<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q/A
                                 Amendment No. 1

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

                   For The Quarterly Period Ended May 4, 2002

                          Commission File Number: 21859

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

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

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

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

                            Factory Card Outlet Corp.
                            -------------------------
                                  (Former Name)

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

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

The number of shares of the Registrant's Common Stock outstanding as of June 7,
2002 was 1,512,459.

<PAGE>


                        FACTORY CARD & PARTY OUTLET CORP.

                                   FORM 10-Q/A

                        FOR THE QUARTER ENDED MAY 4, 2002
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                 Page
<S>         <C>                                                                                  <C>
            Explanatory Note                                                                       3

            Cautionary Statement Regarding Forward-Looking Statements                              4

PART I      FINANCIAL INFORMATION

ITEM 1      FINANCIAL STATEMENTS:

            Condensed Consolidated Balance Sheets (Unaudited) - as of May 4, 2002
              (Successor Company) and as of February 2, 2002 (Predecessor Company)                 5

            Condensed Consolidated Statements of Operations (Unaudited) - one month ended
              May 4, 2002 (Successor Company), two months ended April 6, 2002 (as restated)
              and three months ended May 5, 2001 (Predecessor Company)                             6

            Condensed Consolidated Statements of Cash Flows (Unaudited) - one month ended
              May 4, 2002 (Successor Company), two months ended April 6, 2002 (as restated)
              and three months ended May 5, 2001 (Predecessor Company)                             7

            Notes to Condensed Consolidated Financial Statements - (Unaudited)                    8-17

ITEM 2      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS                                                          18-24

ITEM 3      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            24

PART II     OTHER INFORMATION
             Item 1.  Legal Proceedings                                                           24
             Item 2.  Changes in Securities and Use of Proceeds                                   24
             Item 3.  Defaults Upon Senior Securities                                             24
             Item 4.  Submission of Matters to a Vote of Security Holders                         24
             Item 5.  Other Information                                                           24
             Item 6.  Exhibits and Reports on Form 8-K                                           24-26
             Signatures                                                                           27
             Certifications                                                                       28
</TABLE>

                                        2

<PAGE>


                        FACTORY CARD & PARTY OUTLET CORP.

                                EXPLANATORY NOTE

The purpose of this amendment to our Quarterly Report on Form 10-Q is to amend
and restate the reorganization items recorded in the two months ended April 6,
2002 (Predecessor Company) as previously filed in our Quarterly Report on Form
10-Q on June 18, 2002.

Subsequent to the issuance of our condensed consolidated financial statements
for the quarterly period ended May 4, 2002, we determined that our
reorganization items recorded in the two months ended April 6, 2002 (Predecessor
Company) need to be restated. In connection with the reorganization, we issued
1,349,995 shares of our new common stock to certain of the unsecured creditors.
The fair value of these shares was $9.5 million. We initially recorded the
issuance of these shares as a charge to stockholders' equity. We have determined
that the fair value of the shares issued should have also been recorded as a
reorganization item in the Condensed Consolidated Statement of Operations in the
two months ended April 6, 2002. As a result, we have restated our Condensed
Consolidated Statements of Operations and Cash Flows for the two months ended
April 6, 2002 (Predecessor Company). The Condensed Consolidated Statements of
Operations and Cash Flows for the one month ended May 4, 2002 (Successor
Company) as well as the Condensed Consolidated Balance Sheet at May 4, 2002
(Successor Company) are not affected by the aforementioned restatement.
Additionally, the restatement has no effect on our liquidity or cash position.
See note (9) in the Notes to Condensed Consolidated Financial Statements for
summary of the significant effects of the restatement.

This Quarterly Report on Form 10-Q/A does not reflect events occurring after the
filing of our Quarterly Report on Form 10-Q for the fiscal quarter ended May 4,
2002, or materially modify or update those disclosures, except as discussed
above.

                                        3

<PAGE>

            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

As used herein, unless the context otherwise requires, the "Company," "we,"
"our" or "us" refers to Factory Card & Party Outlet Corp. and its subsidiaries.

Statements made in this report, and in our other public filings and releases,
which are not historical facts contain "forward-looking" statements (as defined
in the Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties and are subject to change at any time. These forward-looking
statements may include, but are not limited to, certain statements in
"Management's Discussion and Analysis of Financial Condition and Results Of
Operations," such as our ability to meet our liquidity needs, scheduled debt and
interest payments and expected future capital expenditure requirements.

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

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

        .       ability to meet sales plans;
        .       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;
        .       governmental regulations; and
        .       other factors both referenced and not referenced in this Form
                10-Q/A.

                                        4

<PAGE>

PART I - FINANCIAL INFORMATION, ITEM 1, FINANCIAL STATEMENTS

                        FACTORY CARD & PARTY OUTLET CORP.
                                 AND SUBSIDIARY

                      Condensed Consolidated Balance Sheets
                                   (Unaudited)
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                        SUCCESSOR      PREDECESSOR
                                                                         COMPANY         COMPANY
                                                                       ------------   ------------
                                                                           MAY 4,      FEBRUARY 2,
                                                                           2002           2002
                                                                       ------------   ------------
        <S>                                                            <C>            <C>
        ASSETS

        Current assets:
           Cash                                                        $        191   $        182
           Merchandise inventories                                           50,242         59,496
           Prepaid expenses and other                                         2,846          2,949
                                                                       ------------   ------------
               Total current assets                                          53,279         62,627

        Fixed assets, net                                                     5,916         18,414
        Other assets                                                            353            258
                                                                       ------------   ------------

               Total assets                                            $     59,548   $     81,299
                                                                       ============   ============

        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

        Current liabilities:
           Debt                                                        $     23,273   $          -
           Debtor-in-possession financing                                         -         27,260
           Accounts payable                                                   8,873          8,071
           Accrued expenses                                                   9,950          9,698
           Current portion of long term debt and capital lease
            obligations                                                         455            305
                                                                       ------------   ------------
               Total current liabilities                                     42,551         45,334
                                                                       ------------   ------------

        Long term debt and capital lease obligations                          6,145            338
        Deferred rent liabilities                                               161              -
        Liabilities subject to compromise                                         -         54,560
                                                                       ------------   ------------

               Total liabilities                                             48,857        100,232

        Stockholders' equity (deficit)                                       10,691        (18,933)
                                                                       ------------   ------------

               Total liabilities and stockholders' equity (deficit)    $     59,548   $     81,299
                                                                       ============   ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>

                        FACTORY CARD & PARTY OUTLET CORP.
                                 AND SUBSIDIARY

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

<TABLE>
<CAPTION>
                                                                SUCCESSOR       PREDECESSOR       PREDECESSOR
                                                                 COMPANY          COMPANY           COMPANY
                                                             --------------   --------------    --------------
                                                                ONE MONTH       TWO MONTHS       THREE MONTHS
                                                                ENDED MAY       ENDED APRIL        ENDED MAY
                                                                   4,               6,                5,
                                                                  2002             2002              2001
                                                             --------------   --------------    --------------
                                                                               [AS RESTATED
                                                                               -SEE NOTE (9)]
        <S>                                                  <C>              <C>               <C>
        Net sales                                            $       18,187   $       40,837    $       56,235
        Cost of sales                                                11,597           26,991            37,542
                                                             --------------   --------------    --------------
           Gross profit                                               6,590           13,846            18,693
        Selling, general and administrative expenses                  5,697           12,212            17,073
        Depreciation                                                    100            1,030             1,752
        Reorganization items                                              -          (18,840)            1,404
        Interest expense                                                154              374               824
                                                             --------------   --------------    --------------
           Income (loss) before income tax (benefit)                    639           19,070            (2,360)
        Income tax expense (benefit)                                    249             (360)                -
                                                             --------------   --------------    --------------
           Net income (loss)                                 $          390   $       19,430    $       (2,360)
                                                             ==============   ==============    ==============

