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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

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

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FOR THE QUARTERLY PERIOD ENDED		COMMISSION FILE NUMBER
SEPTEMBER 28, 2002		0-27826
PARTY CITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE		22—3033692
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
400 COMMONS WAY		07866
ROCKAWAY, NEW JERSEY		(Zip Code)
(Address of Principal Executive Offices)

973-983-0888

(Registrant’s telephone number, including area code)

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

As of November 2, 2002, there were outstanding 17,040,940 shares of
Common Stock, $.01 par value.

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PART 1. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
SIGNATURES

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PARTY CITY CORPORATION AND SUBSIDIARY

INDEX

		Page No.
Part I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – September 28, 2002 September 29, 2001 and June 29, 2002	3
	Condensed Consolidated Statements of Operations For the quarters ended September 28, 2002 and September 29, 2001	4
	Condensed Consolidated Statements of Cash Flows For the quarters ended September 28, 2002 and September 29, 2001	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Part II.	Other Information	15
Item 1.	Legal Proceedings	15
Item 2.	Changes in Securities and Use of Proceeds	16
Item 3.	Defaults Under Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits and Reports on Form 8-K	16
Exhibit Index		16

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PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PARTY CITY CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 28, 2002				September 29, 2001				June 29, 2002
	(Unaudited)				(Unaudited)				(1)
ASSETS
Current assets:
Cash and cash equivalents	$	5,241			$	5,095			$	3,467
Merchandise inventory		94,760				77,584				55,867
Deferred income taxes		6,410				6,278				5,827
Other current assets		14,992				15,578				11,789
Total current assets		121,403				104,535				76,950
Property and equipment, net		54,941				47,226				49,356
Goodwill		19,062				14,150				18,016
Other assets		4,392				6,149				4,732
Total assets	$	199,798			$	172,060			$	149,054
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	73,255			$	54,702			$	35,499
Accrued expenses and other current liabilities		23,893				27,082				26,744
Advances under Loan Agreement		16,136				5,424				—
Senior Notes, current portion		—				10,484				—
Total current liabilities		113,284				97,692				62,243
Long-term liabilities:
Deferred rent and other long-term liabilities		10,310				9,422				10,297
Senior Notes		9,083				16,133				8,915
Commitments and contingencies
Stockholders’ equity:
Common stock $.01 par value, authorized 25,000,000 shares; issued 17,010,465, 13,255,017 and 16,239,081 shares, respectively		170				132				162
Additional paid-in capital		40,597				38,386				39,347
Retained earnings		28,183				10,941				29,919
Treasury stock, at cost (284,000, 100,000 and 284,000 shares, respectively)		(1,829	)			(646	)			(1,829	)
Total stockholders’ equity		67,121				48,813				67,599
Total liabilities and stockholders’ equity	$	199,798			$	172,060			$	149,054

See accompanying notes to condensed consolidated financial statements.

(1) The June 29, 2002 consolidated balance sheet was derived from the Company’s audited consolidated financial statements.

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PARTY CITY CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)
(Unaudited)

	Quarter ended
	September 28,				September 29,
		2002				2001
Revenues:
Net sales	$	91,124			$	80,795
Royalty fees		3,647				3,246
Franchise fees		235				343
Total revenues		95,006				84,384
Expenses:
Cost of goods sold and occupancy costs		64,425				57,667
Company-owned stores operating and selling expense		23,698				20,228
Franchise expense		1,562				1,547
General and administrative expense		7,302				6,164
Total expenses		96,987				85,606
Loss before interest and income taxes		(1,981	)			(1,222	)
Interest expense, net		885				1,755
Loss before income taxes		(2,866	)			(2,977	)
Provision for income tax benefit		(1,130	)			(1,191	)
Net loss	$	(1,736	)		$	(1,786	)
Basic and diluted loss per share	$	(0.11	)		$	(0.14	)
Weighted average shares outstanding – basic and diluted		16,396				12,753

See accompanying notes to condensed consolidated financial statements.

