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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For The Quarterly Period Ended October 29, 2005



Commission File Number: 21859



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FACTORY CARD & PARTY OUTLET CORP.

(Exact name of registrant as specified in its charter)



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



2727 Diehl Road,

Naperville, IL 60563-2371

(Address of principal executive offices, zip code)



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



Factory Card Outlet Corp.

(Former Name)



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



Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):    Yes ̈No  x



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



The number of shares of the Registrants Common Stock outstanding as of December 9, 2005 was 3,133,502.



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##### Table of Contents

Factory Card & Party Outlet Corp.



Form 10-Q



For the Quarter Ended October 29, 2005

Index



|        |  |                                                                                                                                       |  |      
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|        |  |                                                                                                                                       |  | Page 
|        |  | Cautionary Statement Regarding Forward-Looking Statements                                                                             |  | 2    
|        |  |                                                                                                                                      
|Part I  |  | Financial Information                                                                                                                 |  |      
|        |  |                                                                                                                                      
|Item 1  |  | Financial Statements:                                                                                                                 |  |      
|        |  |                                                                                                                                      
|        |  | Condensed Consolidated Balance Sheets (Unaudited) as of October 29, 2005 and January 29, 2005                                         |  | 3    
|        |  |                                                                                                                                      
|        |  | Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended October 29, 2005 and October 30, 2004 |  | 4    
|        |  |                                                                                                                                      
|        |  | Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended October 29, 2005 and October 30, 2004           |  | 5    
|        |  |                                                                                                                                      
|        |  | Notes to Condensed Consolidated Financial Statements - (Unaudited)                                                                    |  | 6-12 
|        |  |                                                                                                                                      
|Item 2  |  | Managements Discussion and Analysis of Financial Condition And Results of Operations                                                 |  | 13-21
|        |  |                                                                                                                                      
|Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                            |  | 22   
|        |  |                                                                                                                                      
|Item 4  |  | Controls and Procedures                                                                                                               |  | 22   
|        |  |                                                                                                                                      
|Part II |  | Other Information                                                                                                                     |  |      
|        |  | Item 1. Legal Proceedings                                                                                                             |  | 22   
|        |  | Item 2. Changes in Securities and Use of Proceeds                                                                                     |  | 23   
|        |  | Item 3. Defaults Upon Senior Securities                                                                                               |  | 23   
|        |  | Item 4. Submission of Matters to a Vote of Security Holders                                                                           |  | 23   
|        |  | Item 5. Other Information                                                                                                             |  | 23   
|        |  | Item 6. Exhibits and Reports on Form 8-K                                                                                              |  | 23-26
|        |  | Signatures                                                                                                                            |  | 27   



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##### Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



References throughout this document to the Company include Factory Card & Party Outlet Corp. and its wholly-owned subsidiary. In this document the words we, our, ours and us refer
only to Factory Card & Party Outlet Corp. and its wholly-owned subsidiary and not to any other person.



The Companys website  www.factorycard.com  provides access, free of charge, to the Companys SEC reports, including Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports.



Statements made in this report, and in our other public filings and releases, which are not historical facts, contain forward-looking statements (as defined in the Private Securities Litigation Reform Act
of 1995) that involve risks and uncertainties and are subject to change at any time. The forward-looking statements are made a number of times throughout the document and may be identified by forward-looking terminology as estimate,
project, expect, believe, may, will, intend or similar statements or variations of such terms.



The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control.
You are cautioned that these statements are not guarantees of future performance and that actual results and trends in the future may differ materially.



Factors that could cause actual results to differ materially include, but are not limited to, the following:



| |  |  | ability to meet sales plans;
| | - |  | ----------------------------



| |  |  | unseasonable weather;
| | - |  | ---------------------



| |  |  | 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;
| | - |  | -------------------------------------



| |  |  | seasonality of business;
| | - |  | ------------------------



| |  |  | disruption with our imported product;
| | - |  | -------------------------------------



| |  |  | vendor performance;
| | - |  | -------------------



| |  |  | political unrest;
| | - |  | -----------------



| |  |  | general economic and other developments affecting consumer confidence and/or consumer spending;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | ability to maintain compliance with bank covenants;
| | - |  | ---------------------------------------------------



| |  |  | availability of retail store space on reasonable lease terms;
| | - |  | -------------------------------------------------------------



| |  |  | adverse developments with respect to litigation;
| | - |  | ------------------------------------------------



| |  |  | changes in accounting policies and practices;
| | - |  | ---------------------------------------------



| |  |  | governmental regulations; and
| | - |  | -----------------------------



| |  |  | other factors both referenced and not referenced in this Form 10-Q.
| | - |  | -------------------------------------------------------------------



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PART I - FINANCIAL INFORMATION,
ITEM 1, FINANCIAL STATEMENTS



FACTORY CARD & PARTY OUTLET CORP.

AND SUBSIDIARY



Condensed Consolidated Balance Sheets

(Unaudited)

(Dollar amounts in thousands)



|                                                                |  |                 |        |                 |   |       
|--------------------------------------------------------------- |  | --------------- | ------ | --------------- | - | ------
|                                                                |  | October 29,2005 |        | January 29,2005
|ASSETS                                                          |  |                 |        |                 |   |       
|                                                                |  |                
|Current assets:                                                 |  |                 |        |                 |   |       
|Cash                                                            |  | $               | 194    |                 | $ | 188   
|Merchandise inventories, net                                    |  |                 | 52,625 |                 |   | 43,653
|Prepaid expenses and other assets                               |  |                 | 4,223  |                 |   | 4,577 
|Deferred tax asset, net                                         |  |                 | 3,587  |                 |   | 5,527 
|                                                                |  |                 |        |                 |   |       
|Total current assets                                            |  |                 | 60,629 |                 |   | 53,945
|                                                                |  |                
|Fixed assets, net                                               |  |                 | 10,462 |                 |   | 8,164 
|Other assets                                                    |  |                 | 139    |                 |   | 170   
|Deferred tax asset, net                                         |  |                 | 7,686  |                 |   | 5,991 
|                                                                |  |                 |        |                 |   |       
|Total assets                                                    |  | $               | 78,916 |                 | $ | 68,270
|                                                                |  |                 |        |                 |   |       
|LIABILITIES AND STOCKHOLDERS EQUITY                            |  |                 |        |                 |   |       
|                                                                |  |                
|Current liabilities:                                            |  |                 |        |                 |   |       
|Debt  line of credit                                           |  | $               | 14,196 |                 | $ | 12,032
|Accounts payable                                                |  |                 | 23,757 |                 |   | 16,245
|Accrued expenses                                                |  |                 | 10,100 |                 |   | 7,564 
|Current portion of long term debt and capital lease obligations |  |                 | 13     |                 |   | 1,646 
|                                                                |  |                 |        |                 |   |       
|Total current liabilities                                       |  |                 | 48,066 |                 |   | 37,487
|                                                                |  |                 |        |                 |   |       
|Long term debt and capital lease obligations                    |  |                 | 5      |                 |   | 15    
|Deferred rent liabilities                                       |  |                 | 1,655  |                 |   | 1,895 
|                                                                |  |                 |        |                 |   |       
|Total liabilities                                               |  |                 | 49,726 |                 |   | 39,397
|                                                                |  |                
|Stockholders equity                                            |  |                 | 29,190 |                 |   | 28,873
|                                                                |  |                 |        |                 |   |       
|Total liabilities and stockholders equity                      |  | $               | 78,916 |                 | $ | 68,270
|                                                                |  |                 |        |                 |   |       



See accompanying notes to condensed
consolidated financial statements.



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FACTORY CARD & PARTY OUTLET CORP.

