10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For The Quarterly Period Ended June 30, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      .

Commission file number: 000-23157

A.C. MOORE ARTS & CRAFTS, INC.

(Exact name of registrant as specified in its charter)

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

130 A.C. Moore Drive, Berlin, NJ 08009

(Address of principal executive offices) (Zip Code)

(856) 768-4930

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if

changed since last report)

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 þ No o

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

o Large accelerated filer	þ Accelerated filer	o Non-accelerated filer	o Smaller reporting company
		(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

	Outstanding at August 5, 2008
Common Stock, no par value	20,299,801

A.C. MOORE ARTS & CRAFTS, INC.

TABLE OF CONTENTS

	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 2008, December 31, 2007 and June 30, 2007		1
Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2008 and 2007		2
Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2008 and 2007		3
Notes to Consolidated Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3. Quantitative and Qualitative Disclosures About Market Risk		20
Item 4. Controls and Procedures		20
PART II: OTHER INFORMATION
Item 1. Legal Proceedings		21
Item 1A. Risk Factors		21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3. Defaults Upon Senior Securities		21
Item 4. Submission of Matters to a Vote of Security Holders		22
Item 5. Other Information		22
Item 6. Exhibits		23
SIGNATURES		24
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

A.C. MOORE ARTS & CRAFTS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

(unaudited)

	June 30,			December 31,			June 30,
	2008			2007			2007
							(as restated)
ASSETS
Current assets:
Cash and cash equivalents	$	45,625		$	65,195		$	54,564
Inventories		136,591			128,391			125,878
Prepaid expenses and other current assets		7,330			11,940			7,364
Prepaid and receivable income taxes		2,610			7,411			154
Deferred tax assets		6,891			7,533			12,211
		199,047			220,470			200,171
Non-current assets:
Property and equipment, net		98,416			99,328			95,795
Other assets		2,259			2,092			1,763
	$	299,722		$	321,890		$	297,729
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	2,571		$	2,571		$	2,571
Trade accounts payable		39,817			48,780			38,194
Accrued payroll and payroll taxes		2,430			2,980			2,833
Accrued expenses		15,541			17,753			13,119
Accrued lease liability		850			1,440			1,313
Other current liabilities		—			1,909			—
		61,209			75,433			58,030
Non-current liabilities:
Long-term debt		17,786			19,071			20,357
Deferred tax liability and other		7,268			8,719			6,590
Accrued lease liability		20,299			19,067			18,366
		45,353			46,857			45,313
		106,562			122,290			103,343
Shareholders’ equity:
Preferred stock, no par value, 10,000,000 shares authorized; none issued		—			—			—
Common stock, no par value, 40,000,000 shares authorized; shares issued and outstanding 20,298,601; 20,298,601; and 20,251,633 at June 30, 2008, December 31, 2007 and June 30, 2007, respectively		123,735			122,921			120,992
Accumulated other comprehensive income (loss)		(509	)		(483	)		229
Retained earnings		69,934			77,162			73,165
		193,160			199,600			194,386
	$	299,722		$	321,890		$	297,729

See accompanying notes to financial statements.

1

A.C. MOORE ARTS & CRAFTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
				(as restated)						(as restated)
Net sales	$	126,430		$	124,439		$	252,974		$	259,819
Cost of sales (including buying and distribution costs)		74,067			72,360			146,500			152,429
Gross margin		52,363			52,079			106,474			107,390
Selling, general and administrative expenses		57,657			52,804			113,267			107,253
Costs related to change in management		—			145			—			435
Store pre-opening and closing expenses		1,328			233			1,956			491
Income (loss) from operations		(6,622	)		(1,103	)		(8,749	)		(789	)
Interest expense		325			359			1,015			711
Interest (income)		(260	)		(576	)		(644	)		(1,161	)
Income (loss) before income taxes		(6,687	)		(886	)		(9,120	)		(339	)
Provision for (benefit of) income taxes		(2,422	)		(327	)		(3,088	)		(125	)
Net income (loss)	$	(4,265	)	$	(559	)	$	(6,032	)	$	(214	)
Basic net income (loss) per share	$	(0.21	)	$	(0.03	)	$	(0.30	)	$	(0.01	)
Diluted net income (loss) per share	$	(0.21	)	$	(0.03	)	$	(0.30	)	$	(0.01	)

See accompanying notes to financial statements.

2

A.C. MOORE ARTS & CRAFTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Six Months Ended
	June 30,
	2008			2007
				(as restated)
Cash flows from operating activities:
Net income (loss)	$	(6,032	)	$	(214	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,654			6,920
Stock-based compensation expense		814			1,432
Loss on impairment of fixed assets		1,850			—
Provision for (benefit of) deferred income taxes, net		(17	)		(1,604	)
Changes in assets and liabilities:
Inventories		(10,214	)		(3,428	)
Prepaid expenses and other current assets		9,411			289
Accounts payable		(8,963	)		(10,509	)
Accrued payroll and payroll taxes and accrued expenses		(2,762	)		(4,395	)
Accrued lease liability		642			(576	)
Income taxes payable		(1,909	)		(2,089	)
Other		(167	)		9
Net cash (used in) operating activities		(9,693	)		(14,165	)
Cash flows from investing activities:
Capital expenditures		(8,592	)		(7,447	)
Cash flows (used in) investing activities		(8,592	)		(7,447	)
Cash flows from financing activities:
Exercise of stock options		—			1,056
Tax benefit of stock options		—			286
Repayment of long-term debt		(1,285	)		(1,286	)
Net cash provided by (used in) financing activities		(1,285	)		56
Net (decrease) in cash and cash equivalents		(19,570	)		(21,556	)
Cash and cash equivalents at beginning of period		65,195			76,120
Cash and cash equivalents at end of period	$	45,625		$	54,564

See accompanying notes to financial statements.

3

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1) Basis of Presentation

The consolidated financial statements included herein include the accounts of A.C. Moore Arts & Crafts, Inc. and its wholly owned subsidiaries. The Company is a specialty retailer of arts, crafts and floral merchandise for a wide range of customers. As of August 8, 2008, the Company operated a chain of 134 stores. The stores are located in the Eastern United States from Maine to Florida. The Company also serves customers nationally via its e-commerce site, www.acmoore.com.

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 reported amounts of expenses during the reported period and related disclosures. Significant estimates made as of and for the three and six month periods ended June 30, 2008 and 2007 include provisions for shrinkage, capitalized buying, warehousing and distribution costs related to inventory, and markdowns of merchandise inventories. Actual results could differ materially from those estimates.

These financial statements have been prepared by management without audit and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2007. Due to the seasonality of the Company’s business, the results for the interim periods are not necessarily indicative of the results for the year. The Company has included its balance sheet as of June 30, 2007 to assist in viewing the Company on a full-year basis. The accompanying consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair statement of the interim financial statements. In the opinion of management, all such adjustments are of a normal and recurring nature. Certain amounts in the fiscal 2007 financial statements have been restated to conform to current year classifications.

(2) Restatement of Consolidated Financial Statements

As more fully described in our Annual Report on Form 10-K for the year ended December 31, 2007, in October 2007 the Company determined that there were errors in the method used to value store inventories. The correction of these errors resulted in a restatement of the Company’s financial statements for the periods including and prior to the six months ended June 30, 2007. Financial statement line items affected by this restatement include gross margin and provision for income taxes in the Consolidated Statements of Operations and inventory and current deferred taxes in the Consolidated Balance Sheets. There was no impact to operating cash flows from this restatement.

The effect of these restatements on previously reported consolidated balance sheets, statements of operations and statements of cash flows are included in Note 1 of our notes to consolidated financial statements included in our Annual Report on Form 10-K for the year-ended December 31, 2007.

(3) Change in Accounting Method

Effective January 1, 2008, the Company changed its method of accounting for store inventories from the retail inventory method to the weighted average cost method. Management believes the weighted average cost method is preferable because it:

• Results in greater precision in the determination of cost of sales and inventory valuation because each item is supported by records which are valued using stock-keeping unit (“SKU”) level purchase order data. Availability of this data significantly reduces management estimates used under the retail inventory method where costs are averaged based on pools of merchandise at the department level.

4

• Increases the accuracy of matching sales with related expenses, as cost of sales represent the average cost of individual items sold rather than the average of an entire pool. This matching eliminates fluctuations that could result from seasonal changes in initial markups or composition of the mix of product within a pool.

• Provides additional insight into the components of shrink as information will be available at the SKU/store level.

• Aligns financial reporting with the operational view of the Company, providing consistency in inventory valuation and margin analysis. This in turn improves accountability within the merchandising and stores’ organizations which will enable management to more precisely manage inventory levels.

• Allows for consistent valuation methods across all inventories, as our warehouse inventory is already valued using weighted average cost.

According to the guidance of SFAS 154, “Accounting Changes and Error Corrections,” when it is impracticable to determine the periods to which the effects of a change in accounting principle apply, the effect of the change will be applied to the balances of assets and liabilities as of the beginning of the earliest period that retrospective application is practicable and that a corresponding adjustment be made to retained earnings. Prior to December 31, 2007, the Company did not take its store physical inventories at the SKU level and as such is not able to value its inventory using weighted average cost for prior periods. Accordingly, as of January 1, 2008, the Company reduced the value of its beginning inventory by $2.0 million and recorded a corresponding adjustment, net of tax of $804,000, as a reduction to retained earnings.

(4) New Accounting Pronouncements

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment to FASB Statement 133,” which requires companies to provide greater transparency through disclosures about how and why the company uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, the level of derivative activity entered into by the company and how derivative instruments and related hedged items affect the company’s financial position, results of operations, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, and will be adopted by the Company in the first quarter of 2009. The Company is currently evaluating the potential impact of the adoption of SFAS 161 on its consolidated financial statements.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides companies with an option to report selected financial assets and liabilities at fair value. This statement was effective for the Company starting January 1, 2008. The adoption of the provisions of SFAS 159 is optional. The Company adopted SFAS 159 effective January 1, 2008, and did not elect the fair value option for any of its existing financial assets and liabilities.

5

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. It does not expand the use of fair value measurement. The Company adopted SFAS 157 for financial assets and liabilities on January 1, 2008. The adoption of SFAS 157 did not require material modification of the Company’s fair value measurements and will be substantially limited to expanded disclosures in the notes to our Consolidated Financial Statements relating to those notes that currently have components measured at fair value. In February 2008, the FASB deferred adoption of SFAS 157 for non-financial assets and liabilities, except for those that are recognized at fair value on a recurring basis (at least annually), until the fiscal year beginning after December 15, 2008.

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2008:

				Fair Value Measurements at June 30, 2008 Using
(In thousands)						Significant Other			Significant
	Total Carrying			Quoted Prices in		Observable			Unobservable
	Value at			Active Markets		Inputs			Inputs
	June 30, 2008			(Level 1)		(Level 2)			(Level 3)
Cash Equivalents	$	47,850		$	47,850	$	—		$	—
Interest Rate Swaps (1)		(835	)		—		(835	)		—

(1) Included in Deferred taxes and other liabilities in our Consolidated Balance Sheets.

Cash Equivalents are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy. Interest rate swaps are measured at fair value using quoted market prices for the swap interest rate indexes over the term of the swap discounted to present value versus the fixed rate of the contract. They are classified within Level 2 of the valuation hierarchy.

(5) Inventories

Merchandise Inventories. The Company values its inventories at the lower of cost or market. For warehouse inventories, cost is determined using a weighted average cost method. Effective January 1, 2008, the Company changed its method of accounting for store inventories from the retail inventory method to weighted average cost. As a result of this change, the Company recorded a $2.0 million reduction in the value of its beginning inventory.

In 2007, the Company took a stock-keeping unit (“SKU”) level physical inventory in all of its store locations at year end. These physical inventories were valued using a weighted average cost to determine the value of beginning inventory for 2008. Cost is determined at the time of receipt based on actual vendor invoices and includes the cost of purchasing, warehousing and transportation. Vendor allowances, which primarily represent volume discounts and cooperative advertising funds, are recorded as a reduction in the cost of merchandise inventories. For merchandise where the Company is the direct importer, ocean freight, duty and internal transfer costs are included as inventory costs.

6

On a quarterly basis, management uses a specific cost method to determine the value of its store inventories. Through its point of sale system, the Company is able to assign a SKU specific cost to every item sold. Using this information, along with estimates for inventory shrinkage and transportation costs, management estimates cost of sales and inventory during the first three quarters of each year.

The estimates for inventory shrinkage used to value inventory on a quarterly basis are adjusted to actual shrinkage amounts at year-end when a full physical inventory in each of our stores and warehouse facility are taken.

As of December 31, 2007, inventory in the Company’s stores were valued under the retail inventory method. Under this method, store inventories are valued at their current retail selling price multiplied by a cost complement to arrive at an inventory value at cost. The cost complement is a ratio of merchandise available-for-sale at cost to merchandise available-for-sale at its original selling price.

The Company’s inventory valuation methodology also requires other management estimates and judgment, such as the net realizable value of merchandise designated for clearance or on overstock or slow-moving merchandise. The accuracy of these estimates can be impacted by many factors, some of which are outside of management’s control, including changes in economic conditions and consumer buying trends. The Company believes the process it uses results in an appropriate inventory value.

(6) Shareholders’ Equity

During the first six months of 2008, shareholders’ equity changed as follows:

								Accumulated
(In thousands, except share data)								Other
			Common		Retained			Comprehensive
	Shares		Stock		Earnings			(Loss)			Total
Balance, December 31, 2007		20,298,601	$	122,921	$	77,162		$	(483	)	$	199,600
Net income (loss)		—		—		(6,032	)		—			(6,032	)
Unrealized loss, net of taxes of $4 (Note 7)		—		—		—			(26	)		(26	)
Total comprehensive income (loss)											$	(6,058	)
Stock-based compensation expense		—		814		—			—			814
Change in accounting principle (Note 5)		—		—		(1,196	)		—			(1,196	)
Balance, June 30, 2008		20,298,601	$	123,735	$	69,934		$	(509	)	$	193,160

(7) Financing Agreement

The Company maintains two mortgage agreements with Wachovia Bank N.A. (“Wachovia”) on its corporate office and main distribution center which are collateralized by land, buildings and equipment. These mortgages had initial terms of 15 and seven years and have remaining terms of 12 and four years, respectively. As of June 30, 2008, there was $20.4 million outstanding under these mortgages of which $16.9 million is repayable over 12 years and $3.5 million is repayable over four years. Fixed monthly payments are $214,000. In November 2006, the Company effectively converted these mortgages from a variable rate to fixed interest rates of 5.77% on the 15-year mortgage and 5.72% on the seven-year mortgage through the use of an interest rate swap.

