United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2006

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: 001-14843

The Boyds Collection, Ltd.

(Exact Name of Registrant as Specified in its Charter)

Maryland	52-1418730
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

350 South Street, McSherrystown, Pennsylvania, Attn.: Joseph E. Macharsky	17344
(Address of Principal Executive Offices)	(Zip Code)

(717) 633-9898

(Registrant’s Telephone Number, Including Area Code)

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 o No x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer See definition of “accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

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

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

Common Stock, par value $.0001 per share		59,054,418
(Class)		(Outstanding as of June 1, 2006)

THE BOYDS COLLECTION, LTD.
TABLE OF CONTENTS


PART I.		FINANCIAL INFORMATION

Item 1.		Financial Statements:

		Condensed Consolidated Balance Sheets as of December 31, 2005 and March 31, 2006

		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2006

		Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2006

		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2006

		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.		Disclosure Controls and Procedures

PART II.		OTHER INFORMATION

Item 1.		Legal Proceedings

Item 1A.		Risk Factors Which May Affect Future Performance

Item 2.		Unregistered Sales of Equity 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

		Signatures

		Index to Exhibits

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

THE BOYDS COLLECTION, LTD.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 2005 and March 31, 2006
(Unaudited)

	December 31,			March 31,
	2005			2006
	(in thousands)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	7,105		$	7,001
Restricted cash	1,600			2,391
Accounts receivable, less allowances of $1,956 at December 31, 2005, and $2,124 at March 31, 2006	7,312			6,031
Inventory - primarily finished goods, less allowance for obsolete inventory of $5,747 at December 31, 2005, and $6,021 at March 31, 2006	12,292			10,437
Inventory in transit	1,433			749
Other current assets	1,082			1,144
Total current assets	30,824			27,753

PROPERTY AND EQUIPMENT - NET (Note 5)	31,727			31,368

OTHER ASSETS:
Other assets	459			659
Total other assets	459			659
TOTAL ASSETS	$	63,010		$	59,780

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE:
Accounts payable	$	1,820		$	1,103
Accrued expenses	3,440			4,484
Income taxes payable	467			521
Liabilities not subject to compromise current liabilities	5,727			6,108

LIABILITIES SUBJECT TO COMPROMISE (Notes 4 and 7)	95,180			95,627

COMMITMENTS AND CONTINGENCIES (Notes 1, 2 and 11)

STOCKHOLDERS’ DEFICIT:
Common stock (61,838 shares issued at December 31, 2005, and March 31, 2006, respectively, and paid-in capital in excess of par)	(41,838		)	(41,446		)
Accumulated other comprehensive income	249			253
Retained earnings	30,481			26,027
Less: Treasury shares at cost (2,783 at December 31, 2005, and at March 31, 2006)	(26,789		)	(26,789		)
Total stockholders’ deficit	(37,897		)	(41,955		)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	63,010		$	59,780

See notes to condensed consolidated financial statements.

THE BOYDS COLLECTION, LTD.

(DEBTORS-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2005 and 2006

(Unaudited)

	Three Months Ended
	March 31,
	2005			2006
	(in thousands, except per share amounts)

NET SALES	$	18,533		$	14,036
COST OF GOODS SOLD	10,131			7,614
GROSS PROFIT	8,402			6,422
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	10,701			8,778
IMPAIRMENT OF GOODWILL (Note 6)	2,600			—
LOSS FROM OPERATIONS	(4,899		)	(2,356		)
OTHER INCOME/(EXPENSES)
Other income/(expense)	(124		)	31
Interest expense, contractual interest was $3.2 million for the three months ended March 31, 2006	(1,980		)	(6		)
Amortization of deferred debt issuance costs	(204		)	(359		)
Reorganization expense (Note 4)	—			(1,667		)
TOTAL OTHER INCOME/(EXPENSE)	(2,308		)	(2,001		)

LOSS BEFORE PROVISION FOR INCOME TAXES	(7,207		)	(4,357		)
PROVISION FOR INCOME TAXES (Note 10)	70,085			97
NET LOSS	$	(77,292	)	$	(4,454	)



LOSS PER SHARE:
Basic Earnings Per Share - Net Loss	$	(1.31	)	$	(0.08	)
Diluted Earnings Per Share - Net Loss	$	(1.31	)	$	(0.08	)

See notes to condensed consolidated financial statements.

THE BOYDS COLLECTION, LTD.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
For the Three Months Ended March 31, 2006
(Unaudited)

	Common Stock		Common Stock			Accumulated
	Shares		and Paid-in			Other								Total			Other
	Issued And	Treasury	Capital in			Comprehensive		Retained			Treasury			Stockholders’			Comprehensive
	Outstanding	Stock	Excess of Par			Income		Earnings			Stock			Deficit			Income
	(in thousands)

BALANCE, JANUARY 1, 2006	61,838	2,783	$	(41,838	)	$	249	$	30,481		$	(26,789	)	$	(37,897	)
Issuance of common stock	—	—						—			—
Other comprehensive income:
Foreign currency translation	—	—	—			4		—			—			4			$	4
Stock based compensation	—	—	392			—								392
Net loss	—	—	—			—		(4,454		)	—			(4,454		)	(4,454		)
Comprehensive loss	—	—	—			—		—			—			—			$	(4,450	)

BALANCE, March 31, 2006	61,838	2,783	$	(41,446	)	$	253	$	26,027		(26,789		)	$	(41,955	)

See notes to condensed consolidated financial statements.

THE BOYDS COLLECTION, LTD.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2006
(Unaudited)

	Three Months Ended
	March 31,
	2005			2006
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(77,292	)	$	(4,454	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation and amortization	577			575
Amortization of deferred debt issuance costs	204			359
Bad debt expense	(129		)	322
Stock based compensation	—			392
Tax benefit from exercise of stock options	(33		)	—
Deferred taxes	70,500			—
Impairment of goodwill	2,600			—
Changes in assets and liabilities:
Accounts receivable - net	(1,006		)	959
Inventory - net	(1,863		)	1,855
Inventory in transit	2,346			684
Other current assets	11			(62		)
Other assets	(19		)	(225		)
Accounts payable	(1,902		)	(769		)
Accrued expenses	(1,039		)	2,855
Income tax payable	(371		)	54
Interest payable	1,456			—
Net cash provided by/ (used in) operating activities before reorganization items	(5,960		)	2,545
Reorganization items - professional fees and expenses paid for services rendered in connection with the Chapter 11 proceedings	—			(1,671		)
Net cash provided by/ (used in) operating activities	(5,960		)	874

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash	—			(791		)
Purchase of property and equipment	(391		)	(191		)
Net cash used in investing activities	(391		)	(982		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on credit agreement, “Revolver”	(12,750		)	—
Payment on credit agreement, “Term Loan”	(28,000		)	—
Borrowings from credit agreement, “New Term Loan”	45,000			—
Net Borrowings from credit agreement, “New Revolver”	8,200			—
Deferred debt issuance costs	(3,627		)	—
Exercise of stock options	51			—
Net cash provided by financing activities	8,874			—

Effect of exchange rate changes on cash	280			4

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS	2,803			(104		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	354			7,105
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	3,157		$	7,001
CASH PAID DURING THE PERIOD FOR INTEREST	$	524		$	6
CASH PAID DURING THE PERIOD FOR INCOME TAXES	$	35		$	36

See notes to condensed consolidated financial statements.

THE BOYDS COLLECTION, LTD.
(DEBTORS-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2005 and 2006
(Amounts in thousands, except share and per share amounts)
(Unaudited)

1. INTERIM FINANCIAL STATEMENTS

The Boyds Collection, Ltd. (“Boyds” or the “Company”) operates in two segments, which consist of the Company’s wholesale gift/collectible business and the Company’s retail gift/entertainment business. In September 2002, Boyds Bear Countryä store opened in Gettysburg, Pennsylvania. In November 2004, the Company opened its second retail store in Pigeon Forge, Tennessee. These retail stores are being used to generate income and expand the brand awareness and image of Boyds. Substantially all of the Company’s products are sourced from foreign manufacturers in China through buying agencies.

The condensed consolidated balance sheet as of December 31, 2005 and March 31, 2006, the condensed consolidated statements of operations for the three months ended March 31, 2005 and 2006, the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2006 and the condensed consolidated statements of cash flows for the three months ended March 31, 2005 and 2006 are unaudited. In the opinion of management, all adjustments, necessary for a fair presentation of such interim financial statements have been included. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes included in Boyds’ Annual Report for the year ended December 31, 2005 on Form 10-K filed with the Securities and Exchange Commission.

The Company has filed for reorganization under Chapter 11 of the United States Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to pre-petition liabilities, the amounts that may allowed for claims or contingencies, or the status of priority thereof; (c) as to shareholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business.

Chapter 11 Bankruptcy Proceedings

On October 3, 2005, in connection with potential defaults on our senior secured credit agreement, we entered into a waiver agreement with our lenders. This waiver agreement provided for, among other things, the lenders’ forbearance from exercising contractual remedies under our credit agreement on account of existing defaults through October 16, 2005.

05-43833; 05-43838; 05-43863; 05-43816; 05-43848; and 05-43857). We have requested joint administration of the cases under the caption “The Boyds Collection, Ltd., Case No. 05-43793. We will continue to operate our businesses as “debtors in possession” (“DIP”) under the jurisdiction of the Court, under Court protection from creditors and claimants and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court.