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PARTY CITY CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(Unaudited)

	Quarter ended
	September 28,				September 29,
		2002				2001
Cash flow from operating activities:
Net loss	$	(1,736	)		$	(1,786	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,372				2,825
Deferred taxes		(312	)			(1,301	)
Non-cash interest		250				428
Deferred rent and other long-term liabilities		296				721
Equity based compensation		138				79
Provision for doubtful accounts		(301	)			30
Changes in assets and liabilities:
Merchandise inventory		(38,487	)			(29,253	)
Other current assets and other assets		(2,939	)			(3,450	)
Accounts payable and other current liabilities		34,905				27,606
Net cash used in operating activities		(4,814	)			(4,101	)
Cash flow from investment activities:
Purchases of property and equipment		(8,737	)			(3,602	)
Stores acquired from franchisees		(1,648	)			(897	)
Net cash used in investment activities		(10,385	)			(4,499	)
Cash flow from financing activities:
Net proceeds from Loan Agreement		16,136				5,424
Proceeds from exercise of stock options and warrants		837				75
Payments of Senior Notes		—				(1,000	)
Purchases of treasury stock		—				(646	)
Net cash provided from financing activities		16,973				3,853
Net increase (decrease) in cash and cash equivalents		1,774				(4,747	)
Cash and cash equivalents, beginning of period		3,467				9,842
Cash and cash equivalents, end of period	$	5,241			$	5,095
Supplemental disclosure of cash flow information:
Income taxes paid	$	2,167			$	301
Interest paid		642				1,400
Supplemental disclosure of non-cash financing activity:
Issuance of shares under management stock plan		282				—
Issuance of warrants		245				—

See accompanying notes to condensed consolidated financial statements.

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PARTY CITY CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

2.    RECENT ACCOUNTING STANDARDS

3.   EARNINGS PER SHARE

	Quarter Ended
	September 28,				September 29,
		2002				2001
	(Unaudited)
Net loss	$	(1,736	)		$	(1,786	)
Loss per share — basic		(0.11	)			(0.14	)
Loss per share — diluted		(0.11	)			(0.14	)
Average common shares outstanding		16,396				12,753
Dilutive effect of warrants		(a)				(b)
Dilutive effect of stock options		(a)				(b)
Restricted stock units		(c)				(c)
Average common and common equivalent shares outstanding		16,396				12,753

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		(a)  Options to purchase 2,320,586 shares of common stock at prices ranging from $1.71 to $32.50 per share were outstanding at September 28, 2002 and warrants to purchase 2,496,000 shares of common stock at $1.07 per share were outstanding at September 28, 2002 but were not included in the computation of earnings per share because to do so would have been antidilutive.
		(b)  Options to purchase 1,795,078 shares of common stock at prices ranging from $1.95 to $31.13 per share were outstanding at September 29, 2001 and warrants to purchase 6,280,000 shares of common stock at $1.07 per share were outstanding at September 29, 2001 but were not included in the computation of earnings per share because to do so would have been antidilutive.
		(c)  Restricted shares of 97,398 shares of common stock were outstanding at September 28, 2002 related to the Management Stock Purchase Plan. No restricted shares of common stock were outstanding at September 29, 2001.

4.   FINANCING AGREEMENTS

5.   STOCKHOLDERS’ EQUITY

6.   LEGAL PROCEEDINGS

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of Party City’s common stock was artificially inflated.

Other

7.   SEGMENT INFORMATION

	Quarter Ended
	September 28,				September 29,
		2002				2001
	(Unaudited)
RETAIL
Net revenue	$	91,124			$	80,795
Operating earnings		3,001				2,900
Identifiable assets		180,219				150,969
Depreciation/amortization		2,034				1,801
Capital expenditures		9,830				2,686
FRANCHISING
Net revenue	$	3,882			$	3,589
Operating earnings		2,320				2,042
Identifiable assets		1,942				2,280
Depreciation/amortization		—				—
Capital expenditures		—				—
CORPORATE/OTHER
Net revenue	$	—			$	—
Operating loss		(7,302	)			(6,164	)
Identifiable assets		17,637				18,811
Depreciation/amortization		1,338				1,024
Capital expenditures		555				1,813
CONSOLIDATED TOTALS
Net revenue	$	95,006			$	84,384
Operating loss		(1,981	)			(1,222	)
Interest expense, net		885				1,755
Loss before income tax benefit		(2,866	)			(2,977	)
Provision for income tax benefit		(1,130	)			(1,191	)
Net loss	$	(1,736	)		$	(1,786	)
Identifiable assets	$	199,798			$	172,060
Depreciation/amortization		3,372				2,825
Capital expenditures		10,385				4,499

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8.   ACQUISITIONS AND DISPOSITIONS OF STORES

Retail:
Balance as of June 29, 2002	$	18,016
Goodwill acquired during the period		1,046
Balance as of September 28, 2002	$	19,062

Assuming the stores acquired during the quarter ended September 28, 2002 and September 29, 2001 were acquired on July 1, 2001, the pro forma results would have been as follows (in thousands, except per share amounts) (unaudited):

	Quarter Ended
	September 28,				September 29,
		2002				2001
Total Revenues	$	96,455			$	88,800
Net Loss	$	(1,659	)		$	(2,455	)
Loss per share	$	(0.10	)		$	(0.19	)

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

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements.

