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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 April 29, 2006

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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer See definition of accelerated filer and large accelerated filer in rule 12b-2 of the Exchange Act (Check One).

Large accelerated filer ̈,    accelerated filer ̈,    non-accelerated filer  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.

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 ̈.

The number of shares of the
Registrants Common Stock outstanding as of June 9, 2006 was 3,293,204.



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##### Table of Contents

Factory Card & Party Outlet Corp.

Form 10-Q

For the Quarter Ended April 29, 2006

Index



|        |  |                                                                                                                          |  |                                                             |  |      
|------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------- |  | -----
|        |  |                                                                                                                          |  | Page                                                       
|        |  | Cautionary Statement Regarding Forward-Looking Statements                                                                |  | 2                                                          
|        |  |                                                                                                                         
|Part I  |  | Financial Information                                                                                                    |  |                                                            
|        |  |                                                                                                                         
|Item 1  |  | Financial Statements:                                                                                                    |  |                                                            
|        |  |                                                                                                                         
|        |  | Condensed Consolidated Balance Sheets (Unaudited) as of April 29, 2006 and January 28, 2006                              |  | 3                                                          
|        |  |                                                                                                                         
|        |  | Condensed Consolidated Statements of Operations (Unaudited) for the three months ended April 29, 2006 and April 30, 2005 |  | 4                                                          
|        |  |                                                                                                                         
|        |  | Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended April 29, 2006 and April 30, 2005 |  | 5                                                          
|        |  |                                                                                                                         
|        |  | Notes to Condensed Consolidated Financial Statements - (Unaudited)                                                       |  | 6-12                                                       
|        |  |                                                                                                                         
|Item 2  |  | Managements Discussion and Analysis of Financial Condition And Results of Operations                                    |  | 13-18                                                      
|        |  |                                                                                                                         
|Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                                                               |  | 19                                                         
|        |  |                                                                                                                         
|Item 4  |  | Controls and Procedures                                                                                                  |  | 19                                                         
|        |  |                                                                                                                         
|Part II |  | Other Information                                                                                                        |  |                                                            
|        |  | Item 1.                                                                                                                  |  | Legal Proceedings                                           |  | 20   
|        |  | Item 1A.                                                                                                                 |  | Risk Factors                                                |  | 20   
|        |  | Item 2.                                                                                                                  |  | Unregistered Sales of Equity Securities and Use of Proceeds |  | 20   
|        |  | Item 3.                                                                                                                  |  | Defaults Upon Senior Securities                             |  | 20   
|        |  | Item 4.                                                                                                                  |  | Submission of Matters to a Vote of Security Holders         |  | 20   
|        |  | Item 5.                                                                                                                  |  | Other Information                                           |  | 20   
|        |  | Item 6.                                                                                                                  |  | Exhibits and Reports on Form 8-K                            |  | 21-25
|        |  | Signatures                                                                                                               |  | 26                                                         



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

References throughout this document to the Company include Factory
Card & Party Outlet Corp. and its wholly-owned subsidiary Factory Card Outlet of America, Ltd. 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. On our website, please see Corporate
Information for a link to our SEC reports.

Statements made in this Form 10-Q, 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 good only at the time made and are not guarantees of future performance and that actual results and trends in the future may differ materially. Unless otherwise required by applicable
securities laws, the Company assumes no obligation to update its forward-looking statements to reflect subsequent events or circumstances.

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



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



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



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



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



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



| |  |  | consumer confidence and 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)



|                                           |  |                |        |                  |   |       
|------------------------------------------ |  | -------------- | ------ | ---------------- | - | ------
|                                           |  | April 29, 2006 |        | January 28, 2006
|ASSETS                                     |  |                |        |                  |   |       
|Current assets:                            |  |                |        |                  |   |       
|Cash                                       |  | $              | 200    |                  | $ | 196   
|Merchandise inventories, net               |  |                | 48,320 |                  |   | 49,552
|Prepaid expenses and other                 |  |                | 4,813  |                  |   | 4,606 
|Deferred tax asset, net                    |  |                | 3,764  |                  |   | 3,728 
|                                           |  |                |        |                  |   |       
|Total current assets                       |  |                | 57,097 |                  |   | 58,082
|Fixed assets, net                          |  |                | 10,344 |                  |   | 10,247
|Other assets                               |  |                | 99     |                  |   | 104   
|Deferred tax asset, net                    |  |                | 8,742  |                  |   | 8,869 
|                                           |  |                |        |                  |   |       
|Total assets                               |  | $              | 76,282 |                  | $ | 77,302
|                                           |  |                |        |                  |   |       
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |                |        |                  |   |       
|                                           |  |               
|Current liabilities:                       |  |                |        |                  |   |       
|Line of credit                             |  | $              | 15,828 |                  | $ | 19,532
|Accounts payable                           |  |                | 20,990 |                  |   | 19,266
|Accrued expenses                           |  |                | 8,890  |                  |   | 8,579 
|Capital lease obligations                  |  |                | 12     |                  |   | 15    
|                                           |  |                |        |                  |   |       
|Total current liabilities                  |  |                | 45,720 |                  |   | 47,392
|                                           |  |                |        |                  |   |       
|Deferred rent liabilities                  |  |                | 1,590  |                  |   | 1,606 
|                                           |  |                |        |                  |   |       
|Total liabilities                          |  |                | 47,310 |                  |   | 48,998
|                                           |  |                |        |                  |   |       
|Stockholders equity                       |  |                | 28,972 |                  |   | 28,304
|                                           |  |                |        |                  |   |       
|Total liabilities and stockholders equity |  | $              | 76,282 |                  | $ | 77,302
|                                           |  |                |        |                  |   |       