In March 2007, the Company amended these two mortgages to modify certain covenants. The mortgages, as amended, contain covenants that, among other things, restrict the Company’s ability to incur additional indebtedness or guarantee obligations in excess of $18.0 million, engage in mergers or consolidations, dispose of assets, make acquisitions requiring a cash outlay in excess of $20.0 million, make loans or advances in excess of $1.0 million, permit liens relating to capitalized lease obligations or purchase money financing in excess of $2.0 million, or change the nature of the Company’s business. The Company is restricted in capital expenditures unless certain financial covenants are maintained including those relating to tangible net worth and funded debt. The mortgages also define various events of default, including cross default provisions, defaults for any material judgments or a change in control.

7

In January 2008, the Company amended these two mortgages and its line of credit and entered into a promissory note and loan modification agreement. Pursuant to the loan modification, Wachovia agreed to waive non-compliance with certain provisions of the loan documents relating to the Company’s failure to deliver financial statements and the Company’s Form 10-Q for the quarter ended September 30, 2007. The loan modification also amended the loan documents to (i) increase the interest rate for the two mortgages and borrowing under the line of credit from a LIBOR-based rate plus 65 basis points to a LIBOR-based rate plus 90 basis points, and (ii) require the Company to maintain a deposit account with the bank with a minimum balance of $500,000. These two provisions terminated on April 17, 2008.

Effective May 31, 2008, the Company and its subsidiaries entered into an Amended and Restated Loan Agreement, an Amended and Restated Promissory Note and an Amendment to Loan Documents (collectively, the “Amendments”) with Wachovia. Pursuant to the Amendments, the term of the line of credit was extended to May 30, 2009 and the aggregate amount of the line of credit was reduced from $35.0 million to $30.0 million. In addition, the limit for issuance of letters of credit under the line of credit was increased from $7.5 million to $12.5 million. Letters of credit in the total amount of $7.0 million have been issued under the line. As of June 30, 2008, there was no outstanding principal balance under the line.

(8) Impairment of Long-Lived Assets

Under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”, long-lived assets should be tested for recoverability whenever events or changes in circumstances indicate that the carrying amounts of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the undiscounted cash flows expected from the use and eventual disposition of the asset. The impairment loss is calculated as the amount by which the carrying amount of the asset exceeds its fair market value. The Company uses a present value technique to estimate the fair market value of its long-lived assets.

During the second quarter of 2008, as a result of the completion of the real estate portfolio review discussed further in Note 9 Store Pre-Opening and Closing Costs, the Company recorded an impairment of $1.8 million against the fixed assets of certain stores which will remain in operation based on a review of the historical cash flow and projected future performance of these stores. This charge is included in selling, general and administrative expenses on the consolidated statements of operations.

(9) Store Pre-Opening and Closing Costs

Store pre-opening costs include training for new employees, costs to stock initial inventory and store occupancy costs incurred prior to the opening date.

Store closing costs are accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. Store closing costs include employee severance, inventory liquidation costs, lease termination payments and the net present value of future lease obligations less estimated sub-lease income.

In June 2008, the Company announced the results of a real estate portfolio review which began during the first quarter of the year. The intent of this review was to evaluate existing store performance and the prospects for new stores in order to identify underperforming locations and develop a strategy for locations that were no longer strategically or economically viable. As a result of this analysis, the Company announced that it will close between seven and 10 existing stores and reduce its planned store openings for 2008 from a previously announced 14 locations to between eight and 12. The Company has determined that these store closings have not met the criteria for discontinued operations, as set forth in SFAS 144, due to the fact that the Company anticipates the customers and related cash flows from those stores will migrate to other Company stores.

8

The Company expects the cost of these store closings and reduction in new store openings will be approximately $5.0 to $7.0 million, all of which is expected to be incurred in 2008.

In the second quarter of 2008, the Company incurred store closing costs of $726,000 which included a $381,000 reduction in estimated sub-lease income for a store that closed in 2006 and $120,000 in inventory liquidation costs for four stores that conducted going-out-of-business sales during the second quarter 2008 and closed in July 2008.

Prior to 2008, the Company included store closing costs as a component of selling, general and administrative expenses on the consolidated statements of operations. For the three and six month periods ended June 30, 2007, the Company has reclassified $57,000 from selling, general and administrative expenses to store pre-opening and closing expenses to make the presentations consistent.

(10) Income Taxes

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). Effective with the adoption of FIN 48, the Company records interest as a component of interest expense and penalties as a component of income tax expense. As of December 31, 2007, the Company had $3.3 million of unrecognized tax benefits. In February 2008, the Company finalized an audit with the Internal Revenue Service that covered the 2004, 2005 and 2006 tax years. As a result of this settlement, reserves for uncertain tax positions totaling $2.0 million were reversed, of which $298,000 was recorded as a reduction in income tax expense in the first quarter of 2008.

The Company increased its reserve for uncertain tax positions by $670,000 in the first quarter of this year based on a change in a state tax position regarding calculation of income apportionment. Of this amount, $336,000 was recorded as interest expense and $334,000 was recorded as income tax expense.

In March 2008, the Company received permission from the Internal Revenue Service to change its method of accounting for inventory effective on its 2007 income tax return, which was filed in May. As a result of this change, the Company received a tax deduction of approximately $20.0 million and in June received a refund of approximately $7.0 million of previously paid federal income taxes.

The Company is subject to U.S. Federal income tax as well as income tax of multiple state jurisdictions. The Company has substantially concluded all material tax matters in jurisdictions where it files returns for years through 2003.

The Company’s effective tax rate for the first six months of 2008 was 33.9% as compared to 36.9% in the first six months of 2007. This decrease was primarily attributable to the effect of adjustments to the Company’s uncertain tax positions as described above, on our year to date pre-tax loss. The Company expects the effective rate for 2008 to be approximately 30%.

9

(11) Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

(In thousands, except per share data)	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
				(as restated)						(as restated)
Net income (loss)	$	(4,265	)	$	(559	)	$	(6,032	)	$	(214	)
Weighted average shares:
Basic		20,299			20,229			20,299			20,207
Incremental shares from assumed exercise of stock options and stock appreciation rights		—			—			—			—
Diluted		20,299			20,229			20,299			20,207
Basic net income (loss) per share	$	(0.21	)	$	(0.03	)	$	(0.30	)	$	(0.01	)
Diluted net income (loss) per share	$	(0.21	)	$	(0.03	)	$	(0.30	)	$	(0.01	)
Stock options and stock appreciation rights excluded from calculation because exercise price was greater than average market price		1,070			367			1,017			367
Potentially dilutive shares excluded from the calculation as the result would be anti-dilutive		448			865			501			865

(12) Commitments and Contingencies

The Company is involved in legal proceedings from time to time in the ordinary course of business. Management believes that none of these legal proceedings will have a materially adverse effect on the Company’s financial condition or results of operations. However, there can be no assurance that future costs of such litigation would not be material to the Company’s financial condition or results of operations.

10

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

Cautionary Statement Relating to Forward-looking Statements

The following discussion contains statements that are forward-looking within the meaning of applicable federal securities laws and are based on our current expectations and assumptions as of this date. We undertake no obligation to update or revise any forward-looking statement whether as the result of new developments or otherwise. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ from those anticipated include, but are not limited to, our ability to implement our business and operating initiatives to improve profitability, how well we manage our growth, customer demand and trends in the arts and crafts industry, inventory risks, the effect of economic conditions and gasoline prices, the impact of unfavorable weather conditions, the impact of competitors’ locations or pricing, difficulties with respect to new system technologies, difficulties in implementing measures to reduce costs and expenses and improve margins, supply constraints or difficulties, the effectiveness of and changes to advertising strategies, difficulties in determining the outcome and impact of litigation, the accuracy of and changes in assumptions for estimated costs for the settlement of lease liabilities and related costs and non-cash fixed asset impairment, timing in execution of our real estate strategy, the outcome of negotiations with landlords and other third parties in executing the real estate strategy, the impact of the threat of terrorist attacks and war, our ability to maintain an effective system of internal control over financial reporting, risks related to our recent restatement and other risks detailed in the Company’s Securities and Exchange Commission (“SEC”) filings. For additional information concerning factors that could cause actual results to differ materially from the information contained herein, reference is made to the information under Part II, “Item 1A. Risk Factors” as set forth below and in our Annual Report on Form 10-K for the year ended December 31, 2007 as filed with the SEC.

Overview

General

We are a specialty retailer of arts, crafts and floral merchandise for a wide range of customers. Our first store opened in Moorestown, New Jersey in 1985. As of June 30, 2008, we operated 139 stores in the Eastern United States from Maine to Florida. As of August 8, 2008, we operated 134 stores. Our stores typically range from 20,000 to 25,000 square feet. We also serve customers nationally through our e-commerce site, www.acmoore.com.

Due to the importance of our peak selling season, which includes the Fall and Winter holiday seasons, the fourth quarter has historically contributed, and is expected to continue to contribute, a significant portion of our profitability for the entire year. As a result, any factors negatively affecting us during the fourth quarter of any year, including adverse weather and unfavorable economic conditions, would have a material adverse effect on our results of operations for the entire year.

Our quarterly results of operations also may fluctuate based upon such factors as the length of holiday seasons, the date on which holidays fall, the number and timing of new store openings, closure of stores, the amount of store pre-opening expenses, the amount of net sales contributed by new and existing stores, the mix of products sold, the amount of sales returns, the timing and level of markdowns and other competitive factors.

In June 2008, the Company announced the results of a real estate portfolio review which began during the first quarter of the year. The intent of this review was to evaluate existing store performance and the prospects for new stores in order to identify underperforming locations and develop a strategy for locations that were no longer strategically or economically viable. As a result of this analysis, the Company announced that it will close between seven and 10 existing stores and reduce its planned store openings for 2008 from a previously announced 14 locations to between eight and 12. The Company closed four stores in July, one store in August, and intends to close two to five additional stores later this year. The Company expects the cost of these store closings and reduction in new store openings will be approximately $5.0 to $7.0 million, all of which is expected to be incurred in 2008.

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As part of this real estate portfolio review, the Company also tested the recoverability of its store fixed assets under SFAS 144, “Accounting for the Impairment or Disposal of Long-lived Assets”. As a result, during the second quarter the Company recorded a $1.8 million impairment charge against the fixed assets of certain stores still in operation.

For the three months ended June 30, 2008, comparable store sales decreased by 4.8%. Adjusting for the impact of the liquidation of four stores that closed in July, comparable stores would have decreased by 6.3%. The decline in comparable store sales was an expected result of the implementation of management’s primary business and operating initiatives that are discussed in more detail below. We believe that the Company had reached a point of diminishing returns for many of the costs being incurred to increase sales, which included advertising and store payroll. Previous changes made to our store staffing and advertising programs continued to have an adverse effect on comparable store sales.

Gross margin for the second quarter declined by 0.5%. The decrease was attributable to increased freight costs, the liquidation of inventory for the four stores that closed in the month of July and was partially offset by a combination of a shift in product mix, vendor cost leveraging and retail price adjustments. Removing the impact of the four stores that closed in July and the increase in freight costs, gross margin would have increased 0.1%. We are pursuing initiatives to offset rising freight costs, such as price elasticity reviews, retail price adjustments, vendor cost leveraging and freight alternatives. However, competitive pressure or weakness in the retail environment could result in additional downward pressure on comparable store sales or cause us to be more promotional than we currently expect, which would have a negative impact on margins.

While we may experience cannibalization of sales in our existing stores and an increased selling, general and administrative expense rate as we execute our real estate portfolio review strategy, we expect improvements in the execution of our operating initiatives that we believe will lessen the impact on comparable store sales in the second half of 2008.

Business and Operating Strategy

The year ended December 31, 2007, as well as the six months ended June 30, 2008, both involved substantial transition as our new management team focused on reviewing and adjusting various aspects of our business and operations to position us for improved performance. Management’s primary business and operating initiatives are discussed below.

Improve Store Profitability. We continue to strive to improve store profitability by reducing expenses through a focus on the following areas: store payroll, real estate portfolio strategy, advertising spending, centrally directed operations and our new store prototype.

• Store payroll. We are in the second phase of a process reengineering project centered on store staffing, scheduling and standard operating procedures. We have developed processes that we believe will make us more efficient and provide us with the ability to redeploy labor to service and selling activities. We will further implement new processes in our receiving, stocking, ordering and recovery programs in all of our stores. Currently, we have implemented the project in a small group of model stores with full implementation to be completed by the end of September.

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• Real estate portfolio strategy. In June 2008, we completed a portfolio review of all current stores and future prospects to identify underperforming locations and assess closure of those stores that are no longer strategically or economically viable. As a result of this analysis, we closed four stores in July and expect to close between three and six additional stores in 2008. When entering new markets which we deem to be multi-store markets, we will attempt to do so with sufficient store density to leverage expenses such as advertising and supply chain replenishment. If strategically viable, we will also consider adding new stores and relocating existing stores in our current markets.

• Advertising spending. In 2007, we utilized the services of a newspaper placement agency to negotiate our insertion rates and distribution costs. We implemented those recommendations by the end of the third quarter. We will continue this initiative in 2008 by analyzing our distribution methods to enhance productivity of the advertising vehicles.

• Centrally directed operations and our store prototype. We believe that increasing the level of standardization in operations and centrally directed management practices will improve our operating efficiencies. This initiative includes standardizing the presentation in our stores, reengineering our store processes and implementing and refining our new store prototype which we refer to as our “Nevada” model. As of June 30, 2008, we opened 17 Nevada class stores. We believe the Nevada model will help us achieve efficiencies through increased ease of operation and reduced labor costs. While we believe the Nevada model is a desirable design, we are currently refining the design based on the results of this initial phase of implementation and expect to continue to do so in the future.

Increase Sales. We continue to strive toward increasing sales through better execution in customer service, an enhanced merchandise assortment, improved in-stock position and creative promotional strategies.

• Customer service. We have conducted customer interviews designed to better understand our customers’ expectations and purchasing motivation, with the goal of developing stronger relationships with our customers. In the second quarter of 2008, we introduced a formal customer service program involving in-depth training of our associates. In 2009, we plan to introduce mystery shopping and the availability of online customer feedback submissions to our customer service support center.

• Enhanced merchandise assortment. We continually seek to identify new and enhanced product lines and merchandise assortments that differentiate us from our competitors. We regularly review product adjacencies in order to improve our average customer ticket and the overall shopping experience.

• Improved in-stock position. Maintaining a full in-stock position is critical to driving sales, as providing the components for a particular craft project is important to meeting customer demand. Our perpetual inventory implemented in January 2008 and other technology improvements will allow us to achieve better in-stock position through information about quantities available at the store level. We also regularly evaluate our supply chain operations to improve the process and timing within which product is ordered and delivered to our stores.

• Promotional strategies. We believe the identification of promotional items that drive customer traffic and increased frequency of featuring these items will add to our customer base. We continually experiment with new marketing vehicles and pricing strategies, including in-store promotions and targeted marketing, to complement our regular circular insert program.

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Increase Gross Margins. We are focused on increasing gross margins through implementation of category management of our merchandise, increasing both domestic and globally sourced private label products, and improving supply chain efficiencies.

