---

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|(Mark One)                                      |                                                                                         
|----------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                               | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the Quarterly Period Ended November 2, 2002
|OR                                             
|o                                               | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to             

Commission File Number: 0-22834

SUCCESSORIES, INC.(Exact name of registrant as specified in its charter)

|ILLINOIS(State or other jurisdiction of
incorporation or organization)   |  | 36-3760230(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------ |  | ----------------------------------------------
|2520 Diehl Road
Aurora, Illinois(Address of principal executive offices) |  | 60504(Zip Code)                               
|(630) 820-7200(Registrant's telephone number, including area code)      

Indicate
by check mark whether the 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 ý No o

Registrant
had 9,750,729 shares of common stock, $.01 par value, outstanding as of December 10, 2002.

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SUCCESSORIES, INC.    INDEX TO FORM 10-Q

|                              |  |                       |  |                                                                                       |  | Page Number
|----------------------------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | -----------
|PART I.                       |  | FINANCIAL INFORMATION |  |                                                                                      
|                              |  | Item 1.               |  | Financial Statements                                                                  |  |            
|                              |  |                       |  | Consolidated Balance Sheets                                                           |  | 3          
|                              |  |                       |  | Consolidated Statements of Operations and Comprehensive Loss                          |  | 4          
|                              |  |                       |  | Consolidated Statement of Stockholders' Equity                                        |  | 5          
|                              |  |                       |  | Consolidated Statements of Cash Flows                                                 |  | 6          
|                              |  |                       |  | Notes to Consolidated Financial Statements                                            |  | 7          
|                              |  | Item 2.               |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 14         
|                              |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 20         
|                              |  | Item 4.               |  | Controls and Procedures                                                               |  | 21         
|PART II.                      |  | OTHER INFORMATION     |  |                                                                                      
|                              |  | Item 1.               |  | Legal Proceedings                                                                     |  | 22         
|                              |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                      |  | 22         
|SIGNATURES AND CERTIFICATIONS |  | 23                   
|INDEX TO EXHIBITS             |  |                      

2

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PART I. FINANCIAL INFORMATION        SUCCESSORIES, INC.        Consolidated Balance Sheets

|                                                |                                                                                                                                                                                                              | November 2,
2002 |            | February 2,
2002 |  
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------- | ---------- | ---------------- | -
|
|ASSETS                                          |                                                                                                                                                                                                              |                  |            |                  |  
|Current assets:                                 |                                                                                                                                                                                                              |                  |            |                  |  
|                                                | Cash and cash equivalents                                                                                                                                                                                    |                  | $          | 451,000          |  
|                                                | Accounts and notes receivable, net                                                                                                                                                                           |                  |            | 2,115,000        |  
|                                                | Inventories, net                                                                                                                                                                                             |                  |            | 4,178,000        |  
|                                                | Prepaid catalog expenses                                                                                                                                                                                     |                  |            | 1,416,000        |  
|                                                | Other prepaid expenses                                                                                                                                                                                       |                  |            | 618,000          |  
|                                                |                                                                                                                                                                                                              |                  |            |                  |  
|Total current assets                            |                                                                                                                                                                                                              |                  | 8,778,000  |                  |  
|Restricted cash                                 |                                                                                                                                                                                                              |                  | 250,000    |                  |  
|Property and equipment, net                     |                                                                                                                                                                                                              |                  | 2,256,000  |                  |  
|Notes receivable                                |                                                                                                                                                                                                              |                  |           |                  |  
|Deferred financing costs and debt discount, net |                                                                                                                                                                                                              |                  | 75,000     |                  |  
|Intangibles and other assets, net               |                                                                                                                                                                                                              |                  | 752,000    |                  |  
|                                                |                                                                                                                                                                                                              |                  |            |                  |  
|TOTAL ASSETS                                    |                                                                                                                                                                                                              | $                | 12,111,000 |                  | $
|                                                |                                                                                                                                                                                                              |                  |            |                  |  
|LIABILITIES AND STOCKHOLDERS' EQUITY            |                                                                                                                                                                                                              |                  |            |                  |  
|Current liabilities:                            |                                                                                                                                                                                                              |                  |            |                  |  
|                                                | Revolving credit loan                                                                                                                                                                                        |                  | $          | 1,901,000        |  
|                                                | Accounts payable                                                                                                                                                                                             |                  |            | 1,918,000        |  
|                                                | Accrued expenses and deferred income taxes                                                                                                                                                                   |                  |            | 1,265,000        |  
|                                                |                                                                                                                                                                                                              |                  |            |                  |  
|Total current liabilities                       |                                                                                                                                                                                                              |                  | 5,084,000  |                  |  
|Minority interest                               |                                                                                                                                                                                                              |                  |           |                  |  
|                                                |                                                                                                                                                                                                              |                  |            |                  |  
|Stockholders' equity:                           |                                                                                                                                                                                                              |                  |            |                  |  
|                                                | Convertible preferred stock, $.01 par value; 1,000,000 shares authorized; 503,092 of Series A and 101,667 of Series B shares issued and outstanding; liquidation value $.01 per share plus accrued dividends |                  |            | 6,000            |  
|                                                | Common stock, $.01 par value; 20,000,000 shares authorized; 9,750,729 and 9,313,884 shares issued and outstanding, respectively                                                                              |                  |            | 98,000           |  
|                                                | Common stock warrants                                                                                                                                                                                        |                  |            | 2,324,000        |  
|                                                | Notes receivable from stockholders                                                                                                                                                                           |                  |            | (115,000         | )
|                                                | Additional paid-in capital                                                                                                                                                                                   |                  |            | 33,556,000       |  
|                                                | Accumulated deficit                                                                                                                                                                                          |                  |            | (28,778,000      | )
|                                                | Accumulated other comprehensive loss                                                                                                                                                                         |                  |            | (64,000          | )
|                                                |                                                                                                                                                                                                              |                  |            |                  |  
|Total stockholders' equity                      |                                                                                                                                                                                                              |                  | 7,027,000  |                  |  
|                                                |                                                                                                                                                                                                              |                  |            |                  |  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                                                                                                              | $                | 12,111,000 |                  | $
|                                                |                                                                                                                                                                                                              |                  |            |                  |  

The
accompanying notes are an integral part of these statements.

3

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SUCCESSORIES, INC.        Consolidated Statements of Operations and  Comprehensive Loss        (Unaudited)

|                                                                    |                                                    | Three Months Ended |            | Nine Months Ended |  
|------------------------------------------------------------------- | -------------------------------------------------- | ------------------ | ---------- | ----------------- | -
|
|Net product sales                                                   |                                                    | $                  | 7,914,000  |                   | $
|Cost of goods sold                                                  |                                                    |                    | 3,933,000  |                   |  
|                                                                    |                                                    |                    |            |                   |  
|Gross profit on product sales                                       |                                                    |                    | 3,981,000  |                   |  
|Fees, royalties and other income                                    |                                                    |                    | 298,000    |                   |  
|                                                                    |                                                    |                    |            |                   |  
|Gross margin                                                        |                                                    |                    | 4,279,000  |                   |  
|Operating expenses                                                  |                                                    |                    | 4,551,000  |                   |  
|                                                                    |                                                    |                    |            |                   |  
|Loss from continuing operations before other expense and income tax |                                                    |                    | (272,000   | )                 |  
|                                                                    |                                                    |                    |            |                   |  
|Other income (expense):                                             |                                                    |                    |            |                   |  
|                                                                    | Interest expense                                   |                    |            | (57,000           | )
|                                                                    | Minority interests in subsidiaries                 |                    |            | (1,000            | )
|                                                                    | Interest income                                    |                    |            | 22,000            |  
|                                                                    | Other, net                                         |                    |            | (3,000            | )
|                                                                    |                                                    |                    |            |                   |  
|Total other expense                                                 |                                                    |                    | (39,000    | )                 |  
|                                                                    |                                                    |                    |            |                   |  
|Loss from continuing operations before income tax                   |                                                    |                    | (311,000   | )                 |  
|Income tax expense (benefit)                                        |                                                    |                    | 4,000      |                   |  
|                                                                    |                                                    |                    |            |                   |  
|Loss from continuing operations                                     |                                                    |                    | (315,000   | )                 |  
|Loss from discontinued operations, net of tax                       |                                                    |                    | (675,000   | )                 |  
|                                                                    |                                                    |                    |            |                   |  
|Loss before extraordinary item                                      |                                                    | $                  | (990,000   | )                 |  
|Extraordinary loss on early extinguishment of debt                  |                                                    |                    |           |                   |  
|                                                                    |                                                    |                    |            |                   |  
|Net loss                                                            |                                                    | $                  | (990,000   | )                 | $
|Dividend to preferred shareholders                                  |                                                    |                    | 55,000     |                   |  
|                                                                    |                                                    |                    |            |                   |  
|Loss available to common stockholders                               |                                                    | $                  | (1,045,000 | )                 | $
|                                                                    |                                                    |                    |            |                   |  
|Foreign currency translation adjustment                             |                                                    | $                  |           |                   | $
|                                                                    |                                                    |                    |            |                   |  
|Comprehensive loss                                                  |                                                    | $                  | (990,000   | )                 | $
|                                                                    |                                                    |                    |            |                   |  
|Loss per share (basic and diluted):                                 |                                                    |                    |            |                   |  
|                                                                    | Loss from continuing operations                    |                    | $          | (0.04             | )
|                                                                    |                                                    |                    |            |                   |  
|                                                                    | Loss from discontinued operations                  |                    | $          | (0.07             | )
|                                                                    |                                                    |                    |            |                   |  
|                                                                    | Extraordinary loss on early extinguishment of debt |                    | $          |                  |  
|                                                                    |                                                    |                    |            |                   |  
|                                                                    | Net loss                                           |                    | $          | (0.11             | )
|                                                                    |                                                    |                    |            |                   |  

The
accompanying notes are an integral part of these statements.