AND SUBSIDIARY



Condensed Consolidated Statements of Operations

(Unaudited)

(Dollar amounts in thousands,
except share and per share data)



|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  
|-------------------------------------------------- |  | -------------------------------- | --------- | - | -------------------------------- | - | ------------------------------- |  | ------------------------------- | --------- |  | - | --------- | -
|                                                   |  | Three MonthsEndedOctober 29,2005 |           |   | Three MonthsEndedOctober 30,2004 |   | Nine MonthsEndedOctober 29,2005 |  | Nine MonthsEndedOctober 30,2004 |          
|Net sales                                          |  | $                                | 56,240    |   |                                  | $ | 53,735                          |  | $                               | 174,874   |  | $ | 172,825   |  
|Cost of sales                                      |  |                                  | 35,883    |   |                                  |   | 34,216                          |  |                                 | 110,896   |  |   | 110,071   |  
|Cost of sales  greeting card inventory write down |  |                                  | 233       |   |                                  |   |                                |  |                                 | 233       |  |   |          |  
|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  
|Gross profit                                       |  |                                  | 20,124    |   |                                  |   | 19,519                          |  |                                 | 63,745    |  |   | 62,754    |  
|                                                   |  |                                  |           |  
|Selling, general and administrative expenses       |  |                                  | 21,093    |   |                                  |   | 17,860                          |  |                                 | 60,773    |  |   | 55,662    |  
|Depreciation expense                               |  |                                  | 749       |   |                                  |   | 681                             |  |                                 | 2,005     |  |   | 1,895     |  
|Other income                                       |  |                                  |          |   |                                  |   |                                |  |                                 |          |  |   | (30       | )
|Interest expense                                   |  |                                  | 251       |   |                                  |   | 187                             |  |                                 | 548       |  |   | 586       |  
|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  
|Income (loss) before income tax expense (benefit)  |  |                                  | (1,969    | ) |                                  |   | 791                             |  |                                 | 419       |  |   | 4,641     |  
|Income tax expense (benefit)                       |  |                                  | (762      | ) |                                  |   | 319                             |  |                                 | 245       |  |   | 1,859     |  
|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  
|Net income (loss)                                  |  | $                                | (1,207    | ) |                                  | $ | 472                             |  | $                               | 174       |  | $ | 2,782     |  
|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  
|Net income (loss) per share - basic                |  | $                                | (0.39     | ) |                                  | $ | 0.16                            |  | $                               | 0.06      |  | $ | 0.92      |  
|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  
|Weighted average shares outstanding  basic        |  |                                  | 3,079,907 |   |                                  |   | 3,028,121                       |  |                                 | 3,068,906 |  |   | 3,010,665 |  
|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  
|Net income (loss) per share  diluted              |  | $                                | (0.39     | ) |                                  | $ | 0.14                            |  | $                               | 0.05      |  | $ | 0.79      |  
|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  
|Weighted average shares outstanding  diluted      |  |                                  | 3,079,907 |   |                                  |   | 3,486,838                       |  |                                 | 3,449,241 |  |   | 3,527,153 |  
|                                                   |  |                                  |           |   |                                  |   |                                 |  |                                 |           |  |   |           |  



See accompanying notes to condensed
consolidated financial statements.



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FACTORY CARD & PARTY OUTLET CORP.

AND SUBSIDIARY



Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollar amounts in thousands)



|                                                                                 |  |                                         |          |   |                                         |   |          |  
|-------------------------------------------------------------------------------- |  | --------------------------------------- | -------- | - | --------------------------------------- | - | -------- | -
|                                                                                 |  | For the NineMonths EndedOctober 29,2005 |          |   | For the NineMonths EndedOctober 30,2004 |  
|Cash flows from operating activities:                                            |  |                                         |          |   |                                         |   |          |  
|Net income                                                                       |  | $                                       | 174      |   |                                         | $ | 2,782    |  
|Adjustments to reconcile net income to net cash flows from operating activities: |  |                                         |          |   |                                         |   |          |  
|Depreciation                                                                     |  |                                         | 2,005    |   |                                         |   | 1,895    |  
|Amortization of deferred financing costs                                         |  |                                         | 23       |   |                                         |   | 82       |  
|Deferred compensation expense                                                    |  |                                         | 114      |   |                                         |   | 95       |  
|Impairment charge on fixed assets                                                |  |                                         | 200      |   |                                         |   |         |  
|Loss on disposal of fixed assets                                                 |  |                                         | 43       |   |                                         |   | 6        |  
|Tax benefit of pre-confirmation net operating losses                             |  |                                         |         |   |                                         |   | 1,801    |  
|Changes in assets and liabilities:                                               |  |                                         |          |   |                                         |   |          |  
|Merchandise inventories                                                          |  |                                         | (8,972   | ) |                                         |   | (5,822   | )
|Prepaid expenses and other assets, net                                           |  |                                         | 607      |   |                                         |   | 69       |  
|Accounts payable                                                                 |  |                                         | 7,512    |   |                                         |   | 5,333    |  
|Accrued expenses                                                                 |  |                                         | 2,536    |   |                                         |   | 2,363    |  
|Deferred rent obligation                                                         |  |                                         | (240     | ) |                                         |   | (145     | )
|                                                                                 |  |                                         |          |   |                                         |   |          |  
|Net cash flows from operating activities                                         |  |                                         | 4,002    |   |                                         |   | 8,459    |  
|                                                                                 |  |                                         |          |   |                                         |   |          |  
|Net cash flows from investing activities  purchase of fixed assets              |  |                                         | (4,546   | ) |                                         |   | (2,457   | )
|                                                                                 |  |                                         |          |   |                                         |   |          |  
|Cash flows from financing activities:                                            |  |                                         |          |   |                                         |   |          |  
|Borrowings - line of credit                                                      |  |                                         | 183,950  |   |                                         |   | 177,336  |  
|Repayments  line of credit                                                      |  |                                         | (181,786 | ) |                                         |   | (180,358 | )
|Payment of trade conversion and extended creditor note payable                   |  |                                         | (1,649   | ) |                                         |   | (2,932   | )
|Payment of capital lease obligations                                             |  |                                         | (10      | ) |                                         |   | (246     | )
|Discount on payment of trade conversion and extended creditor note payable       |  |                                         |         |   |                                         |   | (20      | )
|Increase in extended creditor note payable                                       |  |                                         | 16       |   |                                         |   | 136      |  
|Cash received from exercise of stock options and warrants                        |  |                                         | 29       |   |                                         |   | 90       |  
|                                                                                 |  |                                         |          |   |                                         |   |          |  
|Net cash flows from financing activities                                         |  |                                         | 550      |   |                                         |   | (5,994   | )
|                                                                                 |  |                                         |          |   |                                         |   |          |  
|Net increase in cash                                                             |  |                                         | 6        |   |                                         |   | 8        |  
|Cash at beginning of period                                                      |  |                                         | 188      |   |                                         |   | 179      |  
|                                                                                 |  |                                         |          |   |                                         |   |          |  
|Cash at end of period                                                            |  | $                                       | 194      |   |                                         | $ | 187      |  
|                                                                                 |  |                                         |          |   |                                         |   |          |  
|Supplemental cash flow information:                                              |  |                                         |          |   |                                         |   |          |  
|Interest paid                                                                    |  | $                                       | 569      |   |                                         | $ | 587      |  
|Alternative minimum taxes paid                                                   |  |                                         | 37       |   |                                         |   |         |  
|Income taxes refunded                                                            |  |                                         |         |   |                                         |   | 3        |  
|Cash paid for reorganization items                                               |  |                                         |         |   |                                         |   | 7        |  
|Supplemental non cash information:                                               |  |                                         |          |   |                                         |   |          |  
|Unearned restricted stock awards                                                 |  |                                         | 174      |   |                                         |   | 180      |  



See accompanying notes to condensed
consolidated financial statements.



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FACTORY CARD & PARTY OUTLET CORP.

AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except share and per share data)



|(1) | Business and Basis of Presentation
|--- | ----------------------------------



The Company is a chain of company-owned stores offering an extensive selection of party supplies, greeting cards, giftwrap, balloons, everyday and
seasonal merchandise and other special occasion merchandise at everyday value prices. As of October 29, 2005, the Company operated 189 stores in 20 states. The Companys fiscal year ends on the Saturday closest to January 31st.



The condensed consolidated unaudited financial statements
include the accounts of Factory Card & Party Outlet Corp. and its wholly owned subsidiary, Factory Card Outlet of America Ltd. These financial statements have been prepared by management without audit and should be read in conjunction with
the consolidated financial statements and notes for the fiscal year ended January 29, 2005 included in the Companys Annual Report on Form 10-K. The operating results for the interim periods are not necessarily indicative of the results
for the year. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring and certain nonrecurring
adjustments necessary for a fair presentation of the interim financial statements.



Management Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company 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.



Impairment of Long-Lived Assets



The Company evaluates long-lived assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS No. 144). Finite-lived assets are evaluated for recoverability in accordance with
SFAS No. 144 whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and
eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value
of the asset is recognized. The fair market value of assets was determined primarily by market prices of similar assets at the stores.



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Due to missing internal sales targets and experience of negative comparable store sales in the current
fiscal year, the Company evaluated its finite-lived assets during the third quarter of fiscal 2005. Based on current and projected performance, the Company recorded $200 in fixed asset impairments in the third quarter of fiscal 2005. There were no
fixed asset impairments in fiscal 2004. After adjusting for the impairment charge, the Company believes the carrying value and useful lives are appropriate.



|(2) | Debt  Line of Credit
|--- | ---------------------



The Company is party to a secured financing facility, dated April 8, 2002, with Wells Fargo Retail Finance, LLC (as amended, the Loan
Agreement). The Loan Agreement, which is a line of credit expiring on October 31, 2008, currently provides up to $30,000 (including $10,000 for letters of credit) to fund working capital needs and for general corporate purposes. A second
amendment was entered into on October 7, 2005. The second amendment, among other things, extended the maturity date to October 31, 2008, reduced the interest rate on Libor rate loans, provides for a potential increase in the maximum
revolver limit from $30,000 up to $45,000, revised the minimum operating covenants and provides for prepayment premiums of the maximum revolver amounts.