Since the bankruptcy filing, all orders allowing us to conduct normal business activities, including the approval of our DIP financing, have been entered by the Court. While we are in bankruptcy proceedings, all transactions not in the ordinary course of our business require the prior approval of the Court.

On October 16, 2005, pursuant to authorization from the Court, we entered into an $8 million DIP credit facility. This DIP facility consists of an $8 million revolver facility which includes access for $3.5 million worth of commercial letters of credit. The letters of credit are required to be fully cash collateralized. The DIP facility limits the amount of capital expenditures during its term to $250,000. As of March 31, 2006, the Company has not borrowed any amounts against the DIP credit facility.

As a consequence of our bankruptcy filing, pending litigation against us is generally stayed, and no party may take any action to collect its pre-petition claims except pursuant to order of the Court. February 14, 2006, was the deadline for claimants to file claims arising prior to our bankruptcy filing. Differences between claim amounts identified by us and claims filed by claimants will be investigated and resolved in connection with our claims resolution process, and only holders of claims that are ultimately allowed for purposes of our bankruptcy will be entitled to distributions. Since the settlement of terms of allowed claims are subject to a confirmed plan of reorganization, the ultimate distribution with respect to the allowed claims is not presently ascertainable.

On March 14, 2006, we filed with the Court our Plan of Reorganization, which was subsequently amended (as amended, the “Plan”) and Disclosure Statement, which was subsequently amended (as amended, the “Disclosure Statement”). The Plan and the Disclosure Statement set forth the terms of the proposed settlement between Boyds, our secured creditors, the Official Committee of Unsecured Creditors, and our stockholders. The Disclosure Statement also includes a description of the events that led up to our bankruptcy filing and the actions we have taken to improve our financial situation while in bankruptcy.

The Plan has been approved by the necessary constituencies and remains subject to approval by the Court. We cannot provide any assurance that any plan of reorganization ultimately confirmed by the Bankruptcy Court will be consistent with the terms of the Plan and Disclosure Statement.

If confirmed, the Plan will provide us with significant relief from pre-filing claims. The Plan details how the claims of each class of creditors and interest holders will be treated. The following is a summary of the Plan:

· Holders of senior secured claims will receive (in exchange of approximately $57.7 million in claims): senior secured promissory notes in the aggregate principal amount of $30.0 million, to be due in five years following the effective date of the Plan, which we expect will occur in June 2006, and common stock representing approximately 48.5% of our common stock outstanding after the effective date of the Plan (the “New Common Stock”).

common stock representing the difference between: (i) 5% of the New Common Stock; and (ii) the aggregate pro rata share of New Common Stock allocable to qualifying noteholders. A “Future Transaction” is a transaction in which we, subject to certain exceptions, (a) merge or consolidate with another person or entity or (b) acquire any assets, properties, rights or equity interests, in each case occurring within 36 months of the effective date of the Plan so long as the transaction is not a acquisition (i) of assets, properties or rights or assumption of liabilities in the ordinary course of our business (i.e., accounts payable, receivables, inventory, product, store leases, store equipment and any other similar acquisitions or assumptions of liabilities); (ii) an acquisition that has aggregate consideration of $10 million or less that is not an acquisition of a toy collectible business; or (iii) an acquisition that does not meet certain revenue or EBITDA thresholds.

· Each non-qualifying holder (those holders of our Senior Subordinated Notes that are not qualifying noteholders) shall receive cash in the amount of 24.0% of the allowed amount of its claim to be paid, if at all, on the date upon which a Future Transaction is consummated.

· If the non-qualifying holders vote to reject the Plan, then each such holder shall receive cash in the amount of 2.0% of the allowed amount of their notes, to be paid, if at all, on the date upon which a Future Transaction is consummated.

· Each holder of an allowed general unsecured claim or claims will receive cash equal to 28% of its allowed claim or claims, if the class of such holders accepts the Plan.

· If the class of holders of general unsecured claims vote to reject the Plan, then each such holder shall receive cash in the amount of 4% of the allowed amount of such claim to be paid on the earlier of: (a) the date upon which a Future Transaction is consummated; or (b) the first business day that is at least 18 months after the effective date of the Plan.

· Secured claims other than senior secured claims will be treated either as agreed by the parties or in a manner that reinstates the secured claim or provides for payment to the creditor equal to the value of such creditor’s collateral. Each holder of an allowed priority claim (other than a tax priority claim) shall receive, on account of and in full and complete settlement, release and discharge of such allowed priority claim, (a) cash equal to the amount of such claim or (b) such other treatment as to which the we and such holder shall have agreed upon in writing in an amount sufficient to render such claim not “impaired” under section 1124 of the Bankruptcy Code, to be paid on the latest of (a) the effective date of the Plan (or as soon thereafter as is reasonably practicable), (b) five business days after the final allowance of such claim, or (c) the date on which the we and the holder of such claim otherwise agree.

· Allowed priority tax claims will either be paid, at our sole option , (a) on the latter of (i) the effective date of the Plan (or as soon thereafter as is reasonably practicable), (ii) five business days after the allowance thereof; (b) beginning the first anniversary following the effective date of the Plan, cash payments to be made in equal annual installments, with the final installment being payable no later than the sixth anniversary of the date of the assessment of such allowed priority tax claim, in an aggregate amount equal to such claim, together with interest on the unpaid balance of such claim calculated from the effective date of the Plan through the date of payment; or (c) such other treatment agreed to by us and the holder of such claim.

· Each holder of 200 or more shares of our common stock will receive its pro rata share of 46.5% of our post bankruptcy equity.

· Each holder of less than 200 shares of our common stock will receive $0.15 per share.

We are also negotiating with one of our senior lenders to provide a new $11.0 million revolver with a $4.0 million seasonal over-advance option that supports letters of credit and would provide us with access to additional capital to fund post-reorganization operations. There can be no assurance that these negotiations will be successful.

There can be no assurance that the Plan, or any other plan of reorganization, will be confirmed by the Court or implemented successfully.

Following the effective date of our plan of reorganization, we expect to have fewer than 300 holders of record of our common stock. Consequently, we intend to apply for termination of the registration of our common stock under the Exchange Act of 1934, as amended, which would substantially reduce the information required to be furnished by us to our stockholders and we would be no longer required and do not intend to file reports with the SEC. Certain provisions of the Exchange Act would no longer be applicable to us such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement in connection with stockholders’ meetings, and the related requirement of an annual report to stockholders.

Going Concern

Boyds is currently operating under Chapter 11 of the U.S. Bankruptcy Code and continuation of Boyds as a going concern is contingent upon, among other things, Boyds ability to (i) comply with the terms and conditions of its DIP financing; (ii) obtain confirmation of a plan of reorganization under the U.S. Bankruptcy Code; (iii) return to profitability; (iv) generate sufficient cash flows from operations; and (v) obtain financing sources to meet Boyds future obligations. These matters create substantial doubt about Boyds ability to continue as a going concern. The condensed quarterly financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result from the outcome of these uncertainties. Additionally, a plan of reorganization could materially change amounts reported in the condensed consolidated financial statements, which do no give effect to all adjustments of the carrying value of assets and liabilities that are necessary as a consequence of reorganization under Chapter 11 bankruptcy.

The Company recorded a net loss of $4.5 million for the three months ended March 31, 2006. The loss reflects the continued difficulties within the Company’s specialty retail sector, the length of time it has taken to transform to more national/giftable retailers, and the seasonal nature of the Company’s retail segment and $1.7 million in reorganization expenses associated with the Chapter 11 proceedings.

For the three months ended March 31, 2006 the Company had cash provided by operating activities of $0.9 million. There can be no assurance that the Company will have positive cash flows in the future.

Recently Issued Accounting Standards

In December of 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment . SFAS No. 123R addresses the accounting for share-based payments to employees, including grants of employee stock options. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Instead, companies are required to account for such transactions using a fair-value method and recognize the related expense associated with share-based payments in the condensed consolidated statement of operations. In April 2005, the Securities and Exchange Commission (“SEC”) delayed the effective date for SFAS No. 123R until the first quarter of fiscal 2006, and allows, but does not require, companies to restate the full fiscal year of 2005 or retroactive restatement to earlier periods to

reflect the impact of expensing share-based payments under SFAS No. 123R. SFAS No. 123R became effective for the Company on January 1, 2006. The adoption of SFAS No. 123R and its effects are described in Note 9 — Stock Based Compensation.

In November of 2004, the FASB issued SFAS No. 151, Inventory Costs-an Amendment of ARB No. 43 . SFAS No. 151 amends the guidance in Accounting Research Bulletin (“ARB”) No 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires that these items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS No. 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of production facilities. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company adopted SFAS 151 effective January 1, 2006. However, the adoption of SFAS No. 151 did not have an impact on the Company’s financial statements as the Company’s accounting policies were already in conformance with the key aspects of SFAS No. 151.

2. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

At December 31, 2005 and at March 31, 2006, Boyds had letters of credit outstanding under a bank credit agreement amounting to $1.6 million and $2.4 million, respectively. These letters of credit represent Boyds’ commitment to purchase inventory that is to be produced and/or shipped. In accordance with the DIP, letters of credit are required to be fully cash collateralized at all times. At December 31, 2005 and March 31, 2006 these amounts have been recorded as restricted cash.

