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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For The Quarterly Period Ended July 30, 2005



Commission File Number: 21859



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FACTORY CARD & PARTY OUTLET CORP.

(Exact name of registrant as specified in its charter)



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



2727 Diehl Road,

Naperville, IL 60563-2371

(Address of principal executive offices, zip code)



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



Factory Card Outlet Corp.

(Former Name)



---



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



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



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



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



The number of shares of the Registrants Common Stock outstanding as of September 12, 2005 was 3,129,177.



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##### Table of Contents

Factory Card & Party Outlet Corp.



Form 10-Q



For the Quarter Ended July 30, 2005

Index



|        |  |                                                                                                                                |  |      
|------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  | -----
|        |  |                                                                                                                                |  | Page 
|        |  | Cautionary Statement Regarding Forward-Looking Statements                                                                      |  | 2    
|        |  |                                                                                                                               
|Part I  |  | Financial Information                                                                                                          |  |      
|        |  |                                                                                                                               
|Item 1  |  | Financial Statements:                                                                                                          |  |      
|        |  |                                                                                                                               
|        |  | Condensed Consolidated Balance Sheets (Unaudited) as of July 30, 2005 and January 29, 2005                                     |  | 3    
|        |  |                                                                                                                               
|        |  | Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended July 30, 2005 and July 31, 2004 |  | 4    
|        |  |                                                                                                                               
|        |  | Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended July 30, 2005 and July 31, 2004           |  | 5    
|        |  |                                                                                                                               
|        |  | Notes to Condensed Consolidated Financial Statements - (Unaudited)                                                             |  | 6-11 
|        |  |                                                                                                                               
|Item 2  |  | Managements Discussion and Analysis of Financial Condition And Results of Operations                                          |  | 12-20
|        |  |                                                                                                                               
|Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                     |  | 20   
|        |  |                                                                                                                               
|Item 4  |  | Controls and Procedures                                                                                                        |  | 20   
|        |  |                                                                                                                               
|Part II |  | Other Information                                                                                                              |  |      
|        |  | Item 1. Legal Proceedings                                                                                                      |  | 21   
|        |  | Item 2. Changes in Securities and Use of Proceeds                                                                              |  | 21   
|        |  | Item 3. Defaults Upon Senior Securities                                                                                        |  | 21   
|        |  | Item 4. Submission of Matters to a Vote of Security Holders                                                                    |  | 22   
|        |  | Item 5. Other Information                                                                                                      |  | 22   
|        |  | Item 6. Exhibits and Reports on Form 8-K                                                                                       |  | 22-25
|        |  | Signatures                                                                                                                     |  | 26   



1



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##### Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



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



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



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



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



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



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



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



| |  |  | dependence on key personnel;
| | - |  | ----------------------------



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



| |  |  | ability to anticipate merchandise trends and consumer demand;
| | - |  | -------------------------------------------------------------



| |  |  | ability to maintain relationships with suppliers;
| | - |  | -------------------------------------------------



| |  |  | successful implementation of information systems;
| | - |  | -------------------------------------------------



| |  |  | successful handling of merchandise logistics;
| | - |  | ---------------------------------------------



| |  |  | inventory shrinkage;
| | - |  | --------------------



| |  |  | ability to meet future capital needs;
| | - |  | -------------------------------------



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



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



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



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



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



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



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



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



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



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



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



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION,
ITEM 1, FINANCIAL STATEMENTS



FACTORY
CARD & PARTY OUTLET CORP.

AND SUBSIDIARY



Condensed Consolidated Balance Sheets

(Unaudited)

(Dollar amounts in thousands)



|                                                                |  |              |        |                 |   |       
|--------------------------------------------------------------- |  | ------------ | ------ | --------------- | - | ------
|                                                                |  | July 30,2005 |        | January 29,2005
|ASSETS                                                          |  |              |        |                 |   |       
|Current assets:                                                 |  |              |        |                 |   |       
|Cash                                                            |  | $            | 190    |                 | $ | 188   
|Merchandise inventories, net                                    |  |              | 46,487 |                 |   | 43,653
|Prepaid expenses and other assets                               |  |              | 4,225  |                 |   | 4,577 
|Deferred tax asset, net                                         |  |              | 3,925  |                 |   | 5,527 
|                                                                |  |              |        |                 |   |       
|Total current assets                                            |  |              | 54,827 |                 |   | 53,945
|Fixed assets, net                                               |  |              | 9,779  |                 |   | 8,164 
|Other assets                                                    |  |              | 146    |                 |   | 170   
|Deferred tax asset, net                                         |  |              | 6,586  |                 |   | 5,991 
|                                                                |  |              |        |                 |   |       
|Total assets                                                    |  | $            | 71,338 |                 | $ | 68,270
|                                                                |  |              |        |                 |   |       
|LIABILITIES AND STOCKHOLDERS EQUITY                            |  |              |        |                 |   |       
|Current liabilities:                                            |  |              |        |                 |   |       
|Debt  line of credit                                           |  | $            | 9,974  |                 | $ | 12,032
|Accounts payable                                                |  |              | 21,453 |                 |   | 16,245
|Accrued expenses                                                |  |              | 7,850  |                 |   | 7,564 
|Current portion of long term debt and capital lease obligations |  |              | 13     |                 |   | 1,646 
|                                                                |  |              |        |                 |   |       
|Total current liabilities                                       |  |              | 39,290 |                 |   | 37,487
|                                                                |  |              |        |                 |   |       
|Long term debt and capital lease obligations                    |  |              | 8      |                 |   | 15    
|Deferred rent liabilities                                       |  |              | 1,700  |                 |   | 1,895 
|                                                                |  |              |        |                 |   |       
|Total liabilities                                               |  |              | 40,998 |                 |   | 39,397
|                                                                |  |             
|Stockholders equity                                            |  |              | 30,340 |                 |   | 28,873
|                                                                |  |              |        |                 |   |       
|Total liabilities and stockholders equity                      |  | $            | 71,338 |                 | $ | 68,270
|                                                                |  |              |        |                 |   |       



See accompanying notes
to condensed consolidated financial statements.



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FACTORY CARD & PARTY OUTLET CORP.

AND SUBSIDIARY



Condensed Consolidated Statements of Operations

(Unaudited)