Borrowings under the facility are limited by a percent of inventory levels. At October 29, 2005, the interest rate on the Companys borrowings
was 5.8%. Borrowings under the Loan Agreement are secured by substantially all of the Companys assets. Certain restrictive covenants apply, including 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 have been met as of October 29, 2005 and January 29, 2005.



At October 29, 2005 and January 29, 2005, the Company has outstanding borrowings under the Loan Agreement of
$14,196 and $12,032, respectively.



|(3) | Debt and Capital Lease Obligations
|--- | ----------------------------------



The following table summarizes the components of Debt and Capital Lease Obligations at October 29, 2005 and January 29, 2005, including its
current portion.



|                                                   |  |                 |     |   |                 |   |        |  
|-------------------------------------------------- |  | --------------- | --- | - | --------------- | - | ------ | -
|                                                   |  | October 29,2005 |     |   | January 29,2005 |  
|Discounted value of extended creditor note payable |  | $               |    |   |                 | $ | 1,634  |  
|Capital leases                                     |  |                 | 18  |   |                 |   | 27     |  
|                                                   |  |                 |     |   |                 |   |        |  
|Sub total                                          |  |                 | 18  |   |                 |   | 1,661  |  
|                                                   |  |                 |     |   |                 |   |        |  
|Less current maturities                            |  |                 | (13 | ) |                 |   | (1,646 | )
|                                                   |  |                 |     |   |                 |   |        |  
|Total long term debt and capital lease obligations |  | $               | 5   |   |                 | $ | 15     |  
|                                                   |  |                 |     |   |                 |   |        |  



On April 7, 2005
the Company paid the remaining balance of the extended creditor note payable.



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|(4) | Stockholders Equity
|--- | --------------------



In April 2002, the Company authorized an aggregate of 10,000,000 shares of new Common Stock, par value $0.01 per share. A total of 3,133,152 common shares
were deemed outstanding at October 29, 2005.



In April
2002, the Company issued 150,000 shares of common stock to certain members of management, which vest ratably over a four-year period. At the date of grant, the market value of the award was recorded in common stock and additional paid-in-capital; an
offsetting amount was recorded as a component of stockholders equity in unearned restricted stock awards. Compensation cost is included in results of operations over the vesting period. Expense relating to outstanding restricted stock awards
for the three and nine months ended October 29, 2005 was $31 and $96, respectively. Expense relating to outstanding restricted stock awards for the three and nine months ended October 30, 2004 was $32 and $95, respectively.



In April 2002, the Company adopted a 2002 stock option plan, which
authorizes the grant of up to 333,334 stock options to the Companys employees  298,000 options under the 2002 stock option plan at exercise prices ranging from $2.75 to $22.40 were outstanding at October 29, 2005.



In April 2002, the Company issued four series of new Warrants, Series A
through D, granting such holders the right to purchase an aggregate of 306,934 additional shares of the new Common Stock. The Series A Warrants are exercisable any time prior to April 9, 2006 at a price of $5.50 per share. The Series B Warrants
are exercisable at any time prior to April 9, 2008 at a price of $8.00 per share. The Series C Warrants are exercisable any time prior to April 9, 2010 at a price of $8.00 per share. The Series D Warrants are exercisable any time prior to
April 9, 2010 at a price of $17.00 per share. At October 29, 2005, Warrants to purchase an aggregate of 264,438 shares common stock were outstanding.



On April 23, 2002, the Board of Directors approved the non-employee Director Stock Option Plan, which authorized the grant of up to 300,000 common
stock options to non-employee members of the Board of Directors  215,000 options at exercise prices ranging from $2.65 to $11.90 were outstanding at October 29, 2005.



On January 27, 2003, the Board of Directors adopted the 2003 Equity Incentive Plan whereby 500,000 shares would become
available to our employees and officers. The 2003 Equity Incentive Plan was approved by the stockholders at our annual meeting of stockholders on July 16, 2003. Under the 2003 Equity Incentive Plan  335,351 options were outstanding at
October 29, 2005 with exercise prices ranging from $6.38 to $19.00.



In June 2005, the Board of Directors approved a restricted share award under the 2003 Equity Incentive Plan to the officer group of the Company. A total of 17,000 shares were awarded which vest ratably over three
years. At the date of grant, the market value of the award was recorded in common stock and additional paid-in-capital; an offsetting amount was recorded as a component of stockholders equity in unearned restricted stock awards. Compensation
cost is included in results of operations over the vesting period. Expense relating to outstanding restricted stock awards for the three and nine months ended October 29, 2005 was $12 and $20, respectively.



8



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##### Table of Contents

A separate Statement of Stockholders Equity is not required to be presented for interim periods.
Comprehensive income equaled net income for the periods presented as the Company does not have any currency translation adjustments, minimum pension liability adjustments or Statement of Financial Accounting Standards (SFAS) No. 133
Accounting for Derivative Instruments and Hedging Activities adjustments.



|(5) | Earnings Per Share
|--- | ------------------



In accordance with SFAS No. 128 Earnings per Share, earnings per share  basic was computed by dividing net income by the weighted
average number of common shares outstanding during the period. Earnings per share  diluted assumes, in addition to the above, the effect of potentially dilutive securities. The dilutive impact of stock options and warrants is calculated using
the treasury method.



The reconciliation of earnings (loss)
per share- basic to earnings (loss) per share - diluted for the three months ended October 29, 2005 and October 30, 2004 is as follows (in thousands, except per share amounts):



|                                              |  |                                          |           |   |                                          |   |          
|--------------------------------------------- |  | ---------------------------------------- | --------- | - | ---------------------------------------- | - | ---------
|                                              |  | For the threemonths endedOctober 29,2005 |           |   | For the threemonths endedOctober 30,2004
|Net income (loss)                             |  | $                                        | (1,207    | ) |                                          | $ | 472      
|Earnings (loss) per share  basic             |  | $                                        | (0.39     | ) |                                          | $ | 0.16     
|Earnings (loss) per share  diluted           |  | $                                        | (0.39     | ) |                                          | $ | 0.14     
|Weighted average shares outstanding - basic   |  |                                          | 3,079,907 |   |                                          |   | 3,028,121
|Dilutive effect of stock options and warrants |  |                                          |          |   |                                          |   | 458,717  
|                                              |  |                                          |           |   |                                          |   |          
|Weighted average shares outstanding - diluted |  |                                          | 3,079,907 |   |                                          |   | 3,486,838
|                                              |  |                                          |           |   |                                          |   |          



Stock options and
warrants with exercise prices below the applicable market price of the Companys common stock are included in potentially dilutive common shares outstanding if the Company reports net income for a reporting period. However, when the Company
incurs a net loss for a reporting period, the inclusion of any such shares would result in a decrease in loss per share, and therefore all stock options, warrants and restricted stock units are ignored when calculating diluted loss per share.
Therefore, the Companys loss per share for the three months ended October 29, 2005 is the same amount on a basic and diluted basis, respectively. Had the Company reported net income in the three months ended October 29, 2005, the
dilutive effect of stock options and warrants would have been 289,774 shares.



Options and warrants to purchase 420,602 common shares at prices ranging from $8.00 to $22.40 per share were outstanding as of October 29, 2005 but were not considered in the calculation of diluted earnings per
share for the three months ended October 29, 2005 because the strike price was greater than the average market price per share during the period.



9



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##### Table of Contents

The reconciliation of earnings per share - basic to earnings per share - diluted for the nine months
ended October 30, 2005 and October 30, 2004 is as follows (in thousands, except per share amounts):



|                                              |  |                                         |           |                                         |   |          
|--------------------------------------------- |  | --------------------------------------- | --------- | --------------------------------------- | - | ---------
|                                              |  | For the ninemonths endedOctober 29,2005 |           | For the ninemonths endedOctober 30,2004
|Net income                                    |  | $                                       | 174       |                                         | $ | 2,782    
|Earnings per share  basic                    |  | $                                       | 0.06      |                                         | $ | 0.92     
|Earnings per share  diluted                  |  | $                                       | 0.05      |                                         | $ | 0.79     
|Weighted average shares outstanding  basic   |  |                                         | 3,068,906 |                                         |   | 3,010,665
|Dilutive effect of stock options and warrants |  |                                         | 380,335   |                                         |   | 516,488  
|                                              |  |                                         |           |                                         |   |          
|Weighted average shares outstanding - diluted |  |                                         | 3,449,241 |                                         |   | 3,527,153
|                                              |  |                                         |           |                                         |   |          



Options and warrants
to purchase 237,500 common shares at prices ranging from $9.31 to $22.40 per share were outstanding as of October 29, 2005 but were not included in the calculation of diluted earnings per share for the nine months ended October 29, 2005
because the strike price was greater than the average market price per share during the period.