Management believes application of accounting policies, and the estimates inherently required by the policies, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, management has found the application of accounting policies to be appropriate, and actual results generally do not differ materially from those determined using necessary estimates.

The Company’s accounting policies are more fully described in Note 1 to the consolidated financial statements located in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 27, 2002. Management has identified certain critical accounting policies that are described below.

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Results of Operations

SELECTED FINANCIAL DATA

(in thousands, except per share and store data)

	Quarter Ended
	September 28, 2002				September 29, 2001
	(Unaudited)
Statement of Operations Data
Total revenue	$	95,006			$	84,384
Company-owned stores:
Net sales	$	91,124			$	80,795
Cost of goods sold and occupancy costs		64,425				57,667
Gross profit		26,699				23,128
Store operating and selling expense		23,698				20,228
Company-owned stores profit contribution		3,001				2,900
General and administrative expenses		7,302				6,164
Retail profit loss		(4,301	)			(3,264	)
Franchise stores:
Royalty fees		3,647				3,246
Franchise fees		235				343
Total franchise revenues		3,882				3,589
Total franchise expense		1,562				1,547
Franchise profit contribution		2,320				2,042
Loss before interest and income tax benefit		(1,981	)			(1,222	)
Interest expense, net		885				1,755
Loss before income tax benefit		(2,866	)			(2,977	)
Provision for income tax benefit		(1,130	)			(1,191	)
Net loss	$	(1,736	)		$	(1,786	)
Basic and diluted loss per share(a)		(0.11	)		$	(0.14	)
Weighted average shares outstanding—Basic and Diluted		16,396				12,753
EBITDA(b)	$	1,391			$	1,603
Cash flows provided from (used in):
Operating activities	$	(4,814	)		$	(4,101	)
Investing activities		(10,385	)			(4,499	)
Financing activities		16,973				3,853
Other information:
Depreciation and amortization	$	3,372			$	2,825

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		Quarter Ended
	September 28, 2002				September 29, 2001
	(Unaudited)
Store Data:
Company-owned:
Stores open at beginning of period		209				193
Stores opened		23				4
Stores acquired from franchisees		2				1
Stores open at end of period		234				198
Average Company-owned stores open in period		224				195
Franchise:
Stores open at beginning of period		242				261
Stores opened		7				13
Stores sold to Company		(2	)			(1	)
Stores open at end of period		247				273
Average Franchise stores open in period(c)		244				268
Total stores chainwide		481				471
Chainwide sales
Same store sales increase(d)
Company-owned stores		3.4	%			5.7	%
Franchise stores		5.9	%			3.7	%
Average sales per Company-owned store	$	427			$	415
Balance Sheet Data:
Working capital	$	8,119			$	6,843
Total assets		199,798				172,060
Bank borrowings and other debt(e)		25,219				32,041
Stockholders’ equity		67,121				48,813

(a)	Options, warrants and restricted stock units related to the Management Stock Purchase Plan were not included in the computation of diluted earnings per share for the quarter ended September 28, 2002 and September 29, 2001 because to do so would have been antidilutive.
(b)	The Company’s definition of EBITDA is earnings before interest, taxes, depreciation, amortization and impairment charge and exclusive of special charges. The Company believes EBITDA provides additional information for determining its ability to meet future debt service requirements. EBITDA should not be construed as a substitute for income from operations, net income or cash flow from operating activities (all as determined in accordance with generally accepted accounting principles) for the purpose of analyzing the Company’s operating performance, financial position and cash flows as EBITDA is not defined by generally accepted accounting principles. The Company has presented EBITDA, however, because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance and to determine a company’s ability to service and/or incur debt. The Company’s computation of EBITDA may not be comparable to similar titled measures of other companies.
(c)	The Canadian master franchisee filed for bankruptcy protection under Canadian law, closing 28 stores in fiscal 2002.
(d)	Same store sales for Company-owned and franchise stores are subject to material differences based on the age of the respective stores for each group. New stores historically have had higher same store comparable sales. Approximately 30% of the comparable franchise stores have less than three full years of operation.
(e)	The bank borrowings and other debt at September 28, 2002 and September 29, 2001 is net of an unamortized debt discount of $1.1 million and $1.9 million, respectively.