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 monthsendedApril 29,2006 |           | Three monthsendedApril 30,2005
|Net sales                                     |  | $                              | 56,972    |                                | $ | 55,738   
|Cost of sales                                 |  |                                | 36,698    |                                |   | 35,439   
|                                              |  |                                |           |                                |   |          
|Gross profit                                  |  |                                | 20,274    |                                |   | 20,299   
|Selling, general and administrative expenses  |  |                                | 18,990    |                                |   | 18,939   
|Depreciation expense                          |  |                                | 781       |                                |   | 581      
|Interest expense                              |  |                                | 300       |                                |   | 169      
|                                              |  |                                |           |                                |   |          
|Income before income taxes                    |  |                                | 203       |                                |   | 610      
|Income taxes                                  |  |                                | 91        |                                |   | 246      
|                                              |  |                                |           |                                |   |          
|Net income                                    |  | $                              | 112       |                                | $ | 364      
|                                              |  |                                |           |                                |   |          
|Net income per share - basic                  |  | $                              | 0.04      |                                | $ | 0.12     
|                                              |  |                                |           |                                |   |          
|Weighted average shares outstanding  basic   |  |                                | 3,127,368 |                                |   | 3,049,486
|                                              |  |                                |           |                                |   |          
|Net income per share  diluted                |  | $                              | 0.03      |                                | $ | 0.10     
|                                              |  |                                |           |                                |   |          
|Weighted average shares outstanding  diluted |  |                                | 3,328,052 |                                |   | 3,513,548
|                                              |  |                                |           |                                |   |          

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 threemonths endedApril 29,2006 |         |   | For the threemonths endedApril, 302005 |  
|Cash flows from operating activities:                                            |  |                                        |         |   |                                        |   |         |  
|Net income                                                                       |  | $                                      | 112     |   |                                        | $ | 364     |  
|Adjustments to reconcile net income to net cash flows from operating activities: |  |                                        |         |   |                                        |   |         |  
|Depreciation expense                                                             |  |                                        | 781     |   |                                        |   | 581     |  
|Deferred taxes                                                                   |  |                                        | 91      |   |                                        |   |         |  
|Loss on disposal of fixed assets                                                 |  |                                        |        |   |                                        |   | 4       |  
|Amortization of deferred financing costs                                         |  |                                        | 5       |   |                                        |   | 8       |  
|Amortization of deferred compensation                                            |  |                                        | 161     |   |                                        |   | 31      |  
|Changes in assets and liabilities:                                               |  |                                        |         |   |                                        |   |         |  
|Merchandise inventories, net                                                     |  |                                        | 1,232   |   |                                        |   | (3,847  | )
|Prepaid expenses and other assets                                                |  |                                        | (207    | ) |                                        |   | (186    | )
|Accounts payable                                                                 |  |                                        | 1,724   |   |                                        |   | 5,577   |  
|Accrued expenses                                                                 |  |                                        | 311     |   |                                        |   | 1,489   |  
|Deferred rent obligation                                                         |  |                                        | (16     | ) |                                        |   | (102    | )
|                                                                                 |  |                                        |         |   |                                        |   |         |  
|Net cash flows from operating activities                                         |  |                                        | 4,194   |   |                                        |   | 3,919   |  
|                                                                                 |  |                                        |         |   |                                        |   |         |  
|Net cash flows from investing activities  purchase of fixed assets              |  |                                        | (878    | ) |                                        |   | (914    | )
|                                                                                 |  |                                        |         |   |                                        |   |         |  
|Cash flows from financing activities:                                            |  |                                        |         |   |                                        |   |         |  
|Borrowings - line of credit                                                      |  |                                        | 55,549  |   |                                        |   | 56,330  |  
|Repayments - line of credit                                                      |  |                                        | (59,253 | ) |                                        |   | (57,704 | )
|Payment of trade conversion and extended creditor note payable                   |  |                                        |        |   |                                        |   | (1,649  | )
|Payment of capital lease obligations                                             |  |                                        | (3      | ) |                                        |   | (3      | )
|Increase/(decrease) in long term debt                                            |  |                                        |        |   |                                        |   | 16      |  
|Cash received from exercise of stock options and warrants                        |  |                                        | 395     |   |                                        |   | 9       |  
|                                                                                 |  |                                        |         |   |                                        |   |         |  
|Net cash flows from financing activities                                         |  |                                        | (3,312  | ) |                                        |   | (3,001  | )
|                                                                                 |  |                                        |         |   |                                        |   |         |  
|Net increase in cash                                                             |  |                                        | 4       |   |                                        |   | 4       |  
|Cash at beginning of period                                                      |  |                                        | 196     |   |                                        |   | 188     |  
|                                                                                 |  |                                        |         |   |                                        |   |         |  
|Cash at end of period                                                            |  | $                                      | 200     |   |                                        | $ | 192     |  
|                                                                                 |  |                                        |         |   |                                        |   |         |  
|Supplemental cash flow information:                                              |  |                                        |         |   |                                        |   |         |  
|Interest paid                                                                    |  | $                                      | 340     |   |                                        | $ | 168     |  
|Alternative minimum taxes paid                                                   |  |                                        |        |   |                                        |   | 37      |  
|Supplemental non cash information:                                               |  |                                        |         |   |                                        |   |         |  
|Unearned nonvested stock awards                                                  |  |                                        | 553     |   |                                        |   | 115     |  

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
|--- | ----------------------------------

As of April 29,
2006, Factory Card & Party Outlet Corp. and its subsidiary, Factory Card Outlet of America Ltd., operated 192 company-owned retail stores in 20 states, offering a wide selection of party supplies, greeting cards, gift wrap, balloons,
everyday and seasonal merchandise and other special occasion merchandise.

The Companys fiscal year ends on the 52 or 53 weeks, as
applicable, ending the Saturday nearest to January 31st. Fiscal 2006 is the 53 week period January 29,
2006 to February 3, 2007. Fiscal 2005 is the 52 week period January 30, 2005 to January 28, 2006.

While the Companys
product offerings can be differentiated among various categories (i.e. cards, candy, gift wrap, etc.), the Company deems the products to be similar in nature and therefore does not present the categories as segments as per the Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 131 Disclosures about Segments of an Enterprise and Related Information, (SFAS No. 131).