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



|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  
|--------------------------------------------- |  | -------------------------------- | --------- | -------------------------------- | - | ------------------------------ |  | ------------------------------ | --------- |  | - | --------- | -
|                                              |  | Three Months Ended July 30, 2005 |           | Three Months Ended July 31, 2004 |   | Six Months Ended July 30, 2005 |  | Six Months Ended July 31, 2004 |          
|Net sales                                     |  | $                                | 62,896    |                                  | $ | 62,162                         |  | $                              | 118,634   |  | $ | 119,090   |  
|Cost of sales                                 |  |                                  | 39,574    |                                  |   | 39,028                         |  |                                | 75,013    |  |   | 75,855    |  
|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  
|Gross profit                                  |  |                                  | 23,322    |                                  |   | 23,134                         |  |                                | 43,621    |  |   | 43,235    |  
|                                              |  |                                  |           |                                 
|Selling, general and administrative expenses  |  |                                  | 20,741    |                                  |   | 18,967                         |  |                                | 39,680    |  |   | 37,802    |  
|Depreciation expense                          |  |                                  | 675       |                                  |   | 631                            |  |                                | 1,256     |  |   | 1,214     |  
|Other (income) expense                        |  |                                  |          |                                  |   | 25                             |  |                                |          |  |   | (30       | )
|Interest expense                              |  |                                  | 128       |                                  |   | 168                            |  |                                | 297       |  |   | 399       |  
|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  
|Income before income tax expense              |  |                                  | 1,778     |                                  |   | 3,343                          |  |                                | 2,388     |  |   | 3,850     |  
|Income tax expense                            |  |                                  | 761       |                                  |   | 1,337                          |  |                                | 1,007     |  |   | 1,540     |  
|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  
|Net income                                    |  | $                                | 1,017     |                                  | $ | 2,006                          |  | $                              | 1,381     |  | $ | 2,310     |  
|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  
|Net income per share - basic                  |  | $                                | 0.33      |                                  | $ | 0.66                           |  | $                              | 0.45      |  | $ | 0.77      |  
|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  
|Weighted average shares outstanding  basic   |  |                                  | 3,077,323 |                                  |   | 3,022,279                      |  |                                | 3,063,405 |  |   | 3,001,937 |  
|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  
|Net income per share  diluted                |  | $                                | 0.30      |                                  | $ | 0.56                           |  | $                              | 0.40      |  | $ | 0.65      |  
|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  
|Weighted average shares outstanding  diluted |  |                                  | 3,431,294 |                                  |   | 3,554,071                      |  |                                | 3,485,715 |  |   | 3,545,446 |  
|                                              |  |                                  |           |                                  |   |                                |  |                                |           |  |   |           |  



See accompanying notes
to condensed consolidated financial statements.



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FACTORY CARD & PARTY OUTLET CORP.

AND SUBSIDIARY



Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollar amounts in thousands)



|                                                                                  |  |                                       |          |   |                                       |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | -------- | - | ------------------------------------- | - | -------- | -
|                                                                                  |  | For the Six Months EndedJuly 30, 2005 |          |   | For the Six Months EndedJuly 31, 2004 |  
|Cash flows from operating activities:                                             |  |                                       |          |   |                                       |   |          |  
|Net income                                                                        |  | $                                     | 1,381    |   |                                       | $ | 2,310    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                       |          |   |                                       |   |          |  
|Depreciation and amortization of fixed assets                                     |  |                                       | 1,256    |   |                                       |   | 1,214    |  
|Amortization of deferred financing costs                                          |  |                                       | 16       |   |                                       |   | 56       |  
|Amortization of deferred compensation                                             |  |                                       | 71       |   |                                       |   | 63       |  
|Loss on disposal of fixed assets                                                  |  |                                       | 34       |   |                                       |   | 6        |  
|Tax benefit of pre-confirmation net operating losses                              |  |                                       |         |   |                                       |   | 1,510    |  
|Changes in assets and liabilities:                                                |  |                                       |          |   |                                       |   |          |  
|Merchandise inventories                                                           |  |                                       | (2,834   | ) |                                       |   | (791     | )
|Prepaid expenses and other assets, net                                            |  |                                       | 1,366    |   |                                       |   | (82      | )
|Accounts payable                                                                  |  |                                       | 5,208    |   |                                       |   | 1,660    |  
|Accrued expenses                                                                  |  |                                       | 286      |   |                                       |   | 399      |  
|Deferred rent obligation                                                          |  |                                       | (195     | ) |                                       |   | (75      | )
|                                                                                  |  |                                       |          |   |                                       |   |          |  
|Net cash flows from operating activities                                          |  |                                       | 6,589    |   |                                       |   | 6,270    |  
|                                                                                  |  |                                       |          |   |                                       |   |          |  
|Net cash flows from investing activities  purchase of fixed assets               |  |                                       | (2,905   | ) |                                       |   | (1,546   | )
|                                                                                  |  |                                       |          |   |                                       |   |          |  
|Cash flows from financing activities:                                             |  |                                       |          |   |                                       |   |          |  
|Borrowings - line of credit                                                       |  |                                       | 122,581  |   |                                       |   | 123,520  |  
|Repayments  line of credit                                                       |  |                                       | (124,639 | ) |                                       |   | (125,280 | )
|Payment of trade conversion and extended creditor note payable                    |  |                                       | (1,649   | ) |                                       |   | (2,932   | )
|Payment of capital lease obligations                                              |  |                                       | (6       | ) |                                       |   | (196     | )
|Discount on payment of trade conversion and extended creditor note payable        |  |                                       |         |   |                                       |   | (20      | )
|Increase in extended creditor note payable                                        |  |                                       | 16       |   |                                       |   | 111      |  
|Cash received from exercise of stock options and warrants                         |  |                                       | 15       |   |                                       |   | 76       |  
|                                                                                  |  |                                       |          |   |                                       |   |          |  
|Net cash flows from financing activities                                          |  |                                       | (3,682   | ) |                                       |   | (4,721   | )
|                                                                                  |  |                                       |          |   |                                       |   |          |  
|Net increase in cash                                                              |  |                                       | 2        |   |                                       |   | 3        |  
|                                                                                  |  |                                       |          |   |                                       |   |          |  
|Cash at beginning of period                                                       |  |                                       | 188      |   |                                       |   | 179      |  
|                                                                                  |  |                                       |          |   |                                       |   |          |  
|Cash at end of period                                                             |  | $                                     | 190      |   |                                       | $ | 182      |  
|                                                                                  |  |                                       |          |   |                                       |   |          |  
|Supplemental cash flow information:                                               |  |                                       |          |   |                                       |   |          |  
|Interest paid                                                                     |  | $                                     | 335      |   |                                       | $ | 476      |  
|Alternative minimum taxes paid                                                    |  |                                       | 37       |   |                                       |   |         |  
|Income taxes refunded                                                             |  |                                       |         |   |                                       |   | 3        |  
|Cash paid for reorganization items                                                |  |                                       |         |   |                                       |   | 4        |  
|Supplemental non cash information:                                                |  |                                       |          |   |                                       |   |          |  
|Unearned restricted stock awards                                                  |  |                                       | 217      |   |                                       |   | 212      |  



See accompanying notes
to condensed consolidated financial statements.



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FACTORY CARD & PARTY OUTLET CORP.

AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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



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



The Company is a chain of company-owned stores offering an extensive selection of party supplies, greeting cards, giftwrap, balloons, everyday and
seasonal merchandise and other special occasion merchandise at everyday value prices. As of July 30, 2005, the Company operated 186 stores in 20 states. The Companys fiscal year ends on the Saturday closest to January 31st.



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



Management Estimates



The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period and related disclosures. Actual results could differ from those estimates.



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



The Company is party to a secured financing facility, dated April 8, 2002, with Wells Fargo Retail Finance, LLC (as amended, the Loan
Agreement). The Loan Agreement, which is a line of credit expiring on April 8, 2007, currently provides up to $30,000 (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. At July 30, 2005, the interest rate on the Companys borrowings was 6.25%. Borrowings under the Loan Agreement are secured by substantially all of the Companys assets. Certain
restrictive covenants apply, including achievement of specified operating results and limitations on the incurrence of additional liens and indebtedness, capital expenditures, asset sales and payment of dividends, all of which have been met as of
July 30, 2005 and January 29, 2005.



At July 30, 2005 and
January 29, 2005, the Company has outstanding borrowings under the Loan Agreement of $9,974 and $12,032, respectively.