4

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SUCCESSORIES, INC.        Consolidated Statement Of Stockholders' Equity        (Unaudited)

|                                     |                                                                | Convertible
Preferred Stock |   |   |       |   |           |         |   |        |       |   |           |     |  
|------------------------------------ | -------------------------------------------------------------- | --------------------------- | - | - | ----- | - | --------- | ------- | - | ------ | ----- | - | --------- | --- | -
|
|
|
|Balance at February 2, 2002          |                                                                | 604,759                     |   | $ | 6,000 |   | 9,313,884 |         | $ | 93,000 |       | $ | 2,324,000 |     | $
|Net loss                             |                                                                |                            |   |   |      |   |          |         |   |       |       |   |          |     |  
|Notes receivable issued June 6, 2002 |                                                                |                            |   |   |      |   |          |         |   |       |       |   |          |     |  
|Notes receivable payments            |                                                                |                             |   |   |       |   |           |         |   |        |       |   |           |     |  
|Common Stock transactions:           |                                                                |                             |   |   |       |   |           |         |   |        |       |   |           |     |  
|                                     | Common Stock issued in conjunction with board of director Fees |                             |  |   |       |  |           | 142,325 |   |        | 2,000 |   |           |    |  
|Preferred stock transactions:        |                                                                |                             |   |   |       |   |           |         |   |        |       |   |           |     |  
|                                     | Preferred stock dividends                                      |                             |  |   |       |  |           | 294,520 |   |        | 3,000 |   |           |   |  
|                                     |                                                                |                             |   |   |       |   |           |         |   |        |       |   |           |     |  
|Balance at November 2, 2002          |                                                                | 604,759                     |   | $ | 6,000 |   | 9,750,729 |         | $ | 98,000 |       | $ | 2,324,000 |     | $
|                                     |                                                                |                             |   |   |       |   |           |         |   |        |       |   |           |     |  

|                                     |                                                                | Accumulated
Other
Comprehensive
Loss |         | Total
Stockholders'
Equity |  
|------------------------------------ | -------------------------------------------------------------- | ------------------------------------ | ------- | -------------------------- | -
|Balance at February 2, 2002          |                                                                | $                                    | (64,000 | )                          | $
|Net loss                             |                                                                |                                      |        |                            |  
|Notes receivable issued June 6, 2002 |                                                                |                                      |        |                            |  
|Notes receivable payments            |                                                                |                                      |         |                            |  
|Common Stock transactions:           |                                                                |                                      |         |                            |  
|                                     | Common Stock issued in conjunction with board of director Fees |                                      |         |                           |  
|Preferred stock transactions:        |                                                                |                                      |         |                            |  
|                                     | Preferred stock dividends                                      |                                      |         |                           |  
|                                     |                                                                |                                      |         |                            |  
|Balance at November 2, 2002          |                                                                | $                                    | (64,000 | )                          | $
|                                     |                                                                |                                      |         |                            |  

The
accompanying notes are an integral part of these statements.

5

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SUCCESSORIES, INC.        Consolidated Statements of Cash Flows        (Unaudited)

|                                                     |                                                                                         | Nine Months Ended                                  |           
|---------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------
|
|Cash flows from operating activities:                |                                                                                         |                                                    |           
|                                                     | Net loss                                                                                |                                                    | $         
|                                                     | Adjustments to reconcile net loss to net cash from operating activities:                |                                                    |           
|                                                     |                                                                                         | Depreciation and amortization                      |           
|                                                     |                                                                                         | Amortization of debt discount                      |           
|                                                     |                                                                                         | Minority interests in subsidiaries                 |           
|                                                     |                                                                                         | Deferred income tax assetvaluation allowance      |           
|                                                     |                                                                                         | Loss from discontinuing operations                 |           
|                                                     |                                                                                         | Extraordinary loss on early extinguishment of debt |           
|                                                     |                                                                                         |                                                    |           
|                                                     |                                                                                         |                                                    | (496,000  
|                                                     | Changes in operating assets and liabilities:                                            |                                                    |           
|                                                     |                                                                                         | Accounts and notes receivable                      |           
|                                                     |                                                                                         | Inventories                                        |           
|                                                     |                                                                                         | Prepaid catalog expenses                           |           
|                                                     |                                                                                         | Other prepaid expenses                             |           
|                                                     |                                                                                         | Accounts payable                                   |           
|                                                     |                                                                                         | Accrued expenses                                   |           
|                                                     |                                                                                         | Other assets                                       |           
|                                                     |                                                                                         |                                                    |           
|Net cash provided by operating activities            |                                                                                         |                                                    | 823,000   
|                                                     |                                                                                         |                                                    |           
|Cash flows from investing activities:                |                                                                                         |                                                    |           
|                                                     | Proceeds from notes receivable issued in connection with sale of property and equipment |                                                    |           
|                                                     | Purchase of property and equipment                                                      |                                                    |           
|                                                     |                                                                                         |                                                    |           
|Net cash used in investing activities                |                                                                                         |                                                    | (3,000    
|                                                     |                                                                                         |                                                    |           
|Cash flows from financing activities:                |                                                                                         |                                                    |           
|                                                     | Proceeds from sale of common stock                                                      |                                                    |           
|                                                     | Net borrowings on revolving credit loan                                                 |                                                    |           
|                                                     | Repayments of long-term debt                                                            |                                                    |           
|                                                     | Distributions to joint venture partners                                                 |                                                    |           
|                                                     | Notes receivable issued to stockholders                                                 |                                                    |           
|                                                     | Proceeds from notes receivable issued to stockholders                                   |                                                    |           
|                                                     |                                                                                         |                                                    |           
|Net cash provided by (used in) financing activities  |                                                                                         |                                                    | 338,000   
|                                                     |                                                                                         |                                                    |           
|Net cash provided by (used in) continuing operations |                                                                                         |                                                    | 1,158,000 
|Net cash used in discontinuing operations            |                                                                                         |                                                    | (1,309,000
|                                                     |                                                                                         |                                                    |           
|Net decrease in cash                                 |                                                                                         |                                                    | (151,000  
|Cash and cash equivalents, beginning of period       |                                                                                         |                                                    | 602,000   
|                                                     |                                                                                         |                                                    |           
|Cash and cash equivalents, end of period             |                                                                                         | $                                                  | 451,000   
|                                                     |                                                                                         |                                                    |           

The
accompanying notes are an integral part of these statements.

6

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SUCCESSORIES, INC.        Notes To Consolidated Financial Statements        (Unaudited)

NOTE 1. DESCRIPTION OF THE BUSINESS

Successories, Inc. and its subsidiaries (collectively the "Company") design, manufacture, and market a diverse range of motivational and
self-improvement products, most of which are the Company's own proprietary designs. The Company considers itself a single line of business with products that are marketed primarily under
theSuccessoriestrade name through direct marketing (catalog, electronic commerce and telemarketing), retail (Company-owned stores)See
Note 3 "Discontinued Operations", sales to franchisees and wholesale distribution channels.

NOTE 2. BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared, without audit, in accordance with generally accepted accounting principles for interim
financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring matters) considered necessary for a fair
presentation have been included.

The
Company's fiscal year ends on the Saturday closest to January 31. References to the three and nine months ended November 2, 2002 and November 3, 2001, refer to
the thirteen and thirty-nine weeks ended on the dates indicated.

