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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended October 28,
2000
|--- | --------------------------------------------------------------------------------------------------------------------------------------

OR

|/ / | 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

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

ILLINOIS

36-3760230(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)2520 Diehl RoadAurora, 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 /x/  No / /

Registrant
had 9,146,518 shares of common stock, $.01 par value, outstanding as of December 1, 2000.

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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                                                                  |  | 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                            |  | 19         
|PART II.          |  | OTHER INFORMATION                                                                                      |  |            
|                  |  | Item 1.  Legal Proceedings                                                                             |  | 20         
|                  |  | Item 6.  Exhibits and Reports on Form 8-K                                                              |  | 20         
|SIGNATURES        |  | 21                                                                                                    
|INDEX TO EXHIBITS |  |                                                                                                       

2

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## 

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

|                                           |                                                                                                                                                     | October 28,
2000
(unaudited) |            | January 29,
2000 |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---------- | ---------------- | -
|ASSETS                                     |                                                                                                                                                     |                              |            |                  |  
|Current assets:                            |                                                                                                                                                     |                              |            |                  |  
|                                           | Cash and cash equivalents                                                                                                                           |                              | $          | 967,000          |  
|                                           | Accounts and notes receivable, net of allowance of $483,000 and $549,000, respectively                                                              |                              |            | 4,690,000        |  
|                                           | Inventories, net                                                                                                                                    |                              |            | 8,232,000        |  
|                                           | Prepaid catalog expenses                                                                                                                            |                              |            | 1,770,000        |  
|                                           | Other prepaid expenses                                                                                                                              |                              |            | 200,000          |  
|                                           |                                                                                                                                                     |                              |            |                  |  
|Total current assets                       |                                                                                                                                                     |                              | 15,859,000 |                  |  
|Property and equipment, net                |                                                                                                                                                     |                              | 6,573,000  |                  |  
|Notes receivable                           |                                                                                                                                                     |                              | 279,000    |                  |  
|Deferred financing costs, net              |                                                                                                                                                     |                              | 237,000    |                  |  
|Deferred income taxes                      |                                                                                                                                                     |                              | 5,199,000  |                  |  
|Intangibles and other assets, net          |                                                                                                                                                     |                              | 1,656,000  |                  |  
|                                           |                                                                                                                                                     |                              |            |                  |  
|TOTAL ASSETS                               |                                                                                                                                                     | $                            | 29,803,000 |                  | $
|                                           |                                                                                                                                                     |                              |            |                  |  
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                                                                                                                     |                              |            |                  |  
|Current liabilities:                       |                                                                                                                                                     |                              |            |                  |  
|                                           | Current portion of long-term debt                                                                                                                   |                              | $          | 875,000          |  
|                                           | Accounts payable                                                                                                                                    |                              |            | 2,995,000        |  
|                                           | Accrued expenses                                                                                                                                    |                              |            | 2,334,000        |  
|                                           |                                                                                                                                                     |                              |            |                  |  
|Total current liabilities                  |                                                                                                                                                     |                              | 6,204,000  |                  |  
|Long-term debt, net of current portion     |                                                                                                                                                     |                              | 2,378,000  |                  |  
|                                           |                                                                                                                                                     |                              |            |                  |  
|Total liabilities                          |                                                                                                                                                     |                              | 8,582,000  |                  |  
|                                           |                                                                                                                                                     |                              |            |                  |  
|Minority interest in subsidiaries          |                                                                                                                                                     |                              |           |                  |  
|                                           |                                                                                                                                                     |                              |            |                  |  
|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 |                              |            | 6,000            |  
|                                           | Common stock, $.01 par value; 20,000,000 shares authorized; 9,060,224 and 6,933,213 shares issued and outstanding respectively                      |                              |            | 89,000           |  
|                                           | Common stock warrants                                                                                                                               |                              |            | 2,324,000        |  
|                                           | Notes receivable from stockholders                                                                                                                  |                              |            | (164,000         | )
|                                           | Additional paid-in capital                                                                                                                          |                              |            | 33,057,000       |  
|                                           | Accumulated deficit                                                                                                                                 |                              |            | (14,029,000      | )
|                                           | Accumulated other comprehensive loss                                                                                                                |                              |            | (62,000          | )
|                                           |                                                                                                                                                     |                              |            |                  |  
|Total stockholders' equity                 |                                                                                                                                                     |                              | 21,221,000 |                  |  
|                                           |                                                                                                                                                     |                              |            |                  |  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                     | $                            | 29,803,000 |                  | $
|                                           |                                                                                                                                                     |                              |            |                  |  

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                              |                                    | $                  | 12,781,000 |                   | $
|Cost of goods sold                             |                                    |                    | 6,291,000  |                   |  
|                                               |                                    |                    |            |                   |  
|Gross profit on product sales                  |                                    |                    | 6,490,000  |                   |  
|Contract framing, net income                   |                                    |                    | 88,000     |                   |  
|Fees, royalties and other income               |                                    |                    | 343,000    |                   |  
|                                               |                                    |                    |            |                   |  
|Gross margin                                   |                                    |                    | 6,921,000  |                   |  
|Operating expenses                             |                                    |                    | 6,113,000  |                   |  
|                                               |                                    |                    |            |                   |  
|Income (loss) from operations                  |                                    |                    | 808,000    |                   |  
|                                               |                                    |                    |            |                   |  
|Other income (expense):                        |                                    |                    |            |                   |  
|                                               | Interest expense                   |                    |            | (442,000          | )
|                                               | Minority interests in subsidiaries |                    |            | (51,000           | )
|                                               | Interest income                    |                    |            | 7,000             |  
|                                               | Other, net                         |                    |            | 10,000            |  
|                                               |                                    |                    |            |                   |  
|Total other expense                            |                                    |                    | (476,000   | )                 |  
|                                               |                                    |                    |            |                   |  
|Income (loss) before income tax                |                                    |                    | 332,000    |                   |  
|Income tax                                     |                                    |                    |           |                   |  
|                                               |                                    |                    |            |                   |  
|Net income (loss)                              |                                    |                    | 332,000    |                   |  
|                                               |                                    |                    |            |                   |  
|Dividend to preferred shareholder              |                                    |                    | 55,000     |                   |  
|                                               |                                    |                    |            |                   |  
|Income (loss) available to common stockholders |                                    | $                  | 277,000    |                   | $
|                                               |                                    |                    |            |                   |  
|Foreign currency translation adjustment        |                                    | $                  | 3,000      |                   | $
|                                               |                                    |                    |            |                   |  
|Comprehensive income (loss)                    |                                    | $                  | 335,000    |                   | $
|                                               |                                    |                    |            |                   |  
|Income/(loss) per share:                       |                                    |                    |            |                   |  
|                                               | Basic and diluted                  |                    | $          | 0.04              |  
|                                               |                                    |                    |            |                   |  

The
accompanying notes are an integral part of these statements.