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



The following table summarizes the components of Debt and Capital Lease Obligations at July 30, 2005 and January 29, 2005, including its current portion.



|                                                   |  |              |     |   |                 |   |        |  
|-------------------------------------------------- |  | ------------ | --- | - | --------------- | - | ------ | -
|                                                   |  | July 30,2005 |     |   | January 29,2005 |  
|Discounted value of extended creditor note payable |  | $            |    |   |                 | $ | 1,634  |  
|Capital leases                                     |  |              | 21  |   |                 |   | 27     |  
|                                                   |  |              |     |   |                 |   |        |  
|Sub total                                          |  |              | 21  |   |                 |   | 1,661  |  
|                                                   |  |              |     |   |                 |   |        |  
|Less current maturities                            |  |              | (13 | ) |                 |   | (1,646 | )
|                                                   |  |              |     |   |                 |   |        |  
|Total long term debt and capital lease obligations |  | $            | 8   |   |                 | $ | 15     |  
|                                                   |  |              |     |   |                 |   |        |  



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



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



In April 2002, the Company authorized an aggregate of 10,000,000 shares of new Common Stock, par value $0.01 per share. A total of 3,128,952 common shares
were deemed outstanding at July 30, 2005.



In April 2002, the
Company issued 150,000 shares of common stock to certain members of management, which vest ratably over a four-year period. At the date of grant, the market value of the award was recorded in common stock and additional paid-in-capital; an
offsetting amount was recorded as a component of stockholders equity in unearned restricted stock awards. Compensation cost is included in results of operations over the vesting period. Expense relating to outstanding restricted stock awards
for the three months ended July 30, 2005 and July 30, 2004 was $31 and $32, respectively. Expense relating to outstanding restricted stock awards for the six months ended July 30, 2005 and July 31, 2004 was $65 and $63, respectively.



In April 2002, the Company adopted a 2002 stock option plan, which
authorizes the grant of up to 333,334 stock options to the Companys employees  302,900 options under the 2002 stock option plan at exercise prices ranging from $2.75 to $22.40 were outstanding at July 30, 2005.



In April 2002, the Company issued four series of new Warrants, Series A
through D, granting such holders the right to purchase an aggregate of 306,934 additional shares of the new Common Stock. The Series A Warrants are exercisable any time prior to April 9, 2006 at a price of $5.50 per share. The Series B Warrants are
exercisable at any time prior to April 9, 2008 at a price of $8.00 per share. The Series C Warrants are exercisable any time prior to April 9, 2010 at a price of $8.00 per share. The Series D Warrants are exercisable any time prior to April 9, 2010
at a price of $17.00 per share. At July 30, 2005, Warrants to purchase an aggregate of 264,438 shares common stock were outstanding.



On April 23, 2002, the Board of Directors approved the non-employee Director Stock Option Plan, which authorized the grant of up to 300,000 common stock
options to non-employee members of the Board of Directors  215,000 options at exercise prices ranging from $2.65 to $11.90 were outstanding at July 30, 2005.



7



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##### Table of Contents

On January 27, 2003, the Board of Directors adopted the 2003 Equity Incentive Plan whereby 500,000 shares
would become available to our employees and officers. The 2003 Equity Incentive Plan was approved by the stockholders at our annual meeting of stockholders on July 16, 2003. Under the 2003 Equity Incentive Plan  337,818 options were
outstanding at July 30, 2005 with exercise prices ranging from $6.38 to $19.00.



In June 2005, the Board of Directors approved a restricted share award under the 2003 Equity Incentive Plan to the officer group of the Company. A total of 17,000 shares were awarded which vest ratably over three
years. At the date of grant, the market value of the award was recorded in common stock and additional paid-in-capital; an offsetting amount was recorded as a component of stockholders equity in unearned restricted stock awards. Compensation
cost is included in results of operations over the vesting period. Expense relating to outstanding restricted stock awards for the three and six months ended July 30, 2005 was $8.



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



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



In accordance with SFAS No. 128 Earnings per Share, earnings per share  basic was computed by dividing net income by the weighted
average number of common shares outstanding during the period. Earnings per share  diluted assumes, in addition to the above, the effect of potentially dilutive securities.



The reconciliation of earnings per share basic to earnings per share diluted is as follows (in thousands, except per share
amounts):



|                                                                 |  |                                         |           |                                         |   |          
|---------------------------------------------------------------- |  | --------------------------------------- | --------- | --------------------------------------- | - | ---------
|                                                                 |  | For the three months endedJuly 30, 2005 |           | For the three months endedJuly 31, 2004
|Net income                                                       |  | $                                       | 1,017     |                                         | $ | 2,006    
|Earnings per share  basic                                       |  | $                                       | 0.33      |                                         | $ | 0.66     
|Earnings per share  diluted                                     |  | $                                       | 0.30      |                                         | $ | 0.56     
|Weighted average common shares outstanding                       |  |                                         | 3,077,323 |                                         |   | 3,022,279
|Dilutive effect of stock options and warrants                    |  |                                         | 353,971   |                                         |   | 531,792  
|                                                                 |  |                                         |           |                                         |   |          
|Weighted average common and common equivalent shares outstanding |  |                                         | 3,431,294 |                                         |   | 3,554,071
|                                                                 |  |                                         |           |                                         |   |          
|                                                                 |  |                                        
|                                                                 |  | For the six months endedJuly 30, 2005   |           | For the six months endedJuly 31, 2004  
|Net income                                                       |  | $                                       | 1,381     |                                         | $ | 2,310    
|Earnings per share  basic                                       |  | $                                       | 0.45      |                                         | $ | 0.77     
|Earnings per share  diluted                                     |  | $                                       | 0.40      |                                         | $ | 0.65     
|Weighted average common shares outstanding                       |  |                                         | 3,063,405 |                                         |   | 3,001,937
|Dilutive effect of stock options and warrants                    |  |                                         | 422,310   |                                         |   | 543,509  
|                                                                 |  |                                         |           |                                         |   |          
|Weighted average common and common equivalent shares outstanding |  |                                         | 3,485,715 |                                         |   | 3,545,446
|                                                                 |  |                                         |           |                                         |   |          



The dilutive impact of
stock options and warrants was calculated using the treasury method.



Options to purchase 178,750 common shares at prices ranging from $9.31 to $22.40 per share and



8



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##### Table of Contents

warrants to purchase 60,150 common shares at a price of $17.00 per share were outstanding as of July 30, 2005 but were not included in the calculation of
diluted earnings per share for the three months ended July 30, 2005 because the strike price was greater than the average market price per share during the period.



Options to purchase 177,950 common shares at prices ranging from $10.50 to $22.40 per share and warrants to purchase 60,150
common shares at a price of $17.00 per share were outstanding as of July 30, 2005 but were not included in the calculation of diluted earnings per share for the six months ended July 30, 2005 because the strike price was greater than the average
market price per share during the period.



