<PAGE>

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


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

                 For The Quarterly Period Ended April 29, 2000

                         Commission File Number: 21859

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

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

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

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


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

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

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

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

                      For the Quarter Ended April 29, 2000
                                     Index

<TABLE>
<CAPTION>
                                                                                               Page
<S>      <C>                                                                                   <C>

Part I   Financial Information

Item 1   Financial Statements (Unaudited):

         Consolidated Balance Sheets as of April 29, 2000 and January 29, 2000                    3

         Consolidated Statements of Operations for the three fiscal months ended April 29,
           2000 and May 1, 1999                                                                   4


         Consolidated Statements of Cash Flows for the three fiscal months
           Ended April 29, 2000 and May 1, 1999                                                   5

         Notes to Consolidated Financial Statements                                              6-9

Item 2   Management's Discussion and Analysis of Financial Condition
           And Results of Operations                                                             9-12

Item 3   Quantitative and Qualitative Disclosures About Market Risk                               12

Part II  Other Information                                                                      12-13

         Signatures                                                                               14
</TABLE>

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION, ITEM 1, FINANCIAL STATEMENTS

                           FACTORY CARD OUTLET CORP.
                                AND SUBSIDIARY

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

<TABLE>
<CAPTION>
                                                                                           April 29,           January  29,
                                                                                              2000                 2000
                                                                                        ----------------       ------------
                                                                                          (Unaudited)
<S>                                                                                     <C>                    <C>
ASSETS

Current assets
   Cash                                                                                 $            275       $      1,713
   Merchandise inventories                                                                        53,694             56,142
   Prepaid expenses and other                                                                      2,043              1,748
                                                                                        ----------------       ------------
       Total current assets                                                                       56,012             59,603

Fixed assets, net                                                                                 29,036             30,559
Other assets                                                                                         664                641
                                                                                        ----------------       ------------

       Total assets                                                                     $         85,712       $     90,803
                                                                                        ================       ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
     Debt                                                                               $         21,930       $     22,869
     Accounts payable                                                                              6,702              9,103
     Accrued expenses                                                                              9,655              8,662
                                                                                        ----------------       ------------

       Total current liabilities                                                                  38,287             40,634
                                                                                        ----------------       ------------

Liabilities subject to compromise                                                                 54,866             54,872
                                                                                        ----------------       ------------

Stockholders' equity (deficit)
   Common stock - $.01 par value.
     Voting class - authorized  15,000,000 shares; 7,503,098 shares issued and
      outstanding at October 30, 1999 and January 30, 1999, respectively.
      Non-voting class - authorized 205,000 shares, no shares issued or outstanding.                  75                 75
   Additional paid-in capital                                                                     52,021             52,021
   Accumulated deficit                                                                           (59,537)           (56,799)
                                                                                        ----------------       ------------

      Total stockholders' equity (deficit)                                                        (7,441)            (4,703)
                                                                                        ----------------       ------------

      Total liabilities and stockholders' equity (deficit)                              $         85,712       $     90,803
                                                                                        ================       ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                           FACTORY CARD OUTLET CORP.
                                AND SUBSIDIARY

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

<TABLE>
<CAPTION>

                                                                               Three fiscal months ended
                                                                      ------------------------------------------
                                                                              April 29,             May 1,
                                                                                2000                 1999
                                                                      -------------------    -------------------
                                                                          (Unaudited)            (Unaudited)
<S>                                                                     <C>                    <C>
Net sales                                                               $          54,442      $          52,533
Cost of sales                                                                      28,962                 28,120
                                                                      -------------------    -------------------
   Gross profit                                                                    25,480                 24,413
Selling, general and administrative expenses                                       25,359                 25,768
Interest expense                                                                      848                    894
                                                                      -------------------    -------------------
   Loss before reorganization items, income taxes and
    extraordinary item                                                               (727)                (2,249)