|(6) | Stock-Based Compensation
|--- | ------------------------



The Company accounts for stock option plans under Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees,
under which no compensation cost has been recognized. The Company has adopted the disclosure only provisions of SFAS No. 123, Accounting for Stock Based Compensation, as amended by SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure, an Amendment of SFAS No. 123. Had the Company determined compensation cost based upon the fair value at the grant date for our stock options under SFAS No. 123, net income would have
changed as indicated below:



|                                                                                                                                     |  |                                          |        |   |                                          |   |                                         |  |   |                                         |   |  |   |      
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------- | ------ | - | ---------------------------------------- | - | --------------------------------------- |  | - | --------------------------------------- | - |  | - | -----
|                                                                                                                                     |  | For the threemonths endedOctober 29,2005 |        |   | For the threemonths endedOctober 30,2004 |   | For the ninemonths endedOctober 29,2005 |  |   | For the ninemonths endedOctober 30,2004
|Net income (loss), as reported                                                                                                       |  | $                                        | (1,207 | ) |                                          | $ | 472                                     |  | $ | 174                                     |   |  | $ | 2,782
|Deduct: Total stock-based employee compensation expense determined under fair value basis for all awards, net of related tax
effects |  |                                          | 77     |   |                                          |   | 149                                     |  |   | 829                                     |   |  |   | 419  
|                                                                                                                                     |  |                                          |        |   |                                          |   |                                         |  |   |                                         |   |  |   |      
|Pro forma net income (loss)                                                                                                          |  | $                                        | (1,284 | ) |                                          | $ | 323                                     |  | $ | (655                                    | ) |  | $ | 2,363
|                                                                                                                                     |  |                                          |        |   |                                          |   |                                         |  |   |                                         |   |  |   |      
|Earnings (loss) per share:                                                                                                           |  |                                          |        |   |                                          |   |                                         |  |   |                                         |   |  |   |      
|Basic-as reported                                                                                                                    |  | $                                        | (0.39  | ) |                                          | $ | 0.16                                    |  | $ | 0.06                                    |   |  | $ | 0.92 
|                                                                                                                                     |  |                                          |        |   |                                          |   |                                         |  |   |                                         |   |  |   |      
|Basic-pro forma                                                                                                                      |  | $                                        | (0.42  | ) |                                          | $ | 0.11                                    |  | $ | (0.21                                   | ) |  | $ | 0.78 
|                                                                                                                                     |  |                                          |        |   |                                          |   |                                         |  |   |                                         |   |  |   |      
|Diluted-as reported                                                                                                                  |  | $                                        | (0.39  | ) |                                          | $ | 0.14                                    |  | $ | 0.05                                    |   |  | $ | 0.79 
|                                                                                                                                     |  |                                          |        |   |                                          |   |                                         |  |   |                                         |   |  |   |      
|Diluted-pro forma                                                                                                                    |  | $                                        | (0.42  | ) |                                          | $ | 0.09                                    |  | $ | (0.21                                   | ) |  | $ | 0.67 
|                                                                                                                                     |  |                                          |        |   |                                          |   |                                         |  |   |                                         |   |  |   |      



On April 14, 2005
the Company approved the accelerated vesting of unvested and out-of-the-money options held by current employees, executive officers and non-employee directors (the Acceleration) that have been granted under the Companys
2002 Stock Option Plan, 2003 Equity Incentive Plan and 2002 Non Employee Directors Stock Option Plan. As a result of the Acceleration, the affected unvested options are those which had exercise prices of greater than $9.64 per share,



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##### Table of Contents

which was the closing sales price of the Companys common stock on the NASDAQ National Market on April 14, 2005, the effective date of the
Acceleration. Pursuant to the Acceleration, options granted under the Plans to purchase approximately 124,000 shares of the Companys common stock that would otherwise have vested at various times within the next two years became fully
vested. As a result of the Companys decision to approve the Acceleration, each option agreement underlying options subject to the Acceleration is deemed to be amended to reflect the Acceleration as of the effective date, but all other
terms and conditions of each such option agreement remain in full force and effect.



The per share weighted average fair value of stock options granted during the three and nine months ended October 29, 2005 and October 30, 2004 was estimated using the Black Scholes Option-Pricing Model with
the following weighted average assumptions: expected dividend rate 0.0%, risk free interest rate of 3.39% to 4.73%, volatility of 50% and an expected life of 6 to 10 years.



|(7) | 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 basis 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. The Company assesses its
deferred tax assets and establishes valuation allowances when it is determined that deferred tax assets are not likely to be realized.



|(8) | Related Party Transactions
|--- | --------------------------



One vendor had an ownership interest of more than 5% during the nine months ended October 30, 2004. Total purchases from that vendor were $3,031
during the nine months ended October 30, 2004 and amounts owed to that entity were $380 at October 30, 2004.



|(9) | Subsequent Event
|--- | ----------------



On November 29, 2005, James D. Constantine elected to resign his position as Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and director of the Company to pursue other interests. Mr. Constantine did not resign due to any disagreements with the Company on any matter relating to the Companys operations, policies or practices.



The Company and Mr. Constantine entered into a separation agreement
pursuant to which the Company has agreed to pay Mr. Constantine a gross amount of $287,500, minus customary payroll deductions, as follows: (i) $143,750 on the six month anniversary of the separation agreement; and (ii) the remaining
$143,750 paid in equal installments in accordance with the Companys payroll practices over the following six months. Mr. Constantine will also be entitled to continued participation in the Companys health and life insurance benefit
plans during the 12 month period following the date of the separation agreement. The Company also accelerated the vesting of all unvested stock options and restricted stock held by Mr. Constantine and extended the exercise period of all stock
options held by Mr. Constantine, which would have expired 90 days after termination of Mr. Constantines employment, until the seventh month anniversary of the date of the separation agreement. The separation agreement also contains
mutual releases and confidentiality and non-compete provisions.



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##### Table of Contents

Mr. Jarett A. Misch, the Companys current Controller, has been appointed as the Vice
President, Controller and Chief Accounting Officer. Mr. Timothy J. Benson has been appointed Vice President, and Treasurer.



|(10) | Contingencies
|---- | -------------



On March 3, 2004, Midwest One Distribution Company filed a lawsuit against us in the Circuit Court of the Eighteenth Judicial Circuit of DuPage
County, Illinois, captioned Midwest One Distribution Co. vs. Factory Card & Party Outlet Corp. and Factory Card Outlet of America, Ltd. The lawsuit alleged that the Company breached a distribution agreement between the parties that
terminated on January 31, 2004 by failing to pay certain invoices from Midwest One for certain services and/or expenses allegedly performed or incurred by Midwest One. Midwest One sought damages of approximately $4,800 and an accounting of all
distribution services for which Midwest One was entitled to compensation under the distribution agreement.



On October 25, 2005, the Company entered into a settlement agreement with Midwest One. The settlement agreement provides for a mutual release by the
parties relating to the former distribution agreement between the parties and the subject matter of the aforementioned lawsuit. Under the terms of the settlement, the Company agreed to pay Midwest One, without interest, an aggregate of $550; payable
$125 by November 30, 2005, and additional $150 by December 30, 2005 and the remaining balance of $275 by March 31, 2006. The Company made the first payment to Midwest One. Midwest One has agreed to transfer to the Company, at the
Companys option, certain sorting equipment. The impact of the settlement agreement, net of reserves in prior fiscal quarters, is $237. This amount is recorded as part of Selling, General and Administrative expenses in the third quarter of
fiscal 2005.



Additionally, the Company from time to time is
involved in routine litigation incidental to the conduct of its business. As of the date of this Quarterly Report on Form 10-Q, the Company is not aware of any other material existing or threatening litigation to which it may be a party.