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

|                                                        |  | Preferred Stock |  | Common Stock |       |  |           |  |   |        |  |   |          
|------------------------------------------------------- |  | --------------- |  | ------------ | ----- |  | --------- |  | - | ------ |  | - | ---------
|
|
|Balance at January 29, 2000                             |  | 604,759         |  | $            | 6,000 |  | 6,933,213 |  | $ | 69,000 |  | $ | 2,291,000
|Net loss                                                |  |                |  |              |      |  |          |  |   |       |  |   |         
|Foreign currency translation adjustment                 |  |                |  |              |      |  |          |  |   |       |  |   |         
|Payments received against officers' notes receivable    |  |                |  |              |      |  |          |  |   |       |  |   |         
|Stock warrants revaluation                              |  |                |  |              |      |  |          |  |   |       |  |   | 33,000   
|Common stock transactions: Sales of common shares       |  |                |  |              |      |  | 2,127,011 |  |   | 20,000 |  |   |         
|Preferred stock transactions: Preferred stock dividends |  |                |  |              |      |  |          |  |   |       |  |   |         
|                                                        |  |                 |  |              |       |  |           |  |   |        |  |   |          
|Balance at October 28, 2000                             |  | 604,759         |  | $            | 6,000 |  | 9,060,224 |  | $ | 89,000 |  | $ | 2,324,000
|                                                        |  |                 |  |              |       |  |           |  |   |        |  |   |          

|                                                        |  | Accumulated
Other
Comprehensive
Loss |         | Total
Stockholders'
Equity |  
|------------------------------------------------------- |  | ------------------------------------ | ------- | -------------------------- | -
|Balance at January 29, 2000                             |  | $                                    | (64,000 | )                          | $
|Net loss                                                |  |                                      |        |                            |  
|Foreign currency translation adjustment                 |  |                                      | 2,000   |                            |  
|Payments received against officers' notes receivable    |  |                                      |        |                            |  
|Stock warrants revaluation                              |  |                                      |        |                            |  
|Common stock transactions: Sales of common shares       |  |                                      |        |                            |  
|Preferred stock transactions: Preferred stock dividends |  |                                      |        |                            |  
|                                                        |  |                                      |         |                            |  
|Balance at October 28, 2000                             |  | $                                    | (62,000 | )                          | $
|                                                        |  |                                      |         |                            |  

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 used by operating activities:             |                                    |          
|                                                    |                                                                                         | Depreciation and amortization      |          
|                                                    |                                                                                         | Amortization of debt discount      |          
|                                                    |                                                                                         | Minority interests in subsidiaries |          
|                                                    |                                                                                         |                                    |          
|                                                    |                                                                                         |                                    | 2,428,000
|                                                    | Changes in operating assets and liabilities:                                            |                                    |          
|                                                    |                                                                                         | Accounts and notes receivable      |          
|                                                    |                                                                                         | Inventories                        |          
|                                                    |                                                                                         | Prepaid catalog expenses           |          
|                                                    |                                                                                         | Other prepaid expenses             |          
|                                                    |                                                                                         | Accounts payable                   |          
|                                                    |                                                                                         | Accrued expenses                   |          
|                                                    |                                                                                         | Intangibles and other assets       |          
|                                                    |                                                                                         |                                    |          
|Net cash used by operating activities               |                                                                                         |                                    | (38,000  
|                                                    |                                                                                         |                                    |          
|Cash flows from investing activities:               |                                                                                         |                                    |          
|                                                    | Proceeds from notes receivable issued in connection with sale of property and equipment |                                    |          
|                                                    | Proceeds from sale of property and equipment                                            |                                    |          
|                                                    | Purchases of property and equipment                                                     |                                    |          
|                                                    |                                                                                         |                                    |          
|Net cash used in investing activities               |                                                                                         |                                    | (216,000 
|                                                    |                                                                                         |                                    |          
|Cash flows from financing activities:               |                                                                                         |                                    |          
|                                                    | Proceeds from sales of common stock, net                                                |                                    |          
|                                                    | Proceeds from sale of preferred stock                                                   |                                    |          
|                                                    | Proceeds from notes receivable issued to stockholders                                   |                                    |          
|                                                    | Net repayments on revolving credit loan                                                 |                                    |          
|                                                    | Repayments of long-term debt                                                            |                                    |          
|                                                    | Payment of minority interests in subsidiaries                                           |                                    |          
|                                                    |                                                                                         |                                    |          
|Net cash (used in) provided by financing activities |                                                                                         |                                    | (18,000  
|                                                    |                                                                                         |                                    |          
|Net decrease in cash                                |                                                                                         |                                    | (272,000 
|Cash and cash equivalents, beginning of period      |                                                                                         |                                    | 1,239,000
|                                                    |                                                                                         |                                    |          
|Cash and cash equivalents, end of period            |                                                                                         | $                                  | 967,000  
|                                                    |                                                                                         |                                    |          

The
accompanying notes are an integral part of these statements.

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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 proprietary and licensed motivational products. 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), sales to franchisees and wholesale distribution channels. The Company operates a chain of Successories retail stores
located in the United States and Canada. The Company also operates a franchising program whereby it sells franchises to market the Company's products under the Successoriestrademark.

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. Certain prior year amounts have been reclassified to conform with the current year presentation.

The
Company's fiscal year ends on the Saturday closest to January 31. References to the three and nine months ended October 28, 2000 and October 30, 1999, refer
to the thirteen and thirty-nine weeks ended on the dates indicated.

The
results of operations for the nine months ended October 28, 2000 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
January 29, 2000.