Certain
prior year amounts have been reclassified to conform with the current year presentation. The results of operations for the nine months ended November 2, 2002 are not
necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company's financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2002.

NOTE 3: DISCONTINUED OPERATIONS

On May 7, 2002 in the process of reviewing its strategic options, the Company decided to take immediate steps to develop and implement a plan to close all
of its 100% owned retail stores. The 100% owned retail store segment, which has not been as profitable as the other segments in the past few years, reported a loss of $1,903,000 for the
year-ended February 2, 2002 and is projected to have a loss in the current fiscal year.

As
a result, in the second quarter ended August 3, 2002, the Company started negotiating early lease terminations and evaluating asset impairment charges related to the 100% owned
retail stores. The results of operations and costs associated with the Company's plans to close the 100% owned retail stores have been reflected as discontinued operations in the accompanying
consolidated financial statements.

The
Company recorded disposal costs of $308,000 and $1,030,000 during the three and nine months ended November 2, 2002 respectively, for the lease termination contracts entered
into to-date and asset impairment charges for certain stores with negative cash flow projections anticipated through store closing date.

7

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Loss
from discontinued operations is comprised of the following:

Three Months EndedNovember 2,
2002

November 3,
2001Operating loss

$
367,000

$
595,000Asset impairment charges





363,000Lease termination costs


308,000


Income tax expense





Loss from discontinued operations

$
675,000

$
958,000


Nine Months EndedNovember 2,
2002

November 3,
2001Operating loss

$
1,183,000

$
1,531,000Asset impairment charges


602,000


363,000Lease termination costs


428,000


Income tax expense





300,000Loss from discontinued operations

$
2,213,000

$
2,194,000


As
of November 2, 2002 and February 2, 2002, the assets of discontinued operations were $709,000 and $1,815,000, and the liabilities were $460,000 and $706,000,
respectively. The assets and liabilities of the discontinued operations have been included in the accompanying consolidated balance sheet.

Subsequent
to third quarter ended November 2, 2002, the Company entered into lease termination contracts at two stores for $155,000 that will be recorded as expense in the fourth
quarter and is in the process of pursuing early lease terminations at the remaining four stores. For the above mentioned four stores, the leases extend beyond the current fiscal year and costs
associated will be dependent upon the terms and conditions of lease terminations to be negotiated with the landlords. The Company adopted the provisions of FASB No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," in the second quarter 2002. Under FASB No. 146, the exit costs are recorded when incurred rather than at the date of a commitment to a disposal
plan. The additional disposal costs to be incurred are estimated to be approximately $367,000 for early lease terminations and other store closing related expenses. Actual lease termination costs will
be determined by the lease termination agreements negotiated with the landlords and could vary significantly if the Company cannot terminate lease agreements before their scheduled maturity. The
Company is targeting to complete its plans to close all of its 100% owned retail stores by the end of the current fiscal year 2002.

NOTE 4. INVENTORIES

Inventories are comprised of the following:

November 2,
2002

February 2,
2002Finished goodsretail 100% owned stores

$
407,000

$
678,000Finished goodscorporate


2,606,000


3,147,000Raw Materialscorporate


1,887,000


1,763,0004,900,000


5,588,000Less: reserve for obsolescence


(722,000
)

(583,000
)$
4,178,000

$
5,005,000


8

---

NOTE 5. DEBT

On June 20, 1997, the Company entered into a credit facility agreement with The Provident Bank (the "Bank"), amended most recently on September 11,
2002, the credit facility was comprised of a revolving credit loan, term loan and fixed rate loan. The revolving credit loan provides for maximum borrowings of $3,500,000 through January 1,
2003 and $3,000,000 thereafter, and the borrowing base is limited to 80% of eligible receivables plus 45% of eligible inventory. A commitment fee of 0.25% is payable on the daily unused amount of the
maximum revolving credit. The facility expires in June 2003, and all borrowings under the facility are secured by substantially all the assets of the Company. The interest rate on the revolving
credit loan borrowing is prime plus 2.0%. Interest is payable monthly. The interest rate on the outstanding revolving credit loan was 6.8% at November 2, 2002. As of November 2, 2002,
available borrowings on the revolving credit loan were $1,599,000.

On
June 13, 2002, the Company obtained an amendment to the credit facility to modify certain financial covenants, which were retroactive to the first quarter ended May 4,
2002. In addition, the amendment adjusted the borrowing base and the revolver limits, prospectively. In connection with this amendment, the Company agreed to provide the bank the option to exchange
the stock warrants previously issued to the bank in exchange for a success fee equal to 2% of the gross sales price, in the event that the Company is sold.

In
the prior year first quarter 2001, the Company pre-paid the entire outstanding Bank term loan and fixed rate loan balance in the amount of $3,590,000. The above noted
loans had payment terms through June 2003. The Company recorded an extraordinary loss of $219,000 related to the early debt extinguishment in the prior year quarter ended May 5, 2001.
The extraordinary loss represents the write-off of the unamortized debt discount associated with the term loan and fixed rate loan.

The
credit facility agreement contains, among other provisions, requirements for maintaining certain earnings levels and financial ratios, limits on capital expenditures and additional
indebtedness, and use of proceeds from certain equity offerings. At November 2, 2002, the Company was in compliance with all the debt covenant requirements of the credit facility agreement.

On
September 11, 2002, the Company obtained approval to extend the step down in maximum borrowings from $3,500,000 to $3,000,000 on the revolving credit loan from
October 31, 2002 to January 1, 2003. The Company requested this extension to provide for adequate revolving credit loan availability for the payout of projected lease termination costs
related to the 100% Company owned retail stores, see Note 3 for further information.

The
weighted average interest rates on cash interest expense for borrowings outstanding as of November 2, 2002 and November 3, 2001 were 6.8% and 8.7%, respectively.

NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures to the statements of cash flows are as follows:

Nine Months EndedNovember 2,
2002

November 3,
2001Cash paid during the period for:Income taxes

$
4,000

$
87,000Interest


80,000


120,000Non-cash investing and financing Activities:Preferred stock dividends

$
164,000

$
164,000Board of Director Fees


76,000





9

---

NOTE 7. LOSS PER SHARE

The computations of basic and diluted loss per share are as follows:

|                                                                 |                                                         | Three Months Ended |          | Nine Months Ended |  
|---------------------------------------------------------------- | ------------------------------------------------------- | ------------------ | -------- | ----------------- | -
|
|Numerator for loss from continuing operations per share:         |                                                         |                    |          |                   |  
|                                                                 | Loss from continuing operations                         |                    | $        | (315,000          | )
|                                                                 | Preferred stock dividends                               |                    |          | (55,000           | )
|                                                                 |                                                         |                    |          |                   |  
|                                                                 | Numerator for loss from continuing operations per share |                    | $        | (370,000          | )
|                                                                 |                                                         |                    |          |                   |  
|Numerator for loss from discontinued operations per share:       |                                                         | $                  | (675,000 | )                 | $
|                                                                 |                                                         |                    |          |                   |  
|Numerator for extraordinary loss on early extinguishment of debt |                                                         | $                  |         |                   | $
|                                                                 |                                                         |                    |          |                   |  
|Numerator for net loss per share:                                |                                                         |                    |          |                   |  
|                                                                 | Net loss                                                |                    | $        | (990,000          | )
|                                                                 | Preferred stock dividends                               |                    |          | (55,000           | )
|                                                                 |                                                         |                    |          |                   |  
|                                                                 | Numerator for net loss per share                        |                    | $        | (1,045,000        | )
|                                                                 |                                                         |                    |          |                   |  
|Denominator for loss per share:                                  |                                                         |                    |          |                   |  
|                                                                 | Weighted average common stock shares                    |                    |          | 9,525,633         |  
|                                                                 |                                                         |                    |          |                   |  
|Basic and diluted loss per share:                                |                                                         |                    |          |                   |  
|                                                                 | Loss from continuing operations                         |                    | $        | (0.04             | )
|                                                                 |                                                         |                    |          |                   |  
|                                                                 | Loss from discontinued operations                       |                    | $        | (0.07             | )
|                                                                 |                                                         |                    |          |                   |  
|                                                                 | Extraordinary loss on early extinguishment of debt      |                    | $        |                  |  
|                                                                 |                                                         |                    |          |                   |  
|                                                                 | Net loss                                                |                    | $        | (0.11             | )
|                                                                 |                                                         |                    |          |                   |  

Stock
options, warrants, and convertible preferred stock were not included in the computation of the diluted loss per share, due to their antidilutive effect on the loss per share.

NOTE 8. SEGMENT AND RELATED INFORMATION

The Company has adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." This Statement establishes standards for the
way public business enterprises report information about operating segments in annual financial statements and in interim financial reports issued to shareholders.

