================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
                  For The Fiscal Year Ended January 29, 2000 OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
                               For the Year Ended

                          Commission File Number: 21859

                            FACTORY CARD OUTLET CORP.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

         DELAWARE                                     36-3652087
         --------                                     ----------
(State or other jurisdiction of         (I.R.S. Employer Identification Number)
incorporation or organization)

                                2727 Diehl Road,
                            Naperville, IL 60563-2371
               (Address of principal executive offices) (Zip Code)

                                 (630) 579-2000
              (Registrant's telephone number, including area code)

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

                    Securities registered pursuant to Section
                               12(g) of the Act:
                          Common Stock, $.01 par value
                                (Title of Class)

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

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of April 25, 2000 was approximately $517,975, computed on the
basis of the last reported bid price per share ($0.13) of such stock on the Over
the Counter Bulletin Board system. Shares of Common Stock held by each officer
and director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

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

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |_| No |X|

The number of shares of the Registrant's Common Stock outstanding as of April
26, 2000 was 7,503,098.

<PAGE>
                            Factory Card Outlet Corp.
                 (Debtor in possession effective March 23, 1999)
                           Annual Report on Form 10-K
                                TABLE OF CONTENTS

                                     PART I

                                                                           Page

Item 1        Business                                                       1
Item 2        Properties                                                     7
Item 3        Legal Proceedings                                              8
Item 4        Submission of Matters to a Vote of Security Holders            8

                                     PART II

Item 5        Market for the Registrant's Common Stock and
                      Related Stockholder Matters                            8
Item 6        Selected Financial Data                                        9
Item 7        Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                    11
Item 7a       Quantitative and Qualitative Disclosures About Market Risks   18
Item 8        Financial Statements and Supplementary Data                   18
Item 9        Changes in and Disagreements with Accountants on
                     Accounting and Financial Disclosure                    18

                                    PART III

Item 10       Chairman and Executive Officers of the Registrant             19
Item 11       Executive Compensation                                        19
Item 12       Security Ownership of Certain Beneficial Owners
                    and Management                                          19
Item 13       Certain Relationships and Related Transactions                19

                                     PART IV

Item 14       Exhibits, Financial Statement Schedules and Reports
                    on Form 8-K                                             21


<PAGE>
                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements in this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. On March 23, 1999, the Company filed a petition
for reorganization under chapter 11 of title 11 of the United States Bankruptcy
Code and is operating as a debtor in possession. All forward-looking statements
relating to aspects of any plan of reorganization submitted in connection with
its chapter 11 cases are dependent upon, among other things, further
improvements in the Company's store-level operating performance, the formulation
of reorganization plan, that is confirmed by the bankruptcy court.

         In general, the results, performance or achievements of the Company and
its stores and the value of the Company's common stock are dependent upon a
number of factors including, without limitation, the following: effects
resulting from the commencement and completion of the chapter 11 cases; ability
to meet sales plans; weather and economic conditions; dependence on key
personnel; competition; ability to anticipate merchandise trends and consumer
demand; ability to maintain relationships with suppliers; successful
implementation of information systems; successful handling of merchandise
logistics; inventory shrinkage; ability to meet future capital needs;
governmental regulations; and other factors both referenced and not referenced
in this Form 10-K. When used in this Report on Form 10-K, the words "estimate,"
"project," "anticipate," "expect," "intend," "believe," and similar expressions
are intended to identify forward-looking statements.


<PAGE>
                                     PART I
ITEM 1. BUSINESS

General

         Factory Card Outlet Corp. ("FCO") and its subsidiary, Factory Card
Outlet of America Ltd. (collectively, with FCO, the "Company"), are a chain of
company-owned stores offering a wide assortment of greeting cards, giftwrap,
balloons, party supplies and other special occasion merchandise at everyday
value prices. As of April 26, 2000, the Company operated 182 stores in 21
states. Based on the published number of stores of the Company's competitors as
compiled by the Company from various business publications and other publicly
available information, the Company believes it is one of the largest chains of
company-owned stores in the greeting card, party supply and special occasion
industry. The Company opened 33, 58, and 29 stores in fiscal 1998, 1997 and
1996, respectively. The Company currently has no plans to open any additional
stores and the Company closed 28 stores in fiscal 1999.

         The Company's stores provide customers with a value-oriented,
"one-stop" shopping destination for greeting card, party supply and special
occasion merchandise for all major holidays and celebratory events, including
birthdays, graduations, weddings, baby showers and other family, religious and
special occasions. The Company's newer stores average approximately 12,000
square feet, with approximately 80% of the space devoted to selling space, and
are designed to provide ease of shopping within an attractive, spacious and
festive environment.

Proceedings Under Chapter 11 of the Bankruptcy Code

         On March 23, 1999, the Company filed petitions for reorganization under
chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). The
petitions were filed in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") under case numbers 99-685 (JJF) and 99-686
(JJF) (the "Chapter 11 Cases"). The Chapter 11 Cases have been procedurally
consolidated for administrative purposes. The Company is currently operating its
business and managing its properties as a debtor in possession pursuant to the
Bankruptcy Code.

         Subsequent to the commencement of the Chapter 11 Cases, the Company
sought and obtained several orders from the Bankruptcy Court which were intended
to stabilize their business and enable the Company to continue business
operations as a debtor in possession. The most significant of these orders (1)
approved a $50 million debtor in possession loan agreement, the revolving credit
and guarantee agreement, among FCO, as borrower, Foothill Capital Corporation,
as agent, and Paragon Capital LLC, as oversight agent, each for itself and any
other lenders party thereto (the "Loan Agreement"), (2) permitted the Company to
operate their consolidated cash management system during the Chapter 11 Cases in
substantially the same manner as it was operated prior to the commencement of
the Chapter 11 Cases, and (3) authorized payment of prepetition wages, vacation
pay and employee benefits and reimbursement of employee business expenses.

         The Loan Agreement was entered into on March 23, 1999. The Loan
Agreement provides FCO with a revolving line of credit for loans and letters of
credit in an aggregate amount not to exceed $50 million, including the ability
to issue up to $10 million of letters of credit. FCO uses amounts available
under the Loan Agreement for its ongoing working capital needs and for other
general corporate purposes. FCO granted a security interest to the lenders under
the Loan Agreement in substantially all of its assets as security for its
obligations under the Loan Agreement. All obligations under the Loan Agreement
are afforded "super-priority" administrative expense status in the Chapter 11
Cases.


                                       1
<PAGE>
         On April 6, 1999, a statutory committee of unsecured creditors (the
"Creditors' Committee") was appointed by the Office of the United States Trustee
to represent the interests of the Company's unsecured creditors in the Chapter
11 Cases. The Creditors' Committee has the right to review and object to certain
business transactions and may participate in the formulation of the Company's
long term business plan and plan of reorganization. The Company is required to
reimburse certain fees and expenses of the Creditors' Committee, including fees
for attorneys and other professionals, to the extent allowed by the Bankruptcy
Court.

         The Company has the right, subject to Bankruptcy Court approval and
certain other limitations, to assume or reject executory contracts and unexpired
leases. In this context, "assumption" means that the Company agrees to perform
their obligations and cure all existing defaults under the contract or lease,
and "rejection" means that the Company is relieved from its obligations to
perform further under the contract or lease but is subject to a claim for
damages for the breach thereof. Any damages resulting from rejection of
executory contracts and unexpired leases are treated as general unsecured claims
in the Chapter 11 Cases. The Company obtained approval from the Bankruptcy Court
to close and conduct closing sales at 27 stores. Subsequent to the closing of
such stores, the Company sought and obtained approval from the Bankruptcy Court
to reject 26 of the closed store leases and assume and assign one of such
leases. The Company will continue to analyze, and may assume or reject,
additional leases and other existing contracts. The time within which the
Company must assume or reject unexpired leases of real property currently
expires on August 24, 2000. The Company, however, may request that the
Bankruptcy Court grant an extension of the time within which it must assume or
reject unexpired leases of real property.

         The Bankruptcy Code provides that the Company has an exclusive period
during which only it may propose, file and solicit acceptances of a plan of
reorganization. The Company has requested that the Bankruptcy Court grant an
extension of its exclusive period to file a plan and to solicit acceptances to
and including June 16, 2000 and August 18, 2000, respectively. The Company
currently retains its exclusivity pending the Court's consideration of that
request. If the Company fails to file a plan of reorganization during the
exclusive period or, after such plan has been filed, if the Company fails to
obtain acceptance of such plan from the requisite impaired classes of creditors
and equity security holders during the exclusive period, any party in interest,
including a creditor, an equity security holder, a committee of creditors or
equity security holders, or an indenture trustee, may file their own plan of
reorganization for the Company. The Company plans to develop a plan of
reorganization for submission to the Bankruptcy Court. In connection therewith,
the Company has considered proposals from certain third parties pursuant to
which such parties would provide the Company with funding for a plan of
reorganization in consideration for which, among other things, such parties
would obtain control over the Company or substantially all of its assets. The
Company currently supports a proposal from one of such parties, Saunders, Karp
and Megrue ("SKM"), which proposal does not currently provide for any recoveries
to the Company's stockholders. The SKM proposal is subject to, among other
things, resolution of certain open business issues, due diligence, definitive
documentation and court approval through the plan of reorganization process as
provided for in the Bankruptcy Code. Accordingly, there can be no assurances
regarding the final terms of that plan, or whether it ultimately will be
finalized and implemented.

         After a plan of reorganization has been filed with the Bankruptcy
Court, the plan, along with a disclosure statement approved by the Bankruptcy
Court, will be sent to impaired creditors and equity security holders for their
consideration and approval. Following the solicitation period, the Bankruptcy
Court will consider whether to confirm the plan. In order to confirm a plan of
reorganization, the Bankruptcy Court, among other things, is required to find
that (1) with respect to each impaired class of creditors and equity security
holders, each holder in such class will, pursuant to the plan, receive at least
as much as such holder would receive in a liquidation, (2) each impaired class
of creditors and equity security holders has accepted the plan by the requisite
vote (except as provided in the following sentence), and (3) confirmation of the
plan is not likely to be followed by a liquidation or a need for further
financial reorganization of the Company or any successors to the Company unless
the plan proposes such liquidation or reorganization. If any impaired class of
creditors or equity security holders does not accept a plan and assuming that
all of the other requirements of the Bankruptcy Code are met, the proponent of


                                       2
<PAGE>

the plan may invoke the "cram down" provisions of the Bankruptcy Code. Under
these provisions, the Bankruptcy Court may confirm a plan notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity security
holders if certain requirements of the Bankruptcy Code are met with respect to
the non-accepting class. These requirements may, among other things, necessitate
payment in full for senior classes of creditors before payment to a junior class
can be made. A "cram down," as well as other potential plans of reorganization,
could also result in holders of the Company's common stock receiving no value
for their interests if it is determined that the liabilities subject to
compromise in these Chapter 11 cases exceed the reorganization value of the
Company. Because of such possibilities, the value of the Company's common stock
is highly speculative.

         In September 1999 the Company announced that it received notification
that the NASDAQ's staff had delisted the Company's common stock from the NASDAQ
National Market effective September 1, 1999.

Business

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

         Merchandise Offering. The Company offers a wide selection of greeting
cards, giftwrap, balloons, everyday and seasonal party supplies and special
occasion merchandise. With over 23,000 SKUs in each of its stores, the Company's
stores provide a single destination for a customer's special occasion product
needs. The stores offer product selections for all major holidays and seasonal
events, such as Valentine's Day, St. Patrick's Day, Passover, Easter,
Secretary's Day, Mother's Day, Father's Day, Grandparent's Day, Fourth of July,
Rosh Hashanah, Halloween, Thanksgiving, Christmas, Hanukkah, Kwanzaa and New
Year's; celebratory events, including birthdays, graduations, weddings and baby
showers; and other family, religious and special occasions. The following five
major product categories comprise the Company's merchandise offering:

o        Greeting Cards - The Company's stores feature approximately 4,000
         titles of high quality, everyday and seasonal greeting cards for all
         occasions, all sold at an everyday low price. Boxed everyday and
         holiday cards are regularly sold at substantial discounts off
         manufacturers' suggested retail prices.

o        Giftwrap - The Company believes its stores have become a destination
         for shoppers seeking a wide selection of giftwrap and giftwrap
         accessories and sells most of these items at lower prices than
         competitors. Items include glossy, printed, solid and foil giftwrap,
         solid and printed ribbons, bows, gift bags, gift boxes, tissue paper
         and gift tags.

o        Balloons - Balloons are increasingly popular for all occasions. The
         Company's stores offer value in mylar and latex balloons and carry
         popular licensed designs along with a large selection for any occasion.

o        Party Supplies - The Company stocks a broad selection of party supply
         merchandise for everyday and special occasions in a wide variety of
         attractive patterns and distinctive colors. Party supplies include
         tableware, tablecovers, cutlery, invitations, party favors, milestone
         birthday items, pinatas, banners, decorations, candles, decor and other
         related party items.

o        Other Special Occasion Merchandise - The Company complements its major
         product lines by offering many other special occasion items in order to
         provide a "one-stop" shopping destination for customers. These items
         include candy, birthday and wedding items, candles and candle holders,
         stationery, gifts, novelty items and seasonal products.



                                       3
<PAGE>


         Everyday Value Pricing. The Company's strategy of everyday value
pricing is designed to provide customers with consistent value on purchases. The
Company typically sells merchandise at discounts of 20% to 60% off
manufacturers' suggested retail prices. In addition, the stores feature a "power
aisle" offering a wide selection of opportunistic buys and manufacturers'
seasonal over-runs, all priced at deep discounts and frequently changed to
create continued customer interest.

         Attractive, Spacious and Festive Superstore Format. The Company's
stores have an attractive and festive atmosphere within a spacious "easy to
shop" store. The superstores are designed to provide a comfortable shopping
experience, with bright lighting, wide carpeted aisles and fixtures that offer
customers easy access to merchandise. The Company has increased the size of its
new stores to approximately 12,000 square feet. Management is currently
evaluating the size of the Company's stores to determine if 12,000 square feet
is optimal.

         Targeted Advertising. The Company utilizes a Company-wide direct mail
program to reach targeted customers and highlight the breadth and value of its
merchandise. The direct mail pieces are printed in 4-color and range from four
to eight pages depending on the season. The Company plans to continue this
direct mail program and support all holidays and special events. The Company
also uses radio advertising to support select major holiday selling seasons.

         Distribution Center and Office Complex. The Company completed the
consolidation of its distribution facilities and offices into a new distribution
center and office complex in Naperville, Illinois in February 1998. The
newly-constructed, three-story office building and 300,000 square-foot
distribution center is on 39 acres. The lease agreement provides for the
expansion of the warehouse to 600,000 square feet, as needed. The Company
believes it is the only special occasion store chain to have a distribution
facility. Associated with the Company's consolidation of its distribution
facilities, system conversion issues arose resulting in the uneven flow of basic
stock merchandise. These issues have been corrected. Management believes the
distribution facility can provide the Company purchasing and distribution
efficiencies.

         Store Locations. As of April 26, 2000, the Company operated 182 stores
in 21 states, all of which are leased. The Company's store leases typically have
an average initial term of 10 years with two five-year renewal options.