NOTE 3. INVENTORIES

Inventories are comprised of the following:

October 28,
2000

January 29,
2000Finished goods

$
5,886,000

$
5,835,000Raw materials


2,703,000


2,487,0008,589,000


8,332,000Less: reserve for obsolescence


(357,000
)

(324,000
)$
8,232,000

$
7,998,000


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NOTE 4. DEBT

Debt consists of the following:

October 28,
2000

January 29,
2000Bank borrowings:Term loan, net of unamortized debt discount of $449,000 and $782,000

$
2,641,000

$
4,133,000Revolving credit loan


233,000


2,119,000Fixed rate loan, net of unamortized debt discount of $143,000 and $200,000


357,000


300,000Capital lease obligations


22,000


72,0003,253,000


6,624,000Less: current portion


(875,000
)

(3,250,000
)Long-term debt

$
2,378,000

$
3,374,000


On
June 20, 1997, the Company entered into a credit facility agreement with The Provident Bank (the "Bank"). Per the agreement, as amended most recently on August 28,
2000, the facility is comprised of a $7.5 million term loan and a revolving credit loan. The revolving credit loan provides for maximum borrowings of $9 million through May 1,
2000, and for each succeeding July 1 through December 31. The maximum borrowings at all other times is $6 million. Borrowings under the revolving credit loan are limited to 85% of
eligible receivables plus 57% of eligible inventory, as defined, provided that from February through April eligible inventory is limited to $5 million through the year 2000 and
$3 million in years thereafter. In addition, from August 2000 through February 2001, the borrowing base is further reduced by $1,500,000 ("Holdback") and in February 2001
shall be released if the amount of Holdback is applied to the scheduled payments of principal of the term loan for the remainder of 2001. A commitment fee of 0.5% is payable on the daily unused amount
of the maximum revolving credit commitment. The facility expires in June 2003, and borrowings under the facility are secured by substantially all the assets of the Company. The interest rates
on the term loan and revolving credit loan borrowings generally fluctuate based on the margin ratio, as defined, from a minimum of prime plus 0.50% to a maximum of prime plus 3.00% on the term loan,
and a minimum of prime to a maximum of prime plus 3.00% on the revolving credit loan. Interest is payable monthly. The interest rate on the term loan was 10.75% and the interest rate on the revolving
credit loan was 10.25% at October 28, 2000. The term loan is payable in quarterly installments of $312,500 through June 1, 2000,
and $375,000 thereafter. Prepayments on the loans are required in certain cases including, among others, equity offerings and asset dispositions. As of October 28, 2000, available borrowings on
the revolving credit loan were $4,267,000. On June 20, 1997, warrants to purchase 150,000 shares of the Company's common stock were issued to the Bank as part of this agreement. Initially these
warrants had exercise prices ranging from $6.19 to $9.73 and expiration dates in June 2001; however, the exercise prices were subsequently adjusted to $2.00 and the expiration dates were
extended to June 2005.

In
July 1997, the agreement for the credit facility was amended to include an additional $500,000 fixed rate loan. The loan bears interest at 12% and is due in
June 2003. Warrants to purchase an additional 72,464 shares of the Company's common stock were issued to the Bank in connection with this amendment and initially had an exercise price of $6.90
and an expiration date of July 2003; however, the exercise price was subsequently adjusted to $2.00 and the expiration date was extended to July 2005.

In
conjunction with the April 28, 1999 amendment to the credit agreement, warrants to purchase an additional 300,000 shares of the Company's Common Stock were issued to the
Bank. Initially those

8

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warrants had exercise prices of $2.50 and an expiration date of July 2005; however, the exercise price was subsequently adjusted to $2.00.

During
the quarter-ended October 28, 2000, pursuant to the terms of the Bank credit agreement, $3,956,000 of the net proceeds from the common stock offering were used to make a
prepayment on the term loan in the amount of $375,000 and the remaining funds were used to pay-down the revolver. For further information on the common stock offering by the Company, see
Note 5.

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 restrictions on the payment of dividends and use of proceeds from certain equity offerings. At October 28, 2000, the Company was in compliance with the debt
covenant requirements of the credit facility agreement.

The
stock warrants issued in conjunction with the credit facility and certain other financing transactions were assigned a fair value using the Black-Scholes option pricing model. The
fair value of the warrants have been reflected as a discount on the debt and are being amortized as interest expense over the
terms of the related debt. Interest expense related to these warrants amounted to $423,000 and $186,000 for the nine months ended October 28, 2000 and October 30, 1999, respectively.

The
weighted average interest rates on cash interest expense for borrowings outstanding as of October 28, 2000 and October 30, 1999 were 10.7% and 10.9%, respectively.

NOTE 5. COMMON STOCK

On October 3, 2000 the Company issued approximately 2,041,581 shares of common stock to its existing stockholders at a price of $2.00 per share,
pursuant to the rights offering as described in form S-3 filed with the Securities and Exchange Commission on August 23, 2000. The net proceeds of the offering were
$3,956,000. The Company used the net proceeds from the offering to make a prepayment on the term loan in the amount of $375,000 and the remaining funds were used to pay-down the revolver.

The
above noted offering includes proceeds from the sale of common stock to the Company's Chairman of the Board of Directors, directors and executive officers, in an aggregate amount
of $3,544,000.

NOTE 6. INCOME TAXES

Realization of the net deferred tax asset is largely dependent upon the Company generating sufficient taxable income prior to the expiration of the net
operating loss carryforwards. However, the amount of such realization could be reduced in the near term if estimates of future taxable income during the carryforward period are changed. To the extent
the net operating loss carryforwards and existing deductible temporary differences are not offset by the existing taxable temporary differences reversing within the carryforward period, the remaining
loss carryforwards are expected to be realized by achieving future profitable operations. Although the Company has incurred a net loss in the past two years and has an accumulated deficit of
$14,029,000 as of October 28, 2000 and realization of the net deferred tax asset is not assured, management believes that it is more likely than not that the net deferred tax asset will be
realized.

9

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NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION

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

|                                             |                                                         | Nine Months Ended
|-------------------------------------------- | ------------------------------------------------------- | -----------------
|
|Cash paid during the period for:             |                                                         |                  
|                                             | Income taxes                                            |                  
|                                             | Interest                                                |                  
|Non-Cash investing and financing activities: |                                                         |                  
|                                             | Preferred stock dividends paid in common stock issuance |                  
|                                             | Revaluation of stock warrants                           |                  

NOTE 8. INCOME/(LOSS) PER SHARE

The computations of basic and diluted income/(loss) per share were as follows:

|                                                           |                                                                                                                  | Three Months Ended |   | Nine Months Ended | 
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------ | - | ----------------- | 
|
|Numerator for basic and diluted
income/(loss) per share:   |                                                                                                                  |                    |   |                   | 
|                                                           | Net income/(loss)                                                                                                |                    | $ | 332,000           | 
|                                                           | Less: Preferred stock dividends                                                                                  |                    |   | 55,000            | 
|                                                           |                                                                                                                  |                    |   |                   | 
|                                                           | Numerator for basic income/(loss) per share                                                                      |                    | $ | 277,000           | 
|                                                           |                                                                                                                  |                    |   |                   | 
|                                                           | Effect of dilutive securities:                                                                                   |                    |   |                   | 
|                                                           | Preferred stock dividends                                                                                        |                    |   | 55,000            | 
|                                                           |                                                                                                                  |                    |   |                   | 
|                                                           | Numerator for diluted income/(loss) per share                                                                    |                    |   | 332,000           | 
|                                                           |                                                                                                                  |                    |   |                   | 
|Denominator for basic and diluted
income/(loss) per share: |                                                                                                                  |                    |   |                   | 
|                                                           | Denominator for basic income(loss) per share  weighted average common stock shares                              |                    |   | 7,577,000         | 
|                                                           |                                                                                                                  |                    |   |                   | 
|                                                           | Effect of dilutive securities:                                                                                   |                    |   |                   | 
|                                                           | Convertible preferred stock                                                                                      |                    |   | 1,149,000         | 
|                                                           |                                                                                                                  |                    |   |                   | 
|                                                           | Denominator for diluted income/(loss) per share  weighted average common stock shares after assumed conversions |                    |   | 8,726,000         | 
|                                                           |                                                                                                                  |                    |   |                   | 
|Income/(loss) per share:                                   |                                                                                                                  |                    |   |                   | 
|                                                           | Basic income/(loss) per share                                                                                    |                    | $ | 0.04              | 
|                                                           |                                                                                                                  |                    |   |                   | 
|                                                           | Diluted income/(loss) per share                                                                                  |                    | $ | 0.04              | 
|                                                           |                                                                                                                  |                    |   |                   | 

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Stock
options and warrants outstanding for the three month period-ended October 28, 2000 were not included in the computation of the diluted income/(loss) per share, as the
options and warrants exercise price was greater than the average market price of the common stock.

10

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NOTE 9. 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. The Company has five reportable segmentsDirect
MarketingSuccessories, Direct MarketingGolf, Retail Company-owned stores, Wholesale and Sales to Franchisees.

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) and income taxes.

11

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Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" 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
October 28, 2000: |              |           |            |                       |   |              |            |                      |            |                              
|Direct MarketingSuccessories         |              | $         | 7,877,000  |                       | $ | 1,652,000    |            | $                    | 3,522,000  |                              
|Direct Marketing Golf                |              |           | 11,000     |                       |   | 17,000       |            |                      | 262,000    |                              
|Retail Company-owned stores          |              |           | 2,298,000  |                       |   | (153,000     | )          |                      | 3,903,000  |                              
|Wholesale                            |              |           | 99,000     |                       |   | 81,000       |            |                      | 20,000     |                              
|Sales to Franchisees                 |              |           | 2,496,000  |                       |   | 695,000      |            |                      | 2,741,000  |                              
|Other                                |              |           |           |                       |   | (1,960,000   | )          |                      | 19,355,000 |                              
|                                     |              |           |            |                       |   |              |            |                      |            |                              
|                                     | CONSOLIDATED |           | $          | 12,781,000            |   | $            | 332,000    |                      | $          | 29,803,000                   
|                                    
|Three Months Ended
October 30, 1999: |              |           |            |                       |   |              |            |                      |            |                              
|Direct MarketingSuccessories         |              | $         | 6,426,000  |                       | $ | 1,588,000    |            | $                    | 4,443,000  |                              
|Direct Marketing Golf                |              |           | 246,000    |                       |   | 2,000        |            |                      | 722,000    |                              
|Retail Company-owned stores          |              |           | 2,787,000  |                       |   | (252,000     | )          |                      | 5,401,000  |                              
|Wholesale                            |              |           | 183,000    |                       |   | (286,000     | )          |                      | 428,000    |                              
|Sales to Franchisees                 |              |           | 2,383,000  |                       |   | 614,000      |            |                      | 1,091,000  |                              
|Other                                |              |           |           |                       |   | (2,058,000   | )          |                      | 21,861,000 |                              
|                                     |              |           |            |                       |   |              |            |                      |            |                              
|                                     | CONSOLIDATED |           | $          | 12,025,000            |   | $            | (392,000   | )                    | $          | 33,946,000                   
|                                    
|Nine Months Ended
October 28, 2000:  |              |           |            |                       |   |              |            |                      |            |                              
|Direct MarketingSuccessories         |              | $         | 24,061,000 |                       | $ | 3,893,000    |            | $                    | 3,522,000  |                              
|Direct Marketing Golf                |              |           | 96,000     |                       |   | 59,000       |            |                      | 262,000    |                              
|Retail Company-owned stores          |              |           | 7,249,000  |                       |   | 36,000       |            |                      | 3,903,000  |                              
|Wholesale                            |              |           | 338,000    |                       |   | 135,000      |            |                      | 20,000     |                              
|Sales to Franchisees                 |              |           | 4,836,000  |                       |   | 1,131,000    |            |                      | 2,741,000  |                              
|Other                                |              |           |           |                       |   | (5,555,000   | )          |                      | 19,355,000 |                              
|                                     |              |           |            |                       |   |              |            |                      |            |                              
|                                     | CONSOLIDATED |           | $          | 36,580,000            |   | $            | (301,000   | )                    | $          | 29,803,000                   
|                                    
|Nine Months Ended
October 30, 1999:  |              |           |            |                       |   |              |            |                      |            |                              
|Direct MarketingSuccessories         |              | $         | 20,352,000 |                       | $ | 3,678,000    |            | $                    | 4,443,000  |                              
|Direct Marketing Golf                |              |           | 956,000    |                       |   | 106,000      |            |                      | 722,000    |                              
|Retail Company-owned stores          |              |           | 8,955,000  |                       |   | (504,000     | )          |                      | 5,401,000  |                              
|Wholesale                            |              |           | 775,000    |                       |   | (341,000     | )          |                      | 428,000    |                              
|Sales to Franchisees                 |              |           | 4,652,000  |                       |   | 1,123,000    |            |                      | 1,091,000  |                              
|Other                                |              |           |           |                       |   | (5,780,000   | )          |                      | 21,861,000 |                              
|                                     |              |           |            |                       |   |              |            |                      |            |                              
|                                     | CONSOLIDATED |           | $          | 35,690,000            |   | $            | (1,718,000 | )                    | $          | 33,946,000                   

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 above table. Assets identified to the reportable segments are primarily cash, receivables, inventory, prepaid catalog expenses, property and equipment, and intangibles.

12

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The following table presents the details for "Other":

|                                                  |  | Three Months Ended |           | Nine Months Ended
|------------------------------------------------- |  | ------------------ | --------- | -----------------
|
|Other expense (income):                           |  |                    |           |                  
|Contract framing, net income                      |  | $                  | (88,000   | )                
|Corporate expenses                                |  |                    | 1,051,000 |                  
|Unallocated depreciation and amortization expense |  |                    | 521,000   |                  
|Other expenses                                    |  |                    | 476,000   |                  
|                                                  |  |                    |           |                  
|                                                  |  | $                  | 1,960,000 |                  
|                                                  |  |                    |           |                  

Corporate
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 and casualty insurance (excluding workman's comp).