3. RELATED PARTY TRANSACTIONS

Kohlberg Kravis Roberts & Co. L.P. (“KKR”) represented a 39% stockholder of Boyds at the end of December 31, 2005 and March 31, 2006. In 2005, KKR waived all management fees

On October 16, 2005, the Company entered into a Securities Purchase Agreement (the “Agreement”), with KKR Fund 1996 L.P. (“KKR”), D.E. Shaw Laminar Portfolios, L.L.C. (the “Buyer”). Pursuant to the Agreement, on October 16, 2005, KKR sold to the Buyer 11,795,725, approximately 20% shares of the Company’s common stock.

D.E. Shaw Laminar Portfolios, L.L.C. (“D.E. Shaw”) represents a 20% stockholder of Boyds and is a majority holder of senior secured debt, approximately $60 million, at the end of December 31, 2005 and March 31, 2006.

4. LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS, NET

Liabilities Subject to Compromise

Under Chapter 11 of the U.S. Bankruptcy Code, certain claims against Boyds in existence prior to the filing of the petitions for relief under the federal bankruptcy laws are stayed while Boyds continues

business operations as debtor-in-possession. These estimated claims are reflected in the December 31, 2005 and March 31, 2006 Condensed Consolidated Balance Sheet as Liabilities Subject to Compromise and are summarized in the table below. Such claims remain subject to future adjustments. Adjustments may result from actions of the bankruptcy court, negotiations, rejection or acceptance of executory contracts, determination of value of any collateral securing claims, proofs of claim or other events.

Boyds has received approval from the bankruptcy court to pay or otherwise honor certain of its pre-petition obligations, including (i) certain pre-petition wages, salaries and other compensation; (ii) employee medical and similar benefits; (iii) reimbursable employee expenses; (iv) insurance premiums; (v) shipping and warehousing charges. Accordingly, these pre-petition items have been excluded from Liabilities Subject to Compromise as of December 31, 2005 and March 31, 2006.

The liabilities subject to compromise consisted of the following items:

	December 31,		March 31,
	2005		2006
	(in thousands)

Account payable(a)	$4,485		$4,433
Accrued interest payable(b)(c)	2,522		2,522
Other miscellaneous liabilities	447		587

Secured term loan due 2008(c)	45,000		45,000
Secured revolving credit facility due 2008(c)	11,500		11,500
9% senior subordinated notes due 2008(c)	34,392		34,392
	90,892		90,892
Unamortized debt issuance costs	(3,166	)	(2,807	)
Total long term debt obligations subject to compromise	87,726		88,085

Total liabilities subject to compromise	$95,180		$95,627

(a) In accordance with the Company’s first day bankruptcy court motion, Boyds settled certain accounts payable liabilities subject to compromise since the initial filing of Chapter 11 as noted above.

(b) Accrued interest payable represents all unpaid interest payable on debt subject to compromise at October 16, 2005.

(c) While operating during the Chapter 11 bankruptcy proceedings, Boyds has ceased recording interest on its secured term loan due 2008, secured revolving credit facility due 2008 and 9% senior subordinated notes due 2008. The amount of contractual interest expense not recorded was approximately $2.7 million and $5.9 million at December 31, 2005 and March 31, 2006, respectively.

Reorganization Items, net

Reorganization items, net are presented separately in the Condensed Consolidated Operations and represent items of expense that are realized or incurred by Boyds because it is in reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Reorganization items, net consisted of the following items:

	Three Months Ended
	March 31,
	2005		2006
	(in thousands)

Professional fees(a)	$	0	$	1,535
Employee retention costs(b)	0		132

Total reorganization expense	$	0	$	1,667

(a) Professional fees represent services provided by debtor and creditor professionals directly related to Boyds reorganization proceedings.

(b) Employee retention costs represent costs for certain key employees as approved by the bankruptcy court

5. PROPERTY AND EQUIPMENT

The components of property and equipment at December 31, 2005 and March 31, 2006 were, as follows:

	December 31,			March 31,
	2005			2006
	(in thousands)
Land	$	3,570		3,570
Building	28,729			28,735
Equipment	5,606			5,787
Software development costs	2,479			2,488
Leasehold improvements	1,957			1,957
Furniture and fixtures	1,097			1,097
Total	43,438			43,634
Less: accumulated depreciation	(11,711		)	(12,265		)
Total	$	31,727		$	31,369

6. GOODWILL

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which was effective January 1, 2002 (SFAS No. 142). SFAS No.142 requires, among other things, the discontinuance of goodwill amortization. The Company stopped amortizing its goodwill as of January 1, 2002. The Company tests for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value was determined based on the discounted cash flow method. As a result of the Company’s impairment test completed in the first quarter of 2005, the Company recorded an impairment loss of $2.6 million to reduce the carrying value of goodwill to zero. The impairment was caused by a continued decline in wholesale sales and results.

7. DEBT OBLIGATIONS

Debt obligations are summarized as follows:

	December 31,			March 31,
	2005			2006

9% Senior Subordinated Notes due May 15, 2008 (the “Notes”)	$	34,392		$	34,392

Credit Agreement:
Secured Term Loan due February 2008
Interest based on LIBOR or base rate as defined	45,000			45,000
Secured revolving credit facility due February 2008
Interest based on LIBOR or base rate as defined	11,500			11,500

Sub-total	90,892			90,892

Less: Amounts subject to compromise (Note 4)	(90,892		)	(90,892		)

	$	—		$	—

The Notes had an optional redemption feature exercisable by Boyds any time on or after May 15, 2003. Interest on the Notes is payable semiannually on May 15 and November 15.

The credit agreement contains a Revolving Loan Facility up to $20 million and a Term Loan of $45 million. The credit agreement has an interest rate of either a base rate, which is the higher of the prime lending rate or 0.50% above the federal funds effective rate, plus 9.50% or LIBOR plus 11.00%. The lower of these rates at December 31, 2005 and March 31,2006 was 13.128% and 16.79%, respectively. The Company incurred approximately $3.6 million of deferred costs associated with this transaction. The credit agreement requires no scheduled principal payments until the entire outstanding amount of debt is required to be repaid at maturity in February, 2008. There are certain prepayment penalties for amounts paid on the Term Loan and Revolver prior to maturity.

The credit agreement contained customary covenants, including covenants that restrict the Company’s ability to incur additional indebtedness, make capital expenditures, pay dividends on and redeem capital stock, make other restricted payments, make investments, sell its assets and enter into consolidations, mergers and transfers of all or substantially all of its asset. The credit agreement also requires the Company to maintain specified financial ratios. On October 3, 2005, in connection with potential defaults on its senior secured credit agreement, we entered into a waiver agreement with our lenders. This waiver agreement provided for, among other things, the lenders’ forbearance from exercising contractual remedies under our credit agreement on account of existing defaults through October 16, 2005. On October 16, 2005, the Company filed for bankruptcy. (See Note 1)

Based on the defaults that have occurred under the credit agreement and notes, all the foregoing amounts have been deemed to be due and payable (See Note 4).

On October 16, 2005, pursuant to authorization from the bankruptcy court, Boyds entered into a $8 million DIP credit facility. This DIP facility consists of a $8 million revolver facility which includes access for $3.5 million worth of commercial letters of credit. The letters of credit are required to be fully cash collateralized. The DIP facility limits the amount of capital expenditures during its term to $250,000. As of March 31, 2006, Boyds has not borrowed any amounts against the DIP credit facility.

8. SEGMENTS OF THE COMPANY AND RELATED INFORMATION

The Company operates in two segments which consist of the Company’s wholesale gift/collectible business and the Company’s retail gift/entertainment business. These segments are evaluated regularly by the Company’s Chief Executive Officer in deciding how to assess performance and allocate resources. Prior to the retail operations becoming a significant portion of the Company’s performance, the Company had only one reportable segment.

The Company’s wholesale business designs, imports, and distributes resin figurines, plush animals, and other specialty giftware products via a global network of independent and national retailers and distributors. The Company’s retail operation sells resin figurines, plush animals, specialty giftware products and provides a unique interactive entertainment experience directly to the end consumer at its Gettysburg, Pennsylvania flagship location and its Pigeon Forge, Tennessee location.

	For the Three Months Ended, March 31,
	2005									2006
	Wholesale			Retail			Consolidated			Wholesale			Retail			Consolidated
Sales	$	15,274		$	3,259		$	18,533		$	11,665		$	2,371		$	14,036
Gross Profit	6,133			2,269			8,402			4,149			2,273			6,422
SG&A	7,535			3,166			10,701			6,412			2,366			8,778
Impairment of Goodwill	2,600			—			2,600			—			—			—

Loss from Operations	$	(4,002	)	$	(897	)	$	(4,899	)	$	(2,263	)	$	(93	)	$	(2,356	)

Total Assets	$	203,341		$	37,120		$	162,410		$	27,198		$	32,582		$	59,780
Capital Expenditures	57			334			391			186			5			191
Depreciation and amortization	211			366			577			150			425			575

9. STOCK-BASED COMPENSATION

Adoption of SFAS No. 123(R)

On January 1, 2006, the Company adopted SFAS No. 123(R) which requires companies to expense the fair value of employee stock options and other forms of stock-based employee compensation in the financial statements over the period that an employee provides service in exchange for the award. Under SFAS 123(R), the Company measures compensation cost related to stock options based on the grant-date fair value of the award using the Black-Scholes option-pricing model and recognizes it ratably, less estimated forfeitures, over the vesting term of the award.