                                       4
<PAGE>


Set forth below is a list of the Company's store locations by state as of April
26, 2000:
<TABLE>
<CAPTION>
                               Number                               Number                               Number
                               of                                   of                                   of
           Location            Stores            Location           Stores            Location           Stores
           --------            ------            --------           ------            --------           ------
<S>                            <C>               <C>                <C>               <C>                <C>
ARKANSAS (1)                           KENTUCKY (5)                         OHIO (20)
  Fayettesville ..................1      Louisville Metro .............3      Cincinnati Metro .............4
DELAWARE (1)                             Florence .....................1      Cleveland Metro ..............4
  Wilmington .....................1      Owensboro ....................1      Columbus Metro ...............5
FLORIDA (10)                           MARYLAND (13)                          Akron ........................2
  Gainesville ....................1      Baltimore Metro ..............8      Dayton .......................1
  Jacksonville ...................1      Washington, DC Metro (MD) ....4      Lancaster ....................1
  Naples .........................1      Salisbury ....................1      Mansfield ....................1
  Orlando ........................4    MICHIGAN (1)                           St Clairsville ...............1
  Tampa ..........................3      Benton Harbor ................1      Wooster ......................1
ILLINOIS (38)                          MINNESOTA (6)                        PENNSYLVANIA (6)
  Chicago Metro..................30      Minneapolis St Paul Metro ....4      Erie .........................1
  Bloomington ....................1      Mankato ......................1      Hanover ......................1
  Champaign ......................1      Rochester ....................1      Lancaster ....................1
  DeKalb .........................1    MISSOURI (9)                           State College.................1
  Fairview Heights ...............1      St Louis Metro ...............5      Wilkes Barre-Scranton ........2
  Moline .........................1      Cape Girardeau ...............1    SOUTH CAROLINA (2)
  Peoria .........................1      Columbia .....................1      Charleston ...................1
  Rockford .......................1      Joplin .......................1      Greenville ...................1
  Springfield ....................1      Springfield ..................1    TENNESSEE (6)
INDIANA (18)                           NEBRASKA (5)                           Chattanooga ..................2
  Indianapolis Metro .............6      Omaha Metro ..................3      Memphis ......................2
  Anderson .......................1      Lincoln ......................1      Nashville ....................2
  Bloomington ....................1      Grand Island .................1    VIRGINIA (6)
  Clarksville ....................1    NEW YORK (9)                           Washington DC Metro (VA) .....1
  Evansville .....................2      Buffalo Metro ................3      Fredericksburg ...............1
  Fort Wayne .....................1      Albany .......................1      Lynchburg ....................1
  Highland .......................1      Olean ........................1      Norfolk-Newport News .........2
  Merrillville ...................1      Rochester ....................3      Richmond .....................1
  Michigan City ..................1      Syracuse .....................1    WEST VIRGINIA (1)
  Mishawaka ......................1    NORTH CAROLINA (4)                     Clarksburg ...................1
  Muncie .........................1      Charlotte ....................1    WISCONSIN (14)
  Richmond .......................1      Raleigh ......................1      Milwaukee Metro ..............6
IOWA (7)                                 Hickory ......................1      Appleton .....................1
  Des Moines Metro ...............3      Winston Salem ................1      Eau Claire ...................1
  Cedar Rapids ...................1                                           Green Bay ....................1
  Davenport ......................1                                           Janesville ...................1
  Dubuque ........................1                                           Madison ......................2
  Waterloo .......................1                                           Oshkosh ......................1
                                                                              Wausau .......................1
                                                                                                         --------
                                                                            TOTAL                          182
                                                                                                         ========
</TABLE>


                                       5
<PAGE>


Product Sourcing

         Due to its size and the use of its distribution center, the Company has
historically been able to take advantage of volume purchase discounts. The
Company purchases its inventory from more than 300 vendors world-wide, with the
largest supplier, Creative Expressions, Inc., representing approximately 11% and
the ten largest suppliers representing approximately 40% of the Company's
aggregate purchases for the fiscal year ended January 29, 2000. A small portion
of the Company's merchandise is imported from foreign manufacturers or their
agents, principally from the Far East. As is customary in its industry, the
Company does not have long term contracts with any suppliers.

         Although the Company believes that its well-established relationships
with overseas suppliers have historically provided it with an advantage over
many of its competitors by enabling the Company to offer an extensive selection
of distinctive products at higher gross margins, the Company's liquidity
problems and the Chapter 11 Cases could have a material adverse effect on the
Company and its relationships with its suppliers.

Management Information Systems

         The Company believes that its management information systems are an
important factor in supporting its business and enhancing its competitive
position in the industry. Over the past three years, the Company has invested
significant resources in systems and infrastructure to support its business and
make it more efficient. The Company uses a management information and control
system, which is based on the JDA Merchandise Management System software package
("JDA") and supports the complete range of retail cycle functions in the areas
of finance, merchandising and distribution. All stores are linked to the
Company's headquarters through personal computers which interface with an IBM
AS/400 and provide the stores with the ability to enter store orders and payroll
information and send and receive electronic mail. These personal computers are
also tied into the Company's point-of-sale system ("POS system"). The POS system
provides sales information to the Company's stores and central office and is
used to enhance merchandise planning and buying programs. While the POS system
provides sales information, the Company intends to focus its future systems
development efforts on enhancing inventory management tools.



                                       6
<PAGE>


Competition

         The greeting card, party supplies and special occasion industry is
highly competitive. The Company currently competes against a diverse group of
retailers, ranging from other party supply and greeting card retailers to
designated departments in drug stores, general mass merchandisers, supermarkets
and department stores of local, regional and national chains. In addition, a
trend toward discounting the cost of party supplies and greeting cards is
developing and the Company may encounter additional competition from new
entrants in the future. Some of the Company's competitors have substantially
greater financial resources and experience than the Company.

Trademarks

          The Company has registered trademarks under the name of "Factory Card
Outlet"(R) and "Partymania"(R) and the "Partymania"(R) design on the Principal
Register of the United States Patent and Trademark Office.

Government Regulation

         Each of the Company's stores must comply with regulations adopted by
Federal agencies and with licensing and other regulations enforced by state and
local health, sanitation, safety, fire and other departments. More stringent and
varied requirements of local governmental bodies with respect to zoning, land
use and environmental factors, and difficulties or failures in obtaining the
required licenses or approvals, can delay and sometimes prevent, the opening of
a new store. In addition, the Company must comply with the Fair Labor Standards
Act and various state laws governing various matters such as minimum wage,
overtime and other working conditions. The Company also must comply with the
provisions of the Americans with Disabilities Act of 1990, as amended, which
requires generally that employers provide reasonable accommodation for employees
with disabilities and that stores be accessible to customers with disabilities.

Employees

         The Company had approximately 3,100 employees as of April 1, 2000,
comprised of 1,100 full-time and 2,000 part-time employees. The number of store
employees increases during peak selling seasons. None of the Company's employees
are covered by a collective bargaining agreement. The Company believes its
relations with its employees are generally good.

ITEM 2. PROPERTIES

         In addition to the Company's stores, all of which are leased, the
Company also leases a distribution center in Naperville, Illinois, with the
lease term expiring in February 2007. This facility consists of a newly
constructed, three-story office building and 300,000 square-foot distribution
center that sits on 39 acres of land.


                                       7
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

         The Company commenced the Chapter 11 Cases on March 23, 1999.
Additional information relating to the Chapter 11 Cases is set forth in Part 1,
Item 1 of this Form 10-K report under the caption "Proceedings under Chapter 11
of the Bankruptcy Code": and in Note 1 of the Notes to Consolidated Financial
Statements under the caption "Reorganization and Chapter 11 Filing." Such
information is incorporated herein by reference.

         Prior to the commencement of the Chapter 11 Cases, several litigations
were commenced by creditors of the Company relating to unpaid amounts due to
such creditors. These actions are now stayed as a result of Chapter 11 Cases. As
of the date of this Annual Report on Form 10-K, the Company is aware of no
material existing or threatened litigation to which it is or may be a party.

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

         Not Applicable.

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

         The Company's common stock traded on the NASDAQ National Market under
the symbol "FCPY" until March 26, 1999, when the symbol was changed to "FCPYQ"
as a result of the commencement of the Chapter 11 Cases. The common stock was
delisted on September 1, 1999. The common stock now trades on the OTC Bulletin
Board, an electronic quotation service for NASD Market Makers. There can be no
assurance that the common stock will continue to trade on the OTC Bulletin
Board. The following table sets forth the high and low closing sale prices of
the Company's Common Stock as reported on the NASDAQ National Market for the
periods indicated. After September 1, 1999, the prices presented are bid prices
which represent bid prices quoted by broker-dealers and do not necessarily
reflect prices from actual transactions.
<TABLE>
<CAPTION>
                                                                                  Fiscal 1999            Fiscal 1998
Quarter                                                                         High        Low        High        Low
<S>                                                                           <C>        <C>        <C>         <C>
First (ended May 1, 1999 and May 2, 1998)                                     $   2.44   $   1.13   $   12.75   $   7.13

Second (ended July 31, 1999 and August 1, 1998)                                   1.10        .05       12.13       5.25

Third (ended October 30, 1999 and October 31,1998)                                 .38        .03        5.88       3.56

Fourth (ended January 29, 2000 and January 30, 1999)                               .18        .05        4.13       1.38
</TABLE>

On April 25, 2000, the last bid price of the common stock reported on the OTC
Bulletin Board was $0.13. At February 27, 1999, the approximate number of
holders on record of the Common Stock was 114.

Dividends

         The Company has never paid cash dividends on its common stock and does
not intend to pay cash dividends in the foreseeable future. The Company expects
earnings will be retained for the continued development of the Company's
business. In addition, the Loan Agreement between the Company and its lenders
restricts the ability of the Company to pay cash dividends on its capital stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."


                                       8
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial and operating data presented below under the
captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of
the end of, each of the fiscal years in the two-year period ended June 29, 1996,
are derived from the consolidated financial statements of the Company, which
financial statements have been audited by KPMG LLP, independent certified public
accountants. The consolidated financial statements as of January 29, 2000 and
January 30, 1999, and for the fiscal years ended January 29, 2000 and January
30, 1999, the seven-month transition period ended January 31, 1998 and for the
fiscal year ended June 28, 1997, and the report thereon, are included elsewhere
in this Form 10-K. In addition, selected consolidated financial and operating
data is presented as of and for the 53-week period ended January 31, 1998. This
data was derived from the unaudited consolidated financial statements of the
Company. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto included elsewhere in this Annual Report on Form 10-K.



                                       9
<PAGE>
               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
              (Dollar amounts in thousands, except per share data)

<TABLE>
                                  52-Weeks   52-Weeks   53-Weeks      Transition Fiscal year Fiscal year Fiscal year
                                    ended      ended      ended      period ended   ended       ended       ended
                                  Jan. 29,   Jan. 30,   Jan. 31,       Jan. 31,    June 28,    June 29,    July 1,
                                    2000       1999       1998           1998        1997        1996       1995
                                 ----------------------------------  -------------------------------------------------
STATEMENT OF OPERATIONS DATA:                          (Unaudited)
<S>                              <C>         <C>        <C>           <C>        <C>         <C>         <C>
Net sales..................      $   217,658 $  226,499 $   174,497   $  110,699 $  133,945  $    94,589 $ 63,174
Cost of sales..............          121,224    134,996      87,079       56,977     65,981       46,029   32,104
                                 ----------------------------------  -------------------------------------------------
    Gross profit...........           96,434     91,503      87,418       53,722     67,964       48,560   31,070
Selling, general and
       administrative expenses       101,892    114,836      82,066       53,935     63,077       46,843   29,969
                                 ----------------------------------  -------------------------------------------------
    Income (loss) from operations    (5,458)    (23,333)      5,352         (213)     4,887        1,717    1,101

Interest expense...........           3,049       4,572       1,482        1,269      1,402        1,529      411
                                 ----------------------------------  -------------------------------------------------
    Income (loss) before reorganization
        items, net, income
        taxes (benefit)
        and extraordinary item       (8,507)    (27,905)      3,870       (1,482)     3,485          188      690
Reorganization items, net            19,082        -          -             -           -           -           -
                                 ----------------------------------  -------------------------------------------------
Income (loss) before income taxes
    (benefit) and extraordinary
     item                           (27,589)    (27,905)      3,870       (1,482)     3,485          188      690
Income taxes (benefit).....               -         451       1,652         (593)     1,462          118      322
                                 ----------------------------------  -------------------------------------------------

    Income (loss) before
        Extraordinary item          (27,589)   (28,356)       2,218         (889)     2,023           70      368
Extraordinary item.........          (1,292)         -            -            -       (313)           -        -
                                 ----------------------------------  -------------------------------------------------
    Net income (loss).....       $  (28,881) $ (28,356)  $    2,218    $    (889)   $ 1,710        $  70   $  368
                                 ==================================  =================================================

Earnings (loss) per share - basic
  Before extraordinary item      $    (3.68) $  (3.82)   $    0.31     $   (0.12)    $ 0.35         $ 0.02 $   0.09
  Extraordinary item.......           (0.17)        -            -             -      (0.05)             -        -
                                 ----------------------------------  -------------------------------------------------
  Net income
(loss).......................... $    (3.85) $  (3.82)   $    0.31     $   (0.12)    $ 0.30         $ 0.02  $  0.09
                                 ==================================  =================================================

Weighted average shares
outstanding...                    7,503,098 7,422,069     7,261,542    7,261,542  5,739,962      4,068,409  3,999,914
                                 ==================================  =================================================

Earnings (loss) per share - diluted (1).
  Before extraordinary item         (3.68)     (3.82)          0.28        (0.12)      0.30           0.01       0.07
  Extraordinary item.......         (0.17)         -              -            -      (0.04)             -          -
                                 ----------------------------------  -------------------------------------------------
  Net income (loss)........         (3.85)     (3.82)         0.28         (0.12)      0.26           0.01       0.07
                                 ==================================  =================================================
Weighted average shares
outstanding................      7,503,098 7,422,069     7,946,188     7,261,542  6,686,243       5,249,479  5,180,984
                                 ==================================  =================================================
OPERATING DATA:
Number of stores:
     Opened during period                 0          33         58            42         35              32         25
     Closed/relocated during period      28           3          2             2          2               3          2
     Open at end of period              182         210        180           180        140             107         78
  Comparable store sales increase (2)   0.7%        0.8%       8.3%          9.5%      11.5%            6.0%      22.2%
  Average sales per store (3)        $1,175      $1,129     $1,170           676     $1,101            $997       $941

BALANCE SHEET DATA (AT END OF PERIOD):
  Working capital..................  18,969      22,977   $ 50,230   $    50,230 $   35,459     $    23,605 $   15,625
  Total assets.....................  90,803     107,571    115,030       115,030     85,702          59,080     36,801
  Total debt (4)...................  22,869      34,153     34,189        34,189      7,690          19,326      7,161
  Total stockholders' equity
  (deficit)........................  (4,703)     24,178     51,734        51,734     52,273          17,124     16,640
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Earnings per share for all periods have been restated in accordance
         with Statement of Financial Accounting Standards No. 128, "Earnings Per
         Share," and the Securities and Exchange Commission Staff Accounting
         Bulletin No. 98.