        Net income per share - basic & diluted               $         0.26
                                                             ==============

        Weighted average shares outstanding -
         Basic & diluted                                          1,499,548
                                                             ==============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        6

<PAGE>

                        FACTORY CARD & PARTY OUTLET CORP.
                                 AND SUBSIDIARY

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                             SUCCESSOR       PREDECESSOR      PREDECESSOR
                                                              COMPANY          COMPANY          COMPANY
                                                          --------------   --------------   --------------
                                                            FOR THE ONE      FOR THE TWO    FOR THE THREE
                                                            MONTH ENDED     MONTHS ENDED     MONTHS ENDED
                                                            MAY 4, 2002     APRIL 6, 2002     MAY 5, 2001
                                                          --------------   --------------   --------------
                                                                            [AS RESTATED
                                                                            -SEE NOTE (9)]
<S>                                                       <C>              <C>              <C>
Cash flows from operating activities:
  Net income (loss)                                       $          390   $       19,430   $       (2,360)
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
       Plan of reorganization and fresh-start
        adjustments                                                    -          (21,898)               -
       Deprecation and amortization of fixed assets                  100            1,030            1,752
       Amortization of deferred financing costs                        6               26              171
       Amortization of deferred compensation                          12                -
       Non cash portion of reorganization items                        -            1,275              519
       Utilization of pre-confirmation net operating
        losses                                                       249                -                -
      Changes in assets and liabilities:
             Merchandise inventories                               1,349            2,212            2,573
             Prepaid expenses and other assets                     2,575           (2,594)             164
             Accounts payable                                     (2,489)           3,336             (464)
             Accrued expenses                                     (2,688)           2,020              364
             Deferred rent obligation                                161                -                -
                                                          --------------   --------------   --------------
Net cash provided by (used in) operating activities                 (335)           4,837            2,719
                                                          --------------   --------------   --------------
Net cash used in investing activities - purchase of
 fixed assets, net                                                  (176)            (257)            (265)
                                                          --------------   --------------   --------------
Cash flow from financing activities:
   Borrowings                                                     18,664           38,381           56,177
   Repayment of debt                                             (18,134)         (42,898)         (58,319)
   Payment of capital lease obligations                              (44)             (56)             (36)
   Increase in long term debt                                         27                -                -
                                                          --------------   --------------   --------------
Net cash provided by (used in) financing activities                  513           (4,573)          (2,178)
                                                          --------------   --------------   --------------
Net increase in cash                                                   2                7              276
Cash at beginning of period                                          189              182              281
                                                          --------------   --------------   --------------
Cash at end of period                                     $          191   $          189   $          557
                                                          --------------   --------------   --------------
Supplemental cash flow information:
  Interest Paid                                           $          129   $          334   $          644
  Cash paid for reorganization items                                 358            1,055            1,785
Supplemental non cash information:
  Stock issued (Successor Company)                                     -          (10,040)               -
  Fair value adjustments                                               -           10,406                -
  Stock retired (Predecessor Company) and debt
   Discharge                                                           -          (22,828)               -
  Deferred Compensation                                              552              564                -
  Capital lease obligations                                            -               56                -
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        7

<PAGE>

                        FACTORY CARD & PARTY OUTLET CORP.
                                 AND SUBSIDIARY

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

(1)     Chapter 11 Proceedings and Reorganization

        On March 23, 1999 (the "petition date"), Factory Card & Party Outlet
        Corp. and its wholly owned subsidiary Factory Card Outlet of America
        Ltd, (collectively the "Company") filed voluntary petitions for relief
        under chapter 11 of title 11 of the United States Code (the "Bankruptcy
        Code") under case numbers 99-685(JCA) and 99-686(JCA) (the "Chapter 11
        Cases"). From that time until March 20, 2002, the Company operated its
        business as a debtor-in-possession subject to the jurisdiction and
        supervision of the United States Bankruptcy Court for the District of
        Delaware (the "Bankruptcy Court"). On March 20, 2002, the Company
        announced that the Bankruptcy Court confirmed the Company's Amended Plan
        of Reorganization (the "Plan of Reorganization") that it filed with the
        Bankruptcy Court on February 5, 2002. On April 9, 2002 (the "Effective
        Date") the Plan of Reorganization became effective and the Company
        successfully emerged from Chapter 11.

        Certain of the principal provisions of the Plan of Reorganization are as
        follows:

                .       The Company authorized an aggregate of 10,000,000 shares
                        of our new Common Stock, par value $.01 per share. The
                        Company's amended and restated certificate of
                        incorporation prohibits the transfer of any shares of
                        the new Common Stock or any rights to acquire shares of
                        the new Common Stock to any person or group that is a 5%
                        shareholder of Factory Card & Party Outlet Corp.

                .       The common stock of Factory Card & Party Outlet Corp.
                        that was outstanding immediately prior to the Plan
                        becoming effective was canceled and 74,553 shares of our
                        new Common Stock were issued to holders of the canceled
                        common stock at a ratio of .00992307034 shares of new
                        Common Stock for each share of canceled common stock.

                .       The Company issued 1,349,995 shares of the new Common
                        Stock to holders of unsecured claims against us, or
                        "General Unsecured Creditors."

                .       The Company issued 75,000 shares of the new Common Stock
                        to certain members of management, vesting ratably over a
                        four-year period, as specified in the Plan, and warrants
                        to purchase an aggregate 31,000 shares of our new Common
                        Stock at a purchase price of $7.52 per share. As of June
                        7, 2002, 12,900 warrants were exercised and the
                        remaining 18,100 expired.

                .       The Company issued four series of new Warrants, Series A
                        through D, to tendering holders of the canceled Common
                        Stock, granting such holders the right to purchase an
                        aggregate of 153,467 additional shares of the new Common
                        Stock. The Series A Warrants are exercisable any time
                        prior to April 9, 2006 at a price of $11.00 per share.
                        The Series B Warrants are exercisable at any time prior
                        to April 9, 2008 at a price of $16.00 per share. The
                        Series C Warrants are exercisable anytime prior to April
                        9, 2010 at a price of $16.00 per share. The Series D
                        Warrants are exercisable anytime prior to April 9, 2010
                        at a price of $34.00 per share.

                .       The Company adopted an employee stock option plan, the
                        2002 Stock Option Plan, to provide the Company's
                        eligible employees with the opportunity to purchase an
                        aggregate

                                        8

<PAGE>

                        166,667 shares of the Company's new Common Stock.

                .       The Company paid $1,000 to the General Unsecured
                        Creditors within 60 days of the Effective Date and
                        agreed to pay the General Unsecured Creditors three
                        years from emergence an aggregate of $2,600, less any
                        prepayments, which obligation is secured by a
                        subordinated lien on certain of the Company's property.