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 28, 2006 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.



|(2) | Line of Credit and Capital Lease Obligations
|--- | --------------------------------------------

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, at April 29, 2006 provided $35,000 (including
$10,000 for letters of credit) to fund working capital needs and for general corporate purposes. The maturity date on the Loan Agreement is October 31, 2008.

Borrowings under the facility are limited by a percentage of inventory levels. At April 29, 2006, the weighted average interest rate on the Companys borrowings was 6.61%. Borrowings under the Loan Agreement
are secured by substantially all of the Companys assets. Certain restrictive covenants apply,



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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 April 29, 2006 and January 28, 2006.

At April 29, 2006 and January 28, 2006, the Company has outstanding borrowings under the Loan Agreement of $15,828 and $19,532, respectively.

The Companys 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 its control. Based upon the Companys current level of operations and anticipated growth,
the Company believes 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 the business will continue to generate sufficient cash flow from operations in the future to service the debt and make necessary capital expenditures after satisfying certain
liabilities arising in the ordinary course of business. If unable to do so, the Company may be required to refinance all or a portion of the 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.



|(3) | Lease Payments
|--- | --------------

The Company conducts all of its activities
using leased premises. Stores and office leases generally provide that real estate taxes, insurance, common area maintenance, and operating expenses are the Companys obligations. Certain store leases provide for contingent rentals based on
sales in excess of specified minimums. Contingent rental expense was $26 at April 29, 2006 and $42 at April 30, 2005. Rent expenses charged to operations under operating leases at April 29, 2006, April 30, 2005 were $7,269,
and $6,780, respectively.



|(4) | Stock Based Compensation
|--- | ------------------------

On January 29, 2006, the
Company adopted SFAS No. 123(R), Share-Based Payments, (SFAS No. 123(R)), using the modified-prospective method. Under this method, stock based compensation expense is recognized for new grants beginning this fiscal year
and any unvested grants prior to the adoption of SFAS No. 123(R). Prior to fiscal 2006, no compensation expense was recorded in the condensed consolidated income statement as the Company accounted for share-based payments to employees using
Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees, (APB No. 25) and the disclosure-only provisions of SFAS 123 No. 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.

Under SFAS No. 123(R), the Company will continue to use the Black-Scholes option pricing model to determine the fair value of stock based compensation. The Black-Scholes model requires the Company to make several assumptions, including
the estimated length of time employees will retain their vested stock options before exercising them (expected term), and the estimated volatility of the Companys common stock price over the expected term. Expected price volatility
of the fiscal 2006 grants is based on the daily market rate changes of the Companys stock going back for a period of one year from the date of grant. The period length was determined based on both managements assessment of stock price
volatility that has resulted since the Companys emergence from bankruptcy as well as consideration of the market volatility of a number of the Companys publicly traded competitors. Expected life for the fiscal 2006 grant of non-qualified
stock options was calculated based on the plain vanilla option formula prescribed by Staff Accounting Bulletin No. 107 Share based payment. The shares granted in fiscal 2006 had a vesting period of three years and a
contractual life of 10 years. All non-perfomance



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based share awards issued by the Company have graded vesting schedules of three to four years. The
Black-Scholes model also requires a risk-free interest rate, which is based on the U.S. Treasury yield curve in effect at the time of the grant, and the dividend yield on the Companys common stock, which is assumed to be zero since the Company
does not pay dividends and has no current plans to do so in the future. Changes in these assumptions can materially affect the estimate of fair value of stock based compensation and consequently, the related expense recognized on the condensed
consolidated statement of operations. The Company recognizes stock based compensation expense on a straight-line basis for awards with graded vesting. Specific information for the various stock plans is included in Note 5 Stockholders Equity.

The fair value of each non-qualified stock option was estimated on the date of grant using the Black-Scholes option pricing model.



|                                                     |  |                   |   |  |                       |  
|---------------------------------------------------- |  | ----------------- | - |  | --------------------- | -
|Valuation Assumptions:                               |  | Fiscal 2006Grants |   |  | Pre-Fiscal2006 Grants |  
|Risk-free interest rate                              |  | 4.57              | % |  | 3.39% -4.73           | %
|Expected dividend yield                              |  | 0                 | % |  | 0                     | %
|Expected price volatility                            |  | 50                | % |  | 50                    | %
|Expected life of non-qualified stock options (years) |  | 6.0               |   |  | 6.0  10.0            |  

The Company recognized stock based compensation expense of $94 for the three months ended
April 29, 2006. This expense is included in selling, general and administrative expenses.

The results for the three months ended
April 30, 2005 have not been restated. If the stock based compensation expense for the Companys stock option plan had been determined based upon the fair value at the grant date for awards made prior to fiscal 2006 under the plan
consistent with the methodology prescribed under SFAS No. 123, the Companys net earnings/loss per share would have been as follows:



|                                                                                                                                     |  |                                         |       |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------- | ----- | -
|                                                                                                                                     |  | For the threemonths endedApril 30, 2005 |      
|Net income, as reported                                                                                                              |  | $                                       | 364   |  
|Deduct: Total stock-based employee compensation expense determined under fair value basis for all awards, net of related tax
effects |  |                                         | 672   |  
|                                                                                                                                     |  |                                         |       |  
|Pro forma net income (loss)                                                                                                          |  | $                                       | (308  | )
|                                                                                                                                     |  |                                         |       |  
|Earnings (loss) per share:                                                                                                           |  |                                         |       |  
|Basic-as reported                                                                                                                    |  | $                                       | 0.12  |  
|                                                                                                                                     |  |                                         |       |  
|Basic-pro forma                                                                                                                      |  | $                                       | (0.10 | )
|                                                                                                                                     |  |                                         |       |  
|Diluted-as reported                                                                                                                  |  | $                                       | 0.10  |  
|                                                                                                                                     |  |                                         |       |  
|Diluted-pro forma                                                                                                                    |  | $                                       | (0.10 | )
|                                                                                                                                     |  |                                         |       |  

On April 14, 2005, the Company approved the accelerated vesting of unvested and
out-of-the-money options held by employees, executive officers and non-employee directors (the Acceleration) that were 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 were those which had exercise prices of greater than $9.64 per share, 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 agreements 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.



