<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-Q


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

                For The Quarterly Period Ended October 28, 2000

                         Commission File Number: 21859

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

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

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

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


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 [ ]


The number of shares of the Registrant's Common Stock outstanding as of
December 8, 2000 was 7,503,098.
<PAGE>

                           Factory Card Outlet Corp.
                (Debtor in possession effective March 23, 1999)
                                   Form 10-Q

                    For the Quarter Ended October 28, 2000
                                     Index


<TABLE>
<CAPTION>
                                                                                                Page
<S>       <C>                                                                                   <C>
Part I    Financial Information

Item 1    Financial Statements (unaudited):

          Consolidated Balance Sheets as of October 28, 2000 and January 29, 2000                 3

          Consolidated Statements of Operations for the three fiscal months and nine fiscal
            months ended October 28, 2000 and October 30, 1999                                    4

          Consolidated Statements of Cash Flows for the nine fiscal months
            ended October 28, 2000 and October 30, 1999                                           5

          Notes to Consolidated Financial Statements                                            6-9

Item 2    Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                                         10-14

Item 3    Quantitative and Qualitative Disclosures About Market Risk                             15

Part II   Other Information                                                                   15-16

          Signatures                                                                             16
</TABLE>

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION, ITEM 1, FINANCIAL STATEMENTS



                           FACTORY CARD OUTLET CORP.
                                AND SUBSIDIARY

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

<TABLE>
<CAPTION>

                                                                                     October 28,             January 29,
                                                                                         2000                   2000
                                                                                     ------------           -------------
ASSETS                                                                               (Unaudited)
<S>                                                                                  <C>                    <C>
Current assets:
  Cash                                                                                 $    178                $  1,713
  Merchandise inventories                                                                64,122                  56,142
  Prepaid expenses and other                                                              2,001                   1,748
                                                                                       ---------               --------
     Total current assets                                                                66,301                  59,603

Fixed assets, net                                                                        26,243                  30,559
Other assets                                                                                481                     641
                                                                                       ---------               --------

     Total assets                                                                      $ 93,025                $ 90,803
                                                                                       ========                ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Debt                                                                                 $ 28,766                $ 22,869
  Accounts payable                                                                       11,743                   9,103
  Accrued expenses                                                                        9,928                   8,662
                                                                                       ---------               --------

     Total current liabilities                                                           50,437                  40,634
                                                                                       ---------               --------

Liabilities subject to compromise                                                        55,214                  54,872

Stockholders' equity (deficit):
  Common stock - $.01 par value.
     Voting class - authorized  15,000,000 shares; 7,503,098 shares issued and
     outstanding at October 28, 2000 and January 29, 2000, respectively.
     Non-voting class - authorized 205,000 shares, no shares issued or
     outstanding.                                                                            75                      75
  Additional paid-in capital                                                             52,021                  52,021
  Accumulated deficit                                                                   (64,722)                (56,799)
                                                                                       ---------               --------

     Total stockholders' deficit                                                        (12,626)                 (4,703)
                                                                                       ---------               ---------

     Total liabilities and stockholders' deficit                                       $ 93,025                $ 90,803
                                                                                       =========               ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                           FACTORY CARD OUTLET CORP.
                                AND SUBSIDIARY

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

<TABLE>
<CAPTION>

                                                  Three fiscal months ended        Nine fiscal months ended
                                                 ---------------------------     ---------------------------
                                                  October 28,   October 30,      October 28,      October 30,
                                                      2000          1999             2000            1999
                                                 ------------   ------------     ------------   ------------
                                                          (Unaudited)                    (Unaudited)
<S>                                              <C>            <C>              <C>              <C>
Net sales                                        $     50,778   $     50,485     $    164,646   $    155,252
Cost of sales                                          27,874         29,337           87,447         83,877
                                                 ------------   ------------     ------------   ------------
  Gross profit                                         22,904         21,148           77,199         71,375
Selling, general and administrative expenses           24,790         25,069           76,540         75,820
Interest expense                                          739            860            2,345          2,335
                                                 ------------   ------------     ------------   ------------
  Loss before reorganization items and
    extraordinary item                                 (2,625)        (4,781)          (1,686)        (6,780)

Reorganization items, net                               2,863          2,297            6,237         16,853
                                                 ------------   ------------     ------------   ------------
  Loss before extraordinary item                       (5,488)        (7,078)          (7,923)       (23,633)
Extraordinary item-loss on early retirement
  of debt                                                   -              -                -          1,292
                                                 ------------   ------------     ------------   ------------
  Net loss                                       $     (5,488)  $     (7,078)    $     (7,923)  $    (24,925)
                                                 ============   ============     ============   ============