• Category management. We have implemented a category management process designed to optimize sales, expand gross margin and better control our inventory investment. Category management involves the use of a merchandise planning calendar that defines the timeline for each action required to achieve a store set date on plan-o-grams and seasonal programs. Examples of these processes are an open-to-buy program for review of purchases of seasonal and large buys and a comprehensive clearance program.

• Domestic and globally sourced private label products. Beginning in the second half of 2007, we introduced in our stores private label products bearing the A.C. Moore name and logo. We expect the number of private label products to increase in the future. We believe the sale of private label products, both domestic and globally sourced, will result in gross margin improvement.

• Supply chain efficiencies. We continue to make significant strides in our effort to further improve efficiency, accuracy, and safety in the supply chain organization. We recently implemented a performance management program in our main distribution center. Each job function was reviewed to improve the method of performance and maximize efficiencies. Quantifiable engineered standards were developed to measure building, area and individual associate performance. Through the first half of the year, this program has helped us improve labor efficiencies. In the second quarter, the Company implemented a compliance program focused on improving accuracy and safety in our distribution centers. This program has helped us to better service our stores and our customers while simultaneously reducing lost time accidents. In addition, with the assistance of an outside consultant, we have completed our logistics network strategy review. Based on this review and new inventory control initiatives, we believe that our existing distribution network is sufficient to support our business for the near term.

Improve Information Technology. We are committed to enhancing our information technology to increase operating efficiencies, improve merchandise selection and better serve our customers. Throughout 2007, we made infrastructure improvements, implemented a fully featured ecommerce site with over 50,000 SKUs, and captured physical inventories at the SKU-level. The SKU-level inventory enabled us to implement a perpetual inventory beginning in January 2008 which will be the precursor for additional merchandising systems, including automated replenishment. A project team consisting of outside consultants and A.C. Moore associates is working on the implementation of a packaged comprehensive retail merchandising system which will begin with merchandising management and reporting and a pilot of replenishment in 2008 followed by full replenishment and allocation in the second half of 2009. We do not anticipate that we will realize benefits from the automated replenishment system until 2010 due to a period of adjustment in operations following implementation.

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Results of Operations

The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of net sales and the number of stores open at the end of each such period:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
				(as restated)						(as restated)
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		58.6			58.1			57.9			58.7
Gross margin		41.4			41.9			42.1			41.3
Selling, general and administrative expenses		45.6			42.4			44.8			41.3
Costs related to change in management		0.0			0.1			0.0			0.2
Store pre-opening and closing expenses		1.1			0.2			0.8			0.2
Income (loss) from operations		(5.2	)		(0.9	)		(3.5	)		(0.3	)
Interest expense (income), net		0.1			(0.2	)		0.1			(0.2	)
Income (loss) before income taxes		(5.3	)		(0.7	)		(3.6	)		(0.1	)
Provision for (benefit of) income taxes		(1.9	)		(0.3	)		(1.2	)		(0.0	)
Net income (loss)		(3.4	)%		(0.4	)%		(2.4	)%		(0.1	)%
Number of stores open at end of period		139			124

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Net Sales. Net sales increased $2.0 million, or 1.6%, to $126.4 million in the three months ended June 30, 2008 from $124.4 million in the comparable 2007 period. This increase is comprised of (i) an increase in net sales of $9.1 million from stores not included in the comparable store base and e-commerce sales, (ii) a comparable store sales decrease of $5.9 million, or 4.8%, and (iii) net sales of $1.2 million from stores closed since the comparable period last year. As previously stated, our focus on store profitability has negatively impacted comparable store sales. Specifically, the process of evaluating the reach, frequency and timing of our advertisements, and adjusting store inventory and payroll to align with sales volume had an impact on comparable store sales.

Merchandise categories that performed below the Company average on a comparable store basis included candles, floral accessories, seasonal, ribbon and jewelry. Categories that performed better than average included custom framing, cake and candy making, wood, yarn and ready made frames.

Gross Margin. Gross margin is net sales minus the cost of merchandise which includes purchasing and receiving costs, inbound freight, duties related to import purchases, internal transfer costs and warehousing costs. Gross margin as a percent of net sales was 41.4% for the three months ended June 30, 2008, and 41.9% for the three months ended June 30, 2007. This 0.5% reduction in gross margin is attributable to freight cost increases and the liquidation of four stores that were closed in July and was partially offset by ongoing price elasticity studies, more favorable vendor pricing and a higher initial mark-up on imported merchandise.

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, stock-based compensation and other corporate expenses.

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Selling, general and administrative expenses, as a percent of sales, increased 3.2% during the three months ended June 30, 2008 to 45.6% from 42.4% in the three months ended June 30, 2007. Costs related to store payroll represented 0.3%, the impairment of assets 1.5%. The majority of the balance of the increase was the result of deleveraging of store occupancy costs against a decline in store sales.

Costs Related to Change in Management. For the three months ended June 30, 2008 and 2007, we incurred costs of $0 and $145,000, respectively, related to severance costs for departing officers and employees as well as recruiting costs for new officers. There were no costs charged to this classification since the second quarter of 2007.

Store Pre-Opening and Closing Expenses. We expense store pre-opening expenses as they are incurred which includes lease costs prior to a store opening. Store closing costs include severance, inventory liquidation costs, loss on disposal of fixed assets, lease termination payments and the net present value of future rent obligations less estimated sub-lease income.

Pre-opening expenses for the three stores opened in the second quarter of 2008 and stores that will open later in the year totaled $602,000. In the second quarter of 2007, we incurred store pre-opening expenses related to the one store which opened in that quarter and lease costs of $177,000 related to stores opened later in 2007.

Store closing costs for the second quarter were $726,000 which included a $381,000 reduction in estimated sub-lease income for a store that closed in 2006 and $120,000 in inventory liquidation costs for four stores that were conducting going-out-of business sales during the second quarter which closed in July 2008.

Interest Income and Expense. In the second quarter of 2008, we had net interest expense of $65,000 compared with net interest income of $217,000 for the same period in 2007. This decrease is attributable to a lower cash position and lower interest rates throughout the quarter.

Income Taxes. The Company’s effective tax rate for the second quarter of 2008 was 36.2%, as compared to 36.9% for the three months ended June 30, 2007. This decrease was primarily attributable to the favorable effect of tax-free interest on lower pre-tax income. The Company expects the effective rate for 2008 to be approximately 30%.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Net Sales. Net sales decreased $6.8 million, or 2.6%, to $253.0 million in the six months ended June 30, 2008 from $259.8 million in the comparable 2007 period. This decrease is comprised of (i) an increase in net sales of $17.3 million from stores not included in the comparable store base and e-commerce sales, (ii) a comparable store sales decrease of $21.4 million, or 8.4%, and (iii) net sales of $2.7 million from stores closed since the comparable period last year. As previously stated, our focus on store profitability has negatively impacted comparable store sales. Specifically, the process of evaluating the reach, frequency and timing of our advertisements, and adjusting store inventory and payroll to align with sales volume had an impact on comparable store sales.

Merchandise categories that performed below the Company average on a comparable store basis included candles, floral accessories, jewelry, yarn and seasonal. Categories which performed better than average included custom framing, cake and candy making, wood and ready made frames.

Gross Margin. Gross margin is net sales minus the cost of merchandise which includes purchasing and receiving costs, inbound freight, duties related to import purchases, internal transfer costs and warehousing costs. Gross margin as a percent of net sales was 42.1% for the six months ended June 30, 2008, and 41.3% for the six months ended June 30, 2007. This 0.8% improvement in gross margin is attributable to retail price adjustments as a result of ongoing price elasticity studies, more favorable vendor pricing and a higher initial mark-up on imported merchandise. Partially offsetting the improvement in gross margin were increases in freight costs and the liquidation of four stores which closed in July 2008.

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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, stock-based compensation and other corporate expenses.

Selling, general and administrative expenses, as a percent of sales, increased 3.5% in the six months ended June 30, 2008 to 44.8% from 41.3% in the six months ended June 30, 2007. Costs related to the inventory restatement represented 0.2 %, costs related to store payroll represented 0.3%, and the impairment of assets represented 0.7%. The majority of the balance of the increase was the result of deleveraging of store occupancy costs against a decline in store sales.

Costs Related to Change in Management. For the six months ended June 30, 2008 and 2007, we incurred costs of $0 and $435,000, respectively, related to severance costs for departing officers and employees as well as recruiting costs for new officers. There were no costs charged to this classification since the second quarter 2007.

Store Pre-Opening and Closing Expenses. The Company expenses store pre-opening expenses as they are incurred which includes lease costs prior to a store opening. Store closing costs include severance, inventory liquidation costs, loss on disposal of fixed assets, lease termination payments and the net present value of future rent obligations less estimated sub-lease income.

Pre-opening expenses for the seven stores opened during the first six months of 2008 and stores that will open later in the year totaled $1.2 million. In the first half of 2007, we incurred store pre-opening expenses related to the two stores which opened during the first six months of 2007 and lease costs related to stores opened later in 2007 of $491,000.

Store closing costs for the first six months were $726,000 which included a $381,000 reduction in estimated sub-lease income for a store that closed in 2006 and $120,000 in inventory liquidation costs for four stores that conducted going-out-of business sales during the second quarter.

Interest Income and Expense. In the first six months of 2008, the Company had net interest expense of $371,000 compared with net interest income of $450,000 for the same period in 2007. This decrease is attributable to the interest component of the increase in our reserve for uncertain tax positions, a lower cash position and lower interest rates throughout the year.

Income Taxes. The Company’s effective tax rate for the first six months of 2008 was 33.9%, as compared to 36.9% for the six months ended June 30, 2007. This decrease was primarily attributable to the effect of adjustments made in the first quarter to our reserve for uncertain tax positions on our year to date pre-tax loss. The Company expects the effective rate for 2008 to be approximately 30%.

Change in Accounting Method. Effective January 1, 2008, we changed our method of accounting for store inventories from the retail inventory method to the weighted average cost method. See Note 3 “Change in Accounting Method” in the Notes to Consolidated Financial Statements. As a result, we reduced the value of its beginning inventory by $2.0 million and recorded a corresponding adjustment, net of tax, as a reduction to retained earnings.

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Liquidity and Capital Resources

The Company’s cash is used primarily for working capital to support our inventory requirements and fixtures and equipment, pre-opening expenses and beginning inventory for new stores. In recent years, we have financed our operations and new store openings primarily with cash from operations. In 2004, we borrowed $30.0 million under two mortgage agreements we have with Wachovia Bank N.A. (“Wachovia”) to finance our new distribution center and corporate offices.

At June 30, 2008 and December 31, 2007, our working capital was $137.8 million and $145.0 million, respectively. Cash used in operations was $9.7 million for the six months ended June 30, 2008. This is principally the result of a $19.2 million increase in the net investment (inventory less accounts payable) in seasonal and new store inventory partially offset by a $7.0 million refund of federal income taxes which is included in a $9.4 million reduction of prepaid expenses and other current assets. For the six months ended June 30, 2007, cash used in operations was $14.2 million.

Net cash used in investing activities during the six months ended June 30, 2008 was $8.6 million, all of which related to capital expenditures. In 2008, we expect to invest approximately $18.0 million in capital projects, which includes $7.2 million for new store openings and the remainder for relocating existing stores, upgrading systems in existing stores, upgrading warehouse equipment and corporate systems development. For the six months ended June 30, 2007, we invested $7.4 million all of which related to capital expenditures.

We maintain two mortgage agreements with Wachovia related to our main distribution center and corporate offices. These mortgages are secured by land, building, and equipment. As of June 30, 2008, $20.4 million was outstanding under these mortgages, of which $16.9 million is repayable over 12 years and $3.5 million is repayable over four years. Fixed monthly payments totaling $214,000 started in October 2004. In November 2006, through the use of an interest rate swap, we effectively converted these mortgages from variable interest rates to fixed interest rates of 5.77% on the 15-year mortgage and 5.72% on the seven-year mortgage.

In March 2007, we amended these two mortgages to modify certain covenants. The mortgages, as amended, contain covenants that, among other things, restrict our ability to incur additional indebtedness or guarantee obligations in excess of $18.0 million, engage in mergers or consolidations, dispose of assets, make acquisitions requiring a cash outlay in excess of $20.0 million, make loans or advances in excess of $1.0 million, permit liens relating to capitalized lease obligations or purchase money financing in excess of $2.0 million, or change the nature of our business. We are restricted in capital expenditures unless certain financial covenants are maintained including those relating to tangible net worth and funded debt. The mortgages also define various events of default, including cross default provisions, defaults for any material judgments or a change in control.

In January 2008, we amended the two mortgages and our $35.0 million line of credit and entered into a promissory note and loan modification agreement. Pursuant to the loan modification, Wachovia has agreed to waive non-compliance with certain provisions of the loan documents relating to the Company’s failure to deliver financial statements and our Form 10-Q for the quarter ended September 30, 2007. The loan modification also amended the loan documents to (i) increase the interest rate for the two mortgages and borrowings under the line of credit from a LIBOR-based rate plus 65 basis points to a LIBOR-based rate plus 90 basis points, and (ii) require the Company to maintain a deposit account with a minimum balance of $500,000 with Wachovia. These two provisions terminated on April 17, 2008.

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Effective May 31, 2008, the Company and its subsidiaries entered into with Wachovia an Amended and Restated Loan Agreement, an Amended and Restated Promissory Note and an Amendment to Loan Documents (collectively, the “Amendments”). Pursuant to the Amendments, the term of the line of credit was extended to May 30, 2009 and the aggregate amount of the line of credit was reduced from $35.0 million to $30.0 million. In addition, the limit for issuance of letters of credit under the line of credit was increased from $7.5 million to $12.5 million. Letters of credit in the total amount of $7.0 million have been issued under this line. As of June 30, 2008, there was no outstanding principal balance under the line.

In February 2008, we finalized an audit with the Internal Revenue Service that covered the 2004, 2005 and 2006 tax years and resulted in a payment of tax and interest totaling $2.1 million.

In March 2008, the Company received permission from the Internal Revenue Service to change its method of accounting for inventory, effective on it’s 2007 income tax return which was filed in May. As a result of this change, the Company received a tax deduction of approximately $20.0 million and in June received a refund of approximately $7.0 million of previously paid federal income taxes.

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

Critical Accounting Estimates

Except as described below, our accounting policies are fully described in Note 2 of our notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2007. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from those estimates. Management makes adjustments to its assumptions and judgments when facts and circumstances dictate. The amounts currently estimated by us are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that management believes to be reasonable under the circumstances. Management believes the following critical accounting estimates encompass the more significant judgments and estimates used in preparation of our consolidated financial statements:

• merchandise inventories;

• impairment of long-lived assets;

• reserve for store closures;

• stock-based compensation under SFAS No. 123(R);

• income taxes and accounting for uncertain tax positions under FIN 48;

• legal contingencies; and

• other estimates.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest cash balances in excess of operating requirements primarily in money market mutual funds. The fair value of our cash and equivalents at June 30, 2008 approximated carrying value. A hypothetical decrease in interest rates of 10% compared to the rates in effect at June 30, 2008 would reduce our interest income by $94,000 annually.