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##### Table of Contents

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollar amounts in thousands)



Overview



Factory Card & Party Outlet Corp. and our subsidiary, Factory Card Outlet of America Ltd., are a specialty retailer offering a wide selection of
party supplies, greeting cards, giftwrap, balloons, gifts, seasonal merchandise and other special occasion merchandise at everyday value prices. Based on the published number of stores of our competitors as compiled by various business publications
and other publicly available information, we believe we are one of the largest chains of company-owned stores in the party supply, greeting card and special occasion industry. Our fiscal year ends on the 52 or 53 weeks, as applicable, ending the
Saturday nearest to January 31st. Fiscal 2005 is the period January 30, 2005 to January 28, 2006.
Fiscal 2004 is the period February 1, 2004 to January 29, 2005. As of October 29, 2005, we operated 189 stores in 20 states. The following table summarizes store opening and closing activity during the first nine months of fiscal
2005.



|                    |  |                             |   |                            |                  |  |                 |   |  |                 |  
|------------------- |  | --------------------------- | - | -------------------------- | ---------------- |  | --------------- | - |  | --------------- | -
|                    |  | For the three months ended: |   | For the nine months ended: |                 
|                    |  | October 29,2005             |   |                            | October 30, 2004 |  | October 29,2005 |   |  | October 30,2004 |  
|Beginning of period |  | 186                         |   |                            | 180              |  | 184             |   |  | 177             |  
|Openings            |  | 4                           | * |                            | 1                |  | 7               | * |  | 5               |  
|Closings            |  | (1                          | ) |                            |                 |  | (2              | ) |  | (1              | )
|                    |  |                             |   |                            |                  |  |                 |   |  |                 |  
|End of period       |  | 189                         |   |                            | 181              |  | 189             |   |  | 181             |  
|                    |  |                             |   |                            |                  |  |                 |   |  |                 |  

---

|* | Does not include one temporary Halloween store opened on September 2, 2005 and closed on November 15, 2005.
|- | -----------------------------------------------------------------------------------------------------------



Greeting Card Agreement



On February 5, 2005, we entered into a definitive agreement with the Premier Greetings division of Paramount Cards Inc.
to be our primary supplier of everyday and seasonal greeting cards. This agreement considerably broadened our position as a leading provider of exceptional quality, value priced, social expressions merchandise. We believe that the improved quality
and outstanding selection of the Premier Greetings offering will re-energize our card sales and bolster our position as one of the foremost specialty retailers of greeting cards and party supplies in the United States.



This agreement enables the repositioning of our greeting card strategy by
introducing a multi-tiered pricing program featuring high quality greeting cards retailing at a new low price of 49 cents, blended with the introduction of premium greeting cards selling for 99 cents. Our customers will benefit from a greatly
improved greeting card value, enriched by our relationship with Premier Greetings, a company with excellent resources and a recognized leader in the greeting card industry. During the most recent quarter ended October 29, 2005, we generated
positive comparable store sales in our card category.



Under
the terms of the agreement, substantially all the cards sold will be supplied by Premier Greetings. The terms will allow us to materially reduce our ongoing inventory position of greeting card merchandise. In connection with this program, we
recorded a pre-tax charge of $4,415 in the fourth quarter of fiscal 2004 and $233 in the third quarter of fiscal 2005 primarily related to the write down of inventory.



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Critical Accounting Policies and Estimates



Critical Accounting Policies are defined as those that are reflective of significant judgments and estimates and could
potentially result in materially different results under different assumptions and conditions. We have prepared the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates under different assumptions or conditions. We have identified
the following critical accounting policies utilized in the preparation of these financial statements.



Merchandise Inventories



We state merchandise inventories at the lower of average cost or estimated net realizable value utilizing the retail method. We perform periodic evaluations of the net realizable value of merchandise, including merchandise which is to be
discontinued from our ongoing inventory assortment as well as inventory with excess quantities on hand and certain seasonal inventory remaining from past holidays. Based upon these evaluations, a provision for the excess of inventory cost over the
net realizable value is recorded as a reduction to the net inventory balance. At October 29, 2005 and January 29, 2005, we had reserves of $1,632 and $5,893, respectively.



We receive vendor allowances principally as a result of meeting defined purchase levels or promoting vendors products.
Those received as a result of purchase levels are accrued as a reduction of merchandise purchase price and result in a reduction of cost of sales as the merchandise is sold. Those received for promoting vendors products are offset against
specific advertising expense relating to the promotion and result in a reduction of selling, general and administrative expenses. Markdown allowances reduce cost of goods sold in the period the related markdown is taken. Placement allowances are
offset against specific, incremental expenses incurred in getting the product ready for sale. Our accounting policies relating to cash received from vendors are consistent with the conclusions reached by Emerging Issues Task Force (EITF)
02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor which was issued in September 2002.



Income Taxes



Temporary differences arising from differing treatment of income and expense items for tax and financial reporting purposes result in deferred tax assets
and liabilities that are recorded on the balance sheet. These balances, as well as income tax expense, are determined through managements estimations, interpretation of tax law for multiple jurisdictions and tax planning. If our actual results
differ from estimated results due to changes in tax laws, new store locations or tax planning, our effective tax rate and tax balances could be affected. We assess our deferred tax assets and establish valuation allowances when it is determined that
deferred tax assets are not likely to be realized.



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##### Table of Contents

Impairment of Long-Lived Assets



We evaluate long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS No. 144). Our judgment regarding the existence of impairment indicators is based on market and operational performance. We assess
the impairment of long-lived assets, primarily fixed assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the
following:



| |  |  | significant changes in the manner of our use of assets or the strategy for our overall business;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | significant negative industry or economic trends;
| | - |  | -------------------------------------------------



| |  |  | store closings; or
| | - |  | ------------------



| |  |  | underperforming business trends.
| | - |  | --------------------------------



Due to missing internal sales targets and continued negative comparable store sales trends in the nine months October 29, 2005, we performed an
impairment review of each store in the third quarter of fiscal 2005. In the evaluation of the fair value and future benefits of long-lived assets, we performed an analysis by store of the anticipated undiscounted future net cash flows of the related
long-lived assets. If the carrying value of the related asset exceeded the undiscounted cash flows, the carrying value was reduced to its fair value. Various factors, including future sales growth and profit margins, are included in this analysis.
To the extent these future projections or strategies change, the conclusion regarding impairment may differ from the current estimates. Based upon our review, a pre-tax charge of $200 related to fixed asset impairment was taken during the third
quarter of fiscal 2005. No impairment charges were incurred in fiscal 2004.



Use of Estimates



This discussion and analysis
of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of
financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the
circumstances. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. It is important that readers of this discussion of financial condition and
results of operations and the accompanying consolidated financial statements understand that actual results may differ from such estimates under different assumptions or conditions.



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##### Table of Contents

Results of Operations



The following table sets forth, for the periods indicated, selected statements of operations data expressed as a percentage of net sales and the number of
stores open at the end of each period. The following table is included solely for use in comparative analysis of results of operations and to complement managements discussion and analysis.



|                                             |  |                                  |    |  |                                  |   |  |                                 |   |  |                                 |  
|-------------------------------------------- |  | -------------------------------- | -- |  | -------------------------------- | - |  | ------------------------------- | - |  | ------------------------------- | -
|                                             |  | Three monthsendedOctober 29,2005 |    |  | Three monthsendedOctober 30,2004 |   |  | Nine monthsendedOctober 29,2005 |   |  | Nine monthsendedOctober 30,2004 |  
|Net sales                                    |  | 100.0                            | %  |  | 100.0                            | % |  | 100.0                           | % |  | 100.0                           | %
|Cost of sales                                |  | 64.2                             |    |  | 63.7                             |   |  | 63.5                            |   |  | 63.7                            |  
|                                             |  |                                  |    |  |                                  |   |  |                                 |   |  |                                 |  
|Gross profit                                 |  | 35.8                             |    |  | 36.3                             |   |  | 36.5                            |   |  | 36.3                            |  
|Selling, general and administrative expenses |  | 37.5                             |    |  | 33.2                             |   |  | 34.8                            |   |  | 32.2                            |  
|Depreciation expense                         |  | 1.3                              |    |  | 1.3                              |   |  | 1.1                             |   |  | 1.1                             |  
|Interest expense                             |  | 0.4                              |    |  | 0.3                              |   |  | 0.3                             |   |  | 0.3                             |  
|                                             |  |                                  |    |  |                                  |   |  |                                 |   |  |                                 |  
|Income (loss) before income tax expense      |  | (3.4                             | )  |  | 1.5                              |   |  | 0.3                             |   |  | 2.7                             |  
|Income tax expense (benefit)                 |  | (1.4                             | )  |  | 0.6                              |   |  | 0.1                             |   |  | 1.1                             |  
|                                             |  |                                  |    |  |                                  |   |  |                                 |   |  |                                 |  
|Net income (loss)                            |  | (2.0                             | )% |  | 0.9                              | % |  | 0.2                             | % |  | 1.6                             | %
|                                             |  |                                  |    |  |                                  |   |  |                                 |   |  |                                 |  
|Number of stores open at end of period       |  | 189                              |    |  | 181                              |   |  | 189                             |   |  | 181                             |  



Three Months October 29, 2005
and October 30, 2004



Net Sales. Net sales
increased $2,505 or 4.7% to $56,240 for the three month period ended October 29, 2005 (third quarter of fiscal 2005) from $53,735 for the three month period ended October 30, 2004 (third quarter of fiscal 2004). The
increase is attributed to the store count coupled with a modest 1.0% increase in comparable store sales. The weighted average number of stores opened during the third quarter of fiscal 2005 was 187 compared with 180 during the third quarter of
fiscal 2004. We experienced modest comparable store sales increases in all categories with the exception of candy and gifts which experienced declines. Our Halloween business helped drive our positive comparable store sales increase. Comparable
store sales are defined as sales from those stores open for at least one full year and include internet sales to customers within an existing stores trading area.