Reorganization items, net                                                           2,011                 12,547
                                                                      -------------------    -------------------
   Loss before income taxes and extraordinary item                                 (2,738)               (14,796)
Income taxes                                                                            -                      -
                                                                      -------------------    -------------------
   Loss before extraordinary item                                                  (2,738)               (14,796)
Extraordinary item-loss on early retirement
     of debt                                                                            -                  1,292
                                                                      -------------------    -------------------
Net loss                                                                $          (2,738)     $         (16,088)
                                                                      ===================    ===================


Loss per share - basic and diluted
   Before extraordinary item                                            $           (0.36)      $          (1.97)
   Extraordinary item                                                                   -                  (0.17)
                                                                      -------------------    -------------------
      Net loss per share - basic and diluted                            $           (0.36)      $          (2.14)
                                                                      ===================    ===================

Weighted average shares outstanding -
   Basic and diluted                                                            7,503,098              7,503,098
                                                                      ===================    ===================

</TABLE>
See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                           FACTORY CARD OUTLET CORP.
                                AND SUBSIDIARY

                     Consolidated Statements of Cash Flows
                         (Dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                    Three fiscal months ended
                                                    --------------------------
                                                      April 29,      May 1,
                                                        2000          1999
                                                    -------------  -----------
                                                     (Unaudited)   (Unaudited)
<S>                                                 <C>            <C>
Cash flows from operating activities:
   Net loss                                         $    (2,738)    $ (16,088)
   Adjustments to reconcile net loss to
   net cash provided by (used in) operating
   Activities:
     Depreciation and amortization of fixed assets        1,903         1,975
     Amortization of deferred financing costs               213           166
     Noncash portion of reorganization items              1,182        12,547
     Extraordinary loss on early retirement of debt           -         1,292
     Other                                                    -            36
     Changes in assets and liabilities:
       (Increase) decrease in assets:
          Merchandise inventories                         2,448         5,650
          Prepaid expenses and other assets                (530)       (1,882)
       Increase (decrease) in liabilities:
          Accounts  payable                              (2,401)      (29,947)
          Accrued expenses                                 (189)       (4,081)
          Liabilities subject to compromise                  87        40,213
                                                    -----------     ---------
Net cash provided by (used in) operating activities         (25)        9,881
                                                    -----------     ---------
Net cash used in investing activities - purchase
of fixed assets, net                                       (381)         (324)
                                                    -----------     ---------
Cash flows from financing activities:
   Borrowings                                            55,710        68,630
   Repayment of debt                                    (56,649)      (80,395)
   Payment of long-term obligations                         (93)         (107)
                                                    -----------     ---------
Net cash (used in) financing activities                  (1,032)      (11,872)
                                                    -----------     ---------
Net (decrease) increase in cash                          (1,438)       (2,315)
Cash at beginning of period                               1,713         3,597
                                                    -----------     ---------
Cash at end of period                               $       275     $   1,282
                                                    ===========     =========
Supplemental cash flow information:
  Interest paid                                     $       610     $   1,056
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                           FACTORY CARD OUTLET CORP.
                                 AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
              (Dollar amounts in thousands, except per share data)
                                  (Unaudited)

(1)  Organization and Basis of Presentation

          The consolidated unaudited financial statements include the accounts
     of Factory Card Outlet Corp. and its wholly owned subsidiary, Factory Card
     Outlet of America Ltd. (collectively the "Company"). The Company is a chain
     of company-owned stores offering an extensive selection of greeting cards,
     giftwrap, balloons, party supplies and other special occasion merchandise
     at everyday value prices. These financial statements have been prepared by
     management without audit and should be read in conjunction with the
     consolidated financial statements and notes for the fiscal year ended
     January 29, 2000 included in the Company's Annual Report on Form 10-K. The
     operating results for the interim periods are not necessarily indicative of
     the results for the year. All intercompany balances and transactions have
     been eliminated in consolidation. In the opinion of management, the
     accompanying consolidated financial statements reflect all normal recurring
     and certain nonrecurring adjustments necessary for a fair presentation of
     the interim financial statements. In addition, certain prior year amounts
     have been reclassified to conform to the current year presentation.