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Quarter Ended September 28, 2002 Compared to Quarter Ended September 29, 2001

Retail. Net sales from Company-owned stores increased 12.8% to $91.1 million for the first quarter of fiscal 2003 from $80.8 million for the first quarter of the last fiscal year. Same store sales increased 3.4% in the first quarter of fiscal 2003. The Company opened twenty-three new stores and acquired two stores from a franchisee during the first quarter of fiscal 2003. Four new stores opened during the first quarter of the prior fiscal year.

Franchising. Franchise revenue is comprised of the initial franchise fees that are recorded as revenue when the store opens, and ongoing royalty fees, generally 4.0% of the store’s net sales. Franchise fees, recognized on seven store openings were $235,000 for the first quarter of fiscal 2003 compared to $343,000 for the first quarter of the last fiscal year, relating to 13 store openings. Royalty fees increased 12.4% to $3.6 million in the first quarter of fiscal 2003 from $3.2 million in the first quarter of the last fiscal year which is primarily due to an increase in the number of stores and a same store sales increase of 5.9% for the franchise stores in the first quarter of fiscal 2003.

Interest Expense. Interest expense decreased 50.0% to $885,000 for the first quarter of fiscal 2003 from $1.8 million in the first quarter of the last fiscal year. This decreased expense is primarily attributable to lower average borrowings outstanding under the Loan Agreement and reduced principal balances on Senior Notes outstanding due to payments made over the last twelve months.

Income Tax Benefit. The effective income tax rate was 39.4% in the first quarter of fiscal 2003 compared to 40.0% in the first quarter of the last fiscal year.

Net Loss. As a result of the above factors, net loss for the first quarter of fiscal 2003 was $1.7 million, or $(0.11) loss per basic and diluted share, as compared to a net loss of $1.8 million, or $(0.14) loss per basic and diluted share in first quarter of the last fiscal year.

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Liquidity and Capital Resources

Contractual Obligations and Commercial Commitments

	Payments Due By Period (in thousands)
	Total			1 Year			2-3 Years			4-5 Years			After 5 years
Contractual Obligations
Senior Notes	$	10,207		$	—		$	10,207		$	—		$	—
Capital lease obligations		46			32			14			—			—
Operating leases		274,094			33,269			85,625			77,847			77,353
Total Contractual Obligations	$	284,347		$	33,301		$	95,846		$	77,847		$	77,353

Accounting and Reporting Changes

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FORWARD-LOOKING STATEMENTS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company, in the normal course of doing business, is theoretically exposed to interest rate change market risk. As borrowing patterns are cyclical, the Company is not dependent on borrowing throughout the year. Therefore, a sudden increase in interest rate (which under the Loan Agreement is dependent on the prime rate) may, during peak borrowing, have a negative impact on short-term results.

ITEM 4. CONTROLS AND PROCEDURES

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Securities Litigation

Other

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business. The Company is aware of no other material existing or threatened litigation to which the Company is or may be a party.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBIT INDEX

3.1(1)	— Certificate of Incorporation of the Company.
3.2(2)	— Bylaws of the Company, as amended.
4.1(1)	— Specimen stock certificate evidencing the Common Stock.
4.2(3)	— Form of Amended and Restated Warrant.
4.3(4)	— Form of A Note.
4.4(4)	— Form of B Note.
4.5(4)	— Form of C Note.
4.6(4)	— Form of D Note.
4.7(3)	— Form of E Note.
4.8(4)	— Form of Securities Purchase Agreement, dated as of August 16, 1999, by and between the Company and each of the Investors.
4.9(3)	— First Amendment to Securities Purchase Agreement, dated as of January 14, 2000, by and between the Company and each of the Investors.
4.10(5)	— Second Amendment to Securities Purchase Agreement, dated as of April 1, 2001, by and among the Company and each of the Investors.
10.1(1)	— Form of Unit Franchise Agreement entered into by the Company and franchisees.
10.2(6)	— Amended and Restated 1999 Stock Incentive Plan of the Company.
10.3(7)	— Option Agreement, dated as of June 8, 1999, between Steven Mandell and Jack Futterman.
10.4(7)	— Stock Pledge Agreement, dated as of June 8, 1999, between Steven Mandell and Jack Futterman.
10.5(7)	— Employment Agreement, dated as of June 8, 1999, between the Company and Jack Futterman.
10.6(4)	— Investor Rights Agreement, dated as of August 16, 1999, by and among the Company, the Investors and Jack Futterman.