Loss per share - basic & diluted
  Before extraordinary item                      $      (0.73)  $      (0.94)    $      (1.06)  $      (3.15)
  Extraordinary item                                        -              -                -          (0.17)
                                                 ------------   ------------     ------------   ------------
  Net loss per share - basic & diluted           $      (0.73)  $      (0.94)    $      (1.06)  $      (3.32)
                                                 ============   ============     ============   ============

Weighted average shares outstanding -
  basic & diluted                                   7,503,098      7,503,098        7,503,098      7,503,098
                                                 ============   ============     ============   ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                           FACTORY CARD OUTLET CORP.
                                AND SUBSIDIARY

                     Consolidated Statements of Cash Flows
                         (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                           Nine fiscal months ended
                                                                          --------------------------
                                                                          October 28,    October 30,
                                                                             2000           1999
                                                                          -----------    -----------
                                                                                 (Unaudited)
<S>                                                                       <C>            <C>
Cash flows from operating activities:
    Net loss                                                               $  (7,923)     $ (24,925)
    Adjustments to reconcile net loss to net cash provided by
      (used in) operating activities:
        Depreciation and amortization of fixed assets                          5,436          5,762
        Amortization of deferred financing costs and debt discount               404            682
        Non-cash portion of reorganization items                               3,040         13,636
        Extraordinary loss on early retirement of debt                            --          1,292
        Other                                                                     23             58
        Changes in assets and liabilities:
            Increase in assets:
                Merchandise inventories                                       (7,980)        (4,572)
                Prepaid expenses and other assets                               (497)          (654)
            Increase (decrease) in liabilities:
                Accounts payable                                               2,640        (21,759)
                Accrued expenses                                                (874)        (4,511)
                Liabilities subject to compromise                                231         40,410
                                                                           ---------      ---------
Net cash provided by (used in) operating activities                           (5,500)         5,419
                                                                           ---------      ---------
Net cash used in investing activities--purchase of fixed assets, net          (1,591)        (1,675)
                                                                           ---------      ---------
Cash flows from financing activities:
    Borrowings under revolving credit notes and term loan                    178,775        188,990
    Repayment of borrowings under revolving credit notes and term loan      (172,879)      (196,066)
    Payment of long-term obligations                                            (340)          (177)
                                                                           ---------      ---------
Net cash provided by (used in) financing activities                            5,556         (7,253)
                                                                           ---------      ---------
Net decrease in cash                                                          (1,535)        (3,509)
Cash at beginning of period                                                    1,713          3,597
                                                                           ---------      ---------
Cash at end of period                                                      $     178      $      88
                                                                           =========      =========
Supplemental cash flow information:
    Interest paid                                                          $   1,875      $   2,014
    Income taxes refunded                                                         --           (792)
</TABLE>


See accompanying notes to consolidated financial statements.


                                        5
<PAGE>

                           FACTORY CARD OUTLET CORP.
                                AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

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


(1)  Organization and Basis of Presentation

          The consolidated unaudited financial statements include the accounts
     of Factory Card Outlet Corp. ("FCO") and its wholly owned subsidiary,
     Factory Card Outlet of America Ltd. (collectively with FCO, the "Company").
     The Company is a chain of company-owned stores offering an extensive
     selection of greeting cards, giftwrap, balloons, party supplies and other
     special occasion merchandise at everyday value prices. 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, 2000 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 consolidated financial statements
     reflect all normal recurring and certain nonrecurring adjustments necessary
     for a fair presentation of the interim financial statements. In addition,
     certain prior year amounts have been reclassified to conform to the current
     year presentation.

          The Company filed voluntary petitions for relief under chapter 11 of
     title 11 of the United States Code (the "Bankruptcy Code") on March 23,
     1999 (the "Petition Date") under case numbers 99-685(JJF) and 99-686(JJF)
     (the "Chapter 11 Cases"). The Company is currently operating its business
     as debtors in possession under the jurisdiction of the United States
     Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").