Gross Profit. Cost of sales includes merchandise, distribution and store occupancy costs. Gross profit increased $605
or 3.1%, to $20,124 for the third quarter of fiscal 2005 from $19,519 for the third quarter of fiscal 2004. As a percentage of net sales, gross profit was 35.8% for the third quarter of fiscal 2005 compared to 36.3% in the same period in the prior
year. The decrease as a percentage of sales can be attributed to higher store occupancy costs and our new greeting card program. Store occupancy costs increased $581 or 7.6% as we opened new stores and our greeting card gross margins were negatively
impacted by the write down of inventory associated with the roll out of our new card program. These factors were offset by continued leverage of our freight and distribution costs and better mark on percentage of goods available for sale in the
other categories.



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##### Table of Contents

Selling, General and Administrative Expenses. Selling, general and administrative expenses include
store payroll, advertising and other store operating and corporate administrative expenses. Selling, general and administrative expenses increased $3,233 or 18.1% to $21,093 for the third quarter of fiscal 2005 from $17,860 for the third quarter of
fiscal 2004. Major contributors to the increase are the following:



| |  |  | Store payroll increased approximately $1,000 as we opened more stores and made a commitment to invest hourly store labor to meet customer service needs, especially in our Halloween
selling season.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Store general expense, inclusive of store pre-open and remodel expenses, increased approximately $1,000 as we opened more stores, continued to maintain an aging store base and
invested in a temporary Halloween and E-Commerce store.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net advertising expense increased approximately $600 or 40% as we attempted to drive customer counts through use of a direct mail program, Internet advertising as well as billboards
in the third quarter of fiscal 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Settlement of a dispute with a former freight vendor for approximately $240, net of reserves in prior fiscal quarters.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | Impairment charge related to fixed assets at under-performing stores of $200.
| | - |  | -----------------------------------------------------------------------------



| |  |  | Increase in other corporate general and administrative expenses in the area of professional fees, insurance and payroll related items.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



As a percentage of net sales, selling, general and administrative expenses were 37.5% in the
third quarter of fiscal 2005 compared to 33.2% in the third quarter of fiscal 2004.



Depreciation expense. Depreciation expense was $749 in the third quarter of fiscal 2005 compared to $681 in the third quarter of fiscal 2004. The increase is attributed to the level of fixed asset additions
primarily related to new store openings and store remodels. Since October 2004, we opened 11 new store prototypes.



Interest Expense. Interest expense was $251 in the third quarter of fiscal 2005 compared to $187 in the third quarter of fiscal 2004. The increase
resulted from higher average borrowing levels as we open new stores coupled with an increase in our effective interest rate.



Income Tax Expense (Benefit). Income tax benefit was $762 in the third quarter of fiscal 2005 compared to income tax expense of $319 in the third
quarter of fiscal 2004. The decrease is a function of lower income levels in the third quarter of fiscal 2005. Until the benefits of our net operating loss carry forwards are fully utilized, we do not expect to pay federal income tax.



Nine Months Ended October 29, 2005 and October 30, 2004



Net Sales. Net sales increased $2,049 or 1.2%, to $174,874 for the
nine months ended October 29, 2005 from $172,825 for the nine months ended October 30, 2004. The increase is attributed to store count offset by negative comparable store sales performance. Our weighted average store count was 186 in the
nine months ended October 29, 2005 vs. 179 in the nine months ended October 20, 2004. Comparable store sales decreased 1.3% during the nine months ended October 29, 2005. We continue to operate in a challenging retail environment with
competition from dollar stores, mass merchants, grocery chains and other specialty retailers. Comparable store sales increases in the balloon, basic party and seasonal categories were offset by negative comparable store sales in the other
categories. Comparable store sales are defined as sales from those stores open for at least one full year and include internet sales to customers within existing stores trading area.



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##### Table of Contents

Gross Profit. Cost of sales includes merchandise, distribution and occupancy costs. Gross profit
increased $991 or 1.6%, to $63,745 for the nine months ended October 29, 2005 from $62,754 for the nine months ended October 30 2004. As a percentage of net sales, gross profit was 36.5% for the nine months ended October 29, 2005
compared to 36.3% for the nine months ended October 30, 2004. Despite our greeting card write down in the third quarter of fiscal 2005, we were successful in managing merchandise margins while continuing to leverage our freight and distribution
costs. As a percent of sales, gross profit, excluding store occupancy costs, improved 80 basis points from the same period a year ago. Store occupancy costs increased $1,440 or 6.3% primarily as a result of additional stores.



Selling, General and Administrative Expenses. Selling, general and
administrative expenses include store payroll, advertising and other store operating and corporate administrative expenses. Selling, general and administrative expenses increased $5,111 or 9.2%, to $60,773 for the nine months ended October 29,
2005 from $55,662 for the nine months ended October 30, 2004. Major contributors to the increase are as follows:



| |  |  | Store payroll related expenses increased approximately $1,400 as a function of operating additional stores and making an investment in store labor during the Halloween selling
season.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other store expenses, including pre-open costs, increased approximately $1,400 as we operated additional stores and maintained an aging store base.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net advertising expense increased approximately $800 or 13% to $7,277 as we launched our new greeting card initiative in the current year, invested in a direct mail program and
aggressively pursued Halloween sales in the third fiscal quarter in an attempt to drive sales.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other corporate administrative expenses increased approximately $1,500 because of increases in payroll related costs, insurance costs, professional fees, impairment charge on fixed
assets and settlement of a dispute with a former vendor.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a
percentage of net sales, selling, general and administrative expenses were 34.8% for the nine months ended October 29, 2005 compared to 32.2% for the nine months ended October 30, 2004.



Depreciation expense. Depreciation expense was $2,005 for the nine
months ended October 29, 2005 compared to $1,895 for the nine months ended October 30, 2004. The increase is attributed to the level of fixed asset additions primarily related to new store openings and store remodels. We opened 11 new
store prototypes since October 2004.



Interest Expense.
Interest expense was $548 for the nine months ended October 29, 2005 compared to $586 for the nine months ended October 30, 2004. The decrease resulted from lower average borrowing levels as we increase our days payable with our vendors
and paid off trade the conversion note and extended creditor notes. The decrease in borrowing levels was partially offset by higher effective interest rates.



Income Tax Expense. Income tax expense was $245 for the nine months ended October 29, 2005 compared to $1,859 for the nine months ended
October 30, 2004. Decrease is a function of lower income levels for the nine months ended October 29, 2005. Until the benefits of our net operating loss carry forwards are fully utilized, we do not expect to pay federal income tax.



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##### Table of Contents

Liquidity and Capital Resources



Our uses of capital for the remainder of fiscal 2005 are expected to include working capital for operating expenses and
satisfaction of current liabilities, expenditures related to maintaining and refurbishing existing stores, opening new stores and interest payments on outstanding borrowings. Historically, these cash requirements have been met through cash flow from
operations and borrowing from our credit facility.



The following table sets forth certain consolidated statements of cash flows data:



|                                     |  |                                  |        |   |                                  |   |        |  
|------------------------------------ |  | -------------------------------- | ------ | - | -------------------------------- | - | ------ | -
|                                     |  | FY2005                           |        |   | FY2004                           |  
|                                     |  | Nine months endedOctober 29,2005 |        |   | Nine months endedOctober 30,2004 |  
|Cash flows from operating activities |  | $                                | 4,002  |   |                                  | $ | 8,459  |  
|                                     |  |                                  |        |   |                                  |   |        |  
|Cash flows from investing activities |  | $                                | (4,546 | ) |                                  | $ | (2,457 | )
|                                     |  |                                  |        |   |                                  |   |        |  
|Cash flows from financing activities |  | $                                | 550    |   |                                  | $ | (5,994 | )
|                                     |  |                                  |        |   |                                  |   |        |  



At October 29,
2005 our working capital was $12,563. Net cash provided by operating activities for the nine months ended October 29, 2005 was $4,002 compared to $8,459 of net cash provided by operating activities for the nine months ended October 30,
2004. Decrease is due to lower income levels coupled with rising inventory levels as we open more stores.



Net cash used in investing activities for the nine months ended October 29, 2005 and the nine months ended October 30, 2004 was $4,546 and
$2,457, respectively. Net cash used in investing activities was for capital expenditures related to new store openings, computer equipment and software, store remodeling and warehouse equipment for the distribution center. Significant expenditures
in the current year relate to investments related a new replenishment system of approximately $700, investment in new store fixtures of approximately $1,100 and approximately $600 related to the bargain basket retrofit project as we rolled out our
private label program.



Net cash provided in financing
activities for the nine months ended October 29, 2005 was $550 compared to $5,994 of net cash used for the nine months ended October 30, 2004. Amounts are attributable to the level of borrowings and repayments. The Trade Conversion Note
was paid off in fiscal 2004 and the remaining balance of the extended creditor note was paid off in the first quarter of fiscal 2005. The only debt remaining on the balance sheet at October 29, 2005 is the revolving line of credit and capital
lease obligations.