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

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. At October 28, 2000 and October 30, 1999, sales by product categories comprised of approximately 47% and 48% wall decor, 21% and 19%
desktop accessories, 17% and 18% books and stationery, 13% and 12% personalized gifts and awards, and 2% and 3% other products, respectively.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Matters

In May 1998, Wascher Corporation ("Wascher"), a franchisee of the Company, filed a Demand for Arbitration dated May 26, 1998 with the American
Arbitration Association (Case No. 51-114-00227-98). Wascher alleges the following causes of action against the Company: breach of contract, breach of good
faith and fair dealing, common law fraud, unfair competition, Robinson-Patman Act violation, tortious interference with contract and violation of the Wisconsin Fair Dealership Act. In support thereof,
Wascher alleges that the Company has not followed its agreement with Wascher or observed reasonable commercial standards and good business practices. Wascher alleges and seeks an award in an amount in
excess of $250,000 plus costs, disbursements and attorney's fees, an award of both treble and punitive damages, and such other relief deemed just and equitable. If a settlement is not reached with
Wascher, the Company intends to vigorously defend itself against the claims. Given the phase of this proceeding, the Company has determined that a reasonable assessment with respect to the financial
impact, if any, cannot be made at this point in time.

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

13

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NOTE 11. NEW ACCOUNTING PRONOUNCEMENT

The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (hereinafter referred to as Statement) which will be applicable to the Company beginning on February 4, 2001. Under this Statement, all derivative instruments will be
recorded at their fair values. If the derivative instruments are designated as hedges of fair values, both the change in the fair value of the hedge and the hedged item will be included in current
earnings. Fair value adjustments related to cash flow hedges will be recorded in other comprehensive income and reclassified to earnings when hedged transaction is reflected in earnings. Ineffective
portions of hedges are reflected in income currently. The Company does not expect this Statement will have a significant impact on its financial statements since it currently does not use derivative
instruments in its business.

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
is a direct mail catalog company, specialty retailer and wholesaler that designs, assembles and markets a diverse range of motivational and self-improvement
products, many of which are the Company's own proprietary designs. 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. In-house designers create proprietary art work and 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 (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 the United States.

For
the three and nine months ended October 28, 2000 and October 30, 1999, 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 |  | 61.6               | % | 53.5              | %
|Direct marketingGolf         |  | 0.1                | % | 2.0               | %
|Retail Company-owned stores   |  | 18.0               | % | 23.2              | %
|Wholesale distribution        |  | 0.8                | % | 1.5               | %
|Sales to franchisees          |  | 19.5               | % | 19.8              | %

The
gross profit margins for direct marketing and retail vary due to differences in product mix and volume discounts taken by customers based on order size. The gross profit margin
for wholesale distribution sales and sales to franchisees is lower than the other channels since these sales are generally made at a significant discount from retail price.

14

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RESULTS OF OPERATIONS

The following table sets forth the results of operations for the three months and nine months ended October 28, 2000 and October 30, 1999.

|                                  |  | Three Months Ended |        | Increase (Decrease) |      
|--------------------------------- |  | ------------------ | ------ | ------------------- | -----
|
|
|
|Net product sales                 |  | $                  | 12,781 |                     | 100.0
|Cost of goods sold                |  |                    | 6,291  |                     | 49.2 
|                                  |  |                    |        |                     |      
|Gross profit on product sales     |  |                    | 6,490  |                     | 50.8 
|Contract framing, net income      |  |                    | 88     |                     | 0.7  
|Fees, royalties and other income  |  |                    | 343    |                     | 2.7  
|                                  |  |                    |        |                     |      
|Gross margin                      |  |                    | 6,921  |                     | 54.2 
|Operating expenses                |  |                    | 6,113  |                     | 47.8 
|                                  |  |                    |        |                     |      
|Income from operations            |  |                    | 808    |                     | 6.4  
|Interest and other expenses       |  |                    | 476    |                     | 3.7  
|                                  |  |                    |        |                     |      
|Income (loss) before income taxes |  |                    | 332    |                     | 2.7  
|Income tax expense                |  |                    |       |                     |     
|                                  |  |                    |        |                     |      
|Net income (loss)                 |  | $                  | 332    |                     | 2.7  
|                                  |  |                    |        |                     |      

|                                 |  | Nine Months Ended |        | Increase (Decrease) |      
|-------------------------------- |  | ----------------- | ------ | ------------------- | -----
|
|
|
|Net product sales                |  | $                 | 36,580 |                     | 100.0
|Cost of goods sold               |  |                   | 16,653 |                     | 45.5 
|                                 |  |                   |        |                     |      
|Gross profit on product sales    |  |                   | 19,927 |                     | 54.5 
|Contract framing, net income     |  |                   | 306    |                     | 0.8  
|Fees, royalties and other income |  |                   | 833    |                     | 2.3  
|                                 |  |                   |        |                     |      
|Gross margin                     |  |                   | 21,066 |                     | 57.6 
|Operating expenses               |  |                   | 20,218 |                     | 55.3 
|                                 |  |                   |        |                     |      
|Income (loss) from operations    |  |                   | 848    |                     | 2.3  
|Interest and other expenses      |  |                   | 1,149  |                     | 3.1  
|                                 |  |                   |        |                     |      
|(Loss) before income taxes       |  |                   | (301   | )                   | (0.8 
|Income tax expense               |  |                   |       |                     |     
|                                 |  |                   |        |                     |      
|Net (loss)                       |  | $                 | (301   | )                   | (0.8 
|                                 |  |                   |        |                     |      

Three Months Ended October 28, 2000, Compared To Three Months Ended October 30, 1999

Net product sales were $12,781,000 for the three months ended October 28, 2000 (third quarter 2000), compared to $12,025,000 for the corresponding three
months ended October 30, 1999 (third quarter 1999). The $756,000 or 6.3% increase in sales was comprised of $1,451,000 or 22.6% in direct
marketing-Successories, $113,000 or 4.8% in sales to franchisees and $124,000 or 6.2% in comparable retail Company-owned store sales, offset by a
decrease of $613,000 or 77.3% in non-comparable retail Company-owned store sales, $235,000 or 95.5% in direct marketinggolf and $84,000 or 45.9% in wholesale sales.