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|(5) | Stockholders Equity
|--- | --------------------

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 SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities adjustments.

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 3,291,204 common shares were deemed outstanding at April 29, 2006.

Nonvested Stock

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 nonvested stock awards. Compensation cost is included in results of operations and expensed ratably (straight-line) over the vesting period. Expense relating to
these outstanding nonvested stock awards for the three months ended April 29, 2006 and April 30, 2005 was $15 and $31, respectively.

In June 2005, the Board of Directors approved a nonvested 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. Expense recognized
for this Plan for the three months ended April 29, 2006 was $10.

In November 2005, the Board of Directors approved a nonvested share
award under the 2003 Equity Incentive Plan to certain members of the officer group of the Company. A total of 4,500 shares were awarded which vest ratably over three years. Expense recognized for this Plan for the three months ended April 29,
2006 was $2.

The Companys nonvested stock awards vest over three to four years and are restricted as to the sale or transfer of the
shares prior to vesting. Nonvested stock awards are non-transferable and subject to forfeiture if the holder does not remain continuously employed by the Company during the vesting period, or, if the nonvested stock is subject to performance
measures, if those performance measures are not attained. The fair value of the nonvested stock awards is equal to the value of the Companys stock on the date of grant. The Company included the vested and unvested portions of the nonvested
stock awards in its dilutive earnings per share calculations.

Nonvested Performance-based Stock

In February 2006, the Board of Directors approved a nonvested performance-based share award under the 2003 Equity Incentive Plan to the officer group of
the Company. A total of 60,000 shares were awarded with a grant date fair value of $7.99. The performance condition for full or partial vesting will be satisfied if and only to the extent the Company achieves a predetermined return on invested
capital for a rolling 12-consecutive-month period beginning after January 28, 2006 and ending on or before February 9, 2009 or at a time earlier as described in the agreement. Expense recognized for this Plan for the three months ended
April 29, 2006 was $40. Based on the guidance set forth in SFAS 123(R), the Company has excluded these performance-based shares from the dilutive earnings per share calculations.



9



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##### Table of Contents

A summary of the nonvested and nonvested performance-based stock activity during the three months ended
April 29, 2006 is summarized in the table below:



|                                  |  |         |   |  |                                       |     
|--------------------------------- |  | ------- | - |  | ------------------------------------- | ----
|                                  |  | Shares  |   |  | Weighted AverageGrant-Date Fair Value
|Outstanding at January 28, 2006   |  | 44,750  |   |  | $                                     | 5.59
|Granted to employees              |  | 60,000  |   |  |                                       | 7.99
|Vested, converted                 |  | (25,250 | ) |  |                                       | 3.76
|Terminated or resigned            |  |        |   |  |                                       |    
|                                  |  |         |   |  |                                       |     
|Total outstanding, April 29, 2006 |  | 79,500  |   |  | $                                     | 4.84

Total nonvested stock compensation expense for the three months ended April 29, 2006 was
approximately $68, pre-tax.

Warrants

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 Warrants were
issued to non-employees upon emergence from bankruptcy. Of the Series A Warrants 33,736 shares were exercised on April 13, 2006 and the remaining balance of 22,450 shares expired on April 9, 2006. 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 April 29, 2006, Warrants to purchase an aggregate of 208,252 shares common stock were outstanding.

Stock Option Plans

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  234,700 options under the 2002 stock option plan at exercise prices ranging from $2.75 to $22.40 were outstanding at April 29, 2006. Under the plan, stock options may be granted for the
purchase of its Common Stock at an exercise price of not less than 100% of the fair market value at the time of grant as determined by the Board of Directors. The term of each option is also determined by the Board of Directors, but cannot be more
than ten years from the date of grant. Options are exercisable in accordance with the Plan and generally vest at the rate of 25% to 33% per year from the date of grant.

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 April 29, 2006. Under the Plan, options may be granted for the purchase of its Common
Stock at an exercise price not less than 100% of the fair market value of a share of Common Stock on the date of grant. Options are exercisable in accordance with the Plan and generally vest at the rate of 33% to 50% per year from the date of
grant.

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  324,185 options were outstanding at
April 29, 2006 with exercise prices ranging from $6.38 to $19.00. Under this plan, 500,000 shares of Common Stock would be available for the settlement of the following types of awards: stock options; stock appreciation awards; nonvested
shares; deferred stock; dividend equivalents; performance units; performance shares; and other stock based awards.



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##### Table of Contents

Stock option activity for the three months ended April 29, 2006 is as follows:



|                                     |  |                       |   |  |                               |     
|------------------------------------ |  | --------------------- | - |  | ----------------------------- | ----
|                                     |  | Number ofStockOptions |   |  | WeightedAverageExercise Price
|Outstanding - January 28, 2006       |  | 839,517               |   |  | $                             | 6.22
|Granted                              |  | 1,000                 |   |  |                               | 8.14
|Exercised                            |  | (59,216               | ) |  |                               | 3.54
|Forfeited                            |  | (7,416                | ) |  |                               | 8.88
|Outstanding- April 29, 2006          |  | 773,885               |   |  | $                             | 6.40
|                                     |  |                       |   |  |                               |     
|Exercisable - April 29, 2006         |  | 674,917               |   |  | $                             | 6.31
|                                     |  |                       |   |  |                               |     
|Available for grant  April 29, 2006 |  | 98,968                |   |  |                               |     
|                                     |  |                       |   |  |                               |     