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



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



|                                                                                                                                     |  |                                          |       |                                          |   |                                        |  |                                        |       |  |   |      
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------- | ----- | ---------------------------------------- | - | -------------------------------------- |  | -------------------------------------- | ----- |  | - | -----
|                                                                                                                                     |  | For the three months ended July 30, 2005 |       | For the three months ended July 31, 2004 |   | For the six months ended July 30, 2005 |  | For the six months ended July 31, 2004
|Net income, as reported                                                                                                              |  | $                                        | 1,017 |                                          | $ | 2,006                                  |  | $                                      | 1,381 |  | $ | 2,310
|Deduct: Total stock-based employee compensation expense determined under fair value basis for all awards, net of related tax
effects |  |                                          | 80    |                                          |   | 149                                    |  |                                        | 752   |  |   | 270  
|                                                                                                                                     |  |                                          |       |                                          |   |                                        |  |                                        |       |  |   |      
|Pro forma net income                                                                                                                 |  | $                                        | 937   |                                          | $ | 1,857                                  |  | $                                      | 629   |  | $ | 2,040
|                                                                                                                                     |  |                                          |       |                                          |   |                                        |  |                                        |       |  |   |      
|Earnings per share:                                                                                                                  |  |                                          |       |                                          |   |                                        |  |                                        |       |  |   |      
|Basic-as reported                                                                                                                    |  | $                                        | 0.33  |                                          | $ | 0.66                                   |  | $                                      | 0.45  |  | $ | 0.77 
|                                                                                                                                     |  |                                          |       |                                          |   |                                        |  |                                        |       |  |   |      
|Basic-pro forma                                                                                                                      |  | $                                        | 0.30  |                                          | $ | 0.61                                   |  | $                                      | 0.21  |  | $ | 0.68 
|                                                                                                                                     |  |                                          |       |                                          |   |                                        |  |                                        |       |  |   |      
|Diluted-as reported                                                                                                                  |  | $                                        | 0.30  |                                          | $ | 0.56                                   |  | $                                      | 0.40  |  | $ | 0.65 
|                                                                                                                                     |  |                                          |       |                                          |   |                                        |  |                                        |       |  |   |      
|Diluted-pro forma                                                                                                                    |  | $                                        | 0.27  |                                          | $ | 0.52                                   |  | $                                      | 0.18  |  | $ | 0.58 
|                                                                                                                                     |  |                                          |       |                                          |   |                                        |  |                                        |       |  |   |      



On April 14, 2005 the
Company approved the accelerated vesting of unvested and out-of-the-money options held by current employees, executive officers and non-employee directors (the Acceleration) that have been granted under the Companys
2002 Stock Option Plan, 2003 Equity Incentive Plan and 2002 Non Employee Directors Stock Option Plan. As a result of the Acceleration, the affected unvested options are those which had exercise prices of greater than $9.64 per share, which was
the closing sales price of the Companys common stock on the NASDAQ National Market on April 14, 2005, the effective date of the Acceleration. Pursuant to the Acceleration, options granted under the Plans to purchase approximately 124,000
shares of the Companys common stock that would otherwise have vested at various times within the next two years became fully vested. As a result of the Companys decision to approve the Acceleration, each option agreement underlying
options subject to the Acceleration is deemed to be amended to reflect the Acceleration as of the effective date, but all other terms and conditions of each such option agreement remain in full force and effect.



The per share weighted average fair value of stock options granted during
the three and six months



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##### Table of Contents

ended July 30, 2005 and July 31, 2004 was estimated using the Black Scholes Option-Pricing Model with the following weighted average assumptions: expected
dividend rate 0.0%, risk free interest rate of 3.39% to 4.73%, volatility of 50% and an expected life of 6 to 10 years.



|(7) | Income Taxes
|--- | ------------



The Company files a consolidated federal income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial reporting and tax basis of assets and liabilities and are determined using tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company assesses its
deferred tax assets and establishes valuation allowances when it is determined that deferred tax assets are not likely to be realized.



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



One entity had an ownership interest of more than 5% during the six months ended July 31, 2004. Total purchases from that entity were $2,259 during the
six months ended July 31, 2004 and amounts owed to that entity were $212 at July 31, 2004.



|(9) | Contingencies
|--- | -------------



On March 3, 2004, Midwest One Distribution Company filed a lawsuit against the Company in the Circuit Court of the Eighteen Judicial Circuit of DuPage
County, Illinois, captioned Midwest One Distribution Co. vs. Factory Card & Party Outlet Corp. and Factory Card Outlet of America, Ltd. The lawsuit alleges that the Company breached a distribution agreement between the parties that terminated on
January 31, 2004 by failing to pay certain invoices from Midwest One for certain services and/or expenses allegedly performed or incurred by Midwest One. Midwest One seeks damages of approximately $4,800 and an accounting of all distribution
services for which Midwest One was entitled to compensation under the distribution agreement. The parties are currently proceeding with discovery in this lawsuit. No trial date has been set. The Company believes that it has meritorious defenses and
counterclaims and intends to pursue them vigorously.



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



|(10) | New Accounting Pronouncements
|---- | -----------------------------



In March 2005, the Financial Accounting Standards Board (FASB) issued Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations which provides additional guidance on conditional asset retirement obligations under FASB No. 143, and Accounting for Asset Retirement Obligations. This standard is effective for fiscal years ended after December 15,
2005. The Company believes adoption of Interpretation No. 47 will not have a material impact on its condensed consolidated balance sheets, statements of operations or cash flows.



In May 2005, the FASB issued Financial Accounting Concepts (FAS) No. 154, Accounting Changes and Error
Corrections. FAS No. 154 replaces Accounting Principles Board (APB) Opinion No. 20 Accounting Changes and FASB Statement No. 3. Reporting Accounting Changes in Interim Financial Statements. APB No. 20 allowed a change
in accounting principle to be accounted for



10



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##### Table of Contents

generally as a cumulative effect adjustment in the current years financial statements. FAS 154 states the change be reported retrospectively and
requires the following:



| |  |  | The cumulative effect of the change to the new accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of
the beginning of the first period presented.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An offsetting adjustment, if any, shall be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial
positions) for that period.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



FAS No. 154 is effective for accounting changes
made in fiscal years beginning after December 15, 2005.



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##### Table of Contents

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



Overview



Factory Card & Party Outlet Corp. and our subsidiary, Factory Card Outlet of America Ltd., are a specialty retailer offering a wide selection of party
supplies, greeting cards, giftwrap, balloons, gifts, seasonal merchandise and other special occasion merchandise at everyday value prices. Based on the published number of stores of our competitors as compiled by various business publications and
other publicly available information, we believe we are one of the largest chains of company-owned stores in the party supply, greeting card and special occasion industry. Our fiscal year ends on the 52 or 53 weeks, as applicable, ending the
Saturday nearest to January 31st. Fiscal 2005 is the period January 30, 2005 to January 28, 2006. Fiscal 2004 is the
period February 1, 2004 to January 29, 2005. As of July 30, 2005, we operated 186 stores in 20 states. The following table summarizes store opening and closing activity during the first half of fiscal 2005.



|                    |  |                             |   |                           |               |  |               |   |  |               |  
|------------------- |  | --------------------------- | - | ------------------------- | ------------- |  | ------------- | - |  | ------------- | -
|                    |  | For the three months ended: |   | For the six months ended: |              
|                    |  | July 30, 2005               |   |                           | July 31, 2004 |  | July 30, 2005 |   |  | July 31, 2004 |  
|Beginning of period |  | 185                         |   |                           | 180           |  | 184           |   |  | 177           |  
|Openings            |  | 2                           |   |                           |              |  | 3             |   |  | 4             |  
|Closings            |  | (1                          | ) |                           |              |  | (1            | ) |  | (1            | )
|                    |  |                             |   |                           |               |  |               |   |  |               |  
|End of period       |  | 186                         |   |                           | 180           |  | 186           |   |  | 180           |  
|                    |  |                             |   |                           |               |  |               |   |  |               |  



Greeting Card Agreement



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



This agreement
enables the repositioning of our greeting card strategy by introducing a multi-tiered pricing program featuring high quality greeting cards retailing at a new low price of 49 cents, blended with the introduction of premium greeting cards selling for
99 cents. As we replace our one price, 59-cent strategy, our customers will benefit from a greatly improved greeting card value, enriched by our relationship with Premier Greetings, a company with excellent resources and a recognized leader in the
greeting card industry.