                .       The Company issued an aggregate of $3,130 of long-term
                        convertible secured subordinated notes (the "Trade
                        Conversion Notes") to seven trade vendors and suppliers
                        (the "Trade Participants"). The Trade Participants each
                        have the right to convert their Trade Conversion Notes
                        in whole, or in part, into an aggregate of 29.35% of the
                        new Common Stock, at any time between April 9, 2005 (the
                        third anniversary of the Plan's effective date) and
                        April 9, 2006 (the fourth anniversary of such date),
                        subject to adjustments to reflect any prepayments made
                        by the Company.

                .       The Company entered into five separate agreements with
                        various trade vendors, each dated April 9, 2002,
                        pursuant to which such trade vendors agreed to provide
                        the Company with payment terms, including extended
                        payment terms and seasonal advances.

(2)     Business and Basis of Presentation

        The Company is a chain of company-owned stores offering an extensive
        selection of party supplies, gifts, greeting cards, giftwrap and other
        special occasion merchandise at everyday value prices. As of June 7,
        2002, the Company operated 172 stores in 20 states.

        The 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 February 2, 2002 included in the Company's Annual Report on Form
        10-K. The operating results for the interim periods are not necessarily
        indicative of the results for the year. All intercompany balances and
        transactions have been eliminated in consolidation. In the opinion of
        management, the accompanying consolidated financial statements reflect
        all normal recurring and certain nonrecurring adjustments necessary for
        a fair presentation of the interim financial statements. In addition,
        certain prior year amounts have been reclassified to conform to the
        current year presentation.

        Fresh Start Accounting

        Pursuant to the guidance provided by the American Institute of Certified
        Public Accountants in Statement of Position 90-7, "Financial Reporting
        by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"),
        the Company adopted fresh-start reporting because holders of existing
        voting shares immediately before filing and confirmation of the plan
        received less than 50% of the voting shares of the emerging entity and
        its reorganization value was less than its post petition liabilities and
        allowed claims.

                                        9

<PAGE>

        As a result of fresh-start reporting, the Company reflected the
        distributions under the Plan of Reorganization in its balance sheet as
        of April 6, 2002 (the effective date of the consummation of the plan for
        accounting purposes). Accordingly, all consolidated financial statements
        for any period prior to April 6, 2002 are referred to as the
        "Predecessor Company" as they reflect the periods prior to the
        implementation of fresh-start reporting and are not comparable to the
        consolidated financial statements for periods after the implementation
        of fresh-start reporting.

        Fresh-start reporting requires that the reorganization value of the
        reorganized debtors be allocated to their assets in conformity with
        Statement of Financial Accounting Standard ("SFAS") No. 141 "Business
        Combinations", for transactions reported on the basis of the purchase
        method. Any reorganization value less than the fair value of the
        specific tangible or identified intangible assets is to be allocated to
        their non-current tangible assets on a pro rata basis after offsetting
        any intangible assets. The reorganized enterprise value of the Company
        on the effective date was established at $42,500 based upon a
        calculation of discounted cash flows under the Company's financial
        projections and trading multiples of comparable companies. The effects
        of the Plan of Reorganization and the application of fresh-start
        accounting on the Company's pre-confirmation consolidated balance sheet
        are as follows:

                                       10

<PAGE>
<TABLE>
<CAPTION>
                                        Predecessor         Plan of          Fresh Start         Successor
                                       April 6, 2002     Reorganization      Adjustments       April 6, 2002
                                      ---------------   ---------------    ---------------    ---------------
<S>                                   <C>               <C>                <C>                <C>
ASSETS

Current assets:
   Cash                               $           189   $                  $                  $           189
   Merchandise inventories                     56,987                               (5,396)i           51,591
   Prepaid expenses and other                   5,251                                                   5,251
                                      ---------------   ---------------    ---------------    ---------------
       Total current assets                    62,427                               (5,396)            57,031

Fixed assets, net                              17,600                              (11,760)a            5,840
Other assets                                      240               200b                                  440
                                      ---------------   ---------------    ---------------    ---------------
       Total assets                   $        80,267   $           200    $       (17,156)   $        63,311
                                      ===============   ===============    ===============    ===============
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)

Current liabilities:
     Debt                             $                 $        22,743c   $                  $        22,743
     Debtor-in- possession
      financing                                22,543           (22,543)c
     Accounts payable                          11,407            (3,130)d                               8,277
     Accrued expenses                          12,534                                                  12,534
     Liabilities subject to
      settlement                                                  3,085e                                3,085
                                      ---------------   ---------------    ---------------    ---------------
        Total current liabilities              46,484               155                                46,639
                                      ---------------   ---------------    ---------------    ---------------
Long term notes payable and
 capital leases                                 1,128             5,504d,h                              6,632
Deferred rent liabilities                           -             6,750f            (6,750)a                -
Liabilities subject to compromise              54,056           (54,056)f                                   -
                                      ---------------   ---------------    ---------------    ---------------
        Total liabilities                     101,668           (41,647)            (6,750)            53,271
  Stockholders' equity (deficit)              (21,401)           41,847g           (10,406)g           10,040
                                      ---------------   ---------------    ---------------    ---------------
      Total liabilities &
       stockholders' equity
        (deficit)                     $        80,267   $           200    $       (17,156)a  $        63,311
                                      ===============   ===============    ===============    ===============
</TABLE>

        (a)     To reduce the excess of book value over enterprise value.
        (b)     To record $200 of deferred financing costs related to exit
                financing with Wells Fargo Retail Finance LLP.
        (c)     Borrowings under new line of credit agreement with Wells Fargo
                Retail Finance, LLP. Existing debtor in possession financing
                agreement was paid in full upon the effective date of the Plan
                of Reorganization.
        (d)     To record the conversion of post-petition accounts payable into
                the $3,130 Trade Conversion Note.
        (e)     To record $1,000 payable due to creditors, $1,700 payable in
                landlord cure amounts, $323 payable in priority claims and $62
                payable in convenience claims. Amounts are to be paid within 60
                days of the Effective Date.
        (f)     To record elimination of pre-petition liabilities subject to
                compromise. Pre-petition liabilities subject to compromise
                included deferred rent liabilities that were not extinguished by
                the Bankruptcy Court.
        (g)     To write-off old equity upon emergence from chapter 11 and to
                adjust the accumulated deficit by the portion of the liabilities
                subject to compromise that is forgiven.
        (h)     To record at fair value the $2,600 creditor agreement.
        (i)     To eliminate the capitalization of certain buying and
                warehousing costs associated with a change in accounting
                principle.

                                       11

<PAGE>

        Management Estimates

        The preparation of financial statements in conformity with accounting
        principles generally accepted in the United States of America requires
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting period and related disclosures. Significant estimates made as
        of and for the one month ended May 4, 2002, the 2 months ended April 6,
        2002 and the three fiscal month period ended May 5, 2001 include
        accruals for reorganization items, provision for shrinkage, capitalized
        overhead costs related to inventory and the carrying values of
        inventories. Actual results could differ from those estimates.

        Change in Accounting Principle

        Prior to its emergence from bankruptcy, the Company capitalized certain
        buying and warehousing costs as a component of inventory. As of the
        emergence date, the Company discontinued this practice, recording all of
        the aforementioned costs in Cost of Sales. Going forward, the Company
        does not anticipate that the change will have a significant impact on
        periodic earnings.