Using the modified prospective application of SFAS No. 123(R), the Company recorded $0.4 million of compensation expense for the three months ended March 31, 2006 which was included in selling, general and administrative expenses in the Company’s condensed consolidated statement of operations. The Company does not currently recognize a tax benefit resulting from compensation costs expensed in the financial statements because the Company provides a valuation allowance against the deferred tax asset resulting from this type of temporary difference since it expects that it will not have sufficient future taxable income to realize such benefit. Accordingly, the adoption of SFAS No. 123(R) has had no impact on income tax expense reported in the financial statements.

Prior to January 1, 2006, the Company had accounted for stock-based employee compensation using the intrinsic value method of expense recognition prescribed by Accounting Principle Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations, which was permitted as an alternative to the fair value recognition provisions of FASB Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”). The Company applied the disclosure only provisions of SFAS No. 123 and made pro forma disclosure as if the fair value of stock options had been expensed under the accounting prescribed by SFAS No. 123. Under the intrinsic value method of accounting of APB No. 25, compensation expense was not recognized when stock options were granted with an exercise price greater than or equal to the fair market value of the Company’s common stock on the date of the grant.

The following table illustrates the pro forma effect on the net loss and net loss per share for the three months ended March 31, 2005 if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

	Three Months Ended
	March 31, 2005

Net income/(loss), as reported	$	(77,292	)

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	407

Pro forma net income/(loss)	$	(77,699	)

Earnings per share:
Basic—as reported	$	(1.31	)
Basic—pro forma	$	(1.31	)

Diluted—as reported	$	(1.31	)
Diluted—pro forma	$	(1.31	)

Stock Option Plan—Boyds has granted stock options under various incentive stock option plans (the “Plans”) which provide for the granting to certain employees and directors of options to acquire Boyds’ common stock. The option prices of stock which may be purchased under the Plans are not less than the fair value of common stock on the dates of the grants.

Outstanding options issued to employees vest and become exercisable over a five-year period from the date of grant. The outstanding options expire ten years from the date of grant or upon an employee’s retirement or termination from Boyds, and are contingent upon continued employment during the applicable five-year period.

Boyds has reserved a total of 7,075,102 shares for issuance under the Plans, of which 1,721,777 shares remain reserved at March 31, 2006 for future issuances. The following table summarizes information about fixed stock options at March 31, 2006:

			Options Outstanding
	Options				Exercise Price Per Share
	Available		Number of				Weighted
	for Grant		Shares		Range		Average

January 1, 2005	2,845,156		4,014,883		$	2.49 - $18.00	$	5.95

Shares reserved	500,000
Options granted	(2,196,250	)	2,196,250		$	1.73 - $2.50	$	2.07
Options exercised	3,931		(3,931	)	$	4.45	$	4.45
Options forfeited	450,440		(450,440	)	$	2.06 - $9.31	$	3.75

December 31, 2005	1,603,277		5,756,762		$	1.73 - $18.00	$	4.65

Shares reserved	—		—
Options granted	—		—		—		$	0.00
Options exercised	—		—		—		$	0.00
Options forfeited	118,500		(118,500	)	$	2.06 - $13.88	$	4.75

March 31, 2006	1,721,777		5,638,262		$	1.73 - $18.00	$	4.64

The following table summarizes information about stock options outstanding at March 31, 2006:

		Weighted		Options	Weighted		Weighted
Exercise	Options	Average		Exercisable	Average		Average
Price	Outstanding	Exercise Price		& Vested	Exercise Price		Remaining Life

$1.73 to $2.43	1,887,500	$	2.06	105,000	$	2.06	9.2

$2.49 to $6.25	2,049,262	$	4.61	1,323,347	$	4.76	6.6

$6.50 to $18.00	1,701,500	$	7.55	1,451,000	$	7.63	5.3

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table:

	Three Months Ended
	March 31,
	2005		2006

Weighted average risk free interest rate	4.0	%	5.1	%
Volatility	68.8	%	101.8	%
Dividend yield	0.0	%	0.0	%
Expected life in years	6.5		6.5

The expected life of options granted was estimated using the historical exercise behavior of employees.

The expected voiatility was based on historical volatility for a period equal to the stock options’ expected lives.

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant,

As of March 31, 2006, there was $4.4 million of total unrecognized compensation cost related to nonvested share-based compensation awards granted under the stock option plans. That cost is presently scheduled to be recognized over a weighted average period of 7.1 years.

10. PROVISION FOR INCOME TAXES

As of March 31, 2006, the Company has a $179.4 million valuation allowance against its deferred tax assets, consisting of tax carryforwards that will begin to expire in 2023 until the end of 2033. The recovery of the deferred income tax assets is contingent upon applicable tax laws and the Company’s ability to generate taxable income. This valuation allowance results from estimates by management of future taxable income in each of the federal, state, and foreign tax jurisdictions during the carry forward period and the conclusion by management that it is no longer more likely than not that this amount of deferred tax assets will be realized under the criteria of SFAS No. 109, Accounting for Income Taxes. For the three months ended March 31, 2006, the Company recorded tax expense of $0.1 million.

11. COMMITMENTS & CONTINGENCIES

Boyds is involved in various legal proceedings, claims and governmental audits in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of Boyds.

On October 3, 2005, in connection with potential defaults on its senior secured credit agreement, we entered into a waiver agreement with our lenders. This waiver agreement provided for, among other things, the lenders’ forbearance from exercising contractual remedies under our credit agreement on account of existing defaults through October 16, 2005.

On October 7, 2005, The Company received notification from the New York Stock Exchange (“NYSE”) dated October 7, 2005, that it determined that trading of the Company’s common stock (ticker symbol FOB) would be suspended prior to the opening on Monday, October 10, 2005. This decision was reached in view of the fact that the Company was not in compliance with the NYSE’s newly increased continued listing standards. The Company was considered “below criteria” by the NYSE because the Company’s average market capitalization was less than $75 million over a 30 trading-day period and its shareholders’ equity was less than $75 million and the average closing price of the security was less than $1.00 over a consecutive 30 trading-day period. In addition, the NYSE noted the Company’s abnormally low selling price, which closed at $0.45 on October 6, 2005.

Boyd’s common stock is currently being quoted under the ticker symbol “BOYD.PK” on the Pink Sheets Electronic Quotation Service maintained by the Pink Sheets LLC and on the OTC Bulletin Board.

On October 16, 2005, we and certain of our subsidiaries filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the District of Maryland (the “Court”) (Case Nos. 05-43793; 05-43805; 05-43802; 05-43833; 05-43838; 05-43863; 05-43816; 05-43848; and 05-43857). We have requested joint administration of the cases under the caption “The Boyds Collection, Ltd., Case No. 05-43793. We will continue will continue to operate our businesses as “debtors in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court (See Note 1 — Chapter 11 Bankruptcy Proceedings).

Boyds also has significant licensing agreements with NASCAR, Coca-Cola, M&Ms, and Crayola. The Company’s NASCAR license includes the top ten drivers. Pursuant to this arrangement, Boyds has the ability to use the NASCAR logo or driver names, likeness, and numbers. Boyds pays a royalty based on sales of these products to the various licensors.

On January 17, 2006, the Company filed for bankruptcy in the Dutch court for its Dutch subsidiary. The court approved the filing and appointed a Trustee to close down the operations,

12. EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the net income/(loss) available to common stockholders:

	Three Months Ended
	March 31,
	2005			2006

Numerator for basic and diluted earnings per share:
Net loss	$	(77,292	)	$	(4,454	)
Denominator for diluted earnings per share - weighted average shares	59,087			59,054

EPS - Basic	$	(1.31	)	$	(0.08	)

EPS - Diluted	$	(1.31	)	$	(0.08	)

For the three months ended March 31, 2006 and March 31, 2005, options to purchase 3,558,533 and 5,673,379 shares,respectively, were outstanding but not included in the computation of dilutive earning per share because the effect would have been anti-dilutive.

Following the effective date of our plan or reorganization, we expect to issue new common stock to replace the existing stock. Due to this new stock issuance there may be an impact to the Company’s EPS.

13. SUBSEQUENT EVENTS

On May 25, 2006, the Company announced that Jan Murley, Chief Executive Officer was leaving the Company effective on the earlier to occur of (i) the effective date of the Company’s plan of reorganization and (ii) June 30, 2006. The Company will incur approximately $0.5 million in expenses associated with this departure.

The Company also announced the appointment of Robert Coccoluto as Chief Executive Officer, Peter Frost as Chief Operating Officer and Michael A. Prager as President.

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

The following discussion should be read in conjunction with the financial information and related notes included elsewhere in this report.

Chapter 11 Bankruptcy Proceedings

On October 16, 2005, we and certain of our subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the District of Maryland (the “Court”) (Case Nos. 05-43793; 05-43805; 05-43802; 05-43833; 05-43838; 05-43863; 05-43816; 05-43848; and 05-43857). We have requested joint administration of the cases under the caption “The Boyds Collection, Ltd., Case No. 05-43793. We will continue to operate our businesses as “debtors in possession” (“DIP”) under the jurisdiction of the Court, under Court protection from creditors and claimants and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court.