The
Company's reportable segments are the various distribution channels used to market its products. The Company's products have similar purposes and uses in each channel of
distribution, but profitability varies among the channels. The Company considers itself a single line of business with products that are marketed through direct marketing (catalog, electronic commerce
and telemarketing), retail (Company-owned stores), wholesale and sales to franchisees channels. In addition, the Company generates revenue from providing framing services to outside corporate
businesses on a contract fee basis. The Company has four reportable segmentsDirect MarketingSuccessories, Retail Company-owned
storesSee Note 3 "Discontinued Operations," Sales to Franchisees and other segments (Wholesale, Contract Framing and Joint Venture retail stores). At the end of the first quarter
in fiscal

10

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2002, the Company discontinued contract framing services for third party products. Any future contract framing services shall be limited primarily to large and multiple unit production runs.

The
accounting policies of the reportable segments are the same as those described in Note 2 of Notes to Consolidated Financial Statements in the Company's 10-K. The
Company evaluates the performance of its operating segments based on income (loss) before other income (expense), income taxes and extraordinary item.

Summarized
financial information concerning the Company's reportable segments is shown in the following table. The "Corporate" row includes corporate related items not allocated to
reportable segments.

|                                     |  | Net
Sales |            | Segment
Profit (Loss) |   | Total
Assets |   | Capital
Expenditures |            | Depreciation
and Amortization
|------------------------------------ |  | --------- | ---------- | --------------------- | - | ------------ | - | -------------------- | ---------- | -----------------------------
|Three Months Ended November 2, 2002: |  |           |            |                       |   |              |   |                      |            |                              
|Direct MarketingSuccessories         |  | $         | 6,586,000  |                       | $ | 654,000      |   | $                    | 6,353,000  |                              
|Sales to Franchisees                 |  |           | 774,000    |                       |   | 80,000       |   |                      | 629,000    |                              
|Other segments                       |  |           | 554,000    |                       |   | 195,000      |   |                      | 673,000    |                              
|Corporate                            |  |           |           |                       |   | (1,244,000   | ) |                      | 3,747,000  |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|CONTINUING OPERATIONS                |  | $         | 7,914,000  |                       | $ | (315,000     | ) | $                    | 11.402,000 |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|Retail 100% owned stores             |  | $         | 964,000    |                       | $ | (675,000     | ) | $                    | 709,000    |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|Three Months Ended November 3, 2001: |  |           |            |                       |   |              |   |                      |            |                              
|Direct MarketingSuccessories         |  | $         | 6,473,000  |                       | $ | 769,000      |   | $                    | 8,215,000  |                              
|Sales to Franchisees                 |  |           | 1,348,000  |                       |   | 104,000      |   |                      | 1,122,000  |                              
|Other segments                       |  |           | 666,000    |                       |   | (48,000      | ) |                      | 759,000    |                              
|Corporate                            |  |           |           |                       |   | (1,638,000   | ) |                      | 9,242,000  |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|CONTINUING OPERATIONS                |  | $         | 8,487,000  |                       | $ | (813,000     | ) | $                    | 19,338,000 |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|Retail 100% owned stores             |  | $         | 1,395,000  |                       | $ | (958,000     | ) | $                    | 1,960,000  |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|Nine Months Ended November 2, 2002:  |  |           |            |                       |   |              |   |                      |            |                              
|Direct MarketingSuccessories         |  | $         | 20,079,000 |                       | $ | 1,933,000    |   | $                    | 6,353,000  |                              
|Sales to Franchisees                 |  |           | 1,888,000  |                       |   | 107,000      |   |                      | 629,000    |                              
|Other segments                       |  |           | 1,635,000  |                       |   | 315,000      |   |                      | 673,000    |                              
|Corporate                            |  |           |           |                       |   | (4,375,000   | ) |                      | 3,747,000  |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|CONTINUING OPERATIONS                |  | $         | 23,602,000 |                       | $ | (2,020,000   | ) | $                    | 11,402,000 |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|Retail 100% owned stores             |  | $         | 3,897,000  |                       | $ | (2,213,000   | ) | $                    | 709,000    |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|Nine Months Ended November 3, 2001:  |  |           |            |                       |   |              |   |                      |            |                              
|Direct MarketingSuccessories         |  | $         | 20,413,000 |                       | $ | 1,671,000    |   | $                    | 8,215,000  |                              
|Sales to Franchisees                 |  |           | 3,274,000  |                       |   | 172,000      |   |                      | 1,122,000  |                              
|Other segments                       |  |           | 2,363,000  |                       |   | 114,000      |   |                      | 759,000    |                              
|Corporate                            |  |           |           |                       | $ | (5,929,000   | ) |                      | 9,242,000  |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|CONTINUING OPERATIONS                |  | $         | 26,050,000 |                       | $ | (3,972,000   | ) | $                    | 19,338,000 |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              
|Retail 100% owned store              |  | $         | 4,611,000  |                       | $ | (2,194,000   | ) | $                    | 1,960,000  |                              
|                                     |  |           |            |                       |   |              |   |                      |            |                              

The
Company utilizes its facilities and the majority of its assets interchangeably among each distribution channel. Assets that relate specifically to a reportable segment have been
included in the

11

---

above table. Assets identified to the reportable segments are primarily cash, receivables, inventory, prepaid catalogs, property and equipment, and intangibles. The assets of the discontinued
operations of the retail 100% owned stores have been included in the accompanying consolidated balance sheet.

The
following table presents the details for "Corporate":

|                                                  |  | Three Months Ended |           | Nine Months Ended
|------------------------------------------------- |  | ------------------ | --------- | -----------------
|
|Corporate administrative expenses                 |  | $                  | 903,000   |                  
|Unallocated depreciation and amortization expense |  |                    | 298,000   |                  
|Other expenses                                    |  |                    | 39,000    |                  
|Income tax expense (benefit)                      |  |                    | 4,000     |                  
|Extraordinary loss on early debt extinguishment   |  |                    |          |                  
|                                                  |  |                    |           |                  
|                                                  |  | $                  | 1,244,000 |                  
|                                                  |  |                    |           |                  

Corporate
administrative expenses are primarily charges for those functions not specifically attributable to any specific segment; these functions include the product development,
merchandising, information systems, accounting, legal, human resource and executive departments. Included in the expenses associated with these functions are payroll and related costs, professional
fees, information system maintenance costs, office occupancy costs, and property, casualty and directors and officers insurance.

The
Company's operations are in the United States. No single foreign country or geographic area is significant to the consolidated operations. Long-lived assets are all
located in the United States.

The
Company's products include distinctive lines of wall decor, desktop accessories, books and stationery, personalized gifts and awards. In addition, the Company sells other
motivational products supplied by third parties.

For
the nine months ended November 2, 2002 and November 3, 2001, net product sales by product categories were as follows:

Nine Months EndedNovember 2,
2002

November 3,
2001Wall décor

43.7
%
43.4
%Desktop accessories

18.9
%
21.2
%Books and stationery

18.9
%
19.1
%Personalized gifts and awards

18.5
%
15.5
%Other



0.8
%


NOTE 9. NEW ACCOUNTING PRONOUNCEMENTS

During the second quarter ended August 3, 2002, the Company adopted FASB No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets." The provisions of FASB No. 144 were applied to the Company's plan to close all of its 100% owned retail stores. The operations of the Company's 100% owned retail
stores can be distinguished from the rest of the entity and will be eliminated from the ongoing operations of the Company. Accordingly, the operations of the 100% owned retail stores, net of
applicable income tax effect, have been presented as discontinued operations and prior period statements of operations have been reclassified accordingly. (See Note 3 for further information).

12

---

In
May 2002, the Financial Accounting Standards Board issued FASB No. 145 "Recision of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13
and Technical Corrections," FASB No. 145 is effective for fiscal years beginning after May 14, 2002 unless adopted earlier. FASB 145 requires the stringent criteria of Accounting
Principles Board No. 30 to be applied to debt extinguishments. Prior debt extinguishments that do not qualify will be reclassified as ordinary. FASB 145 also amends the requirements for certain
lease modifications which result in a change in classification of the lease from a capital lease to an operating lease. In addition FASB 145 provides guidance regarding the trucking industry's
deregulation that occurred in 1980. The Company has not yet adopted FASB 145. The adoption of FASB 145 will result in increasing the loss from continuing
operations by $219,000, which was previously classified as an extraordinary item for the nine months ended November 3, 2001.