We are party to a secured financing
facility, dated April 8, 2002, with Wells Fargo Retail Finance, LLC (as amended, the Loan Agreement). The Loan Agreement, which is a line of credit expiring on October 31, 2008, currently provides up to $30,000, (including
$10,000 million for letters of credit) to fund working capital needs and for general corporate purposes. A second amendment was entered into on October 7, 2005. The second amendment, among other things, extended the maturity date to
October 31, 2008, reduced the interest rate on Libor rate loans, provides for a potential increase in the maximum revolver limit from $30,000 to up to $45,000, revised the minimum operating covenants and provides for prepayment premiums of the
maximum revolver amount.



19



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##### Table of Contents

Borrowings under the facility are limited by a percent of inventory levels. At December 10, 2005,
the interest rate on our borrowings was 6.0%. Borrowings under the Loan Agreement are secured by substantially all of our assets. Certain restrictive covenants apply, including 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 have been met as of October 29, 2005.



As of October 29, 2005, we had $14,196 in borrowings outstanding under the Loan Agreement and had utilized
approximately $1,587 for issuance of letters of credit.



We do
not intend to pay cash dividends in the foreseeable future and under our current Loan Agreement we are restricted from paying dividends on our capital stock.



Our ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, indebtedness or to fund planned capital expenditures,
will depend upon future performance, which, in turn, is subject to general economic, financial, competitive and other factors that are beyond our control. Based upon our current level of operations and anticipated growth, we believe that future cash
flows from operations, together with available borrowings under the Loan Agreement, will be adequate for the next twelve months to meet anticipated requirements for capital expenditures, working capital, interest payments and scheduled principal
payments. There can be no assurance that our business will continue to generate sufficient cash flow from operations in the future to service our debt and make necessary capital expenditures after satisfying certain liabilities arising in the
ordinary course of business. If unable to do so, we may be required to refinance all or a portion of our existing debt, sell assets or obtain additional financing. There can be no assurance that any refinancing would be available or that any sales
of assets or additional financing could be obtained.



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##### Table of Contents

Contractual Obligations



We conduct substantially all of our activities using leased premises. Store and office leases generally provide that real estate taxes, insurance,
common area maintenance, and operating expenses are our obligations. Certain store leases also provide for contingent rentals based on sales in excess of specified minimums.



To facilitate an understanding of our contractual obligations, the following data is provided which summarizes future
payments:



|                                                                |  |                                                     |       |                   |   |          |  |          |      |                  |   |      |  |   |     
|--------------------------------------------------------------- |  | --------------------------------------------------- | ----- | ----------------- | - | -------- |  | -------- | ---- | ---------------- | - | ---- |  | - | ----
|                                                                |  | Payments due by Period (dollar amounts in millions)
|Contractual Obligations                                         |  | Total                                               |       | Less ThanOne Year |   | 1-3Years |  | 3-5Years |      | Morethan 5 Years
|Debt & Capital Leases (*) (including current portion)           |  | $                                                   | 14.2  |                   | $ | 14.2     |  | $        |     |                  | $ |     |  | $ |    
|Operating Leases(**)                                            |  |                                                     | 122.5 |                   |   | 29.4     |  |          | 44.5 |                  |   | 23.1 |  |   | 25.5
|                                                                |  |                                                     |       |                   |  
|Inventory Purchase Commitments (including open purchase orders) |  |                                                     | 16.9  |                   |   | 14.1     |  |          | 2.4  |                  |   | .4   |  |   |    
|                                                                |  |                                                     |       |                   |   |          |  |          |      |                  |   |      |  |   |     
|Total                                                           |  | $                                                   | 153.6 |                   |   | 57.7     |  | $        | 46.9 |                  | $ | 23.5 |  | $ | 25.5
|                                                                |  |                                                     |       |                   |   |          |  |          |      |                  |   |      |  |   |     

---

|(*) | Interest payments are excluded from total.
|--- | ------------------------------------------

|(**) | Payments to the landlord covering taxes, maintenance, other common area maintenance items and contingent rental amounts for stores are excluded from total. Amounts expensed for
these items during the nine months ended October 29, 2005 totaled $ 5.7 million.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Off-Balance Sheet Arrangements



We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purposes of raising capital, incurring debt or operating our business. We do not have any off-balance sheet arrangements or relationships
with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources.



Seasonality



Our business is highly seasonal, with operating results varying from quarter to quarter. We historically have experienced higher sales during the second
and fourth fiscal quarters due to increased demand by customers for our products attributable to special occasions and holiday seasons during these periods. Our fiscal 2005 quarters are defined as follows: first fiscal quarter is January 30,
2005 to April 30, 2005, second fiscal quarter is May 1, 2005 to July 30, 2005, third fiscal quarter is July 31, 2005 to October 29, 2005 and fourth fiscal quarter is October 30, 2005 to January 28, 2006. Our fiscal
year ends on the 52 or 53 weeks, as applicable, ending the Saturday nearest to January 31st.



21



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##### Table of Contents

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We are subject to market risks from changes in interest rates. As of October 29, 2005, the interest rate on the Companys revolving credit
facilities, which represents a significant portion of the Companys outstanding debt, is variable based upon the prime rate. We believe our interest rate risk is minimal as a hypothetical 1.0% increase to the average interest rate under the
credit facilities applied to the average outstanding balance during the three and nine months ended October 29, 2005 and the three and nine months ended October 30, 2004 would not have had a material impact on our financial position or
results of operations.



ITEM 4 CONTROLS AND PROCEDURES



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions (the SEC) rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



As of December 10, 2005 and as required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive Officer and our Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by
this report. Based on the foregoing, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.



During the quarter ended October 29, 2005, there has been no change in
our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting



PART II - OTHER INFORMATION



Item 1. Legal Proceedings



On
March 3, 2004, Midwest One Distribution Company filed a lawsuit against us in the Circuit Court of the Eighteenth Judicial Circuit of DuPage County, Illinois, captioned Midwest One Distribution Co. vs. Factory Card & Party Outlet Corp.
and Factory Card Outlet of America, Ltd. The lawsuit alleged that we breached a distribution agreement between the parties that terminated on January 31, 2004 by failing to pay certain invoices from Midwest One for certain services and/or
expenses allegedly performed or incurred by Midwest One. Midwest One sought damages of approximately $4,800 and an accounting of all distribution services for which Midwest One was entitled to compensation under the distribution agreement.



On October 25, 2005, we entered into a settlement
agreement with Midwest One. The settlement agreement provides for a mutual release by the parties relating to the former distribution agreement between the parties and the subject matter of the aforementioned lawsuit. Under the terms of the
settlement, we agreed to pay Midwest One, without interest, an aggregate of $550; payable $125 by November 30, 2005, and additional $150 by December 30, 2005 and the remaining balance of $275 by March 31, 2006. We made the first
payment to Midwest One. Midwest One has agreed to transfer to us, at our option, certain sorting equipment.



22



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##### Table of Contents

We are from time to time involved in routine litigation incidental to the conduct of our business. As of
the date of this Quarterly Report on Form 10-Q, we are not aware of any other material existing or threatening litigation to which we are or may be a party.



Item 2. Changes in Securities and Use of Proceeds



None.



Item 3. Defaults Upon Senior Securities



None.



Item 4. Submission of Matters to a Vote of Security Holders



None.



Item 5. Other Information



None.



Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits



|         |  |                                                                                                                                                                 
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1 (1)  |  | Debtors Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated February 5, 2002                                                   
|         | 
|3.1 (2)  |  | Amended and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp.                                                                          
|         | 
|3.2 (4)  |  | Amended Bylaws of Factory Card & Party Outlet Corp.                                                                                                             
|         | 
|3.11 (5) |  | Amendment to the Amended and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp. dated July 17, 2003                                     
|         | 
|3.12 (5) |  | Amendment to the Amended and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp. dated April 6, 2004                                     
|         | 
|4.1 (2)  |  | Warrant Agreement, dated April 9, 2002, between Factory Card & Party Outlet and Wells Fargo Bank Minnesota, N.A.                                                
|         | 
|4.2 (2)  |  | Form of New Management Warrant, dated April 9, 2002                                                                                                             
|         | 
|4.3 (2)  |  | Schedule of New Management Warrants (pursuant to Instruction 2 of Item 601)                                                                                     
|         | 
|4.4 (2)  |  | Trade Conversion Note of Factory Card & Party Outlet Corp. and Factory Card Outlet of America Ltd., dated April 9, 2002, for the benefit of CSS Industries, Inc.
|         | 
|4.5 (2)  |  | Schedule of Trade Conversion Notes (pursuant to Instruction 2 of Item 601)                                                                                      