          The accompanying consolidated financial statements have been prepared
     assuming the Company will continue as a going concern and in accordance
     with the American Institute of Certified Public Accountants Statement of
     Position 90-7, Financial Reporting by Entities in Reorganization under the
     Bankruptcy Code. The commencement of the Chapter 11 Cases and the net
     losses resulting in a net deficit raise substantial doubt about the
     Company's ability to continue as a going concern. As discussed in Note 5,
     the Company has recorded certain reorganization items in the Consolidated
     Statements of Operations. Additional adjustments, some of which could be
     material, may be necessary as a consequence of a plan of reorganization.
     The continuation of the Company's business as a going concern is contingent
     upon, among other things, the ability to (1) formulate a plan of
     reorganization that will be confirmed by the Bankruptcy Court, (2) achieve
     satisfactory levels of future profitable operations, (3) maintain adequate
     financing, and (4) generate sufficient cash from operations to meet future
     obligations.

          The Bankruptcy Code provides that the Company has an exclusive period
     during which only it may propose, file and solicit acceptances of a plan of
     reorganization. The exclusive period for the Company to propose a plan of
     reorganization currently expires on March 30, 2001. If the Company fails to
     file a plan of reorganization during the exclusive period or, after such
     plan has been filed, if the Company fails to obtain acceptance of such plan
     from the requisite impaired classes of creditors and equity security
     holders during the exclusive period, any party in interest, including a
     creditor, an equity security holder, a committee of creditors or equity
     security holders, or an indenture trustee, may file their own plan of
     reorganization for the Company. The Company plans to develop a plan of
     reorganization for submission to the Bankruptcy Court.


                                       6
<PAGE>

          In connection therewith, on October 11, 2000 the Company announced
     that it and the Statutory Committee of Unsecured Creditors appointed in the
     Chapter 11 Cases (the Creditors' Committee) had entered into a non-binding
     letter of intent (the "Letter of Intent") with FCO Acquisition Corp.
     ("FCOAC") regarding a potential transaction which would provide the Company
     with sufficient funding to enable it to emerge from Chapter 11. The Letter
     of Intent is subject to, among other things, the completion of due
     diligence, the execution of definitive documentation and confirmation of a
     plan of reorganization that would have to be voted upon by creditors.
     Because the proposal would not result in creditors recovering the full
     amount of their claims, the Letter of Intent does not contemplate holders
     of the Company's outstanding common stock receiving any distribution.
     Consequently, the existing stock would be cancelled.

          The Letter of Intent provides for FCOAC to receive a break-up fee and
     expense reimbursement in the event that the Company decides to pursue an
     alternative transaction or course of action. The Letter of Intent was
     approved by the Bankruptcy Court on October 27, 2000. The Company, FCOAC
     and the Creditors' Committee are engaged in ongoing negotiations regarding
     the terms of the definitive documentation, including a plan of
     reorganization.

          Furthermore, on October 11, 2000 the Company announced that Saunders
     Karp & Megrue ("SKM"), which had entered into a non-binding letter of
     intent ("SKM Letter of Intent") with the Company and the Creditors'
     Committee in June 2000, terminated the SKM Letter of Intent. SKM indicated
     in its notice to the Company that its termination of SKM Letter of Intent
     should not be deemed as an indication that SKM has lost interest in
     pursuing a possible transaction.

(2)  Debtor in Possession Facility

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

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

(3)  Management Estimates

          The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities at
     the date of the financial statements and the reported amounts of revenues
     and expenses during the reporting period and related disclosures.
     Significant estimates made as of and for the nine fiscal month periods
     ended October 28, 2000 and October 30, 1999 include reserves for store
     closings and other reorganization items, provision for shrinkage,
     capitalized overhead costs related to inventory and the carrying values of
     inventories. Actual results could differ from those estimates.

                                       7
<PAGE>

(4)  Liabilities Subject to Compromise

          Liabilities subject to compromise refer to liabilities incurred prior
     to the commencement of the Chapter 11 Cases. These liabilities consist
     primarily of amounts outstanding for accounts payable, deferred rent
     obligations, amounts accrued for rejected leases, other accrued expenses
     and obligations under capital leases. These amounts represent management's
     best estimate of known or potential claims to be resolved in connection
     with the Chapter 11 Cases. Such claims remain subject to future adjustments
     based on negotiations, actions of the Bankruptcy Court, further
     developments with respect to disputed claims or other events. The terms for
     the satisfaction of these claims will be established in connection with the
     Chapter 11 Cases.

          The Company has received approval from the Bankruptcy Court to pay or
     otherwise honor certain of its prepetition obligations, including
     prepetition wages, employee benefits and reimbursement of employee business
     expenses, costs to transport merchandise, sales and use taxes and
     insurance.