        New Accounting Pronouncements

        In June 2001, the FASB ("Financial Accounting Standards Board") issued
        SFAS ("Statement of Financial Accounting Standards") No. 142 "Goodwill
        and Other Intangible Assets", which establishes financial accounting and
        reporting for acquired goodwill and other intangible assets and
        supercedes APB Opinion No. 17, "Intangible Assets". The provisions of
        SFAS No. 142 are effective for fiscal years beginning after December 15,
        2001. As the Company does not have goodwill or intangible assets
        recorded in the financial statements, the adoption of SFAS No. 142
        during the first quarter of fiscal 2002 did not have an impact on the
        financial condition or results of operations of the Company.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
        Retirement Obligations", which addresses financial accounting and
        reporting for obligations associated with the retirement of tangible
        long-lived assets and the associated asset retirement costs. The
        standard applies to legal obligations associated with the retirement of
        long-lived assets that result from the acquisition, construction,
        development and (or) normal use of the asset. The Company has adopted
        the provisions of SFAS No. 143 and it did not have a material impact on
        the Company's consolidated financial position or results of operations.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the
        Impairment or Disposal of Long Lived Assets", which addresses financial
        accounting and reporting for the impairment or disposal of long-lived
        assets and supercedes SFAS No. 121, "Accounting for the Impairment of
        Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", although
        it retains many of the fundamental provisions of that Statement. The
        provisions of SFAS No. 144 are effective for fiscal years beginning
        after December 15, 2001, thereby applying to fiscal 2002. In conjunction
        with fresh-start reporting, the Company recorded a $11,760 adjustment to
        fixed assets to reflect the excess of book value over enterprise value.
        We have adopted the provisions of SFAS No. 144 and it did not have a
        material impact on our consolidated financial position or results of
        operations.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
        Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
        Technical Corrections". Specifically, SFAS 145 rescinds SFAS No. 4,
        "Reporting Gains and Losses from Extinguishment of Debt, an amendment of
        APB Opinion No. 30" and SFAS No. 64, "Extinguishments of Debt Made to
        Satisfy Sinking-Fund Requirements", as these two standards required that
        all gains and losses from the extinguishment of

                                       12

<PAGE>

        debt be aggregated and, if material, classified as an extraordinary
        item. Consequently, such gains and losses will now be classified as
        extraordinary only if they meet the criteria for extraordinary treatment
        set forth in APB Opinion No. 30, "Reporting the Results of Operations -
        Reporting the Effects of Disposal of a Segment of a Business, and
        Extraordinary, Unusual and Infrequently Occurring Events and
        Transactions." SFAS No. 145 also rescinds SFAS No. 44 "Accounting for
        Intangible Assets of Motor Carriers, an amendment of Chapter 5 of ARB
        No. 43 and an interpretation of APB Opinions 17 and 30", because the
        event to which that Statement relates is no longer relevant. SFAS No.
        145 amends SFAS No. 13, "Accounting for Leases", to require that certain
        lease modifications that have economic effects similar to sale-leaseback
        transactions be accounted for in the same manner as such transactions,
        and also makes certain technical corrections to a number of existing
        pronouncements. The Company is required to adopt this statement due to
        the application of fresh-start accounting. The effect of this statement
        on the Company is that the net gain associated with the plan of
        reorganization and fresh-start adjustments is reported as a component of
        operations.

(3)     Long Term Debt and Capital Lease Obligations

        Pursuant to the Plan of Reorganization, the Company converted $3,130 of
        post petition trade payables into a trade conversion note, which will be
        payable within 4 years of the Effective Date. In addition, the Company
        recorded at fair value a $2,600 extended creditor payment to the general
        unsecured creditors.

        The following table summarizes the components of Short and Long Term
        Debt and Capital Lease Obligations at May 4, 2002.

                                                        May 4, 2002
                                                        -----------
        Trade conversion note                           $     3,130
        Discounted value of extended creditor payment         2,386
        Financing agreements                                    896
        Capital leases                                          188
                                                        -----------
            Total                                       $     6,600
                                                        ===========

                                       13

<PAGE>

(4)     Debt

        On the Effective date, obligations relating to the Company's
        debtor-in-possession financing facility were paid in full and the
        Company's secured financing facility with Wells Fargo Retail Finance,
        LLC (the "New Loan Agreement") became effective. The New Loan Agreement,
        which is a line of credit, currently provides up to $40,000 (including
        $10,000 for letters of credit) to fund working capital needs and for
        general corporate purposes. Borrowings under the facility are limited by
        a percent of inventory levels. The Loan Agreement expires on April 8,
        2005 and has a variable interest rate based upon the Prime rate or at
        the Company's option, a variable rate based upon earnings performance
        and the London Interbank Offered Rate ("LIBOR"). The interest rate on
        the Company's borrowings was 5.25% at May 4, 2002. Borrowings under the
        Loan Agreement are secured by substantially all of the Company's assets.
        Certain restrictive covenants apply, including achievement of specified
        operating results and limitations on the incurrence of additional liens
        and indebtedness, capital expenditures, asset sales and payment of
        dividends, all of which have been met.

(5)     Stockholders' Equity

        The Company has 10,000,000 shares of authorized common stock, par value
        $0.01 per share, 1,499,548 of which were deemed issued and outstanding
        for accounting purposes at May 4, 2002. A total of 1,349,995 shares were
        distributed on May 29, 2002 in the initial distribution of stock to
        creditors and the remaining 149,553 shares were distributed on April 9,
        2002 (74,553 to former equity interests and 75,000 to certain members of
        management which vest over a 4 year period).

        As provided in the Plan of Reorganization, the Company adopted a stock
        option plan, which authorizes the grant of up to 166,667 stock options
        to employees of the Company - 132,400 options were granted with an
        exercise price of $7.52.

        The Company also issued four series of new Warrants, Series A through D,
        to tendering holders of the canceled Common Stock, granting such holders
        the right to purchase an aggregate of 153,467 additional shares of the
        new Common Stock. The 38,346 shares of Series A Warrants are exercisable
        any time prior to April 9, 2006 at a price of $11.00 per share. The
        46,256 shares of Series B Warrants are exercisable at any time prior to
        April 9, 2008 at a price of $16.00 per share. The 38,346 shares of
        Series C Warrants are exercisable anytime prior to April 9, 2010 at a
        price of $16.00 per share. The 30,519 shares of Series D Warrants are
        exercisable anytime prior to April 9, 2010 at a price of $34.00 per
        share.

        Warrants were issued to management to purchase an aggregate 31,000
        shares of the new Common Stock at a purchase price of $7.52 per share.
        On June 7, 2002, 12,900 warrants were exercised and the remaining 18,100
        warrants expired.

        As provided in the Plan of Reorganization, the Company entered into a
        Trade Conversion Agreement with certain trade creditors to convert
        $3,130 of accounts payable into long term Trade Conversion Notes. Per
        the agreement, these notes will be payable on the fourth anniversary of
        the Effective Date and contain a conversion feature into common stock
        between the third and fourth anniversary of the Effective Date.

                                       14

<PAGE>

        On April 23, 2002, the Board of Directors approved the non-employee
        Director Stock Option Plan, which authorized the grant of up to 150,000
        common stock options to non-employee members of the Board of Directors -
        70,000 were granted with an exercise price of $7.52.

        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
        133 "Accounting for Derivative Instruments and Hedging Activities"
        adjustments.