In
June 2002, FASB No. 146 "Accounting for Costs Associated with Exit or Disposal Activities," was issued. FASB No. 146 covers accounting for costs associated with
exit or long-lived asset disposal activities, such as restructurings, consolidation or closing of facilities, lease termination cost, and employee relocation or severance cost. FASB
No. 146 replaces Emerging Issues Task Force (EITF) 94-3, and is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Early
application is encouraged. One of the provisions of FASB No. 146 changes the timing of when companies recognize costs associated with exit or disposal activities, so that the costs would
generally be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. The Company adopted FASB No. 146 in the second quarter of fiscal 2002. See
Note 3 for a discussion of the discontinuance of the Company's 100% owned retail operations.

On
October 3, 2002, FASB No. 147, "Acquisitions of Certain Financial Institutions" was issued. FASB No. 147 covers accounting for purchase transactions and
intangible assets of financial institutions. FASB No. 147 is effective on October 1, 2003. The adoption of FASB No. 147 is not expected to have a material impact on the Company's
results of operations or financial condition.

NOTE 10. MANAGEMENT PLANS

Due to the continuing soft economic climate and the substantial loss before income taxes and extraordinary items of $5,712,000 sustained in fiscal 2001, the
Company retained the professional services of Duff & Phelps, LLC, an investment banking and financial advisory firm. Duff & Phelps is currently assisting with the sale of the Company.
Discussions continue with several prospective buyers, however, no assurance can be given that the sale of the Company shall be effected. Although efforts to sell the Company remains a priority,
management has developed contingency plans to restructure and further reduce its expenses by the end of the current fiscal year, in the event the sale of the Company does not occur. Management has
also entered into discussions with various financing sources for funding alternatives to its current credit facility which expires in June 2003. No assurance can be given that any restructuring
plans undertaken by management will be successful, or that the Company will be able to secure additional capital or borrowings on terms acceptable to it, or at all.

The
Company will continue its primary focus on sales growth in the direct marketing channel, support of its current franchisees and establishing additional wholesale outlets for the
Company's products. In the process of reviewing its strategic options, the Company decided on May 7, 2002 to take immediate steps to develop and implement a plan to close all of its 100% owned
retail stores, (See Note 3 for further information). At the end of the first quarter in fiscal 2002, the Company discontinued contract-framing services for third party products. Any future
contract framing services shall be limited primarily to large and multiple unit production runs. Net sales and operating results for contract framing were not material in fiscal 2001.

13

---



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and Notes thereto included
elsewhere in this Report.

Successories
designs, manufactures and markets a diverse range of motivational and self-improvement products, most of which are the Company's own proprietary designs. The
Company's products include distinctive lines of wall decor, desktop accessories, books and stationery, and personalized gifts and awards. In-house designers create proprietary designs that
can be used in conjunction with a wide variety of products. The Company will also customize products to fulfill customers' special needs.

The
Company's products are marketed primarily under itsSuccessoriestrade name through direct marketing (catalog, electronic commerce and
telemarketing), retail channel (100% Company-owned stores), sales to franchisees and wholesale distribution. Although the Company utilizes multiple distribution channels for its products, the
Company's products have similar purposes and uses in each channel of distribution. The profitability varies among products and distribution channels. The Company utilizes its facilities
interchangeably for each distribution channel. Furthermore, the marketing channels are directed at a single customer base located primarily in North America. In addition, starting in fiscal 2000, the
Company generated revenue from providing framing services to outside corporate businesses on a contract fee basis. At the end of the first quarter in fiscal 2002, the Company discontinued contract
framing services for third party products. Any future contract framing services shall be limited primarily to large and multiple unit production runs. Net sales and operating results for contract
framing were not material in fiscal 2001.

Due
to the continuing soft economic climate and the substantial loss before income taxes and extraordinary items of $5,712,000 sustained in fiscal 2001, the Company retained the
professional services of Duff & Phelps, LLC, an investment banking and financial advisory firm. Duff & Phelps is assisting with the sale of the Company. Discussions continue with several
prospective buyers, however, no assurance can be given that the sale of the Company shall be effected. Although efforts to sell the Company remains a priority, management has developed contingency
plans to restructure and further reduce its expenses by the end of the current fiscal year, in the event the sale of the Company does not occur. Management has also entered into discussions with
various financing sources for funding alternatives to its current credit facility which expires in June 2003. No assurance can be given that any restructuring plans undertaken by management
will be successful, or that the Company will be able to secure additional capital or borrowings on terms acceptable to it, or at all.

The
Company will continue its primary focus on sales growth in the direct marketing channel, support of its current franchisees and establishing additional wholesale outlets for the
Company's products. In the process of reviewing its strategic options, the Company decided on May 7, 2002 to take immediate steps to develop and implement a plan to close all of its 100% owned
retail stores (See Note 3 in the accompanying financial statements for further information). The results of operations and costs incurred to-date associated with the Company's plan
to close the 100% owned retail stores have been reflected as discontinued operations in the accompanying consolidated financial statements.

14

---

For
the three and nine months ended November 2, 2002 and November 3, 2001, net product sales for the various distribution channels, as a percentage of total net product
sales, were as follows:

|                                 |  | Three Months Ended |   | Nine Months Ended |  
|-------------------------------- |  | ------------------ | - | ----------------- | -
|
|Direct marketingSuccessories    |  | 74.2               | % | 65.5              | %
|Retail 100% Company-owned stores |  | 10.9               | % | 14.1              | %
|Sales to franchisees             |  | 8.7                | % | 13.6              | %
|Other channels                   |  | 6.2                | % | 6.8               | %

The
gross profit margins for direct marketing and retail channels vary due to differences in product mix and volume discounts based on order size. The gross profit margin for sales to
the franchisees is lower than the direct marketing and retail channels since these sales are generally made at wholesale prices.

RESULTS OF OPERATIONS

The following table sets forth the results of operations for the three months and nine months ended November 2, 2002 and November 3, 2001:

|                                                                |  | Three Months Ended |       |   |       |   |  
|--------------------------------------------------------------- |  | ------------------ | ----- | - | ----- | - | -
|
|
|
|Net product sales                                               |  | $                  | 7,914 |   | 100.0 | % | $
|Cost of goods sold                                              |  |                    | 3,933 |   | 49.7  |   |  
|                                                                |  |                    |       |   |       |   |  
|Gross profit on product sales                                   |  |                    | 3,981 |   | 50.3  |   |  
|Fees, royalties and other income                                |  |                    | 298   |   | 3.8   |   |  
|                                                                |  |                    |       |   |       |   |  
|Gross margin                                                    |  |                    | 4,279 |   | 54.1  |   |  
|Operating expenses                                              |  |                    | 4,551 |   | 57.5  |   |  
|                                                                |  |                    |       |   |       |   |  
|Loss from continuing operations before other expenses and taxes |  |                    | (272  | ) | (3.4  | ) |  
|Interest and other expenses                                     |  |                    | 39    |   | 0.5   |   |  
|                                                                |  |                    |       |   |       |   |  
|Loss from continuing operations before income taxes             |  |                    | (311  | ) | (3.9  | ) |  
|Income tax expense (benefit)                                    |  |                    | 4     |   | 0.1   |   |  
|                                                                |  |                    |       |   |       |   |  
|Loss from continuing operations                                 |  |                    | (315  | ) | (4.0  | ) |  
|                                                                |  |                    |       |   |       |   |  
|Loss from discontinued operations                               |  |                    | (675  | ) | (8.5  | ) |  
|                                                                |  |                    |       |   |       |   |  
|Net loss                                                        |  | $                  | (990  | ) | (12.5 | ) | $
|                                                                |  |                    |       |   |       |   |  

15

---

|                                                                |  | Nine Months Ended |        |   |       |   |  
|--------------------------------------------------------------- |  | ----------------- | ------ | - | ----- | - | -
|
|
|Net product sales                                               |  | $                 | 23,602 |   | 100.0 | % | $
|Cost of goods sold                                              |  |                   | 11,740 |   | 49.7  |   |  
|                                                                |  |                   |        |   |       |   |  
|Gross profit on product sales                                   |  |                   | 11,862 |   | 50.3  |   |  
|Fees, royalties and other income                                |  |                   | 714    |   | 3.0   |   |  
|                                                                |  |                   |        |   |       |   |  
|Gross margin                                                    |  |                   | 12,576 |   | 53.3  |   |  
|Operating expenses                                              |  |                   | 14,551 |   | 61.6  |   |  
|                                                                |  |                   |        |   |       |   |  
|Loss from continuing operations before other expenses and taxes |  |                   | (1,975 | ) | (8.3  | ) |  
|Interest and other expenses                                     |  |                   | 147    |   | 0.6   |   |  
|                                                                |  |                   |        |   |       |   |  
|Loss from continuing operations before income taxes             |  |                   | (2,122 | ) | (8.9  | ) |  
|Income tax expense (benefit)                                    |  |                   | (102   | ) | (0.4  | ) |  
|                                                                |  |                   |        |   |       |   |  
|Loss from continuing operations                                 |  |                   | (2,020 | ) | (8.5  | ) |  
|Loss from discontinued operations                               |  |                   | (2,213 | ) | (9.4  | ) |  
|                                                                |  |                   |        |   |       |   |  
|Loss before extraordinary item                                  |  |                   | (4,233 | ) | (17.9 | ) |  
|Extraordinary loss                                              |  |                   |       |   |      |   |  
|                                                                |  |                   |        |   |       |   |  
|Net loss                                                        |  | $                 | (4,233 | ) | (17.9 | ) | $
|                                                                |  |                   |        |   |       |   |  