(5)  Reorganization Items

          In August 2000, the Company closed five under-performing stores.
     During the nine fiscal months ended October 28, 2000, the Company recorded
     a provision for reorganization costs relating to these store closings of
     approximately $1,177. In addition to the provision for the store closings,
     reorganization costs for professional fees and other costs related to the
     Company's reorganization were $5,060 in the nine fiscal months ended
     October 28, 2000.

          In April 1999, the Company obtained approval from the Bankruptcy Court
     to close and conduct closing sales at 27 stores that were in markets the
     Company did not intend to continue to operate in or were under-performing
     or unprofitable. During the nine fiscal months ended October 30, 1999, the
     Company recorded a provision for reorganization costs relating to the store
     closings of approximately $10,634. This provision included the write-down
     of fixed assets, estimated lease rejection claims and the loss on the
     disposition of merchandise inventory. In addition to the provision for the
     store closings, reorganization costs for professional fees and other costs
     related to the Company's reorganization were $6,219 in the nine fiscal
     months ended October 30, 1999.

(6)  Income Taxes (Benefit)

          In assessing the realization of deferred tax assets, management
     considers the likelihood that those assets will be realized through future
     taxable income. Because the realization of the deferred tax assets may be
     limited by events involving the Chapter 11 Cases or other events related to
     the ownership of the Company, the Company recorded a valuation allowance
     for the total of the net deferred tax assets at October 28, 2000 and
     January 29, 2000.

                                       8
<PAGE>

(7)  Earnings Per Share

          In accordance with Statement of Financial Accounting Standards
     ("SFAS") No. 128, earnings per share - basic is computed by dividing net
     loss by the weighted average number of common shares outstanding during the
     period.

<TABLE>
<CAPTION>
                                                                   Net                   Per
                                                                   Loss      Shares     share
                                                                 --------   ---------  -------
            For the nine fiscal months ended October 28, 2000 -
            Loss per share - basic and diluted:
            -----------------------------------
            <S>                                                        <C>        <C>       <C>
            Net loss                                             $ (7,923)  7,503,098   $(1.06)
                                                                 --------   ---------  -------

            For the nine fiscal months ended October 30, 1999 -
            Loss per share - basic and diluted:
            -----------------------------------
            Net loss                                             $(24,925)  7,503,098   $(3.32)
                                                                 --------   ---------  -------
</TABLE>

          For the nine fiscal months ended October 28, 2000 and October 30,
     1999, no options to purchase common stock were included in the computation
     of earnings per share - diluted because the effect would be antidilutive.

                                       9
<PAGE>

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

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

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

     On October 11, 2000 the Company announced that it and the Statutory
Committee of Unsecured Creditors appointed in the Chapter 11 Cases (the
Creditors' Committee) have entered into a non-binding letter of intent (the
"Letter of Intent") with FCO Acquisition Corp. ("FCOAC") regarding a potential
transaction which would provide the Company with sufficient funding to enable it
to emerge from Chapter 11. The Letter of Intent is subject to, among other
things, the completion of due diligence, the execution of definitive
documentation and confirmation of a plan of reorganization that would have to be
voted upon by creditors.

     The Letter of Intent provides for FCOAC to receive a break-up fee and
expense reimbursement in the event that the Company decides to pursue an
alternative transaction or course of action. However, the Letter of Intent does
not restrict the Company's and the Creditors' Committee's ability to solicit
alternative proposals. The Company continues to retain The Avalon Group, Ltd.,
New York as its investment banker. The Letter of Intent was approved by the
Bankruptcy Court on October 27, 2000. The Company, FCOAC and the Creditors'
Committee are engaged in ongoing negotiations regarding the terms of the
definitive documentation, including a plan of reorganization.