15

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The 22.6% increase in direct marketing-Successoriessales was attributable to the continued refinement of the catalog circulation
strategy and an increase in page count in the current year. Internet sales which are included in the direct marketing-Successorieschannel were 17.3% of
the direct marketing-domestic sales for the third quarter 2000. Customer interest in the website has steadily increased from the prior year and the Company believes the internet offers a significant
marketing and sales opportunity. The increase in sales to franchisees can be primarily attributed to planned early fulfillment of holiday orders in the third quarter versus the fourth quarter in 2000,
in comparison to 1999. The 6.2% increase in comparable same store sales for the Company-owned retail stores reflects a continued improvement in store operations management. In addition, enhanced
merchandising and new product introductions in the current year third quarter 2000 also attributed to the increase in net product sales in the above noted channels. The non-comparable
retail Company-owned store sales declined due to eight fewer stores in operation in the current year. The decrease in direct marketing golf and wholesale sales in the current year third quarter 2000
can be attributed to the discontinuation of the golf catalog and the planned reduction in the scope of wholesale business.

Gross
margin increased in the third quarter 2000 to $6,921,000 from $6,616,000 in the third quarter 1999. The improvement in gross margin can be primarily attributed to the increase
in net product sales, contract framing net income, and an increase in list rental income. Gross margin, as a percentage of net product sales, was 54.2% for the third quarter 2000 in comparison to
55.0% in the third quarter 1999. The slight decline in the gross margin percentage is the result of additional clearance merchandise related promotional activity in the current year third quarter
2000.

Operating
expenses, as a percentage of net product sales, improved in the third quarter 2000 to 47.8% from 54.5% in the third quarter 1999, as a result of streamlining the operations.
Operating expenses decreased in the third quarter 2000 to $6,113,000 from $6,556,000 in the third quarter 1999 as a result of fewer stores in operation, a reduction in the scope of wholesale business,
discontinuation of direct
marketing-golf catalog, offset by an increase in expenses in the direct marketing-Successorieschannel related to additional catalog
advertising and investment in the internet. Overall operating expenses decreased in dollars and as a percentage of net product sales, even though, net product sales increased in the third quarter 2000
in comparison to the third quarter 1999.

Interest
expense was $442,000 for the third quarter 2000, compared to $419,000 for the third quarter 1999. Included in interest expense is a non-cash expense for the
amortization of the debt discount associated with the stock warrants issued in conjunction with the bank credit agreement. The non-cash interest expense increased to $273,000 in the third
quarter 2000 from $72,000 in the third quarter 1999, as a result of the acceleration of debt discount amortization due to the pre-payment of certain bank debt using the proceeds from the
recent common stock offering. Cash interest expense declined in the third quarter 2000 in comparison to the third quarter 1999 by $178,000, due to a decrease in outstanding debt balance.

The
net income for the third quarter 2000 was $332,000 in comparison to a net loss of $392,000 in the third quarter 1999, which represents a 184.7% improvement. The significant
improvement in the operating results is primarily the result of the increase in net product sales and correlated gross margin, and the reduction in the operating expenses through better management of
the business.

Nine Months Ended October 28, 2000, Compared to Nine Months Ended October 30, 1999

Net product sales were $36,580,000 for the nine months ended October 28, 2000 (current year), compared to $35,690,000 for the corresponding nine months
ended October 30, 1999 (prior year). The $890,000 or 2.5% increase in sales is comprised of an increase of $3,709,000 or 18.2% in direct
marketing-Successories,$184,000 or 3.9% in sales to franchisees, and $410,000 or 6.6% in comparable retail Company-owned store sales, offset by a
decrease of $2,116,000 or 77.4% in non-comparable retail

16

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Company-owned stores sales, $860,000 or 89.9% in direct marketing-golf, and $437,000 or 56.4% in wholesale sales.

Gross
margin increased in the current year to $21,066,000 from $20,213,000 in the prior year. The increase in gross margin can be primarily attributed to the increase in net product
sales, net income from contract framing operations, and an increase in licensing and list rental income. Contract framing, undertaken in earnest in the current year, consists of the framing of third
party products on a fee basis.
These operations not only contribute to the gross margin but also allow better utilization of personnel and facilities during the Company's seasonally slower production periods. Gross margin, as a
percentage of net product sales, was 57.6% for the nine months ended October 28, 2000 compared to 56.6% for the corresponding nine months ended October 30, 1999.

Operating
expenses decreased for the nine months ended October 28, 2000 to $20,218,000 from $20,767,000 for the nine months ended October 30, 1999. Operating expenses,
as a percentage of net product sales, was 55.3% in the current year compared to 58.2% in the prior year. The decrease in operating expenses is the result of eight fewer stores in operation, reduction
in the scope of wholesale business and discontinuation of direct marketing-golf catalog, offset by an increase in expenses in the direct
marketing-Successorieschannel related to additional catalog advertising and investment in the internet. Overall operating expenses decreased in dollars
and as a percentage of net product sales, even though, net product sales increased in the current year in comparison to the prior year.

Interest
expense was $1,000,000 for the nine months ended October 28, 2000, compared to $1,115,000 for the nine months ended October 30, 1999. Included in interest
expense is the amortization of the debt discount which is a non-cash expense. The non-cash interest expense amounted to $423,000 and $186,000 for the nine months ended
October 28, 2000 and October 30, 1999, respectively. The increase in the non-cash interest expense can be attributed to the acceleration of the debt discount amortization in
the third quarter of the current year. The cash interest expense decreased by $341,000 in the current year due to lower outstanding debt balance and interest rates, in comparison to the prior year.

The
net loss of $301,000 for the nine months ended October 28, 2000 was less than the net loss of $1,718,000 for the nine months ended October 30, 1999. As a percentage
of net product sales, the net loss decreased to 0.8% for the nine months ended October 28, 2000 as compared to a net loss of 4.8% for the nine months ended October 30,1999. The
significant improvement in net loss is primarily the result of an increase in net product sales and correlated gross margin, contract framing net income and reduction in the operating expenses through
better management of the business.

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 the revolving credit loan, to fund its cash requirements.

Operating
activities used cash of $38,000 for the nine months ended October 28, 2000, compared to $931,000 for the nine months ended October 30, 1999. The improvement in
cash flows from operating activities can be primarily attributable to a decrease in the net loss, offset by changes in accounts receivable, inventory, accounts payable and accrued expense balances.
The significant improvement in the operating results, as stated above, is the result of increase in net product sales and correlated gross margin, and the reduction in the operating expenses through
streamlining of the business.

Investing
activities used cash of $216,000 for the nine months ended October 28, 2000, compared to $435,000 for the nine months ended October 30, 1999. The principal use
of cash in investing activities was capital expenditures. In the current year, the Company expended funds primarily for

17

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upgrade and additional purchases of computer and machinery equipment. And in the prior year, the Company expended funds to open a new Company-owned store and upgrade its equipment to address the year
2000 compliance needs. The Company's credit facility limits capital expenditures to $1 million for the fiscal year.