        For purposes of the calculation of basic and diluted earnings per share,
        1,499,559 shares of common stock were deemed to be issued and
        outstanding as of May 4, 2002. Additionally, the above-mentioned stock
        options, warrants and convertible notes did not meet the criteria for
        inclusion in the diluted earnings per share calculation and thus were
        excluded. Per share and share information for the Predecessor Company
        for all periods presented in the Consolidated Statement of Operations
        have been omitted as such information is not deemed to be meaningful.

(6)     Reorganization Items

        Reorganization Items consisted of professional fees related to legal,
        accounting and consulting services directly attributable to the Plan of
        Reorganization and employee retention bonuses. In addition,
        Reorganization Items include the write-off of old equity upon emergence
        from chapter 11 and the elimination of pre-petition obligations during
        the two month period ended April 6, 2002. The components of
        Reorganization Items are as follows:

<TABLE>
<CAPTION>
                                                         Predecessor           Predecessor
                                                           Company               Company
                                                     -------------------   -------------------
                                                          Two months           Three months
                                                     ended April 6, 2002    ended May 5, 2001
                                                     -------------------   --------------------
          <S>                                        <C>                   <C>
          Professional fees                          $             1,379   $               822
          Severance/retention bonus                                1,026                   519
          Closed store expense                                       311                    43
          Fresh start adjustments                                 10,406                     -
          Forgiveness of debt                                    (41,847)                    -
          Unsecured creditors' ownership share of
           reorganized  Company                                    9,543                     -
          Other                                                      342                    20
                                                     -------------------   -------------------
             Total                                   $           (18,840)  $             1,404
                                                     -------------------   -------------------
</TABLE>

        The Successor Company has not recorded any Reorganization Items in the
        one month period ended May 4, 2002.

                                       15

<PAGE>

(7)     Income Taxes

        Income tax expense of $249 for the one month ended May 4, 2002 is offset
        by a direct increase in stockholders' equity due the Company's ability
        to utilize prior period net operating loss benefits. The income tax
        benefit of $360 for the two months ended April 6, 2002 results from the
        realization of net operating loss carrybacks due the enactment of the
        Job Creation and Workers Assistance Act of 2002.

        The results of operations prior to emergence have produced significant
        net operating losses. The Company has recorded a valuation allowance to
        fully reserve for the value of the net deferred tax assets at May 4,
        2002. The reserve was necessary, as the utilization of the Company's net
        loss carry forwards is dependent upon sufficient future taxable income.

(8)     Related Party Transactions

        As described in the Plan of Reorganization, 90% of the new Common Stock
        was distributed to unsecured creditors, five percent was distributed to
        our management and five percent was distributed to old equity
        shareholders. Only one entity has an ownership interest of more than
        10%. There were no purchases from that entity during the quarterly
        period ended May 4, 2002 and no amounts were owed at May 4, 2002.
        Management believes transactions with former unsecured creditors, as
        well as other vendors, are deemed to be consummated on terms equivalent
        to those prevailing in an arm's length transaction.

                                       16

<PAGE>

(9)     Restatement of Reorganization Items

        Subsequent to the issuance of the condensed consolidated financial
        statements for the quarterly period ended May 4, 2002, the Company
        determined that reorganization items recorded in the two months ended
        April 6, 2002 (Predecessor Company) need to be restated. In connection
        with the reorganization, 1,349,995 shares of new common stock were
        issued to certain of the unsecured creditors. The fair value of these
        shares was $9,543. The Company initially recorded the issuance of these
        shares as a charge to stockholders' equity. The Company has determined
        that the fair value of the shares issued should have also been recorded
        as a reorganization item in the Condensed Consolidated Statement of
        Operations in the two months ended April 6, 2002. As a result, the
        Condensed Consolidated Statements of Operations and Cash Flows for the
        two months ended April 6, 2002 (Predecessor Company) have been restated
        from the amounts previously recorded. A summary of the effects of the
        restatement is as follows:

<TABLE>
<CAPTION>
                                                                Predecessor          Predecessor
                                                                2002 Company        2002 Company
                                                            -------------------  ------------------
                                                             Two months ended
                                                               April 6, 2002      Two months ended
                                                              [as previously       April 6, 2002
                                                                reported]           [as restated]
                                                            -------------------  ------------------
                      <S>                                   <C>                  <C>
                      Net sales                             $            40,837  $           40,837
                      Cost of sales                                      26,991              26,991
                                                            -------------------  ------------------
                        Gross profit                                     13,846              13,846
                      Selling, general and administrative
                       expenses                                          12,212              12,212
                      Depreciation                                        1,030               1,030
                      Reorganization items                              (28,383)            (18,840)
                      Interest expense                                      374                 374
                                                            -------------------  ------------------
                        Income before income tax expense                 28,613              19,070
                      Income tax expense (benefit)                         (360)               (360)
                                                            -------------------  ------------------
                      Net income                            $            28,973  $           19,430
                                                            ===================  ==================
</TABLE>

        The Condensed Consolidated Statements of Operations and Cash Flows for
        the one month ended May 4, 2002 (Successor Company) as well as the
        Condensed Consolidated Balance Sheet at May 4, 2002 (Successor Company)
        are not affected by the aforementioned restatement. Additionally, the
        restatement has no effect on the Company's liquidity or cash position.

                                       17

<PAGE>

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

        The Company is a chain of company-owned stores offering an extensive
selection of party supplies, gifts, greeting cards, giftwrap and other special
occasion merchandise at everyday value prices. As of June 7, 2002, the Company
operated 172 stores in 20 states.

        On March 23, 1999 the Company filed voluntary petitions for relief under
chapter 11 of title 11 of the United States Code under case numbers 99-685(JCA)
and 99-686(JCA). From that time until March 20, 2002, the Company operated its
business as a debtor-in-possession subject to the jurisdiction and supervision
of the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). On March 20, 2002, the Company announced that the
Bankruptcy Court confirmed the Company's Amended Plan of Reorganization (the
"Plan of Reorganization") that it filed with the Bankruptcy Court on February 5,
2002. On April 9, 2002 (the "Effective Date") the Plan of Reorganization became
effective and the Company successfully emerged from Chapter 11. See Note (1) to
the Notes to the Condensed Consolidated Financial Statements for a summary of
the principle provisions of the Plan of Reorganization.

Critical Accounting Policies

        Critical Accounting Policies are defined as those that are reflective of
significant judgments and uncertainties and could potentially result in
materially different results under different assumptions and conditions. The
Company has 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. The
Company has identified the following critical accounting policies utilized in
the preparation of these financial statements.

Fresh Start Accounting

        As is more fully discussed in Note 2 - "Business and Basis of
Presentation" in our Notes to Condensed Consolidated Financial Statements, the
Company adopted fresh start accounting pursuant to the American Institute of
Certified Public Accountant's Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), during
the first quarter of fiscal 2002 resulting in a change in the basis of
accounting of our underlying assets and liabilities at the Effective Date.
Accordingly, the Company's financial statements before and after the Effective
Date are not comparable. The operating results for the two months ended April 6,
2002 were significantly impacted by items associated with emerging from
bankruptcy including debt forgiveness, restructuring activities and certain
changes to record the excess of book value over enterprise value. Upon
implementation of fresh start accounting, the Company's total assets and total
liabilities and stockholders' equity were adjusted downward by approximately
$17,000.