Information regarding outstanding and exercisable options at April 29, 2006 is as follows:



|                         |  |                     |  |                                          |  |                               |       |                    |         |                               |   |      
|------------------------ |  | ------------------- |  | ---------------------------------------- |  | ----------------------------- | ----- | ------------------ | ------- | ----------------------------- | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                     
|                         |  | NumberOutstanding   |  | Weighted-averageremainingcontractuallife |  | Weighted-averageexerciseprice |       | Number exercisable |         | Weighted-averageexerciseprice
|Range of Exercise Prices |  |                     |  |                                          |  |                               |       |                    |         |                               |   |      
|April 29, 2006:          |  |                     |  |                                          |  |                               |       |                    |         |                               |   |      
|$ 2.65 to $ 8.30         |  | 603,035             |  | 6.4                                      |  | $                             | 4.81  |                    | 504,601 |                               | $ | 4.38 
|9.31 to 12.44            |  | 168,050             |  | 7.2                                      |  |                               | 11.87 |                    | 167,516 |                               |   | 11.88
|17.55 to 22.40           |  | 2,800               |  | 7.6                                      |  |                               | 20.36 |                    | 2,800   |                               |   | 20.36
|                         |  |                     |  |                                          |  |                               |       |                    |         |                               |   |      
|$ 2.65 to $ 22.40        |  | 773,885             |  | 6.3                                      |  | $                             | 6.40  |                    | 674,917 |                               | $ | 6.31 
|                         |  |                     |  |                                          |  |                               |       |                    |         |                               |   |      



|(6) | 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.



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##### Table of Contents

The reconciliation of earnings per share- basic to earnings per share - diluted for the three months
ended April 29, 2006 and April 30, 2005 is as follows (in thousands, except per share amounts):



|                                              |  |                                         |           |                                         |   |          
|--------------------------------------------- |  | --------------------------------------- | --------- | --------------------------------------- | - | ---------
|                                              |  | For the threemonths endedApril 29, 2006 |           | For the threemonths endedApril 30, 2005
|Net income                                    |  | $                                       | 112       |                                         | $ | 364      
|Earnings per share  basic                    |  | $                                       | 0.04      |                                         | $ | 0.12     
|Earnings per share  diluted                  |  | $                                       | 0.03      |                                         | $ | 0.10     
|Weighted average shares outstanding - basic   |  |                                         | 3,127,368 |                                         |   | 3,049,486
|Dilutive effect of stock options and warrants |  |                                         | 200,684   |                                         |   | 464,062  
|                                              |  |                                         |           |                                         |   |          
|Weighted average shares outstanding - diluted |  |                                         | 3,328,052 |                                         |   | 3,513,548
|                                              |  |                                         |           |                                         |   |          

Options and warrants to purchase 266,000 common shares at prices ranging from $8.30 to $22.40 per
share were outstanding as of April 29, 2006 but were not considered in the calculation of diluted earnings per share for the three months ended April 29, 2006 because the strike price was greater than the average market price per share
during the period.

Options and warrants to purchase 178,150 common shares at prices ranging from $11.08 to $22.40 per share and warrants to
purchase 60,152 common shares at a price of $17.00 per share were outstanding as of April 30, 2005 but were not included in the calculation of diluted earnings per share for the three months ended April 30, 2005 because the strike price
was greater than the average market price per share during the period.



|(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) | Legal Proceedings
|--- | -----------------

The Company is or may be subject to
certain legal proceedings and claims from time to time that are incidental to the ordinary course of business. The Company will record a liability when it has been determined that it is probable that the Company will be obligated to pay and the
amount can be reasonably estimated, and the Company will disclose the related facts in the footnotes to the financial statements, if material. If the Company determines that an obligation is reasonably possible it will, if material, disclose the
nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of loss can be made.

The
Company is from time to time named in charges filed with the Equal Employment Opportunity Commission (EEOC) and other federal and state governmental entities governing employees and the workplace. In one of those matters, the EEOC issued
a determination on February 28, 2006 that there is reasonable cause to believe that certain employees were subject to verbal harassment in violation of applicable laws. A determination that the Company is not in compliance with the rules and
regulations of these governmental entities could result in the award of damages and/or equitable remedies. Although the outcome cannot be predicted with certainty, in the fourth quarter of fiscal 2005 the Company recorded a $500 reserve with respect
to these pending matters. The $500 reserve remains as part of accrued expenses as of April 29, 2006.

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 we are or 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 stores provide our customers with value solutions for all their party and social occasion
needs in a one-stop, festive environment. As a leader in the market place, our stores, which average approximately 11,500 square feet, carry the most current and sought after merchandise in the party solution, greeting card, gift wrap, balloon,
seasonal event and special occasion merchandise arenas. 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 years end on the 52 or 53 weeks, as applicable, ending
the Saturday nearest to January 31st. Fiscal 2006 is the period January 29, 2006 to February 3, 2007.
Fiscal 2005 is the period January 30, 2005 to January 28, 2006. The following table summarizes store opening and closing activity during the first three months of fiscal 2006 and fiscal 2005.



|                    |  |                             |   |  |               
|------------------- |  | --------------------------- | - |  | --------------
|                    |  | For the three months ended:
|                    |  | April 29, 2006              |   |  | April 30, 2005
|Beginning of period |  | 188                         |   |  | 184           
|Openings            |  | 5                           |   |  | 1             
|Closings            |  | (1                          | ) |  |              
|                    |  |                             |   |  |               
|End of period       |  | 192                         |   |  | 185           
|                    |  |                             |   |  |               

Party Supply Agreement

On January 26, 2006, we entered into a definitive agreement with Amscan Holdings, Inc. to be our exclusive supplier of solid color paper tableware products. In conjunction with the agreement, Amscan ships all sourced merchandise to our
centralized distribution center. The agreement also provides that the ownership of merchandise will not transfer over until the goods ship out from our distribution center.

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 April 29, 2006 and
January 28, 2006, we had reserves of $1,668 and $1,666, respectively.



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##### Table of Contents

Vendor Rebates

We
receive vendor allowances principally as a result of meeting defined purchase levels or promoting vendors products. Those received as a result of purchase levels are accrued as a reduction of merchandise purchase price and resulting 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. Advertising cooperative payments were $98 and $109 for the quarters ended April 29, 2006 and April 30, 2005, respectively.