Financing
activities used cash of $18,000 for the nine months ended October 28, 2000, compared to cash provided of $748,000 for the nine months ended October 30, 1999.
Proceeds from the sale of common stock issuance in the current year and preferred stock issuance in the prior year, and borrowings on the revolver were the principal sources of cash. Scheduled debt
repayments and prepayments, pursuant to the terms of the bank credit agreement, were the principal uses of cash. The equity infusion in the current and prior year has helped reduce the Company's debt
and correlated interest expense, increased the working capital available for investing in the growth of the business and improved the overall debt to equity positioning of the Company.

On
June 20, 1997, the Company entered into a credit facility agreement with The Provident Bank (the "Bank"). Per the agreement, as amended most recently on August 28,
2000, the facility is comprised of a $7.5 million term loan and a revolving credit loan. The revolving credit loan provides for maximum borrowings of $9 million through May 1,
2000 and for each succeeding July 1 through December 31. The maximum borrowings at all other times is $6 million. Borrowings under the revolving credit loan are limited to 85% of
eligible receivables plus 57% of eligible inventory, as defined, provided that from February through April eligible inventory is limited to $5 million through the year 2000 and
$3 million in years thereafter. In addition, from August 2000 through February 2001, the borrowing base is further reduced by $1,500,000 ("Holdback") and in February 2001
shall be released if the amount of the Holdback is applied to the scheduled payments of principal on the term loan for the remainder of 2001. A commitment fee of 0.5% is payable on the daily unused
amount of the maximum revolving credit commitment. The facility expires in June 2003, and borrowings under the facility are secured by substantially all the assets of the Company. The interest
rates on the term loan and revolving credit
loan borrowings generally fluctuate based on the margin ratio, as defined, from a minimum of prime plus 0.50% to a maximum of prime plus 3.00% on the term loan, and a minimum of prime to a maximum of
prime plus 3.00% on the revolving credit loan. Interest is payable monthly. The interest rate on the term loan was 10.75% and the interest rate on the revolving credit loan was 10.25% at
October 28, 2000. The term loan is payable in quarterly installments of $312,500 through June 1, 2000, and $375,000 thereafter. Prepayments on the loans are required in certain cases
including, among others, equity offerings and asset dispositions. As of October 28, 2000, available borrowings on the revolving credit loan were $4,267,000. In July 1997, the agreement
for the credit facility was amended to include an additional $500,000 fixed rate loan. The loan bears interest at 12% and is due in June 2003.

The
credit facility also contains, among other provisions, requirements for maintaining certain earning levels and financial ratios, limits on capital expenditures and additional
indebtedness, and restrictions on the payment of dividends and use of proceeds from certain equity offerings. At October 28, 2000, the Company was in compliance with the debt covenant
requirements of the credit facility agreement.

The
Company believes that internally generated funds and the credit facility will be sufficient to meet its current operating needs, fund debt service and make anticipated capital
expenditures.

SEASONALITY

The Company generally experiences peak sales in the fourth quarter of its fiscal year (November through January) due to the holiday season. The effects of
seasonality are greater in the Company's retail operations than the other segments of its business. Most operating expenses are incurred evenly throughout the year, although some selling and
administrative expenses are variable depending on

18

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sales, and direct marketing catalog advertising expenses as a percentage of sales are higher in the first calendar quarter. The Company's quarterly operating results may also vary depending upon such
factors as converting Company-owned stores to franchise stores, catalog mailings, and the timing of new product introductions and promotions by the Company. The Company's cash requirements generally
reach a seasonal peak in the second half of the year to finance increased inventory levels needed to meet 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 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, programs to reduce the Company's costs and enhance asset utilization, the Company's generation of funds
sufficient to meet its current operating needs and to fund anticipated capital expenditures, 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. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on such statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to market risk associated with adverse changes in interest rate and foreign currency exchange rates, but does not hold any market risk
sensitive instruments for trading purposes. The Company uses both fixed and variable rate debt, as described in Note 4 of the Notes to Consolidated Financial Statements. Principal exposed to
interest rate risk is limited to $3,323,000 in variable rate debt. The impact of a 1% change in interest rates on the variable rate debt is approximately $33,000. 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 accounts, and the existing economic uncertainty and future economic conditions in the international marketplace.

19

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## 

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In May 1998, Wascher Corporation ("Wascher"), a franchisee of the Company, filed a Demand for Arbitration dated May 26, 1998 with the American
Arbitration Association (Case No. 51-114-00227-98). Wascher alleges the following causes of action against the Company: breach of contract, breach of good
faith and fair dealing, common law fraud, unfair competition, Robinson-Patman Act violation, tortious interference with contract and violation of the Wisconsin Fair Dealership Act. In support thereof,
Wascher alleges that the Company has not followed its agreement with Wascher or observed reasonable commercial standards and good business practices. Wascher alleges and seeks an award in an amount in
excess of $250,000 plus costs, disbursements and attorney's fees, an award of both treble and punitive damages, and such other relief deemed just and equitable. If a settlement is not reached with
Wascher, the Company intends to vigorously defend itself against the claims. Given the phase of this proceeding, the Company has determined that a reasonable assessment with respect to the financial
impact, if any, cannot be made at this point in time.

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



20

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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 8, 2000 |  | By:                           
|Date: December 8, 2000 |  | By:                           