(2)      Includes stores open 13 or 14 months after their opening date. If the
         opening date of a store falls in the first 14 days of a period, then it
         will be included in the comparable store calculation in its 13th month
         of operation; otherwise, a store is included in the comparable store
         calculation in its 14th month of operation.

(3)      Includes only stores open during the entire period.

(4)      Total debt is defined as total current and long-term debt.

                                       10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Overview

         The Company is a chain of company-owned stores offering a wide
assortment of greeting cards, giftwrap, balloons, party supplies and other
special occasion merchandise at everyday value prices. As of April 26, 2000, the
Company operated 182 stores in 21 states. The Company currently has no plans to
open any additional stores and the Company closed 28 stores in fiscal 1999, 27
due to reorganization and one due to a natural disaster.

         In January 1998, the Company changed its fiscal year end from the
Saturday closest to June 30 to the Saturday closest to January 31. As a result,
the financial information presented includes: (1) consolidated financial
statements for the fiscal year ended January 29, 2000; (2) consolidated
financial statements for the fiscal year ended January 30, 1999; (3)
consolidated financial statements for the transition period beginning June 29,
1997 and ended January 31, 1998 ("the transition period") and (4) consolidated
financial statements for fiscal year ended June 28, 1997. For comparative
purposes, financial and operating data is also presented for the 53-week period
ended January 31, 1998.

Chapter 11 Filing

         On March 23, 1999, the Company filed a petition for reorganization
under chapter 11 of title 11 of the United States Code. The Company is currently
operating its business and managing its properties as a debtor in possession
pursuant to the Bankruptcy Code. See "Item 1. Business - Proceedings Under
Chapter 11 of the Bankruptcy Code" and Note 1 of Notes to the Consolidated
Financial Statements.

Other Items

         In April 1999, the Company obtained approval from the Bankruptcy Court
to close and conduct closing sales at 27 stores that were in markets the Company
did not intend to continue to operate in or were underperforming or
unprofitable. During the fiscal year ended January 29, 2000, the Company
recorded a provision for reorganization costs relating to the store closings of
approximately $10,634. This provision included the write-down of fixed assets,
estimated lease rejection claims and the loss on the disposition of merchandise
inventory. In addition to the provision for the store closings, reorganization
costs for professional fees and other costs related to the Company's
reorganization were $8,448 during the fiscal year ended January 29, 2000.

         During the fiscal year ended January 30, 1999, as a result of the
reassessment of previous operating strategies, the Company recorded several
items which impacted the consolidated statement of operations. Cost of sales and
occupancy included a $11.3 million provision for certain merchandise which was
discontinued from the Company's ongoing inventory assortment, as well as
inventory with excess quantities on hand and certain seasonal inventory
remaining from past holidays. Selling, general and administrative expenses
included $3.6 million of charges consisting of: (1) a $2.1 million charge for
lease termination costs relating to executed leases for new stores which the
Company no longer plans to open; (2) a $0.7 million charge for employee
severance and the write-off of new store design costs; and (3) $0.8 million of
additional depreciation expense resulting from the change in the depreciable
lives of certain technology equipment from ten to five years. The provision for
income taxes for the fiscal year ended January 30, 1999 resulted from the
establishment of a valuation allowance of $11.3 million to fully reserve for the
Company's net deferred tax assets at January 30, 1999. See Note 8 - "Income
Taxes" in the Notes to Consolidated Financial Statements.


                                       11
<PAGE>
         During the first quarter of fiscal 1998, the Company consolidated its
distribution facilities and offices into a new distribution center in
Naperville, Illinois. The newly constructed, three-story office building and
300,000 square foot distribution center resides on 39 acres of land.

Results of Operations

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

<TABLE>
<CAPTION>
                                                Fiscal         Fiscal        Fiscal     Transition   Fiscal
                                              year ended     year ended    year ended period ended  year ended
                                               Jan. 29,        Jan. 30,      Jan 31,    Jan. 31,     June 28,
                                                 2000           1999          1998        1998        1997
                                              ----------------------------------------------------------------
                                                                          (unaudited)
<S>                                                <C>          <C>           <C>         <C>          <C>
Net sales .................................        100.0%       100.0%        100%        100.0%       100.0%
Cost of sales .............................         55.7         59.6         49.9         51.5         49.3
   Gross profit............................         44.3         40.4         50.1         48.5         50.7
Selling, general and administrative
expenses...................................         46.8         50.7         47.1         48.7         47.1
   Income (loss) from operations...........         (2.5)       (10.3)         3.0         (0.2)         3.6
Interest expense...........................          1.4          2.0          0.8          1.1          1.0
   Income (loss) before reorganization items, net,
    Income taxes (benefit) and
    extraordinary item ....................         (3.9)       (12.3)         2.2         (1.3)         2.6
Reorganization items, net .................          8.8          --           --           --           --
Income (loss) before income taxes (benefit)
   and extraordinary item..................       (12.7)        (12.3)         2.2         (1.3)         2.6
Income taxes (benefit).....................          --           0.2          0.9         (0.5)         1.1
Income (loss) before extraordinary
item.......................................        (12.7)       (12.5)         1.3         (0.8)         1.5
Extraordinary item - loss on early
retirement of debt,
   net of income tax benefit...............          0.6          --           --           --           0.2
Net income (loss) .........................        (13.3)%      (12.5)%        1.3%        (0.8)%        1.3%

Number of stores open at end of period ....          182          210          180          180          140
</TABLE>

52-WEEKS ENDED JANUARY 29, 2000 COMPARED TO 52-WEEKS ENDED JANUARY 30, 1999

         Net Sales. Net sales decreased $8.8 million, or 3.9%, to $217.7 million
during the 52-weeks ended January 29, 2000 from $226.5 million for the 52-weeks
ended January 30, 1999. The decrease resulted primarily from liquidation of
merchandise and closure of 27 stores starting in April 1999. These store
closures resulted in decreased sales of $22.8 million in fiscal year 1999.
Offsetting the decrease was a comparable store sales increase of $1.4 million or
0.7% and new store sales of $12.6 million. The Company includes stores opened 13
or 14 months after their opening date in the calculation of comparable store
sales. If the opening date of a store falls in the first 14 days of a period,
the store is included in the comparable store calculation in its 13th month of
operation; otherwise, a store is included in the comparable store calculation in
its 14th month of operation.

         Gross Profit. Cost of sales includes distribution costs. Gross profit
increased $4.9 million, or 5.4%, to $96.4 million during the 52-weeks ended
January 29, 2000 from $91.5 million for the 52-weeks ended January 30, 1999. As
a percentage of net sales, gross profit was 44.3% during the 52-weeks ended
January 29, 2000 and 40.4% for the 52-weeks ended January 30, 1999. The higher
gross profit percentage resulted primarily from the $11.3 million inventory
provision recorded in fiscal 1998 discussed above under "Other Items".



                                       12
<PAGE>


         Selling, General and Administrative Expenses. Selling, general and
administrative expenses include store payroll, store occupancy, advertising,
depreciation, other store operating and corporate administrative expenses. Store
occupancy expenses are included in selling, general and administrative expenses
for all information presented. Selling, general and administrative expenses
decreased $12.9 million, or 11.3%, to $101.9 million during the 52-weeks ended
January 29, 2000 from $114.8 million for the 52-weeks ended January 30, 1999.
The decrease resulted from operating 28 fewer stores in fiscal year 1999.
Additionally, a portion of the decrease can be attributed to charges taken in
fiscal 1998 discussed above in "Other Items". As a percentage of net sales,
selling, general and administrative expenses decreased to 46.8% for the 52-weeks
ended January 29, 2000 from 50.7% for the 52-weeks ended January 30, 1999.

         Interest Expense. Interest expense was $3.0 million for the 52-weeks
ended January 29, 2000 compared to $4.6 million for the 52-weeks ended January
30, 1999. This decrease resulted from lower borrowing levels needed to support
28 fewer stores.

         Reorganization Items, net. The Company has recognized $19.1 million
of reorganization items consisting of a provision for the write down of fixed
assets, estimated lease rejection claims, the loss on the disposal of
merchandise inventory related to the 28 store closings, professional fees, and
other costs related to the reorganization of the Company during the 52-weeks
ended January 29, 2000.

         Income Taxes (Benefit). Management believes that it is more likely than
not that deferred tax assets created by net operating losses for the 52-weeks
ended January 29, 2000 will not be realized through future taxable income.
Therefore, the Company has increased its valuation allowance which was
established during the fiscal year ended January 30, 1999, to fully reserve the
potential tax benefits resulting from these net operating losses. As a result,
the effective tax rate for the 52-weeks ended January 29, 2000 was zero.


52-WEEKS ENDED JANUARY 30, 1999 COMPARED TO 53-WEEKS ENDED JANUARY 31, 1998
(UNAUDITED)

         Net Sales. Net sales increased $52.0 million, or 29.8%, to $226.5
million during the 52-weeks ended January 30, 1999 from $174.5 million for the
53-weeks ended January 31, 1998. The increase resulted from (1) net sales of
$24.5 million from 33 new stores opened during the 52-weeks ended January 30,
1999, (2) net sales of $26.1 million from stores opened prior to January 31,
1998 not included in the comparable store base, and (3) a comparable store sales
increase of $1.4 million, or 0.8%. Comparable store sales were adversely
impacted by the uneven flow of basic merchandise during the spring of 1998
resulting from system conversion issues associated with the consolidation of the
Company's distribution facilities and, during the fall, lower Halloween and
Christmas seasonal sales partially as a result of significant levels of
carryover merchandise from 1997.

         Gross Profit. Cost of sales includes distribution costs. Gross profit
increased $4.1 million, or 4.67%, to $91.5 million during the 52-weeks ended
January 30, 1999 from $87.4 million for the 53-weeks ended January 31, 1998. As
a percentage of net sales, gross profit was 40.4% during the 52-weeks ended
January 30, 1999 and 50.1% for the 53-weeks ended January 31, 1998. The lower
gross profit percentage resulted primarily from the $11.3 million inventory
provision discussed above under "Other Items" along with higher price reductions
to clear seasonal and summer merchandise.


                                       13
<PAGE>


         Selling, General and Administrative Expenses. Selling, general and
administrative expenses include store payroll, store occupancy, advertising,
depreciation, other store operating and corporate administrative expenses. Store
occupancy expenses are included in selling, general and administrative expenses
for all information presented. Selling, general and administrative expenses
increased $32.8 million, or 39.9%, to $114.8 million during the 52-weeks ended
January 30, 1999 from $82.1 million for the 53-weeks ended January 31, 1998.
Approximately $14.8 million of this increase resulted from the opening and
operation of 33 new superstores during the 52-weeks ended January 30, 1999. The
remaining balance of the increase resulted from the charges discussed above
under "Other Items" along with an increase in general and administrative costs
to support additional stores. As a percentage of net sales, selling, general and
administrative expenses increased to 50.7% for the 52-weeks ended January 30,
1999 from 47.1% for the 53-weeks ended January 31, 1998.

         Interest Expense. Interest expense was $4.6 million for the 52-weeks
ended January 30, 1999 compared to $1.5 million for the 53-weeks ended January
31, 1998. This increase resulted from increased borrowings to support the
opening of new superstores and increased inventory levels.

         Income Taxes (Benefit). For the 52-weeks ended January 30, 1999, the
Company recorded a tax provision to fully reserve the net deferred tax assets
which were carried forward from the transition period and to reserve for the
potential tax benefits of net operating losses generated during the current year
which cannot be carried back to prior tax years.


TRANSITION PERIOD COMPARED TO FISCAL YEAR 1997

         Results of operations for the transition period ended January 31, 1998
include amounts for a seven month period, while results for the fiscal year
ended June 28, 1997 include amounts for a twelve-month period. Results (in terms
of dollar amounts) for these periods are not directly comparable. Accordingly,
management's discussion and analysis for these periods is generally based upon a
comparison of specified results as a percentage of net sales.

         Net Sales. Net sales decreased $23.2 million, or 17.3%, to $110.7
million in the transition period from $133.9 million in fiscal year 1997. This
decrease resulted primarily from reporting seven months for the transition
period compared to twelve months for fiscal 1997. The decrease was offset by the
addition of 42 new superstores during the transition period which generated net
sales of $17.3 million. Sales from comparable stores increased 9.5% for the
transition period compared to the same seven months included in fiscal 1997.
This increase was driven mainly by improved seasonal merchandise selection,
especially for Halloween and Christmas.

         Gross Profit. Cost of sales includes distribution costs. Gross profit
decreased $14.2 million, or 21.0%, to $53.7 million during the transition period
from $68.0 million during fiscal year 1997. As a percentage of net sales, gross
profit was 48.5% during the transition period compared to 50.7% in fiscal year
1997. Gross profit as a percentage to net sales decreased primarily from the
seasonality of the seven-month transition period compared with the full prior
year, additional seasonal promotions and a lower capitalized inventory overhead.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses include store payroll, store occupancy, advertising,
depreciation, other store operating and corporate administrative expenses.
Selling, general and administrative expenses decreased $9.1 million, or 14.5%,
to $53.9 million during the transition period from $63.1 million for fiscal year
1997. As a percentage of net sales, selling, general and administrative expenses
increased to 48.7% for the transition period from 47.1% for fiscal year 1997.
The increase resulted from the expansion of the Company's direct mail
advertising program and a test of television advertising in selected markets and
the cost to open seven more superstores during the transition period. These
increases were partially offset by the leveraging of corporate administrative
costs.


                                       14
<PAGE>

         Interest Expense. Interest expense was $1.3 million, or 1.1% of sales,
for the transition period compared to $1.4 million, or 1.0% of sales, for fiscal
year 1997. Interest expense as a percentage to sales increased as a result of
higher borrowing levels to support the opening of 42 new superstores and
increased inventory levels.

         Income Taxes (Benefit). During the transition period, the Company had a
taxable loss resulting in an effective tax benefit rate of 40.0% compared to
taxable income for fiscal year 1997 resulting in an effective tax rate of 42.0%.
The effective tax rate decreased as a result of state tax savings.

Inflation

         Management does not believe that inflation has had a material effect on
its financial condition or results of operations during the past three fiscal
years. However, there can be no assurance that inflation will not have a
material adverse effect on the Company's future financial condition or results
of operations.


                                       15
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Current Sources and Uses of Cash

         Operating activities provided $8.7 million in the fiscal year ended
January 29, 2000 compared to $13.0 million in the fiscal year ended January 30,
1999. The items most significantly influencing this change were the $14.0
million noncash portion of reorganization items and $41.4 million increase in
liabilities subject to compromise which was partially offset by the related
$24.0 million decrease in accounts payable.

         Cash flows used in investment activities were $2.0 million in the
fiscal year ended January 29, 2000 and $8.7 million in the fiscal year ended
January 30, 1999. The Company's capital expenditures were primarily related to
investments in information technology systems. In 1999 the Company entered into
master capital lease agreements for the purchase of warehouse equipment and
store surveillance equipment. Amounts financed under these agreements were $128
and $40 respectively.

         Cash flows used in financing activities were $8.5 million for the
fiscal year ended January 29, 2000 and $0.8 million for the fiscal year ended
January 30, 1999. In March 1999 the Company used $24.7 million of borrowings
under the Loan Agreement to pay the outstanding balances under the Company's
previous revolving credit agreement and term loan.