Accounting for Long-Lived Assets

We perform an impairment evaluation for our long-lived assets in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS No. 144). Long 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, we estimate 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 fair value of the asset is recognized. We did not record any fixed asset impairments
in the three months ended April 29, 2006 or the three months ended April 30, 2005.

We capitalize software in accordance with Statement of
Position (SOP) 98-1 Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1). Our capitalized software is made up of purchased software and the respective licenses, including
the many components of JDA, our administrative systems and eCommerce software. The software is depreciated over three years.

We lease all of the premises
in which we operate. The leases are accounted for in accordance with SFAS No. 13, Accounting for Leases (SFAS No. 13). Certain leases provide for scheduled increases in base rentals over their terms. For these
leases we recognize the total rental amounts expected to be paid over the lease terms (starting at the date of possession) on a straight-line basis and, accordingly, establish corresponding deferred rent liabilities for the difference between the
amounts recognized and the amounts paid. We also receive certain lease incentives which are deferred and amortized on a straight-line basis over the initial term of a lease as a reduction of rent expense. Certain leases provide for contingent
rentals based on sales in excess of specified minimums. Additional information is found in Note 3 Lease Payments.

Income Taxes

We account for income taxes in accordance with the SFAS No. 109 Accounting for Income Taxes, (SFAS No. 109).
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

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.

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 monthsendedApril 29, 2006 |   |  | Three monthsEndedApril 30 2005 |  
|Sales                                        |  | 100.0                           | % |  | 100.0                          | %
|Cost of sales                                |  | 64.4                            |   |  | 63.6                           |  
|                                             |  |                                 |   |  |                                |  
|Gross profit                                 |  | 35.6                            |   |  | 36.4                           |  
|Selling, general and administrative expenses |  | 33.3                            |   |  | 34.0                           |  
|Depreciation expense                         |  | 1.4                             |   |  | 1.0                            |  
|Interest expense                             |  | 0.5                             |   |  | 0.3                            |  
|                                             |  |                                 |   |  |                                |  
|Income before income taxes                   |  | 0.4                             |   |  | 1.1                            |  
|Income taxes                                 |  | 0.2                             |   |  | 0.4                            |  
|                                             |  |                                 |   |  |                                |  
|Net income                                   |  | 0.2                             | % |  | 0.7                            | %
|                                             |  |                                 |   |  |                                |  
|Number of stores open at end of period       |  | 192                             |   |  | 185                            |  

Three Months Ended April 29, 2006 and April 30, 2005

Net Sales. Net sales increased $1,234 or 2.2% to $56,972 for the three months ended April 29, 2006 (first quarter of fiscal 2006) from $55,738 for
the three months ended April 30, 2005 (first quarter of fiscal 2005). The increase is attributed to the store count offset by a slight decrease (-0.3%) in comparable store sales. The weighted average number of stores opened during
the first quarter of fiscal 2006 was 191 compared with 184 during the first quarter of fiscal 2005. We experienced modest comparable store sales growth in balloons, cards and seasonal categories, countered by declines 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 an existing stores trading area.



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##### Table of Contents

Gross Profit. Cost of sales includes merchandise, distribution and store occupancy costs. Gross profit decreased
$25 or 0.1%, to $20,274 for the first quarter of fiscal 2006 from $20,299 for the first quarter of fiscal 2005 The decrease as a percentage of net sales is primarily the result of higher store occupancy costs. Store occupancy costs increased $740 or
9.4% as we opened new stores and renewed existing leases. During the quarter, our merchandise margins remained flat while we saw continued leverage of our freight and distribution costs. Gross profit as a percent of net sales, excluding store
occupancy costs, increased 20 basis points.

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 $51 or 0.3% to $18,990 for the first quarter of fiscal 2006 from $18,939 for the first quarter of
fiscal 2005. Major contributors to the increase are the following:



| |  |  | Store payroll increased approximately $213 or 2.6% as we operated more stores.
| | - |  | ------------------------------------------------------------------------------



| |  |  | Store general expense, inclusive of store pre-opening and remodel expenses, increased approximately $8 or less than one percent. Store pre-opening expenses increased as a function
of opening five stores in the first quarter of fiscal 2006 compared to one in the first quarter of fiscal 2005. This increase was partially offset by effectively managing our store general expenses as well as performing three fewer remodels as
compared to the prior year.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net advertising expense decreased approximately $305 or 14% as we attempt to leverage our advertising costs by opening stores in existing markets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other corporate expenses increased approximately $135 or 2.8% primarily as a result of the adoption of SFAS 123(R) and additional payroll costs associated with store operations and
merchandising departments, partially offset by a decrease in bonus expense as actual performance fell short of plan.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a percentage of net
sales, selling, general and administrative expenses were 33.3% in the first quarter of fiscal 2006 compared to 34.0% in the first quarter of fiscal 2005.

Depreciation expense. Depreciation expense was $781 in the first quarter of fiscal 2006 compared to $581 in the first quarter of fiscal 2005. The increase is attributed to the level of fixed asset additions primarily related to new
store openings and store remodels. Since April 2005, we have opened 11 new store prototypes.

Interest Expense. Interest expense was $300 in the
first quarter of fiscal 2006 compared to $169 in the first quarter of fiscal 2005. 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. Income tax expense was $91 in the first quarter of fiscal 2006 compared to $246 in the first quarter of fiscal 2005. The decrease is a
function of lower income levels in the first quarter of fiscal 2006. Until the benefits of our net operating loss carry forwards are fully utilized, we do not expect to pay federal income taxes.

Liquidity and Capital Resources

Our uses of capital for fiscal 2006
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 borrowings from our credit facility.