Fresh Start Reporting; Factors Affecting Comparability of Financial Information

        Effective April 9, 2002, the Company emerged from Chapter 11 bankruptcy
proceedings and implemented fresh-start accounting. Accordingly, all assets and
liabilities were restated to reflect their respective fair values. The
consolidated financial statements after that date are those of a new reporting
entity and are not comparable to pre confirmation periods. However, for purposes
of this discussion, the one month period ended May 4, 2002 (Successor Company)
has been combined with the two month period ended April 6, 20002 (Predecessor
Company) and then compared to the 3 months ended May 5, 2001. Differences
between periods due to fresh start accounting adjustments are explained when
necessary.

                                       18

<PAGE>

        The lack of comparability in the accompanying unaudited consolidated
financial statements is most apparent in the Company's capital costs (lease,
interest, depreciation and amortization), as well as income taxes, debt
restructuring and reorganization costs.

        As discussed in Note (9) to the Company's Condensed Consolidated
Financial Statements, the Condensed Consolidated Statements of Operations and
Cash Flows for the two months ended April 6, 2002 (Predecessor Company) have
been restated. The following discussion and analysis gives effect to the
restatement.

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.

<TABLE>
<CAPTION>
                                                                     TWO FISCAL
                                                   ONE FISCAL          MONTHS
                                                  MONTH ENDED           ENDED           THREE FISCAL MONTHS ENDED
                                                ---------------   ---------------   ---------------------------------
                                                  MAY 4, 2002      APRIL 6, 2002      MAY 4, 2002       MAY 5, 2001
                                                ---------------   ---------------   ---------------   ---------------
<S>                                                       <C>               <C>               <C>               <C>
Net sales                                                 100.0%            100.0%            100.0%            100.0%
Cost of sales                                              63.8              66.1              65.4              66.8
                                                ---------------   ---------------   ---------------   ---------------
  Gross profit                                             36.2              33.9              34.6              33.2
Selling, general and administrative expenses               31.3              29.9              30.3              30.4
Depreciation                                                0.5               2.5               1.9               3.1
Reorganization items                                          -             (46.1)            (31.9)              2.5
Interest expense                                            0.8               0.9               0.9               1.5
                                                ---------------   ---------------   ---------------   ---------------
  Income (loss) before income tax expense
    (benefit)                                               3.6              46.7              33.4              (4.3)
Income tax expense (benefit)                                1.4              (0.9)             (0.2)                -
                                                ---------------   ---------------   ---------------   ---------------
Net income (loss)                                           2.2%             47.6%             33.6%             (4.3)%
                                                ===============   ===============   ===============   ===============
Number of stores open at end of period                      172               172               172               175
</TABLE>

THREE FISCAL MONTHS ENDED MAY 4, 2002 (FISCAL 2002) AND MAY 5, 2001 (FISCAL
2001)

        Net Sales. Net sales increased $2,789 or 5.0%, to $59,024 for the three
fiscal month period ended May 4, 2002 from $56,235 for the three fiscal month
period ended May 5, 2001. Comparable store sales increased $3,450 or 6.2%. The
fluctuation can be attributable to increases in the basic party and gift
categories. No new stores were opened in fiscal 2002 or fiscal 2001. Closed
store's sales are excluded from the calculation of comparable store sales in the
fiscal month of the store closing.

                                       19

<PAGE>

        Gross Profit. Cost of sales includes distribution and occupancy costs.
Gross profit increased $1,743 or 9.3%, to $20,436 for the three fiscal month
period ended May 4, 2002 from $18,693 for the three fiscal month period ended
May 5, 2001. As a percentage of net sales, gross profit was 34.6% for the three
fiscal month period ended May 4, 2002 compared to 33.2% in the same period in
the prior year. The higher gross profit percentage resulted from a reduction in
occupancy cost and from improved shrink experience, partially offset by higher
distribution costs.

        Selling, General and Administrative Expenses. Selling, general and
administrative expenses include store payroll, advertising, other store
operating and corporate administrative expenses. Selling, general and
administrative expenses increased $836 or 4.9%, to $17,909 for the three fiscal
month period ended May 4, 2002 from $17,073 for the three fiscal month period
ended May 5, 2001. As a percentage of net sales, selling, general and
administrative expenses decreased to 30.3% in the three fiscal month period
ended May 4, 2002 from 30.4% in the three fiscal month period ended May 5, 2001.

        Depreciation expense. Depreciation expense was $1,130 in the three
fiscal month period ended May 4, 2002 compared to $1,752 in the three fiscal
period ended May 5, 2001. This decrease relates to the fresh-start adjustment of
$11,760 whereby the Company adjusted for the excess of book value over
enterprise value.

        Interest Expense. Interest expense was $528 in the three fiscal month
period ended May 4, 2002 compared to $824 in the three fiscal month period ended
May 5, 2002. This decrease can be attributable to lower effective interest rates
and a decrease in amortization of deferred bank costs.

        Reorganization Items, net. Reorganization items fluctuated $20,244 for
the three fiscal month period ended May 4, 2002 from $1,404 for the three fiscal
month period ended May 5, 2001. The change can be attributed to the gain related
to the discharge of indebtedness that resulted from the forgiveness of certain
liabilities in accordance with the Company's Plan of Reorganization and
fresh-start adjustments. The major components of Reorganization Items are as
follows:

<TABLE>
<CAPTION>
                                                        PREDECESSOR   PREDECESSOR
                                                          COMPANY       COMPANY
                                                        -----------   -----------
                                                                         THREE
                                                         TWO MONTHS      MONTHS
                                                           ENDED         ENDED
                                                          APRIL 6,       MAY 5,
                                                            2002          2001
                                                        -----------   -----------
              <S>                                       <C>           <C>
              Professional fees                         $     1,379   $       822
              Severance/retention bonus                       1,026           519
              Closed store expense                              311            43
              Fresh start adjustments                        10,406             -
              Forgiveness of debt                           (41,847)            -
              Unsecured creditors' ownership share of
               reorganized  Company                           9,543             -
              Other                                             342            20
                                                        -----------   -----------
                 Total                                  $   (18,840)  $     1,404
                                                        -----------   -----------
</TABLE>

        The Successor Company has not recorded any Reorganization Items in the
one month period ended May 4, 2002.

                                       20

<PAGE>

        Income Taxes. Income tax expense of $249 for the one month ended May 4,
2002 is offset by a direct increase in stockholders' equity due to the Company's
ability to utilize prior period net operating loss benefits. The income tax
benefit of $360 for the two months ended April 6, 2002 results from the
realization of net operating loss carrybacks due to the enactment of the Job
Creation and Workers Assistance Act of 2002.

        The results of operations prior to emergence have produced significant
net operating losses. The Company has recorded a valuation allowance to fully
reserve for the value of the net deferred tax assets at May 4, 2002 and May 5,
2001. The reserve was necessary, as the utilization of the Company's net loss
carry forwards is dependent upon sufficient future taxable income.

LIQUIDITY AND CAPITAL RESOURCES

        The Company's uses of capital for the remainder of fiscal 2002 are
expected to include working capital for operating expenses and satisfaction of
current liabilities, expenditures related to maintaining and refurbishing
existing stores, new store openings and interest payments on outstanding
borrowings.

        On April 9, 2002, obligations relating to the Company's
debtor-in-possession financing facility were paid in full and the Company's
secured financing facility with Wells Fargo Retail finance, LLC (the "New Loan
Agreement") became effective. The New Loan Agreement, which is a line of credit,
currently provides up to $40,000 (including $10,000 for letters of credit) to
fund working capital needs and for general corporate purposes. Borrowings under
the facility are limited by inventory levels and shall have excess availability
not less than $3,000. The Loan Agreement expires on April 8, 2005 and has a
variable interest rate based upon the Prime rate or at the Company's option, a
variable rate based upon earnings performance and the London Interbank Offered
Rate ("LIBOR"). The interest rate on the Company's borrowings was 5.25% at May
4, 2002. Borrowings under the Loan Agreement are secured by substantially all of
the Company's assets.