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



12



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##### Table of Contents

Critical Accounting Policies and Estimates



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



Merchandise Inventories



We state merchandise inventories at the lower of average cost or estimated net realizable value utilizing the retail method. We perform periodic evaluations of the net realizable value of merchandise, including merchandise which is to be
discontinued from our ongoing inventory assortment as well as inventory with excess quantities on hand and certain seasonal inventory remaining from past holidays. Based upon these evaluations, a provision for the excess of inventory cost over the
net realizable value is recorded as a reduction to the net inventory balance. At July 30, 2005 and January 29, 2005, we had reserves of $2,083 and $5,893, respectively.



We receive vendor allowances principally as a result of meeting defined purchase levels or promoting vendors products.
Those received as a result of purchase levels are accrued as a reduction of merchandise purchase price and result in a reduction of cost of sales as the merchandise is sold. Those received for promoting vendors products are offset against
specific advertising expense relating to the promotion and result in a reduction of selling, general and administrative expenses. Markdown allowances reduce cost of goods sold in the period the related markdown is taken. Placement allowances are
offset against specific, incremental expenses incurred in getting the product ready for sale.



Income Taxes



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



Impairment of Long-Lived Assets



We review each store for impairment indicators annually, considering
operating results and cash flows. Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the
assumptions and estimates resulting from changes in the actual results or market conditions from those anticipated, may effect the carrying value of long-lived assets and could result in an impairment charge.



13



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##### Table of Contents

Use of Estimates



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



New Accounting
Pronouncements



In March 2005, the Financial Accounting
Standards Board (FASB) issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations which provides additional guidance on conditional asset retirement obligations under FASB No. 143, and Accounting for
Asset Retirement Obligations. This standard is effective for fiscal years ended after December 15, 2005. The Company believes adoption of Interpretation No. 47 will not have a material impact on its condensed consolidated balance sheets,
statements of operations or cash flows.



In May 2005, the FASB
issued Financial Accounting Concepts (FAS) No. 154, Accounting Changes and Error Corrections. FAS No. 154 replaces Accounting Principles Board (APB) Opinion No. 20 Accounting Changes and FASB Statement No. 3. Reporting
Accounting Changes in Interim Financial Statements. APB No. 20 allowed a change in accounting principle to be accounted for generally as a cumulative effect adjustment in the current years financial statements. FAS 154 states the change
be reported retrospectively and requires the following:



| |  |  | The cumulative effect of the change to the new accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of
the beginning of the first period presented.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An offsetting adjustment, if any, shall be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial
positions) for that period.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



FAS No. 154 is effective for accounting changes
made in fiscal years beginning after December 15, 2005.



14



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##### Table of Contents

Results of Operations



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



|                                             |  |                                 |   |  |                                 |   |  |                               |   |  |                               |  
|-------------------------------------------- |  | ------------------------------- | - |  | ------------------------------- | - |  | ----------------------------- | - |  | ----------------------------- | -
|                                             |  | Three months endedJuly 30, 2005 |   |  | Three months endedJuly 31, 2004 |   |  | Six months endedJuly 30, 2005 |   |  | Six months endedJuly 31, 2004 |  
|Net sales                                    |  | 100.0                           | % |  | 100.0                           | % |  | 100.0                         | % |  | 100.0                         | %
|Cost of sales                                |  | 62.9                            |   |  | 62.8                            |   |  | 63.2                          |   |  | 63.7                          |  
|                                             |  |                                 |   |  |                                 |   |  |                               |   |  |                               |  
|Gross profit                                 |  | 37.1                            |   |  | 37.2                            |   |  | 36.8                          |   |  | 36.3                          |  
|Selling, general and administrative expenses |  | 33.0                            |   |  | 30.5                            |   |  | 33.4                          |   |  | 31.7                          |  
|Depreciation expense                         |  | 1.1                             |   |  | 1.0                             |   |  | 1.1                           |   |  | 1.0                           |  
|Interest expense                             |  | 0.2 2                           |   |  | 0.3                             |   |  | 0.3                           |   |  | 0.3                           |  
|                                             |  |                                 |   |  |                                 |   |  |                               |   |  |                               |  
|Income before income tax expense             |  | 2.8                             |   |  | 5.4                             |   |  | 2.0                           |   |  | 3.3                           |  
|Income tax expense                           |  | 1.2                             |   |  | 2.2                             |   |  | 0.8                           |   |  | 1.3                           |  
|                                             |  |                                 |   |  |                                 |   |  |                               |   |  |                               |  
|Net income                                   |  | 1.6                             | % |  | 3.2                             | % |  | 1.2                           | % |  | 2.0                           | %
|                                             |  |                                 |   |  |                                 |   |  |                               |   |  |                               |  
|Number of stores open at end of period       |  | 186                             |   |  | 180                             |   |  | 186                           |   |  | 180                           |  



Three Months Ended July 30, 2005
and July 31, 2004



Net Sales. Net sales increased
$734 or 1.2% to $62,896 for the three month period ended July 30, 2005 (second quarter of fiscal 2005) from $62,162 for the three month period ended July 31, 2004 (second quarter of fiscal 2004). The increase is attributed to
additional stores in the second quarter of fiscal 2005 compared to 2004 offset by a decrease in comparable store sales. We started the second quarter of fiscal 2005 with 185 stores and ended the quarter with 186 stores. This compares to 180 stores
operated during the entire second quarter of fiscal 2004. Comparable store sales decreased 0.5%. We experienced strong comparable store sales in our seasonal and balloon categories and reversed negative trends in our card category with the new
greeting card offering. Increases in our average ticket were offset by declining customer counts. Comparable store sales are defined as sales from those stores open for at least one full year and include internet sales to customers within existing
stores trading area. We did not record sales from the internet in the second fiscal quarter 2005 or second quarter fiscal 2004. We expect to generate sales from the internet in the third quarter of fiscal 2005.



Gross Profit. Cost of sales includes merchandise, distribution and
store occupancy costs. Gross profit increased $188 or 0.8%, to $23,322 for the second quarter of fiscal 2005 from $23,134 for the second quarter of fiscal 2004. As a percentage of net sales, gross profit was 37.1% for the second quarter of fiscal
2005 compared to 37.2% in the same period in the prior year. We were successful in managing merchandise margins by obtaining a higher mark on percentage on goods available for sale while continuing to leverage our freight and distribution costs.
These favorable variances are offset by higher occupancy costs as we opened new stores. Store occupancy costs increased $559 or 7.4% primarily as a result of additional stores. As a percent of sales, gross profit, excluding store occupancy costs,
improved 60 basis points from the second quarter of fiscal 2004.