· Each qualifying noteholder (a holder of our Senior Subordinated Notes that has continuously held beneficial interests therein for more than 18 months immediately prior to our bankruptcy filing through the effective date of the Plan) shall receive cash in the amount of 22.0% of the allowed amount of its note claim, to be paid, if at all, on the date of a Future Transaction; plus its pro rata share of 5.0% of the New Common Stock, plus its pro rata share of 50.0% of the reallocated shares which are the shares of our common stock representing the difference between: (i) 5% of the New Common Stock; and (ii) the aggregate pro rata share of New Common Stock allocable to qualifying noteholders. A “Future Transaction” is a transaction in which we, subject to certain exceptions, (a) merge or consolidate with another person or entity or (b) acquire any assets, properties, rights or equity interests, in each case occurring within 36 months of the effective date of the Plan so long as the transaction is not a acquisition (i) of assets, properties or rights or assumption of liabilities in the ordinary course of our business (i.e., accounts payable, receivables, inventory, product, store leases, store equipment and any other similar acquisitions or assumptions of liabilities); (ii) an acquisition that has aggregate consideration of $10 million or less that is not an acquisition of a toy collectible business; or (iii) an acquisition that does not meet certain revenue or EBITDA thresholds.

· Each holder of an allowed general unsecured claim or claims will receive cash equal to 28% of its allowed claim or claims, if the class of such holders accepts the Plan.

· Each holder of 200 or more shares of our common stock will receive its pro rata share of 46.5% of our post bankruptcy equity.

· Each holder of less than 200 shares of our common stock will receive $0.15 per share.

There can be no assurance that the Plan, or any other plan of reorganization, will be confirmed by the Court or implemented successfully.

On January 17, 2006, the Company filed for bankruptcy in the Dutch court for its Dutch subsidiary. The court approved the filing and appointed a Trustee to close down the operations.

GENERAL

Boyds is a domestic designer, importer and distributor of branded, high-quality, handcrafted collectibles and other specialty giftware products. Boyds sells its products primarily through an extensive network of approximately 11,000 store locations comprised of independent gift and collectibles retailers, premier department stores, selected catalogue retailers and other electronic and retail channels. Boyds also sells its products directly to consumers through its two retail stores Boyds Bear Countryä - Gettysburg and Boyds Bear Countryä - Pigeon Forge.

Boyds’ sales consist of plush animals, resin figurines, and other products. Other products include collectors club sales, home décor, stationery, accessories, retail food operations and its interactive concepts. Collectors club sales are generated from annual dues collected directly from members of Boyds’ collectors club, The Loyal Order of Friends of Boyds, which began in July 1996 and currently has approximately 20,000 paying members, as well as from the sale of related accessories.

Boyds also has several licensing agreements for its branded product. The more significant agreements include NASCAR ®, Coke ®, M&M’S ® Brand Characters, and Crayola ®. Boyds began delivering Coke ®, M&M’S ®, and Crayola ® Boyds products to its retail stores in late 2005.

Boyds licenses its product designs to other companies for products including home textiles, infant clothing and wallpaper. Boyds believes such licensing, in addition to providing royalty income, helps to increase consumer awareness of Boyds’ designs and brand image. Boyds reports royalty income in net sales.

Boyds exhibits its products at select national and regional tradeshows where orders are taken by Boyds’ employees. Boyds operates almost exclusively out of a leased office/distribution facility, owns one retail store in the general vicinity of Gettysburg, Pennsylvania, and owns a second retail store in Pigeon Forge, Tennessee. Boyds also leases warehouse space in Dunkeswell, United Kingdom. The Company had also leased space in Dordrecht, The Netherlands. The lease was terminated as a result of the bankruptcy filing on January 17, 2006 in the Dutch courts.

SEGMENTS

The Company’s wholesale business designs, imports, and distributes resin figurines, plush animals and other specialty giftware products via a global network of independent retailers and distributors. The Company’s retail operation sells resin figurines, plush animals, other specialty giftware products and provides a unique interactive entertainment experience, directly to the end consumer currently at its Gettysburg, Pennsylvania flagship location and Pigeon Forge, Tennessee location.

CRITICAL ACCOUNTING POLICIES

Preparing the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Predicting future events is inherently an imprecise activity and as such requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements. Management believes that the estimates and assumptions used in connection with the amounts reported in Boyds’ financial statements and related disclosures are reasonable and made in good faith.

The financial statements have been prepared on a “going concern” basis in accordance with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, and do not include possible impacts arising in respects of the Cases. The condensed financial statements included elsewhere in this Report do not include certain adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or the effect on existing stockholders’ equity that may result from any plans, arrangements or other actions arising from the Cases, or the possible inability of the Company to continue in existence. Adjustments necessitated by such plans, arrangements or other actions could materially change the condensed financial statements included elsewhere in this Report.

The most significant accounting estimates inherent in the preparation of Boyds’ financial statements include estimates related to the valuation of the deferred tax assets, determining the ultimate collectability of accounts receivable and the realizable value of inventory. The process of

determining estimates is based on several factors, including historical experience, current and anticipated economic conditions and customer profiles. Boyds continually reevaluates these key factors and makes adjustments to estimates where appropriate. The following are Boyds’ critical accounting policies, some of which require the application of significant estimates and assumptions.

· On January 1, 2006, the Company adopted SFAS No. 123(R) which requires companies to expense the fair value of employee stock options and other forms of stock-based employee compensation in the financial statements over the period that an employee provides service in exchange for the award. Under SFAS 123(R), the Company measures compensation cost related to stock options based on the grant-date fair value of the award using the Black-Scholes option-pricing model and recognizes it ratably, less estimated forfeitures, over the vesting term of the award.

· For the wholesale business, Boyds records sales when persuasive evidence of an arrangement exists, the price is fixed or determinable, items are shipped and the collectibility of the resulting receivable is reasonably assured. For the retail business, Boyds recognizes sales upon customer receipt of the merchandise. The most significant financial statement line item, net sales, represents transactions consistent with Boyds’ primary business focus and meets the criteria of Staff Accounting Bulletin No. 104, including the transfer of title, reasonable collectibility, and identified customer.

· As of June 30, 2005, the Company set up a valuation allowance for the remaining amount of its deferred tax assets, consisting of tax carryforwards that will begin to expire in 2023. For the three months ended March 31, 2006, the Company recorded tax expense of $0.1 million This valuation allowance results from estimates by management of future taxable income in each of the federal, state, and foreign tax jurisdictions during the carry forward period and the conclusion by management that it is no longer more likely than not that this amount of deferred tax assets will be realized under the criteria of SFAS No. 109, “Accounting for Income Taxes”.

· Accounts receivable are presented at estimated net realizable value. Boyds uses estimates in determining the collectability of its accounts receivable and must rely on its evaluation of historical bad debts, customer credit ratings, current economic trends and changes in customer payment terms to arrive at appropriate reserves.

· Inventories are stated at the lower of cost or market. Cost is determined under the first-in, first-out method of accounting. Boyds records adjustments to the value of inventory in situations where it appears that Boyds will not be able to recover the cost of the product. This lower of cost or market analysis is based on Boyds’ estimate of forecasted demand by customer by product. A decrease in product demand due to changing customer tastes, consumer buying patterns or loss of shelf space to competitors could significantly impact Boyds’ evaluation of its excess and obsolete inventories.

· Under the requirements of Statement of Financial Accounting Standards (“SFAS”) Nos.142 “Goodwill and Other Intangible Assets”, and 144 “Accounting for the Impairment and Disposal of Long-Lived Assets”, Boyds assesses the potential impairment of identifiable intangibles and acquired goodwill on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable, and assesses potential impairment of long lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In performing these evaluations, the Company evaluates current and future economic and business trends to develop business forecasts of future performance and related cash flows. Such estimates require the use of judgment and numerous subjective assumptions. As a result of the Company’s impairment test completed in the first quarter of 2005, the Company recorded an impairment loss of $2.6 million to reduce the carrying value of goodwill to zero. The impairment was caused by a continued decline in wholesale sales and results.

FACTORS WHICH AFFECT BOYDS’ RESULTS OF OPERATIONS

Seasonality

Boyds recognizes revenues throughout the year and generally ships merchandise on a first-in, first-out basis. Approximately 58% of revenues are recorded between May and October in anticipation of the holiday season while approximately 42% of revenues are recorded between November and April. Boyds does not have the significant seasonal variation in its wholesale revenues that it believes is experienced by many other giftware, collectibles or retail companies.

Foreign Exchange

The dollar value of Boyds’ assets abroad is not significant. Boyds’ sales are primarily denominated in United States dollars and, as a result, are not subject to changes in exchange rates.

Boyds imports most of its products from manufacturers in China. Boyds’ costs could be adversely affected on a short-term basis if the Chinese renminbi appreciates significantly relative to the United States dollar. Conversely, its costs would be favorably affected on a short-term basis if the Chinese renminbi depreciates significantly relative to the United States dollar. Although Boyds generally pays for its products in United States dollars, the cost of such products fluctuates with the value of the Chinese renminbi. In the future, Boyds may, from time to time, enter into foreign exchange contracts or prepay inventory purchases as a partial hedge against currency fluctuations. Differences between the amounts of such contracts and costs of specific material purchases are included in inventory and cost of sales. Boyds’ policy is to not capitalize any gains or losses associated with foreign currency transactions or foreign exchange contracts. Boyds intends to manage foreign exchange risks to the extent appropriate.