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

          The accompanying consolidated financial statements have been prepared
     assuming the Company will continue as a going concern and in accordance
     with the American Institute of Certified Public Accountants Statement of
     Position 90-7, Financial Reporting by Entities in Reorganization under the
     Bankruptcy Code. The commencement of the Chapter 11 Cases and the net
     losses resulting in a net deficit raise substantial doubt about the
     Company's ability to continue as a going concern. As discussed in Note 5,
     the Company has recorded certain reorganization items during the three
     fiscal months ended April 29, 2000. Additional adjustments, some of which
     could be material, may be necessary as a consequence of a plan of
     reorganization. The continuation of the Company's business as a going
     concern is contingent upon, among other things, the ability to (1)
     formulate a plan of reorganization that will be confirmed by the Bankruptcy
     Court, (2) achieve satisfactory levels of future profitable operations, (3)
     maintain adequate financing, and (4) generate sufficient cash from
     operations to meet future obligations.

          The Bankruptcy Code provides that the Company has an exclusive period
     during which only it may propose, file and solicit acceptances of a plan of
     reorganization. The Company has obtained approval from the Bankruptcy Court
     of the extension of its exclusive period to file a plan and to solicit
     acceptances thereof to and including July 31, 2000 and September 29, 2000,
     respectively. If the Company fails to file a plan of reorganization during
     the exclusive period or, after such plan has been filed, if the Company
     fails to obtain acceptance of such plan from the requisite impaired classes
     of creditors and equity security holders during the exclusive period, any
     party in interest, including a creditor, an equity security holder, a
     committee of creditors or equity security holders, or an indenture trustee,
     may file their own plan of reorganization for the Company. The Company
     plans to develop a plan of reorganization for submission to the Bankruptcy
     Court.

          In connection therewith, on June 7, 2000 the Company announced that it
     and the Creditors' Committee have entered into a non-binding letter of
     intent with Saunders, Karp and Megrue ("SKM") (the "Letter of Intent"), a
     Connecticut based investment company, regarding a potential

                                       6
<PAGE>

     transaction which would provide the Company with sufficient funding to
     enable it to emerge from Chapter 11. The Letter of Intent is subject to,
     among other things, the completion of due diligence, the execution of
     definitive documentation and confirmation of a plan of reorganization that
     would have to be voted upon by creditors. The Letter of Intent outlines the
     following general terms of a transaction and plan of reorganization in
     which SKM would invest $19.5 million, for which it would receive a note and
     approximately 90% of the common stock of the Company upon its emergence
     from Chapter 11: General unsecured creditors, whose claims are estimated to
     be approximately $43 million, would receive a cash distribution that may
     approximate $5 million, a note in the approximate amount of $7 million, and
     approximately 10% of the common stock of the Company upon its emergence
     from Chapter 11. Because the proposal would not result in creditors
     recovering the full amount of their claims, it does not contemplate that
     holders of the Company's outstanding common stock would receive any
     distribution and, consequently, the existing stock would be cancelled.

          The Letter of Intent provides for SKM to receive a break-up fee and
     expense reimbursement in the event that the Company decides to pursue an
     alternative transaction or course of action and restricts the Company's
     ability to solicit alternative proposals. The Letter of Intent is subject
     to the approval of the Bankruptcy Court. Accordingly, on June 8, 2000 the
     Company filed a motion requesting Bankruptcy Court approval of the Letter
     of Intent. The Company expects that the motion will be heard by the
     Bankruptcy Court on June 29, 2000.

(2)  Debtor in Possession Facility

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

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

(3)  Management Estimates

          The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities at
     the date of the financial statements and the reported amounts of revenues
     and expenses during the reporting period and related disclosures.
     Significant estimates made as of and for the three fiscal month periods
     ended April 29, 2000 and May 1, 1999 include accruals for store closings
     and other reorganization items, provision for shrinkage, capitalized
     overhead costs related to inventory and the carrying values of inventories.
     Actual results could differ from those estimates.