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##### Table of Contents

Selling, General and Administrative Expenses. Selling, general and administrative expenses include
store payroll, advertising and other store operating and corporate administrative expenses. Selling, general and administrative expenses increased $1,774 or 9.4% to $20,741 for the second quarter of fiscal 2005 from $18,967 for the second quarter of
fiscal 2004. Major contributors to the increase are the store count and increase in net advertising expense of $839 or 36.3%. We incurred incremental advertising expense in conjunction with the roll out of the new greeting card initiative and
deployed additional print advertising promoting the graduation selling season. Additionally, other corporate administrative expenses increased $324 or 7.2% because of additional payroll, insurance and professional services relating to new stores and
other corporate governance initiatives. These increases were offset by a decrease in bonus expense as we adjusted our bonus accrual in light of lower than budgeted sales and earnings results. As a percentage of net sales, selling, general and
administrative expenses were 33.0% in the second quarter of fiscal 2005 compared to 30.5% in the second quarter of fiscal 2004.



Depreciation expense. Depreciation expense was $675 in the second quarter of fiscal 2005 compared to $631 in the second quarter of fiscal 2004. The
increase is attributed to the level of fixed asset additions primarily related to new store openings and store remodels.



Interest Expense. Interest expense was $128 in the second quarter of fiscal 2005 compared to $168 in the second quarter of fiscal 2004. The
decrease resulted from lower average borrowing levels as we increase our days payable with our vendors. The decrease in borrowing levels was offset by higher effective interest rates.



Income Tax Expense. Income tax expense was $761 in the second quarter of fiscal 2005 compared to $1,337 in the second
quarter of fiscal 2004. Decrease is a function of lower income levels in the second quarter of fiscal 2005. Until the benefits of our net operating loss carry forwards are fully utilized, we do not expect to pay federal income tax.



Six Months Ended July 30, 2005 and July 31, 2004



Net Sales. Net sales decreased $456 or 0.4%, to $118,634 for the six
fiscal month period ended July 31, 2005 (first half of fiscal 2005) from $119,090 for the six fiscal month period ended July 31, 2004 (first half of fiscal 2004). The decrease is attributed to the poor comparable sales
performance. Comparable sales decreased 2.3%. We continue to operate in a challenging retail environment with competition from dollar stores, mass merchants, grocery chains and other specialty retailers. Comparable store sales increases in the
balloon and candy categories were offset by negative comparable store sales in the other four categories. Comparable store sales are defined as sales from those stores open for at least one full year and include internet sales to customers within
existing stores trading area. We did not record any sales from the internet in the first half of fiscal 2005 or the first half of fiscal 2004. We expect to generate sales from the internet in the third quarter of fiscal 2005.



16



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##### Table of Contents

Gross Profit. Cost of sales includes merchandise, distribution and occupancy costs. Gross profit
increased $386 or 0.9%, to $43,621 for the first half of fiscal 2005 from $43,235 for the first half of fiscal 2004. As a percentage of net sales, gross profit was 36.8% for the first half of fiscal 2005 compared to 36.3% in the first half of fiscal
2004. We were successful in managing merchandise margins while continuing to leverage our freight and distribution costs. As a percent of sales, gross profit, excluding store occupancy costs, improved 120 basis points from the first half of fiscal
2004. Store occupancy costs increased $859 or 5.7% primarily as a result of additional stores.



Selling, General and Administrative Expenses. Selling, general and administrative expenses include store payroll, advertising and other store operating and corporate administrative expenses. Selling, general
and administrative expenses increased $1,878 or 5.0%, to $39,680 for the first half of fiscal 2005 from $37,802 for the first half of fiscal 2004. Store related expenses increased $781 or 3.3% as a function of operating additional stores while net
advertising expense increased $249 or 5.0% to $5,225 as we launched our new greeting card initiative and other promotional activities in an attempt to drive sales. Other corporate administrative expenses increased $848 or 9.5% because of increases
in payroll related costs, insurance costs and professional fees. As a percentage of net sales, selling, general and administrative expenses were 33.4% in the first half of fiscal 2005 compared to 31.7% in the first half of fiscal 2004. Our expense
levels outpacing our revenue growth cause the increase as a percentage of net sales.



Depreciation expense. Depreciation expense was $1,256 in the first half of fiscal 2005 compared to $1,214 in the first half of fiscal 2004. The increase is attributed to the level of fixed asset additions
primarily related to new store openings and store remodels.



Interest Expense. Interest expense was $297 in the first half of fiscal 2005 compared to $399 in the first half of fiscal 2004. The decrease resulted from lower average borrowing levels as we increase our days payable with our
vendors. The decrease in borrowing levels was offset by higher effective interest rates.



Income Tax Expense. Income tax expense was $1,007 in the first half of 2005 compared to $1,540 in the first half of fiscal 2004. Decrease is a function of lower income levels in the first half of fiscal 2005.
Until the benefits of our net operating loss carry forwards are fully utilized, we do not expect to pay federal income tax.



17



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##### Table of Contents

Liquidity and Capital Resources



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



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



|                                     |  |                               |        |   |                               |   |        |  
|------------------------------------ |  | ----------------------------- | ------ | - | ----------------------------- | - | ------ | -
|                                     |  | FY2005                        |        |   | FY2004                        |  
|                                     |  | Six months endedJuly 30, 2005 |        |   | Six months endedJuly 31, 2004 |  
|Cash flows from operating activities |  | $                             | 6,589  |   |                               | $ | 6,270  |  
|                                     |  |                               |        |   |                               |   |        |  
|Cash flows from investing activities |  | $                             | (2,905 | ) |                               | $ | (1,546 | )
|                                     |  |                               |        |   |                               |   |        |  
|Cash flows from financing activities |  | $                             | (3,682 | ) |                               | $ | (4,721 | )
|                                     |  |                               |        |   |                               |   |        |  



At July 30, 2005 our
working capital was $15,537. Net cash provided by operating activities for the six months ended July 30, 2005 was $6,589 compared to $6,270 of net cash provided by operating activities during the six months ended July 31, 2004. Fluctuation due to
increases in our accounts payable balances as we work with our vendors in obtaining favorable trade terms. This was offset by higher inventory purchases related to seasonal merchandise and lower income levels for the six months ended July 30, 2005.



Net cash used in investing activities during the six months
ended July 30, 2005 and the six months ended July 31, 2004 was $2,905 and $1,546, respectively. Net cash used in investing activities was for capital expenditures related to new store openings, computer equipment and software, store remodeling and
warehouse equipment for the distribution center. Capital expenditures are higher in the current year due to information technology purchases of $653 related to a new software replenishment system which will be operational later this fiscal year
coupled with $537 relating to the replacement of the bargain basket fixtures in our existing stores.



Net cash used in financing activities during the six months ended July 31, 2004 was $3,682 compared to $4,721 during the six months ended July 31, 2004.
Amounts are attributable to the level of borrowings and repayments.



We are party to a secured financing facility, dated April 8, 2002, with Wells Fargo Retail Finance, LLC (as amended, the Loan Agreement). The Loan Agreement, which is a line of credit expiring on April 8, 2007, currently
provides up to $30,000 (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. At September 12, 2005, the interest rate
on our borrowings was 6.50%. Borrowings under the Loan Agreement are secured by substantially all of our assets. Certain restrictive covenants apply, including achievement of specified operating results and limitations on the incurrence of
additional liens and indebtedness, capital expenditures, asset sales and payment of dividends, all of which have been met as of July 30, 2005.