Boyds has sales operations based in Europe and Canada, but at this time Boyds does not expect any significant impact due to fluctuations in the Euro, the British Pound or the Canadian dollar.

RESULTS OF OPERATIONS

Net sales consist of sales of our products, net of sales discounts, product returns and allowances, retail sales from the Boyds Bear CountryTM retail stores, collectors club sales generated from members of Boyds’ collectors club and royalty income from licenses held by Boyds. Wholesale sales are primarily made on a purchase order basis. Revenue associated with sales is recognized when products are shipped to the customer or upon the completion of a retail transaction.

Boyds’ gross profit margins may not be comparable to the gross profit margins of certain other entities due to the classification of certain costs. Boyds includes items such as purchasing and receiving costs, internal transfer costs, and the costs of its distribution network in cost of goods sold. Boyds includes its inspection costs in selling, general and administrative (“SG&A”) expenses. Other entities may classify their expenses differently.

In accordance with Emerging Issues Task Force (“EITF”) No. 00-10, “Accounting for Shipping and Handling Fees and Costs”, Boyds records amounts billed to customers related to shipping and handling as revenue and all expenses related to shipping and handling as cost of goods sold.

Other income consists of interest income and exchange rate gain/loss.

The following table sets forth the components of net loss as a percentage of net sales for the period indicated:

	Three Months
	Ended
	March 31,
	2005		2006

Net sales	100.0	%	100.0	%
Gross profit	45.3	%	45.8	%
Selling, general and administrative expenses	57.7	%	62.5	%
Impairment of assets	14.0	%	0.0	%
Loss from operations	(26.4	)%	(16.7	)%
Other income (expenses), net	(0.7	)%	0.2	%
Interest expense	11.8	%	2.6	%
Reorganization expenses	0.0	%	11.9	%
Provision for income taxes	378.2	%	0.7	%
Net loss	(417.1	)%	(31.7	)%

Executive Overview

In the first quarter of 2006, the Company’s net sales decreased by 24% compared to the same period in 2005, which can primarily be continued softness in the core independent retailer channel, the shift of Easter to April, and the operational decision to close the retail stores during slower days in the first quarter. The decrease in wholesale net sales was attributable to a 33% decline in wholesale bookings (cancelable orders) in the first quarter of the year compared to the same period in 2005. Weakness across the Specialty Gift Retail sector of the Company’s account base and reduced sales to a number of Boyds’ larger legacy accounts were the contributors to these reduced bookings.

The Company’s net loss for the first quarter decreased $72.8 million to a loss of $4.5 million as compared to $77.3 million for the same period in 2005. This decrease can be attributed to the significant increase in the Company’s allowance for its deferred tax asset and the write off of its goodwill that occurred in the three months ended March 31, 2005.

Cash provided by operating activities in the first three months of 2006 was $0.9 million compared to $5.9 million in cash used in operations in the year-ago period. In the first three months of 2006 the Company investing activities included $0.2 million of cash in property and equipment compared to $0.4 million in the year-ago period and $2.4 million due to the requirement that the letters of credit be cash collateralized. In the first three months of 2005, the Company had a net increase of approximately $12.5 million of debt.

Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005

Net Sales— Net sales decreased $4.5 million, to $14.0 million in the first quarter of 2006 from $18.5 million for the same quarter in 2005. Sales of Boyds’ plush products decreased $3.4 million, or 28%, resin product sales increased $1.0 million, or 163%, and other product sales decreased $2.1 million, or 38%. As a percentage of net sales for the first quarter, plush represented 65%, resin products represented 12%, and other products represented 23%.

Wholesale net sales in the first quarter of 2006 declined $3.6 million, or 24%, to $11.6 million from $15.3 million for the same quarter in 2005. The decrease in wholesale net sales was attributable to a 33% decline in wholesale bookings (cancelable orders) in the first quarter of the year compared to the same period in 2005. Weakness across the Specialty Gift Retail sector of the Company’s account base and reduced sales to a number of Boyds’ larger legacy accounts were the contributors to these reduced bookings.

Retail net sales decreased $0.9 million, or 27%, to $2.4 million in the first quarter of 2006 from $3.3 million in the first quarter of 2005. Same store retail net sales decreased by $0.9 million, or 27%, to $2.4 million in the first quarter from $3.3 million for the first quarter of 2006. This decrease in overall retail sales can be attributed to reduced visitor traffic due to Easter falling in the second quarter and due to the operational decision to close the stores on days of slower traffic.

Gross profit - Gross profit decreased $2.0 million, or 24%, to $6.4 million in the first quarter of 2006 from $8.4 million for the first quarter of 2005. Gross profit as a percentage of net sales increased to 45.8% for the first quarter of 2006 as compared to 45.3% for the same period in 2005. The dollar decline was primarily attributable to reduced sales, an increased product mix shift to lower margin product, a $0.3 million increase which relates to a credit in capitalized inventory from 2005 and a $0.2 million increase in royalty expenses due to increased sales in this category, these were partially offset by a obsolete inventory allowance that was $1.6 million lower than in 2005. Wholesale gross profit decreased by $2.0 million, or 32%, to $4.1 million in the first quarter of 2006 from $6.1 million in the first quarter of 2005. Retail gross profit was flat at $2.3 million in the first quarter of 2006 as compared to the first quarter of 2005.

Selling, General & Administrative Expenses (“SG&A”) - SG&A expenses decreased $1.9 million, or 18%, to $8.8 million in the first quarter of 2006 from $10.7 million for the first quarter of 2005. SG&A as a percent of net sales increased to 63% for the first quarter from 58% for the same period in 2005. The dollar decrease in SG&A expenses was a result of $0.9 million in lower wage costs stemming from our continued cost saving initiatives and $0.5 million in professional fees, $0.5 million in reduced advertising expenses stemming from rationalization of the spending in the retail segment, $0.3 million in reduced real estate taxes paid due to timing, these costs were partially offset by an increase of $0.5 million in bad debt expense.

Impairment of Goodwill Assets — The Company recorded a goodwill impairment charge of $2.6 million for the first quarter of 2005. This charge was attributed to the goodwill impairment testing as prescribed by SFAS 142, Goodwill and Other Intangibles due to the wholesale segment’s operating performance.

Loss from operations - Loss from operations decreased $2.5 million to a loss of $2.4 million in the first quarter of 2006 from a loss of $4.9 million in the first quarter of 2005. Loss from operations as a percentage of net sales improved to a negative 14% in the first quarter of 2006 from a negative 26% in the first quarter of 2005.

Interest expense - Interest expense decreased to $0.4 million for the first quarter of 2006 as compared to $2.2 million for the first quarter of 2005. Interest expense on outstanding debt decreased for the first quarter of 2006 by $2.0 million. This decrease is due the Company ceasing to record interest expense on the Company’s outstanding debt during the Chapter 11 bankruptcy proceedings. Additionally, the amortization expense associated with the deferred financing costs have increased by $0.2 million as a result of capitalized costs associated with the New Credit Agreement.

Reorganization items - Reorganization items of $1.7 million represent expense items that are realized or incurred by Boyds because it is in reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Income tax expense - Income tax expense decreased $70.0 million to $0.1 million in the first quarter of 2006 as compared to $70.1 million for the first quarter of 2005.

Net loss— Net loss decreased $72.8 million to a loss of $4.5 million in the first quarter of 2006 from a $77.3 million loss for the first quarter of 2005.

Liquidity and Capital Resources

Boyds’ primary source of liquidity is borrowings under its DIP credit facility. Boyds’ primary uses of cash are to fund working capital requirements. Cash balances increased $0.7 million in the first three months of 2006 as compared to the balances at December 2005.

Operating Activities

Cash provided by operating activities increased $6.8 million, to a $0.9 million in the first three months of 2006 from a negative $5.9 million for the first three months of 2005. The change in cash flow was primarily attributable to the continued decrease in sales and inventory which was partially offset by increases in accrued expenses. Due to the seasonality of our retail business, operating results for the three months ended March 31, 2006 are not necessarily indicative of operating results for the entire year. There can be no assurance that the Company will have positive cash flows in the future.

Investing Activities

Capital and investment expenditures totaled $0.2 million in the first three months of 2006 as compared to $0.4 million in the first three months of 2005. This decrease in expenditures was the result of the capital covenant restrictions contained within the DIP facility. In the first three months, the Company utilized $2.4 million in cash to collateralize its letter of credit due to requirements in the DIP credit facility.

Financing Activities

As discussed in Note 1 to the accompanying condensed consolidated financial statements, Boyds is operating as a debtor—in-possession under Chapter 11 of the U.S. Bankruptcy Code. As a result of the uncertainty surrounding Boyds current circumstances, it is difficult to predict Boyds actual liquidity needs and sources at this time. However, based upon current and anticipated levels of operations during the continuation of the bankruptcy proceedings, Boyds believes that its liquidity and capital resources will be sufficient to maintain its normal operations at current levels. Boyds access to additional financing while in the Chapter 11 bankruptcy process may be limited.

million worth of commercial letters of credit. The letters of credit are required to be fully cash collateralized. The DIP facility limits the amount of capital expenditures during its term to $250,000. As of March 31, 2006, the Company has not borrowed any amounts against the DIP credit facility.

The Company relies on the DIP credit facility to provide adequate funds for Boyds’ foreseeable working capital needs, planned capital expenditures, debt service obligations, a stock repurchase program and a bond repurchase program.