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10.7(4)	— Standstill and Forbearance Agreement, dated as of August 16,1999, by and among the Company, PNC Bank, NationalAssociation, as Agent, and the Banks.
10.8(4)	— Vendor Forbearance and Standstill Agreement, dated as of August 16, 1999, by and among the Company and the TradeVendors.
10.9(5)	— First Amendment to Investor Rights Agreement, dated as of October 11, 2000, by and among the Company, the Investors and Jack Futterman.
10.10(5)	— Second Amendment to Investor Rights Agreement, dated as of November 20, 2000, by and among the Company, the Investors and Jack Futterman.
10.11(3)	— Loan and Security Agreement, dated January 14, 2000, by and between the Company and Congress Financial Corporation.
10.12(6)	— Description of oral consulting agreement between the Company and Ralph Dillon.
10.13(6)	— Employment Agreement of James Shea, dated as of December 10,1999, by and between the Company and James Shea.
10.14(6)	— Employment Agreement of Andrew Bailen, dated as of August 7,2000, by and between the Company and Andrew Bailen.
10.15(6)	— Employment Agreement of Thomas Larson, dated as of June 18,1999, by and between the Company and Thomas Larson.
10.16(8)	— Management Stock Purchase Plan of the Company
10.17(9)	— Employee Stock Purchase Plan of the Company
21.1	— Subsidiaries. The wholly owned subsidiary of the Company is Party City Michigan, Inc. incorporated on October 23, 1997,in the State of Delaware. This subsidiary does business under the name Party City Michigan, Inc.

Notes

(1)	Incorporated by reference to our Registration Statement as amended on Form S-1 Number 333-00350 as filed with the Commission on January 18, 1996.
(2)	Incorporated by reference to our Current Report on Form 8-K as filed with the Commission on June 8, 2000.
(3)	Incorporated by reference to our Current Report on Form 8-K as filed with the Commission on January 19, 2000.
(4)	Incorporated by reference to our Current Report on Form 8-K as filed with the Commission on August 25, 1999.
(5)	Incorporated by reference to our Quarterly Report on Form 10-Q as filed with the Commission on May 15, 2001.
(6)	Incorporated by reference to our Quarterly Report on Form 10-Q as filed with the Commission on February 13, 2001.
(7)	Incorporated by reference to Amendment No. 1 to Schedule 13D as filed by Jack Futterman with the Commission on June 17, 1999.
(8)	Incorporated by reference to our Registration Statement on Form S-8 as filed with the Commission on July 23, 2001.
	(b)   Reports on Form 8-K.
	No reports on Form 8-K have been filed during the fourth quarter.
(9)	Incorporated by reference to our Registration Statement on Form S-8 as filed with the Commission on December 12, 2001.

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SIGNATURES

	PARTYCITY CORPORATION
	By /s/ James Shea
		(James Shea)
		Chief Executive Officer
	By /s/ Linda M. Siluk
		(Linda M. Siluk)
		Chief Financial Officer
	By /s/ Susan Hyde
		(Susan Hyde)
		Chief Accounting Officer

Date: November 12, 2002

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CERTIFICATIONS

I, James Shea, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of Party City Corporation;
	2.		Based on my knowledge, this quarterly 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 quarterly report;
	3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have:

	a)		Designed such disclosure controls and procedures 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 quarterly report is being prepared;
	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002		/s/ James Shea
		Name: James Shea Title: Chief Executive Officer

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Table of Contents

I, Linda M. Siluk, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of Party City Corporation;
	2.		Based on my knowledge, this quarterly 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 quarterly report;
	3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have:

	a)		Designed such disclosure controls and procedures 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 quarterly report is being prepared;
	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002		/s/ Linda M. Siluk
		Name: Linda M. Siluk Title: Chief Financial Officer

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