Three Months Ended November 2, 2002 (Third Quarter 2002), Compared To Three Months Ended November 3, 2001 (Third Quarter
2001)

Net product sales were $7,914,000 in the current year third quarter ended November 3, 2002, compared to $8,487,000 for the corresponding prior year third
quarter ended November 3, 2001. The $573,000 or 6.8% decrease in net sales was comprised of sales to franchisees of $574,000 or 42.6%, and other channels of $112,000 or 16.8%; offset by
increase in direct marketingSuccessoriessales of $113,000 or 1.7%. The net sales and operations of the retail 100% owned stores are reported
separately as discontinued operations on the accompanying consolidated statements of operations and comprehensive loss.

The
Company's direct marketingSuccessoriessales in the third quarter 2002 were 1.7% higher than prior year third quarter 2001. The
Company increased it's overall catalog circulation in the current year third quarter 2002 by 22%, which was primarily in the prospect catalog circulation. As a result, in third quarter 2002 the direct
marketing sales from catalogs mailed in the third quarter increased by 28% which was offset by a decrease in sales resulting from 16% fewer catalogs mailed in the first and second quarter 2002 in
comparison to 2001. The decrease in sales to franchisees can be primarily attributed to 15 fewer stores in operation in the current year in comparison to prior year. The Company continues to refine
the prospect catalog circulation strategy, aggressively target opportunities in niche markets and focus on increasing customer re-buy rates. The decrease in net sales in the other channels
from year to year can be primarily attributed to the Company's decision made in first quarter 2002 to discontinue contract framing services for third party products, and one fewer joint venture retail
store in operation in the current year; offset by increase in the sales of wholesale channel as a result of new customer sales.

Gross
margin increased in the current year third quarter 2002 to $4,279,000 from $4,192,000 in the prior year third quarter 2001. Even though sales declined, gross margin increased in
the current year as a result of higher gross profit percentage. The improvement in gross profit is the result of change in channel sales mix and lower material costs. Also, the lower sales volume in
the current year has not significantly impacted the fixed product costs per unit due to various manufacturing cost reduction efforts undertaken by the Company.

16

---

Operating
expenses decreased in the current year third quarter 2002 to $4,551,000 from $4,914,000 in the prior year third quarter 2001. The decrease in operating expenses from year to
year of $363,000 is primarily in corporate payroll expenses related to workforce reductions initiated in the third quarter 2001 and the second quarter 2002, variable operating expenses as a result of
lower sales volume, and due to certain additional charges recorded in the prior year third quarter related to severances and discontinuance of warehouse management system; offset by higher advertising
costs in the current year third quarter as a result of increase in catalog circulation.

In
the second quarter 2002, the Company decided to take immediate steps to close all of its 100% owned retail stores and as a result began negotiating early lease terminations with the
various landlords. In accordance with FASB No. 144, the Company has reflected separately the results of operations of the 100% owned retail stores as discontinued operations. During the third
quarter 2002, the Company recorded $308,000 in disposal costs related to lease termination contracts. Subsequent to third quarter 2002, the Company entered into lease termination contracts at two
stores and is in the process of pursuing early lease terminations at the remaining four stores. For the above mentioned four stores, the leases extend beyond the current fiscal year. Actual lease
termination costs will be determined by the lease termination agreements negotiated with the landlords and could vary significantly if the Company cannot terminate lease agreements before their
schedule maturity.

The
net loss was $990,000 in the current year third quarter 2002, compared to $1,771,000 in the corresponding prior year third quarter 2001. The loss from continuing operations improved
from the prior year, in spite of lower sales volume, as a result of improved gross margin and streamlining of operating expenses.

Nine Months Ended November 2, 2002 (Year-To-Date 2002), Compared To Nine Months Ended November 3, 2001
(Year-To-Date 2001)

Net product sales were $23,602,000 year-to-date for the nine months ended November 2, 2002, compared to $26,050,000 for the
corresponding prior year nine months ended November 3, 2001. The $2,448,000 or 9.4% decrease in net sales was comprised of direct marketing Successoriesof $334,000 or 1.6%, sales to franchisees of
$1,386,000 or 42.3%, and other channels of $728,000 or 30.8%. The net sales and operations of
the 100% owned retail stores are reported separately as discontinued operations on the accompanying consolidated statements of operations and comprehensive loss.

The
decrease in direct marketing net sales of 1.6% is primarily due to a 5% reduction in catalog circulation in the current year. The circulation reduction reflects a refined catalog
circulation strategy of increased customer catalog circulation and reduced prospect catalog circulation. The prospect catalog circulation was reduced in the first and second quarter of the current
year due to lower response rates experienced in 2001. The refined catalog circulation strategy resulted in a positive impact to the operating profit of the direct marketing channel as a result of
improved return on the catalog advertising costs. The Company has started to experience better response rates than the prior year for prospect catalogs and as a result increased circulation beginning
in third quarter 2002 in comparison to the prior year third quarter. Internet sales, which are included in the direct marketingSuccessorieschannel,
increased by 15.8% from year to year. Internet sales represented 26.8% of the total direct marketing sales in the current year and were 22.8% in the prior year. The Internet continues to be a
significant marketing and sales opportunity for the Company. The decrease in sales to franchisees can be primarily attributed to 15 fewer stores in operation in the current year in comparison to prior
year. The decrease in net sales in the other channels from year to year can be primarily attributed to the Company's decision made in the first quarter 2002 to discontinue contract framing services
for third party products, and two fewer joint venture retail stores in operation in the current year.

17

---

Gross
margin decreased in the current year to $12,576,000 from $13,645,000 in prior year. The decrease in gross margin can be primarily attributed to a decline in net sales from year to
year. The gross profit, as a percentage of net sales, was higher in the current year as a result of change in channel sales mix and lower material costs; offset by negative impact of product
discounting in the first and second quarter of the current year in comparison to prior year. The Company continues to evaluate promotional and permanent discounting of various products to encourage
consumer spending. The lower sales volume in the current year has not significantly impacted the fixed product costs per unit due to various manufacturing cost reduction efforts undertaken by the
Company.

Operating
expenses decreased in the current year to $14,551,000 from $16,446,000 in the prior year. The decrease in operating expenses from year to year of $1,895,000 is primarily in
catalog advertising costs due to reduced and refined catalog circulation, variable operating expenses as a result of lower sales volume, corporate payroll expenses related to workforce reductions
instituted in the third quarter 2001 and the second quarter 2002, and due to certain additional charges recorded in the prior year related to bad debt reserves for franchisee related receivables and
discontinuance of warehouse management system.

In
the current year income tax benefit, net, of $102,000 includes an income tax benefit of $106,000 related to income tax refund claims approved and received from amended state returns.
In the prior year second quarter 2001, the Company recorded an income tax expense of $700,000 to increase the valuation allowance associated with the deferred tax asset balance. As a result of the
challenging economic environment, the Company's management determined that the valuation allowance should be increased due to the reduced likelihood that all the benefits of the deferred tax asset
related to the net operating loss (NOL) carryforwards would be fully utilized before they expire.

In
the second quarter 2002, the Company decided to take immediate steps to close all of its 100% owned retail stores and as a result began negotiating early lease terminations with the
various landlords. In accordance with FASB No. 144, the Company has reflected separately the results of operations of the 100% owned retail stores as discontinued operations. During the nine
months ended November 2, 2002, the Company recorded $1,030,000 in disposal costs related to lease termination contracts entered to-date and asset impairment charges for certain
stores with negative cash flow projections anticipated through store closing date.

In
the prior year first quarter 2001, the Company recorded an extraordinary loss of $219,000 related to early debt extinguishment. As a result of pre-payment of the term loan
and fixed rate loan with the Company's bank, the Company recorded an additional expense to write-off the unamortized debt discount associated with the term loan and fixed rate loan.