Any future acquisitions, joint ventures or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to Boyds on acceptable terms, or at all. Boyds’ ability to fund its working capital needs, planned capital expenditures and scheduled debt payments, to refinance indebtedness and to comply with all of the financial covenants under its debt agreements depends on its future operating performance and cash flow, which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond Boyds’ control.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In December of 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment. SFAS No. 123R addresses the accounting for share-based payments to employees, including grants of employee stock options. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Instead, companies are required to account for such transactions using a fair-value method and recognize the related expense associated with share-based payments in the condensed consolidated statement of operations. In April 2005, the Securities and Exchange Commission (“SEC”) delayed the effective date for SFAS No. 123R until the first quarter of fiscal 2006, and allows, but does not require, companies to restate the full fiscal year of 2005 or retroactive restatement to earlier periods to reflect the impact of expensing share-based payments under SFAS No. 123R.. SFAS No. 123R became effective for the Company on January 1, 2006. The adoption of SFAS No. 123R and its effects are described in Note 9 — Stock Based Compensation.

In November of 2004, the FASB issued SFAS No. 151, Inventory Costs-an Amendment of ARB No. 43. SFAS No. 151 amends the guidance in Accounting Research Bulletin (“ARB”) No 43, Chapter 4,

Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires that these items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS No. 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of production facilities. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company adopted SFAS 151 effective January 1, 2006. However, the adoption of SFAS No. 151 did not have an impact on the Company’s financial statements as the Company’s accounting policies were already in conformance with the key aspects of SFAS No. 151.

RELATED PARTY TRANSACTIONS

Kohlberg Kravis Roberts & Co. L.P. (“KKR”) represented a 39% stockholder of Boyds at the end of December 31, 2005 and March 31, 2006. In 2005, KKR waived all management fees.

FORWARD LOOKING STATEMENTS

Some of the matters discussed in this report include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements.

The forward-looking statements in this report are based on a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of Boyds, and reflect future business decisions that are subject to change. A variety of factors could cause actual results to differ materially from those anticipated in Boyds’ forward-looking statements, including: the inability to meet the financial covenant tests under the New Credit Agreement; the inability to grow Boyds’ business as planned; the loss of either of Boyds’ two independent buying agencies or any of its manufacturing sources; economic or political instability in the countries with which Boyds does business; changes to, or the imposition of, new regulations, duties, taxes or tariffs associated with the import or export of goods from or to the countries with which Boyds does business; and other risk factors that are discussed in this report and, from time to time, in other Securities and Exchange Commission reports and filings. One or more of the factors discussed above may cause actual results to differ materially from those expressed in or implied by the statements in this report.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of such statements. Boyds undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or

circumstances after the date of this report, or the date of such statements, as the case may be, or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

While operating during the Chapter 11 bankruptcy proceedings, Boyds faces no interest rate risk exposure in relation to its outstanding debt obligations of $90.9 million. Boyds has also ceased recording interest on its debt obligations during the Chapter 11 proceedings.

Boyds faces currency risk exposure that arises from translating the results of its European and Canadian operations that are denominated in the local currency of the Euro, the British Pound and the Canadian dollar, to the U.S. dollar. The currency risk exposure is not material as the operations of the European and Canadian subsidiaries do not have a material impact on the Company’s earnings.

Boyds also faces foreign exchange risks that arise from paying in United States Dollars for products that are manufactured in China. Recently, the Chinese government revalued its currency, the renminbi, ending its link to the U.S. dollar. While this is a significant change for China, the anticipated near term impacts to the Company are believed to be minimal. While it does not do so now, in the future Boyds may, from time to time, enter into foreign exchange contracts or prepay inventory purchases as a partial hedge against currency fluctuations. Differences between the amounts of such contracts and costs of specific material purchases are included in inventory and costs of sales. Boyds intends to manage foreign exchange risks to the extent appropriate.

Item 4. Disclosure Controls and Procedures

Boyds maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the Securities and Exchange Commission (“SEC”), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Boyds carried out an evaluation of its disclosure controls and procedures, under the supervision and with the participation of the Chief Executive and Chief Financial Officers, as of March 31, 2006, and based on such evaluation, Boyds’ Chief Executive and Chief Financial Officers believe that these disclosure controls and procedures are effective to ensure that Boyds is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

There have been no significant changes in Boyds’ internal controls or in other factors that could significantly affect these controls, subsequent to the date Boyds’ Chief Executive and Chief Financial Officers completed their evaluation.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

On October 16, 2005, the Company and certain of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code, in the Bankruptcy Court. In connection with the bankruptcy filings, the Company entered into a six month DIP financing agreement with DE Shaw Laminar Partners and Bank of America LLC which provides for revolving loans in the amount of $8 million with $3.5 million in collateralized letters of credit.

Management has assessed the liquidity position of the Company and its subsidiaries as a result of the bankruptcy filing and available DIP financing and believes that the Company and its subsidiaries will be able to fund their post-petition obligations until a plan of reorganization is finalized or another transaction is effected.

The Company is involved in various legal proceedings, claims and governmental audits in the ordinary course of business. In the opinion of management, the ultimate disposition of these proceedings, claims and audits will not have a material adverse effect on the financial position, results of operations, and cash flows of the Company.

Item 1A. Risk Factors Which May Affect Future Performance

Prolonged continuation of the Chapter 11 case may harm the Debtors’ business. The prolonged continuation of the Chapter 11 Cases could adversely affect the Debtors’ businesses and operations. So long as the Chapter 11 Cases continue, senior management of the Debtors will be required to spend a significant amount of time and effort dealing with the Debtors’ reorganization instead of focusing exclusively on business operations. Prolonged continuation of the Chapter 11 Cases will also make it more difficult to attract and retain management and other key personnel necessary to the success and growth of the Debtors’ businesses. In addition, the longer the Chapter 11 Cases continue, the more likely it is that the Debtors’ customers, suppliers, distributors and agents will lose confidence in the Debtors’ ability to successfully reorganize their businesses and seek to establish alternative commercial relationships. Furthermore, so long as the Chapter 11 Cases continue, the Debtors will be required to incur substantial costs for professional fees and other expenses associated with the proceedings. The prolonged continuation of the Chapter 11 Cases may also require the Debtors to seek additional financing, either as part of the DIP credit facility or otherwise, in order to service their debt and other obligations. It may not be possible for the Debtors to obtain additional financing during the pendency of the Chapter 11 Cases on commercially favorable terms or at all. If the Debtors were to require additional financing during the Chapter 11 Cases and were unable to obtain the financing on favorable terms or at all, the Debtors’ chances of successfully reorganizing their businesses may be seriously jeopardized.

The Debtors may not be able to obtain confirmation of the plan. The Debtors may not receive the requisite acceptances to confirm the Plan. Even if the requisite acceptances of the Plan are received, the Bankruptcy Court may not confirm the Plan. A dissenting holder of a claim against or equity interest in Boyds may challenge the balloting procedures and results as not being in compliance with the Bankruptcy Code. Even if the Bankruptcy Court determined that the balloting procedures and results were appropriate, the Bankruptcy Court could still decline to confirm the Plan if it found that any of the statutory requirements for confirmation had not been met, including that the terms of the Plan are fair and equitable to non-accepting Classes. Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation and requires, among other things, a finding by the Bankruptcy Court that

(i) the Plan “does not unfairly discriminate” and is “fair and equitable” with respect to any non-accepting Classes, (ii) confirmation of the Plan is not likely to be followed by a liquidation or a need for further financial reorganization and (iii) the value of distributions to non-accepting Holders of Claims within a particular Class under the Plan will not be less than the value of distributions such Holders would receive if the Debtors were liquidated under chapter 7 of the Bankruptcy Code. The Bankruptcy Court may determine that the Plan does not satisfy one or more of these requirements, in which case it would not be confirmable by the Bankruptcy Court.

If the Plan is not confirmed by the Bankruptcy Court, it is unclear whether the Debtors will be able to reorganize their businesses and what, if any, distributions holders of claims against or equity interests in Boyds ultimately would receive with respect to their claims or equity interests. If an alternative reorganization could not be agreed upon, it is possible that the Debtors would have to liquidate their assets, in which case it is likely that holders of claims would receive substantially less favorable treatment than they would receive under the Plan.

The Change of Control Produced by the Restructuring of the Debtors may Result in Limited use of Deferred Tax Assets. As further discussed in the Disclosure Statement, the issuance under the Plan of common stock in a reorganized Boyds, along with the cancellation of existing equity interests through the Plan, is expected to cause an ownership change to occur with respect to the reorganized Debtors as of the effective date of the Plan. As a result, Section 382 of the Internal Revenue Code (“IRC”) may apply to limit reorganized Boyd’s use of its consolidated net operating losses after the effective date. Additionally, the reorganized Debtors’ ability to use any remaining capital loss carryforwards and tax credits may be limited. The annual limitation imposed by the particular provision of Section 382 of the IRC that reorganized Boyds expects to apply to its ownership change generally equals the product of (i) the fair market value of the net equity value of reorganized Boyd’s stock at the time of the ownership change, taking into account the increase in value of the corporation as a result of the surrender or cancellation of creditor’s claims in the transaction (rather than the value without taking into account such increases, as is the case under the general rule for non-bankruptcy ownership changes) multiplied by (ii) the long-term tax-exempt rate in effect for the month in which the ownership change occurs. The long-term tax-exempt rate is published monthly by the IRS and is intended to reflect current interest rates on long-term tax-exempt debt obligations. Accordingly, under this rule the Section 382 limitation would generally reflect the increase in the value of reorganized Boyd’s stock resulting from the conversion of debt to equity in the proceeding. Section 383 of the IRC applies a similar limitation to a capital loss carryforward and tax credits. Although it is impossible to predict with absolute certainty the net equity value of Reorganized Boyds immediately after the exchanges contemplated by the Plan, reorganized Boyd’s use of its net operating losses and other deferred assets is expected to be substantially limited after those exchanges.

