, 1999.

For 2000, 1999 and 1998, the Company's stock option activity is summarized
below:

2000 1999 1998
-------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- ----------- ---------- ----------- ---------- -----------

Outstanding at beginning
of year 665,300 $ 9.31 507,000 $ 10.80 386,500 $ 9.00
Granted 184,200 7.88 203,900 5.62 152,150 15.21
Forfeited 47,884 10.88 45,600 9.59 31,650 9.94
Exercised 10,333 4.78 - - - -
------- ------- ------- ------- ------- -------
Outstanding at end of year 791,283 $ 7.21 665,300 $ 9.31 507,000 $ 10.80
======= ======= ======= ======= ======= =======
Exercisable at end of year 405,268 $10.17 279,385 $ 10.00 119,833 $ 9.00
======= ======= ======= ======= ======= =======

Exercise prices for options outstanding as of December 31, 2000 and the weighted
average remaining contractual life of the option is as follows.

Exercise Price Number of Options Remaining Life
--------------------------------- ---------------------------- ---------------------------

$ 4.75 - 5.75 174,183 8.5 years
$ 7.88 - 9.00 502,300 7.7 years
$ 13.38 - 15.38 114,800 7.5 years

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

35

2000 1999 1998
----------------- ----------------- ----------------

Net income -- As reported $ 6,557,000 $ 5,664,000 $ 3,935,000
-- Pro forma $ 5,713,000 4,962,000 3,341,000

Basic earnings per share -- As reported $ .89 $ .76 $ .53
-- Pro forma $ .77 .67 .45

Diluted earnings per share-- As reported $ .88 $ .76 $ .52
-- Pro forma $ .77 .67 .45

The pro forma results may not be representative of the effects on reported
operations for future years. The fair value of the options was calculated using
a Black-Scholes options pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.3% for 2000, 5.7% for 1999 and 5.1%
for 1998; no dividend yield; and a weighted average expected life of the options
of seven years. In accordance with the provisions of SFAS No. 123 the expected
stock price volatility was 46.6% for 2000 and 54.6% for both 1999 and 1998.

Effective September 15, 1997, options to purchase 444,500 shares of common stock
were granted under the 1997 Plan at an exercise price per share of $9.00 with an
exercise term of ten years. The estimated fair value of the shares on the
measurement date was $10.20. The related compensation expense is being amortized
ratably over the three year vesting period. At December 31, 1999, unearned
compensation included in stockholders' equity was $102,000. At December 31,
2000, all such compensation has been recognized.

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

7. Retirement Plan

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

36

8. Commitments and Contingencies

Commitments

The Company leases its retail stores, administrative offices and warehouse
facilities under noncancelable operating leases. The lease for the
administrative offices and distribution center has an initial lease term of six
years with a six-year renewal option. Most store leases have an average initial
term of ten years, with three five year renewal options, and provide for
predetermined escalations in future minimum annual rent or additional rent
contingent upon store sales levels. The pro rata portion of scheduled rent
escalations has been included in other long-term liabilities in the accompanying
balance sheet. For the years 2000 and 1999 the amount of accrued rent expense
recognized over the amount paid were $522,000 and $416,000, respectively and has
been included in other long-term liabilities in the accompanying consolidated
balance sheet.

Rent expense under operating leases consists of:

Year Ended December 31,
--------------------------------------
2000 1999 1998
------- ------------- -------
(in thousands)
Minimum rentals .................... $12,883 $10,846 $8,218
Contingent payments ................ 118 146 188
------- ------- ------
$13,001 $10,992 $8,406
======= ======= ======

In 2000, the Company entered into six leases for stores to open in 2001.

Future minimum lease payments (including those for unopened stores) as of
December 31, 2000 for non-cancelable operating leases with terms in excess of
one year are as follows (in thousands):

2001................................................ $ 15,518
2002................................................ 15,949
2003................................................ 15,538
2004................................................ 14,053
2005................................................ 13,324
Thereafter.......................................... 68,871
--------
Total minimum future rentals................... $143,253
========

Financing activities not affecting cash during 1998 included capital lease
obligations incurred in connection with equipment purchases of $1,924,000. These
leases require payments of principal and interest of $443,000 per year through
2003. Interest rates under these leases approximate 6.4%.

Contingencies

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

37

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

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information concerning the directors of the Company is set forth in
the Proxy Statement to be delivered to shareholders in connection with the
Company's 2001 Annual Meeting of Shareholders (the "Proxy Statement") under the
heading "Election of Directors," which information is incorporated herein by
reference. The name, age and position of each executive officer of the Company
is set forth under the heading "Executive Officers of the Registrant" in Item 1
of this report, which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

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

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

38

PART IV

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

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

(1) Financial Statements:

Report of Independent Accountants

Consolidated Balance Sheets at December 31, 2000 and 1999

Consolidated Statements of Income for each of the three years
in the period ended December 31, 2000

Statements of Changes in Shareholders' Equity for
each of the three years in the period ended
December 31, 2000

Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31,
2000

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules:

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

(3) Exhibits:

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

(b) Current Reports on Form 8-K:

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

39

(c) Exhibits:

Exhibit Number Description
-------------- -----------

*3.1 Articles of Incorporation

*3.2 Bylaws

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

*+10.2 Form of Stock Option Award Agreement

**10.3 Loan Agreement, dated March 11, 1998, between the Company
and KeyBank National Association

*+10.4 Correspondence reflecting option granted to Richard
Lesser

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

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

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

***21.1 Subsidiaries of the Company

23.1 Consent of PricewaterhouseCoopers LLP

27.1 Financial Data Schedule

- -------------------
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (#333-32859).
** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1997.
*** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.

40

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

A.C. MOORE ARTS & CRAFTS, INC.

Date: March 19, 2001 By: /s/ John E. Parker
--------------------------------
John E. Parker, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

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

/s/ John E. Parker President, Chief Executive Officer, and March 19, 2001
- -------------------------------------- Director (Principal Executive Officer)
John E. Parker

/s/ Leslie H. Gordon Executive Vice President and Chief March 19, 2001
- -------------------------------------- Financial Officer (Principal Financial and
Leslie H. Gordon Accounting Officer)

/s/ William Kaplan Chairman of the Board March 19, 2001
- --------------------------------------
William Kaplan

/s/ Patricia A. Parker Director March 19, 2001
- --------------------------------------
Patricia A. Parker

/s/ Richard Lesser Director March 19, 2001
- --------------------------------------
Richard Lesser

/s/ Richard J. Bauer Director March 19, 2001
- --------------------------------------
Richard J. Bauer

/s/ Richard J. Drake Director March 19, 2001
- --------------------------------------
Richard J. Drake

41

EXHIBIT INDEX

Exhibit No. Description
----------- -----------

*3.1 Articles of Incorporation

*3.2 Bylaws

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

*+10.2 Form of Stock Option Award Agreement

**10.3 Loan Agreement, dated March 11, 1998, between the Company
and KeyBank National Association

*+10.4 Correspondence reflecting option granted to Richard
Lesser

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

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

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

***21.1 Subsidiaries of the Company

23.1 Consent of PricewaterhouseCoopers LLP

27.1 Financial Data Schedule

- -------------------
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (#333-32859).
** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1997.
*** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.

42