18



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##### Table of Contents

As of July 30, 2005, we had $9,974 in borrowings outstanding under the Loan Agreement and had utilized
approximately $1,696 for issuance of letters of credit.



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



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



Contractual
Obligations



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



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



|                                                                |  |                                                     |       |                   |   |          |  |          |      |                  |   |      |  |   |     
|--------------------------------------------------------------- |  | --------------------------------------------------- | ----- | ----------------- | - | -------- |  | -------- | ---- | ---------------- | - | ---- |  | - | ----
|                                                                |  | Payments due by Period (dollar amounts in millions)
|Contractual Obligations                                         |  | Total                                               |       | Less ThanOne Year |   | 1-3Years |  | 3-5Years |      | Morethan 5 Years
|Debt & Capital Leases (including current portion)               |  | $                                                   | 10.0  |                   | $ | 10.0     |  | $        |     |                  | $ |     |  | $ |    
|Operating Leases                                                |  |                                                     | 123.5 |                   |   | 29.0     |  |          | 46.7 |                  |   | 23.8 |  |   | 24.0
|Inventory Purchase Commitments (including open purchase orders) |  |                                                     | 22.3  |                   |   | 18.2     |  |          | 3.4  |                  |   | 0.7  |  |   |    
|                                                                |  |                                                     |       |                   |   |          |  |          |      |                  |   |      |  |   |     
|Total                                                           |  | $                                                   | 155.8 |                   |   | 57.2     |  | $        | 50.1 |                  | $ | 24.5 |  | $ | 24.0
|                                                                |  |                                                     |       |                   |   |          |  |          |      |                  |   |      |  |   |     



19



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##### Table of Contents

Off-Balance Sheet Arrangements



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



Seasonality



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



ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We are subject to market risks from changes in interest rates. As of July 30, 2005, the interest rate on the Companys revolving credit facilities, which represents a significant portion of the Companys
outstanding debt, is variable based upon the prime rate. We believe our interest rate risk is minimal as a hypothetical 1.0% increase to the average interest rate under the credit facilities applied to the average outstanding balance during the
three and six months ended July 30, 2005 and the three and six months ended July 31, 2004 would not have had a material impact on our financial position or results of operations.



ITEM 4 CONTROLS AND PROCEDURES



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



As of September 12, 2005 and as required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this
report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.



During the quarter ended July 30, 2005, there has been no change in our
internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting



20



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##### Table of Contents

PART II - OTHER INFORMATION



Item 1. Legal Proceedings



On March
3, 2004, Midwest One Distribution Company filed a lawsuit against us in the Circuit Court of the Eighteen Judicial Circuit of DuPage County, Illinois, captioned Midwest One Distribution Co. vs. Factory Card & Party Outlet Corp. and Factory Card
Outlet of America, Ltd. The lawsuit alleges that we breached a distribution agreement between the parties that terminated on January 31, 2004 by failing to pay certain invoices from Midwest One for certain services and/or expenses allegedly
performed or incurred by Midwest One. Midwest One seeks damages of approximately $4,800 and an accounting of all distribution services for which Midwest One was entitled to compensation under the distribution agreement. On April 29, 2004, we
answered the complaint by denying all allegations and counterclaiming for breach of contract. We are seeking damages, costs and attorneys fees. The parties are currently proceeding with discovery in this lawsuit. No trial date has been set. We
believe we have meritorious defenses and counterclaims and are pursuing them vigorously.



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



Item 2. Changes in Securities and Use of Proceeds



None.



Item 3. Defaults Upon Senior Securities



None



21



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##### Table of Contents

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



On June 7 2005, we held our Annual Meeting of Stockholders. There were a total of 3,107,559 votes entitled to be cast at the meeting. Of this total, 2,101,219, or approximately 68% of the total number of votes
eligible to be cast, were represented either in person or by proxy. At the meeting, the stockholders elected three (3) Class Two directors. Set forth below are (i) the names of the persons elected to serve on our Board of Directors until the 2008
Annual Meeting of Stockholders or until their successors are duly elected and qualified and (ii) the results of the voting for the nominees.



|                   |  |           |  |           |   |  |          |  |           |  
|------------------ |  | --------- |  | --------- | - |  | -------- |  | --------- | -
|                   |  | Votes For |  |           |   |  | Withheld |  |           |  
|Director           |  | Number    |  | % ofTotal |   |  | Number   |  | % ofTotal |  
|Gary W. Rada       |  | 1,489,454 |  | 47.2      | % |  | 611,765  |  | 19.7      | %
|Peter M. Holmes    |  | 1,659,333 |  | 53.4      | % |  | 441,886  |  | 14.2      | %
|Patrick W. OBrien |  | 1,720,383 |  | 55.4      | % |  | 380,836  |  | 12.3      | %



The stockholders also
ratified the appointment of Deloitte & Touche LLP as our independent public auditors for the current fiscal year ending January 28, 2006. Set forth below is the results of that vote.



|                                                                                |  |           |  |           |   |  |              |  |           |   |  |                |  |           |  
|------------------------------------------------------------------------------- |  | --------- |  | --------- | - |  | ------------ |  | --------- | - |  | -------------- |  | --------- | -
|                                                                                |  | Votes For |  |           |   |  | VotesAgainst |  |           |   |  | VotesAbstained |  |           |  
|                                                                                |  | Number    |  | % 0fTotal |   |  | Number       |  | % ofTotal |   |  | Number         |  | % ofTotal |  
|Ratification of appointment of Deloitte & Touche LLP as our independent auditor |  | 1,907,332 |  | 61.4      | % |  | 192,385      |  | 6.2       | % |  | 1,502          |  | 0.0       | %



Item 5. Other Information



None



Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits



|         |  |                                                                                                                             
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------
|         | 
|2.1 (1)  |  | Debtors Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated February 5, 2002.              
|         | 
|3.1 (2)  |  | Amended and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp.                                      
|         | 
|3.2 (2)  |  | Bylaws of Factory Card & Party Outlet Corp.                                                                                 
|         | 
|3.11 (5) |  | Amendment to the Amended and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp. dated July 17,
2003.
|         | 
|3.12 (5) |  | Amendment to the Amended and Restated Certificate of Incorporation of Factory Card & Party Outlet Corp. dated April 6,
2004.
|         | 
|4.1 (2)  |  | Warrant Agreement, dated April 9, 2002, between Factory Card & Party Outlet and Wells Fargo Bank Minnesota, N.A.            
|         | 
|4.2 (2)  |  | Form of New Management Warrant, dated April 9, 2002.                                                                        