         On March 23, 1999, the Company filed the Chapter 11 Cases to address
certain operational and liquidity disruptions. The Company's liquidity position
for the remainder of fiscal 2000 will be impacted primarily by the success of
initiatives undertaken to improve store level cash flows and the effects of the
Chapter 11 Cases. The Company's uses of capital for the remainder of fiscal 2000
are expected to include working capital for operating expenses and satisfaction
of current liabilities, expenditures related to maintaining and refurbishing
existing stores, interest payments on outstanding borrowings and costs
associated with the Chapter 11 Cases. The Company's long-term liquidity and the
adequacy of the Company's capital resources cannot be determined until a plan of
reorganization has been approved and confirmed in connection with the Chapter 11
Cases.

         As debtor in possession under the Bankruptcy Code, actions to collect
prepetition indebtedness are stayed and certain contractual obligations may not
be enforced against the Company. With the approval of the Bankruptcy Court,
certain of these obligations may be paid prior to the confirmation of the
reorganization plan. To date, the Company has received approval to pay customary
obligations associated with the daily operation of its business, including the
timely payment of new inventory shipments, employee wages and other obligations.
As permitted under the Bankruptcy Code, the Company received Bankruptcy Court
approval to reject 13 real estate leases for stores that were never opened and
to close and conduct closing sales at 27 stores in fiscal 1999. The Company has
not completed its review of all of its prepetition contracts and leases for
assumption or rejection. The ultimate amount of, and settlement terms for, such
liabilities are subject to an approved plan of reorganization and, accordingly,
the timing and form of settlement are not presently determinable.

         The Company is a party to the Loan Agreement dated as of March 23,
1999, which was entered into subsequent to the commencement of the Chapter 11
Cases and will terminate upon the earlier of the confirmation of a plan of
reorganization in the Chapter 11 Cases or March 23, 2001. The Loan Agreement
provides the Company with a revolving line of credit for loans and letters of
credit in an aggregate amount not to exceed $50.0 million outstanding at any one
time, including a sublimit of $10.0 million for the issuance of letters of
credit. The Company intends to use all amounts borrowed under the Loan Agreement
for its ongoing working capital needs and for other general corporate purposes
of the Company.


                                       16
<PAGE>


         The Loan Agreement contains certain restrictive covenants which, among
other things, require the Company to maintain certain inventory levels and
achieve specified operating results. The restrictive covenants also limit the
Company's capital expenditures, asset sales and dividends and the ability of the
Company to grant liens and incur additional indebtedness. The Company was in
compliance with or had obtained waivers for all such convenants as of January
29, 2000.

         As of April 7, 2000, the Company had $22.0 million of borrowings
outstanding under the Loan Agreement and had utilized approximately $1.7 million
of the Loan Agreement to issue letters of credit. The Company believes that its
cash flow from operations and borrowings under the Loan Agreement will provide
it with sufficient liquidity to conduct its operations while the Chapter 11
Cases are pending. The Company will be exploring opportunities to obtain
long-term financing to support the Company's business plan after it emerges from
Chapter 11; however, there can be no assurance that the Company will be able to
obtain such financing on satisfactory terms, if at all.

         The Company's present plans call for total capital expenditures of not
more than $5.0 million in the fiscal year ending February 3, 2001. The Company
had no material commitments in connection with these planned capital
expenditures at January 29, 2000.

         The Company does not intend to pay cash dividends in the foreseeable
future and under its current Loan Agreement is restricted from paying dividends
on its capital stock.


Historic Sources and Uses of Cash

         In July 1998, the Company borrowed $10.0 million under a Term Loan with
Back Bay Capital, LLC ("the lenders"). The Term Loan bore interest at a rate of
14.5%. Interest was payable monthly at a rate of 12% with the remaining 2.5%
accruing as Notes due at the maturity of the Term Loan. These Notes bore
interest at 12.5%. Upon entering into the Term Loan, the lenders received
warrants to purchase 215,000 shares of the Company's common stock exercisable
until July 31, 2003, at $7.50 per share. The Term Loan was collateralized by a
first security interest in the Company's equipment and a secondary interest in
the remainder of the Company's assets.

         In January 1998, the Company entered into a Loan and Security Agreement
("Loan and Security Agreement") with BankBoston Retail Finance Inc. providing a
$40.0 million revolving line of credit which could be increased at the Company's
discretion up to $60.0 million in $5.0 million increments. In July 1998, the
Loan and Security Agreement was amended. Advances under the Amended Loan and
Security Agreement were limited based on inventory levels which varied as the
Term Loan was outstanding, and were subject to certain reserves as defined in
the Amended Loan and Security Agreement. Interest was accrued at an annual rate
equal to the BankBoston, N.A. prime rate plus 50 basis points or, at the
Company's option, a rate based on the London Interbank Offered Rate ("LIBOR")
plus 250 additional basis points. A fee of 0.25% per year was assessed monthly
on the unused portion of the line of credit. Borrowings under the Amended Loan
and Security Agreement were secured by all of the Company's assets. The Amended
Loan and Security Agreement contained restrictive covenants requiring minimum
cumulative consolidated earnings before interest, taxes, depreciation and
amortization and limiting capital expenditures.

         In August 1998, the Company entered into a master capital lease
agreement for the purchase of point-of-sale equipment and related software.
During the fiscal year ended January 30, 1999, $1.3 million of equipment was
financed under this agreement.


                                       17
<PAGE>


ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         The Company is subject to market risks from changes in interest rates.
The interest rate on the Company's revolving credit facilities, which represent
a significant portion of the Company's outstanding debt, is variable based on
the prime rate.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The response to this item is submitted as a separate section of this
Report commencing on page F-1 and is incorporated by reference.

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

         Not applicable.



                                       18
<PAGE>


                                    PART III

In accordance with general instruction G(3) of Form 10-K, except as set forth
below, the information called for by items 10, 11, 12 and 13 of Part III will be
filed by an amendment to this Form 10-K on or prior to 120 days after the end of
the Company's fiscal year.

ITEM 10.   EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers of the Company are as follows:

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

William E. Freeman (1)     57      President and Chief Executive Officer

 James D. Constantine (1)  47      Senior Vice President and Chief Financial
                                   Officer

Glen J. Franchi (1)        46      Executive Vice President, Chief Operating
                                   Officer and Treasurer

Gary W. Rada               46      Executive Vice President and General
                                   Merchandising Manager

Carol A. Travis (1)        49      Vice President and Secretary

Timothy F. Gower           49      Senior Vice President, Retail Store
                                   Operations

Robert Krentzman           51      Vice President, Information Technology

Joseph M. Cabon            53      Vice President, Distribution

William A. Beyerl          48      Vice President, Human Resources


(1)      All the Officers, other than William Freeman, James Constantine, Glen
         Franchi, and Carol Travis, hold their respective positions in the
         Company's operating subsidiary.

         William E. Freeman has been President and Chief Executive Officer
since October 1999. He is a co-founder of the Company, and has been a director
of the Company since forming the investor group that acquired it in July 1989.
Mr. Freeman was Chairman of the Board of Directors of the Company from April
1994 to April 1997. From May 1994 to October 1995, he was Chief Executive
Officer of the Company's operating subsidiary, and from May 1994 to September
1996, he was Chief Executive Officer of the Company. From 1989 to 1994, he was
President of the Company.

         James D. Constantine has been Senior Vice President and Chief Financial
Officer since February 2000. Prior to joining the Company, he was Senior
Assistant Treasurer for Sears, Roebuck and Co. and held various managerial
positions from 1981 to 1999. From 1974 to 1981 he held various managerial
positions with Deloitte & Touche LLP.

         Glen J. Franchi has been Executive Vice President and Treasurer of the
Company since March 1995. He has been the Chief Operating Officer of the
Company's operating subsidiary since November 1990. Prior to joining the
Company, from 1977 to 1989, he held various management and senior financial
positions with Carson Pirie Scott Co., a chain of retail department stores.


                                       19
<PAGE>


         Gary W. Rada has been Executive Vice President since October 1999. From
January 1998 to October 1999, he served as Senior Vice President and General
Merchandise Manager. From 1997 to 1998, he served as the Vice President of
General Merchandise for Bruno's, a Birmingham, Alabama supermarket and drug
chain, which filed a voluntary petition for bankruptcy under Chapter 11 in
February 1998. Prior to joining Bruno's, he held various management and
merchandising positions with American Stores, including Merchandise Manager at
American Drug Stores and Vice President of General Merchandise and Grocery
Merchandising at Jewel Food Stores.

         Carol A. Travis has been with the Company since it was originally
founded in 1985, serving as Secretary of the Company since May 1994 and as Vice
President since June 1994. She has been a Vice President of the Company's
operating subsidiary since August 1987.

         Timothy F. Gower has been Senior Vice President, Retail Store
Operations since October 1999. From April 1998 to October 1999, he served as
Vice President, Retail Store Operations. Prior to that, from August 1997 to
March 1998, he served as Vice President of Store Operations for Zellers Inc.,
Canada's largest discount store chain. Prior to joining Zellers, he held various
store operations positions with Office Max and F&M SuperDrug Stores.

         Robert Krentzman has been Vice President, Information Technology since
September 1995. From March 1994 to September 1995, he served as Director of
Management Information Systems. From 1990 to 1994, he was Director, Management
Information Systems, for Reader's Market, a division of Waldenbooks.

         Joseph M. Cabon has been Vice President, Distribution since April 1995.
From December 1993 to January 1995, he was employed as a consultant in retail
distribution. From October 1992 through December 1993, he was Vice President,
Logistics for One Price Clothing, a specialty retailer. In January 1995, he
filed a bankruptcy petition under chapter 7 of the United States Bankruptcy
Code, and that same month received a discharge from indebtedness in connection
therewith.

         William A. Beyerl has been Vice President, Human Resources since
December 1999. From June 1999 to December 1999 he served as Director of Human
Resources. From September 1997 to June 1999, he served as Director of Store
Operations. From 1991 to 1997, he served as Director of Human Resources for
Today's Man, a specialty menswear retailer on the East Coast. Prior to joining
Today's Man, he held various management positions with Bradlees Department
Stores and Gimbel's Department Stores.


                                       20
<PAGE>


                                     PART IV


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

         (a)      List of Documents filed as part of this Report on Form 10-K.

         1.       The following financial statements of the Company are filed as
                  a separate section of this Report commencing on page F-1.

                  Independent Auditors' Report

                  Consolidated Balance Sheets as of January 29, 2000 and January
                  30, 1999

                  Consolidated Statements of Operations for the fiscal years
                  ended January 29, 2000 and January 30, 1999, the transition
                  period ended January 31, 1998 and the fiscal year ended June
                  28, 1997

                  Consolidated Statements of Stockholders' Equity (Deficit) for
                  the fiscal years ended January 29, 2000 and January 30, 1999,
                  the transition period ended January 31, 1998 and the fiscal
                  year ended June 28, 1997

                  Consolidated Statements of Cash Flows for the fiscal years
                  ended January 29, 2000 and January 30, 1999, the transition
                  period ended January 31, 1998 and the fiscal year ended June
                  28, 1997

                  Notes to Consolidated Financial Statements

         2.       Financial Statement Schedules

                  The following financial statement schedule is filed as a
                  separate section of this Report commencing on page S-1.

                  Independent Auditors' Report

                  Condensed Financial Information of Factory Card Outlet Corp. -
                  Balance Sheets as of January 29, 2000 and January 30, 1999

                  Condensed Financial Information of Factory Card Outlet Corp. -
                  Statements of Operations for the fiscal years ended January
                  29, 2000 and January 30, 1999, the transition period ended
                  January 31, 1998 and fiscal year ended June 28, 1997

                  Condensed Financial Information of Factory Card Outlet Corp. -
                  Statements of Cash Flows for the fiscal years ended January
                  29, 2000 and January 30, 1999, the transition period ended
                  January 31, 1998 and the fiscal year ended June 28, 1997

                  Notes to Condensed Financial Information of Factory Card
                  Outlet Corp.


                                       21
<PAGE>


3.       List of Exhibits.

                  The following exhibits are included as part of this Annual
                  Report on Form 10-K or incorporated herein by reference.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Exhibit No.                        Description
------------------------------------------------------------------------------------------------------------------------------------
<S>               <C>
3.1 (1)           Form of Amended and Restated Certificate of Incorporation of the Company.
------------------------------------------------------------------------------------------------------------------------------------
3.2 (2)           Amended and Restated By-Laws of the Company.
------------------------------------------------------------------------------------------------------------------------------------
4.1 (1)           Specimen of Registrant's Common Stock Certificate.
------------------------------------------------------------------------------------------------------------------------------------
10.1 (1)          Employment Agreement, dated as of April 6, 1995, by and between the Company and Charles R. Cumello.
------------------------------------------------------------------------------------------------------------------------------------
10.2 (1)          Consulting Agreement, dated July 30, 1996 by and between the Company and J. Bayard Kelly.
------------------------------------------------------------------------------------------------------------------------------------
10.3 (1)          Supply Agreement, dated as of August 2, 1996, by and between the Company and Fine Art Developments, p.l.c.
------------------------------------------------------------------------------------------------------------------------------------
10.4 (1)          Lease Agreement between the Company and Prudential Insurance Company of America, dated September 25, 1992.
------------------------------------------------------------------------------------------------------------------------------------
10.5 (1)          Lease Agreement between the Company and Elk Grove Village Industrial Park Ltd., dated July 17, 1995.
------------------------------------------------------------------------------------------------------------------------------------
10.5.1(1)         Industrial Building Lease dated as of October 28, 1996 by and between Centerpoint Realty Services Corporation and
                  FCO.
------------------------------------------------------------------------------------------------------------------------------------
10.6.1 (1)        1989 Stock Option Plan of the Company, as amended.
------------------------------------------------------------------------------------------------------------------------------------
10.6.2 (1)        1996 Employee Stock Purchase Plan of the Company.
------------------------------------------------------------------------------------------------------------------------------------
10.6.3 (1)        Incentive Savings Plan of the Company.
------------------------------------------------------------------------------------------------------------------------------------
10.7 (1)          Business Purpose Revolving Promissory Note dated November 1, 1996 from the Company and FCO to Bank One.
10.7.1 (1)        Business Loan Agreement dated as of November 1, 1996 among the Company, FCO and Bank One.
------------------------------------------------------------------------------------------------------------------------------------
10.7.2 (2)        Commitment letter dated September 9, 1997 from Bank One.
------------------------------------------------------------------------------------------------------------------------------------
10.8 (1)          Loan Agreement dated as July 2, 1996 by and between FCO and Petra Capital, L.L.C. ("Petra")
------------------------------------------------------------------------------------------------------------------------------------
10.8.1 (1)        Stock Purchase Warrant dated July 2, 1996 by and between the Company and Petra, as amended.
------------------------------------------------------------------------------------------------------------------------------------
10.8.2 (1)        Secured Promissory Note dated July 2, 1996 by and between FCO and Petra.
------------------------------------------------------------------------------------------------------------------------------------
10.8.3 (1)        Security Agreement dated July 2, 1996 by and between FCO and Petra.
------------------------------------------------------------------------------------------------------------------------------------
10.8.4 (1)        Guaranty Agreement dated July 2, 1996 by and between the Company and Petra.
------------------------------------------------------------------------------------------------------------------------------------
10.9.1 (1)        Loan Agreement dated November 15, 1995 by and between FCO and Sirrom Capital Corporation ("Sirrom").
------------------------------------------------------------------------------------------------------------------------------------
10.9.2 (1)         Stock Purchase Warrant dated November 15, 1995 by and between the Company and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------
10.9.3 (1)        Secured Promissory Note dated November 15, 1995 by and between FCO and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------
10.9.4 (1)        Security Agreement dated November 15, 1995 by and between FCO and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------
10.9.5 (1)        Guaranty Agreement dated November 15, 1995 by and between the Company and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------
10.9.6 (1)        First Amendment to Loan Agreement and Loan Documents dated June 28, 1996 by and between FCO and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------
10.9.7 (1)        Stock Purchase Warrant dated June 28, 1996 by and between the Company and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------
10.9.8 (1)        Secured Promissory Note dated June 28, 1996 by and between FCO and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------
10.9.9 (1)        Amended and Restated Stock Purchase Warrant dated July 30, 1996 by and between the Company and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------