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##### Table of Contents

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



|                                     |  |                                  |        |   |                                  |   |        |  
|------------------------------------ |  | -------------------------------- | ------ | - | -------------------------------- | - | ------ | -
|                                     |  | Fiscal 2006                      |        |   | Fiscal 2005                      |  
|                                     |  | Three months endedApril 29, 2006 |        |   | Three months endedApril 30, 2005 |  
|Cash flows from operating activities |  | $                                | 4,194  |   |                                  | $ | 3,919  |  
|                                     |  |                                  |        |   |                                  |   |        |  
|Cash flows from investing activities |  | $                                | (878   | ) |                                  | $ | (914   | )
|                                     |  |                                  |        |   |                                  |   |        |  
|Cash flows from financing activities |  | $                                | (3,312 | ) |                                  | $ | (3,001 | )
|                                     |  |                                  |        |   |                                  |   |        |  

At April 29, 2006 our working capital was $11,377. Net cash provided by operating activities for the three
months ended April 29, 2006 was $4,194 compared to $3,919 of net cash provided by operating activities for the three months ended April 30, 2005. The fluctuation is related to decreases in inventory coupled with increases in our accounts
payable balances. Our inventory purchases decreased 13% compared to prior year first quarter as we attempt to manage inventory levels more effectively while we continue to work with our vendor community in obtaining improved payable terms.

Net cash used in investing activities for the three months ended April 29, 2006 and the three months ended April 30, 2005 was $878 and $914,
respectively. Net cash used in investing activities was for capital expenditures related to new store openings $577, warehouse equipment for the distribution center $277, and computer equipment and software $24.

Net cash used in financing activities for the three months ended April 29, 2006 was $3,312 compared to $3,001 of net cash used for the three months ended
April 30, 2005. Amounts are attributable to the level of borrowings and repayments.

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 $35,000, (including $10,000 for letters of credit) to
fund working capital needs and for general corporate purposes. The maturity date on the Loan Agreement is October 31, 2008. Borrowings under the facility are limited by a percentage of inventory levels, and are secured by substantially all of
our assets.

As of April 29, 2006 we had $15,828 in borrowings outstanding under the Loan Agreement and had utilized approximately $1,800 to issue
letters of credit. As of June 9, 2006, we had $6,765 in borrowings outstanding under the Loan Agreement, utilized approximately $2,600 issue letters of credit and had $18,157 available for future cash borrowings.

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 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)           |  | $                                                   | 15.8  |                   | $ | 15.8     |  | $        |      |                  | $ |      |  | $ |    
|Operating Leases(**)                                           |  |                                                     | 112.1 |                   |   | 28.9     |  |          | 39.7 |                  |   | 21.3 |  |   | 22.2
|Inventory Purchase Commitments(including open purchase orders) |  |                                                     | 16.7  |                   |   | 14.7     |  |          | 1.3  |                  |   | 0.7  |  |   |    
|                                                               |  |                                                     |       |                   |   |          |  |          |      |                  |   |      |  |   |     
|Total                                                          |  | $                                                   | 144.6 |                   | $ | 59.4     |  | $        | 41.0 |                  | $ | 22.0 |  | $ | 22.2
|                                                               |  |                                                     |       |                   |   |          |  |          |      |                  |   |      |  |   |     

---

|(*) | 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 three months ended April 29, 2006 totaled $ 2.2 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 2006 quarters are defined as follows: first fiscal quarter is January 29, 2006 to April 29, 2006, second fiscal quarter is April 30, 2006 to July 29, 2006, third fiscal quarter is
July 30, 2006 to October 28, 2006 and fourth fiscal quarter is October 29, 2006 to February 3, 2007. Our fiscal year ends on the 52 or 53 weeks, as applicable, ending the Saturday nearest to January 31st.



18



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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 April 29, 2006, 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 and LIBOR rates. 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 months ended April 29, 2006 and the three months ended
April 30, 2005 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 June 9, 2006 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 April 29, 2006, 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



19



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##### Table of Contents

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are or may be subject to certain legal proceedings and claims from time to time that are
incidental to the ordinary course of business. We will record a liability when it has been determined that it is probable that the Company will be obligated to pay and the amount can be reasonably estimated, and we will disclose the related facts in
the footnotes to the financial statements, if material. If we determine that an obligation is reasonably possible it will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that
no estimate of loss can be made.

We are from time to time named in charges filed with the Equal Employment Opportunity Commission (EEOC) and
other federal and state governmental entities governing employees and the workplace. In one of those matters, the EEOC issued a determination on February 28, 2006 that there is reasonable cause to believe that certain employees were subject to
verbal harassment in violation of applicable laws. A determination that we are not in compliance with the rules and regulations of these governmental entities could result in the award of damages and/or equitable remedies. Although the outcome
cannot be predicted with certainty, in the fourth quarter of fiscal 2005 we recorded a $500 reserve with respect to these pending matters. This $500 reserve remains as part of Accrued Expenses as of April 29, 2006.

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 we are or may be a
party.

Item 1A.Risk Factors

We have not identified any material changes from risk factors as previously disclosed in Form 10-K filed
on April 19, 2006.



|Item 2. | Unregistered Sales of Equity 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.



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##### Table of Contents

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits



|        |  |                                                                                                                                                                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|2.1(1)  |  | Debtors 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.                                                                                                                                                                                                                                                                
|        | 
|3.3(7)  |  | Amendment to and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp, dated July 17, 2003.                                                                                                                                                                                                   
|        | 
|3.4(7)  |  | Amendment to and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp, dated April 6, 2004.                                                                                                                                                                                                   
|        | 
|3.5(12) |  | Amended and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp, dated February 6, 2006.                                                                                                                                                                                                     
|        | 
|4.1(2)  |  | Warrant Agreement, dated April 9, 2002, between Factory Card & Party Outlet Corp. 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).                                                                                                                                                                                                                                        
|        | 
|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(7) |  | 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.                                                                                                                                                                                                                                                       