                                      10
<PAGE>

     Results of Operations

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

<TABLE>
<CAPTION>
                                                          Three fiscal months ended                  Nine fiscal months ended
                                                      ---------------------------------        ------------------------------------
<S>                                                   <C>                  <C>                 <C>                 <C>
                                                       Oct. 28,             Oct. 30,             Oct. 28,              Oct. 30,
                                                         2000                 1999                 2000                  1999
                                                      -----------          -----------         ------------        -------------
Net sales                                                 100.0 %              100.0 %              100.0 %              100.0 %
Cost of sales                                              54.9                  58.1                53.1                 54.0
                                                      -----------          -----------         ------------        -------------
  Gross profit                                             45.1                  41.9                46.9                 46.0
Selling, general and administrative expenses               48.8                  49.7                46.5                 48.8
Interest expense                                            1.5                   1.7                 1.4                  1.5
                                                      -----------          ------------        ------------        -------------
  Loss before reorganization items and
  extraordinary item                                       (5.2)                 (9.5)               (1.0)                (4.3)
Reorganization items, net                                   5.6                   4.5                 3.8                 10.9
                                                      -----------          ------------        ------------        -------------
  Loss before extraordinary item                          (10.8)                (14.0)               (4.8)               (15.2)
Extraordinary item-loss on early retirement of  debt          -                     -                   -                  0.8
                                                      -----------          ------------        ------------        -------------
  Net loss                                                (10.8)%               (14.0)%              (4.8)%              (16.0)%
                                                      ===========          ============        ============        =============
Number of stores open at end of period                      177                   182                 177                  182
</TABLE>

Three Fiscal Months Ended October 28, 2000 and October 30, 1999

     Net Sales.  Net store sales increased $293, or 0.6%, to $50,778 for the
three fiscal month period ended October 28, 2000 from $50,485 for the three
fiscal month period ended October 30, 1999. Comparable store sales increased
$1,137, or 2.8% for the same period. Operating five fewer stores impacted net
sales in the current quarter. As previously reported, the Company closed five
under-performing stores in August 2000. Comparable store sales were impacted by
improved flow of merchandise to the stores. The Company includes stores opened
13 or 14 months after their opening date in the calculation of comparable store
sales. If the opening date of a store falls in the first 14 days of a period,
the store is included in the comparable store calculation in its 13th month of
operation; otherwise, a store is included in the comparable store calculation in
its 14th month of operation. Due to the timing of store openings and closings,
177 stores were included in comparable sales for the three fiscal months ended
October 28, 2000 and the three fiscal month period ended October 30, 1999.

     Gross Profit.  Cost of sales includes distribution costs.  Gross profit
increased $1,756 or 8.3% to $22,904 for the three fiscal month period ended
October 28, 2000 from $21,148 for the three fiscal month period ended October
30, 1999. As a percentage of net sales, gross profit was 45.1% for the three
fiscal month period ended October 28, 2000 compared to 41.9% in the same period
in the prior year. Gross profit as a percentage of net sales increased as a
result of higher margins related to the sale of seasonal merchandise. Gross
profit in the three fiscal month period ended October 30, 1999 was negatively
impacted by reserve activity recorded to address significant amounts of
Halloween seasonal carryover inventory.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses include store payroll, store occupancy, advertising,
depreciation, other store operating and corporate administrative expenses.
Selling, general and administrative expenses decreased $279 or 1.1%, to $24,790
for the three fiscal month period ended October 28, 2000 from $25,069 for the
three fiscal month period ended October 30, 1999. This decrease resulted
primarily from operating five fewer stores for the three fiscal month period
ended October 28, 2000. As a percentage of net sales, selling, general and
administrative expenses decreased to 48.8% in the three fiscal month period
ended October 28, 2000 from 49.7% in the three fiscal month period ended October
30, 1999.

     Interest Expense.  Interest expense was $739 in the three fiscal month
period ended October 28, 2000 compared to $860 in the three fiscal month period
ended October 30, 1999. This decrease resulted primarily from a reduction in the
amortization of deferred bank costs.

                                      11
<PAGE>

     Reorganization Items, net. Reorganization items increased $566 or 24.6%, to
$2,863 for the three fiscal month period ended October 28, 2000 from $2,297 for
the three fiscal month period ended October 30, 1999. During the three fiscal
months ended October 28, 2000, the Company recognized reorganization costs of
$1,177 relating to the closing of five stores in August 2000.

     Income Taxes.  Management believes that it is more likely than not that
deferred tax assets created by net operating loses for the three month period
ended October 28, 2000 will not be realized through future taxable income.
Because the realization of the deferred tax assets may be limited by events
involving the Chapter 11 Cases or other events related to the ownership of the
Company, the Company has recorded a valuation allowance to fully reserve for the
value of the net deferred tax assets at October 28, 2000 and January 29, 2000.