                                       22
<PAGE>
------------------------------------------------------------------------------------------------------------------------------------
<S>               <C>
10.9.10 (1)       Amendment to Stock Purchase Warrant dated July 30, 1996 by and between the Company and Sirrom.
------------------------------------------------------------------------------------------------------------------------------------
10.10.1 (1)       Term Lease Master Agreement dated October 28, 1996 by and between FCO and IBM Credit Corporation.
------------------------------------------------------------------------------------------------------------------------------------
10.10.2 (1)       Master Lease Agreement dated August 19, 1996 by and between FCO and Symbol Lease, Inc.
------------------------------------------------------------------------------------------------------------------------------------
10.11 (3)         Loan and Security Agreement dated January 30, 1998 among Factory Card Outlet of America, Ltd. and BankBoston
                  Retail Finance Inc.
------------------------------------------------------------------------------------------------------------------------------------
10.11.1 (4)       First Amendment to Loan and Security Agreement between FCO and BankBoston Retail Finance Inc. dated July 17, 1998
------------------------------------------------------------------------------------------------------------------------------------
10.11.2 (4)       Term Loan and Security Agreement between FCO and Back Bay Capital, LLC dated July 17, 1998
------------------------------------------------------------------------------------------------------------------------------------
10.12 (3)         1997 Outside Director Stock Option Plan
------------------------------------------------------------------------------------------------------------------------------------
10.13 (5)         Separation and Release Agreement between Factory Card Outlet Corp. and Charles R. Cumello
------------------------------------------------------------------------------------------------------------------------------------
10.14 (6)         Debtor In Possession Loan and Security Agreement between FCO and Foothill Capital Corporation, Paragon Capital LLC
                  and Other Financial Institutions dated March 23, 1999
------------------------------------------------------------------------------------------------------------------------------------
10.15             First Amendment to Debtor In Possession Loan and Security Agreement between FCO and Foothill Capital Corporation,
                  Paragon Capital LLC and Other Financial Institutions dated April 14, 1999
------------------------------------------------------------------------------------------------------------------------------------
10.16             Second Amendment to Debtor In Possession Loan and Security Agreement between FCO and Foothill Capital Corporation,
                  Paragon Capital LLC and Other Financial Institutions dated August 20, 1999
------------------------------------------------------------------------------------------------------------------------------------
10.17             Third Amendment to Debtor In Possession Loan and Security Agreement between FCO and Foothill Capital Corporation,
                  Paragon Capital LLC and Other Financial Institutions dated September 20, 1999
------------------------------------------------------------------------------------------------------------------------------------
10.18             Fourth Amendment to Debtor In Possession Loan and Security Agreement between FCO and Foothill Capital Corporation,
                  Paragon Capital LLC and Other Financial Institutions dated December 20, 1999
------------------------------------------------------------------------------------------------------------------------------------
10.19             Fifth Amendment to Debtor In Possession Loan and Security Agreement between FCO and Foothill Capital Corporation,
                  Paragon Capital LLC and Other Financial Institutions dated March 3, 2000
------------------------------------------------------------------------------------------------------------------------------------
10.20             Separation Agreement between Factory Card Outlet Corp. and Stewart M. Kasen dated October 8, 1999
------------------------------------------------------------------------------------------------------------------------------------
10.21             Separation Agreement between Factory Card Outlet Corp. and Frederick G. Kraegel dated March 3, 2000
------------------------------------------------------------------------------------------------------------------------------------
10.22             Employment Agreement between Factory Card Outlet Corp. and James D. Constantine dated March 1, 2000
------------------------------------------------------------------------------------------------------------------------------------
21.1(1)           List of the subsidiaries of the Company
------------------------------------------------------------------------------------------------------------------------------------
23.1              Consent of KPMG LLP
------------------------------------------------------------------------------------------------------------------------------------
27.1              Financial Data Schedule
------------------------------------------------------------------------------------------------------------------------------------
Notes
</TABLE>

1.       Incorporated by reference to the Company's Registration Statement as
         amended on Form S-1 Number 333-13827 as filed with the Commission on
         December 12, 1996.

2.       Incorporated by reference to the Company's Annual Report on Form 10-K
         for the fiscal year ended June 28, 1997.


                                       23
<PAGE>

3.       Incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the quarterly period ended December 27, 1997.

4.       Incorporated by reference to the Company's Current Report on Form 8-K
         filed on July 22, 1998.

5.       Incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the quarterly period ended October 31, 1998.

6.       Incorporated by reference to the Company's Current Report on Form 8-K
         filed on April 28, 1999.

(b)      Reports on Form 8-K.

                  None.



                                       24
<PAGE>


                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William E. Freeman and James D.
Constantine with full power to act without the other, his true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this report on Form 10-K, and to file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person hereby, ratifying and confirming that
each of said attorneys-in-fact and agents or his substitutes may lawfully do or
cause to be done by virtue hereof.

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


Dated:  May 15, 2000                 FACTORY CARD OUTLET CORP.

                                     /s/ William E. Freeman
                                     ----------------------
                                     By:  William E. Freeman, President and
                                     Chief Executive Officer


                                       25
<PAGE>


      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
         Name                                        Title                              Date
-------------------------------------------------------------------------------------------------------------
<S>                                       <C>                                           <C>
 /s/ William E. Freeman                                                                 May 15, 2000
-----------------------
      William E. Freeman                  President and
                                          Chief Executive Officer

-------------------------------------------------------------------------------------------------------------

/s/ Glen J. Franchi                                                                     May 15, 2000
--------------------------
      Glen J. Franchi                     Executive Vice President and
                                          Chief Accounting Officer

-------------------------------------------------------------------------------------------------------------

/s/  James D. Constantine                                                               May 15, 2000
-------------------------
      James D. Constantine                Senior Vice President and
                                          Chief Financial Officer

-------------------------------------------------------------------------------------------------------------

/s/  J. Bayard Kelly                                                                    May 15, 2000
--------------------
     J. Bayard Kelly                      Director

-------------------------------------------------------------------------------------------------------------


/s/ James L. Nouss                                                                      May 15, 2000
------------------
    James L. Nouss                        Director

-------------------------------------------------------------------------------------------------------------
</TABLE>


                                       26
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY
<TABLE>
<CAPTION>
                                                                                                                 Page
                                                                                                                 ----

<S>                                                                                                               <C>
Independent Auditors' Report ...............................................................................      F-2

Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999 ....................................      F-3

Consolidated Statements of Operations for the fiscal years ended January 29, 2000 and
      January 30, 1999, the transition period ended January 31, 1998 and the fiscal year
      ended June 28, 1997  .................................................................................      F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal years
     ended January 29, 2000 and January 30, 1999, the transition period ended
     January 31, 1998 and the fiscal year ended June 28, 1997 ..............................................      F-5

Consolidated Statements of Cash Flows for the fiscal years ended January 29,
     2000 and January 30, 1999, the transition period ended January 31, 1998 and
     the fiscal year ended
      June 28, 1997 ........................................................................................      F-6

Notes to Consolidated Financial Statements .................................................................      F-7

</TABLE>


                                      F-1
<PAGE>
                          Independent Auditors' Report

The Board of Directors and Shareholders
Factory Card Outlet Corp.:

      We have audited the consolidated balance sheets of Factory Card Outlet
Corp. and subsidiary as of January 29, 2000 and January 30, 1999 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the fiscal years ended January 29, 2000 and January 30, 1999, the
transition period ended January 31, 1998 and the fiscal year ended June 28,
1997. These consolidated financial statements are the responsibility of the
management of Factory Card Outlet Corp. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Factory Card
Outlet Corp. and subsidiary as of January 29, 2000 and January 30, 1999, and the
results of their operations and their cash flows for the fiscal years ended
January 29, 2000 and January 30, 1999, the transition period ended January 31,
1998 and the fiscal year ended June 28, 1997 in conformity with generally
accepted accounting principles.

      The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, in March 1999 the Company filed voluntary petitions for
relief under chapter 11 of title 11 of the United States Code. In addition, the
Company has suffered losses from operations. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



/s/  KPMG LLP


Chicago, Illinois
March 21, 2000


                                      F-2
<PAGE>

                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY

                           Consolidated Balance Sheets
              (Dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                               January 29,          January 30,
                                                                                  2000                 1999
                                                                            ------------------    ----------------
                                  ASSETS
<S>                                                                         <C>                   <C>
Current assets:
   Cash                                                                     $           1,713     $         3,597
   Merchandise inventories                                                             56,142              61,658
   Refundable income taxes                                                                  -                 747
   Prepaid expenses and other                                                           1,748                 980
                                                                            ------------------     --------------
     Total current assets                                                              59,603              66,982

Fixed assets, net                                                                      30,559              39,585
Other assets                                                                              641               1,004
                                                                            ------------------    ----------------

     Total assets                                                           $          90,803     $       107,571
                                                                            ==================    ================

              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Debt                                                                     $          22,869     $        34,153
   Accounts payable                                                                     9,103              33,089
   Accrued expenses                                                                     8,662               8,755
                                                                            ------------------    ----------------
     Total current liabilities                                                         40,634              75,997

Deferred rent                                                                               -               7,396
                                                                            ------------------    ----------------


Liabilities subject to compromise                                                      54,872                   -
                                                                            ------------------    ----------------

Stockholders' equity (deficit):
    Common stock-$.01 par value.  Voting class-authorized 15,000,000
     shares; 7,503,098 shares issued and outstanding. Non-voting
     class-authorized 205,000 shares; no shares issued or outstanding.                    75                  75
    Additional paid-in capital                                                        52,021              52,021
    Accumulated deficit                                                              (56,799)            (27,918)
                                                                              ----------------      --------------

     Total stockholders' equity (deficit)                                             (4,703)              24,178
                                                                            ------------------    ----------------

     Total liabilities and stockholders' equity (deficit)                   $          90,803     $       107,571
                                                                            ==================    ================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY

                      Consolidated Statements of Operations
              (Dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                         FISCAL YEAR ENDED             TRANSITION               FISCAL
                                                   -------------------------------    PERIOD ENDED            YEAR ENDED
                                                    JANUARY 29,      JANUARY 30,      JANUARY 31,              JUNE 28,
                                                        2000             1999             1998                   1997
                                                   ---------------  --------------   ---------------       -----------------
<S>                                                <C>              <C>              <C>                 <C>
Net sales                                          $      217,658   $     226,499    $      110,699      $          133,945
Cost of sales                                             121,224         134,996            56,977                  65,981
                                                   ---------------  --------------   ---------------     -------------------

   Gross profit                                            96,434          91,503            53,722                  67,964
Selling, general and administrative expenses              101,892         114,836            53,935                  63,077
                                                    --------------  --------------   ---------------     -------------------

   Income (loss) from operations                          (5,458)        (23,333)             (213)                   4,887
Interest expense                                            3,049           4,572             1,269                   1,402
                                                   ---------------  --------------   ---------------     -------------------

   Income (loss) before reorganization items, net,
     income taxes (benefit) and                            (8,507)        (27,905)           (1,482)                   3,485
       extraordinary item
       Reorganization items, net                           19,082         -                 -                     -
                                                   ---------------  --------------   ---------------     -------------------
   Income (loss) before income taxes (benefit)
     and extraordinary item                              (27,589)        (27,905)           (1,482)                   3,485
Income taxes (benefit)                                    -                   451             (593)                   1,462
                                                   ---------------  --------------   ---------------     -------------------

   Income (loss) before extraordinary item               (27,589)        (28,356)             (889)                   2,023
Extraordinary item - loss on early retirement of
debt,
           net of income tax benefit                      (1,292)         -                 -                         (313)

                                                   ---------------  --------------   ---------------     -------------------
   Net income (loss)                               $     (28,881)   $    (28,356)    $        (889)      $            1,710
                                                   ===============  ==============   ===============     ===================

Earnings (loss) per share - basic
   Before extraordinary item                       $       (3.68)   $      (3.82)    $       (0.12)      $             0.35
   Extraordinary item                                      (0.17)         -                 -                        (0.05)
                                                   ---------------  --------------   ---------------     -------------------

   Net income (loss) per share - basic             $       (3.85)   $      (3.82)    $       (0.12)      $             0.30
                                                   ===============  ==============   ===============     ===================

Weighted average shares outstanding                     7,503,098       7,422,069         7,261,542               5,739,962
                                                   ===============  ==============   ===============     ===================

Earnings (loss) per share - diluted
   Before extraordinary item                       $       (3.68)   $      (3.82)    $       (0.12)      $             0.30
   Extraordinary item                                      (0.17)         -                 -                        (0.04)
                                                   ---------------  --------------   ---------------     -------------------

   Net income (loss) per share - diluted           $       (3.85)   $      (3.82)    $       (0.12)      $             0.26
                                                   ===============  ==============   ===============     ===================
Weighted average shares outstanding                     7,503,098       7,422,069         7,261,542               6,686,243
                                                   ===============  ==============   ===============     ===================

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>
                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY


            Consolidated Statements of Stockholders' Equity (Deficit)
              (Dollar amounts in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                                                 TOTAL
                                                                    ADDITIONAL    RETAINED                     STOCKHOLDERS'
                              PREFERRED STOCK      COMMON STOCK      PAID-IN      EARNINGS    TREASURY STOCK     EQUITY
                              ----------------- --------------------                         -----------------
                              SHARES   AMOUNT    SHARES    AMOUNT    CAPITAL     (DEFICIT)   SHARES   AMOUNT   (DEFICIT)
                              ------- --------- --------- ---------------------  ----------- -------- -------- -----------
<S>                           <C>      <C>       <C>       <C>      <C>          <C>          <C>     <C>      <C>
Balance at June 29, 1996      52,416   14,457    933,720   $ 3,050  $     -      $   (383)        -   $      - $ 17,124