(4)  Liabilities Subject to Compromise

          Liabilities subject to compromise refer to liabilities incurred prior
     to the commencement of the Chapter 11 Cases. These liabilities consist
     primarily of amounts outstanding for accounts payable, deferred rent
     obligations, amounts accrued for rejected leases, other accrued expenses
     and obligations under capital leases. These amounts represent management's
     best estimate of known or potential

                                       7
<PAGE>

     claims to be resolved in connection with the Chapter 11 Cases. Such claims
     remain subject to future adjustments based on negotiations, actions of the
     Bankruptcy Court, further developments with respect to disputed claims or
     other events. The terms for the satisfaction of these claims will be
     established in connection with the Chapter 11 Cases.

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

(5)  Reorganization Items

          During the three fiscal months ended April 29, 2000, reorganization
     costs include costs for professional fees and other costs related to the
     Company's reorganization. In April 1999, the Company obtained approval from
     the Bankruptcy Court to close and conduct closing sales at 27 stores that
     were in markets the Company did not intend to continue to operate in or
     were underperforming or unprofitable. During the three fiscal months ended
     May 1, 1999, the Company recorded a provision for reorganization costs
     relating to the store closings of approximately $11,365. This provision
     included the write-down of fixed assets, estimated lease rejection claims
     and the loss on the disposition of merchandise inventory. In addition to
     the provision for the store closings, reorganization costs for professional
     fees and other costs related to the Company's reorganization were $1,182 in
     the three fiscal months ended May 1, 1999.

(6)  Income Taxes

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

(7)  Earnings Per Share

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

<TABLE>
<CAPTION>
                                                              Income                  Per
                                                              (loss)     Shares      share
                                                             --------   ---------   ------
        <S>                                                  <C>        <C>         <C>
        For the three fiscal months ended April 29, 2000 -
        Loss per share - basic and diluted:
        -----------------------------------------
        Net loss                                             $ (2,738)  7,503,098   $(0.36)
                                                             --------   ---------   ------

        For the three fiscal months ended May 1, 1999 -
        Loss per share - basic and diluted:
        -----------------------------------------
        Net loss                                             $(16,088)  7,503,098   $(2.14)
                                                             --------   ---------   ------
</TABLE>

          For the quarter ended April 29, 2000 and May 1, 1999, no options to
     purchase common stock were included in the computation of earnings per
     share - diluted because the effect would be antidilutive.

ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                                       8
<PAGE>

          RESULTS OF OPERATIONS (Dollar amounts in thousands)

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

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

     In September 1999 the Company announced that it received notification that
the NASDAQ's staff had delisted the Company's common stock from the NASDAQ
National Market effective September 1, 1999.  NASDAQ said the determination was
based on the uncertainties concerning the Company's pending Chapter 11 Cases.

     The Company is a chain of company-owned stores offering an extensive
selection of greeting cards, giftwrap, balloons, party supplies and other
special occasion merchandise at everyday value prices.  As of June 8, 2000, the
Company operated 182 stores in 21 states.  The Company does not plan to open any
additional stores in 2000.

                                       9
<PAGE>

Results of Operations

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

<TABLE>
<CAPTION>
                                                                                    Three fiscal months ended
                                                                                 --------------------------------
                                                                                 April 29,                 May 1,
                                                                                    2000                    1999
                                                                                 ---------                 ------
<S>                                                                              <C>                       <C>
Net sales                                                                          100.0%                  100.0%
Cost of sales                                                                       53.2                    53.5
                                                                                   -----                   -----
   Gross profit                                                                     46.8                    46.5
Selling, general and administrative expenses                                        46.6                    49.1
Interest expense                                                                     1.6                     1.7
                                                                                   -----                   -----
   Loss before reorganization items, income taxes and extraordinary item            (1.4)                   (4.3)
Reorganization items, net                                                            3.7                    23.9
                                                                                   -----                   -----
   Loss before income taxes and extraordinary item                                  (5.1)                  (28.2)
Income taxes                                                                           -                       -
                                                                                   -----                   -----
   Loss before extraordinary item                                                   (5.1)                  (28.2)
Extraordinary item-loss on early retirement of debt                                    -                     2.4
   Net loss                                                                         (5.1)%                 (30.6)%
                                                                                   =====                   =====