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

        Pursuant to the amended plan of reorganization, the Reorganized Company
termed $3,130 of post petition trade payables into a trade conversion note,
which will be payable within 4 years of the Effective Date. In addition, the
Reorganized Company recorded a $2,600 extended creditor payment payable to the
general unsecured creditors, which will be paid within 3 years of the Effective
Date.

        As of May 4, 2002, the Company had $23,273 borrowings outstanding under
the Loan Agreement and had utilized approximately $697 under the Loan Agreement
to issue letters of credit. Additionally, the Company has recorded $1,088 that
relates to amounts still to be paid pursuant to the Plan of Reorganization.

                                       21

<PAGE>

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

<TABLE>
<CAPTION>
                                FISCAL YEAR       FISCAL YEAR       FISCAL YEAR
                                    2002              2002             2002           FISCAL YEAR
                                    POST              PRE             COMBINED         2001 PRE
                                 EMERGENCE         EMERGENCE           RESULTS         EMERGENCE
                              ---------------   ---------------   ---------------   ---------------
                                 ONE MONTH         TWO MONTHS       THREE MONTHS      THREE MONTHS
                                ENDED MAY 4,     ENDED APRIL 6,     ENDED MAY 4,      ENDED MAY 5,
                                    2002              2002             2002               2001
                              ---------------   ---------------   ---------------   ---------------
<S>                           <C>               <C>               <C>               <C>
Cash provided by (used for)
 Operating activities ......  $          (335)  $         4,837   $         4,502   $         2,719
                              ---------------   ---------------   ---------------   ---------------
Cash (used for) investing
 Activities ................  $          (176)  $          (257)  $          (433)  $          (265)
                              ---------------   ---------------   ---------------   ---------------
Cash provided by (used for)
 Financing activities ......  $           513   $        (4,573)  $        (4,060)  $        (2,178)
                              ---------------   ---------------   ---------------   ---------------
</TABLE>

        At May 4, 2002 the Company's working capital was $10,728. Net cash
provided by operating activities for the three fiscal month period ended May 4,
2002 was $4,502 compared to $2,719 of net cash provided by operating activities
during the three fiscal month period ended May 5, 2001.

        Net cash used in investing activities during the three fiscal month
period ended May 4, 2002 and May 5, 2001 was $433 and $265, respectively. Net
cash used in investing activities was primarily for capital expenditures for
computer equipment, store remodeling and warehouse equipment for the
distribution center.

        Net cash used in financing activities during the three fiscal month
period ended May 4, 2002 was $4,060 compared to $2,178 of net cash used in
financing activities during the three fiscal months ended May 5, 2001. Amounts
are attributable to the level of borrowings and repayments.

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

        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 the
Company's control. Based upon current levels of operation and anticipated
growth, the Company believes that future cash flow from operations, together
with available borrowings under the New Loan Agreement, will be adequate to meet
anticipated requirements for capital expenditures, working capital, interest
payments and scheduled principal payments. There can be no assurance that the
Company's business will continue to generate sufficient cash flow from
operations in the future to service the Company's 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 its 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.

                                       22

<PAGE>

Seasonality

        The Company's business is highly seasonal, with operating results
varying from quarter to quarter. The Company historically experienced higher
sales during the second and fourth fiscal quarters due to increased demand by
customers for the Company's products attributable to special occasions and
holiday seasons during these periods.

New Accounting Pronouncements

        In June 2001, the FASB ("Financial Accounting Standards Board") issued
SFAS ("Statement of Financial Accounting Standards") No. 142 "Goodwill and Other
Intangible Assets", which establishes financial accounting and reporting for
acquired goodwill and other intangible assets and supercedes APB Opinion No. 17,
"Intangible Assets". The provisions of SFAS No. 142 are effective for fiscal
years beginning after December 15, 2001. As the Company does not have goodwill
or intangible assets recorded in the financial statements, the adoption of SFAS
No. 142 during the first quarter of fiscal 2002 did not have an impact on the
financial condition or results of operations of the Company.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal use of the asset. The
Company has adopted the provisions of SFAS No. 143 and it did not have a
material impact on the Company's consolidated financial position or results of
operations.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", although it retains many of the
fundamental provisions of that Statement. The provisions of SFAS No. 144 are
effective for fiscal years beginning after December 15, 2001, thereby applying
to fiscal 2002. In conjunction with fresh-start reporting, the Company recorded
a $11,760 adjustment to fixed assets to reflect the excess of book value over
enterprise value. We have adopted the provisions of SFAS No. 144 and it did not
have a material impact on our consolidated financial position or results of
operations.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". Specifically, SFAS 145 rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt, an amendment of APB Opinion No. 30" and SFAS
No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements", as
these two standards required that all gains and losses from the extinguishment
of debt be aggregated and, if material, classified as an extraordinary item.
Consequently, such gains and losses will now be classified as extraordinary only
if they meet the criteria for extraordinary treatment set forth in APB Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 145 also rescinds SFAS No. 44
"Accounting for Intangible Assets of Motor Carriers, an amendment of Chapter 5
of ARB No. 43 and an interpretation of APB Opinions 17 and 30", because the
event to which that Statement relates is no longer relevant. SFAS No. 145 amends
SFAS No. 13, "Accounting for Leases", to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as such transactions, and also makes certain
technical corrections to a number of existing pronouncements. The Company is
required to adopt this statement due to the application of fresh-start
accounting. The effect of this statement on the Company is that the net gain
associated with the plan of reorganization and fresh-start adjustments is
reported as a component of operations.

                                       23

<PAGE>

ITEM 3     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

        The Company is subject to market risks from changes in interest rates.
As of May 4, 2002, the interest rate on the Company's revolving credit
facilities, which represents a significant portion of the Company's outstanding
debt, is variable based on the prime rate. A hypothetical 10 percent increase to
the average interest rate under the credit facilities applied to the average
outstanding balance during the two months ended April 6, 2002 and the one month
ended May 4, 2002 would not have had a material impact on our financial position
or results of operations.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

        The Company from time to time is involved in routine litigation
incidental to the conduct of its business. The Company is not aware of any
material existing or threatened litigation to which it is or may be a party.

Item 2. Changes in Securities

        None

Item 3. Defaults Upon Senior Securities

        None

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

        None

Item 5. Other Information

        None

Item 6. Exhibits and reports on Form 8-K

        (a) Exhibits

        Exhibit 3.1 (1) Certificate on Incorporation of Factory Card & Party
        Outlet Corp.

        Exhibit 3.2 (1) Bylaws of Factory Card & Party Outlet Corp.

        Exhibit 4.1 (1) Warrant Agreement, dated April 9, 2002, between Factory
        Card & Party Outlet and Wells Fargo Bank Minnesota, N.A.

        Exhibit 4.2 (1) Form of New Management Warrant, dated April 9, 2002.

                                       24

<PAGE>

        Exhibit 4.3 (1) Schedule of New Management Warrants (pursuant to
        Instruction 2 of Item 601).

        Exhibit 4.4 (1) 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.