We had no borrowings outstanding under our line of credit at June 30, 2008. The interest rates on our mortgages fluctuate with market rates and therefore the value of these financial instruments will not be impacted by a change in interest rates. In November 2006, we entered into an interest rate swap that had the effect of converting our variable mortgages to fixed rates. As a result, a 10% increase or decrease in interest rates would have no impact on our interest expense as the increase/decrease in interest paid on our mortgages would be offset by a corresponding decrease/increase in the interest received from our swap. A 10% decrease in interest rates would cause the fair market value of the swap to decrease by approximately $218,000.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are controls and procedures that are designed to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation, with the participation of our Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2008. Based on this evaluation, our Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2008 as a result of a material weakness in the accuracy and valuation of the accounting for and disclosure of inventory and the related cost of goods sold accounts. Specifically, controls over the formulas used to calculate the cost complement used to value the Company’s store inventories under the retail inventory method and the estimates used to determine the timing of recognition of internal transfer costs on imported merchandise were not effective.

Plan for Remediation of Material Weakness

Effective January 1, 2008, the Company changed its method of accounting for store inventories from the retail inventory method to the weighted average cost method. Management believes that changing to the weighted average cost method will remediate the identified control deficiency related to the formulas used to calculate the retail inventory method cost complement as these formulas will no longer be used.

In January 2008, the Company implemented a store perpetual inventory system. This system will enable management to more accurately estimate the amount of internal transfer costs as it allows us to determine the value of imported merchandise relating to on-hand quantities in our stores and at our distribution centers. Management believes that implementation of a store perpetual inventory system and implementation of appropriate internal controls will remediate the identified control deficiency.

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Changes in Internal Control Over Financial Reporting

As described above, there were changes in our internal control over financial reporting, as described in Exchange Act Rule 13a-15(f), during the second quarter of 2008 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in legal proceedings from time to time in the ordinary course of business. Management believes that none of these legal proceedings will have a materially adverse effect on the Company’s financial condition or results of operations. However, there can be no assurance that future costs of such litigation would not be material to our financial condition or results of operations.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2007 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

The information presented below updates, and should be read in conjunction with, the risks described in our Annual Report on Form 10-K for the year ended December 31, 2007.

Changes in our real estate strategy may not result in improved profitability.

In June 2008, we announced results of our real estate portfolio review. As a result of this review, and in light of the macro-environment for retailing, we determined to exit certain markets where we cannot achieve operating efficiencies and reduce new store openings planned for 2008. The estimated costs and charges associated with these actions may vary materially based on various factors, including but not limited to, timing in execution, the outcome of negotiations with landlords and other third parties and changes in management’s assumptions and projections. As a result of these events and circumstances, delays and unexpected costs may occur, which could result in our not realizing any or all of the anticipated benefits of this strategy. There is no assurance that changes in our real estate strategy will lead to improved operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

21

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

We held our Annual Meeting of Shareholders on June 19, 2008. At the meeting, shareholders voted on the following:

1.	to elect two Class C directors to hold office for a term of three years and until each of their respective successors is duly elected and qualified; and
2.	to ratify the appointment of PricewaterhouseCoopers LLP as A.C. Moore’s independent registered public accounting firm for the year ending December 31, 2008.

The results of the voting were as follows:

							Withhold
	For		Against		Abstain		Authority		Broker Non-Votes
Election of Rick A. Lepley		18,058,464		n/a		n/a		1,566,409		n/a
Election of Lori J. Schafer		18,404,969		n/a		n/a		1,219,904		n/a
Ratification of PricewaterhouseCoopers LLP		19,551,217		70,732		2,924		n/a		2,924

The term of office for each of the following directors continued after the meeting: Joseph F. Coradino, Michael J. Joyce, Neil A. McLachlan and Thomas S. Rittenhouse.

ITEM 5. OTHER INFORMATION

On August 6, 2008, the Company and Joseph A. Jeffries entered into the First Amendment to Mr. Jeffries’ employment letter dated November 28, 2007 (the “amendment”). Pursuant to the amendment, Mr. Jeffries’ title was changed from Executive Vice President of Operations to Executive Vice President and Chief Operating Officer. In addition, the amendment provides for an automatic one-year term from the date of a change of control (as defined in the amendment), during which Mr. Jeffries is guaranteed a base salary equal to 12 times his highest monthly base salary during the 12-months preceding the change of control, as well as an annual cash bonus at least equal to the amount received for the last full calendar year. If A.C. Moore terminates his employment other than for cause, death or disability or Mr. Jeffries terminates for good reason, Mr. Jeffries is entitled to receive a lump sum cash payment equal to the aggregate of base salary through the date of termination, pro rata bonus and twelve months of base salary. Mr. Jeffries will also receive insurance benefits during this period. For termination due to death or disability, he or his estate will receive a cash lump sum payment equal to the aggregate of his base salary through the date of death or disability and his pro rata bonus. If A.C. Moore terminates for cause or Mr. Jeffries terminates without good reason following a change of control, he is entitled to base salary through the date of termination. The amendment provides that Mr. Jeffries’s options, stock appreciation rights and restricted stock vest immediately upon a change of control. If Mr. Jeffries’s employment is terminated without cause following a change in control, he will have until the earlier of the original option or stock appreciation right term or 18 months after the termination date to exercise the options or stock appreciation rights.

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ITEM 6. EXHIBITS

10.1	Amended and Restated Loan Agreement, dated as of May 31, 2008, between the Company and Wachovia Bank, National Association (“Wachovia”).
10.2	Amendment to Loan Documents, dated as of May 31, 2008, between the Company and Wachovia.
10.3	Amended and Restated Promissory Note, dated as of May 31, 2008, between the Company and Wachovia.
10.4	First Amendment, dated August 6, 2008, to Employment Letter dated November 28, 2007, between the Company and Joseph A. Jeffries.
31.1	Certification pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”).
31.2	Certification pursuant to Rule 13a-14(a) promulgated under the Exchange Act.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

	A.C. MOORE ARTS & CRAFTS, INC.
Date: August 11, 2008	By:	/s/ Rick A. Lepley
		Rick A. Lepley
		President and Chief Executive Officer (duly authorized officer and principal executive officer)
Date: August 11, 2008	By:	/s/ Michael G. Zawoysky
		Michael G. Zawoysky
		Acting Chief Financial Officer (duly authorized officer and principal financial officer)

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Exhibit Index

Exhibit No.		Description
	10.1	Amended and Restated Loan Agreement, dated as of May 31, 2008, between the Company and Wachovia Bank, National Association (“Wachovia”).
	10.2	Amendment to Loan Documents, dated as of May 31, 2008, between the Company and Wachovia.
	10.3	Amended and Restated Promissory Note, dated as of May 31, 2008, between the Company and Wachovia.
	10.4	First Amendment, dated August 6, 2008, to Employment Letter dated November 28, 2007, between the Company and Joseph A. Jeffries.
	31.1	Certification pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”).
	31.2	Certification pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”).
	32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

25

EX-10.1

Exhibit 10.1

AMENDED & RESTATED

LOAN AGREEMENT

Wachovia Bank, National Association
190 River Road
Summit, New Jersey 07901
(Hereinafter referred to as the “Bank”)

A.C. Moore Arts & Crafts, Inc.
130 A.C. Moore Drive
Berlin, NJ 08009

A.C. Moore Incorporated
130 A.C. Moore Drive
Berlin, NJ 08009

Moorestown Finance, Inc.
103 Foulk Road, Suite 200
Wilmington DE 19803

Blackwood Assets, Inc.
103 Foulk Road, Suite 200
Wilmington DE 19803

A.C. Moore Urban Renewal, LLC
130 A.C. Moore Drive
Berlin, NJ 08009
(Individually and collectively, “Borrower”)

This Loan Agreement (“Agreement”) is entered into as of May 31, 2008, by and between Bank and Borrower.

This Agreement amends and restates in its entirety that certain Loan Agreement dated as of October 28, 2003, as subsequently amended by a Promissory Note and Loan Modification Agreement, dated February 22, 2006, a Promissory Note and Loan Modification Agreement, dated May 1, 2006, a Promissory Note and Loan Modification Agreement, dated March 12, 2007, and a Promissory Note and Loan Modification Agreement dated January 24, 2008, and applies to the loan or loans (individually and collectively, the “Loan”) evidenced by one or more promissory notes, of even date, or other notes subject hereto, as modified from time to time (whether one or more, the “Note”), the commercial letters of credit and standby letters of credit issued hereunder (each, a “Letter of Credit” and collectively, the “Letters of Credit”) and all Loan Documents.

Relying upon the covenants, agreements, representations and warranties contained in this Agreement, Bank is willing to extend credit to Borrower upon the terms and subject to the conditions set forth herein, and Bank and Borrower agree as follows:

DEFINITIONS. Loan Documents. The term “Loan Documents”, as used in this Agreement and the other Loan Documents, refers to all documents executed in connection with the loans evidenced by (i) a $30,000,000 Amended & Restated Promissory Note of even date, (ii) a $7,500,000 Promissory Note dated as of October 28, 2003, as amended from time to time, and (iii) a $22,500,000 Promissory Note, dated as of October 28, 2003, as amended from time to time, and any letters of credit issued pursuant to this Agreement, any applications for such letters of credit and any other documents executed in connection therewith, and may include, without limitation, a commitment letter that survives closing, this Agreement, the Note, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. § 101). Obligations. The term “Obligations”, as used in this Agreement and the other Loan Documents, refers to any and all indebtedness and other obligations under the Note, and any additional or replacement notes, all other obligations under any other Loan Document(s), and all obligations under any swap agreements (as defined in 11 U.S.C. § 101) between Borrower and Bank whenever executed. Certain Other Terms. All terms that are used but not otherwise defined in any of the Loan Documents shall have the definitions provided in the Uniform Commercial Code.

LETTERS OF CREDIT. Upon the request of Borrower, Bank shall issue commercial letters of credit and standby letters of credit, provided, the aggregate amount available to be drawn under all commercial Letters of Credit and standby Letters of Credit plus the aggregate amount of unreimbursed drawings under all commercial Letters of Credit and standby Letters of Credit at any one time does not exceed $12,500,000.00, and further provided, no commercial letter of credit shall expire more than 180 days after the date it is issued and no standby letter of credit shall expire more than 365 days after the date it is issued, except that upon Borrower’s request, Bank shall issue letters of credit with auto-renewal clauses. Notwithstanding anything to the contrary contained herein, the aggregate outstanding principal balance of Advances (as defined in the line of credit Amended & Restated Promissory Note in the amount of $30,000,000.00, of even date), plus the aggregate amount available to be drawn under all Letters of Credit plus the aggregate amount of unreimbursed drawings under all Letters of Credit plus the aggregate face amount of all outstanding banker’s acceptances created by Bank in its sole discretion at the request of Borrower at any one time shall not exceed $30,000,000.00. Bank’s obligation to issue Letters of Credit shall terminate if Borrower is in default (however denominated) under the Note or the other Loan Documents, or in any case, if not sooner terminated, on May 30, 2009.

LETTER OF CREDIT FEES. Borrower shall pay to Bank, at such times as Bank shall require, Bank’s standard fees in connection with Letters of Credit, as in effect from time to time, and with respect to standby Letters of Credit, an additional fee equal to 1.00% per annum on the face amount of each standby Letter of Credit, payable annually, in advance, for so long as such Letter of Credit is outstanding.

REPRESENTATIONS. Borrower represents that from the date of this Agreement and until final payment in full of the Obligations: Accurate Information. All information now and hereafter furnished to Bank is and will be true, correct and complete in all material respects. Any such information relating to Borrower’s financial condition will accurately reflect in all material respects, Borrower’s financial condition as of the date(s) thereof subject to year end audit adjustment, (including all contingent liabilities of every type (to the extent that such liability would otherwise be required to be reflected in such financial statements under GAAP)), and Borrower further represents that its financial condition has not changed materially or adversely since the date(s) of such documents. Authorization; Non-Contravention. The execution, delivery and performance by Borrower and any guarantor, as applicable, of this Agreement and other Loan Documents to which it is a party are within its power, have been duly authorized as may be required and, if necessary, by making appropriate filings with any governmental agency or unit and are the legal, binding, valid and enforceable obligations of Borrower and any guarantors, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles related thereto; and do not (i) contravene, or constitute (with or without the giving of notice or lapse of time or both) a material violation of any provision of applicable law, a violation of the organizational documents of Borrower or any guarantor, or a default under any material agreement, judgment, injunction, order, decree or other instrument binding upon or affecting Borrower or any guarantor, (ii) result in the creation or imposition of any lien (other than the lien(s) created by the Loan Documents) on any of Borrower’s or any guarantor’s assets, or (iii) give cause for the acceleration of any material obligations of Borrower or any guarantor to any other creditor. Asset Ownership. Borrower has good and marketable title to all of the properties and assets reflected on the balance sheets and financial statements supplied Bank by Borrower, and all such properties and assets are free and clear of mortgages, security deeds, pledges, liens, charges, and all other encumbrances, except as otherwise described on Exhibit A, attached hereto and made a part hereof and otherwise permitted pursuant to the

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“Negative Covenants, Encumbrances” section hereof (the “Permitted Liens”). To Borrower’s knowledge, no default has occurred under any Permitted Liens and no claims or interests adverse to Borrower’s present rights in its properties and assets have arisen. Discharge of Liens and Taxes. Borrower has duly filed, paid and/or discharged all taxes or other claims that may become a lien on any of its property or assets, except those not yet due and payable and except to the extent that such items are being appropriately contested in good faith and an adequate reserve for the payment thereof is being maintained. Sufficiency of Capital. Borrower is not, and after consummation of this Agreement and after giving effect to all indebtedness incurred and liens created by Borrower in connection with the Note and any other Loan Documents, will not be, insolvent within the meaning of 11 U.S.C. § 101(32). Compliance with Laws. Borrower is in compliance in all material respects with all federal, state and local laws, rules and regulations applicable to its properties, operations, business, and finances, including, without limitation, any federal or state laws relating to liquor (including 18 U.S.C. § 3617, et seq.) or narcotics (including 21 U.S.C. § 801, et seq.) and/or any commercial crimes; all applicable federal, state and local laws and regulations intended to protect the environment; and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), if applicable. Organization and Authority. Each corporation, partnership or limited liability company Borrower and/or guarantor, as applicable, is duly created, validly existing and in good standing under the laws of the state of its organization, and has all powers, governmental licenses, authorizations, consents and approvals required to operate its business as now conducted, except where the failure to do so would not have a material adverse effect on the business, operations or properties of Borrower or any guarantor Each corporation, partnership or limited liability company Borrower and/or guarantor, as applicable, is duly qualified, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers, and in which the failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results of operations, or properties of Borrower or any such guarantor. No Litigation. As of the date hereof and as of the date of each Advance under the Loan Documents, there are no pending or threatened suits, claims or demands against Borrower or any guarantor in excess of $250,000 in the aggregate and not covered by insurance that have not been disclosed to Bank by Borrower in writing, and approved by Bank. Regulation U. None of the proceeds of the credit extended pursuant to this Agreement shall be used directly or indirectly for the purpose of purchasing or carrying any margin stock in violation of any of the provisions of Regulation U of the Board of Governors of the Federal Reserve System (“Regulation U”), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry margin stock or for any other purchase which might render the Loan a "Purpose Credit” within the meaning of Regulation U. ERISA. Each employee pension benefit plan, as defined in ERISA, maintained by Borrower meets, as of the date hereof, the minimum funding standards of ERISA and all applicable regulations thereto and requirements thereof, and of the Internal Revenue Code of 1986, as amended. No “Prohibited Transaction” or “Reportable Event” (as both terms are defined by ERISA) has occurred with respect to any such plan.