Financial Condition and Liquidity. As discussed in Note 1 to the accompanying condensed consolidated financial statements, Boyds is operating as a debtors—in-possession under Chapter 11 of the U.S. Bankruptcy Code. As a result of the uncertainty surrounding Boyds current circumstances, it is difficult to predict Boyds actual liquidity needs and sources at this time. However, based upon current and anticipated levels of operations during the continuation of the bankruptcy proceedings, Boyds believes that its liquidity and capital resources will be sufficient to maintain its normal operations at current levels. Boyds access to additional financing while in the Chapter 11 bankruptcy process may be limited.

Delisting from the New York Stock Exchange. On October 10, 2005, the Company’s common stock was delisted from the New York Stock Exchange. Our common stock is quoted on the New York Stock Exchange Over-the-Counter (OTC) bulletin board quotation service. This has reduced the market and liquidity of the Company’s common stock and consequently the ability of the Company’s stockholders and broker/dealers to purchase and sell our shares in an orderly manner or at all. The volume of trading in the Company’s stock has continued to decline since our bankruptcy filing. Trading in the Company’s common stock through market makers and quotation on the OTC Bulletin Board

entails other risks. Due in part to the decreased trading price of the Company’s common stock and reduced analyst coverage, the trading price of the Company’s common stock may change quickly, and market makers may not be able to execute trades as quickly as they could when the common stock was listed on the New York Stock Exchange. Although trading continues, the Company expects that trading in its common stock may cease once a plan of reorganization is approved and a record date for approval of the plan is established.

Our ability to continue as a “going concern” is uncertain. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue to operate as a going concern which contemplates continuity of operations, timely payment for services by customers, control of operating costs and expenses and the realization of asset sales and liquidation of liabilities and commitments. The bankruptcy filing and related circumstances, including our default on all pre-petition debt, the losses from operations, as well as current economic conditions, raise substantial doubts about our ability to continue as a going concern. The appropriateness of reporting on a going concern basis is dependent upon, among other things, the availability of sufficient capital to meet expenses, confirmation of a plan of reorganization, future profitable operations, customer and employee retention and the ability to generate sufficient cash from operations and financing sources to meet the Company’s obligations as they become due. The Company has assumed all of the foregoing. Should some or all of the Company’s assumptions prove to be unfounded or prove to be untrue in the future, the Company’s results of operations and financial condition will be adversely affected and the Company’s ability to continue as a going concern will be doubtful.

Financial position impacted by changing distribution channels. The Company’s historic distribution channels, mainly independent retailers, have seen significant declines in traffic for several years. Consumers have migrated to larger, more convenient retailers, which provide for a full array of products and services. If the Company is unable to migrate it sales distribution to channels which mirror consumers buying tendencies, then its revenues could be significantly impacted.

Financial Position impacted by changing consumer tastes. The demand for Boyds’ products may be quickly affected by changing consumer tastes and interests. Boyds’ results of operations depend substantially upon its ability to continue to conceive, design, source and market new pieces and upon continuing market acceptance of its existing and future product lines. If Boyds fails or is significantly delayed in introducing new pieces to its existing product lines or creating new product line concepts or if its new products do not meet with market acceptance, its results of operations may be impaired. A number of companies who participate in the giftware and collectibles industries are part of large, diversified companies that have greater financial resources than Boyds and offer a wider range of products and may be less affected by changing consumer tastes.

Dependence on two independent buying agencies. Substantially all of the products that Boyds sells are purchased through two independent buying agencies. One buying agency is located in Hong Kong, and the other buying agency is located in the United States. These two buying agencies, which contract with a total of 19 independent manufacturers, account for approximately 90% of Boyds’ total imports. These two buying agencies also perform a number of functions for Boyds, including collaborating in Boyds’ product design and development process. As a result, Boyds is substantially dependent on these buying agencies and the manufacturers with which they contract. Boyds does not have long-term contracts with either of its primary buying agencies. Boyds believes that the loss of either of its primary buying agencies would (1) have a material adverse affect on its financial condition and results of operations, (2) cause disruptions in its orders, (3) affect the quality of its products, and (4) possibly require it to select alternative manufacturers. In 2004, the Company began contracting its plush buying with three additional buying groups in an effort to mitigate this risk.

Potential economic and political risks of China. All of Boyds’ significant manufacturers are located in China. Although Boyds has identified alternate manufacturers which could meet its quality and reliability standards at similar costs in China and in other countries, the loss of any one or more of its manufacturers could have a material adverse effect on its business. Because Boyds relies primarily on Chinese manufacturers, it is subject to the following risks that could restrict its manufacturers’ ability to make its products or increase its manufacturing costs: (1) economic and political instability in China; (2) transportation delays; (3) restrictive actions by the Chinese government; (4) the laws and policies of the United States affecting importation of goods, including duties, quotas and taxes; (5) Chinese trade and tax laws. In particular, Boyds’ business could be adversely affected if the Chinese renminbi appreciates significantly relative to the United States dollar due to the cost of its products fluctuating with the value of the Chinese renminbi. Recently, the Chinese government revalued its currency, the renminbi, ending its link to the U.S. dollar. While this is a significant change for China, the anticipated near term impacts to the Company are believed to be minimal.

Potential adverse trade regulations and restrictions. Boyds does not own or operate any manufacturing facilities. Instead, Boyds imports substantially all of its retail products from independent foreign manufacturers, primarily in China. As a result, substantially all of its products are subject to United States Customs Service duties and regulations. These regulations include requirements that Boyds disclose information regarding the country of origin on its products, such as “Handmade in China.” Within its discretion, the United States Customs Service may also set new regulations regarding the amount of duty to be paid, the value of merchandise to be reported or other customs regulations relating to Boyds’ imported products. Failure to comply with these regulations may result in the imposition of additional duties or penalties or forfeiture of merchandise.

Potential foreign restrictions or additional costs. The countries in which Boyds’ products are manufactured may impose new quotas, duties, tariffs or other charges or restrictions. This could adversely affect Boyds’ financial condition, results of operations or its ability to continue to import products at current or increased levels. In particular, Boyds’ costs could increase, or the mix of countries from which Boyds imports its products may be changed, if the Generalized System of Preferences program is not renewed or extended each year. The Generalized System of Preferences program allows selected products of beneficiary countries to enter the United States duty free. In addition, if countries that are currently accorded “Most Favored Nation” status by the United States, such as China, cease to have such status, Boyds could be adversely affected. Boyds cannot predict what regulatory changes may occur or the type or amount of any financial impact these changes may have on it in the future.

Potential infringement of Boyds’ intellectual property. Boyds believes that its trademarks and other proprietary rights are material to its success and competitive position. Accordingly, Boyds devotes resources to the establishment and protection of its intellectual property on a worldwide basis. The actions Boyds takes to establish and protect its trademarks and other proprietary rights may not be adequate to protect its intellectual property or to prevent imitation of its products by others. Moreover, while Boyds has not experienced any proprietary license infringements or legal actions that have had a material impact on its financial condition or results of operations, other persons have and will likely in the future assert rights in, or ownership of, its trademarks and other proprietary rights. Boyds may not be able to successfully resolve such conflicts. In addition, the laws of foreign countries may not always protect intellectual property to the same extent as do the laws of the United States.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds—None

Item 3. Defaults Upon Senior Securities

As of October 16, 2005, the Company was not in compliance with one or more of the financial covenants contained in the New Credit Agreement. Such noncompliance constitutes an “event of default” under the New Credit Agreement. The Company received a waiver of such events of default from the lenders under the New Credit Agreement through October 15, 2005. On October 16, 2005, Company and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code, in the United States Bankruptcy Court for the District of Maryland.

Item 4. Submission of Matters to a Vote of Security Holders—None

Item 5. Other Information

Item 6. Exhibits

(a) Exhibits — See Index to Exhibits

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.

Date: June 8, 2006

				The Boyds Collection, Ltd.


				By:		/s/ Jan L. Murley
				Name:		Jan L. Murley
				Title:		Chief Executive Officer


				By:		/s/ Joseph E. Macharsky
				Name:		Joseph E. Macharsky
				Title:		Chief Financial Officer

Index to Exhibits

	Exhibit No.	Description
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) *
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) *
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This certification is being furnished in accordance with the Sarbanes-Oxley Act of 2002 and Commission Release No. 34-47551 and shall not be deemed “filed” with the Commission for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.)*
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This certification is being furnished in accordance with the Sarbanes-Oxley Act of 2002 and Commission Release No. 34-47551 and shall not be deemed “filed” with the Commission for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.)*
99.1		Debtors Second Amended Joint Plan of Reorganization
99.2		Disclosure Statement for Debtors’ Second Amended Joint Plan of Reorganization

* Filed herewith

BOYDS COLLECTION LTD 10-Q