Nine Fiscal Months Ended October 28, 2000 and October 30, 1999

     Net Sales.  Net sales increased $9,394 or 6.1%, to $164,646 for the nine
fiscal month period ended October 28, 2000 from $155,252 for the nine fiscal
month period ended October 30, 1999. Prior year sales were negatively impacted
by the reduced flow of merchandise resulting from issues associated with the
Company's liquidity and the Chapter 11 Cases. Comparable store sales increased
$14,274 or 9.5% to $164,646 for the nine months ended October 28, 2000 from
$150,372 for the nine months ended October 30, 1999. The Company includes stores
opened 13 or 14 months after their opening date in the calculation of comparable
store sales.

     Gross Profit.  Cost of sales includes distribution costs.  Gross profit
increased $5,824 or 8.2%, to $77,199 for the nine fiscal month period ended
October 28, 2000 from $71,375 for the nine fiscal month period ended October 30,
1999. As a percentage of net sales, gross profit was 46.9% for the nine fiscal
month period ended October 28, 2000 compared to 46.0% in the same period in the
prior year. Gross profit as a percentage of net sales increased primarily as a
result of lower distribution costs coupled with higher gross margin rates in
five of the seven product categories.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses include store payroll, store occupancy, advertising,
depreciation, other store operating and corporate administrative expenses.
Selling, general and administrative expenses increased $720 or 0.9%, to $76,540
for the nine fiscal month period ended October 28, 2000 from $75,820 for the
nine fiscal month period ended October 30, 1999. This increase resulted
primarily from higher advertising costs offset by a decrease in store operating
expenses relating to the closure of five stores in August 2000. As a percentage
of net sales, selling, general and administrative expenses decreased to 46.5% in
the nine fiscal month period ended October 28, 2000 from 48.8% in the nine
fiscal month period ended October 30, 1999.

     Interest Expense.  Interest expense was $2,345 in the nine fiscal month
period ended October 28, 2000 compared to $2,335 in the nine fiscal month period
ended October 30, 1999. This increase resulted primarily from higher borrowing
levels coupled with a higher effective interest rate.

     Reorganization Items, net. Reorganization items decreased $10,616 or 63.0%,
to $6,237 for the nine fiscal month period ended October 28, 2000 from $16,853
for the nine fiscal month period ended October 30, 1999. During the nine fiscal
months ended October 30, 1999, the Company recorded a provision for
reorganization costs of $10,634 relating to the closing of 27 stores in April
1999. During the nine fiscal months ended October 28, 2000, the Company recorded
a provision for reorganization costs of $1,177 for store closings in August
2000.

                                 12
<PAGE>


     Income Taxes.  Management believes that it is more likely than not that
deferred tax assets created by net operating losses for the nine fiscal month
period ended October 28, 2000 will not be realized through future taxable
income. Because the realization of the deferred tax assets may be limited by
events involving the Chapter 11 Cases or other events related to the ownership
of the Company, the Company has recorded a valuation allowance to fully reserve
for the value of the net deferred tax assets at October 28, 2000 and January 29,
2000.

Liquidity and Capital Resources

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

     As a debtor in possession under the Bankruptcy Code, actions to collect
prepetition indebtedness are stayed and certain contractual obligations may not
be enforced against the Company. With the approval of the Bankruptcy Court,
certain of these obligations may be paid prior to the confirmation of the
reorganization plan. To date, the Company has received approval to pay customary
prepetition obligations associated with the daily operation of its business,
including employee wages and other obligations. As permitted under the
Bankruptcy Code, the Company has received Bankruptcy Court approval to reject 13
real estate leases for stores that were never opened and to close and conduct
closing sales at 27 stores. These closing sales were completed in July 1999. The
Company closed five additional stores in August 2000. The Company has not
completed its review of all of its prepetition contracts and leases for
assumption or rejection. The ultimate amount of, and settlement terms for, such
liabilities are subject to an approved plan of reorganization and, accordingly,
the timing and form of settlement are not presently determinable.

     The Company is a party to a Revolving Credit and Guaranty Agreement (the
"Loan Agreement") dated as of March 23, 1999 which was entered into subsequent
to the commencement of the Chapter 11 Cases and will terminate upon the earlier
of the confirmation of a plan of reorganization in the Chapter 11 Cases or March
23, 2001. The Loan Agreement provides the Company with a revolving line of
credit for loans and letters of credit in an aggregate amount not to exceed
$50,000 outstanding at any one time, including a sublimit of $10,000 for the
issuance of letters of credit. The Company intends to use amounts borrowed under
the Loan Agreement for its ongoing working capital needs and for other general
corporate purposes.