Number of stores open at end of period                                               182                     209
</TABLE>

Three Fiscal Months Ended April 29, 2000 and May 1, 1999

     Net Sales. Net sales increased $1,909, or 3.6%, to $54,442 for the three
fiscal month period ended April 29, 2000 from $52,533 for the three fiscal month
period ended May 1, 1999. Comparable store sales increased $5,741 or 11.8%. The
increase in net sales was the direct result of improved flow of merchandise to
the stores. The Company includes stores opened 13 or 14 months after their
opening date in the calculation of comparable store sales. If the opening date
of a store falls in the first 14 days of a period, the store is included in the
comparable store calculation in its 13th month of operation; otherwise, a store
is included in the comparable store calculation in its 14th month of operation.

     Gross Profit.  Cost of sales includes distribution costs.  Gross profit
increased $1,067 or 4.4%, to $25,480 for the three fiscal month period ended
April 29, 2000 from $24,413 for the three fiscal month period ended May 1, 1999.
As a percentage of net sales, gross profit was 46.8% for the three fiscal month
period ended April 29, 2000 compared to 46.5% in the same period in the prior
year.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses include store payroll, store occupancy, advertising,
depreciation, other store operating and corporate administrative expenses.
Selling, general and administrative expenses decreased $409 or 1.6%, to $25,359
for the three fiscal month period ended April 29, 2000 from $25,768 for the
three fiscal month period ended May 1, 1999.  This decrease resulted primarily
from operating 27 fewer stores during most of the period.  As previously
discussed, the Company closed 27 stores in April 1999.  As a percentage of net
sales, selling, general and administrative expenses decreased to 46.6% in the
three fiscal month period ended April 29, 2000 from 49.1% in the three fiscal
month period ended May 1, 1999.

     Interest Expense.  Interest expense was $848 in the three fiscal month
period ended April 29, 2000 compared to $894 in the three fiscal month period
ended May 1, 1999. This decrease resulted primarily from lower borrowing levels.

     Reorganization Items, net.  Reorganization items decreased $10,536 or 84%,
to $2,011 for the three fiscal month period ended April 29, 2000 from $12,547
for the three fiscal month period ended May 1, 1999. During the three fiscal
months ended May 1, 1999, the Company recorded a provision for reorganization
costs of $11,635 relating to the closing of 27 stores in April 1999.

                                       10
<PAGE>

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

Liquidity and Capital Resources

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

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

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

     The Loan Agreement contains certain restrictive covenants, which, among
other things, require the Company to maintain certain inventory levels and
achieve specified operating results. The restrictive covenants also limit the
Company's capital expenditures, asset sales and dividends and the ability of the
Company to grant liens and incur additional indebtedness. All such covenants
have been met or waived at April 29, 2000.

     As of April 29, 2000, the Company had $21,930 of borrowings outstanding
under the Loan Agreement and had utilized approximately $1,685 under the Loan
Agreement to issue letters of credit. The Company believes that its cash flow
from operations, borrowings under the Loan Agreement, adequate trade terms and
the continued support of its vendors will provide it with sufficient liquidity
to conduct its operations while the Chapter 11 Cases are pending. The Company
will be exploring opportunities to obtain long-term financing to support the
Company's business plan after it emerges from chapter 11; however, there can be
no assurance that the Company will be able to obtain such financing with
satisfactory terms, if at all.