22



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                    
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|4.3 (2)     |  | Schedule of New Management Warrants (pursuant to Instruction 2 of Item 601).                                                                                                                                                                                                                                       
|            | 
|4.4 (2)     |  | Trade Conversion Note of Factory Card & Party Outlet Corp. and Factory Card Outlet of America Ltd., dated April 9, 2002, for the benefit of CSS Industries, Inc.                                                                                                                                                   
|            | 
|4.5 (2)     |  | Schedule of Trade Conversion Notes (pursuant to Instruction 2 of Item 601).                                                                                                                                                                                                                                        
|            | 
|4.6 (2)     |  | Trade Conversion Agreement, dated as of April 9, 2002, among Factory Card & Party Outlet Corp., Factory Card Outlet of America, Ltd., Amscan, Inc., Creative Expressions Group, Inc.,
Images and Editions Limited, Unique Industries, Inc., CSS Industries, Inc., P.S. Greetings, Inc., and Maryland Plastics, Inc.
|            | 
|10.1 (2)    |  | Loan and Security Agreement dated as of April 9, 2002, among Factory Card Outlet of America, Ltd., as borrower, the lenders thereto as Wells Fargo Retail Finance, LLC, as arranger, collateral
agent and administrative agent.                                                                                    
|            | 
|10.2 (5)    |  | First Amendment dated April 9, 2004, to the Loan and Security Agreement, among Factory Card Outlet of America, Ltd., as borrower, the lenders thereto as Well Fargo Retail Finance, LLC, as
arranger, collateral agent and administrative agent.                                                                   
|            | 
|10.3 (2)    |  | Security Agreement, dated April 9, 2002, among Factory Card & Party Outlet Corp. and Factory Card Outlet of America, Ltd., in favor of William Kaye, as Collateral
Trustee.                                                                                                                                        
|            | 
|10.4 (2) *  |  | Factory Card & Party Outlet Corp. 2002 Stock Incentive Plan.                                                                                                                                                                                                                                                       
|            | 
|10.5 (2)    |  | Trade Vendor Supply Agreement, dated April 9, 2002, between Factory Card & Party Outlet Corp., Factory Card Outlet of America, Ltd. and Maryland Plastics.                                                                                                                                                         
|            | 
|10.6 (2)    |  | Schedule of Trade Vendor Supply Agreements (pursuant to Instruction 2 of Item 601).                                                                                                                                                                                                                                
|            | 
|10.7 (2)*   |  | Employment Agreement, dated as of April 9, 2002, between Factory Card Outlet of America, Ltd. and James D. Constantine.                                                                                                                                                                                            
|            | 
|10.8 (5)*   |  | Employment Agreement, dated as of December 23, 2004, between Factory Card Outlet of America, Ltd. and Timothy F. Gower.                                                                                                                                                                                            
|            | 
|10.9 (5)*   |  | Employment Agreement, dated as of December 23, 2004, between Factory Card Outlet of America, Ltd. and Gary W. Rada.                                                                                                                                                                                                
|            | 
|10.10 (3)*  |  | Factory Card & Party Outlet Corp. 2002 Non-Employee Directors Stock Option Plan.                                                                                                                                                                                                                                   
|            | 
|10.11 (3)*  |  | First Amendment to the Factory Card & Party Outlet Corp. 2002 Stock Incentive Plan.                                                                                                                                                                                                                                
|            | 
|10.12 (3)*  |  | Second Amendment to the Factory Card & Party Outlet Corp. 2002 Stock Option Plan.                                                                                                                                                                                                                                  
|            | 
|10.13 (4)   |  | Factory Card & Party Outlet Corp. 2003 Equity Incentive Plan.                                                                                                                                                                                                                                                      
|            | 
|10.14 (5)*  |  | Factory Card & Party Outlet Corp. Executive Severance Plan                                                                                                                                                                                                                                                         
|            | 
|10.15 (6)** |  | Primary Supply and Consignment Agreement dated February 5, 2005 between Factory Card Outlet of America, Ltd. and Paramount Cards, Inc.                                                                                                                                                                             
|            | 
|10.16 (7)*  |  | Form of Stock Option Agreement under The Factory Card & Party Outlet Corp. 2002 Stock Option Plan.                                                                                                                                                                                                                 



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##### Table of Contents

|           |  |                                                                                                                          
|---------- |  | -------------------------------------------------------------------------------------------------------------------------
|           | 
|10.17 (7)* |  | Form of Stock Option Agreement under The Factory Card & Party Outlet Corp. 2002 Non-Employee Directors Stock Option Plan.
|           | 
|10.18 (7)* |  | Form of Stock Option Agreement under The Factory Card & Party Outlet Corp. 2003 Equity Incentive Plan.                   
|           | 
|10.19 (7)* |  | Form of Restricted Stock Agreement under The Factory Card & Party Outlet Corp. 2003 Equity Incentive Plan.               
|           | 
|10.20 (7)* |  | Summary of Incentive Bonus Agreements                                                                                    
|           | 
|10.21 (7)* |  | Summary of Non-Employee Director Compensation                                                                            
|           | 
|10.22 (7)* |  | Summary of Arrangements with Certain Executives                                                                          
|           | 
|21         |  | Subsidiaries of the Company.                                                                                             
|           | 
|23.1       |  | Report of Independent Registered Public Accounting Firm.                                                                 
|           | 
|23.2       |  | Awareness Letter from Deloitte & Touche, LLP.                                                                            
|           | 
|31.1       |  | Chief Executive Officer Certification under Section 302 of the Sarbanes-Oxley Act of 2002.                               
|           | 
|31.2       |  | Chief Financial Officer Certification under Section 302 of the Sarbanes-Oxley Act of 2002.                               
|           | 
|32.1       |  | Chief Executive Officer Certification of Periodic Report under Section 906 of Sarbanes-Oxley Act of 2002.                
|           | 
|32.2       |  | Chief Financial Officer Certification of Periodic Report under Section 906 of Sarbanes-Oxley Act of 2002.                

---

|Notes | 
|----- | 

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

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

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

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

|(5) | Incorporated by reference to the Companys Current Report on Form 10-K filed on April 26, 2005.
|--- | -----------------------------------------------------------------------------------------------

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

|(7) | Incorporated by reference to the Companys Current Report on Form 10-Q as filed on June 14, 2005.
|--- | -------------------------------------------------------------------------------------------------

|Notes | 
|----- | 

|* | Management contracts or compensatory plans or arrangements.
|- | -----------------------------------------------------------

|** | The Company has submitted, to the Securities and Exchange Commission (the Commission), a request for confidential treatment for portions of this document. The redacted
material has been filed separately with the Commission.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



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##### Table of Contents

(b) Reports on 8-K.



Current Report on Form 8-K filed on May 5, 2005 announcing exception to ownership restrictions for a current shareholder.



Current Report on Form 8-K filed on May 9, 2005 announcing
sales results for April 2005.



Current Report on Form 8-K
filed on June 6, 2005 announcing sales results for May 2005 and announcing first quarter results will be released June 14, 2005.



Current Report on Form 8-K filed on June 14, 2005 announcing first quarter results fiscal 2005.



Current Report on Form 8-K filed on July 8, 2005 announcing sales results
for June 2005.



25



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##### Table of Contents

SIGNATURES



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





|                          |  |                                   |  |                                                                        
|------------------------- |  | --------------------------------- |  | -----------------------------------------------------------------------
|                          |  | FACTORY CARD & PARTY OUTLET CORP.
|                          |  |                                  
|Dated: September 12, 2005 |  | By:                               |  | /s/ Gary W. Rada                                                       
|                          |  |                                   |  | Gary W. Rada                                                           
|                          |  |                                   |  | President and Chief Executive Officer                                  
|                          |  |                                  
|Dated: September 12, 2005 |  | By:                               |  | /s/ James D. Constantine                                               
|                          |  |                                   |  | James D. Constantine                                                   
|                          |  |                                   |  | Executive Vice President and Chief Financial and Administrative Officer
|                          |  |                                   |  | [Principal Accounting Officer]                                         



26