AFFIRMATIVE COVENANTS. Borrower agrees that from the date hereof and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, Borrower will: Access to Books and Records. Allow Bank, or its agents, upon reasonable prior notice and during normal business hours, access to the books, records and such other documents of Borrower as Bank shall reasonably require, and allow Bank, at Bank’s expense, to inspect, audit and examine the same and to make extracts therefrom and to make copies thereof, provided that upon the occurrence and during the continuation of any Default, as defined in the Loan Documents, such inspection, audit, examination, extracts and copies shall be at Borrower’s expense. Business Continuity. Conduct its business in substantially the same manner as such business is now and has previously been conducted. Compliance with Other Agreements. Comply with all terms and conditions contained in this Agreement, and any other Loan Documents, and swap agreements, if applicable, as defined in the 11 U.S.C. § 101. Estoppel Certificate. Furnish, within 15 days after written request by Bank, a written statement duly acknowledged of the amount due under the Loans and identifying each outstanding Letter of Credit, if any, and whether offsets or defenses exist against the Obligations. Insurance. Maintain adequate insurance coverage with respect to its properties and business against loss or damage of the kinds and in the amounts customarily insured against by companies of established reputation engaged in the same or similar businesses including, without limitation, commercial general liability insurance,

Page 3

workers compensation insurance, and business interruption insurance; all acquired in such amounts and from such companies as Bank may reasonably require. Management Letter. Borrower shall deliver to Bank within 90 days after the close of each fiscal year, its Management Letter, if any, in the same form and substance as is provided to Borrower and prepared by Borrower’s independent certified public accountant. Maintain Properties. Maintain, preserve and keep its property in good repair, working order and condition, making all needed replacements, additions and improvements thereto, to the extent allowed by this Agreement. Non-Default Certificate From Borrower. Deliver to Bank, with the Financial Statements required below, a certificate signed by Borrower, in the form attached hereto as Exhibit B, if Borrower is an individual, or by a principal financial officer of Borrower warranting that no “Default” as specified in the Loan Documents nor any event which, upon the giving of notice or lapse of time or both, would constitute such a Default, has occurred and demonstrating Borrower’s compliance with the financial covenants contained herein. Notice of Default and Other Notices. (a) Notice of Default. Furnish to Bank immediately upon becoming aware of the existence of any condition or event which constitutes a Default (as defined in the Loan Documents) or any event which, upon the giving of notice or lapse of time or both, may become a Default, written notice specifying the nature and period of existence thereof and the action which Borrower is taking or proposes to take with respect thereto. (b) Other Notices. Promptly notify Bank in writing of (i) any material adverse change in its financial condition or its business; (ii) any default under any material agreement, contract or other instrument to which it is a party or by which any of its properties are bound, or any acceleration of the maturity of any material indebtedness owing by Borrower; (iii) any material adverse claim against or affecting Borrower or any part of its properties; (iv) the commencement of, and any material determination in, any litigation with any third party or any proceeding before any governmental agency or unit affecting Borrower or the Project (as defined in the Construction Loan Agreement, of even date), which could result in an uninsured liability in excess of $250,000; and (v) at least 30 days prior thereto, any change in Borrower’s name or address as shown above, and/or any change in Borrower’s legal structure other than changes in share ownership of any Borrower that is publicly traded. Other Financial Information. Deliver promptly such other information regarding the operation, business affairs, and financial condition of Borrower which Bank may reasonably request. Payment of Debts. Pay and discharge when due, and before subject to penalty or further charge, and otherwise satisfy before maturity or delinquency, all obligations, debts, taxes, and liabilities of whatever nature or amount, except those which Borrower in good faith disputes. Reports and Proxies. Deliver to Bank, promptly, a copy of all financial statements, reports, notices, and proxy statements, sent by Borrower to stockholders, and all regular or periodic reports required to be filed by Borrower with any governmental agency or authority.

NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, Borrower will not: Change in Fiscal Year. Change its fiscal year without the written consent of Bank, not to be unreasonable withheld. Change of Control. Make or suffer a change in the ownership of any publicly traded Borrower in excess of 50% of the outstanding stock or voting power of or in any such entity in a single transaction or a series of transactions. Encumbrances. Create, assume, or permit to exist any mortgage, security deed, deed of trust, pledge, lien, charge or other encumbrance on any of its assets, whether now owned or hereafter acquired, other than: (i) security interests required by the Loan Documents; (ii) liens for taxes contested in good faith or not yet due and payable; (iii) liens accruing by law for employee benefits, workers’ compensation or other similar laws; (iv) Permitted Liens (v) liens relating to capitalized lease obligations or purchase money financing not to exceed $2,000,000 in the aggregate; (vi) cash deposits or pledges to secure bids, tenders, contracts, stay, customs and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business for which deposits are customary; (vii) carriers’, warehouse men’s, mechanics, materialmen’s, repairmen’s or other like liens arising by operation of law for which the obligations are not delinquent; or (viii) judgment liens not constituting a Default. Guarantees. Guarantee or otherwise become responsible for obligations of any other person or persons, other than the endorsement of checks and drafts for collection in the ordinary course of business. Investments. Purchase any stock, securities, or evidence of indebtedness of any other person or entity except investments in (i) direct obligations of the United States Government and certificates of deposit of United States commercial banks having a tier 1 capital ratio of not less than 6% and then in an amount not exceeding 10% of the issuing bank’s unimpaired capital and surplus and (ii) investment grade securities with a rating,

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or effective rating, of at least A1 or P1. Default on Other Contracts or Obligations. Default on any contract with or obligation when due to a third party or default in the performance of any obligation to a third party incurred for borrowed money, the default of which could result in an uninsured liability in excess of $500,000. Government Intervention. Permit the assertion or making of any seizure, vesting or intervention by or under authority of any governmental entity, as a result of which the management of Borrower or any guarantor is displaced of its authority in the conduct of its respective business or such business is materially curtailed or materially impaired. Judgment Entered. Permit the entry of any monetary judgment or the assessment against, the filing of any tax lien against, or the issuance of any writ of garnishment or attachment against any property of or debts due Borrower in an amount in excess of $1,000,000.00, in the aggregate, which is not discharged or execution is not stayed within 30 days of entry. Prepayment of Other Debt. Retire any long-term debt entered into prior to the date of this Agreement at a date in advance of its legal obligation to do so; provided that Borrower may repay such long-term debt if such repayment shall not cause any condition or event which constitutes a Default (as defined in the Loan Documents executed by the Borrower) or any event which, upon the giving of notice or lapse of time or both, may become a Default. Retire or Repurchase Capital Stock. Retire or otherwise acquire any of its capital stock; provided that Borrower may retire or repurchase capital stock if such retirement or repurchase shall not cause any condition or event which constitutes a Default (as defined in the Loan Documents executed by the Borrower) or any event which, upon the giving of notice or lapse of time or both, may become a Default.

FINANCIAL REPORTING REQUIREMENTS. Borrower shall deliver to the Bank within 90 days after the close of each fiscal year a copy of its 10K report as required to be filed under the Securities and Exchange Act of 1934 (“Act”) (and any amendments and modifications to the Act thereto). The 10K shall contain the audited annual consolidated financial statement for the fiscal year, including all notes and schedules, prepared in accordance with generally accepted accounting principles (“GAAP”).

Borrower shall deliver to the Bank within 45 days after the close of each fiscal quarter a copy of its 10Q report as required to be filed under the Securities and Exchange Act of 1934 (and any amendments and modifications to the Act thereto). The 10Q shall contain the consolidated financial statement for the fiscal quarter, including all notes and schedules as required by the 10Q report.

Borrower shall provide to Bank copies of all other reports required to be filed by the Borrower under the Securities and Exchange Act of 1934 (and any amendments and modifications to the Act thereto).

Borrower shall deliver promptly such other information regarding the operation, business affairs, and financial condition of Borrower which Bank may reasonably request.

FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date hereof until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, and the Debt Service Coverage Ratio, Leverage Ratio, and Current Ratio covenants shall be calculated on a consolidated basis, using the financial information for Borrower, its subsidiaries, affiliates and its holding or parent company, as applicable:

Debt Service Coverage Ratio. Borrower shall maintain a Debt Service Coverage Ratio of not less than 1.25 to 1.00, to be calculated quarterly, on a rolling four quarters basis. “Debt Service Coverage Ratio” means the ratio of (i) the sum of net profit plus depreciation plus amortization plus interest expense plus operating lease (rent) expenses minus all cash dividends, withdrawals and/or other equity disbursements divided by (ii) the sum of the current portion of long term debt and capital lease obligations plus interest expenses plus operating lease (rent) expenses.

Leverage Ratio. Borrower shall maintain a Leverage Ratio not greater than .40 to 1.00, to be calculated quarterly. “Leverage Ratio” means the ratio of (i) Funded Debt divided by (ii) the sum of Funded Debt plus Tangible Net Worth. “Funded Debt” shall mean, as applied to any person or entity, the sum of, (a) all indebtedness for borrowed money, including, without limitation, capital lease obligations, subordinated debt (including debt subordinated to the Bank), and unreimbursed drawings under letters of credit, or any other monetary obligation evidenced by a note, bond, debenture or other agreement of that person or entity, (b) letters of credit issued on behalf of the Borrower,

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(c) Synthetic Lease obligations of Borrower and that portion of any obligation of Borrower, as lessee, which in accordance with generally accepted accounting principles is required to be capitalized on the balance sheet of Borrower, and (d) any contingent obligations of Borrower of indebtedness of others. “Tangible Net Worth” shall mean total assets minus Total Liabilities. For purposes of this computation, the aggregate amount of any intangible assets of Borrower including, without limitation, goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks, and brand names, shall be subtracted from total assets. “Total Liabilities” shall mean all liabilities of Borrower, including capitalized leases and all reserves for deferred taxes, debt fully subordinated to Bank on terms and conditions acceptable to Bank, and other deferred sums appearing on the liabilities side of a balance sheet and all obligations as lessee under off-balance sheet synthetic leases of Borrower, all in accordance with generally accepted accounting principles applied on a consistent basis.

Current Ratio. Borrower shall maintain a Current Ratio at each fiscal quarter and each fiscal year end of not less than 2.00 to 1.00, to be calculated quarterly. “Current Ratio” shall mean Current Assets divided by Current Liabilities. “Current Assets” shall mean all assets which are so classified in accordance with generally accepted accounting principles (“GAAP”) and shall also include Marketable Securities classified as non-current according to GAAP for purposes of this ratio calculation. “Current Liabilities” shall mean all liabilities which are so classified in accordance with GAAP.

Deposit Relationship. Borrower shall maintain its primary depository account with Bank.

Loans and Advances. Borrower shall not, during any fiscal year, make loans or advances to any person or entity, which total more than $1,000,000 in the aggregate, excepting (i) ordinary course of business travel and expense advances, (ii) payments made on a split-dollar life insurance policy in the amount of $514,000 and (iii) loans to any other Borrower.

Material Acquisitions. Borrower shall not acquire substantially all of the business or assets or more than 50% of the outstanding stock or voting power of any other entity or entities requiring a cash expenditure of more than $20,000,000 in the aggregate and providing that such acquisition shall not cause any condition or event which constitutes a Default (as defined in the Loan Documents executed by the Borrower) or any event which, upon the giving of notice or lapse of time or both, may become a Default.

Limitation on Debt. Borrower shall not, directly or indirectly, create, incur, assume or become liable for any additional indebtedness, whether contingent or direct, if, giving effect to such additional debt on a pro forma basis causes the aggregate amount of Borrower’s debt, excluding obligations to Bank, to exceed $18,000,000. Notwithstanding this limitation on debt, Borrower shall be allowed to incur debt subordinated to Bank on terms and conditions satisfactory to Bank, providing that the repayment of such debt shall not cause any condition or event which constitutes a Default (as defined in the Loan Documents executed by the Borrower) or any event which, upon the giving of notice or lapse of time or both, may become a Default. Debt in this paragraph shall mean indebtedness for borrowed money including capital leases and purchase money financing.

Notwithstanding anything in this Financial Covenant section to the contrary, for purposes of calculating the Debt Service Coverage Ratio, Leverage Ratio, Current Ratio and Limitation on Debt covenants, the Bank shall calculate the Borrower’s income notwithstanding the provisions of EITF Issue No. 02-16 “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor” and Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment”.

CONDITIONS PRECEDENT. The obligations of Bank to make the loan and any advances and to issue any Letters of Credit pursuant to this Agreement are subject to the following conditions precedent: Letter of Credit Documents. Receipt by Bank of all documents required by Bank in connection with Letters of Credit, including without limitation, applications therefor, all in form satisfactory to Bank. Additional Documents. Receipt by Bank of such additional supporting documents as Bank or its counsel may reasonably request.

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CURE PERIOD. Except as provided below, a Default based upon Nonpayment, as defined herein, may be cured within 5 days of the date such payment is due and any other Default may be cured within 30 days (or such longer period not to exceed 90 days if the default is incapable of cure within 30 days and provided that Borrower diligently pursues such cure) after written notice thereof is mailed to the Borrower by Bank. The Borrower’s right to cure shall be applicable only to curable defaults and shall not apply, without limitation, to Defaults based upon False Warranty, Cessation or Bankruptcy. After three (3) defaults requiring mailing of notice during any 12 month period, Borrower shall no longer have the right to cure such subsequent Default. Bank shall not exercise its remedies to collect the Obligations except as Bank reasonably deems necessary to protect its interest in collateral securing the Obligations during a cure period.