21

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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 (21)                                                                                                                                                                                                                                                          
|3.3         |     | By-laws of Registrant (1)                                                                                                                                                                                                                                                                                                                         
|3.4         |     | Amended and Restated Certificate of Designation of Series A and Series B Convertible Preferred Stock (19)                                                                                                                                                                                                                                         
|4.1         |     | Specimen Common Stock Certificate (18)                                                                                                                                                                                                                                                                                                            
|4.2         |     | Specimen Series A Cumulative Convertible Preferred Stock Certificate (20)                                                                                                                                                                                                                                                                         
|4.3         |     | Specimen Series B Cumulative Convertible Preferred Stock Certificate (20)                                                                                                                                                                                                                                                                         
|10.1        |     | Form of Franchising Agreement (18)                                                                                                                                                                                                                                                                                                                
|10.2        |     | Stock Option Instrument for Arnold M. Anderson dated November 19, 1991 (1)*                                                                                                                                                                                                                                                                       
|10.3        |     | Celex Group, Inc. Stock Option Plan (1)                                                                                                                                                                                                                                                                                                           
|10.4        |     | Joint Venture Agreement with Morrison DFW, Inc. and related documents (4)                                                                                                                                                                                                                                                                         
|10.5        |     | Indemnification Agreement dated April 7, 1999 between the Company and Arnold M. Anderson (17)*                                                                                                                                                                                                                                                    
|            |     | 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, Lawrence A. Hodges, and Leslie Nathanson Juris.
|10.6        |     | Form of Subordinated Note, Common Stock Purchase Warrant and Subordination Agreement relating to issuance of $1,500,000 Subordinated Notes and Warrants to purchase 120,000 shares of the Company's Common Stock (9)                                                                                                                              
|10.7        |     | Common Stock Option Agreement granted to Arnold M. Anderson and Incentive Stock Option Agreement granted to Arnold M. Anderson (9)*                                                                                                                                                                                                               
|10.8        | (a) | Employment Agreement with Arnold M. Anderson dated March 1, 1996 (10)*                                                                                                                                                                                                                                                                            
|10.8        | (b) | Employment Agreement with Arnold M. Anderson dated January 14, 1997 (21)*                                                                                                                                                                                                                                                                         
|10.8        | (c) | Addendum to Employment Agreement with Arnold M. Anderson dated February 16, 2000 (21)*                                                                                                                                                                                                                                                            
|10.9        |     | Employment Agreement with Michael H. McKee dated June 1, 1999 (18)*                                                                                                                                                                                                                                                                               
|10.10       |     | Form of Subordinated Note Extensions, Stock Options and Subordination Agreement relating to the extension of $1,250,000 of Subordinated Notes, and options to purchase 125,000 shares of the Company's Common Stock (2)                                                                                                                           
|10.11       |     | Credit Agreement between the Company and The Provident Bank dated as of June 20, 1997 (13)                                                                                                                                                                                                                                                        
|10.12       |     | First Amendment to Credit Agreement between the Company and The Provident Bank dated as of July 16, 1997 (13)                                                                                                                                                                                                                                     
|10.13       |     | Lease Agreement between LaSalle National Trust, N.A. as Trustee under Trust No. 120358 and Celex Group, Inc. (14)                                                                                                                                                                                                                                 
|10.14       |     | Second Amendment to Credit Agreement between the Company and The Provident Bank dated as of May 14, 1998 (14)                                                                                                                                                                                                                                     
|10.15       |     | Third Amendment to Credit Agreement between the Company and The Provident Bank dated as of September 1, 1998 (15)                                                                                                                                                                                                                                 

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|10.16 |  | Employment Agreement with Gary Rovansek dated October 29, 1998 (15)*                                                       
|----- |  | ---------------------------------------------------------------------------------------------------------------------------
|10.17 |  | Fourth Amendment to Credit Agreement between the Company and The Provident Bank dated as of April 28, 1999 (17)            
|10.18 |  | Warrants to Purchase Common Stock of the Company granted to The Provident Bank dated as of April 29, 1999 (17)             
|10.19 |  | Preferred Stock Purchase Agreement, dated as of May 28, 1999, by and among the Company and the investors (16)              
|10.20 |  | Registration Rights Agreement, dated as of May 28, 1999, by and among the Company and the investors (16)                   
|10.21 |  | Preferred Stock Purchase Agreement, dated as of October 18, 1999, by and among the Company and the investors (19)          
|10.22 |  | Registration Rights Agreement, dated as of October 18, 1999, by and among the Company and the investors (19)               
|10.23 |  | Fifth Amendment to Credit Agreement between the Company and The Provident Bank dated as of April 6, 2000 (22)              
|10.24 |  | Sixth Amendment to Credit Agreement between the Company and The Provident Bank dated as of August 28, 2000 (filed herewith)
|21.1  |  | Subsidiaries of the Registrant (4)                                                                                         
|27.1  |  | Financial Data Schedule (filed herewith)                                                                                   

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|(1)  |  | Previously filed with the Company's Registration Statement on Form SB-2, No. 33-76530C filed on August 17, 1993, and incorporated herein by reference.                                       
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  |  | Previously filed with the Company's Registration Statement of Form S-3, No. 333-19313, and incorporated herein by reference.                                                                 
|(3)  |  | Previously filed with the Company's Post-effective Amendment No. 1 to the Registration Statement of Form SB-2, No. 33-67530C filed on January 19, 1994, and incorporated herein by reference.
|(4)  |  | Previously filed with the Company's Annual Report on Form 10-K for the year ended April 30, 1994, and incorporated herein by reference.                                                      
|(5)  |  | Previously filed with the Company's Form 10-Q/A-1 for the quarter ended July 31, 1995, and incorporated herein by reference.                                                                 
|(6)  |  | Previously filed with the Company's Current Report on Form 8-K filed on June 7, 1995, reporting date of event May 26, 1995, and incorporated herein by reference.                            
|(7)  |  | Previously filed with the Company's Annual Report on Form 10-K for the year ended April 30, 1995, and incorporated herein by reference.                                                      
|(8)  |  | Previously filed with the Company's Form 10-Q Report for the quarter ended October 28, 1995, and incorporated herein by reference.                                                           
|(9)  |  | Previously filed with the Company's Annual Report on Form 10-K for the year ended February 3, 1996, and incorporated herein by reference.                                                    
|(10) |  | Previously filed with the Company's Form 10-Q Report for the quarter ended August 3, 1996, and incorporated herein by reference.                                                             
|(11) |  | Previously filed with the Company's Form 10-Q Report for the quarter ended November 2, 1996, and incorporated herein by reference.                                                           

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|(12) |  | Previously filed with the Company's Annual Report on Form 10-K for the year ended February 1, 1997, and incorporated herein by reference.                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13) |  | Previously filed with the Company's Form 10-Q Report for the quarter ended August 2, 1997, and incorporated herein by reference.                                         
|(14) |  | Previously filed with the Company's Form 10-Q Report for the quarter ended May 2, 1998, and incorporated herein by reference.                                            
|(15) |  | Previously filed with the Company's Form 10-Q Report for the quarter ended October 31, 1998, and incorporated herein by reference.                                       
|(16) |  | Previously filed with the Company's Current Report on Form 8-K filed on June 10, 1999, reporting date of event June 7, 1999, and incorporated herein by reference.       
|(17) |  | Previously filed with the Company's Form 10-Q Report for the quarter ended May 1, 1999, and incorporated herein by reference.                                            
|(18) |  | Previously filed with the Company's Form 10-Q Report for the quarter ended July 31, 1999, and incorporated herein by reference.                                          
|(19) |  | Previously filed with the Company's Current Report on Form 8-K filed on November 4, 1999, reporting date of event October 18, 1999, and incorporated herein by reference.
|(20) |  | Previously filed with the Company's Form 10-Q Report for the Quarter ended October 30, 1999, and incorporated herein by reference.                                       
|(21) |  | Previously filed with the Company's Annual Report on Form 10-K for the year ended January 29, 2000, and incorporated herein by reference.                                
|(22) |  | Previously filed with the Company's Form 10-Q Report for the Quarter ended April 29, 2000, and incorporated herein by reference.                                         

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