21



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##### Table of Contents

|           |  |                                                                                                                                                                                                                                                    
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           | 
|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(5)*   |  | Employment Agreement, dated as of December 23, 2004, between Factory Card Outlet of America, Ltd. and Timothy F. Gower.                                                                                                                            
|           | 
|10.9(5)*   |  | 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(11)  |  | Factory Card & Party Outlet Corp. Form of Stock Option Agreement  2002 Stock Option Plan.                                                                                                                                                         
|           | 
|10.15(6)** |  | Primary Supply and Consignment Agreement dated February 5, 2005 between Factory Card Outlet of America, Ltd and Paramount Cards, Inc.                                                                                                              
|           | 
|10.16(11)* |  | Factory Card & Party Outlet Corp., Form of Stock Option Agreement  2002 Non-Employee Directors Stock Option Plan.                                                                                                                                 
|           | 
|10.18(11)* |  | Factory Card & Party Outlet Corp., Form of Stock Option Agreement - Equity Incentive Plan.                                                                                                                                                         
|           | 
|10.19(11)* |  | Factory Card & Party Outlet Corp., Form of Restricted Stock Agreement - Equity Incentive Plan.                                                                                                                                                     
|           | 
|10.20(11)* |  | Factory Card & Party Outlet Corp., Summary of Incentive Bonus Agreements.                                                                                                                                                                          
|           | 
|10.21(11)* |  | Factory Card & Party Outlet Corp., Summary of Non-employee Director Compensation.                                                                                                                                                                  
|           | 
|10.22(11)* |  | Factory Card & Party Outlet Corp., Summary of Arrangements with Certain Executives.                                                                                                                                                                
|           | 
|10.23(8)   |  | Second Amendment dated October 7, 2005, 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.



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##### Table of Contents

|           |  |                                                                                                                                                                                                                                                                                                           
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           | 
|10.24(9)*  |  | Waiver and Release of James D. Constantine, CFO, dated as of December 2, 2005.                                                                                                                                                                                                                            
|           | 
|10.25(10)* |  | Amended Employment Agreement, dated as of December 9, 2005, between Factory Card Outlet of America, Ltd. and Timothy F. Gower.                                                                                                                                                                            
|           | 
|10.26(10)* |  | Amended Employment Agreement, dated as of December 9, 2005, between Factory Card Outlet of America, Ltd. and Gary W. Rada.                                                                                                                                                                                
|           | 
|10.27(10)* |  | Employment Agreement, dated as of December 9, 2005, between Factory Card Outlet of America, Ltd. and Jarett A. Misch.                                                                                                                                                                                     
|           | 
|10.28(10)* |  | Amended and Restated Executive Severance Plan, dated as of December 9, 2005.                                                                                                                                                                                                                              
|           | 
|10.29(11)* |  | Factory Card & Party Outlet, 2006 Management Incentive Plan.                                                                                                                                                                                                                                              
|           | 
|10.30(13)  |  | Primary Supply and Consignment Agreement dated January 26, 2006 between Factory Card & Party Outlet Corp. and Amscan Holdings, Inc.                                                                                                                                                                       
|           | 
|10.31(14)  |  | Agreement by and among Cramer Rosenthal McGlynn, LLC, a Delaware limited liability company (CRM LLC) and Cramer Rosenthal McGlynn, Inc., a Ney York corporation (CRM
Inc. and together with CRM LLC, CRM), on the one hand, and Factory Card & Party Outlet Corp. on the other dated April 18, 2006.
|           | 
|21         |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                              
|           | 
|23.1       |  | Consent 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 Accounting 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 Accounting Officer Certification of Periodic Report under Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                 

---

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.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



23



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##### Table of Contents

|(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 Annual Report on Form 10-K as filed on May 2, 2003.
|--- | ----------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on December 23, 2004.
|--- | ----------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on February 7, 2005.
|--- | ---------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Companys Current Report on Form 10-K as filed on April 21, 2004.
|--- | --------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on October 17, 2005.
|--- | ---------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on December 2, 2005.
|--- | ---------------------------------------------------------------------------------------------------

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

|(11) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q as filed on June 14, 2005.
|---- | ---------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on February 6, 2006.
|---- | ---------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on January 26, 2006.
|---- | ---------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to the Companys Current Report on Form 8-K as filed on April 20, 2006.
|---- | -------------------------------------------------------------------------------------------------



24



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##### Table of Contents

| | (b) | Reports on 8-K
| | --- | --------------

Current Report on Form
8-K filed on January 31, 2006 announcing the 2006 management bonus plan.

Current Report on Form 8-K filed on
February 3, 2006 announcing sales results for January 2006.

Current Report on Form 8-K filed on February 6, 2006 announcing an exception to
current ownership restrictions for a current shareholder.

Current Report on Form 8-K filed on March 2, 2006 announcing sales results for February
2006 and the expansion of the Companys internet store.

Current Report on Form 8-K filed on April 7, 2006
announcing sales results for March 2006.

Current Report on Form 8-K filed on April 18, 2006 announcing fourth quarter and full year operating results
for fiscal 2005.

Current Report on Form 8-K filed on April 20, 2006 announcing the execution by Factory Card & Party Outlet, Corp., Cramer
Rosenthal McGlynn, LLC (CRM LLC) and Cramer Rosenthal McGlynn, Inc. (CRM Inc.) of an agreement, dated April 18, 2006 (the Agreement), relating to, among other things, the settlement of a pending proxy contest
in connection with FCPOs 2006 annual meeting of stockholders.

Current Report on Form 8-K filed on April 28, 2006 announcing the appointment of
Mone Anathan to the Companys Board of Directors.



25



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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: June 12, 2006 |  | By:                               |  | /s/ Gary W. Rada                                       
|                     |  |                                   |  | Gary W. Rada                                           
|                     |  |                                   |  | President and Chief Executive Officer                  
|                     |  |                                  
|Dated: June 12, 2006 |  | By:                               |  | /s/ Jarett A. Misch                                    
|                     |  |                                   |  | Jarett A. Misch                                        
|                     |  |                                   |  | Vice President, Controller and Chief Accounting Officer
|                     |  |                                   |  | [Principal Accounting Officer]                         



26