Net income                         -        -          -         -        -         1,710         -          -    1,710
Issuance of Series C
   convertible
   preferred stock            25,639    9,739          -         -        -             -         -          -    9,739
Additional paid-in capital
   attributable to common
   stock warrants                  -        -          -       264        -             -         -          -      264
Conversion of all convertible
   preferred stock to
   common stock              (78,055) (24,196) 3,134,674    24,196        -             -         -          -        -
Redesignation of common stock
   from no par value
   to $.01 par value               -        -          -   (27,469)   27,469            -         -          -        -
Issuance of common stock -
   Initial public offering         -        -  2,944,050        29    23,094            -         -          -   23,123
Exercise of stock options
   and warrants                    -        -    218,767         2       400            -     1,529        (13)      389
Treasury stock transactions,
    net                            -        -          -        -        (12)           -     7,168        (64)      (76)
                           --------- --------  --------- --------  ---------    --------- ---------  --------- ---------
Balance at June 28, 1997           -        -  7,231,211       72     50,951        1,327     8,697        (77)   52,273

Net loss                           -        -          -        -          -         (889)        -         -       (889)
Exercise of stock options
   and warrants                    -        -    104,308        1        317            -         -         -        318
Sale of treasury stock to
   employee stock
   Purchase plan                   -        -          -        -        (45)           -    (8,697)       77         32
                           --------- --------  --------- --------  ---------    --------- ---------  --------- ---------

Balance at January 31, 1998       -         -  7,335,519       73     51,223          438         -          -     51,734

Net loss                          -         -          -        -          -      (28,356)        -          -    (28,356)
Exercise of stock options
   and warrants                   -         -    167,579        2        798            -         -         -        800
                           --------- --------  --------- --------  ---------    --------- ---------  --------- ---------

Balance at January 30, 1999       -  $      -  7,503,098 $     75  $  52,021    $(27,918)         -  $       - $  24,178

Net loss                          -         -          -        -          -     (28,881)         -          -   (28,881)
                           --------- --------  --------- --------  ---------    --------- ---------  --------- ---------
Balance at January 29, 2000       -  $      - $7,503,098 $     75  $  52,021   $ (56,799)         -  $       - $  (4,703)
                           --------- --------  --------- --------  ---------    --------- ---------  --------- ---------

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY

                      Consolidated Statements of Cash Flows
                          (Dollar amounts in thousands)
<TABLE>
<CAPTION>
                                                                                        TRANSITION     FISCAL YEAR
                                                              FISCAL YEAR ENDED           PERIOD          ENDED
                                                                                           ENDED
                                                         -----------------------------
                                                          JANUARY 29,     JANUARY 30,   JANUARY 31,     JUNE 28,
                                                              2000           1999          1998           1997
                                                         ---------------  ------------  ------------  --------------
<S>                                                          <C>          <C>          <C>          <C>
  Cash flows from operating activities:
    Net income (loss) ....................................   $ (28,881)   $ (28,356)   $    (889)   $   1,710

    Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
      Depreciation and amortization of fixed assets ......       7,729        8,039        3,087        3,523
      Amortization of deferred financing costs and
   debt discount .........................................         762          543         --            337
      Noncash portion of reorganization items ............      14,034         --           --           --
      Extraordinary loss on early retirement of debt .....       1,292         --           --            313
      Deferred income taxes ..............................        --            835         (795)         585
      Loss of disposal of fixed assets ...................          36          649          191          359
      Stock option compensation ..........................        --             59           34          209

      Change in assets and liabilities:
           (Increase) decrease in assets:
               Merchandise inventories ...................       1,470       11,254      (17,553)     (13,555)
               Prepaid expenses and other ................         (20)         831         (382)      (1,083)
               Other assets ..............................        (835)      (1,168)         315       (1,602)
           Increase (decrease) in liabilities:
               Accounts payable ..........................     (23,986)      14,052        1,484        2,850
               Accrued expenses ..........................      (4,317)       4,262        1,662          111
               Deferred rent liabilities .................        --          2,080          904          850
               Liabilities subject to compromise .........      41,437         --           --           --
               Income taxes payable ......................        --           --           (503)         525
                                                             ---------    ---------    ---------    ---------

  Net cash provided by (used in) operating activities ....       8,721       13,080      (12,445)      (4,868)
                                                             ---------    ---------    ---------    ---------
  Net cash used in investing activities - purchase
  of fixed assets, net ...................................      (2,044)      (8,725)     (12,337)     (10,106)
                                                             ---------    ---------    ---------    ---------
  Cash flows from financing activities:
    Borrowings ...........................................     256,450      184,106       77,166       70,457
    Repayment of borrowings ..............................    (264,759)    (183,152)     (51,241)     (79,809)
    Proceeds from issuance of subordinated debentures ....        --           --           --          2,911
    Retirement of subordinated debentures ................        --           --           --         (8,000)
    Payment of long-term obligations .....................        (252)      (1,959)      (1,423)      (2,524)
    Proceeds from issuance of convertible preferred ......        --           --           --          8,638
   stock
    Proceeds from issuance of common stock ...............        --           --           --         23,123
    Proceeds from exercise of employee stock options .....        --            217          227          104
    Purchase of treasury stock ...........................        --           --           --           (180)
    Sale of treasury stock to employee stock purchase
   plan ..................................................        --           --             32          103
                                                             ---------    ---------    ---------    ---------

Net cash (used in) provided by financing activities ......      (8,561)        (788)      24,761       14,823
                                                             ---------    ---------    ---------    ---------

Net increase (decrease) in cash ..........................      (1,884)       3,567          (21)        (151)
Cash at beginning of year ................................       3,597           30           51          202
                                                             ---------    ---------    ---------    ---------
  Cash at end of year ....................................   $   1,713    $   3,597    $      30    $      51
                                                             =========    =========    =========    =========
Supplemental cash flow information:
     Interest paid .......................................   $   2,691    $   4,225    $   1,194    $   1,441
     Income taxes paid (refunded) ........................        (792)         307          857          350
Supplemental disclosure of noncash financing activities:
     Capital lease obligations incurred ..................         168        1,301        1,997        4,961
     Additional paid-in capital for warrants issued ......        --            514         --            264

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>

                            FACTORY CARD OUTLET CORP.
                                  AND SUSIDIARY

                   Notes to Consolidated Financial Statements
         (Dollar amounts in thousands, except share and per share data)

(1)      Reorganization and Chapter 11 Filing

         The Company filed voluntary petitions for relief under chapter 11 of
         title 11 of the United States Code (the "Bankruptcy Code") on March 23,
         1999 (the "petition date") under case numbers 99-685 (JJF) and 99-686
         (JJF) (the "Chapter 11 Cases"). The Chapter 11 Cases have been
         procedurally consolidated for administrative purposes. The Company is
         currently operating its business as a debtor in possession under the
         jurisdiction of the United States Bankruptcy Court for the District of
         Delaware (the "Bankruptcy Court"). The Company's liabilities, as of the
         petition date, are generally subject to settlement in a plan of
         reorganization, which must be voted on by certain of its creditors and
         confirmed by the Bankruptcy Court. Until a reorganization plan has been
         confirmed, the Company is prevented from making payments on prepetition
         debt unless permitted by the Bankruptcy Code or approved by the
         Bankruptcy Court. The Company will review all unexpired prepetition
         executory contracts and leases to determine whether they should be
         assumed or rejected. Parties affected by the rejection of contracts and
         leases may file claims against the Company.

         The consolidated financial statements have been prepared assuming the
         Company will continue as a going concern, which contemplates continuity
         of operations and the realization of assets and the satisfaction of
         liabilities in the normal course of business. The commencement of the
         Chapter 11 Cases, and net losses resulting in a deficit, raise
         substantial doubt about the Company's ability to continue as a going
         concern. The consolidated financial statements do not give effect to
         adjustments, some of which could be material, to the carrying values of
         assets and liabilities which may be necessary as a consequence of a
         plan of reorganization. The continuation of the Company's business as a
         going concern is contingent upon, among other things, the ability to
         (1) formulate a plan of reorganization that will be confirmed by the
         Bankruptcy Court, (2) achieve satisfactory levels of future profitable
         operations, (3) maintain adequate financing and (4) provide sufficient
         cash from operations to meet future obligations.

         The Bankruptcy Code provides that the Company has an exclusive period
         during which only it may propose, file and solicit acceptances of a
         plan of reorganization. The Company has requested that the Bankruptcy
         Court grant an extension of its exclusive period to file a plan and to
         solicit acceptances to and including June 16, 2000 and August 18, 2000,
         respectively. The Company currently retains its exclusivity pending the
         Court's consideration of that request. If the Company fails to file a
         plan of reorganization during the exclusive period or, after such plan
         has been filed, if the Company fails to obtain acceptance of such plan
         from the requisite impaired classes of creditors and equity security
         holders during the exclusive period, any party in interest, including a
         creditor, an equity security holder, a committee of creditors or equity
         security holders, or an indenture trustee, may file their own plan of
         reorganization for the Company. The Company plans to develop a plan of
         reorganization for submission to the Bankruptcy Court.


                                      F-7
<PAGE>

(2)      Summary of Significant Accounting Policies

         Basis of Presentation

         All intercompany balances and transactions have been eliminated in
         consolidatioin.


         Organization

         The consolidated financial statements include the accounts of Factory
         Card Outlet Corp. and its wholly owned subsidiary, Factory Card Outlet
         of America Ltd. (collectively the "Company"). The Company is a chain of
         company-owned stores offering an extensive selection of greeting cards,
         giftwrap, balloons, party supplies and other special occasion
         merchandise at everyday value prices.


          Fiscal Year End Change

         In January 1998, the Company changed its fiscal year end to the
         Saturday closest to January 31. Prior to January 1998, the Company's
         fiscal year ended on the Saturday closed to June 30. The fiscal years
         ended January 29, 2000 and January 30, 1999, referred to as fiscal 1999
         and 1998, each consisted of a 52-week period. The seven-month period
         from June 29, 1997 through January 31, 1998 is referred to as the
         transition period. The fiscal year ended June 28, 1997, referred to as
         fiscal 1997 consisted of a 52-week period.

          Use of Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenues and expenses during the reporting period and
         related disclosures. Actual results could differ from those estimates.

         Merchandise Inventories

         Merchandise inventories are stated at the lower of average cost or
         estimated net realizable value utilizing the retail method. In
         determining the cost of inventory, the Company includes costs incurred
         to purchase, store and distribute goods prior to sale.

         At January 29, 2000 and January 30, 1999, the Company has provisions of
         $4,166 and $11,300, respectively, for certain merchandise which is to
         be discontinued from its ongoing inventory assortment, as well as,
         inventory with excess quantities on hand and certain seasonal inventory
         remaining from past holidays.

         Fixed Assets

         Fixed assets are stated at cost. Depreciation and amortization is
         computed on a straight line basis over three to ten years for fixtures
         and equipment and over the initial term of the lease for leasehold
         improvements. Amortization related to capital leases is also included
         in depreciation and amortization. During fiscal 1998 the Company
         changed its estimate of the depreciable lives of certain technology
         equipment from ten to five years, resulting in additional depreciation
         expense of $771.


                                      F-8
<PAGE>
         Income Taxes

         The Company files a consolidated Federal income tax return. Deferred
         tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the financial
         reporting and tax bases of assets and liabilities and are determined
         using tax rates and laws that are expected to be in effect when the
         differences are expected to reverse.

         Deferred Rent Liabilities

         Certain of the Company's operating leases provide for scheduled
         increases in base rentals over their terms. For these leases, the
         Company recognizes the total rental amounts expected to be paid over
         the lease terms on a straight line basis and, accordingly, has
         established corresponding deferred rent liabilities for the differences
         between the amounts recognized and the amounts paid. The Company also
         receives certain lease incentives, primarily construction allowances.
         These allowances have been deferred and are amortized on a
         straight-line basis over the initial term of a lease as a reduction of
         rent expense. In fiscal 1999, deferred rent liabilities were
         reclassified to liabilities subject to compromise.

         Intangibles

         Certain software costs are capitalized and amortized on a straight line
         basis over three years. Unamortized software costs which are included
         in fixed assets, net were approximately $1,315 and $1,471 as of January
         29, 2000 and January 30, 1999, respectively. Amortization of these
         software costs was approximately $875, $917, $564 and $545 for fiscal
         1999 and 1998, the transition period and fiscal 1997, respectively.

         Advertising Expenses

         The Company expenses advertising costs when the advertising first
         occurs. Advertising production costs incurred before the advertising
         takes place are recorded as a prepaid expense. At January 29, 2000,
         $694 was included as prepaid expense. At January 30, 1999, no amounts
         were included as prepaid expense. In fiscal 1999 and 1998, the
         transition period and fiscal 1997, advertising expense was $7,897,
         $8,335, $4,681, and $4,006, respectively.


                                      F-9
<PAGE>
         Earnings per Share

         Earnings per share - basic was computed by dividing net income (loss)
         by the weighted average number of common shares outstanding during the
         period. Earnings per share - diluted includes the effect of stock
         options and warrants. The reconciliation of earnings per share - basic
         to earnings per share - diluted is as follows:
<TABLE>
<CAPTION>
                                                      Net income                      Per
                                                        (loss)        Shares         Share
                                                    --------------  ------------  -----------
<S>                                                 <C>               <C>         <C>
         For fiscal 1999
         Earnings (loss) per share-basic and diluted:
         --------------------------------------------
         Net (loss) available to common
         stockholders                               $    (28,881)     7,503,098   $   (3.85)
                                                    ==============  ============  ===========

         For fiscal 1998
         Earnings (loss) per share-basic and diluted:
         --------------------------------------------
         Net (loss) available to common
         stockholders                               $    (28,356)     7,422,069   $   (3.82)
                                                    ==============  ============  ===========

         For the transition period
         Earnings (loss) per share-basic and diluted:
         --------------------------------------------
         Net (loss) available to common
         stockholders                               $       (889)     7,261,542   $   (0.12)
                                                    ==============  ============  ===========

         For fiscal 1997
         Earnings per share - basic:
         ---------------------------
         Net income                                 $       1,710     5,739,962   $     0.30
         Effect of dilutive securities:
              Stock options                                             870,057
              Warrants                                                   76,224
                                                                    ------------
         Earnings per share - diluted:
         -----------------------------
         Net income available to common
         stockholders and assumed conversions       $       1,710      6,686,243  $     0.26
                                                    ==============  ============  ===========
</TABLE>
         Options to purchase common stock outstanding during the periods
         presented above were not included in the computation of earnings per
         share - diluted because the option price was greater than the average
         market price of the common shares during the respective periods. These
         options were 540,664, 462,334, 85,160 and 68,660 for fiscal 1999,
         fiscal 1998, the transition period and fiscal 1997, respectively.

         Stock-Based Compensation

         The Company accounts for stock-based compensation using the intrinsic
         value method.

         Reclassifications

         Certain prior period amounts have been reclassified to conform with the
         current year presentation.


                                      F-10
<PAGE>


 (3)     Fixed Assets

         The components of fixed assets, net at January 29, 2000 and January 30,
         1999 are as follows:

                                                        January 29, January 30,
                                                           2000         1999
                                                       ------------ -----------
         Furniture and equipment                       $    43,772  $    45,464
         Leasehold improvements                             12,206       13,120
                                                       ------------ -----------

            Total fixed assets                              55,978       58,584

         Less accumulated depreciation and amortization     25,419       18,999
                                                       ------------ -----------

            Fixed assets, net                          $    30,559  $    39,585
                                                       ============ ===========


(4)      Debt

         Subsequent to the commencement of the Chapter 11 Cases, the Company
         entered into a Revolving Credit and Guaranty Agreement (the "Loan
         Agreement") in March 1999 which provides up to $50,000 (including
         $10,000 for letters of credit) to fund working capital needs and for
         general corporate purposes. Borrowing under the facility is limited by
         inventory levels and has an interest rate of 1% over prime. The Loan
         Agreement expires on the earlier of March 23, 2001 or the date the
         Bankruptcy Court confirms a plan of reorganization. Borrowings under
         the Loan Agreement are secured by substantially all of the Company's
         assets. Certain restrictive covenants apply, including maintenance of
         certain inventory levels, achievement of specified operating results
         and limitations on the incurrence of additional liens and indebtedness,
         capital expenditures, asset sales and payment of dividends, all of
         which were met or waived at January 29, 2000.