In
the current year the Company had a net loss of $4,233,000, in comparison to a net loss of $6,166,000 in the prior year. The improved operating results, in spite of lower sales volume,
can be attributed to improved gross margin, the Company's efforts to streamline operating expenses and utilization of cost-effective marketing strategies to improve the operating results
of the Company. For the nine months ended November 2, 2002, the Company's loss from continuing operations was reduced by 46.2%, even though, net sales declined by 9.4%.

LIQUIDITY AND CAPITAL RESOURCES

The Company's ongoing cash requirements are for working capital, capital expenditures and debt service. The Company expects to rely on cash generated from its
operations, supplemented by borrowings available on its revolving credit loan, to fund its cash requirements.

Operating
activities provided cash of $823,000 in the current year for the nine months ended November 2, 2002, compared to $1,391,000 in the prior year for the nine months ended
November 3, 2001. The decrease in cash provided from operating activities can be attributed primarily to the net

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change in asset and liability balances from year to year, offset by improvement in operating results in the current year. The change in assets and liabilities balances was more significant in the
prior year 2001 due to the decline in sales as a result of the downturn in the economy which was experienced starting in February 2001, therefore, receivables and inventory balances decreased
due to sales decline, and payables balance increased with extending payment terms.

Investing
activities used cash of $3,000 for the nine months ended November 2, 2002, compared to used cash of $141,000 for the nine months ended November 3, 2001. The
principal use of cash in investing activities is capital expenditures and the source of cash is proceeds from sales of property and equipment. The capital expenditures in prior year were primarily
related to corporate computer systems upgrades and additional internet website costs. The Company's current credit facility limits capital expenditures to $1 million for the fiscal year.

Financing
activities provided cash of $338,000 for the nine months ended November 2, 2002, compared to used cash of $1,842,000 for the nine months ended November 3, 2001.
Planned debt repayments on the term note and net repayments on the revolving credit loan were the principal uses of cash. Proceeds from net borrowings on the revolving credit loan were the primary
source of cash. In the prior year first quarter 2001, the Company prepaid its term loan and fixed rate loan with the bank as planned in an effort to strengthen the Company's balance sheet and debt to
equity position. The above noted loans had payment terms through June 2003.

On
June 13, 2002, the Company obtained an amendment to the credit facility to modify certain financial covenants which were retroactive to the first quarter ended May 4,
2002. In addition, the amendment adjusted the borrowing base and the revolver limits, prospectively. In connection with this amendment, the Company agreed to provide the bank the option to exchange
the stock warrants previously issued to the bank in exchange for a success fee equal to 2% of the gross sales price, in the event that the Company is sold.

On
September 11, 2002, the Company obtained approval to extend the step down in maximum borrowings from $3,500,000 to $3,000,000 on the revolving credit loan from
October 31, 2002 to January 1, 2003. The Company requested this extension to provide for adequate revolving credit loan availability for the payout of projected lease termination costs
related to the 100% Company-owned retail stores, See Note 3 in the accompanying financial statements for further information.

At
November 2, 2002, the Company was in compliance with all the debt covenants of the credit facility agreement and the available borrowings on the revolving credit loan were
$1,599,000. In the absence of the sale of the Company, but no later than the end of the fiscal year, the Company shall implement its plan to restructure and further reduce its expenses. The Company
will continue discussions with its existing and new financing sources to replace its current credit facility which expires in June 2003. No assurance can be given that any restructuring plans
undertaken by management will be successful or that the Company will be able to secure additional capital or borrowings on terms available to it or at all.

The
Company believes that internally generated funds and the credit facility, as discussed above, will be sufficient to meet its current operating needs, including funds required to
close all of the 100% owned retail stores, fund debt service and make anticipated capital expenditures.

SEASONALITY

The Company's business is subject to seasonal variations in demand. Historically, a significant portion of the Company's sales and net income have been realized
during the period from October through January. The effects of seasonality are greater in the Company's retail operations and sales to franchisees than the other segments of its business, the impact
of which will diminish going-forward as the Company closes all of its 100% owned retail stores and with fewer franchisee stores in operation.

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Most operating expenses are incurred evenly throughout the year, although some selling and administrative expenses are variable depending on sales, and direct marketing catalog advertising expenses
as a percentage of sales are generally higher in the first calendar quarter due to more prospecting. The Company's quarterly operating results may also vary depending upon such factors as catalog
mailings and the timing of new product introductions and promotions by the Company. Historically, the Company's cash requirements generally reach a seasonal peak in the second half of the fiscal year
to finance increased inventory levels needed to meet the third and fourth quarter sales demand.

INFLATION

The Company does not believe that inflation has had a material impact on its operations.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q report contains forward-looking statements which the Company believes are within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be deemed to include, among other things, statements relating to anticipated
financial performance, the management team, management's long-term performance goals, channels, programs to reduce costs and enhance asset utilization, banking arrangement and terms,
realization of deferred tax assets, as well as statements relating to the Company's operational and growth strategies. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be accurate, and actual results could differ materially from those addressed in forward-looking
statements contained in this Form 10-Q report. Potential risks and uncertainties include such factors as the financial strength of the economy, and the retail and catalog industries
in general, changes in consumer confidence, the level of spending on motivational-type products, the competitive pricing environment within the markets that the Company distributes its
products, the level of the Company's success in continuing to control costs and the Company's ability to increase certain margins through economies of scale. Additional risks and uncertainties include
the Company's ability to develop and introduce successful new products, generate funds sufficient to meet its current operating and capital needs, sale of the Company, successfully exit the retail
channel (100% Company-owned stores), and ability to extend its current or obtain a new credit facility. Investors are also directed to consider other risks and uncertainties discussed in the Company's
public announcements, reports to shareholders and documents filed by the Company with the Securities and Exchange Commission, including but not limited to Reports on Forms 10-K,
8-K and 10-Q. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The
Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date on this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to market risk associated with adverse changes in interest rates and foreign currency exchange rates, but does not hold any market risk
sensitive instruments for trading purposes. The Company uses variable rate debt, as described in Note 5 of the Notes to Consolidated Financial Statements. At November 2, 2002, principal
exposed to interest rate risk is limited to $1,901,000 in variable rate debt. The variable rate debt level varies periodically, and the maximum borrowing allowed at November 2, 2002 was
$3,500,000 and subsequent to January 1, 2003 will be limited to $3,000,000. The impact of a 1% change in interest rates on the variable rate debt is approximately $19,000. The Company's
exposure to foreign currency exchange rate risk relates primarily to the financial position
and results of operations in Canada. The Company's exposure to foreign currency exchange rate risk is difficult to estimate due to factors such as balance sheet

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accounts, and the existing economic uncertainty and future economic conditions in the international marketplace. The Company does not expect significant impact from foreign currency exchange rate
risk. The Company's Canadian operations annual sales are approximately $2,000,000.

ITEM 4. CONTROLS AND PROCEDURES

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company was named as a defendant in a case filed by Pyramid Company of Buffalo ("Plaintiff"). Pyramid Company of Buffalo v Successories, Inc. (Index
No. 2002-8509) was filed in the State of New York Supreme Court in the County of Erie on August 15, 2002. Plaintiff alleged that the Company entered into a lease agreement
with Plaintiff and was in default under the lease agreement due to failure to pay rent. Plaintiff sought the sum of $9,415.27 as and for past due rents; all rents that may accrue; and such other and
further relief as seems just and proper to the Court. The Company paid all past due rents sought and the parties are involved in settlement negotiations.

The
Company was named as a defendant in a case filed by EKLECCO L.L.C. ("Plaintiff"). EKLECCO L.L.C. v Successories, Inc. (Index No. 2002-5591) was filed in the
State of New York Supreme Court in the County of Erie on August 14, 2002. Plaintiff alleged that the Company entered into a lease agreement with Plaintiff and was in default under the lease
agreement due to failure to pay rent. Plaintiff sought the sum of $11,513.47 as and for past due rents; all rents that may accrue; and such other and further relief as seems just and proper to the
Court. The Company paid all past due rents sought and the parties are involved in settlement negotiations.

The
Company was named as a defendant in a case filed by Pyramid Crossgates Company ("Plaintiff"). Pyramid Crossgates Company v Successories, Inc. (Index
No. 2002-5653) was filed in the State of New York Supreme Court in the County of Erie on August 14, 2002. Plaintiff alleged that the Company entered into a lease agreement
with Plaintiff and was in default under the lease agreement due to failure to pay rent. Plaintiff sought the sum of $10,992.96 as and for past due rents; all rents that may accrue; and such other and
further relief as seems just and proper to the Court. The Company paid all past due rents sought and the parties are involved in settlement negotiations.