DEFAULT. If any of the following occurs and is not cured within the applicable Cure Period, a default (“Default”) under Loan Documents shall exist: Nonpayment; Nonperformance. The failure of timely payment or performance of the Obligations or Default, however denominated, under this Agreement or any other Loan Documents. False Warranty. A warranty or representation made or deemed made in the Loan Documents or furnished Bank in connection with the loan evidenced by this Agreement proves materially false, or if of a continuing nature, becomes materially false. Cross Default. At Bank’s option, (i) any default in payment or performance of any obligation under any other loans, contracts or agreements of Borrower, any Subsidiary of Borrower, any general partner of or the holder(s) of the majority ownership interests of Borrower (except holder(s) of the common stock of the Borrower) with Bank or its affiliates (“Affiliate” shall have the meaning as defined in 11 U.S.C. § 101, except that the term “Borrower” shall be substituted for the term “Debtor” therein; “Subsidiary” shall mean any business in which Borrower holds, directly or indirectly, a controlling interest), or (ii) any default in payment or performance of any obligation under any other loans aggregating more than $2,500,000 of Borrower, any Subsidiary of Borrower. Cessation; Bankruptcy. The death of, appointment of a guardian for, dissolution of, termination of existence of, appointment of a receiver for, assignment for the benefit of creditors of, or commencement of any bankruptcy or insolvency proceeding by or against Borrower or its Subsidiaries, or any party to the Loan Documents. Material Business Alteration. Without prior written consent of Bank, a material alteration in the kind or type of Borrower’s business or that of Borrower’s Subsidiaries, if any. Material Capital Structure or Business Alteration. Without prior written consent of Bank, (ii) the sale of substantially all of the business or assets of Borrower, any of Borrower’s Subsidiaries or any guarantor, or a material portion (10% or more) of such business or assets if such a sale is outside the ordinary course of business of Borrower, or any of Borrower’s Subsidiaries or any guarantor, or more than 50% of the outstanding stock or voting power of or in any such entity in a single transaction or a series of transactions; (ii) the acquisition of substantially all of the business or assets of any entity, which acquisition has a total cost, singly or in the aggregate, in excess of $20,000,000; or (iii) should any Borrower or any of Borrower’s Subsidiaries or any guarantor enter into any merger or consolidation if Borrower, such subsidiary or guarantor is not the surviving entity; or (iv) should Borrower be delisted from the NASDAQ, unless Borrower is being listed on another recognized United States stock exchange. ERISA Liabilities. Borrower incurs unpaid ERISA liabilities in excess of $1,000,000.

REMEDIES UPON DEFAULT. If a Default occurs under the Loan Documents, upon notice to Borrower (provided that, if Default is due to bankruptcy, no notice to Borrower shall be required), Bank may, simultaneously with such notice or at any time thereafter, take the following actions: Bank Lien. Foreclose its security interest or lien against Borrower’s accounts without notice. Acceleration Upon Default. Accelerate the maturity of any Note and, at Bank’s option, any or all other Obligations, other than Obligations under any swap agreements (as defined in 11 U.S.C. § 101) between Borrower and Bank, which shall be governed by the default and termination provisions of said swap agreements; whereupon such Note and the accelerated Obligations shall be immediately due and payable; provided, however, if the Default is based upon a bankruptcy or insolvency proceeding commenced by or against Borrower or any guarantor or endorser of any Note, all Obligations (other than Obligations under any swap agreement as referenced above) shall automatically and immediately be due and payable. Cumulative. Exercise any rights and remedies as provided under the Note and other Loan Documents, or as provided by law or equity.

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WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of any Loan Documents shall be valid unless in writing and signed by an officer of Bank. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or remedy under the Loan Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

Each Borrower or any person liable under the Notes waives presentment, protest, notice of dishonor, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind. Further, each agrees that Bank may extend, modify or renew any Note or make a novation of the loan evidenced by any Note for any period, and grant any releases, compromises or indulgences with respect to any collateral securing any Note, or with respect to any other Borrower or any other person liable under the Loan Documents, all without notice to or consent of each Borrower or each person who may be liable under any Loan Document and without affecting the liability of Borrower or any person who may be liable under the Loan Documents.

MISCELLANEOUS PROVISIONS. Assignment. The Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank’s interests in and rights under this Agreement and the other Loan Documents are freely assignable, in whole or in part, by Bank. In addition, nothing in the Loan Documents shall prohibit Bank from pledging or assigning any Loan Document or any interest therein to any Federal Reserve Bank. Borrower shall not assign its rights and interest hereunder without the prior written consent of Bank, and any attempt by Borrower to assign without Bank’s prior written consent is null and void. Any assignment shall not release Borrower from the Obligations. Applicable Law; Conflict Between Documents. Unless otherwise provided in any other Loan Document, the Loan Documents shall be governed by and construed under the laws of the state named in Bank’s address on the first page hereof without regard to that state’s conflict of laws principles. If the terms of any Note should conflict with the terms of any loan agreement or any commitment letter that survives closing, the terms of such Note shall control. Borrower’s Accounts. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower’s accounts with Bank and any of its affiliates. Jurisdiction. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state named in Bank’s address on the first page hereof. Severability. If any provision of the Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of such document. Notices. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower’s address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Wachovia Bank, National Association, Mail Code VA7391, P. O. Box 13327, Roanoke, VA 24040 or Wachovia Bank, National Association, Mail Code VA7391, 10 South Jefferson Street, Roanoke, VA 24011 or such other address as Bank may specify in writing from time to time. Notices to Bank must include the mail code. In the event that Borrower changes Borrower’s address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. Plural; Captions. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term “person” shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Advances. Bank may, in its sole discretion, make other advances which shall be deemed to be advances under the Loan Documents, even though the stated principal amount of any Note may be exceeded as a result thereof. Posting of Payments. All payments received during normal banking hours after 2:00 p.m. local time at the office of Bank first shown above shall be deemed received at the opening of the next banking day. Fees and Taxes. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time.

[Signature Page to Follow Immediately Hereafter]

Page 8

IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above, have caused this Agreement to be executed under seal.

A.C. MOORE ARTS & CRAFTS, INC., a Pennsylvania corporation Taxpayer Identification Number: 22-3527763
By:
	Marc Katz
	Executive Vice President and Chief Financial Officer
A.C. MOORE INCORPORATED, a Virginia corporation Taxpayer Identification Number: 22-2546111
By:	/s/ Marc Katz
	Marc Katz
	Executive Vice President and Chief Financial Officer
MOORESTOWN FINANCE, INC. a Delaware corporation Taxpayer Identification Number: 52-2066272
By:	/s/ Marc Katz
	Marc Katz
	Executive Vice President and Chief Financial Officer
BLACKWOOD ASSETS, INC., a Delaware corporation Taxpayer Identification Number: 52-2066271
By:	/s/ Marc Katz
	Marc Katz
	Executive Vice President and Chief Financial Officer

Page 9

A.C. MOORE URBAN RENEWAL, LLC, a New Jersey limited liability company Taxpayer Identification Number: 56-2388590
By:	/s/ Marc Katz
	Marc Katz
	Authorized Person

WACHOVIA BANK, NATIONAL ASSOCIATION
By:	/s/ Dante Bucci
	Dante Bucci, Senior Vice President

Page 10

EX-10.2

Exhibit 10.2

AMENDMENT TO LOAN DOCUMENTS

THIS AMENDMENT TO LOAN DOCUMENTS (this “Amendment”) is made as of May 31, 2008, by and between A.C. MOORE ARTS & CRAFTS, INC., a Pennsylvania corporation with an address of 130 A.C. Moore Drive, Berlin, New Jersey 08009, A.C. MOORE INCORPORATED, a Virginia corporation, with an address of 130 A.C. Moore Drive, Berlin, New Jersey 08009, MOORESTOWN FINANCE, INC., a Delaware corporation, with an address of 103 Foulk Road, Suite 200, Wilmington, Delaware 19803, BLACKWOOD ASSETS, INC., a Delaware corporation, with an address of 103 Foulk Road, Suite 200, Wilmington, Delaware 19803, and A.C. MOORE URBAN RENEWAL, LLC, a New Jersey limited liability company, with an address of 130 A.C. Moore Drive, Berlin, New Jersey 08009 (the “Borrower”), and WACHOVIA BANK, NATIONAL ASSOCIATION (the “Bank”) with an address at 190 River Road, Summit, New Jersey 07901.

BACKGROUND

A. The Borrower has executed and delivered to the Bank one or more promissory notes, letter agreements, loan agreements, security agreements, mortgages, pledge agreements, collateral assignments, and other agreements, instruments, certificates and documents, some or all of which are more fully described on attached Exhibit A, which is made a part of this Amendment (each as amended from time to time, a “Loan Document”; and collectively the “Loan Documents”) which evidence or secure some or all of the Borrower’s obligations to the Bank for one or more loans or other extensions of credit (the “Obligations”).

B. The Borrower and the Bank desire to amend the Loan Documents as provided for in this Amendment.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

1. Certain of the Loan Documents are amended as set forth in Exhibit A. Any and all references to any Loan Document in any other Loan Document shall be deemed to refer to such Loan Document as so amended by this Amendment. This Amendment is deemed incorporated into each of the Loan Documents. Any initially capitalized terms used in this Amendment without definition shall have the meanings assigned to those terms in the Loan Documents. To the extent that any term or provision of this Amendment is or may be inconsistent with any term or provision in any Loan Document, the terms and provisions of this Amendment shall control.

2. The Borrower hereby certifies that: (a) all of its representations and warranties in the Loan Documents, as amended by this Amendment or amended and restated by the $30MM Restated Note and the Restated Loan Agreement, are, except as may otherwise be stated in this Amendment, and except for the change in the chief executive office of each Borrower (the current address of each Borrower appearing at the beginning of this Amendment), and except for the change in the jurisdiction of organization of A.C. Moore Incorporated to the Commonwealth of Virginia (i) true and correct as of the date of this Amendment except those specifically made as of an earlier date, (ii) ratified and confirmed without condition as if made anew except those specifically made as of an earlier date, and (iii) incorporated into this Amendment by reference, (b) no Default or event which, with the passage of time or the giving of notice or both, would constitute a Default, exists under any Loan Document which will not be cured by the execution and effectiveness of this Amendment, (c) no consent, approval, order or authorization of, or registration or filing with, any third party is required in connection with the execution, delivery and carrying out of this Amendment or, if required, has been obtained, and (d) this Amendment has been duly authorized, executed and delivered so that it constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or similar laws related to or limiting creditor’s rights generally or equitable principles related thereto. The Borrower confirms that the Obligations remain outstanding without defense, set off, counterclaim, discount or charge of any kind as of the date of this Amendment.

3. The Borrower hereby confirms that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Borrower or third parties (if applicable), shall continue unimpaired and in full force and effect, and shall cover and secure all of the Borrower’s existing and future Obligations to the Bank, as modified by this Amendment.

4. As a condition precedent to the effectiveness of this Amendment, the Borrower shall comply with the terms and conditions (if any) specified in Exhibit A.

5. To induce the Bank to enter into this Amendment, the Borrower waives and releases and forever discharges the Bank and its officers, directors, attorneys, agents, and employees from any liability, damage, claim, loss or expense of any kind that it may have as of the date hereof against the Bank or any of them arising out of or relating to the Obligations. The Borrower further agrees to indemnify and hold the Bank and its officers, directors, attorneys, agents and employees harmless from any loss, damage, judgment, liability or expense (including attorneys’ fees) suffered by or rendered against the Bank or any of them on account of any claims arising out of or relating to the Obligations, except to the extent any claim, loss, damage, judgment, liability or expense results from the gross negligence or willful misconduct of the Bank. The Borrower further states that it has carefully read the foregoing release and indemnity, knows the contents thereof and grants the same as its own free act and deed.

6. This Amendment may be signed in any number of counterpart copies and by the parties to this Amendment on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart. Any party so executing this Amendment by facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by facsimile transmission.

7. This Amendment will be binding upon and inure to the benefit of the Borrower and the Bank and their respective heirs, executors, administrators, successors and assigns.

8. This Amendment has been delivered to and accepted by the Bank and will be deemed to be made in the State of New Jersey. This Amendment will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of New Jersey, excluding its conflict of laws rules.

9. Except as amended hereby, or amended and restated by the $30MM Restated Note and the Restated Loan Agreement, the terms and provisions of the Loan Documents remain unchanged, are and shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms, and are hereby ratified and confirmed. Except as expressly provided herein, this Amendment shall not constitute an amendment, waiver, consent or release with respect to any provision of any Loan Document, a waiver of any default or Event of Default under any Loan Document, or a waiver or release of any of the Bank’s rights and remedies (all of which are hereby reserved). The Borrower expressly ratifies and confirms the waiver of jury trial provision contained in the Loan Documents.

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WITNESS the due execution of this Amendment as a document under seal as of the date first written above.

A.C. MOORE ARTS & CRAFTS, INC., a Pennsylvania corporation Taxpayer Identification Number: 22-3527763
By:	/s/ Marc Katz
	Marc Katz
	Executive Vice President and Chief Financial Officer
A.C. MOORE INCORPORATED, a Virginia corporation Taxpayer Identification Number: 22-2546111
By:	/s/ Marc Katz
	Marc Katz
	Executive Vice President and Chief Financial Officer
MOORESTOWN FINANCE, INC. a Delaware corporation Taxpayer Identification Number: 52-2066272
By:	/s/ Marc Katz
	Marc Katz
	Executive Vice President and Chief Financial Officer
BLACKWOOD ASSETS, INC., a Delaware corporation Taxpayer Identification Number: 52-2066271
By:	/s/ Marc Katz
	Marc Katz
	Executive Vice President and Chief Financial Officer

-3-

A.C. MOORE URBAN RENEWAL, LLC, a New Jersey limited liability company Taxpayer Identification Number: 56-2388590
By:	/s/ Marc Katz
	Marc Katz
	Authorized Person

WACHOVIA BANK, NATIONAL ASSOCIATION
By:	/s/ Dante Bucci
	Dante Bucci
	Senior Vice President

-4-

EXHIBIT A TO
AMENDMENT TO LOAN DOCUMENTS
DATED AS OF MAY 31, 2008

A. The “Loan Documents” that are the subject of this Amendment include the following (as any of the foregoing have previously been amended, modified or otherwise supplemented):

Promissory Note dated as of October 28, 2003 in the original principal amount of $7,500,000
Promissory Note dated as of October 28, 2003 in the original principal amount of $22,500,000
Security Agreement dated as of October 28, 2003
Mortgage, Assignment of Rents and Security Agreement and Financing Statement dated as of October 28, 2003
Promissory Note and Loan Modification Agreement dated March 12, 2007
Promissory Note and Loan Modification Agreement dated January 24, 2008
UCC-1 Financing Statements

All other documents, instruments, agreements, and certificates executed and delivered in connection with the Loan Documents listed in this Section A.