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                    
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6 (2)     |  | Trade Conversion Agreement, dated as of April 9, 2002, among Factory Card & Party Outlet Corp., Factory Card Outlet of America, Ltd., Amscan, Inc., Creative Expressions Group, Inc.,
Images and Editions Limited, Unique Industries, Inc., CSS Industries, Inc., P.S. Greetings, Inc., and Maryland Plastics, Inc.
|            | 
|10.1 (2)    |  | Loan and Security Agreement dated as of April 9, 2002, among Factory Card Outlet of America, Ltd., as borrower, the lenders thereto as Wells Fargo Retail Finance, LLC, as arranger, collateral
agent and administrative agent                                                                                     
|            | 
|10.2 (6)    |  | First Amendment dated April 9, 2004, to the Loan and Security Agreement, among Factory Card Outlet of America, Ltd., as borrower, the lenders thereto as Well Fargo Retail Finance, LLC, as
arranger, collateral agent and administrative agent                                                                    
|            | 
|10.3 (2)    |  | Security Agreement dated April 9, 2002, among Factory Card & Party Outlet Corp. and Factory Card Outlet of America, Ltd., in favor of William Kaye, as Collateral Trustee                                                                                                                                          
|            | 
|10.4 (2)*   |  | Factory Card & Party Outlet Corp. 2002 Stock Incentive Plan                                                                                                                                                                                                                                                        
|            | 
|10.5 (2)    |  | Trade Vendor Supply Agreement, dated April 9, 2002, between Factory Card & Party Outlet Corp., Factory Card Outlet of America, Ltd. and Maryland Plastics                                                                                                                                                          
|            | 
|10.6 (2)    |  | Schedule of Trade Vendor Supply Agreements (pursuant to Instruction 2 of Item 601)                                                                                                                                                                                                                                 
|            | 
|10.7 (2)*   |  | Employment Agreement, dated as of April 9, 2002, between Factory Card Outlet of America, Ltd. and James D. Constantine                                                                                                                                                                                             
|            | 
|10.8 (6)*   |  | Employment Agreement, dated as of December 23, 2004, between Factory Card Outlet of America, Ltd. and Timothy F. Gower                                                                                                                                                                                             
|            | 
|10.9 (6)*   |  | Employment Agreement, dated as of December 23, 2004, between Factory Card Outlet of America, Ltd. and Gary W. Rada                                                                                                                                                                                                 
|            | 
|10.10 (3)*  |  | Factory Card & Party Outlet Corp. 2002 Non-Employee Directors Stock Option Plan                                                                                                                                                                                                                                    
|            | 
|10.11 (3)*  |  | First Amendment to the Factory Card & Party Outlet Corp. 2002 Stock Incentive Plan                                                                                                                                                                                                                                 
|            | 
|10.12 (3)*  |  | Second Amendment to the Factory Card & Party Outlet Corp. 2002 Stock Option Plan                                                                                                                                                                                                                                   
|            | 
|10.13 (4) * |  | Factory Card & Party Outlet Corp. 2003 Equity Incentive Plan                                                                                                                                                                                                                                                       
|            | 
|10.14 (5)*  |  | Factory Card & Party Outlet Corp. Executive Severance Plan                                                                                                                                                                                                                                                         
|            | 
|10.15 (7)** |  | Primary Supply and Consignment Agreement dated February 5, 2005 between Factory Card Outlet of America, Ltd. and Paramount Cards, Inc.                                                                                                                                                                             
|            | 
|10.16 (8)*  |  | Form of Stock Option Agreement under The Factory Card & Party Outlet Corp. 2002 Stock Option Plan                                                                                                                                                                                                                  
|            | 
|10.17 (8)*  |  | Form of Stock Option Agreement under The Factory Card & Party Outlet Corp. 2002 Non-Employee Directors Stock Option Plan                                                                                                                                                                                           
|            | 
|10.18 (8)*  |  | Form of Stock Option Agreement under The Factory Card & Party Outlet Corp. 2003 Equity Incentive Plan                                                                                                                                                                                                              



24



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##### Table of Contents

|            |  |                                                                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19 (8)*  |  | Form of Restricted Stock Agreement under The Factory Card & Party Outlet Corp. 2003 Equity Incentive Plan                                                                     
|            | 
|10.20 (8)*  |  | Summary of Incentive Bonus Agreements                                                                                                                                         
|            | 
|10.21 (8)*  |  | Summary of Non-Employee Director Compensation                                                                                                                                 
|            | 
|10.22 (8)*  |  | Summary of Arrangements with Certain Executives                                                                                                                               
|            | 
|10.23 (9)   |  | Second Amendment Agreement dated as of October 7, 2005 by and between Factory Card Outlet of America Ltd., the lenders thereto and Wells Fargo Retail Finance II, LLC as agent
|            | 
|10.24 (10)* |  | Factory Card & Party Outlet Corp. Amended and Restated Executive Severance Plan                                                                                               
|            | 
|10.25 (10)* |  | Amendment to Employment Agreement, dated as of December 9, 2005, between Factory Card Outlet of America, Ltd. and Gary W. Rada                                                
|            | 
|10.26 (10)* |  | Amendment to Employment Agreement, dated as of December 9, 2005, between Factory Card Outlet of America, Ltd. and Timothy F. Gower                                            
|            | 
|21          |  | Subsidiaries of the Company                                                                                                                                                   
|            | 
|23.1        |  | Report of Independent Registered Public Accounting Firm                                                                                                                       
|            | 
|23.2        |  | Awareness Letter from Deloitte & Touche, LLP                                                                                                                                  
|            | 
|31.1        |  | Chief Executive Officer Certification under Section 302 of the Sarbanes-Oxley Act of 2002                                                                                     
|            | 
|31.2        |  | Chief Financial Officer Certification under Section 302 of the Sarbanes-Oxley Act of 2002                                                                                     
|            | 
|32.1        |  | Chief Executive Officer Certification of Periodic Report under Section 906 of Sarbanes-Oxley Act of 2002                                                                      
|            | 
|32.2        |  | Chief Financial Officer Certification of Periodic Report under Section 906 of Sarbanes-Oxley Act of 2002                                                                      

---

Notes



|(1) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on March 25, 2002.
|--- | -------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on April 23, 2002.
|--- | -------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q as filed on June 18, 2002.
|--- | ---------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Companys Quarterly Report on Form 10-K as filed on May 2, 2003.
|--- | -------------------------------------------------------------------------------------------------



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##### Table of Contents

|(5) | Incorporated by reference to the Companys Annual report on Form 10-K as filed on April 24, 2004
|--- | ------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Companys Annual Report on Form 10-K filed on April 26, 2005.
|--- | ----------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on February 7, 2005.
|--- | ---------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q as filed on June 14, 2005.
|--- | ---------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on October 13, 2005.
|--- | ---------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on December 9, 2005.
|---- | ---------------------------------------------------------------------------------------------------



Notes



|   |  |                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  |  | Management contracts or compensatory plans or arrangements.                                                                                                                                                                            
|** |  | The Company has submitted, to the Securities and Exchange Commission (the Commission), a request for confidential treatment for portions of this document. The redacted material
has been filed separately with the Commission.      
|   | 
|   |  | (b) Reports on 8-K.                                                                                                                                                                                                                    
|   | 
|   |  | Current Report on Form 8-K filed on August 8, 2005 announcing sales results for July 2005.                                                                                                                                             
|   | 
|   |  | Current Report on Form 8-K filed on September 2, 2005 announcing sales results for August 2005 and announcing second quarter results will be released September 13, 2005.                                                              
|   | 
|   |  | Current Report on Form 8-K filed on October 6, 2005 announcing sales results for September 2005.                                                                                                                                       
|   | 
|   |  | Current Report on Form 8-K filed in October 13, 2005 announcing entry into a material definitive agreement with Wells Fargo Retail Finance LLC..                                                                                       
|   | 
|   |  | Current Report on Form 8-K filed on October 28, 2005 announcing entry into a settlement term sheet with Midwest One Distribution Company with respect to the previously disclosed lawsuit
initially filed by Midwest One in March 2004.



26



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##### Table of Contents

SIGNATURES



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



|                         |  |                                   |  |                                                        
|------------------------ |  | --------------------------------- |  | -------------------------------------------------------
|                         |  | FACTORY CARD & PARTY OUTLET CORP.
|                         |  |                                  
|Dated: December 12, 2005 |  | By:                               |  | /s/ Gary W. Rada                                       
|                         |  |                                   |  | Gary W. Rada                                           
|                         |  |                                   |  | President and Chief Executive Officer                  
|                         |  |                                  
|Dated: December 12, 2005 |  | By:                               |  | /s/ Jarett A. Misch                                    
|                         |  |                                   |  | Jarett A. Misch                                        
|                         |  |                                   |  | Vice President, Controller and Chief Accounting Officer
|                         |  |                                   |  | [Principal Accounting Officer]                         



27