         Proceeds from the Loan Agreement were used in March 1999 to repay all
         borrowings under the Company's previous revolving credit agreement and
         term loan. As a result, the Company recognized an extraordinary loss of
         $1,292 associated with the early retirement of the Company's previous
         revolving credit agreement and term loan.

         In January 1998, the Company entered into a Loan and Security Agreement
         ("Agreement") with two large commercial banks providing a $40,000
         revolving line of credit which could be increased at the Company's
         discretion up to $60,000, in $5,000 increments. Borrowings under the
         Agreement were limited by inventory levels subject to certain reserves
         as defined in the Agreement. Interest accrued at an annual rate equal
         to the prime rate or, at the Company's option, the London Interbank
         Offered Rate ("LIBOR") plus an additional 175 or 200 basis points
         dependent on the Company's financial performance. Interest was payable
         monthly or upon the expiration of an advance issued under the Company's
         LIBOR option. Borrowings under the Agreement were secured by
         substantially all of the Company's assets. This Agreement contained
         restrictive financial covenants requiring minimum net worth of $42,700
         and a limit on annual capital expenditures.

         In July 1998, the Company borrowed $10,000 under a Term Loan and
         Security Agreement ("Term Loan") from an affiliate of one of the
         participants in the Agreement. The Term Loan, which was to expire in
         December 1999, bore interest at a rate of 14.5%. Upon entering into the
         Term Loan, warrants to purchase 215,000 shares of the Company's common
         stock at $7.50 per share exercisable until July 2003, were issued. The
         Term Loan was collateralized by a first security interest in the
         Company's equipment and a secondary interest in the remainder of the
         Company's assets.


                                      F-11
<PAGE>


         The fair market value of the warrants issued in conjunction with the
         Term Loan, determined to be $514, was recorded as additional paid in
         capital and as a discount to the face amount of the debt. Amortization
         of the discount and the related financing costs recognized was $331 and
         $360, respectively, for fiscal 1998.

         In July 1998, the Company also amended its Agreement (the "Amended
         Agreement"). The Amended Agreement contained restrictive covenants
         requiring minimum cumulative consolidated earnings before interest,
         taxes, depreciation and amortization and limitations on annual capital
         expenditures. Advances under the Amended Agreement were limited based
         on inventory levels, which varied if the Term Loan was outstanding, and
         were subject to certain possible reserves. Interest was accrued at an
         annual rate equal to prime rate plus 50 basis points or, at the
         Company's option, a rate based on LIBOR plus 250 basis points.


(5)      Lease Commitments

         The Company conducts substantially all of its activities using leased
         premises. Store and office leases generally provide that real estate
         taxes, insurance, maintenance, and operating expenses are obligations
         of the Company. Certain store leases also provide for contingent
         rentals based on sales in excess of specified minimums.

         The cost of fixed assets held under capital leases, certain of which
         legally could be characterized as financings, and included in fixed
         assets was $8,608 and $8,463 at January 29, 2000 and January 30, 1999
         respectively. Accumulated amortization related to such fixed assets was
         $4,416 and $2,478 at January 29, 2000 and January 30, 1999,
         respectively. Fixed assets held under capital leases consist
         principally of technology, office and warehouse equipment.

         The following is a schedule of future minimum lease payments for
         capital and operating leases with initial or remaining terms in excess
         of one year as of January 29, 2000.
<TABLE>
<CAPTION>
                                                                          Capital       Operating
         Fiscal year:                                                      leases        leases
                                                                    ------------------------------
<S>      <C>                                                         <C>            <C>
         2000                                                        $       1,269  $      23,929
         2001                                                                  418         24,240
         2002                                                                  242         23,783
         2003                                                                   35         23,717
         Thereafter                                                              3         75,614
                                                                    ------------------------------

         Total minimum lease payments                                        1,967  $     171,283
                                                                                   ===============
         Less amount representing interest                                     156
                                                                    ---------------

         Present value of net minimum lease payments
         (including long-term lease obligations of $646)             $       1,811
                                                                    ===============
</TABLE>

         The Company currently has the right to assume or reject unexpired lease
         contracts. Future minimum lease payments exclude payment for leases
         that have been rejected pursuant to Bankruptcy Court orders. Certain
         lessors of rejected leases have filed claims for damages and an
         estimate for such potential claims has been included in liabilities
         subject to compromise. The lease obligations described above are
         subject to possible adjustment under the Chapter 11 Cases.


                                      F-12
<PAGE>

         Rent expense charged to operations under operating leases was $25,722
         and $26,001 in fiscal 1999 and 1998, respectively, $11,390 in the
         transition period and $13,860 in fiscal 1997.


(6)      Liabilities Subject to Compromise

         The components of liabilities subject to compromise at January 29, 2000
         are as follows:

                                                           January 29,
                                                               2000
                                                       ------------------
         Accounts payable                              $        39,216
         Accrued expenses                                        1,675
         Capital lease obligations                               3,597
         Potential claims related to
         rejection of certain real property leases               3,356
         Deferred rent obligations                               7,028
                                                       ------------------
                                                       $        54,872
                                                       ==================

         In conjunction with the Chapter 11 Cases, differences between claims
         filed by potential creditors and amounts recorded by the Company are
         currently being identified and reconciled. Any differences will be
         resolved by negotiated agreement between the Company and the claimant
         or by the Bankruptcy Court. Additional claims may arise in conjunction
         with the termination of contractual obligations related to executory
         contracts and leases. As a result, recorded amounts may be adjusted in
         the future. A plan of reorganization may materially change the amount
         and terms of these prepetition liabilities.


                                      F-13
<PAGE>


(7)      Reorganization Items, net

         In April 1999, the Company obtained approval from the Bankruptcy Court
         to close and conduct closing sales at 27 stores that were in markets
         the Company did not intend to continue to operate in or were
         underperforming or unprofitable. During fiscal 1999, the Company
         recorded a provision for reorganization costs relating to these store
         closings of approximately $10,837. This provision included the
         write-down of fixed assets, estimated lease rejection claims and the
         loss on the disposition of merchandise inventory. In addition to the
         provision for the store closings, reorganization costs for professional
         fees and other costs related to the Company's reorganization were
         $8,245 in fiscal 1999.


(8)      Income Taxes (Benefit)

         Income taxes (benefit), excluding the tax benefit related to the
         extraordinary items in fiscal 1999 and 1997, are as follows:
<TABLE>
<CAPTION>
                                                                           Valuation
                                          Current          Deferred        Allowance         Total
                                      ----------------- --------------- ---------------- --------------
<S>                                   <C>               <C>             <C>              <C>
         Fiscal 1999:
            Federal:                  $        -        $      (8,893)  $         8,530  $       (363)
            State                              -               (2,124)            2,487            363
                                      -----------------------------------------------------------------
                                      $        -        $     (11,017)  $        11,017  $         -
                                      =================================================================
         Fiscal 1998:
           Federal                    $          (406)  $      (8,383)  $         9,905  $       1,116
           State                                    23         (2,099)            1,411          (665)
                                      -----------------------------------------------------------------
                                      $          (383)  $     (10,482)  $        11,316  $         451
                                      =================================================================
         Transition period:
           Federal                    $            193  $        (578)  $       -        $       (385)
           State                                  (48)           (160)          -                (208)
                                      -----------------------------------------------------------------
                                      $            145  $        (738)  $       -        $       (593)
                                      =================================================================
         Fiscal 1997:
           Federal                    $            797  $          459  $       -        $       1,256
           State                                    80             126          -                  206
                                      -----------------------------------------------------------------
                                      $            877  $          585  $       -        $       1,462
                                      =================================================================

</TABLE>

                                      F-14
<PAGE>


         Income taxes (benefit) differs from the amounts computed by applying
         the Federal income tax rate of 34% to income (loss) before income taxes
         (benefit) as a result of the following:
<TABLE>
<CAPTION>
                                                               Fiscal        Fiscal      Transition      Fiscal
                                                                1999          1998         period         1997
                                                             ------------ ------------- ------------- --------------
<S>                                                              <C>            <C>          <C>              <C>
         Computed "expected" income taxes
           (benefit)                                             (34.0)%        (34.0)%      (34.0)%          34.0%
         Increase (decrease) in income taxes
           resulting from:
              Increase in valuation allowance                     38.5           40.6           -                -
              State net operating loss carrybacks
                and carryforwards                                 (5.6)          (2.8)       (10.7)              -
              State and local income taxes, net of
                 Federal income tax benefit                        1.1           (2.3)         1.5             4.4
              Other, net                                             -            0.1          3.2             3.6
                                                             ------------ ------------- ------------- --------------
         Income taxes (benefit)                                      -  %         1.6%       (40.0)%          42.0%
                                                             ============ ============= ============= ==============
</TABLE>

         Deferred income taxes on the balance sheet reflect the net tax effect
         of operating loss and alternative minimum tax credit carryforwards
         along with the temporary differences between the carrying amounts of
         assets and liabilities for financial reporting purposes and the amounts
         used for income tax purposes. Significant components of the Company's
         deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
                                                                                 January 29,       January 30,
                                                                                     2000             1999
                                                                              ----------------  ----------------
<S>                                                                            <C>              <C>
         Deferred tax assets related to:
            Alternative minimum tax credit carryforward                        $          564   $           564
            Deferred rent liabilities                                                   1,154             1,296
            Accrued expenses                                                            2,002             1,756
            Merchandise inventories                                                     1,580             4,375
            Net operating loss carryforwards                                           20,151             6,051
                                                                              ----------------  ----------------

                Total deferred tax assets                                              25,451            14,042
            Valuation allowance                                                       (22,333)          (11,316)
                                                                              ----------------  ----------------

                Net deferred tax assets                                                 3,118             2,726

         Deferred tax liabilities related to fixed assets                               3,118             2,726
                                                                              ----------------  ----------------

                Net deferred tax asset                                         $            -    $            -
                                                                              ================  ================
</TABLE>


         In assessing the realization of deferred tax assets, management
         considers the likelihood that those assets will be realized through
         future taxable income. Because the realization of the deferred tax
         assets may be limited by events involving the Chapter 11 Cases or other
         events related to the ownership of the Company, the Company has
         recorded a valuation allowance to fully reserve for the value of the
         net deferred tax assets at January 29, 2000 and January 30, 1999.

         At January 29, 2000, the Company had net operating loss ("NOL")
         carryforwards for Federal tax purposes of $51,282 which expire
         beginning in 2017. The utilization of NOL carryforwards may be
         significantly limited by future events related to direct and/or
         indirect ownership changes of the Company.


                                      F-15
<PAGE>

(9)      Employee Benefit Plans

         1989 Incentive Stock Option Plan

         A stock option plan was approved by the stockholders of the Company in
         July 1989 to provide additional incentives and opportunities through
         stock ownership to employees, outside directors and consultants of the
         Company. Under the plan, incentive stock options may be granted for the
         purchase of the Company's common stock at an exercise price not less
         than 100% of the fair market value at the time of grant as determined
         by the Board of Directors. The term of each option is also determined
         by the Board of Directors, but can not be more than ten years from the
         date of grant. Options are exercisable in accordance with the plan and
         generally vest at the rate of 20% to 25% per year from the date of
         grant.

         In July 1996, the Company granted options to purchase 351,400 shares of
         common stock to certain individuals, including employees and directors,
         at an option price of $2.49 per share. Options to purchase 190,760
         shares which were granted to employees vest over four years, and
         options to purchase 160,640 shares were fully vested in September 1996.
         Based on the estimated fair value of the Company's common stock at the
         time of grant of these options of $3.30 per share, the Company
         recognized compensation expense of $59, $34 and $208 during fiscal
         1998, the transition period and fiscal 1997, respectively. Of the
         amount recognized during fiscal 1997, $146 related to options which
         were fully vested in September 1996. The estimated fair value of the
         Company's common stock used in accounting for these options was based
         on information from various sources which included a valuation prepared
         by Avalon Group Ltd. (Avalon). At the time of the valuation, the
         chairman and president of Avalon each owned 100 shares of the Company's
         Series B preferred stock (or 0.3% of issued and outstanding Series B
         preferred stock) and each had options to purchase 4,016 shares of the
         Company's common stock (or 0.8% of weighted average common shares).

         Outside Director Stock Option Plan

         In November 1997, the Company's shareholders approved the 1997 Outside
         Director Stock Option Plan permitting stock option awards to directors
         who are not employees of the Company. The 1997 Outside Director Stock
         Option Plan was effective in July 1997 and expires in July 2007. Under
         the plan, options may be granted for the purchase of the Company's
         common stock at an exercise price not less than 100% of the fair market
         value of a share of common stock on the date of grant. The number of
         shares of common stock reserved in connection with this plan is
         250,000, subject to certain adjustments. The Company granted 160,000
         options in November 1997 to eligible directors which become exercisable
         at the rate of 8.33% per quarter through November 2000.



                                      F-16
<PAGE>


         Had the Company determined compensation cost based on the fair value at
         the grant date for its stock options under Statement of Financial
         Accounting Standard ("SFAS") No. 123, the Company's net income (loss)
         would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                       Fiscal              Transition      Fiscal
                                                             ----------------------------
                                                                 1999          1998          period         1997
                                                             --------------------------------------------------------
<S>                                                           <C>           <C>            <C>           <C>
         Net income (loss)                    As reported     $   (28,881)  $   (28,356)   $      (889)  $     1,710
                                              Pro forma           (28,984)      (28,618)        (1,052)        1,450

         Earnings (loss) per share - diluted  As reported           (3.85)        (3.82)         (0.12)         0.26
                                              Pro forma             (3.86)        (3.86)         (0.13)         0.22
</TABLE>

         Pro forma net income (loss) reflects only options granted during fiscal
         1999 and 1998, the transition period and fiscal 1997 and 1996.
         Therefore, the full impact of calculating compensation cost for stock
         options under SFAS No. 123 is not reflected in the pro forma net income
         (loss) amounts presented above because compensation cost is reflected
         over the options' vesting periods of generally four years and
         compensation cost for options granted prior to July 1995 is not
         considered.

         The per share weighted average fair value of stock options granted
         during fiscal 1999 and 1998, the transition period and fiscal 1997 was
         estimated using the Black Scholes Option-Pricing Model with the
         following weighted average assumptions: Fiscal 1999 and 1998 - expected
         dividend rate of 0.0%, risk-free interest rate of 5.0%, volatility of
         68% and an expected life of approximately two years; transition period
         - expected dividend rate of 0.0%, risk-free interest rate of 6.0%,
         volatility of 60% and an expected life of approximately two years;
         Fiscal 1997 - expected dividend rate of 0.0%, risk-free interest rate
         of 6.2%, volatility of 60% and an expected life of approximately two
         years.