B. The Loan Documents are amended as follows:

1. $30MM Restated Note. Concurrently with the execution and delivery of this Amendment, the Borrower shall execute and deliver to the Bank a restated note (the “$30MM Restated Note”), evidencing a $30,000,000 line of credit (the $30MM Loan”) in form and substance satisfactory to the Bank. Upon receipt by the Bank of the $30MM Restated Note, the original Promissory Note dated as of October 28, 2003 in the original principal amount of $25,000,000 (the “Original Note”) shall be cancelled and returned to the Borrower; the $30MM Loan and all accrued and unpaid interest on the Original Note shall thereafter be evidenced by the $30MM Restated Note; and all references to the Original Note in any documents relating thereto shall thereafter be deemed to refer to the $30MM Restated Note. Without duplication, the $30MM Restated Note shall not constitute a novation and shall in no way extinguish the Borrower’s unconditional obligation to repay all indebtedness, including accrued and unpaid interest, evidenced by the Original Note.

2. Restated Loan Agreement. Concurrently with the execution and delivery of this Amendment, the Borrower shall execute and deliver to the Bank a restated loan agreement (the “Restated Loan Agreement”) in form and substance satisfactory to the Bank. All references to the Loan Agreement dated as of October 28, 2003 in any documents relating thereto shall hereafter be deemed to refer to the Restated Loan Agreement.

3. Demand Deposit Account. Bank shall release the $500,000 currently held in a demand deposit account with Bank (the “Deposit”). After the date hereof, Bank shall not require that Borrower maintain the Deposit.

-5-

C. ISDA Master Agreement. Pursuant to subpart (ii) of the definition of Financial Agreement as set forth in the ISDA Master Agreement dated as of October 18, 2006 (including the Schedule and all confirmations relating to any transaction thereunder), among Bank and Borrower, as amended by an ISDA Amendment dated as of January 29, 2008, Bank hereby consents to amend the definition of Financial Agreement to include and refer to the following amendments and restatements between Bank and Borrower.

1.	This Amendment;
2.	The $30MM Restated Note; and
3.	The Restated Loan Agreement.

D. Conditions to Effectiveness of Amendment: The Bank’s willingness to agree to the amendments set forth in this Amendment are subject to the prior satisfaction of the following conditions:

1.	Execution by all parties and delivery to the Bank of this Amendment, the $30MM Restated Note, the Restated Loan Agreement and other items listed on the Preliminary Closing Checklist attached hereto as Schedule A.
2.	Reimbursement of the fees and expenses of the Bank’s outside counsel in connection with this Amendment.

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EX-10.3

Exhibit 10.3

AMENDED & RESTATED
PROMISSORY NOTE

$30,000,000.00

Dated as of May 31, 2008

A.C. Moore Arts & Crafts, Inc.
130 A.C. Moore Drive
Berlin, NJ 08009

A.C. Moore Incorporated
130 A.C. Moore Drive
Berlin, NJ 08009

Moorestown Finance, Inc.
103 Foulk Road, Suite 200
Wilmington DE 19803

Blackwood Assets, Inc.
103 Foulk Road, Suite 200
Wilmington DE 19803

A.C. Moore Urban Renewal, LLC
130 A.C. Moore Drive
Berlin, NJ 08009
(Individually and collectively, “Borrower”)

Wachovia Bank, National Association
190 River Road
Summit, New Jersey 07901
(Hereinafter referred to as “Bank”)

Borrower promises to pay to the order of Bank, in lawful money of the United States of America, at its office indicated above or wherever else Bank may specify, the sum of Thirty Million and No/100 Dollars ($30,000,000.00) or such sum as may be advanced and outstanding from time to time, with interest on the unpaid principal balance at the rate and on the terms provided in this Amended & Restated Promissory Note (including all renewals, extensions or modifications hereof, this “Note”).

LOAN AGREEMENT. This Note is subject to the provisions of that certain Amended & Restated Loan Agreement between Bank and Borrower of even date herewith, as modified from time to time (the “Loan Agreement”).

LINE OF CREDIT. Borrower may borrow, repay and reborrow, and, upon the request of Borrower, Bank shall advance and readvance under this Note from time to time until the maturity hereof (each an "Advance” and together the “Advances”), so long as the total principal balance outstanding under this Note at any one time does not exceed the principal amount stated on the face of this Note, subject to the limitations described in the Loan Agreement to which this Note is subject. Bank’s obligation to make Advances under this Note shall terminate if Borrower is in Default. As of the date of each proposed Advance, Borrower shall be deemed to represent that each representation made in the Loan Documents is true as of such date, except for those representations that apply to a specific date. 30-Day Payout. During the term of the Note, Borrower agrees to pay down the outstanding balance to a maximum of $100.00 for 30 consecutive days annually.

If Borrower subscribes to Bank’s cash management services and such services are applicable to this line of credit, the terms of such service shall control the manner in which funds are transferred between the applicable demand deposit account and the line of credit for credit or debit to the line of credit.

USE OF PROCEEDS. Borrower shall use the proceeds of the loan(s) evidenced by this Note for the commercial purposes of Borrower, as follows: working capital and planned expansion of leased retail stores, including a sublimit of up to $12,500,000 available to fund documentary/standby letters of credit.

SECURITY. Borrower has granted Bank a security interest in the collateral described in the Security Agreement, dated as of October 28, 2003.

INTEREST RATE. Interest shall accrue on the unpaid principal balance of each Advance from the date of such Advance at a rate per annum equal to the LIBOR Market Index Rate, plus the Margin (each, an "Interest Rate”). “LIBOR Market Index Rate”, for any day, means the rate for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a London business day, then the immediately preceding London business day (or if not so reported, then as determined by Bank from another recognized source or interbank quotation).

The “Margin” means the applicable margin based upon the following Debt Service Coverage Ratio (“DSCR”) as defined in the Loan Agreement, as follows:

DEBT SERVICE COVERAGE RATIO — TRAILING 12 MONTHS

GREATER		LESS THAN
THAN		OR EQUAL TO		MARGIN
	1.75				0.50	%
	1.35		1.75		0.65	%
	1.25		1.35		0.90	%

In each case, the determination of the Margin pursuant to the table set forth above shall be made by Bank on a quarterly basis based on an examination of the financial statements delivered pursuant to and in compliance with the terms of the Loan Agreement. Each determination of the Margin shall be effective five (5) days following the date on which the financial statements on which such determination was based are received by the Bank. Bank and Borrower have agreed that the Margin shall be fixed at .65% for the period from the date hereof until Bank’s receipt of the required financial statements for Borrower for the fiscal quarter ending on June 30, 2008. In the event that financial statements for the fiscal quarter most recently completed prior to such date of determination (including without limitation the fiscal quarter ending on June 30, 2008) have not been delivered to the Bank in compliance with the terms and provisions of the Loan Agreement, then the Bank may determine, in its reasonable judgment, the applicable Debt Service Coverage Ratio referred to above that would have been in effect as at such date, and, consequently, the Margin in effect for the period commencing on such date. Nothing contained in this definition shall be construed, in any fashion, as altering or superseding the rights of the Bank, following the occurrence of a Default hereunder (including, without limitation, as a result of a breach by the Borrower of the financial covenants set forth in the Loan Agreement) to charge interest on any loan(s) outstanding hereunder at the Default Rate (as such term is defined hereinafter).

INCREASED COSTS. If any change in Regulation D of the Board of Governors of the Federal Reserve System, or any Regulatory Change (as such term is defined hereinafter), in each case occurring after the date hereof (i) shall subject Bank to any tax, duty or other charge with respect to this Note, or shall change the basis of taxation of payments to the Bank of the principal of or interest on any amounts owed to or funded by it under this Note or any other amounts due under this Note or the Loan Agreement (except for changes in the rate of tax on the overall net income of Bank imposed by the United States of America, or the jurisdiction in which Bank’s principal executive office is located), (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of the Interest Rate), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, Bank, (iii) shall change the amount of capital maintained or required or requested

Page 2

or directed to be maintained by Bank; or (iv) shall impose on Bank any other condition affecting any loan or advance made or funded by Bank under this Note or the Loan Agreement, and the result of any of the foregoing is or would be to (a) increase the cost to (or in the case of Regulation D referred to above, to impose a cost on) Bank, (b) to reduce the amount of any sum received or receivable by Bank under this Note or the Loan Agreement, or (c) in the good faith determination of Bank, reduce the rate of return on the capital of Bank as a consequence of its obligations under the Loan Agreement or arising in connection therewith to a level below that which Bank could otherwise have achieved, then within ten (10) days after demand by Bank to Borrower (which demand shall be accompanied by a written statement setting forth the basis of such demand), Borrower shall pay Bank such additional amount or amounts as will (in the reasonable determination of Bank) compensate Bank for such increased cost or such reduction. Such written statement (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be rebuttably presumptive evidence of the subject matter thereof. “Regulatory Change” means (i) any change in (or the adoption, implementation, change in the phase-in or commencement of effectiveness of) any: (A) United States Federal or state law or foreign law applicable to Bank; or (B) regulation, interpretation, directive, requirement or request (whether or not having the force of law) applicable to Bank of (1) any court or government authority charged with the interpretation or administration of any law applicable to Bank, or of (2) any fiscal, monetary or other authority having jurisdiction over Bank or (ii) any change in the application to Bank of any existing law, regulation, interpretation, directive, requirement or request referred to above.

DEFAULT RATE. In addition to all other rights contained in this Note, if a Default occurs, and as long as a Default continues, all outstanding Obligations shall bear interest at the Interest Rate (as in effect on the date of Default) plus 3% (“Default Rate”). The Default Rate shall also apply from acceleration until the Obligations or any judgment thereon is paid in full.

NOTICE AND MANNER OF BORROWING. Borrower shall give Bank irrevocable telephonic notice of each proposed Advance not later than 11:00 a.m. local time at the office of Bank first shown above at least 2 business days before each proposed Advance. Each such notice shall specify (i) the date of such Advance, which shall be a business day, and (ii) the amount of each Advance. Notices received after 11:00 a.m. local time at the office of Bank first shown above shall be deemed received on the next business day.

INTEREST AND FEE(S) COMPUTATION (ACTUAL/360). Interest and fees, if any, shall be computed on the basis of a 360-day year for the actual number of days in the applicable period (“Actual/360 Computation”). The Actual/360 Computation determines the annual effective yield by taking the stated (nominal) rate for a year’s period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the applicable period. Application of the Actual/360 Computation produces an annualized effective rate exceeding the nominal rate.

REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly payments of accrued interest only, commencing on June 1, 2008, and continuing on the same day of each month thereafter until fully paid. In any event, all principal and accrued interest shall be due and payable on May 30, 2009.

AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT. Borrower authorizes Bank to debit any account with Bank designated by Borrower, beginning June 1, 2008 for any payments due under this Note. Borrower further certifies that Borrower holds legitimate ownership of this account and preauthorizes this periodic debit as part of its right under said ownership.

APPLICATION OF PAYMENTS. Monies received by Bank from any source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank.

Page 3

If any payment received by Bank under this Note or other Loan Documents is rescinded, avoided or for any reason returned by Bank because of any adverse claim or threatened action, the returned payment shall remain payable as an obligation of all persons liable under this Note or other Loan Documents as though such payment had not been made.

DEFINITIONS. Loan Documents. The term “Loan Documents”, as used in this Note and the other Loan Documents, refers to all documents executed in connection with the loan evidenced by this Note and any prior notes which evidence all or any portion of the loan evidenced by this Note, and any letters of credit issued pursuant to any loan agreement to which this Note is subject, any applications for such letters of credit and any other documents executed in connection therewith, and may include, without limitation, a commitment letter that survives closing, a loan agreement, this Note, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. § 101), as in effect from time to time. Obligations. The term “Obligations”, as used in this Note and the other Loan Documents, refers to any and all indebtedness and other obligations under this Note, all other obligations under any other Loan Document(s), and all obligations under any swap agreements (as defined in 11 U.S.C. § 101 as in effect from time to time) executed between Borrower and Bank whenever executed. Certain Other Terms. All terms that are used but not otherwise defined in any of the Loan Documents shall have the definitions provided in the Uniform Commercial Code.

LATE CHARGE. If any payments are not timely made, Borrower shall also pay to Bank a late charge equal to 5% of each payment past due for 10 or more days.

Acceptance by Bank of any late payment without an accompanying late charge shall not be deemed a waiver of Bank’s right to collect such late charge or to collect a late charge for any subsequent late payment received.

ATTORNEYS’ FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank’s reasonable expenses incurred to enforce or collect any of the Obligations after Default including, without limitation, reasonable arbitration, paralegals’, attorneys’ and experts’ fees and expenses, whether incurred without the commencement of a suit, in any trial, arbitration, or administrative proceeding, or in any appellate or bankruptcy proceeding.

USURY. If at any time the effective interest rate under this Note would, but for this paragraph, exceed the maximum lawful rate, the effective interest rate under this Note shall be the maximum lawful rate, and any amount received by Bank in excess of such rate shall be applied to principal and then to fees and expenses, or, if no such amounts are owing, returned to Borrower.

MISCELLANEOUS PROVISIONS. Applicable Law; Conflict Between Documents. This Note and, unless otherwise provided in any other Loan Document, the other Loan Documents shall be governed by and construed under the laws of the state named in Bank’s address on the first page hereof without regard to that state’s conflict of laws principles. If the terms of this Note should conflict with the terms of any loan agreement or any commitment letter that survives closing, the terms of this Note shall control. Severability. If any provision of this Note or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. Plural; Captions. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term “person” shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Advances. Bank may, in its sole discretion, make other advances which shall be deemed to be advances under this Note, even though the stated principal amount of this Note may be exceeded as a result thereof. Posting of Payments. All payments received during normal banking hours after 2:00 p.m. local time at the office of Bank first shown above shall be deemed received at the opening of the next banking day. Joint and Several Obligations. Each person who signs this Note as a Borrower (as defined herein) is jointly and severally obligated.

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LIMITATION ON LIABILITY; WAIVER OF PUNITIVE DAMAGES. BORROWER AND BANK AGREE THAT THEY SHALL NOT HAVE A REMEDY OF PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER IN ANY DISPUTE AND HEREBY WAIVE ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY HAVE NOW OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY DISPUTE WHETHER THE DISPUTE IS RESOLVED BY ARBITRATION OR JUDICIALLY. Patriot Act Notice. To help fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. For purposes of this section, account shall be understood to include loan accounts. Final Agreement. This Note and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent agreements of the parties. There are no unwritten agreements between the parties.

AMENDMENT AND RESTATEMENT. This Note amends and restates, and is in substitution for, that certain Promissory Note in the original amount of $25,000,000.00 payable to the order of the Bank and dated as of October 28, 2003 (the “Existing Note”). However, without duplication, this Note shall in no way extinguish, cancel or satisfy the Borrower’s unconditional obligation to repay all indebtedness evidenced by the Existing Note or constitute a novation of the Existing Note. Nothing herein is intended to extinguish, cancel or impair the lien priority or effect of any security agreement, pledge agreement or mortgage with respect to Borrower’s or any guarantor’s obligations hereunder and under any other document relating hereto.

WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, THE LOAN DOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ACCEPT THIS NOTE. EACH OF THE PARTIES AGREES THAT THE TERMS HEREOF SHALL SUPERSEDE AND REPLACE ANY PRIOR AGREEMENT RELATED TO ARBITRATION OF DISPUTES BETWEEN THE PARTIES CONTAINED IN ANY LOAN DOCUMENT OR ANY OTHER DOCUMENT OR AGREEMENT HERETOFORE EXECUTED IN CONNECTION WITH, RELATED TO OR BEING REPLACED, SUPPLEMENTED, EXTENDED OR MODIFIED BY, THIS NOTE.

PLACE OF EXECUTION AND DELIVERY. Borrower hereby certifies that this Note and the Loan Documents were executed in the State of New Jersey and delivered to Bank in the State of New Jersey.

[Signature Page to Follow Immediately Hereafter]

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IN WITNESS WHEREOF, Borrower, on the day and year first above written, has caused this Note to be executed under seal.

A.C. Moore Arts & Crafts, Inc. Taxpayer Identification Number: 22-3527763
By:	/s/ Marc Katz
	Marc Katz, Executive Vice President and
	Chief Financial Officer
A.C. Moore Incorporated Taxpayer Identification Number: 22-2546111
By:	/s/ Marc Katz
	Marc Katz, Executive Vice President and
	Chief Financial Officer
Moorestown Finance, Inc. Taxpayer Identification Number: 52-2066272
By:	/s/ Marc Katz
	Marc Katz, Executive Vice President and
	Chief Financial Officer
Blackwood Assets, Inc. Taxpayer Identification Number: 52-2066271
By:	/s/ Marc Katz
	Marc Katz, Executive Vice President and
	Chief Financial Officer
A.C. Moore Urban Renewal, LLC, Taxpayer Identification Number: 56-2388590
By:	/s/ Marc Katz
	Marc Katz, Authorized Person

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EX-10.4

Exhibit 10.4

FIRST AMENDMENT TO
EMPLOYMENT LETTER

FIRST AMENDMENT, dated as of August 6, 2008 (this “ First Amendment”) to EMPLOYMENT LETTER, dated as of November 28, 2007 ( the “Employment Letter”) between A.C. Moore Arts & Crafts, Inc., a Pennsylvania corporation (“Company”), and Joseph A. Jeffries (“Executive”). Capitalized terms used herein and not defined herein shall have the respective meanings set forth for such terms in the Employment Letter.

R E C I T A L S:

WHEREAS, Company and Executive have mutually agreed that certain provisions of the Employment Letter be amended, as set forth herein.

NOW, THEREFORE, intending to be legally bound hereby, it is agreed as follows:

Section 1. Addition of Appendix I. The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Appendix I to the Employment Letter) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive’s full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives if a Change of Control occurs, paragraphs 1 through 11 of the Employment Letter (except paragraph 9 which shall continue) shall be superseded by Appendix I.

Section 2. Title. The second sentence of paragraph 1 of the Employment Letter is amended to read in its entirety as follows: “Your title will be Executive Vice President and Chief Operating Officer.”

Section 3. Effectiveness. This Amendment shall be become effective as of the date hereof.

Section 4. Status of Employment Letter. This Amendment is limited solely for the purposes and to the extent expressly set forth herein, and, except as expressly set forth herein all of the terms, provisions and conditions of the Employment Letter shall continue in full force and effect and are not effected by this Amendment.

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Employment Letter to be duly executed and delivered as of the date first written above.

	/s/ Joseph A. Jeffries
Date: August 6, 2008	EXECUTIVE
	A.C. MOORE ARTS & CRAFTS, INC.
Date: August 6, 2008	By:	/s/ Rick A. Lepley
		Rick A. Lepley
		President and Chief Executive Officer

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APPENDIX I

CHANGE OF CONTROL PROVISIONS

To Employment Letter of Joseph A. Jeffries

If a Change of Control (as defined in this Appendix I) of the Company occurs, paragraphs 1 through 11 of the Employment Letter (except paragraph 9 which shall continue) shall be superseded by this Appendix I.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Effective Date.

For the purpose of this Appendix I, the “Effective Date” shall mean the date on which a Change of Control (as defined in Section 2 of this Appendix I) occurs. Anything in the Employment Letter to the contrary notwithstanding, if a Change of Control occurs and if the Executive’s employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of the Employment Letter and this Appendix I, the “Effective Date” shall mean the date immediately prior to the date of such termination of employment.

2. Change of Control. For the purpose of this Appendix I and the Employment Letter, a “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or

(b) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

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(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

3. Employment Term; Sign-on Bonus; Relocation Benefits. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of the Employment Letter and this Appendix I, for the period commencing on the Effective Date and ending on the twelfth month anniversary of such date (the “Employment Term”). Such period may be extended in writing by the mutual agreement of the Company and Executive at any time prior to such anniversary. On the Effective Date Executive’s Sign-on Bonus and Relocation Benefits shall be deemed completely earned.

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4. Terms of Employment.

(a) Position and Duties.

(i) During the Employment Term, (A) the Executive’s position, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned to him at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location.

(ii) During the Employment Term, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote Executive’s best efforts and Executive’s full business time and attention to the business and affairs of the Company and its subsidiaries. During the Employment Term it shall not be a violation of this Appendix I or the Employment Letter for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Appendix I and the Employment Letter. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

(b) Compensation.

(i) Base Salary. During the Employment Term, the Executive shall receive an annual base salary (“Annual Base Salary”), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Term, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under the Employment Letter and this Appendix I. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in the Employment Letter and this Appendix I shall refer to Annual Base Salary as so increased. As used in this Appendix I, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

(ii) Annual Bonus; Long-term incentive plan; Benefits. In addition to Annual Base Salary, the Executive shall be awarded, for each calendar year ending during the Employment Term, an annual bonus (the “Annual Bonus”) in cash at least equal to the Executive’s bonus under the Company’s annual bonus plans or any comparable bonus under any predecessor or successor plan or plans, for the last full calendar year prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such calendar year). Each such Annual Bonus shall be paid no later than March 15th of the calendar year next following the calendar year for which the Annual Bonus is awarded. Executive will continue to be eligible to participate in the Company’s long-term incentive plan as administered and determined by the Compensation Committee of the Board of Directors and to be entitled to receive benefits generally provided to officers of the Company consistent with the Company’s practices.

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5. Termination of Employment.

(a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Term. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Term (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with this Appendix I and the Employment Letter of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Appendix I and the Employment Letter, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 90 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

(b) Cause. The Company may terminate the Executive’s employment during the Employment Term for Cause. For purposes of this Appendix I and the Employment Letter, “Cause” shall mean:

(i) the failure of the Executive to perform substantially the Executive’s duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Chief Executive Officer which specifically identifies the manner in which the Chief Executive Officer believes that the Executive has not substantially performed the Executive’s duties; provided however, that Executive shall have one opportunity to cure the failure so identified for sixty days from the written demand, or

(ii) the engaging by the Executive in illegal conduct or gross misconduct, in either case, in violation of the Company’s Code of Ethical Business Conduct.

Any act, or failure to act, based upon authority given pursuant to a resolution duty adopted by the Board or upon the instructions of the Chief Executive Officer or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a written notice from the Chief Executive Officer, a copy of which notice has been previously delivered to the Board of Directors, finding that, in the good faith opinion of the Chief Executive Officer, the Executive is guilty of the conduct described in subsection 5 (b)(i) or (ii) above, and specifying the particulars thereof in detail.

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(c) Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason. For purposes of this Appendix I and the Employment Letter, “Good Reason” shall mean:

(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position, authority, duties or responsibilities as contemplated by Section 4(a) of this Appendix I, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Appendix I, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii) the Company’s requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) of this Appendix I;

(iv) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Appendix I; or

(v) any failure by the Company to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform the this Appendix I and the Employment Letter in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

(d) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the notice of termination, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be.

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6. Obligations of the Company upon Termination.

(a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Term, the Company shall terminate the Executive’s employment other than for Cause, death or Disability or the Executive shall terminate Executive’s employment for Good Reason:

(i) the Company shall pay to the Executive in a single lump sum payment in cash within 30 days after the Date of Termination the aggregate of the following amounts:

(A) the sum of (1) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, plus (2) the product of (I) the target Annual Bonus paid or payable, for the most recently completed calendar year during the Employment Term and (II) a fraction, the numerator of which is the number of days in the current calendar year through the Date of Termination, and the denominator of which is 365 (“Pro Rata Bonus”), plus (3) any compensation previously deferred by the Executive and not theretofore previously paid shall be paid in accordance with the terms of the plan pursuant to which deferral was made and (4) the amount equal to the Executive’s Annual Base Salary through the twelfth month anniversary of the Date of Termination.

(ii) The Company shall provide all benefits as are, from time to time, maintained for officers of the Company, including without limitation, medical and other insurance plans to the Executive through the twelfth month anniversary of the Date of the Termination of Executive’s employment pursuant to or, if not pursuant to, which are substantially equal to the Company’s insurance programs in effect and to the extent Executive participated immediately prior to the date of such termination, provided that if the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”) applies to the provision of health insurance benefits for any part of the period of benefit continuation provided for by this paragraph, Executive will make all necessary elections and such benefits will run concurrently with and satisfy the continuation coverage requirements of this paragraph for the period to which COBRA applies.

No payment of any sum nor the receipt of any benefit shall be due to Executive under this Section 6(a) unless and until Executive shall have executed and delivered to the Company a release of any and all claims against the Company and its subsidiaries (and their respective present and former officers, directors, employees and agents — collectively the “Released Parties”) and a covenant not to sue the Released Parties, all in form and substance as provided by counsel to the Company (the “Release”) and any waiting period or revocation period provided by law for the effectiveness of such Release shall have expired without Executive’s having revoked such Release. In the event Executive shall decline or fail for any reason to execute and deliver such Release, the Executive shall be entitled to receive only those amounts provided pursuant to Section 6(d) provided for an Executive whose employment is terminated by the Company for Cause or by Executive without Good Reason.

(b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Term, this Appendix I and the Employment Letter shall terminate without further obligations to the Executive’s legal representatives under this Appendix I and the Employment Letter, except that Executive, or Executive’s estate if applicable, shall be entitled to receive the sum of (i) Executive’s Annual Base Salary through the Date of Termination, (ii) Executive’s Pro Rata Bonus (as defined in Section 6(a)(i)(A)(2)) and (iii) the timely payment or provision of any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies. The amounts set forth in Section 6(b)(i) and (ii) shall be paid to the Executive’s estate, as applicable, in a lump sum in cash within 30 days of the Date of Termination.

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(c) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Term, this Appendix I and the Employment Letter shall terminate without further obligations to the Executive, except that Executive shall be entitled to receive the sum of (i) Executive’s Annual Base Salary through the Disability Effective Date and (ii) Executive’s Pro Rata Bonus (as defined in Section 6(a)(i)(A)(2)) and (iii) the timely payment or provision of other benefits required to be paid or provided to Executive or which Executive is eligible to receive under any plan, program, practices or policies relating to disability of the Company and its affiliated Companies. The amounts set forth in Section 6(c)(i) and (ii) shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

(d) Cause; Other than for Good Reason. If the Executive’s employment shall be terminated for Cause or Executive voluntarily terminates employment without Good Reason during the Employment Term, this Appendix I and the Employment Letter shall terminate without further obligations to the Executive other than for the Executive’s Annual Base Salary through the Date of Termination and timely payment or provision of any other applicable benefits, in each case to the extent theretofore unpaid.

7. Options, SARs and Restricted Stock. All options to purchase and stock appreciation rights in common stock in the Company and the grants of common stock in the Company with vesting restrictions held by Executive on the date of a Change of Control shall immediately be deemed vested and the options and stock appreciation rights shall immediately become exercisable on the date of the Change in Control and Executive shall have until the end of the applicable original term of each such option and stock appreciation right to exercise such option and stock appreciation right; provided, however, that if Executive’s employment with the Company is terminated for any reason (other than Cause) after the Change in Control, Executive shall have until the earlier of (1) the end of the applicable original term of each such option and stock appreciation right and (2) 18 months after the Date of Termination to exercise each such option and stock appreciation right post-termination. In the event that Executive’s employment with the Company is terminated for Cause, all options, stock appreciation rights and unvested restricted stock held by Executive shall terminate immediately.

8. Nonexclusivity of Rights. Nothing in this Appendix I or the Employment Letter shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the date of termination of employment shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Appendix I and the Employment Letter.

9. Section 409A. In the event that an amount becomes payable to the Executive after his termination of employment, the Company shall determine whether such payment is subject to the requirements of Section 409A (a) (2)(A)(i) and Section 409A (a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (hereinafter referred to as the “Specified Employee Rule”). The Company shall make such determination and provide written notice thereof to the Executive prior to the earlier of the date that any such amounts would be paid to the Executive without regard to Code Section 409A or within 30 days after his termination of employment. Upon the request of the Executive, the Company agrees to promptly provide to him such information that the Executive may reasonably request with regard to its determination. In the event that the Company determines that an amount payable to the Executive after his termination of employment is subject to the Specified Employee Rule, then no distribution of such amount shall be made to the Executive on account of his separation from service before the date which is six (6) months after the date of his separation from service (or if earlier, the date of death of the Executive). The aggregate amount that would have been payable to the Executive but for the restrictions imposed by Section 409A shall be paid to the Executive as soon as permitted by Section 409A.

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EX-31.1

Exhibit 31.1

I, Rick A. Lepley, certify that:

1. I have reviewed this Form 10-Q of A.C. Moore Arts & Crafts, Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2008	/s/ Rick A. Lepley
	Rick A. Lepley
	President and Chief Executive Officer (principal executive officer)

EX-31.2

Exhibit 31.2

I, Michael G. Zawoysky, certify that:

1. I have reviewed this Form 10-Q of A.C. Moore Arts & Crafts, Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2008	/s/ Michael G. Zawoysky
	Michael G. Zawoysky
	Acting Chief Financial Officer (principal financial officer)

EX-32.1

Exhibit 32.1

A.C. MOORE ARTS & CRAFTS, INC.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of A.C. Moore Arts & Crafts, Inc. (the “Company”), does hereby certify with respect to this Form 10-Q of the Company for the quarterly period ended June 30, 2008 (the “Report”) that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Rick A. Lepley
Date: August 11, 2008	Rick A. Lepley
	President and Chief Executive Officer (principal executive officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

Exhibit 32.2

A.C. MOORE ARTS & CRAFTS, INC.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of A.C. Moore Arts & Crafts, Inc. (the “Company”), does hereby certify with respect to this Form 10-Q of the Company for the quarterly period ended June 30, 2008 (the “Report”) that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Michael G. Zawoysky
Date: August 11, 2008	Michael G. Zawoysky
	Acting Chief Financial Officer (principal financial officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.