        Exhibit 4.5 (1) Schedule of Trade Conversion Notes (pursuant to
        Instruction 2 of Item 601).

        Exhibit 4.6 (1) 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.

        Exhibit 10.1 (1) 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.

        Exhibit 10.2 (1) 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.

        Exhibit 10.3 (1) Form of Factory Card & Party Outlet Corp. 2002 Stock
        Incentive Plan.

        Exhibit 10.4 (1) Trade Vendor Supply Agreement, dated April 9, 2002,
        between Factory Card & Party Outlet Corp., Factory Card Outlet of
        America, Ltd and Maryland Plastics.

        Exhibit 10.5 (1) Schedule of Trade Vendor Supply Agreements (pursuant to
        Instruction 2 of Item 601).

        Exhibit 10.6 (1) Employment Agreement, dated as of April 9, 2002,
        between Factory Card Outlet of America, Ltd and James D. Constantine.

        Exhibit 10.7 (1) Employment Agreement, dated as of April 9, 2002,
        between Factory Card Outlet of America, Ltd and Timothy F. Gower.

        Exhibit 10.8 (1) Employment Agreement, dated as of April 9, 2002,
        between Factory Card Outlet of America, Ltd and Gary Rada.

        Exhibit 10.9 Form of Factory Card & Party Outlet Corp. 2002 Non-employee
        Directors Stock Option Plan.

        Exhibit 10.10 First Amendment to the Factory Card & Party Outlet Corp.
        Stock Incentive Plan.

        Exhibit 10.11 Second Amendment to the Factory Card & Party Outlet Corp
        2002 Stock Option Plan.

        Exhibit 99.1 Certifications under Section 906 of the Sarbanes-Oxley Act
        of 2002.

                                       25

<PAGE>

        NOTES

(1)     Incorporated by reference to the Company's Current Report on Form 8-K as
        filed on April 23,2002

        (b) Reports on 8-K

            Company's current Report on Form 8-K filed on February 7, 2002 -
            Factory Card Outlet announced the United States Bankruptcy Court for
            the District of Delaware had approved its disclosure statement
            relating to its amended plan of reorganization that it filed on
            February 5, 2002.

            Company's current Report on Form 8-K filed on March 25, 2002 -
            Factory Card Outlet announced the United States Bankruptcy Court for
            the District of Delaware had signed an order confirming the amended
            plan of reorganization.

            Company's current Report on Form 8-K filed on April 23, 2002 -
            Factory Card Outlet announced the amended plan of reorganization
            became effective.

                                       26

<PAGE>

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:  April 30, 2003              By: /s/ Gary W. Rada
                                        -----------------
                                           Gary W. Rada
                                           President and Chief Executive Officer

Dated:  April 30, 2003              By: /s/  James D. Constantine
                                        -------------------------
                                           James D. Constantine
                                           Executive Vice President and Chief
                                           Financial and Accounting Officer

Exhibit 99.1 Certifications.

                                       27

<PAGE>

CERTIFICATIONS

I, Gary W. Rada, President and Chief Executive Officer of Factory Card & Party
Outlet Corp., certify that:

1.      I have reviewed this quarterly report, as amended, on Form 10-Q/A of
        Factory Card & Party Outlet Corp.;

2.      Based on my knowledge, this quarterly report, as amended, does not
        contain any untrue statement of a material fact or omit to state a
        material fact necessary to make the statements made, in light of the
        circumstances under which such statements were made, not misleading with
        respect to the period covered by this quarterly report, as amended; and

3.      Based on my knowledge, the financial statements, and other financial
        information included in this quarterly report, as amended, fairly
        present in all material respects the financial condition, results of
        operations and cash flows of the registrant as of, and for, the periods
        presented in this quarterly report, as amended.

4.      The registrant's other certifying officers and I are responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
        we have:

        a)      designed such disclosure controls and procedures to ensure that
                material information relating to the registrant, including its
                consolidated subsidiaries, is made known to us by others within
                those entities, particularly during the period in which this
                quarterly report, as amended, is being prepared;

        b)      evaluated the effectiveness of the registrant's disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly report, as amended, (the
                "Evaluation Date"); and

        c)      presented in this quarterly report, as amended, our conclusions
                about the effectiveness of the disclosure controls and
                procedures based on our evaluation as of the Evaluation Date;

5.      The registrant's other certifying officers and I have disclosed, based
        on our most recent evaluation, to the registrant's auditors and the
        audit committee of registrant's board of directors (or persons
        performing the equivalent functions):

        a)      all significant deficiencies in the design or operation of
                internal controls which could adversely affect the registrant's
                ability to record, process, summarize and report financial data
                and have identified for the registrant's auditors any material
                weaknesses in internal controls; and

        b)      any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal controls; and

6.      The registrant's other certifying officers and I have indicated in this
        quarterly report, as amended, whether or not there were significant
        changes in internal controls or in other factors that could
        significantly affect internal controls subsequent to the date of our
        most recent evaluation, including any corrective actions with regard to
        significant deficiencies and material weaknesses.

Date:  April 30, 2003

                                           /s/ Gary W. Rada
                                           ----------------
                                           Gary W. Rada
                                           President and Chief Operating Officer

<PAGE>

I, James D. Constantine, Executive Vice President and Chief Financial and
Administrative Officer of Factory Card & Party Outlet Corp., certify that:

1.      I have reviewed this quarterly report, as amended, on Form 10-Q/A of
        Factory Card & Party Outlet Corp.;

2.      Based on my knowledge, this quarterly report, as amended, does not
        contain any untrue statement of a material fact or omit to state a
        material fact necessary to make the statements made, in light of the
        circumstances under which such statements were made, not misleading with
        respect to the period covered by this quarterly report, as amended, and

3.      Based on my knowledge, the financial statements, and other financial
        information included in this quarterly report, as amended, fairly
        present in all material respects the financial condition, results of
        operations and cash flows of the registrant as of, and for, the periods
        presented in this quarterly report, as amended.

4.      The registrant's other certifying officers and I are responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
        we have:

        a)      designed such disclosure controls and procedures to ensure that
                material information relating to the registrant, including its
                consolidated subsidiaries, is made known to us by others within
                those entities, particularly during the period in which this
                quarterly report, as amended, is being prepared;

        b)      evaluated the effectiveness of the registrant's disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly report, as amended (the
                "Evaluation Date"); and

        c)      presented in this quarterly report, as amended, our conclusions
                about the effectiveness of the disclosure controls and
                procedures based on our evaluation as of the Evaluation Date;

5.      The registrant's other certifying officers and I have disclosed, based
        on our most recent evaluation, to the registrant's auditors and the
        audit committee of registrant's board of directors (or persons
        performing the equivalent functions):

        a)      all significant deficiencies in the design or operation of
                internal controls which could adversely affect the registrant's
                ability to record, process, summarize and report financial data
                and have identified for the registrant's auditors any material
                weaknesses in internal controls; and

        b)      any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal controls; and

6.      The registrant's other certifying officers and I have indicated in this
        quarterly report, as amended, whether or not there were significant
        changes in internal controls or in other factors that could
        significantly affect internal controls subsequent to the date of our
        most recent evaluation, including any corrective actions with regard to
        significant deficiencies and material weaknesses.

Date:  April 30, 2003

                                /s/ James D. Constantine
                                ------------------------
                                James D. Constantine
                                Executive Vice President and Chief Financial and
                                           Administrative Officer