The
Company was named as a defendant in a case filed by Scottsdale Fashion Square Partnership ("Plaintiff"). Scottsdale Fashion Square Partnership v Celex Group, Inc. (now
Successories, Inc.) (No. CV2002-016540) was filed in the Superior Court of the State of Arizona in the County of Maricopa.
Plaintiff alleged that the Company entered into a lease agreement with Plaintiff and was in default under the lease agreement due to failure to pay rent. Plaintiff sought an order for immediate
possession of the premises and all fixtures, trade fixtures, and tenant improvements; a writ of restitution; the sum of $17,231.46 for unpaid rent, accrued interest and late charges; interest on
unpaid rent and late charges at the rate of 18% per annum; all rents that accrue with interest at the rate of 18% per annum, late charges at the rate of 5%, plus applicable rental tax thereon at the
rate of 1.9%, court costs with interest thereon at the rate of 10% per annum; and such other further relief as the Court deemed just and proper. The parties settled the matter by entering into a
Mutual Release and Cancellation of Lease Agreement dated November 8, 2002.

Except
as noted above, there are no other material pending legal proceedings against the Company. The Company is, however, at times involved in routine litigation arising in the ordinary
course of its business and, while the results of such proceedings cannot be predicted with certainty, the Company believes that the final outcome of such matters will not have a material adverse
effect on the Company's consolidated financial position or results of operations.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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SIGNATURES

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

|                        |  | SUCCESSORIES, INC.(Registrant)
|----------------------- |  | ------------------------------
|Date: December 17, 2002 |  | By:                           
|Date: December 17, 2002 |  | By:                           

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CERTIFICATION

I, Gary J. Rovansek, President, Chief Executive Officer and Director of Successories, Inc., certify that:



|Date: December 17, 2002 |  | /s/GARY J. ROVANSEKGary J. Rovansek President, Chief Executive Officer
and Director,
(Principal Executive Officer)
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------

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CERTIFICATION

I, John C. Carroll, Senior Vice President, Chief Financial and Chief Operating Officer of Successories, Inc., certify that:



|Date: December 17, 2002 |  | /s/JOHN C. CARROLLJohn C. Carroll Senior Vice President, Chief Financial
and Chief Operating Officer
(Principal Financial and Accounting Officer)
|----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

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INDEX TO EXHIBITS

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Articles of Incorporation of RegistrantAmended and Restated as of October 28, 1999(12)                                                                                                                                                                                                                                                        
|3.2         |  | By-laws of Registrant(9)                                                                                                                                                                                                                                                                                                                       
|3.3         |  | Amended and Restated Certificate of Designation of Series A and Series B Convertible Preferred Stock(10)                                                                                                                                                                                                                                       
|4.1         |  | Specimen Common Stock Certificate(9)                                                                                                                                                                                                                                                                                                           
|4.2         |  | Specimen Series A Convertible Preferred Stock Certificate(11)                                                                                                                                                                                                                                                                                  
|4.3         |  | Specimen Series B Convertible Preferred Stock Certificate(11)                                                                                                                                                                                                                                                                                  
|10.1        |  | Form of Franchising Agreement(9)                                                                                                                                                                                                                                                                                                               
|10.3        |  | Successories, Inc. Amended and Restated Stock Option Plan(15)                                                                                                                                                                                                                                                                                  
|10.4        |  | Joint Venture Agreement with Morrison DFW, Inc. and related documents(1)                                                                                                                                                                                                                                                                       
|10.5        |  | Indemnification Agreement dated April 7, 1999 between the Company and Arnold M. Anderson(8)                                                                                                                                                                                                                                                    
|            |  | Indemnification Agreements in the form filed were also entered into by the Messrs. Seamas T. Coyle, Timothy C. Dillon, C. Joseph LaBonte, Steven B. Larrick, Michael H. McKee, Mervyn C. Phillips, Jr., Guy E. Snyder, Gary J. Rovansek, R. Scott
Morrison, Jr., Jack Miller, Howard I. Bernstein, Larry A. Hodges, and Leslie Nathanson Juris.
|10.6        |  | Common Stock Option Agreement granted to Arnold M. Anderson and Incentive Stock Option Agreement granted to Arnold M. Anderson(2) *                                                                                                                                                                                                            
|10.7(a)     |  | Employment Agreement with Arnold M. Anderson dated March 1, 1996(3) *                                                                                                                                                                                                                                                                          
|10.7(b)     |  | Amendment to Employment Agreement with Arnold M. Anderson dated March 1, 1996(12) *                                                                                                                                                                                                                                                            
|10.7(c)     |  | Amendment to Employment Agreement with Arnold M. Anderson dated January 14, 1997(12) *                                                                                                                                                                                                                                                         
|10.7(d)     |  | Addendum to Employment Agreement with Arnold M. Anderson dated February 16, 2000(12) *                                                                                                                                                                                                                                                         
|10.7(e)     |  | Amendment to Employment Agreement with Arnold M. Anderson dated October 1, 2001(18) *                                                                                                                                                                                                                                                          
|10.8        |  | Employment Agreement with Michael H. McKee dated June 1, 1999(9) *                                                                                                                                                                                                                                                                             
|10.9        |  | Credit Agreement between the Company and The Provident Bank dated as of June 20, 1997(4)                                                                                                                                                                                                                                                       
|10.10       |  | First Amendment to Credit Agreement between the Company and The Provident Bank dated as of July 16, 1997(4)                                                                                                                                                                                                                                    
|10.11       |  | Lease Agreement between LaSalle National Trust, N.A. as Trustee under Trust No. 120358 and Celex Group, Inc.(5)                                                                                                                                                                                                                                
|10.12       |  | Second Amendment to Credit Agreement between the Company and The Provident Bank dated as of May 14, 1998(5)                                                                                                                                                                                                                                    
|10.13       |  | Third Amendment to Credit Agreement between the Company and The Provident Bank dated as of September 1, 1998(6)                                                                                                                                                                                                                                
|10.14       |  | Employment Agreement with Gary Rovansek dated October 29, 1998(6)                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                

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|10.15 |  | Fourth Amendment to Credit Agreement between the Company and The Provident Bank dated as of April 28, 1999(8)                     
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | Warrants to Purchase Common Stock of the Company granted to Provident Financial Group, Inc. dated as of April 29, 1999(8)         
|10.17 |  | Preferred Stock Purchase Agreement, dated as of May 28, 1999, by and among the Company and the investors(7)                       
|10.18 |  | Registration Rights Agreement, dated as of May 28, 1999, by and among the Company and the investors(7)                            
|10.19 |  | Preferred Stock Purchase Agreement, dated as of October 18, 1999, by and among the Company and the investors(10)                  
|10.20 |  | Amendment No. 1 to the Registration Rights Agreement, dated as of October 18, 1999, by and among the Company and the investors(10)
|10.21 |  | Fifth Amendment to Credit Agreement between the Company and The Provident Bank dated as of April 6, 2000(13)                      
|10.22 |  | Sixth Amendment to Credit Agreement between the Company and The Provident Bank dated as of August 28, 2000(14)                    
|10.23 |  | Joint Venture Agreement with Celebrating Excellence of Minnesota, Inc. and related documents(16)                                  
|10.24 |  | Seventh Amendment to Credit Agreement between the Company and The Provident Bank dated as of September 4, 2001(17)                
|10.25 |  | Eighth Amendment to Credit Agreement between the Company and The Provident Bank dated as of December 3, 2001(18)                  
|10.26 |  | Ninth Amendment to Credit Agreement between the Company and the Provident Bank dated as of June 13, 2002(19)                      
|10.27 |  | Retention Agreement with Gary J. Rovansek dated August 20, 2002(19)                                                               
|10.28 |  | Retention Agreement with John C. Carroll dated August 20, 2002(19)                                                                
|10.29 |  | Retention Agreement with John F. Halpin dated August 20, 2002(19)                                                                 
|10.30 |  | Retention Agreement with Michael McKee dated August 20, 2002(19)                                                                  
|10.31 |  | Retention Agreement with Gregory J. Nowak dated August 20, 2002(19)                                                               
|10.32 |  | Tenth Amendment to Credit Agreement between the Company and the Provident Bank dated as of September 11, 2002 (filed herewith)    
|10.33 |  | Retention Agreement with James W. Brintnall dated December 5, 2002 (filed herewith)                                               
|21.1  |  | Subsidiaries of the Registrant (filed herewith)                                                                                   
|99.1  |  | Certification of Chief Executive Officer (filed herewith)                                                                         
|99.2  |  | Certification of Chief Financial Officer (filed herewith)                                                                         

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