     The Loan Agreement contains certain restrictive covenants, which, among
other things, require the Company to maintain certain inventory levels and
achieve specified operating results. The restrictive covenants also limit the
Company's capital expenditures, asset sales and dividends and the ability of the
Company to grant liens and incur additional indebtedness. All such covenants
have been met or waived.

     As of October 28, 2000, the Company had $28,766 of borrowings outstanding
under the Loan Agreement and had utilized approximately $2,300 under the Loan
Agreement to issue letters of credit. The Company believes that its cash flow
from operations, borrowings under the Loan Agreement, adequate trade terms and
the continued support of its vendors will provide it with sufficient liquidity
to conduct its operations while the Chapter 11 Cases are pending. The Company
will be exploring opportunities to obtain long-term financing to support the
Company's business plan after it emerges from Chapter 11; however, there can be
no assurance that the Company will be able to obtain such financing with
satisfactory terms, if at all.

                                      13
<PAGE>

     At October 28, 2000, the Company's working capital was $15,864. Net cash
used in operations for the nine fiscal month period ended October 28, 2000 was
$5,500 compared to $5,419 of net cash provided by operations for the nine fiscal
month period ended October 30, 1999. The decrease was a result of the non-cash
portion of reorganization costs associated with the 27 store closings recorded
in the nine months ended October 30, 1999.

     Net cash used in investing activities during the nine fiscal month periods
ended October 28, 2000 and October 30, 1999 was $1,591 and $1,675, respectively.
Net cash used in investing activities was primarily for capital expenditures for
store and distribution center equipment.

     Net cash provided by financing activities during the nine fiscal month
period ended October 28, 2000 was $5,556 compared to $7,253 of net cash used in
financing activities during the nine fiscal months ended October 30, 1999.
During March 1999 the Company used $24,732 of borrowings under the Loan
Agreement to pay the outstanding balances under the Company's previous revolving
credit agreement and term loan.

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

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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

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

     On October 11, 2000 the Company announced that it and the Statutory
Committee of Unsecured Creditors (the Creditors' Committee) have entered into a
non-binding Letter of Intent (the "Letter of Intent") with FCO Acquisition Corp.
("FCOAC") regarding a potential transaction which would provide the Company with
sufficient funding to enable it to emerge from Chapter 11. The Letter of Intent
is subject to, among other things, the completion of due diligence, the
execution of definitive documentation and confirmation of a plan of
reorganization that would have to be voted upon by creditors.

     The Letter of Intent provides for FCOAC to receive a break-up fee and
expense reimbursement in the event that the Company decides to pursue an
alternative transaction or course of action. However, the Letter of Intent does
not restrict the Company's and the Creditors' Committee's ability to solicit
alternative proposals. The Company continues to retain The Avalon Group, Ltd.,
New York as its investment banker. The Letter of Intent was approved by the
Bankruptcy Court on October 27, 2000. The Company, FCOAC and the Creditors'
Committee are engaged in ongoing negotiations regarding the terms of the
definitive documentation, including a plan of reorganization.

     Several claims and cases have been filed by creditors of the Company
relating to unpaid amounts due to such creditors. Payment of these amounts is
now stayed in the Chapter 11 Cases. The Company is also from time to time
involved in routine litigation, other than bankruptcy cases, incidental to the
conduct of its business. As of the date of this Quarterly Report on Form 10-Q,
the Company is aware of no material existing or threatened litigation to which
it is or may be a party.

Item 2.  Changes in Securities.

         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

                                      15
<PAGE>

     (a)  Exhibits

          27.1  Financial Data Schedule

     (b)  Reports on 8-K

          Form 8-K dated October 13, 2000, to report the entering into of the
          Letter of Intent dated October 11, 2000, among FCO Acquisition Corp.,
          Factory Card Outlet Corp., Factory Card Outlet of America, Ltd., and
          the Statutory Committed of Unsecured Creditors of Factory Card Outlet
          Corp. and Factory Card Outlet of America, Ltd.


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 OUTLET CORP.


Dated:  December 8, 2000      By: /s/ William E. Freeman
                                 -------------------------------------------
                              William E. Freeman
                              President and Chief Executive Officer


Dated:  December 8, 2000      By: /s/ James D. Constantine
                                 -------------------------------------------
                              James D. Constantine
                              Senior Vice President and Chief Financial Officer
                              (principal financial officer)

                                      16