                                       11
<PAGE>

     At April 29, 2000 and May 1, 1999, the Company's working capital was
$17,725 and $27,676 respectively. Net cash used in operating activities for the
three fiscal month period ended April 29, 2000 was $25 compared to $9,881 of net
cash provided for the three fiscal month period ended May 1, 1999. The decrease
is primarily due to reorganization items recorded in conjunction with the
Company's bankruptcy proceedings. As previously discussed, the Company filed a
petition on March 23, 1999 for reorganization under chapter 11 of title 11 of
the United States Code and subsequently closed 27 stores in April 1999.

     Net cash used in investing activities during the three fiscal month period
ended April 29, 2000 and May 1, 1999 was $381 and $324, respectively.  Net cash
used in investing activities was primarily for capital expenditures for store
equipment and equipment for the distribution center.

     Net cash used in financing activities during the three fiscal month period
ended April 29, 2000 was $1,032 compared to $11,872 of net cash used in
financing activities during the three fiscal months ended May 1, 1999.  During
March 1999, the Company used $24,732 of borrowings under the Loan Agreement to
pay the outstanding balances under the Company's previous revolving credit
agreement and term loan.

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


ITEM 3    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

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

     On June 7, 2000 the Company announced that it and the Creditors' Committee
have entered into a non-binding Letter of Intent with Saunders, Karp and Megrue
("SKM") (the "Letter of Intent"), a Connecticut based investment company,
regarding a potential transaction which would provide the Company with
sufficient funding to enable it to emerge from Chapter 11.  The Letter of Intent
is subject to, among other things, the completion of due diligence, the
execution of definitive documentation and confirmation of a plan of
reorganization that would have to be voted upon by creditors.  The Letter of
Intent outlines the following general terms of a transaction and plan of
reorganization in which SKM would invest $19.5 million, for which it would
receive a note and approximately 90% of the common stock of the Company upon its
emergence from Chapter 11: General unsecured creditors, whose claims are
estimated to be approximately $43 million, would receive a cash distribution
that may approximate $5 million, a note in the approximate amount of $7 million,
and approximately 10% of the common stock of the Company upon its emergence from
Chapter 11.  Because the proposal would not result in creditors recovering the
full amount of their claims, it does not contemplate that holders of the
Company's outstanding common stock would receive any distribution and,
consequently, the existing stock would be cancelled.

     The Letter of Intent provides for SKM to receive a break-up fee and expense
reimbursement in the event that the Company decides to pursue an alternative
transaction or course of action and restricts the

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<PAGE>

Company's ability to solicit alternative proposals. The Letter of Intent is
subject to the approval of the Bankruptcy Court. Accordingly, on June 8, 2000
the Company filed a motion requesting Bankruptcy Court approval of the Letter of
Intent. The Company expects that the motion will be heard by the Bankruptcy
Court on June 29, 2000.

     A copy of the letter of intent is attached hereto as Exhibit 10.1 and is
incorporated herein by reference.  A copy of the Company's press release, dated
June 7, 1999, is attached hereto as Exhibit 99.1.

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

Item 2. Changes in Securities.

     None.

Item 3. Defaults Upon Senior Securities.

     None.

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

     None.

Item 5. Other Information.

     None.

Item 6. Exhibits and reports on Form 8-K

     (a) Exhibits

         10.1  Letter of intent dated June 6, 2000 among Saunders Karp & Megrue,
               Factory Card Outlet Corp. and Factory Card Outlet of America,
               Ltd. and the Statutory Creditors' committee of Factory Card
               Outlet

         27.1  Financial Data Schedule

         99.1  Press release of the Company issued June 7, 2000

     (b) Reports on 8-K

          None.


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SIGNATURES

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


                             FACTORY CARD OUTLET CORP.

Dated: June 12, 2000         By: __________________________
                                    William E. Freeman
                                    President and Chief Executive Officer


Dated: June 12, 2000         By: ___________________________
                                    James D. Constantine
                                    Senior Vice President and Chief
                                    Financial Officer

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