         Stock option activity is as follows:
<TABLE>
<CAPTION>
                                --------------------- --------------------- --------------------- ---------------------
                                       Fiscal                Fiscal              Transition              Fiscal
                                        1999                  1998                 Period                 1997
                                --------------------- --------------------- --------------------- ---------------------
                                Number     Weighted   Number     Weighted   Number     Weighted-  Number     Weighted
                                of shares  -          of shares  -          of shares  average    of shares  -
                                           average               average               exercise              average
                                           exercise              exercise              price                 exercise
                                           price                 price                 per share             price
                                           per share             per share                                   per share
                                --------------------- --------------------- --------------------- ---------------------
<S>                             <C>            <C>    <C>            <C>    <C>            <C>      <C>          <C>
         Outstanding -
         beginning of period    1,017,505      $4.34  1,173,749      $4.10  1,023,841      $2.97    739,346      $2.36
              Granted              15,000       2.38    147,000       6.44    325,000       6.85    432,083       3.58
              Exercised             -              -   (91,356)       2.49  (102,348)       2.22   (99,396)       1.17
              Forfeited         (491,841)       3.96  (211,888)       5.19   (72,744)       3.32   (48,192)       3.11
                                --------------------- --------------------- --------------------- ---------------------
         Outstanding at end
         of period                540,664       4.62  1,017,505       4.34  1,173,749       4.10  1,023,841       2.97
                                --------------------- --------------------- --------------------- ---------------------
         Exercisable at end
         of period                438,639       4.33    679,937       3.36    613,536       2.93    568,560       2.85
                                --------------------- --------------------- --------------------- ---------------------
         Weighted-average
         fair value of
         options granted
         during the period             $1.36                 $1.83                 $2.89                 $1.69
                                --------------------- --------------------- --------------------- ---------------------
         Available for future
         grants at end of
         period                       182,500               195,637               130,749               133,004
                                --------------------- --------------------- --------------------- ---------------------

</TABLE>


                                      F-17
<PAGE>


         Information regarding options outstanding and exercisable at January
29, 2000 and January 30, 1999 is as follows:
<TABLE>
<CAPTION>
                                         -----------------------------------------------------------------------------
                                                       Options outstanding                   Options exercisable
                                         -----------------------------------------------------------------------------
                                                            Weighted-       Weighted-                    Weighted-
                                                             Average         Average                      Average
                                              Number        Remaining        Exercise       Number       Exercise
          Range of Exercise Prices         outstanding   Contractual Life      Price     exercisable       Price
                                         -----------------------------------------------------------------------------
<S>                                      <C>                 <C>            <C>           <C>          <C>
          January 29, 2000:
                 $   1.63    to $  2.38         17,000         9.01        $    2.29            500    $     1.63
                     2.49    to    2.49        262,445         5.65             2.49        256,421          2.49
                     3.50    to    9.00        261,219         6.80             6.92        181,718          6.93
                                         -----------------------------------------------------------------------------
                 $   1.63    to $ 9.00        540,664        6.31         $    4.62        438,639    $     4.33
                                         =============================================================================


           January  30, 1999:
                 $   .62     to $  1.63        164,680        0.96         $    0.67        155,680    $     0.62
                    2.49     to    2.49        366,869        6.79              2.49        334,138         2.49
                    3.50     to   11.00        485,956        8.30              6.97        190,119         7.14
                                         -----------------------------------------------------------------------------
                 $   .62     to $ 11.00      1,017,505        6.56         $    4.34        679,937    $     3.36
                                         =============================================================================

</TABLE>

         Incentive Savings Plan

         The Incentive Savings Plan (the "ISP Plan") is a defined contribution
         plan sponsored by the Company for all eligible employees. Participants
         in the ISP Plan may elect to contribute between 2% and 13% of their
         pre-tax base salary, subject to limitations imposed by the Internal
         Revenue Service.

         The Company makes a discretionary matching contribution to the ISP Plan
         at the rate of 33% of the first 6% of the participant's contribution.
         For fiscal 1999 and 1998, the transition period, and fiscal 1997, the
         Company's discretionary matching contributions to the ISP Plan were
         $193, $230, $95 and $121, respectively. The ISP Plan also allows for a
         discretionary base contribution to be made by the Company only if it
         has current or accumulated net profits. No discretionary base
         contributions have been made by the Company to date.

         Employee Stock Purchase Plan

         In December 1996, the Company adopted an Employee Stock Purchase Plan
         (the "ESPP Plan") to provide eligible employees the opportunity to
         purchase shares of its common stock. Employees may purchase shares,
         through payroll deductions, up to 10% of the employee's compensation,
         not to exceed $5 per offering period, at a price per share equal to 90%
         of the fair market value of the common stock as of the last day of any
         offering. Withholdings from employees for purchases under the ESPP Plan
         were -0- in fiscal 1999, $70 in fiscal 1998, $73 in the transition
         period and $161 in fiscal 1997.


(10)     Fair Value of Financial Instruments

         The Company's financial instruments at January 29, 2000 and January 30,
         1999 include accounts payable and debt. The Company has assumed that
         the carrying value of trade accounts payable approximates fair value
         because of the short maturity of these instruments. The Company
         believes the carrying value of the debt approximates fair value due to
         the variable rate of interest on this instrument. Such fair values are
         subject to possible adjustment in conjunction with the bankruptcy
         proceedings discussed in Note 1.


                                      F-18
<PAGE>


(11)     Quarterly Financial Information (unaudited)

                  Following is a summary of unaudited quarterly information:
<TABLE>
<CAPTION>
                                                                         First      Second       Third      Fourth
                                                                        quarter     quarter     quarter     Quarter
                                                                      ------------------------------------------------
<S>                                                                       <C>         <C>         <C>         <C>
          Fiscal  1999:
               Total sales                                                $52,533     $52,234     $50,485     $62,406
               Gross profit                                                24,413      25,813      21,148      25,060
               Income (loss) before reorganization
                   items, income taxes and                                (2,249)         249     (4,781)     (1,726)
          extraordinary item
               Loss before extraordinary item                            (14,796)     (1,760)     (7,078)     (3,955)
               Net loss                                                  (16,088)     (1,760)     (7,078)     (3,955)
               Net loss per share - basic and diluted                      (2.14)       (.23)       (.94)       (.54)

                                                                         First      Second       Third      Fourth
                                                                        quarter     quarter     quarter     quarter
                                                                      ------------------------------------------------
          Fiscal 1998:
               Total sales                                                $49,862     $54,749     $57,715    $ 64,173
               Gross profit                                                25,475      26,755      26,540      12,733
               Net income (loss)                                              568       (796)     (2,603)    (25,525)
               Net income (loss) per share - basic                           0.08      (0.11)      (0.35)      (3.40)
               Net income (loss) per share - diluted                         0.07      (0.11)      (0.35)      (3.40)

</TABLE>


(12)     Supplemental Cash Flow Information

         In August 1996, the Company exchanged Series C preferred stock for
consideration of trade accounts payable of $1,101.

         On December 12, 1996, all outstanding shares of Convertible preferred
stock were converted into 3,134,674 shares, or $24,196 of common stock.


                                      F-19
<PAGE>
                          Independent Auditors' Report

The Board of Directors and Shareholders
Factory Card Outlet Corp.:

         Under date of March 21, 2000 we reported on the consolidated balance
sheets of Factory Card Outlet Corp. and subsidiary as of January 29, 2000 and
January 30, 1999 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the fiscal years ended January 29, 2000 and January
30, 1999, the transition period ended January 31, 1998 and the fiscal year ended
June 28, 1997, which are included in this Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related financial statement schedule as listed in Item 14(a)(2) of this Form
10-K. The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits.

         In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

         The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 of the Notes to
the Consolidated Financial Statements, on March 23, 1999, the Company filed a
voluntary petition for relief under chapter 11 of title 11 of the United States
Code. In addition, the Company has suffered losses from operations. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.


/s/ KPMG LLP


Chicago, Illinois
March 21, 2000


                                      S-1
<PAGE>



                                                                      Schedule I
                                                                      ----------

                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY


          Condensed Financial Information of Factory Card Outlet Corp.

                                 Balance Sheets
              (Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                               January 29,          January 30,
                                                                                   2000                1999
                                                                             -----------------    ----------------
                                   ASSETS
<S>                                                                          <C>                 <C>
Current assets:
   Cash                                                                      $       -            $            17
   Due from subsidiary                                                                 12,179              13,716
   Note receivable - subsidiary                                                        47,648              40,188
                                                                             -----------------    ----------------

       Total current assets                                                            59,827              53,921

Investment in subsidiary                                                             (64,530)            (29,743)
                                                                             -----------------    ----------------

       Total assets                                                          $        (4,703)     $        24,178
                                                                             =================    ================

                       STOCKHOLDERS' EQUITY (DEFICIT)

Common stock -$.01 par value.  Voting class - authorized 15,000,000
shares; 7,503,098 shares issued and outstanding at January 29,
2000 and January 30, 1999.  Non-voting class - authorized 205,000 shares, no
shares issued or outstanding.                                                              75                  75
Additional paid-in capital                                                             52,021              52,021
Accumulated deficit                                                                  (56,799)            (27,918)
                                                                             -----------------    ----------------

       Total stockholders' equity (deficit)                                   $       (4,703)     $        24,178
                                                                             =================    ================

</TABLE>

See accompanying notes to condensed financial information.


                                      S-2
<PAGE>


                                                                      Schedule I
                                                                      ----------

                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY


          Condensed Financial Information of Factory Card Outlet Corp.

                            Statements of Operations
                          (Dollar amounts in thousands)
<TABLE>
<CAPTION>
                                                                                      Transition
                                                    Fiscal year      Fiscal year        period        Fiscal year
                                                       ended            ended           ended            ended
                                                    January 29,      January 30,     January 31,        June 28,
                                                        2000            1999             1998             1997
                                                   ---------------  --------------  ---------------  ---------------
<S>                                                <C>              <C>             <C>              <C>
Royalty income                                     $        3,265   $       3,397   $        1,660   $      -
Interest income - subsidiary note receivable                4,277           2,981            1,990            1,713
Equity in net income (loss) of subsidiary                (34,787)        (33,231)          (2,432)              716
                                                   ---------------  --------------  ---------------  ---------------

    Net revenue (loss)                                   (27,245)        (26,853)            1,218            2,429
Operating expenses                                          1,636           1,581            1,077          -
                                                   ---------------  --------------  ---------------  ---------------

     Income (loss) before income taxes ( benefit)        (28,881)        (28,434)              141            2,429
Income taxes (benefit)                                    -                  (78)            1,030              719
                                                   ---------------  --------------  ---------------  ---------------

     Net income (loss)                             $     (28,881)   $    (28,356)   $        (889)   $        1,710
                                                   ===============  ==============  ===============  ===============
</TABLE>


See accompanying notes to condensed financial information.



                                      S-3
<PAGE>


                                                                      Schedule I
                                                                      ----------

                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY


          Condensed Financial Information of Factory Card Outlet Corp.

                            Statements of Cash Flows
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                                        Transition
                                                             Fiscal year  Fiscal year     period      Fiscal year
                                                                ended        ended         ended          ended
                                                             January 29,  January 30,   January 31,     June 28,
                                                                 2000         1999         1998           1997
                                                             -------------------------- ------------  --------------
<S>                                                          <C>          <C>                 <C>     <C>
  Cash flows from operating activities:
   Net income (loss)                                         $   (28,881) $   (28,356)        (889)   $       1,710
   Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Equity in net loss (income) of subsidiary                     34,787       33,231        2,432           (716)
     Decrease (increase) in due from subsidiary                     1,537          141          332            (53)
                                                             -------------------------- ------------  --------------

   Net cash provided by operating activities                        7,443        5,016        1,875             941
                                                             -------------------------- ------------  --------------

   Cash used in investing activities -
     Increase in note receivable from subsidiary                  (7,460)      (5,233)      (2,225)        (32,729)
                                                             -------------------------- ------------  --------------

   Cash flows from financing activities:
     Proceeds from issuance of Series C convertible
       preferred stock                                            -            -             -                8,638
     Proceeds from issuance of common stock                       -            -             -               23,123
     Proceeds from exercise of employee stock options             -                217          297             104
     Purchase of treasury stock                                   -            -             -                (180)
     Sale of treasury stock to employee stock purchase plan       -            -                 53             103
                                                             -------------------------- ------------  --------------

   Net cash provided by financing activities                      -                217          350          31,788
                                                             -------------------------- ------------  --------------

   Net increase (decrease) in cash                                    (17)      -             -              -
   Cash at beginning of year                                           17           17           17              17
                                                             -------------------------- ------------  --------------

   Cash at end of year                                       $     -      $         17  $        17   $          17
                                                             ========================== ============  ==============

   Supplemental disclosures of cash flow information:
      Noncash financing activities -
       In August 1996, the Company exchanged Series C
          Preferred stock for consideration
          of its subsidiary's trade accounts payable               -            -             -                1,101
       In December  1996, all outstanding shares
         of Convertible Preferred stock were converted into        -            -             -               24,196
          3,134,674 shares of common stock
       Additional paid-in capital recognized for
          Common stock warrants                                    -          514             -                  264

See accompanying notes to condensed financial information.
</TABLE>


                                      S-4
<PAGE>


                            FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY

      Notes to Condensed Financial Information of Factory Card Outlet Corp.
              (Dollar amounts in thousands, except per share data)

(1)      Basis of Accounting

                  The Condensed Financial Information of Factory Card Outlet
         Corp. ("the Company") has been prepared pursuant to Securities and
         Exchange Commission rules and regulations and should be read in
         conjunction with the Consolidated Financial Statements and Notes
         thereto as of January 29, 2000 and January 30, 1999 and the fiscal
         years ended January 29, 2000 and January 30, 1999, the transition
         period ended January 31, 1998 and the fiscal year ended June 28, 1997.
         The Condensed Financial Information of the Company has been prepared on
         an unconsolidated basis. The Company's investment in and amounts due
         from its subsidiary are recorded on the equity basis.


(2)      Chapter 11 Filing

                  On March 23, 1999, the Company and its subsidiary, Factory
         Card Outlet of America Ltd., filed a petition for reorganization under
         chapter 11 of title 11 of the United States Code. The Company is
         currently operating its business and managing its properties as a
         debtor in possession pursuant to the Bankruptcy Code. See Note 1 to the
         Notes to Consolidated Financial Statements.

(3)      Guarantees

                  The Company has guaranteed the credit and debt agreements
         between its subsidiary and various lenders. For information related to
         the agreements, see Notes 1 and 4 of Notes to Consolidated Financial
         Statements.

(4)      Notes Receivable - Subsidiary

                  During fiscal 1997, the subsidiary issued a note to the
         Company. Interest is accrued quarterly based on the prime lending rate
         plus two percent per year. The note and any accrued interest is due and
         payable on demand.

(5)      Royalty and Licensing Agreement

                  In June 1997 the Company entered into a Royalty and Licensing
         Agreement ("Agreement") with its subsidiary. This Agreement grants its
         subsidiary the right to use trademarks and tradenames owned by the
         Company in exchange for a royalty fee of one and one-half percent of
         net sales from operations.


                                      S-5